Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Akamai Technologies, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Akamai Technologies, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the Company not designing and maintaining effective controls over the adoption of new accounting standards related to income taxes.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management's Annual Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for convertible instruments in 2022.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based

on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of Customer-Related Intangible Assets and Completed Technologies Intangible Assets - Acquisition of Linode Limited Liability Company

As described in Notes 2 and 8 to the consolidated financial statements, in March 2022, the Company acquired Linode Limited Liability Company (“Linode”) for $898.5 million in cash, which resulted in customer-related intangible assets of $84.2 million and completed technologies intangible assets of $70.9 million being recorded. Management applied the multi-period excess earnings method under the income approach to estimate the fair value of the customer-related intangible assets acquired and the relief-from-royalty method to estimate the fair value of the completed technologies intangible assets acquired. Significant judgment is used by management in estimating the fair values of acquired intangible assets, which involved significant estimates and assumptions with respect to forecasted revenue growth rates, forecasted cost of sales, operating expenses, contributory asset charges and the discount rate.

The principal considerations for our determination that performing procedures relating to the valuation of customer-related intangible assets and completed technologies intangible assets acquired in connection with the Linode acquisition is a critical audit matter are (i) the significant judgment by management when determining the fair value of the customer-related intangible assets and completed technologies intangible assets acquired; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue growth rates and the discount rate for the completed technologies intangible assets and forecasted cost of sales, operating expenses, contributory asset charges and the discount rate for the customer-related intangible assets; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the customer-related intangible assets and completed technologies intangible assets and controls over the development of significant assumptions related to forecasted cost of sales, operating expenses, contributory asset charges and the discount rate for the customer-related intangible assets and forecasted revenue growth rates and the discount rate for the completed technologies intangible assets. These procedures also included, among others, (i) reading the purchase agreement; (ii) testing management’s process for determining the fair value of the customer-related intangible assets and completed technologies intangible assets; (iii) evaluating the appropriateness of the multi-period excess earnings method under the income approach for the customer-related intangibles assets and the relief-from-royalty method for the completed technologies intangible assets; (iv) testing the completeness and accuracy of the underlying

data used in the methods; and (v) evaluating the reasonableness of the significant assumptions used by management related to forecasted cost of sales, operating expenses, contributory asset charges and the discount rate for the customer-related intangible assets and forecasted revenue growth rates and the discount rate for the completed technologies intangible assets. Evaluating management’s significant assumptions related to forecasted cost of sales, operating expenses and contributory asset charges for the customer-related intangible assets and forecasted revenue growth rates for the completed technologies intangible assets involved evaluating whether the significant assumptions used by management were reasonable considering (i) the current and past performance of Linode; (ii) consistency with external market and industry data; and (iii) whether these significant assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the Company’s multi-period excess earnings method under the income approach, relief-from-royalty method and the reasonableness of the discount rate assumptions.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 28, 2023

We have served as the Company’s auditor since 1998.

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)			December 31, 2022						December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents			$	542,337					$	536,725
Marketable securities			562,979						541,470
Accounts receivable, net of reserves of $5,917 and $1,397 at December 31, 2022 and 2021, respectively			679,206						675,926
Prepaid expenses and other current assets			185,040						166,313
Total current assets			1,969,562						1,920,434
Marketable securities			320,531						1,088,048
Property and equipment, net			1,540,182						1,534,329
Operating lease right-of-use assets			813,372						815,754
Acquired intangible assets, net			441,716						313,225
Goodwill			2,763,838						2,156,254
Deferred income tax assets			337,677						168,342
Other assets			116,522						142,287
Total assets			$	8,303,400					$	8,138,673
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	145,420					$	109,928
Accrued expenses			367,017						411,590
Deferred revenue			105,109						86,517
Operating lease liabilities			196,094						175,683
Other current liabilities			5,228						6,623
Total current liabilities			818,868						790,341
Deferred revenue			22,117						25,342
Deferred income tax liabilities			18,400						40,974
Convertible senior notes			2,285,258						1,976,167
Operating lease liabilities			693,265						707,087
Other liabilities			105,305						68,748
Total liabilities			3,943,213						3,608,659
Commitments and contingencies (Note 13)
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; 156,494,816 and 160,512,111 shares issued and outstanding at December 31, 2022 and 2021, respectively			1,565						1,605
Additional paid-in capital			2,578,603						3,340,822
Accumulated other comprehensive loss			(140,332)						(69,105)
Retained earnings			1,920,351						1,256,692
Total stockholders’ equity			4,360,187						4,530,014
Total liabilities and stockholders’ equity			$	8,303,400					$	8,138,673

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

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)			For the Years Ended December 31,
2022						2021						2020
Revenue			$	3,616,654					$	3,461,223					$	3,198,149
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)			1,383,819						1,268,956						1,132,672
Research and development			391,434						335,372						269,315
Sales and marketing			502,409						461,967						510,405
General and administrative			584,206						553,024						547,888
Amortization of acquired intangible assets			64,983						48,019						42,049
Restructuring charge			13,529						10,737						37,286
Total costs and operating expenses			2,940,380						2,678,075						2,539,615
Income from operations			676,274						783,148						658,534
Interest and marketable securities income, net			3,258						15,620						29,122
Interest expense			(11,096)						(72,332)						(69,120)
Other (expense) income, net			(10,433)						1,785						(2,454)
Income before provision for income taxes			658,003						728,221						616,082
Provision for income taxes			(126,696)						(62,571)						(45,922)
Loss from equity method investment			(7,635)						(14,008)						(13,106)
Net income			$	523,672					$	651,642					$	557,054
Net income per share:
Basic			$	3.29					$	4.01					$	3.43
Diluted			$	3.26					$	3.93					$	3.37
Shares used in per share calculations:
Basic			159,089						162,665						162,490
Diluted			160,467						165,804						165,213

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

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			For the Years Ended December 31,
(in thousands)			2022						2021						2020
Net income			$	523,672					$	651,642					$	557,054
Other comprehensive (loss) income:
Foreign currency translation adjustments			(44,665)						(38,514)						19,629
Change in unrealized (loss) gain on investments, net of income tax benefit (provision) of $6,589, $3,412 and $(2,720) for the years ended December 31, 2022, 2021 and 2020, respectively			(26,562)						(10,390)						5,314
Other comprehensive (loss) income			(71,227)						(48,904)						24,943
Comprehensive income			$	452,445					$	602,738					$	581,997

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

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)			For the Years Ended December 31,
2022						2021						2020
Cash flows from operating activities:
Net income			$	523,672					$	651,642					$	557,054
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			592,754						550,632						478,389
Stock-based compensation			217,185						202,759						197,411
Benefit for deferred income taxes			(104,971)						(47,794)						(33,821)
Amortization of debt discount and issuance costs			4,395						66,025						62,823
Loss on investments			15,895						10,328						5,878
Other non-cash reconciling items, net			31,063						11,495						17,149
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable			(21,214)						(24,096)						(90,381)
Prepaid expenses and other current assets			(20,125)						4,034						(25,395)
Accounts payable and accrued expenses			(26,499)						31,523						39,211
Deferred revenue			16,713						(2,865)						(1,318)
Other current liabilities			(5,318)						(20,404)						18,101
Other non-current assets and liabilities			51,126						(28,716)						(10,101)
Net cash provided by operating activities			1,274,676						1,404,563						1,215,000
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired			(872,091)						(598,825)						(127,999)
Cash paid for asset acquisition			—						—						(36,376)
Purchases of property and equipment			(241,266)						(328,969)						(514,313)
Capitalization of internal-use software development costs			(217,036)						(216,261)						(217,559)
Purchases of short-and long-term marketable securities			(17,975)						(932,604)						(1,782,849)
Proceeds from sales of short-and long-term marketable securities			575,522						442,133						30,350
Proceeds from maturities and redemptions of short-and long-term marketable securities			156,658						991,949						1,597,651
Other, net			(6,122)						(4,322)						8,121
Net cash used in investing activities			(622,310)						(646,899)						(1,042,974)
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans			56,462						59,632						59,775
Employee taxes paid related to net share settlement of stock-based awards			(82,236)						(99,112)						(89,828)
Repurchases of common stock			(608,010)						(522,255)						(193,588)
Other, net			(393)						(268)						—
Net cash used in financing activities			(634,177)						(562,003)						(223,641)
Effects of exchange rate changes on cash, cash equivalents and restricted cash			(12,918)						(11,376)						10,935
Net increase (decrease) in cash, cash equivalents and restricted cash			5,271						184,285						(40,680)
Cash, cash equivalents and restricted cash at beginning of year			537,751						353,466						394,146
Cash, cash equivalents and restricted cash at end of year			$	543,022					$	537,751					$	353,466

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

(in thousands)			For the Years Ended December 31,
2022						2021						2020
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received in the years ended December 31, 2022, 2021 and 2020 of $15,458, $14,808 and $17,491, respectively			$	183,900					$	100,533					$	79,163
Cash paid for interest expense			6,158						5,750						5,954
Cash paid for operating lease liabilities			224,898						224,085						201,856
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities			202,409						218,753						200,735
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses			80,170						63,309						75,666
Capitalization of stock-based compensation			33,060						36,545						38,333
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents			$	542,337					$	536,725					$	352,917
Restricted cash			685						1,026						549
Cash, cash equivalents and restricted cash			$	543,022					$	537,751					$	353,466

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

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)			Common Stock												Additional Paid-in Capital						Treasury Stock						Accumulated Other Comprehensive Loss						Retained Earnings						Total Stockholders' Equity
Shares						Amount
Balance at January 1, 2020			162,000,843						$	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 taxes			1,949,963						20						(89,122)																								(89,102)
Issuance of common stock under employee stock purchase plan			723,600						7						58,395																								58,402
Stock-based compensation															235,629																								235,629
Repurchases of common stock			(1,964,686)																		(193,588)																		(193,588)
Treasury stock retirement									(20)						(193,568)						193,588																		—
Net income																																	557,054						557,054
Foreign currency translation adjustment																											19,629												19,629
Change in unrealized gain on investments, net of tax																											5,314												5,314
Balance at December 31, 2020			162,709,720						$	1,627					$	3,664,820					$	—					$	(20,201)					$	605,050					$	4,251,296

AKAMAI TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, continued

(in thousands, except share data)			Common Stock												Additional Paid-in Capital						Treasury Stock						Accumulated Other Comprehensive Loss						Retained Earnings						Total Stockholders' Equity
Shares						Amount
Balance at December 31, 2020			162,709,720						$	1,627					$	3,664,820					$	—					$	(20,201)					$	605,050					$	4,251,296
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			1,902,742						18						(99,774)																								(99,756)
Issuance of common stock under employee stock purchase plan			648,686						7						59,707																								59,714
Stock-based compensation															238,277																								238,277
Repurchases of common stock			(4,749,037)																		(522,255)																		(522,255)
Treasury stock retirement									(47)						(522,208)						522,255																		—
Net income																																	651,642						651,642
Foreign currency translation adjustment																											(38,514)												(38,514)
Change in unrealized loss on investments, net of tax																											(10,390)												(10,390)
Balance at December 31, 2021			160,512,111						1,605						3,340,822						—						(69,105)						1,256,692						4,530,014
Cumulative-effect adjustment from adoption of new accounting pronouncement															(375,414)																		139,987						(235,427)
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			1,697,410						17						(82,294)																								(82,277)
Issuance of common stock under employee stock purchase plan			687,945						7						56,563																								56,570
Stock-based compensation															246,872																								246,872
Repurchases of common stock			(6,402,650)																		(608,010)																		(608,010)
Treasury stock retirement									(64)						(607,946)						608,010																		—
Net income																																	523,672						523,672
Foreign currency translation adjustment																											(44,665)												(44,665)
Change in unrealized loss on investments, net of tax																											(26,562)												(26,562)
Balance at December 31, 2022			156,494,816						$	1,565					$	2,578,603					$	—					$	(140,332)					$	1,920,351					$	4,360,187

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

AKAMAI TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions to power and protect life online. Its massively distributed edge and cloud platform comprises more than 4,100 locations across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company is currently organized and operates as one reportable and operating segment.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying consolidated financial statements.

2. Summary of Significant Accounting Policies

Use of Estimates

The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and the amounts disclosed in the related notes to the consolidated financial statements. Actual results and outcomes may differ materially from management’s estimates, judgments and assumptions. Significant estimates, judgments and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, valuation and impairment of investments and marketable securities, valuation and useful lives of acquired intangible assets, useful lives and realizability of long-lived assets, capitalized internal-use software development costs, income tax reserves and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.

Cash, Cash Equivalents and Marketable Securities

Cash and cash equivalents consist of cash held in bank deposit accounts and short-term, highly-liquid investments with remaining maturities of three months or less at the date of purchase. Marketable securities consist of corporate, government and other securities. Securities having remaining maturities of less than one year from the date of the balance sheet are classified as short-term, and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the consolidated balance sheets.

The Company classifies its fixed income securities with readily determinable market values as available-for-sale. These investments are classified as marketable securities on the consolidated balance sheets and are carried at fair market value, with unrealized gains and losses considered to be temporary in nature and reported as accumulated other comprehensive loss, a separate component of stockholders’ equity. The Company reviews all investments for reductions in fair value that are other-than-temporary. When such reductions occur, the cost of the investment is adjusted to fair value through recording a loss on investments in the consolidated statements of income. Gains and losses on investments are calculated on the basis of specific identification.

Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary. The Company periodically evaluates whether a decline in fair value below cost basis is other-than-temporary by considering available evidence regarding these investments including, among other factors: the duration of the period that, and extent to which, the fair value is less than cost basis; the financial health and business outlook of the issuer, including industry and sector performance and operational and financing cash flow factors; overall market conditions and trends; and the Company’s intent and ability to retain its investment in the security for a period of time sufficient to allow for an anticipated recovery in market value. Once a decline in fair value is determined to be other-than-temporary, a write-down is recorded and a new cost basis in the security is established. Assessing the above factors involves inherent uncertainty. Write-downs, if recorded, could be materially different from the actual market performance of marketable securities in the Company’s portfolio if, among other things, relevant information related to the marketable securities was not publicly available or other factors not considered by the Company would have been relevant to the determination of impairment.

Accounts Receivable and Related Reserves

The Company’s accounts receivable balance includes unbilled amounts that represent revenue recorded for customers that are typically billed monthly in arrears. The Company records reserves against its accounts receivable balance which primarily consists of allowances for current expected credit losses. Increases and decreases in the allowance for current expected credit losses are included as a component of general and administrative expense in the consolidated statements of income. The allowance for current expected credit losses has been developed using historical loss rates for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates. In addition, the allowance considers outstanding balances on a customer-specific, account-by-account basis. The Company assesses collectibility based upon a review of customer receivables from prior sales with collection issues where the Company no longer believes that the customer has the ability to pay for services previously provided. The Company also performs ongoing credit evaluations of its customers. If such an evaluation indicates that payment is no longer reasonably assured for services provided, any future services provided to that customer will result in the creation of a cash-basis reserve until the Company receives consistent payments. The Company does not have any off-balance sheet credit exposure related to its customers.

Incremental Costs to Obtain a Contract with a Customer

The Company capitalizes incremental costs associated with obtaining customer contracts, specifically certain commission and incentive payments. The Company pays commissions and incentives up-front based on contract value upon signing a new arrangement with a customer and upon renewal and upgrades of existing contracts with customers if the renewal and upgrades result in an incremental increase in contract value. To the extent commissions and incentives are earned, the expenses, including estimated payroll taxes, are deferred on the Company's consolidated balance sheet and amortized over the expected life of the customer arrangement on a straight-line basis. Based on the nature of the Company's unique technology and services, and the rate at which the Company continually enhances and updates its technology, the expected life of the customer arrangement is determined to be approximately three years. Additionally, the Company may pay commissions and incentives based upon contract value, rather than incremental increase in contract value, to certain sales groups within the Company. For these commission arrangements, the Company amortizes capitalized costs for contract renewals over an average renewal contract period of 16 months. The Company also incurs commission expense on an ongoing basis based upon revenue recognized. In these cases, no incremental costs are deferred, as the commissions are earned and expensed in the same period for which the associated revenue is recognized.

Amortization of the costs is primarily included in sales and marketing expense in the consolidated statements of income. The current portion of deferred commission and incentive payments is included in prepaid expenses and other current assets, and the long-term portion is included in other assets on the Company's consolidated balance sheets.

Concentrations of Credit Risk

The amounts reflected in the consolidated balance sheets for accounts receivable, other current assets, accounts payable, accrued liabilities and other current liabilities approximate fair values due to their short-term maturities. The Company maintains the majority of its cash, cash equivalents and marketable securities with major financial institutions that the Company believes to be of high credit standing. The Company believes that, as of December 31, 2022, its concentration of credit risk related to cash equivalents and marketable securities was not significant.

Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the Company makes substantial sales. The Company’s customer base consists of a large number of geographically-dispersed customers diversified across several industries. To reduce risk, the Company routinely assesses the financial strength of its customers. Based on such assessments, the Company believes that its accounts receivable credit risk exposure is limited. For the years ended December 31, 2022, 2021 and 2020, no customer accounted for more than 10% of total revenue. As of December 31, 2022 and 2021, there was one customer with an accounts receivable balance greater than 10% of total accounts receivable. The Company believes that, as of December 31, 2022 and 2021, its concentration of credit risk related to accounts receivable was not significant.

Fair Value of Financial Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company has certain financial assets and liabilities recorded at fair value, principally cash equivalents and short- and long-term marketable securities that have been classified as Level 1, 2 or 3 within the fair value hierarchy. Fair

values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the reporting date. Fair values determined by Level 2 inputs utilize data points other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Fair values determined by Level 3 inputs are based on unobservable data points for the asset or liability.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally include purchases of items with a per-unit value greater than $1,000 and an estimated useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the related lease terms or their estimated useful lives.

The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in income from operations. Repairs and maintenance costs are expensed as incurred.

Operating Leases

The Company enters into operating leases for real estate assets related to office space and co-location assets related to space or racks at co-location facilities and related equipment for its servers and other networking equipment. The Company determines if an arrangement contains a lease at the inception of a contract by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration and the right to obtain the economic benefits from the use of the identified asset.

Upon commencement of a lease, the Company records a right-of-use asset that represents the Company’s right to use the underlying asset for the lease term and a lease liability that represents an obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Lease payments are discounted at the lease commencement date. As the Company’s leases do not provide an implicit rate, an incremental borrowing rate has been applied based on the Company's credit-adjusted risk-free rate.

The Company often enters into contracts that contain both lease and non-lease components. Real estate non-lease components include real estate taxes, insurance, maintenance, parking and other operating costs. Co-location non-lease components include utilities and other operating costs. The Company includes both lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities based on actual usage, are not included in the measurement of right-of-use assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs.

The Company’s lease terms often include renewal options and, particularly in the case of co-location arrangements, may include evergreen provisions. The Company’s right-of-use assets and lease liabilities generally do not include the options to extend, or terminate, unless it is reasonably certain that the Company will exercise these options. The Company has elected to exclude leases for certain networking equipment and leases assumed through acquisitions with terms of 12 months or less from its right-of-use assets and lease liabilities on its consolidated balance sheets.

Lease expense is recognized on a straight-line basis over the expected lease term.

Equity Method Investments

The Company accounts for equity investments in which it has significant influence, but not a controlling financial interest, using the equity method of accounting. Under the equity method of accounting, investments are initially recorded at cost, less impairment, and subsequently adjusted to recognize the Company’s share of earnings or losses.

In February 2019, the Company and Mitsubishi UFJ Financial Group ("MUFG") announced the establishment of a joint venture, the Global Open Network, Inc. ("GO-NET"), and their plans to offer a new blockchain-based online payment network. The Company's 20% stake in GO-NET was accounted for using the equity method.

During the first quarter of 2022, MUFG, the majority owner of GO-NET, announced its intention to suspend the operations of GO-NET and to eventually liquidate it. As a result of MUFG's intention to suspend operations, the Company impaired its remaining investment of $7.5 million. The Company recorded a loss of $14.0 million during the year ended December 31,

2021, which reflects its share of the losses incurred by GO-NET during that year. During the year ended December 31, 2020, the Company recorded a loss of $13.1 million, which included an $11.0 million impairment to reduce the Company's investment to its fair value due to a modified business plan and continued negative projected cash flows. The valuation technique used to measure fair value of the Company's equity method investment in GO-NET was primarily an adjusted net asset value model based on labor costs and the amount of time required to develop a similar technology for use in the planned payment processing service.

Subsequent to the establishment of the joint venture, the Company recorded revenue of $4.0 million, $10.1 million, and $11.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, for services provided to GO-NET. The Company no longer provided services after June 30, 2022 due to the intention to suspend operations and to eventually liquidate it.

Goodwill, Acquired Intangible Assets and Long-Lived Assets

Goodwill is the amount by which the cost of acquired net assets in a business combination exceeds the fair value of the net identifiable assets on the date of purchase and is carried at its historical cost. The Company tests goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs its impairment test of goodwill as of December 31 each year. As of December 31, 2022, 2021 and 2020, the Company concluded that it has one reporting unit and that its chief operating decision maker is its chief executive officer and the executive management team. The Company has assigned the entire balance of goodwill to one reporting unit. The fair value of the reporting unit was based on the Company's market capitalization as of each of December 31, 2022 and 2021, and it was substantially in excess of the carrying value of the reporting unit at each date. The fair value of the Company's reporting unit was determined by the Company's enterprise value as of the years ended December 31, 2022, 2021 and 2020.

Acquired intangible assets consist of completed technologies, customer relationships, trademarks and trade names, non-compete agreements and acquired license rights. Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible asset. Significant judgment is used in determining fair values of acquired intangibles assets and their estimated useful lives. Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in calculating present values.

Long-lived assets, including property and equipment, operating lease right-of-use assets and acquired intangible assets, are reviewed for impairment whenever events or changes in circumstances, such as service discontinuance, technological obsolescence, significant decreases in the Company’s market capitalization, facility closures or work-force reductions indicate that the carrying amount of the long-lived asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If this comparison indicates that an impairment is present, the amount of the impairment is calculated as the difference between the carrying amount and the fair value of the asset.

Contract Liabilities

Contract liabilities primarily represent payments received from customers for which the related performance obligations have not yet been satisfied. These balances consist of the unearned portion of monthly service fees and integration fees and prepayments made by customers for future periods. The current and long-term portions of the Company's contract liabilities are included in deferred revenue in the respective sections of the Company's consolidated balance sheets.

Revenue Recognition

The Company primarily derives revenue from the sale of services to customers executing contracts having terms of one year or longer. Services included in the Company's contracts consist of its core services – the delivery of content, applications and software over the internet – as well as security and cloud computing solutions and professional services. Revenue is recognized upon transfer of control of promised services in an amount that reflects the consideration the Company expects to receive in exchange for those services.

The Company enters into contracts that may include various combinations of these services, which are generally capable of being distinct and accounted for as separate performance obligations. These contracts generally commit the customer to a minimum of monthly, quarterly or annual levels of usage and specify the rate at which the customer must pay for actual usage above the stated minimum. Based on the typical structure of the Company's contracts, which are generally for monthly

recurring services that are essentially the same over time and have the same pattern of transfer to the customer, most performance obligations represent a promise to deliver a series of distinct services over time.

The Company's contracts with customers sometimes include promises to deliver multiple services to a customer. Determining whether services are distinct performance obligations often requires the exercise of judgment by management. For example, advanced features that enhance a service and are highly interrelated are generally not considered distinct; rather, they are combined with the service they relate to into one performance obligation. Different determinations related to combining services into performance obligations could result in differences in the timing and amount of revenue recognized in a period.

Generally, the transaction price in a contract is equal to the committed price stated in the contract, less any discounts or rebates. The Company's typical contracts qualify for series accounting, and the pricing terms generally do not require estimation of the transaction price beyond the reporting period. As a result, any incremental fees generated as a result of usage or “bursting” over committed contract levels are recorded in the period to which the services relate. The amount of consideration recognized for usage above contract minimums is limited to the amount the Company expects to be entitled to receive in exchange for providing the services. Once the transaction price has been determined, the Company allocates such price among all performance obligations in the contract on a relative standalone selling price (“SSP”) basis.

Determination of SSP requires the exercise of judgment by management. SSP is based on observable inputs such as the price the Company charges for the service when sold separately or the discounted list price per management’s approved price list. In cases where services are not sold separately or price list rates are not available, a cost-plus-margin approach or adjusted market approach is used to determine SSP.

Most content delivery and security services represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by the Company. Accordingly, revenue for those services is recognized over time, generally ratably over the term of the arrangement due to consistent monthly usage commitments that expire each period. Any bursting over given commitments is recognized in the period in which the traffic was served. For services that involve traffic consumption, revenue is recognized in an amount that reflects the level of traffic served to a customer in a given period. For custom arrangements, other methods may be used as a measure of progress towards satisfying the performance obligations.

Some of the Company's contracts are satisfied at a point in time, such as one-time professional services, integration services and most license sales where the primary obligation is delivery of the license at the start of the term. In these cases, revenue is recognized at the point in time of delivery or satisfaction of the performance obligation.

From time to time, the Company enters into contracts to sell its services or license its technology to unrelated enterprises at or about the same time that it enters into contracts to purchase products or services from the same enterprises. Consideration payable to a customer is reviewed as part of the transaction price. If the payment to the customer does not represent payment for a distinct service, revenue is recognized only up to the net amount of consideration after customer payment obligations are considered. The Company may also resell the licenses or services of third parties. If the Company is acting as an agent in an arrangement with a customer to provide third party services, the transaction price reflects only the net amount to which the Company will be entitled, after accounting for payments made to the third party responsible for satisfying the performance obligation.

Cost of Revenue

Cost of revenue consists primarily of fees paid to network providers for bandwidth and to third-party network data centers for housing servers, also known as co-location costs. Cost of revenue also includes employee costs for services delivery and network operation, build-out and support of the Company's network; network storage costs; cost of software licenses; depreciation of network equipment used to deliver the Company’s services; amortization of network-related internal-use software; and costs for the production of live events streamed by the Company for customers. The Company enters into contracts for bandwidth with third-party network providers with terms typically ranging from several months to five years. These contracts generally commit the Company to pay minimum monthly fees plus additional fees for bandwidth usage above the committed level. In some circumstances, internet service providers (“ISPs”) make rack space available for the Company to locate its servers and provide access to their bandwidth at a discount or no cost. Although the Company does not provide any goods or services to the ISPs or the ISPs’ customers under these arrangements, the ISPs and their customers indirectly benefit by accessing content through a local Company server, resulting in better content delivery. The Company records the cost of these vendor relationships at their negotiated transaction price, which is either at a discount or no cost.

Research and Development Costs and Capitalized Internal-Use Software

Research and development costs consist primarily of payroll and related personnel costs for the design, development, deployment, testing and enhancement of the Company’s services and network. Costs incurred in the development of the Company’s services are expensed as incurred, except certain internal-use software development costs eligible for capitalization.

Capitalized costs include external consulting fees, payroll and payroll-related costs and stock-based compensation for employees in the Company’s development and information technology groups who are directly associated with, and who devote time to, the Company’s internal-use software projects. Capitalization begins when the planning stage is complete and the Company commits resources to the software project; capitalization continues during the application development stage. Capitalization ceases when the software has been tested and is ready for its intended use. Costs incurred during the planning, training and post-implementation stages of the software development life-cycle are expensed as incurred. The Company amortizes completed internal-use software that is used on its network to cost of revenue over its estimated useful life.

Accounting for Stock-Based Compensation

The Company recognizes compensation costs for all stock-based payment awards made to employees based upon the awards’ grant-date fair value. The stock-based payment awards include stock options, restricted stock, restricted stock units, deferred stock units and employee stock purchases related to the Company’s employee stock purchase plan.

For stock options, the Company has selected the Black-Scholes option-pricing model to determine the fair value of stock option awards. For stock awards with market-based vesting conditions, the Company uses a Monte Carlo simulation to determine the fair value of the award. For stock options, restricted stock units and deferred stock units that contain only a service-based vesting feature, the Company recognizes compensation cost on a straight-line basis over the award's vesting period. For awards with a performance condition-based vesting feature, the Company recognizes compensation cost on a graded-vesting basis over the award's expected vesting period, commencing when achievement of the performance condition is deemed probable. In addition, for awards that vest and become exercisable only upon achievement of specified performance conditions, the Company makes judgments and estimates each quarter about the probability that such performance conditions will be met or achieved. Any changes to those estimates that the Company makes from time to time may have a significant impact on the stock-based compensation expense recorded and could materially impact the Company’s results of operations.

Foreign Currency Translation and Forward Currency Contracts

The assets and liabilities of the Company's subsidiaries are translated at the applicable exchange rate as of the balance sheet date, and revenue and expenses are translated at an average rate over the period. Resulting currency translation adjustments are recorded as a component of accumulated other comprehensive loss, a separate component of stockholders’ equity. Gains and losses on inter-company and other non-functional currency transactions are recorded in other income (expense), net.

The Company enters into short-term 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 current earnings in other income (expense), net. As of December 31, 2022 and 2021, the fair value of the forward currency contracts and the underlying gains and losses for the years ended December 31, 2022, 2021 and 2020 were immaterial.

The Company's foreign currency forward contracts may be exposed to credit risk to the extent that its counterparties are unable to meet the terms of the agreements. The Company seeks to minimize counterparty credit (or repayment) risk by entering into transactions only with major financial institutions of investment grade credit rating.

Income Taxes

The Company's provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. The deferred income tax provision is calculated as the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates in effect in the years during which the differences are expected to reverse or the carryforwards are expected to be realized.

The Company currently has net deferred tax assets consisting of net operating loss (“NOL”) carryforwards, tax credit carryforwards and deductible temporary differences. Management periodically weighs the positive and negative evidence to determine if it is more-likely-than-not that some or all of the deferred tax assets will be realized.

The Company has recorded certain tax reserves to address potential exposures involving its income tax positions. These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different taxing jurisdictions. The Company's estimate of the value of its tax reserves contains assumptions based on past experiences and judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be more or less than the amount the Company estimated.

Uncertainty in income taxes is recognized in the Company's consolidated financial statements using a two-step process. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be sustained based on technical merit, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

Newly-Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued guidance that was expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The Company adopted this guidance on January 1, 2022 on a modified retrospective basis.

The convertible senior notes included on the Company's consolidated balance sheet more closely reflect the principal amounts. Prior to the adoption of this guidance, the Company separated its convertible senior notes into a liability and an equity component. The equity portion is now eliminated. The cumulative effect of the changes was an increase to convertible senior notes of $304.7 million, an increase to deferred income tax liabilities of $0.7 million, an increase to deferred income tax assets of $77.7 million, a decrease to property and equipment of $7.7 million and a decrease to additional paid-in capital of $375.4 million on the consolidated balance sheet. The net effect of these adjustments was recorded as an increase to retained earnings as of January 1, 2022.

Additionally, the new guidance eliminates the use of the treasury stock method for convertible instruments that can be settled in whole or in part with equity, when calculating diluted earnings per share. Instead, it requires application of the if-converted method. Under that method, diluted earnings per share would generally be calculated assuming that all the convertible senior notes were converted solely into shares of common stock at the beginning of the reporting period, unless the result would be antidilutive. The application of the if-converted method reduces the Company’s reported diluted earnings per share after the adoption date. However, in December 2021, the Company made an irrevocable election to settle the principal portion of the convertible senior notes with cash. Accordingly, the if-converted method is only impacted by any potential shares to be delivered for the amount in excess of the principal portion. The changes to the diluted earnings per share guidance did not materially impact the Company's results of operations.

With the elimination of the debt discount created by the equity component, amortization of the debt discount is eliminated, which decreases interest expense, and therefore increases net income and earnings per share, from the period of adoption. This had the effect of increasing basic and diluted earnings per share for the year ended 2022 by $0.32.

3. Fair Value Measurements

Available-for-sale marketable securities held as of December 31, 2022 and 2021 were as follows (in thousands):

									Gross Unrealized												Aggregate Fair Value						Classification on Balance Sheet
			Amortized Cost																					Short-Term Marketable Securities						Long-Term Marketable Securities
As of December 31, 2022						Gains						Losses
Time deposits			$	19,530					$	—					$	—					$	19,530					$	19,530					$	—
Corporate bonds			624,082						—						(21,029)						603,053						362,458						240,595
U.S. government agency obligations			252,573						—						(10,391)						242,182						180,320						61,862
			$	896,185					$	—					$	(31,420)					$	864,765					$	562,308					$	302,457
As of December 31, 2021
Commercial paper			$	25,056					$	—					$	(24)					$	25,032					$	25,032					$	—
Corporate bonds			1,268,991						1,191						(4,275)						1,265,907						459,012						806,895
U.S. government agency obligations			316,728						3						(1,281)						315,450						56,530						258,920
			$	1,610,775					$	1,194					$	(5,580)					$	1,606,389					$	540,574					$	1,065,815

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

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest and marketable securities income, net in the consolidated statements of income. As of December 31, 2022, the Company held for investment corporate bonds with a fair value of $835.4 million, which are classified as available-for-sale marketable securities and have been in a continuous unrealized loss position for more than 12 months. The unrealized losses related to these corporate bonds were $31.3 million and are included in accumulated other comprehensive loss as of December 31, 2022. The unrealized losses are attributable to changes in interest rates. Based on the evaluation of available evidence, the Company does not believe any unrealized losses represent other than temporary impairments.

The fair value measurements within the fair value hierarchy of the Company’s financial assets as of December 31, 2022 and 2021 were as follows (in thousands):

			Total Fair Value						Fair Value Measurements at Reporting Date Using
			Level 1						Level 2
As of December 31, 2022
Cash Equivalents and Marketable Securities:
Money market funds			$	999					$	999					$	—
Time deposits			285,830						—						285,830
Corporate bonds			603,053						—						603,053
U.S. government agency obligations			242,182						—						242,182
Mutual funds			18,745						18,745						—
			$	1,150,809					$	19,744					$	1,131,065
As of December 31, 2021
Cash Equivalents and Marketable Securities:
Money market funds			$	109,313					$	109,313					$	—
Commercial paper			39,031						—						39,031
Corporate bonds			1,265,907						—						1,265,907
U.S. government agency obligations			315,450						—						315,450
Mutual funds			23,129						23,129						—
			$	1,752,830					$	132,442					$	1,620,388

As of December 31, 2022 and 2021, the Company grouped money market and mutual funds using a Level 1 valuation because market prices for such investments are readily available in active markets. As of December 31, 2022 and 2021, the Company grouped time deposits, commercial paper, U.S. government agency obligations and corporate bonds using a Level 2 valuation because quoted prices for similar assets in active markets (or identical assets in an inactive market) are available. The Company did not have any transfers of assets or liabilities between Level 1 or Level 2 of the fair value measurement hierarchy during the years ended December 31, 2022 and 2021.

When developing fair value estimates, the Company maximizes the 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 use primarily 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 the 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 December 31, 2022 and 2021 were as follows (in thousands):

			December 31, 2022						December 31, 2021
Due in 1 year or less			$	562,308					$	540,574
Due after 1 year through 5 years			302,457						1,065,815
			$	864,765					$	1,606,389

4. Accounts Receivable

Net accounts receivable consisted of the following as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Trade accounts receivable			$	490,162					$	501,959
Unbilled accounts receivable			194,961						175,364
Gross accounts receivable			685,123						677,323
Allowance for current expected credit losses and other reserves			(5,917)						(1,397)
Accounts receivable, net			$	679,206					$	675,926

A summary of activity in the accounts receivable allowance for current expected credit losses and other reserves for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

			2022						2021						2020
Beginning balance			$	1,397					$	1,822					$	1,880
Charges to income from operations			9,292						4,576						12,347
Collections from customers previously reserved and other			(4,772)						(5,001)						(12,405)
Ending balance			$	5,917					$	1,397					$	1,822

Charges to income from operations primarily represents charges to provision for doubtful accounts for increases in the allowance for current expected credit losses.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Prepaid income taxes			$	33,898					$	32,021
Prepaid sales and other taxes			31,285						28,300
Prepaid equipment and software maintenance			16,348						10,661
Deferred commissions			37,316						43,562
Other prepaid expenses			51,194						35,109
Other current assets			14,999						16,660
Total			$	185,040					$	166,313

Incremental Costs to Obtain a Contract with a Customer

Deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of December 31, 2022 and 2021 were as follows (in thousands):

			December 31, 2022						December 31, 2021
Deferred costs included in prepaid expenses and other current assets			$	37,316					$	43,562
Deferred costs included in other assets			29,069						30,436
Total deferred costs			$	66,385					$	73,998

Information related to incremental costs to obtain a contract with a customer for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			2022						2021						2020
Amortization expense related to deferred costs			$	52,691					$	58,433					$	61,682
Incremental costs capitalized			47,416						56,509						67,058

Amortization expense related to deferred costs is primarily included in sales and marketing expense in the consolidated statements of income.

6. Property and Equipment

Property and equipment consisted of the following as of December 31, 2022 and 2021 (in thousands, except years):

			December 31, 2022						December 31, 2021						Estimated Useful Life (in years)
Computer and networking equipment			$	2,139,518					$	1,981,775					3-7
Purchased software			89,695						89,347						3-10
Furniture and fixtures			71,427						71,381						1-7
Office equipment			41,866						42,616						3-5
Leasehold improvements			229,037						227,358						1-15
Internal-use software			1,529,264						1,382,099						2-7
Property and equipment, gross			4,100,807						3,794,576
Accumulated depreciation and amortization			(2,560,625)						(2,260,247)
Property and equipment, net			$	1,540,182					$	1,534,329

Depreciation and amortization expense on property and equipment and capitalized internal-use software for the years ended December 31, 2022, 2021 and 2020 was $527.8 million, $502.6 million and $436.3 million, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company capitalized $32.3 million, $35.0 million and $38.0 million, respectively, of stock-based compensation related to employees who developed and enhanced internal-use software applications.

During the years ended December 31, 2022 and 2021, the Company wrote off $210.2 million and $283.4 million, respectively, of property and equipment, gross, along with the associated accumulated depreciation and amortization. The write-offs were primarily related to computer and networking equipment and internal-use software no longer in use. These assets had been substantially depreciated and amortized. In addition, the Company wrote off $9.1 million and $3.4 million during the years ended December 31, 2022 and 2021, respectively, related to internal-use software and facility-related property and equipment as a result of certain restructuring actions.

7. Acquired Intangible Assets and Goodwill

Acquired intangible assets that are subject to amortization consisted of the following as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022																		December 31, 2021
Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount						Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Completed technologies			$	327,848					$	(162,323)					$	165,525					$	257,857					$	(128,715)					$	129,142
Customer-related intangible assets			480,817						(244,158)						236,659						398,182						(216,192)						181,990
Non-compete agreements			244						(183)						61						258						(107)						151
Trademarks and trade names			14,642						(7,585)						7,057						8,039						(6,097)						1,942
Acquired license rights			34,810						(2,396)						32,414						490						(490)						—
Total			$	858,361					$	(416,645)					$	441,716					$	664,826					$	(351,601)					$	313,225

Aggregate expense related to amortization of acquired intangible assets for the years ended December 31, 2022, 2021 and 2020 was $65.0 million, $48.0 million and $42.0 million, respectively. Based on the Company's acquired intangible assets as of December 31, 2022, aggregate expense related to amortization of acquired intangible assets is expected to be $63.5 million, $59.2 million, $61.2 million, $56.3 million and $43.7 million for the years ending December 31, 2023, 2024, 2025, 2026 and 2027, respectively.

The changes in the carrying amount of goodwill for the years ended December 31, 2022 and 2021 were as follows (in thousands):

			2022						2021
Beginning balance			$	2,156,254					$	1,674,371
Acquisition of Linode Limited Liability Company			617,292						—
Acquisition of Guardicore Ltd.			—						479,110
Acquisition of Inverse, Inc.			—						10,741
Measurement period adjustments related to acquisitions completed in prior years			724						(267)
Foreign currency translation			(10,432)						(7,701)
Ending balance			$	2,763,838					$	2,156,254

8. Acquisitions

Acquisition-related costs were $10.7 million, $13.3 million and $5.6 million during the years ended December 31, 2022, 2021 and 2020, respectively, and are included in general and administrative expense in the consolidated statements of income. Pro forma results of operations for the acquisitions completed in the years ended December 31, 2022, 2021 and 2020 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to the Company's consolidated financial results.

2022 Acquisition

Linode

In March 2022, the Company acquired all the outstanding equity interests of Linode Limited Liability Company ("Linode") for $898.5 million in cash. Linode is an infrastructure-as-a-service platform provider that allows for developer-friendly cloud computing capabilities. The acquisition is intended to enhance the Company’s computing services by enabling it to create a unique cloud platform to build, run and secure applications from the cloud to the edge. Revenue attributable to Linode since the date of the acquisition, included in the Company's consolidated statements of income, for 2022 was $103.5 million. Earnings included in the Company's consolidated statements of income since the date of the acquisition are not material.

The preliminary allocation of the purchase price for Linode was as follows (in thousands):

Total purchase consideration						$	898,516
Allocation of the purchase consideration:
Cash						$	26,678
Accounts receivable						7,171
Prepaid expenses and other current assets						4,478
Property and equipment						56,268
Operating lease right-of-use assets						17,000
Identifiable intangible assets						196,020
Goodwill						617,292
Deferred income tax assets						2,528
Other assets						292
Total assets acquired						927,727
Accounts payable						(5,767)
Accrued expenses						(1,958)
Operating lease liabilities						(17,235)
Other liabilities						(4,251)
Total liabilities assumed						(29,211)
Net assets acquired						$	898,516

As of December 31, 2022, the purchase price allocation was substantially complete except for the finalization of certain income tax matters. Measurement period adjustments to goodwill recognized during 2022 related to the acquisition of Linode were $28.9 million and primarily related to property and equipment and intangible asset adjustments. These measurement period adjustments did not have a material effect on the Company's results of operations.

The value of the goodwill can be attributed to a number of business factors, including a trained technical workforce and cost synergies expected to be realized. The Company expects that all of the goodwill related to the acquisition of Linode will be deductible for tax purposes.

Identified intangible assets acquired and their respective weighted average useful lives were as follows (in thousands, except years):

			Gross Carrying Amount						Weighted Average Useful Life (in years)
Customer-related intangible assets			$	84,200					16.8
Completed technologies			70,900						5.8
Acquired license rights			34,320						15.0
Trademarks and trade name			6,600						8.8
Total			$	196,020

The Company applied the relief-from-royalty method to estimate the fair values of the completed technologies and trademarks and the multi-period excess earnings method under the income approach to estimate the fair values of the customer-related acquired intangible assets. The Company applied significant judgment in estimating the fair values of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecasted revenue growth rates, cost of revenue, operating expenses, contributory asset charges and discount rates. The Company used readily available market data to estimate the fair values of the acquired license rights. The total weighted average amortization period for the intangible assets acquired from Linode is 12.2 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

2021 Acquisitions

Guardicore

In October 2021, the Company acquired all the outstanding equity interests of Guardicore Ltd. ("Guardicore"), for $610.7 million in cash. Guardicore's micro-segmentation solution is designed to limit user access to only those applications that are authorized to communicate with each other, thereby limiting the spread of malware and protecting the flow of enterprise data across the network. The acquisition is intended to enhance the Company's security portfolio with the addition of Guardicore's micro-segmentation technology. Revenue and earnings attributable to acquired operations since the date of acquisition are included in the Company's consolidated statements of income and not presented separately because they are not material. The Company finalized its allocation of the purchase price in the fourth quarter of 2022.

The allocation of the purchase price for Guardicore was as follows (in thousands):

Total purchase consideration						$	610,693
Allocation of the purchase consideration:
Cash						$	27,252
Accounts receivable						10,179
Prepaid expenses and other current assets						1,307
Property and equipment						1,211
Operating lease right-of-use assets						2,657
Identifiable intangible assets						123,600
Goodwill						479,834
Deferred income tax assets						9,686
Other assets						890
Total assets acquired						656,616
Accounts payable						(1,523)
Accrued liabilities						(7,742)
Deferred revenue						(35,658)
Operating lease liabilities						(1,000)
Total liabilities assumed						(45,923)
Net assets acquired						$	610,693

The value of the goodwill can be attributed to a number of business factors, including a trained technical and sales workforce and cost synergies expected to be realized. The Company expects that most of the goodwill related to the acquisition of Guardicore will be deductible for tax purposes.

Identified intangible assets acquired and their respective weighted average useful lives were as follows (in thousands, except years):

			Gross Carrying Amount						Weighted Average Useful Life (in years)
Completed technologies			$	79,000					15.0
Customer-related intangible assets			44,200						14.0
Trademarks			400						1.9
Total			$	123,600

The Company applied the relief-from-royalty method to estimate the fair values of the completed technologies and trademarks, and the excess earnings method to estimate the fair values of the customer-related acquired intangible assets. The Company applied significant judgment in estimating the fair values of the acquired intangible assets, which involved significant estimates and assumptions with respect to forecasted revenue growth rates and discount rates. The total weighted average

amortization period for the intangible assets acquired from Guardicore is 14.6 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

Inverse

In February 2021, the Company acquired all the outstanding equity interests of Inverse, Inc. ("Inverse"), for $17.1 million. Inverse provides a data repository and algorithms capable of identifying device types accessing the internet. The acquisition enhances the Company's enterprise security capabilities. The Company allocated $10.7 million of the cost of the acquisition to goodwill and $7.6 million to a technology-related identifiable intangible asset with an average useful life of 14.0 years. The acquired goodwill and intangible assets are partially offset by acquired negative working capital balances. The value of the goodwill is primarily attributable to synergies related to the integration of Inverse technology onto the Company's platform as well as a trained technical workforce. The total amount of goodwill related to the acquisition of Inverse expected to be deductible for tax purposes is $10.7 million. Revenue and earnings attributable to acquired operations since the date of acquisition are included in the Company's consolidated statements of income and not presented separately because they are not material. The Company finalized its allocation of purchase price in the fourth quarter of 2021.

2020 Acquisitions

Asavie

In October 2020, the Company acquired all the outstanding equity interests of Asavie Technologies Limited ("Asavie"), a privately-funded company headquartered in Dublin, Ireland, for $155.0 million in cash. Asavie operates a global platform for managing the security, performance and access policies for mobile and internet-connected devices and has become part of Akamai’s security solutions. Revenue and earnings attributable to acquired operations since the date of acquisition are included in the Company's consolidated statements of income and not presented separately because they are not material. The Company finalized its allocation of the purchase price in the fourth quarter of 2021.

The allocation of the purchase price for Asavie was as follows (in thousands):

Total purchase consideration						$	154,952
Allocation of the purchase consideration:
Cash						$	26,847
Accounts receivable						14,002
Prepaid expenses and other current assets						995
Property and equipment						2,274
Operating lease right-of-use assets						6,104
Identifiable intangible assets						58,070
Goodwill						70,228
Other assets						395
Total assets acquired						178,915
Accounts payable						(951)
Accrued liabilities						(5,926)
Deferred revenue						(3,136)
Operating lease liabilities						(6,104)
Deferred income tax liabilities						(6,965)
Other liabilities						(881)
Total liabilities assumed						(23,963)
Net assets acquired						$	154,952

The value of the goodwill can be attributed to a number of business factors, including a trained technical and sales workforce and cost synergies expected to be realized. None of the goodwill related to the acquisition of Asavie is expected to be deductible for tax purposes.

Identified intangible assets acquired and their respective weighted average useful lives were as follows (in thousands, except years):

			Gross Carrying Amount						Weighted Average Useful Life (in years)
Completed technologies			$	17,300					10.1
Customer-related intangible assets			40,400						11.1
Trademarks			100						0.9
Non-compete agreements			270						2.9
Total			$	58,070

The total weighted average amortization period for the intangible assets acquired from Asavie is 10.8 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

Instart Logic

In February 2020, the Company acquired certain assets from Instart Logic, Inc., a provider of cloud solutions for improving web and mobile application performance, for $36.4 million in cash. The purchase price was primarily allocated to a customer-related intangible asset is being amortized over 17.0 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

9. Accrued Expenses

Accrued expenses consisted of the following as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Payroll and other related benefits			$	172,670					$	222,535
Income taxes payable			76,459						72,946
Bandwidth and co-location expenses			79,937						72,904
Property, use and other taxes			30,711						33,883
Professional service fees			3,054						2,929
Other accrued expenses			4,186						6,393
Total			$	367,017					$	411,590

10. Restructuring

As a result of MUFG's intention to suspend operations, the Company recorded as a restructuring charge an impairment of $7.5 million during the year ended December 31, 2022, primarily related to certain capitalized internal-use software assets that will no longer be used in operations or will not generate sufficient future cash flows to support their values. The Company does not expect to incur material additional charges related to this action.

Additionally, the Company launched its FlexBase program in May 2022, which is a flexible workspace arrangement that allows employees to choose to work from their home office, a Company office or a combination of both. This is a significant change to the way employees worked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic. Planning for the program commenced in 2021, and in the fourth quarter of 2021, the Company began to identify certain facilities that were no longer needed. As a result, impairments of right-of-use assets and leasehold improvements were recognized. The Company has incurred expenses of $3.6 million and $3.8 million during the years ended December 31, 2022 and 2021, respectively, related to this action. Management is still evaluating the Company's office utilization, and additional charges related to such type of action may occur in 2023.

During the fourth quarter of 2020, management committed to an action to restructure certain parts of the Company to better position itself to become more agile in delivering its solutions. 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 expenses of $7.9 million and $23.6 million during

the years ended December 31, 2021 and 2020, respectively, related to this action. The Company does not expect to incur any additional charges related to this action.

The Company also recognizes restructuring charges for redundant employees, facilities and contracts associated with completed acquisitions. Restructuring charges related to acquisitions were not material in any of the years ended December 31, 2022, 2021 and 2020.

The activity of the Company's accrual for employee severance and related benefits for all restructuring actions during the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			Employee Severance and Related Benefits
Balance January 1, 2020			$	5,707
Costs incurred			26,332
Cash disbursements			(10,118)
Translation adjustments and other			130
Balance December 31, 2020			22,051
Costs incurred			6,600
Cash disbursements			(27,095)
Translation adjustments and other			(368)
Balance December 31, 2021			1,188
Costs incurred			747
Cash disbursements			(1,209)
Translation adjustments and other			(185)
Balance December 31, 2022			$	541

11. Debt

Convertible Senior 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.

Each $1,000 principal amount of the notes will be convertible into 8.6073 shares of the Company's common stock, which is equivalent to a conversion price of approximately $116.18 per share, subject to adjustments in certain events. At their option, holders may convert their 2027 Notes prior to the close of business on the business day immediately preceding May 1, 2027, only under the following circumstances:

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

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

• upon the occurrence of specified corporate events.

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.

In December 2021, the Company made an irrevocable election to settle the principal amount of the 2027 Notes only in cash. Accordingly, upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case may be, any amount in excess of the principal amount in cash, shares of common stock or a combination of cash and shares of the Company stock, at the Company's election. Prior to this election, upon conversion, the Company, could have elected to deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock for the principal amount.

Prior to January 1, 2022, in accounting for the issuance of the 2027 Notes, the Company separated the 2027 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The difference between the principal amount of the 2027 Notes and the proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2027 Notes. The equity component is recorded in additional paid-in capital in the consolidated balance sheet to meet the conditions for equity classification. On January 1, 2022, the Company adopted the new guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 2 to the consolidated financial statements included elsewhere in this report for details on the new guidance for accounting for convertible instruments.

Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. However, subsequent to the adoption of the new guidance for accounting for convertible instruments, all transaction costs are presented as a reduction to the 2027 Notes. Prior to January 1, 2022, transaction costs attributable to the liability component were being amortized to interest expense over the term of the 2027 Notes, and subsequent to the adoption of the new guidance, all transaction costs are being amortized to interest expense over the term of the 2027 Notes.

The 2027 Notes consisted of the following components as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Liability component:
Principal			$	1,150,000					$	1,150,000
Less: debt discount and issuance costs, net of amortization			(8,707)						(169,030)
Net carrying amount			$	1,141,293					$	980,970
Equity component:			$	—					$	220,529

The estimated fair value of the 2027 Notes at December 31, 2022 and 2021 was $1,111.0 million and $1,359.3 million, 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 $84.30 on December 31, 2022, the value of the 2027 Notes if converted to common stock was less than the principal amount of $1,150.0 million.

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

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 Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its consolidated financial statements.

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. The Company determined that the warrants meet the definition of a derivative and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and the Company, at its election, may pay or deliver to holders cash or shares of the Company's common stock. The Company recorded the proceeds from issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the warrants in its consolidated financial statements.

Convertible Senior Notes – Due 2025

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

Each $1,000 principal amount of the notes will be convertible into 10.5150 shares of the Company's common stock, which is equivalent to a conversion price of approximately $95.10 per share, subject to adjustments in certain events. At their option, holders may convert their 2025 Notes prior to the close of business on the business day immediately preceding January 1, 2025, only under the following circumstances:

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

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

• upon the occurrence of specified corporate events.

On or after 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.

In December 2021, the Company made an irrevocable election to settle the principal amount of the 2025 Notes only in cash. Accordingly, upon conversion, the Company will pay the principal amount in cash and will pay, or deliver, as the case may be, any amount in excess of the principal amount in cash, shares of common stock or a combination of cash and shares of the Company stock, at the Company's election. Prior to this election, upon conversion, the Company, could have elected to deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock for the principal amount.

Prior to January 1, 2022, 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 to meet the conditions for equity classification. On January 1, 2022, the Company adopted the new guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 2 to the consolidated financial statements included elsewhere in this report for details on the new guidance for accounting for convertible instruments.

Initially, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. However, subsequent to the adoption of the new guidance for accounting for convertible instruments, all transaction costs are presented as a reduction to the 2025 Notes. Prior to January 1, 2022, transaction costs attributable to the liability component were being amortized to interest expense over the term of the 2025 Notes, and subsequent to the adoption of the new guidance, all transaction costs are being amortized to interest expense over the term of the 2025 Notes.

The 2025 Notes consisted of the following components as of December 31, 2022 and 2021 (in thousands):

			December 31, 2022						December 31, 2021
Liability component:
Principal			$	1,150,000					$	1,150,000
Less: debt discount and issuance costs, net of amortization			(6,035)						(154,803)
Net carrying amount			$	1,143,965					$	995,197
Equity component:			$	—					$	285,225

The estimated fair value of the 2025 Notes at December 31, 2022 and 2021 was $1,209.1 million and $1,510.4 million, 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 $84.30 on December 31, 2022, the value of the 2025 Notes if converted to common stock was less than the principal amount of $1,150.0 million.

The Company used $46.2 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2025 Notes. The repurchase was made in accordance with a share repurchase program previously approved by the board of directors. Additionally, $141.8 million of the proceeds was used for the net cost of convertible note hedge and warrant transactions. The Company also used a portion of the net proceeds to repay at maturity $690.0 million in par value of convertible senior notes due in 2019. The remaining net proceeds are intended to be used for share repurchases, working capital and general corporate purposes, including potential acquisitions and other strategic transactions.

Note 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 Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its consolidated financial statements.

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. The Company determined that the warrants meet the definition of a derivative and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and the Company, at its election, may pay or deliver to holders cash or shares of the Company's common stock. The Company recorded the proceeds from issuance of the warrants as an increase to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the warrants in its consolidated financial statements.

Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2018 Credit Agreement”). Borrowings under the 2018 Credit Agreement bore interest, at the Company's option, at a base rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the 2018 Credit Agreement. Regardless of what amounts, if any, outstanding under the 2018 Credit Agreement, the Company was also obligated to pay an ongoing commitment 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 2018 Credit Agreement.

In November 2022, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2022 Credit Agreement”). The 2022 Credit Agreement replaces the 2018 Credit Agreement. Borrowings under the 2022 Credit Agreement may be used to finance working capital needs and for general corporate purposes. The 2022 Credit Agreement provides for an initial $500.0 million in revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal amount. The 2022 Credit Agreement expires, and any amounts outstanding thereunder will become due and payable, on November 22, 2027, subject to up to two one-year extensions at the Company's request and with the consent of the lenders party thereto.

Borrowings under the 2022 Credit Agreement bear interest, at the Company's option, and subject to a credit spread adjustment, at a term benchmark rate plus a spread of 0.75% to 1.125%, a reference rate plus a spread of 0.75% to 1.125%, or a base rate plus a spread of 0.00% to 0.125%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the 2022 Credit Agreement. Regardless of what amounts, if any, are outstanding under the 2022 Credit Agreement, the Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.07% to 0.125%, with such rate being based on the Company's consolidated leverage ratio specified in the 2022 Credit Agreement.

The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a maximum consolidated leverage ratio. There were no outstanding borrowings under the 2022 Credit Agreement as of December 31, 2022.

Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%, with interest is payable semi-annually on March 1 and September 1 of each year. The 2025 Notes bear interest at a fixed rate of 0.125%, with interest is payable semi-annually on May 1 and November 1 of each year. The Company is also obligated to pay ongoing commitment fees under the terms of its credit agreements, in addition to interest payable on outstanding borrowings. Prior to the adoption of the new guidance for accounting for convertible instruments on January 1, 2022, the Company also amortized as interest expense the value of debt discounts of the 2027 Notes and the 2025 Notes. Interest expense included in the consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

			2022						2021						2020
Amortization of debt discount and issuance costs			$	4,688					$	69,697					$	67,153
Coupon interest payable on 2025 Notes			1,437						1,437						1,437
Coupon interest payable on 2027 Notes			4,312						4,313						4,312
Interest payable under credit agreements			952						557						548
Capitalization of interest expense			(293)						(3,672)						(4,330)
Total interest expense			$	11,096					$	72,332					$	69,120

12. Leases

The Company has entered into various operating lease agreements for its offices and co-location sites and related equipment. The Company has also entered into sublease agreements with tenants of various offices previously vacated by the Company. These operating leases have lease periods expiring between 2023 and 2034. The Company’s operating lease costs for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			Real Estate Arrangements						Co-location Arrangements						Total
2022
Operating lease cost			$	82,761					$	152,215					$	234,976
Short-term lease cost			52						21,741						21,793
Variable lease cost			25,167						35,025						60,192
Sublease income			(25,743)						—						(25,743)
Total operating lease costs			$	82,237					$	208,981					$	291,218
2021
Operating lease cost			$	84,100					$	136,673					$	220,773
Short-term lease cost			58						17,660						17,718
Variable lease cost			22,016						31,428						53,444
Sublease income			(21,033)						—						(21,033)
Total operating lease costs			$	85,141					$	185,761					$	270,902
2020
Operating lease cost			$	83,574					$	113,554					$	197,128
Short-term lease cost			229						15,620						15,849
Variable lease cost			21,235						34,259						55,494
Sublease income			(22,064)						—						(22,064)
Total operating lease costs			$	82,974					$	163,433					$	246,407

Lease costs for real estate arrangements are included in general and administrative expenses in the consolidated statements of income. Lease costs for co-location arrangements are primarily included in cost of revenue.

Weighted average remaining lease terms and discount rates related to the Company's operating leases as of December 31, 2022 and 2021 were as follows:

			December 31, 2022												December 31, 2021
			Real Estate Arrangements						Co-location Arrangements						Real Estate Arrangements						Co-location Arrangements
Weighted average remaining lease term (in years)			10.3						3.9						11.1						3.9
Weighted average discount rate			3.6		%				2.8		%				3.6		%				1.3		%

Maturities of operating lease liabilities as of December 31, 2022 were as follows (in thousands):

			Real Estate Arrangements						Co-location Arrangements
2023			$	78,714					$	119,527
2024			79,081						67,081
2025			72,242						46,196
2026			66,020						34,871
2027			60,717						24,346
Thereafter			358,338						18,584
Total lease payments			715,112						310,605
Less: imputed interest			119,106						17,252
Total lease liabilities			$	596,006					$	293,353

As of December 31, 2022, the Company had additional operating leases for co-location sites that had not yet commenced of $141.7 million, of which a majority will commence in 2023, with lease terms of one year to eight years. The table above excludes $223.6 million of future sublease income that is expected to be recognized through 2034.

As of December 31, 2022, the Company had outstanding letters of credit in the amount of $5.0 million, primarily related to operating leases. The letters of credit remain in effect until the Company fulfills its obligations under these leases or as such obligations expire under the terms of the letters of credit.

13. Commitments and Contingencies

As of December 31, 2022, the Company had long-term commitments for bandwidth usage with various networks and ISPs. Additionally, as of December 31, 2022, the Company had entered into purchase orders with various vendors. The minimum future commitments as of December 31, 2022 were as follows (in thousands):

			Bandwidth Commitments						Purchase Order Commitments
2023			$	82,949					$	378,816
2024			23,487						45,113
2025			10,519						8,094
2026			1,065						2,427
2027			46						546
Total			$	118,066					$	434,996

Legal Matters

The Company is party to various litigation matters that management considers routine and incidental to its business. Management does not expect the results of any of these routine actions to have a material effect on the Company’s business, results of operations, financial condition or cash flows.

Indemnification

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

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

To date, the Company has not encountered material costs as a result of such indemnification obligations and has not accrued any related liabilities in its financial statements. In assessing whether to establish an accrual, the Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

14. Stockholders’ Equity

Stock Repurchase Program

In November 2018, the board of directors authorized a $1.1 billion repurchase program through December 2021. In October 2021, the board of directors authorized a new $1.8 billion share repurchase program, effective January 2022 through December 2024. The Company's goals for the share repurchase programs are to 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, while still preserving its ability to pursue other strategic opportunities.

During the years ended December 31, 2022, 2021 and 2020, the Company repurchased 6.4 million, 4.7 million and 2.0 million shares, respectively, of its common stock for $608.0 million, $522.3 million and $193.6 million, respectively, pursuant to the repurchase programs described above. As of December 31, 2022, the Company had $1.2 billion available for future purchases of shares under the current repurchase program.

The board of directors authorized the retirement of all the outstanding shares of its treasury stock as of each of December 31, 2022, 2021 and 2020. The retired shares were returned to the number of authorized but unissued shares of the Company's common stock, and the retirement was recorded to additional paid-in capital.

15. Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the years ended December 31, 2022 and 2021 were as follows (in thousands):

			Foreign Currency Translation						Net Unrealized Gains (Losses) on Investments						Total
Balance as of January 1, 2021			$	(33,295)					$	13,094					$	(20,201)
Other comprehensive loss			(38,514)						(10,390)						(48,904)
Balance as of December 31, 2021			(71,809)						2,704						(69,105)
Other comprehensive loss			(44,665)						(26,562)						(71,227)
Balance as of December 31, 2022			$	(116,474)					$	(23,858)					$	(140,332)

Amounts reclassified from accumulated other comprehensive loss to net income were immaterial for the years ended December 31, 2022 and 2021.

16. Revenue from Contracts with Customers

The Company sells its services through a sales force located both domestically and abroad. Revenue derived from operations outside of the U.S. is determined based on the country in which the sale originated. Other than the U.S., no single country accounted for 10% or more of the Company’s total revenue for any reported period. Revenue by geography included in the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

			2022						2021						2020
U.S.			$	1,902,051					$	1,837,508					$	1,777,435
International			1,714,603						1,623,715						1,420,714
Total revenue			$	3,616,654					$	3,461,223					$	3,198,149

The Company reports its revenue in three solution categories: security, delivery and compute. Prior to January 1, 2022, revenue by solution was reported by product group: Security Technology Group and Edge Technology Group. Revenue from security solutions was previously presented as Security Technology Group revenue and revenue from delivery and compute solutions was previously presented as Edge Technology Group revenue. The periods presented prior to January 1, 2022 have been revised to reflect this new presentation. Security includes solutions that are designed to protect business online by keeping infrastructure, websites, applications and users safe. Delivery includes solutions that are designed to enable business online, including media delivery and web performance. Compute includes cloud computing, edge applications, cloud optimization and storage. Revenue by solution category included in the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):

			2022						2021						2020
Security			$	1,541,941					$	1,334,836					$	1,061,622
Delivery			1,669,257						1,873,243						1,929,810
Compute			405,456						253,144						206,717
Total revenue			$	3,616,654					$	3,461,223					$	3,198,149

Most security, delivery and compute services represent obligations that are satisfied over time as the customer simultaneously receives and consumes the services provided by the Company. Accordingly, the majority of the Company's revenue is recognized over time, generally ratably over the term of the arrangement due to consistent monthly usage commitments that expire each period. Any usage over a given commitment is recognized in the period in which the units are served. A small percentage of the Company's contracts are satisfied at a point in time, such as one-time professional services contracts, integration services and most license sales where the primary obligation is delivery of the license at the start of the term. In these cases, revenue is recognized at a point in time of delivery or satisfaction of the performance obligation.

During the years ended December 31, 2022, 2021 and 2020, the Company recognized $105.1 million, $78.8 million and $69.9 million of revenue that was included in deferred revenue as of December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2022, the aggregate amount of remaining performance obligations from contracts with customers was $3.5 billion. The Company expects to recognize approximately 65% of its remaining performance obligations as revenue over the next 12 months, with the remainder recognized thereafter. Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially 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. Revenue recognized during the years ended December 31, 2022, 2021 and 2020, related to performance obligations satisfied in previous periods was not material.

17. Employee Benefit Plan

The Company has established a savings plan for its employees that is designed to be qualified under Section 401(k) of the Internal Revenue Code. Eligible employees are permitted to contribute to this plan through payroll deductions within statutory and plan limits. The Company contributed $18.8 million, $17.7 million and $17.5 million of cash to the savings plan for the years ended December 31, 2022, 2021 and 2020, respectively, under a matching program.

18. Stock-Based Compensation

Equity Plans

In May 2013, the Company's stockholders approved the Akamai Technologies, Inc. 2013 Stock Incentive Plan, which was amended with Company shareholder approval in each of 2015, 2017 and 2019 and was amended and restated with Company shareholder approval in each of 2021 and 2022 (as amended and restated, the "2013 Plan"). The 2013 Plan replaced the Akamai Technologies, Inc. 2009 Stock Incentive Plan (the "2009 Plan"), which in turn replaced the Akamai Technologies, Inc. 2006 Stock Incentive Plan, the Akamai Technologies, Inc. 2001 Stock Incentive Plan and the Akamai Technologies, Inc. 1998 Stock Incentive Plan (such plans, together with the 2009 Plan, the "Previous Plans"). The Company no longer issues equity awards under the Previous Plans, and they solely exist to satisfy outstanding equity awards previously granted under those plans. The 2013 Plan allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards for up to 26.5 million shares of common stock, subject to certain adjustments, to employees, officers, directors, consultants and advisers of the Company. Additionally, the Company may grant up to 3.8 million shares of common stock thereunder that were available for grant under the 2009 Plan immediately prior to stockholder approval of the 2013 Plan. Any shares of common stock that are currently outstanding under the Previous Plans that are terminated, canceled, surrendered or forfeited will become available to grant under the 2013 Plan. As of December 31, 2022, the Company had reserved 6.2 million shares of common stock available for future issuance of equity awards under the 2013 Plan.

The Company has assumed certain stock incentive plans and the outstanding stock incentives of companies that it has acquired (“Assumed Plans”). Stock incentive awards outstanding as of the date of acquisition under the Assumed Plans were exchanged for the Company’s stock incentive awards and adjusted to reflect the appropriate conversion ratio as specified by the applicable acquisition agreement, but are otherwise administered in accordance with the terms of the Assumed Plans. Stock incentive awards under the Assumed Plans generally vest over three years to four years, and outstanding stock options under the Assumed Plans expire ten years from the date of grant.

The 1999 Employee Stock Purchase Plan ("1999 ESPP") permits eligible employees to purchase up to 1.5 million shares each June 1 and December 1, provided that the aggregate number of shares issued shall not exceed 20.0 million. The 1999 ESPP allows participants to purchase shares of common stock at a 15% discount from the fair market value of the stock as determined on specific dates at six-month intervals. During the years ended December 31, 2022, 2021 and 2020, the Company issued 0.7 million, 0.6 million and 0.7 million shares under the 1999 ESPP, respectively, with a weighted average purchase price per share of $82.83, $92.05 and $80.71, respectively. Total cash proceeds from the purchase of shares under the 1999 ESPP in the years ended December 31, 2022, 2021 and 2020 were $56.6 million, $59.7 million and $58.4 million, respectively. As of December 31, 2022, approximately $5.8 million had been withheld from employees for future purchases under the 1999 ESPP.

Stock-Based Compensation Expense

Components of total stock-based compensation expense included in the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			2022						2021						2020
Cost of revenue			$	28,354					$	27,143					$	24,829
Research and development			78,116						65,950						48,855
Sales and marketing			47,789						46,342						65,257
General and administrative			62,926						63,324						58,470
Total stock-based compensation			217,185						202,759						197,411
Provision for income taxes			(46,829)						(56,084)						(62,153)
Total stock-based compensation, net of taxes			$	170,356					$	146,675					$	135,258

In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the years ended December 31, 2022, 2021 and 2020 also include stock-based compensation reflected as a component of amortization primarily consisting of capitalized internal-use software; the additional stock-based compensation was $31.3 million, $32.4 million and $29.6 million, respectively, before taxes.

The Company uses the Black-Scholes option pricing model to determine the fair value of the Company’s stock option awards. This model requires the input of subjective assumptions, including expected stock price volatility and the estimated term of each award. The estimated fair value of the Company's stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. Expected volatilities are based on the Company’s historical stock price volatility and implied volatility from traded options in its stock. The Company uses historical data to estimate the expected term of options granted within the valuation model. The risk-free interest rate for periods commensurate with the expected term of the option is based on the U.S. Treasury yield rate in effect at the time of grant. The expected dividend yield is zero, as the Company currently does not pay a dividend and does not anticipate doing so in the future.

The grant-date fair values of awards granted under the 1999 ESPP during the years ended December 31, 2022, 2021 and 2020 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

			2022						2021						2020
Expected term (in years)			0.5						0.5						0.5
Risk-free interest rate			1.9		%				0.1		%				0.7		%
Expected volatility			26.0		%				32.2		%				30.4		%
Dividend yield			—		%				—		%				—		%

For the years ended December 31, 2022, 2021 and 2020, the weighted average fair value of awards granted under the 1999 ESPP was $33.26 per share, $36.17 per share and $32.30 per share, respectively.

As of December 31, 2022, total pre-tax unrecognized compensation cost for stock options, restricted stock units, deferred stock units and shares of common stock issued under the 1999 ESPP was $399.3 million. The expense is expected to be recognized through 2025 over a weighted average period of 2.0 years.

Stock Options

Stock option activity during the year ended December 31, 2022 was as follows:

			Shares (in thousands)						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2022			1						$	41.08
Exercised			—						40.44
Outstanding at December 31, 2022			1						$	41.28					0.6						$	43
Exercisable at December 31, 2022			1						$	41.28					0.6						$	43
Vested or expected to vest December 31, 2022			1						$	41.28					0.6						$	43

The total pre-tax intrinsic value of options exercised during the year ended December 31, 2022 was insignificant. The total pre-tax intrinsic value of options exercised during the years ended December 31, 2021 and 2020 were $0.6 million and $1.0 million, respectively. No options vested during the years ended December 31, 2022, 2021 and 2020.

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $84.30 on December 31, 2022, that would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date. The total number of shares issuable upon the exercise of “in-the-money” options exercisable as of December 31, 2022 was 1,002.

Deferred Stock Units

The Company has granted deferred stock units ("DSUs") to non-employee members of its board of directors. Each DSU represents the right to receive one share of the Company’s common stock upon vesting. The holder may elect to defer receipt of the vested shares of stock represented by the DSU for a period of at least one year but not more than ten years from the grant date. DSUs vest 100% on the first anniversary of the grant date. If a director has completed one year of service, vesting of 100% of the DSUs held by such director will accelerate at the time of his or her departure from the board.

DSU activity for the year ended December 31, 2022 was as follows:

			Units (in thousands)						Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022			98						$	72.96
Granted			27						97.40
Vested and distributed			(45)						73.33
Outstanding at December 31, 2022			80						$	81.11

The total pre-tax intrinsic value of DSUs that were vested and distributed during the years ended December 31, 2022, 2021 and 2020 was $4.9 million, $4.1 million and $0.9 million, respectively. The total fair value of DSUs that were vested and distributed during the years ended December 31, 2022, 2021 and 2020 was $3.3 million, $2.7 million and $0.7 million, respectively. The grant-date fair value is calculated based upon the Company’s closing stock price on the date of grant. For the years ended December 31, 2022, 2021 and 2020, the weighted average fair value of DSU awards granted was $97.40 per share, $114.56 per share and $100.58 per share, respectively. As of December 31, 2022, 27,306 DSUs were unvested, with an aggregate intrinsic value of approximately $2.3 million and a weighted average remaining contractual life of approximately 0.4 years. These units are expected to vest in May 2023.

Restricted Stock and Restricted Stock Units

Different types of restricted stock units ("RSUs") granted by the Company during the year ended December 31, 2022 were as follows (in thousands):

			December 31, 2022
RSUs with service-based vesting conditions			3,243
RSUs with market-based vesting conditions			81
RSUs with performance-based vesting conditions			239
Total			3,563

RSUs represent the right to receive one share of the Company’s common stock upon vesting. RSUs are granted at the discretion of the board of directors, a committee thereof or, subject to defined limitations, the Chief Executive Officer of the Company, acting as a committee of one director, to whom such authority has been delegated. The Company has issued RSUs that vest based on the passage of time assuming continued service with the Company, RSUs that vest based upon total shareholder return ("TSR") measured against the benchmark TSR of a peer group and RSUs that vest only upon the achievement of defined performance metrics tied primarily to revenue and earnings targets.

For RSUs with service-based vesting conditions, the fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is being recognized over the vesting period. Most RSUs with service-based vesting provisions vest in installments over a three- or four-year period following the grant date.

The Company uses the Monte Carlo simulation model to determine the fair value of the Company's RSUs based on TSR. This model requires the input of assumptions, including the estimated term of each award, the risk-free interest rate, historical stock price volatility of the Company's shares and historical stock price volatility of peer-company shares. The grant-date fair values of the TSR-based RSUs granted during the years ended December 31, 2022, 2021 and 2020 were estimated using a Monte Carlo simulation model with the following assumptions:

			2022						2021						2020
Expected term (in years)			3.0						3.0						3.0
Risk-free interest rate			1.7		%				0.3		%				0.7		%
Akamai historical share price volatility			30.3		%				32.7		%				28.2		%
Average volatility of peer-company share price			40.7		%				39.6		%				28.9		%

For the years ended December 31, 2022, 2021 and 2020, management measured compensation expense for performance-based RSUs based upon a review of the Company’s expected achievement against specified financial performance targets. Such compensation cost is being recorded using a graded-vesting method for each series of grants of performance-based RSUs, to the extent management has deemed that such awards are probable of vesting based upon the expected achievement against the specified targets. On a periodic basis, management reviews the Company’s expected performance and adjusts the compensation cost, if needed, at such time.

RSU activity for the year ended December 31, 2022 was as follows:

			Units (in thousands)						Weighted Average Grant Date Fair Value
Outstanding at January 1, 2022			4,389						$	95.75
Granted			3,563						107.17
Vested			(2,096)						110.57
Forfeited			(578)						102.92
Outstanding at December 31, 2022			5,278						$	121.92

The shares granted during 2022 and presented in the table above include 172,271 RSUs assumed by the Company as a result of the acquisition of Linode.

The total pre-tax intrinsic value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $227.1 million, $226.4 million and $192.5 million, respectively. The total fair value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $231.7 million, $233.0 million and $198.9 million, respectively. The grant-date fair value of each RSU is calculated based upon the Company’s closing stock price on the date of grant. For the years ended December 31, 2022, 2021 and 2020, the weighted average fair value of RSU awards granted was $107.17 per share, $99.09 per share and $92.42 per share, respectively. As of December 31, 2022, 5.3 million RSUs were outstanding and unvested, with an aggregate intrinsic value of $445.1 million and a weighted average remaining vesting period of approximately 2.3 years. These RSUs are expected to vest on various dates through 2026.

19. Income Taxes

The components of income before provision for income taxes were as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):

			2022						2021						2020
U.S.			$	61,383					$	70,300					$	45,074
Foreign			596,620						657,921						571,008
Income before provision for income taxes			$	658,003					$	728,221					$	616,082

The provision for income taxes consisted of the following for the years ended December 31, 2022, 2021 and 2020 (in thousands):

			2022						2021						2020
Current tax provision (benefit):
Federal			$	49,808					$	11,824					$	(1,765)
State			9,214						8,515						5,346
Foreign			172,645						90,026						76,162
Deferred tax benefit:
Federal			(73,826)						(33,366)						(19,845)
State			(18,657)						(14,611)						(14,509)
Foreign			(16,595)						(4,358)						(6,023)
Change in valuation allowance			4,107						4,541						6,556
Total			$	126,696					$	62,571					$	45,922

The Company’s effective tax rate differed from the U.S. federal statutory tax rate as follows for the years ended December 31, 2022, 2021 and 2020:

			2022						2021						2020
U.S. federal income tax rate			21.0		%				21.0		%				21.0		%
State taxes			0.7						0.7						1.0
Stock-based compensation			2.0						0.1						(0.6)
U.S. federal, state and foreign research and development credits			(5.1)						(3.7)						(4.4)
Foreign earnings			(6.6)						(7.3)						(7.7)
Nondeductible (nontaxable) foreign items			0.7						—						(0.4)
Global intangible low-taxed income			2.5						0.5						0.6
Release of uncertain tax position reserve			(0.7)						(1.0)						(0.9)
Intercompany sale of intellectual property			4.0						—						0.2
Valuation allowance			0.6						0.6						1.1
Other			0.2						(2.3)						(2.4)
			19.3		%				8.6		%				7.5		%

The components of the net deferred tax assets and liabilities and the related valuation allowance as of December 31, 2022 and 2021 were as follows (in thousands):

			2022						2021
Accrued bonus			$	21,181					$	26,261
Deferred revenue			11,925						6,683
Operating lease liabilities			125,567						133,298
Stock-based compensation			19,874						21,507
NOLs			18,172						53,088
Tax credit carryforwards			93,672						88,710
Capitalized research and development costs			43,215						—
Convertible senior notes interest			75,603						18,552
Depreciation and amortization			79,595						85,438
Other			28,879						15,679
Deferred tax assets			517,683						449,216
Acquired intangible assets			(530)						(86,567)
Operating lease right-of-use assets			(113,118)						(124,833)
Deferred commissions			(12,949)						(13,468)
Capitalized internal-use software development costs			(30,559)						(59,837)
Deferred tax liabilities			(157,156)						(284,705)
Valuation allowance			(41,250)						(37,143)
Net deferred tax assets			$	319,277					$	127,368

As summary of activity in the valuation allowance on deferred tax assets for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):

			2022						2021						2020
Beginning balance			$	37,143					$	32,602					$	26,046
Charges to income tax expense			4,392						4,707						6,588
Release of valuation allowance			(285)						(166)						(32)
Ending balance			$	41,250					$	37,143					$	32,602

Valuation allowances will be recognized on deferred tax assets if it is more-likely-than-not that some or all of the deferred tax assets will not be utilized. In measuring deferred tax assets, the Company considers all available evidence, both positive and negative, to determine whether a valuation allowance is needed. As of December 31, 2022, the Company recorded a $41.3 million valuation allowance against deferred tax assets related to state tax credits and state and foreign NOLs in which it is more-likely-than-not that such attributes will expire prior to utilization. The increase in the valuation allowance during 2022 was $4.1 million. The increase in the valuation allowance is primarily related to state tax credits.

The Company's NOL and tax credit carryforwards in U.S. federal, state and foreign jurisdictions as of December 31, 2022 and 2021 were as follows (in thousands, except years):

			2022						2021						Expirations at Various Dates Through:
NOL carryforwards:
Federal			$	30,100					$	44,000					2037
State			22,400						15,500						2042
Foreign			40,100						180,100						2037
Federal and state research and development tax credit and other credit carryforwards			121,300						113,500						2037

The Company's U.S. federal and state NOL carryforwards relate to acquisitions completed in 2022, 2021, 2019, 2017 and 2012.

As of December 31, 2022, accumulated earnings outside the U.S. totaled $1.9 billion, the majority of which have been taxed due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings and the tax on global intangible low taxed income required by the U.S. Tax Cuts and Jobs Act ("TCJA"). No provision for U.S. state income taxes and foreign withholding taxes has been provided for any remaining undistributed foreign earnings not subject to tax under the TCJA, or any additional basis differences inherent in the Company's international subsidiaries, as these amounts continue to be indefinitely reinvested. Determination of the amount of the unrecognized deferred tax liability on outside basis differences is not practicable because of the complexity of laws and regulations, the varying tax treatment of alternative repatriation scenarios and the variation due to multiple potential assumptions relating to the timing of any future repatriation.

The changes in the Company’s unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			2022						2021						2020
Balance at beginning of year			$	22,563					$	24,105					$	27,359
Gross increases – tax positions of prior periods			3,880						4,293						2,539
Gross increases – current period tax positions			45,975						3,607						1,946
Gross decreases – tax positions of prior periods			(688)						(816)						(3,540)
Gross decreases – lapse of applicable statute of limitations			(3,772)						(8,626)						(4,199)
Balance at end of year			$	67,958					$	22,563					$	24,105

As of December 31, 2022, 2021 and 2020, the Company had $38.3 million, $23.1 million and $29.5 million of unrecognized tax benefits, respectively. Total interest and penalties for unrecognized tax benefits includes $8.6 million, $7.2 million and $7.7 million as of December 31, 2022, 2021 and 2020, respectively. Interest and penalties related to unrecognized tax benefits are recorded in the provision for income taxes and were $2.0 million, $0.5 million and $1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. The amount of unrecognized tax benefits that, if recognized, would impact the effective income tax rate is $38.3 million.

As of December 31, 2022, it is reasonably possible that $3.6 million of unrecognized tax benefits may be recognized within the next 12 months due to the expiration of local statutes of limitations. Certain U.S. state and foreign income tax returns from 2013 through 2022 are currently under audit. The Company has reserved for those positions that are not more-likely-than-not to be sustained.

20. Net Income per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of shares issuable pursuant to stock options, RSUs, DSUs, convertible senior notes and warrants issued by the Company. For the year ended December 31, 2022, the dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method and the dilutive effect of the convertible securities is reflected in diluted earnings per share by application of the if-converted method. For the years ended December 31, 2021 and 2020, the dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.

The components used in the computation of basic and diluted net income per share for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands, except per share data):

			2022						2021						2020
Numerator:
Net income			$	523,672					$	651,642					$	557,054
Denominator:
Shares used for basic net income per share			159,089						162,665						162,490
Effect of dilutive securities:
Stock options			21						21						31
RSUs and DSUs			637						1,518						1,819
Convertible senior notes			720						1,600						873
Warrants related to issuance of convertible senior notes			—						—						—
Shares used for diluted net income per share			160,467						165,804						165,213
Basic net income per share			$	3.29					$	4.01					$	3.43
Diluted net income per share			$	3.26					$	3.93					$	3.37

For the years ended December 31, 2022, 2021 and 2020, certain potential outstanding shares from 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 shares excluded from the computation of diluted net income per share for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):

			2022						2021						2020
Service-based RSUs			2,211						776						591
Market- and performance-based RSUs			1,030						1,199						1,409
Convertible senior notes			—						9,898						12,922
Warrants related to issuance of convertible senior notes			21,991						21,991						21,991
Total shares excluded from computation			25,232						33,864						36,913

21. Akamai Foundation

The Akamai Foundation is a private non-profit organization founded in 2000 by certain current and former employees of the Company (the “Foundation”). The Company has the right to appoint the directors of the Foundation, but receives no economic benefit from the Foundation’s initiatives, therefore the Foundation is not consolidated. The Foundation's initiatives are to support youth education, with a focus on mathematics and science, as well as other charitable causes. In 2020, the Foundation expanded its initiatives to include supporting increased diversity in the technology industry. The Company contributed $20.0 million in that year in support of the Foundation's expanded initiatives. This expense is included in general and administrative expenses in the consolidated statements of income for the year ended December 31, 2020.

22. Segment and Geographic Information

The Company’s chief operating decision-maker is the chief executive officer and the executive management team. As of December 31, 2022, the Company is currently organized and operates as one reportable and operating segment. The Company is not organized by market and is managed and operated as one business. A single management team that reports to the chief executive officer comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its services. Accordingly, the Company does not accumulate discrete financial information with respect to separate entities and does not have separate operating or reportable segments.

The Company deploys its servers into networks worldwide. Net property and equipment, excluding internal-use software and operating lease right-of-use assets, located in the U.S. and foreign locations, as of December 31, 2022 and 2021 was as follows (in thousands):

			December 31, 2022						December 31, 2021
Property and equipment, net, excluding internal-use software, located in the U.S.			$	568,590					$	568,040
Property and equipment, net, excluding internal-use software, located in foreign locations			516,127						510,695
Operating lease right-of-use assets located in the U.S.			608,854						625,424
Operating lease right-of-use assets located in foreign locations			204,518						190,330

23. Quarterly Financial Data (Unaudited)

Revision of Previously Issued Financial Statements

During the preparation of the financial statements for the year ended December 31, 2022, an error was identified in the Company’s accounting for an intercompany sale of intellectual property that occurred during 2022. During each of the first three quarters of 2022, the Company failed to record a deferred tax asset in the jurisdiction where the intellectual property was sold for the step up in tax basis that was achieved with the sale. This caused net deferred taxes to be understated in the interim condensed consolidated balance sheets, the provision for income taxes to be overstated and net income and earnings per share to be understated in the interim condensed consolidated statements of income. Management evaluated the error and determined that the related impact was not material to any of the Company's previously issued financial statements.

The financial data below has been derived from the Company’s quarterly reports on Form 10-Q filed for the respective periods, with 2022 periods adjusted to reflect the impact of the error. The Company will also correct previously reported financial information for this error in its future filings, as applicable.

(in thousands, except per share data)			First Quarter						Second Quarter						Third Quarter						Fourth Quarter
Year ended December 31, 2022
Revenue			$	903,647					$	903,332					$	881,896					$	927,779
Cost of revenue (exclusive of amortization of acquired intangible assets)			332,752						346,649						346,450						357,968
Net income			133,376						137,840						123,694						128,762
Basic net income per share			0.83						0.86						0.78						0.82
Diluted net income per share			0.82						0.85						0.78						0.82
Year ended December 31, 2021
Revenue			$	842,708					$	852,824					$	860,333					$	905,358
Cost of revenue (exclusive of amortization of acquired intangible assets)			306,687						320,000						316,866						325,403
Net income			155,695						156,497						178,916						160,534
Basic net income per share			0.95						0.96						1.10						0.99
Diluted net income per share			0.94						0.94						1.08						0.97

The changes to the condensed consolidated balance sheets as a result of the error were as follows (in thousands):

			As Previously Reported						Adjustment						As Revised
March 31, 2022
Deferred income tax assets			$	265,946					$	8,610					$	274,556
Total assets			8,303,779						8,610						8,312,389
Deferred income tax liabilities			41,131						(5,603)						35,528
Total liabilities			4,003,257						(5,603)						3,997,654
Retained earnings			1,515,842						14,213						1,530,055
Total stockholders’ equity			4,300,522						14,213						4,314,735
Total liabilities and stockholders’ equity			8,303,779						8,610						8,312,389
June 30, 2022
Deferred income tax assets			$	292,817					$	19,698					$	312,515
Total assets			8,211,054						19,698						8,230,752
Deferred income tax liabilities			39,367						(12,818)						26,549
Total liabilities			3,930,576						(12,818)						3,917,758
Retained earnings			1,635,379						32,516						1,667,895
Total stockholders’ equity			4,280,478						32,516						4,312,994
Total liabilities and stockholders’ equity			8,211,054						19,698						8,230,752
September 30, 2022
Deferred income tax assets			$	285,722					$	29,112					$	314,834
Total assets			8,107,369						29,112						8,136,481
Deferred income tax liabilities			38,146						(18,944)						19,202
Total liabilities			3,874,185						(18,944)						3,855,241
Retained earnings			1,743,533						48,056						1,791,589
Total stockholders’ equity			4,233,184						48,056						4,281,240
Total liabilities and stockholders’ equity			8,107,369						29,112						8,136,481

Changes to the condensed consolidated statements of income as a result of the error were as follows (in thousands, except per share data):

			For the Three Months Ended March 31, 2022
			As Previously Reported						Adjustment						As Revised
Provision for income taxes			$	(34,050)					$	14,213					$	(19,837)
Net income			119,163						14,213						133,376
Net income per share:
Basic			$	0.74					$	0.09					$	0.83
Diluted			$	0.73					$	0.09					$	0.82

			For the Three Months Ended June 30, 2022																		For the Six Months Ended June 30, 2022
			As Previously Reported						Adjustment						As Revised						As Previously Reported						Adjustment						As Revised
Provision for income taxes			$	(51,058)					$	18,303					$	(32,755)					$	(85,108)					$	32,516					$	(52,592)
Net income			119,537						18,303						137,840						238,700						32,516						271,216
Net income per share:
Basic			$	0.75					$	0.11					$	0.86					$	1.49					$	0.20					$	1.69
Diluted			$	0.74					$	0.11					$	0.85					$	1.47					$	0.20					$	1.67

			For the Three Months Ended September 30, 2022																		For the Nine Months Ended September 30, 2022
			As Previously Reported						Adjustment						As Revised						As Previously Reported						Adjustment						As Revised
Provision for income taxes			$	(50,006)					$	15,540					$	(34,466)					$	(135,114)					$	48,056					$	(87,058)
Net income			108,154						15,540						123,694						346,854						48,056						394,910
Net income per share:
Basic			$	0.68					$	0.10					$	0.78					$	2.17					$	0.30					$	2.47
Diluted			$	0.68					$	0.10					$	0.78					$	2.15					$	0.30					$	2.45

The condensed consolidated statements of shareholders' equity, condensed consolidated statements of cash flows and condensed consolidated statements of comprehensive income for the quarterly and year-to-date periods ended March 31, 2022, June 30, 2022 and September 30, 2022 were also revised to reflect the impact to net income as stated in the tables above. The benefit for deferred income tax line was also adjusted in the condensed consolidated statement of cash flows, however, the error had no net impact on cash flows from operating, investing or financing activities in these periods.