Item 1. Financial Statements (Unaudited)

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Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands, except share data) (unaudited)	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,264,590	$	352,917
Marketable securities	652,695		745,156
Accounts receivable, net of reserves of $2,268 and $1,822 at September 30, 2021, and December 31, 2020, respectively	660,092		660,052
Prepaid expenses and other current assets	184,503		171,406
Total current assets	2,761,880		1,929,531
Marketable securities	835,074		1,398,802
Property and equipment, net	1,543,301		1,478,272
Operating lease right-of-use assets	821,033		793,945
Acquired intangible assets, net	203,596		234,724
Goodwill	1,680,496		1,674,371
Deferred income tax assets	136,305		106,918
Other assets	133,790		147,567
Total assets	$	8,115,475	$	7,764,130

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS, continued


(in thousands, except share data) (unaudited)	September 30, 2021		December 31, 2020















LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	98,305	$	118,546
Accrued expenses	376,036		380,468
Deferred revenue	83,371		76,600

Operating lease liabilities	164,559		154,801
Other current liabilities	9,169		27,755
Total current liabilities	731,440		758,170
Deferred revenue	5,355		5,262
Deferred income tax liabilities	35,333		37,458
Convertible senior notes	1,958,558		1,906,707
Operating lease liabilities	722,294		715,404
Other liabilities	80,050		89,833
Total liabilities	3,533,030		3,512,834
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding	—		—
Common stock, $0.01 par value; 700,000,000 shares authorized; 164,733,227 shares issued and 162,424,440 shares outstanding at September 30, 2021, and 162,709,720 shares issued and outstanding at December 31, 2020	1,647		1,627
Additional paid-in capital	3,789,623		3,664,820
Accumulated other comprehensive loss	(53,726)		(20,201)
Treasury stock, at cost, 2,308,787 shares at September 30, 2021, and no shares at December 31, 2020	(251,257)		—
Retained earnings	1,096,158		605,050
Total stockholders’ equity	4,582,445		4,251,296
Total liabilities and stockholders’ equity	$	8,115,475	$	7,764,130

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

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands, except per share data) (unaudited)	2021		2020		2021		2020
Revenue	$	860,333	$	792,845	$	2,555,865	$	2,351,862
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	316,866		283,439		943,553		828,825
Research and development	82,899		66,773		242,199		202,087
Sales and marketing	108,514		122,749		336,762		370,004
General and administrative	134,265		128,365		405,275		385,435
Amortization of acquired intangible assets	11,959		10,340		35,446		31,155
Restructuring charge	565		21		5,567		10,439
Total costs and operating expenses	655,068		611,687		1,968,802		1,827,945
Income from operations	205,265		181,158		587,063		523,917
Interest income	2,872		6,307		12,186		22,852
Interest expense	(18,144)		(17,324)		(54,015)		(51,778)
Other income (expense), net	3,635		(2,158)		2,007		(7,869)
Income before provision for income taxes	193,628		167,983		547,241		487,122
Provision for income taxes	(13,648)		(8,801)		(43,555)		(41,764)
Loss from equity method investment	(1,064)		(559)		(12,578)		(1,674)
Net income	$	178,916	$	158,623	$	491,108	$	443,684
Net income per share:
Basic	$	1.10	$	0.97	$	3.01	$	2.73
Diluted	$	1.08	$	0.95	$	2.96	$	2.69
Shares used in per share calculations:
Basic	162,767		162,757		162,967		162,387
Diluted	166,318		166,519		166,090		164,990

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

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(in thousands) (unaudited)	2021		2020		2021		2020
Net income	$	178,916	$	158,623	$	491,108	$	443,684
Other comprehensive (loss) income:
Foreign currency translation adjustments	(21,160)		13,177		(28,444)		(7,292)
Change in unrealized (loss) gain on investments, net of income tax benefit (provision) of $353, $559, $1,700, and $(3,120) for the three and nine months ended September 30, 2021 and 2020, respectively	(1,009)		(1,724)		(5,081)		6,582
Other comprehensive (loss) income	(22,169)		11,453		(33,525)		(710)
Comprehensive income	$	156,747	$	170,076	$	457,583	$	442,974

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

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Nine Months Ended September 30,
(in thousands) (unaudited)	2021		2020
Cash flows from operating activities:
Net income	$	491,108	$	443,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	408,933		350,681
Stock-based compensation	153,804		146,901
Benefit for deferred income taxes	(30,335)		(22,548)
Amortization of debt discount and issuance costs	49,284		47,057

Other non-cash reconciling items, net	12,015		16,284
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(15,225)		(85,439)
Prepaid expenses and other current assets	(15,099)		(21,380)
Accounts payable and accrued expenses	(16,263)		49,818
Deferred revenue	8,263		14,803
Other current liabilities	(17,958)		(1,638)
Other non-current assets and liabilities	(10,864)		(14,316)
Net cash provided by operating activities	1,017,663		923,907
Cash flows from investing activities:
Cash (paid) received for business acquisitions, net of cash acquired	(15,638)		106
Cash paid for asset acquisition	—		(36,376)

Purchases of property and equipment	(265,131)		(395,793)
Capitalization of internal-use software development costs	(170,404)		(168,634)
Purchases of short- and long-term marketable securities	(611,732)		(1,153,526)
Proceeds from sales of short- and long-term marketable securities	438,370		29,809
Proceeds from maturities of short- and long-term marketable securities	823,255		1,301,354
Other, net	(1,665)		(1,980)
Net cash provided by (used in) investing activities	197,055		(425,040)
Cash flows from financing activities:




Proceeds related to the issuance of common stock under stock plans	46,942		45,812
Employee taxes paid related to net share settlement of stock-based awards	(88,195)		(77,299)
Repurchases of common stock	(251,257)		(121,078)
Other, net	(268)		—
Net cash used in financing activities	(292,778)		(152,565)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(9,228)		3,535
Net increase in cash, cash equivalents and restricted cash	912,712		349,837
Cash, cash equivalents and restricted cash at beginning of period	353,466		394,146
Cash, cash equivalents and restricted cash at end of period	$	1,266,178	$	743,983

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	For the Nine Months Ended September 30,
(in thousands) (unaudited)	2021		2020






































Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $14,261 and $16,674 for the nine months ended September 30, 2021 and 2020, respectively	$	82,003	$	31,634
Cash paid for interest expense	5,031		5,235
Cash paid for operating lease liabilities	167,457		144,322
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	173,427		128,177
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses	56,401		48,357
Capitalization of stock-based compensation	28,271		28,487

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	1,264,590	$	742,521
Restricted cash	1,588		1,462
Cash, cash equivalents and restricted cash	$	1,266,178	$	743,983

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

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Three Months Ended September 30, 2021
(in thousands, except share data) (unaudited)	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
Shares		Amount
Balance at July 1, 2021	163,018,768		$	1,645	$	3,743,743	$	(31,557)	$	(154,416)	$	917,242	$	4,476,657

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	252,204		2		(11,868)								(11,866)

Stock-based compensation					57,748								57,748



Repurchases of common stock	(846,532)								(96,841)				(96,841)

Net income											178,916		178,916
Foreign currency translation adjustment							(21,160)						(21,160)
Change in unrealized loss on investments, net of tax							(1,009)						(1,009)
Balance at September 30, 2021	162,424,440		$	1,647	$	3,789,623	$	(53,726)	$	(251,257)	$	1,096,158	$	4,582,445


	Three Months Ended September 30, 2020
(in thousands, except share data) (unaudited)	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
Shares		Amount
Balance at July 1, 2020	162,630,477		$	1,638	$	3,734,787	$	(57,307)	$	(107,880)	$	333,057	$	3,904,295

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes	289,304		3		(13,390)								(13,387)

Stock-based compensation					59,831								59,831



Repurchases of common stock	(119,997)								(13,198)				(13,198)

Net income											158,623		158,623
Foreign currency translation adjustment							13,177						13,177
Change in unrealized loss on investments, net of tax							(1,724)						(1,724)
Balance at September 30, 2020	162,799,784		$	1,641	$	3,781,228	$	(45,854)	$	(121,078)	$	491,680	$	4,107,617

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Nine Months Ended September 30, 2021
(in thousands, except share data) (unaudited)	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
Shares		Amount
Balance at January 1, 2021	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	1,665,123		16		(88,763)								(88,747)
Issuance of common stock under employee stock purchase plan	358,384		4		31,527								31,531
Stock-based compensation					182,039								182,039



Repurchases of common stock	(2,308,787)								(251,257)				(251,257)

Net income											491,108		491,108
Foreign currency translation adjustment							(28,444)						(28,444)
Change in unrealized loss on investments, net of tax							(5,081)						(5,081)
Balance at September 30, 2021	162,424,440		$	1,647	$	3,789,623	$	(53,726)	$	(251,257)	$	1,096,158	$	4,582,445

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Nine Months Ended September 30, 2020
(in thousands, except share data) (unaudited)	Common Stock				Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Treasury Stock		Retained Earnings		Total Stockholders' Equity
Shares		Amount
Balance as of 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	1,667,888		17		(76,696)								(76,679)
Issuance of common stock under employee stock purchase plan	393,921		4		29,166								29,170
Stock-based compensation					175,272								175,272



Repurchases of common stock	(1,262,868)								(121,078)				(121,078)

Net income											443,684		443,684
Foreign currency translation adjustment							(7,292)						(7,292)
Change in unrealized gain on investments, net of tax							6,582						6,582
Balance as of September 30, 2020	162,799,784		$	1,641	$	3,781,228	$	(45,854)	$	(121,078)	$	491,680	$	4,107,617

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

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AKAMAI TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

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

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

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission on February 26, 2021. The December 31, 2020 consolidated balance sheet included herein is derived from the Company's audited consolidated financial statements.

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

Recent Accounting Pronouncements

Convertible Instruments and Contracts in an Entity's Own Equity

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

Upon adoption, the convertible senior notes included on the Company's consolidated balance sheet will more closely reflect the principal amounts. Initially, the Company separated its convertible senior notes into a liability and equity component. The equity portion will be eliminated, such that convertible senior notes will increase and additional paid-in capital will decrease on the consolidated balance sheet. With the elimination of the debt discount created by the equity component, amortization of the debt discount will also be eliminated, which will have the impact of decreasing interest expense and increasing net income. Refer to Note 7 to the condensed consolidated financial statements for additional information regarding the initial accounting for the notes and balances as of September 30, 2021.

The new guidance also impacts the accounting for diluted net income per share, which the Company is continuing to evaluate, along with finalizing all impacts of adopting this new standard on its consolidated financial statements.

Business Combinations

In October 2021, the FASB issued guidance which requires contract assets and contract liabilities from contracts with customers that are acquired in a business combination to be recognized and measured as if the acquirer had originated the original contract. Previously, contract assets and contract liabilities were measured at fair value. The Company plans to early adopt this guidance in the fourth quarter of 2021, which will require retrospective adoption to all business combinations completed on or after January 1, 2021, and prospectively to all business combinations occurring after adoption. The adoption will not have a material impact to the Company's results of operations in 2021.

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2. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of September 30, 2021 and December 31, 2020 (in thousands):


			Gross Unrealized						Classification on Balance Sheet
	Amortized Cost		Gains		Losses		Aggregate Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
As of September 30, 2021

Commercial paper	$	79,744	$	2	$	(9)	$	79,737	$	79,737	$	—
Corporate bonds	1,097,056		3,100		(378)		1,099,778		507,238		592,540
U.S. government agency obligations	285,903		44		(122)		285,825		64,951		220,874
	$	1,462,703	$	3,146	$	(509)	$	1,465,340	$	651,926	$	813,414

As of December 31, 2020
Commercial paper	$	46,931	$	13	$	(8)	$	46,936	$	46,936	$	—
Corporate bonds	1,628,462		9,482		(262)		1,637,682		607,403		1,030,279
Municipal securities	3,495		—		(6)		3,489		—		3,489
U.S. government agency obligations	435,653		329		(63)		435,919		89,951		345,968
	$	2,114,541	$	9,824	$	(339)	$	2,124,026	$	744,290	$	1,379,736

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 condensed 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 condensed consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest income in the condensed consolidated statements of income. As of September 30, 2021, the Company held for investment one corporate bond with a fair value of $1.5 million, which was classified as an available-for-sale marketable security that had been in a continuous unrealized loss position for more than 12 months. The unrealized loss is attributed to changes in interest rates. Based on available evidence, the Company does not believe any unrealized losses represent other than temporary impairments.

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The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of September 30, 2021 and December 31, 2020 (in thousands):


	Total Fair Value			Fair Value Measurements at Reporting Date Using
			Level 1			Level 2
As of September 30, 2021
Cash Equivalents and Marketable Securities:
Money market funds	$	1,784		$	1,784		$	—

Commercial paper	121,537			—			121,537
Corporate bonds	1,099,778			—			1,099,778
U.S. government agency obligations	302,525			—			302,525
Mutual funds	22,429			22,429			—
	$	1,548,053		$	24,213		$	1,523,840




As of December 31, 2020
Cash Equivalents and Marketable Securities:
Money market funds	$	74,417		$	74,417		$	—
Commercial paper	75,785			—			75,785
Corporate bonds	1,637,682			—			1,637,682
Municipal securities	3,489			—			3,489
U.S. government agency obligations	435,919			—			435,919
Mutual funds	19,932			19,932			—
	$	2,247,224		$	94,349		$	2,152,875

As of September 30, 2021 and December 31, 2020, the Company grouped money market funds and mutual funds using a Level 1 valuation because market prices for such investments are readily available in active markets. As of September 30, 2021 and December 31, 2020, the Company grouped commercial paper, U.S. government agency obligations, corporate bonds and municipal securities 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 between Level 1, Level 2 or Level 3 of the fair value measurement hierarchy during the nine months ended September 30, 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 primarily use market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

Contractual maturities of the Company’s available-for-sale marketable securities held as of September 30, 2021 and December 31, 2020 were as follows (in thousands):


	September 30, 2021		December 31, 2020
Due in 1 year or less	$	651,926	$	744,290
Due after 1 year through 5 years	813,414		1,379,736
	$	1,465,340	$	2,124,026

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3. Accounts Receivable

Net accounts receivable consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Trade accounts receivable	$	479,267	$	473,474
Unbilled accounts receivable	183,093		188,400
Gross accounts receivable	662,360		661,874
Allowances for current expected credit losses and other reserves	(2,268)		(1,822)
Accounts receivable, net	$	660,092	$	660,052

The following table summarizes the activity of the Company's allowance for current expected credit losses and other reserves during the nine months ended September 30, 2021 and 2020 (in thousands):


	September 30, 2021		September 30, 2020
Beginning balance	$	1,822	$	1,880
Charges to income from operations	3,510		10,354
Collections from customers previously reserved and other	(3,064)		(8,538)
Ending balance	$	2,268	$	3,696

Charges to income from operations primarily represents charges to bad debt expense for increases in the allowance for current expected credit losses. The allowance for current expected credit losses has been developed using historical loss rates for the previous twelve months as well as expectations about the future where the Company has been able to develop forecasts to support its estimates.

4. Incremental Costs to Obtain a Contract with a Customer

The following table summarizes the deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Deferred costs included in prepaid and other current assets	$	42,299	$	54,516
Deferred costs included in other assets	27,551		23,200
Total deferred costs	$	69,850	$	77,716

The following table summarizes additional information related to incremental costs to obtain a contract with a customer for each of the three and nine month periods ended September 30, 2021 and 2020 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Amortization expense related to deferred costs	$	14,901	$	14,816	$	43,304	$	45,007
Incremental costs capitalized	$	13,164	$	16,550	$	36,957	$	39,925

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

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5. Acquired Intangible Assets and Goodwill

Acquired intangible assets that are subject to amortization consisted of the following as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Completed technology	$	179,254	$	(123,963)	$	55,291	$	172,346	$	(111,435)	$	60,911
Customer-related intangible assets	355,189		(208,798)		146,391		358,032		(186,733)		171,299
Non-compete agreements	353		(170)		183		373		(77)		296
Trademarks and trade names	7,647		(5,916)		1,731		7,658		(5,440)		2,218
Acquired license rights	490		(490)		—		490		(490)		—
Total	$	542,933	$	(339,337)	$	203,596	$	538,899	$	(304,175)	$	234,724

Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2021 was $12.0 million and $35.4 million, respectively. Aggregate expense related to amortization of acquired intangible assets for the three and nine months ended September 30, 2020 was $10.3 million and $31.2 million, respectively. Based on the Company’s acquired intangible assets as of September 30, 2021, aggregate expense related to amortization of acquired intangible assets is expected to be $12.1 million for the remainder of 2021, and $44.3 million, $36.9 million, $29.2 million and $23.7 million for 2022, 2023, 2024 and 2025, respectively.

The change in the carrying amount of goodwill for the nine months ended September 30, 2021 was as follows (in thousands):


Balance as of January 1, 2021	$	1,674,371
Acquisition of Inverse, Inc.	10,741
Measurement period adjustments related to acquisitions completed in prior years	(267)
Foreign currency translation	(4,349)
Balance as of September 30, 2021	$	1,680,496

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

6. Acquisitions

Guardicore

In September 2021, the Company announced its intention to acquire Guardicore Ltd. ("Guardicore"), for approximately $600.0 million, net of cash acquired and subject to post-closing adjustments. 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. The acquisition closed in October 2021. Due to the limited time since the acquisition date, and the size and complexity of the transaction, the accounting for the business combination is not yet complete as of the filing of these condensed consolidated financial statements. The Company is not able to provide the allocation of consideration paid to the assets acquired or liabilities assumed, but it is expected that the transaction will result in an increase to the Company’s acquired intangible assets and goodwill.

Inverse

In February 2021, the Company acquired 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. The acquired goodwill and intangible assets are partially offset by acquired

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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. Pro forma results of operations, as well as the revenue and earnings generated by Inverse since its acquisition and included in the Company's results of operations, were not presented since they are not material. The allocation of the purchase price has not been finalized as of the filing of these financial statements.

7. Debt

Convertible Notes – Due 2027

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

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

during any calendar quarter commencing after the calendar quarter ended December 31, 2019 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2027 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events.

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

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

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

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

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The 2027 Notes consisted of the following components as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(175,935)		(196,359)
Net carrying amount	$	974,065	$	953,641

Equity component:	$	220,529	$	220,529

The estimated fair value of the 2027 Notes at September 30, 2021 and December 31, 2020 was $1,271.8 million and $1,277.8 million, respectively. The fair value was determined based on the quoted price of the 2027 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the closing price of the Company's common stock of $104.59 on September 30, 2021, 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 working capital, share repurchases, potential acquisitions and strategic transactions and other corporate purposes.

Note Hedge

To minimize the impact of potential dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in August 2019. The Company paid $312.2 million for the note hedge transactions. The note hedge transactions cover approximately 9.9 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2027 Notes, also subject to adjustment, and are exercisable upon conversion of the 2027 Notes. The 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 pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The 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 condensed 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, shares of the Company's common stock or a combination of cash and 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 condensed consolidated financial statements.

Convertible Notes – Due 2025

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

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

during any calendar quarter commencing after the calendar quarter ended June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of 2025 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company's common stock and the conversion rate on each such trading day; or
upon the occurrence of specified corporate events.

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

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

In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying cost of the liability component was calculated by measuring the fair value of a similar debt obligation that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2025 Notes. The difference between the principal amount of the 2025 Notes and the proceeds allocated to the liability component (“debt discount”) is amortized to interest expense using the effective interest method over the term of the 2025 Notes. The equity component is recorded in additional paid-in capital in the condensed consolidated balance sheet and will not be remeasured as long as it continues to meet the conditions for equity classification.

In accounting for the transaction costs related to the issuance of the 2025 Notes, the Company allocated the total transaction costs incurred to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are being amortized to interest expense over the term of the 2025 Notes, and transaction costs attributable to the equity component are netted against the equity component of the 2025 Notes in stockholders’ equity.

The 2025 Notes consisted of the following components as of September 30, 2021 and December 31, 2020 (in thousands):


	September 30, 2021		December 31, 2020
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(165,507)		(196,934)
Net carrying amount	$	984,493	$	953,066

Equity component:	$	285,225	$	285,225

The estimated fair value of the 2025 Notes at September 30, 2021 and December 31, 2020 was $1,396.1 million and $1,422.8 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 $104.59 on September 30, 2021, the value of the 2025 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

The Company used $46.2 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2025 Notes. The repurchase was made in accordance with a share repurchase program previously

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approved by the board of directors. Additionally, $141.8 million of the proceeds was used for the net cost of convertible note hedge and warrant transactions. The Company also used a portion of the net proceeds to repay at maturity the $690.0 million in par value of convertible senior notes due in 2019.

Note Hedge

To minimize the impact of potential dilution upon conversion of the 2025 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in May 2018. The Company paid $261.7 million for the note hedge transactions. The note hedge transactions cover approximately 12.1 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2025 Notes, also subject to adjustment, and are exercisable upon conversion of the 2025 Notes. The 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 pay or deliver to holders cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The 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 condensed 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, shares of the Company's common stock or a combination of cash and 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 condensed consolidated financial statements.

Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “Credit Agreement”). Borrowings under the Credit Agreement may be used to finance working capital needs and for general corporate purposes. The Credit Agreement provides for an initial $500.0 million in revolving loans. Under specified circumstances, the facility can be increased to up to $1.0 billion in aggregate principal amount. The Credit Agreement expires in May 2023.

Borrowings under the Credit Agreement bear interest, at the Company's option, at a base rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the Credit Agreement. Regardless of what amounts, if any, are outstanding under the Credit Agreement, the Company is also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.075% to 0.15%, with such rate being based on the Company's consolidated leverage ratio specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. Principal covenants include a maximum consolidated leverage ratio and a minimum consolidated interest coverage ratio. There were no outstanding borrowings under the Credit Agreement as of September 30, 2021.

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Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%. The interest is payable semi-annually on March 1 and September 1 of each year. The 2027 Notes have an effective interest rate of 3.1% attributable to the conversion feature. The 2025 Notes bear interest at a fixed rate of 0.125%. The interest is payable semi-annually on May 1 and November 1 of each year. The 2025 Notes have an effective interest rate of 4.26% attributable to the conversion feature. The Company is also obligated to pay ongoing commitment fees under the terms of the Credit Agreement. The following table sets forth total interest expense included in the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Amortization of debt discount and issuance costs	$	17,504	$	16,866	$	52,029	$	50,130
Coupon interest payable on 2025 Notes	358		360		1,076		1,078
Coupon interest payable on 2027 Notes	1,078		1,078		3,234		3,234
Revolving credit facility contractual interest expense	141		139		421		409
Capitalization of interest expense	(937)		(1,119)		(2,745)		(3,073)
Total interest expense	$	18,144	$	17,324	$	54,015	$	51,778

8. Restructuring

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 incurred expenses of $31.6 million as part of this action, of which $0.4 million and $7.9 million was incurred during the three and nine months ended September 30, 2021, respectively. The Company does not expect to incur material additional charges related to this action.

During the fourth quarter of 2019, management committed to an action to restructure certain parts of the Company to focus on investments with the potential to accelerate revenue growth. As a result, certain headcount reductions were necessary, 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 and an impairment of a right-of-use asset was recognized related to exiting a facility no longer needed. The Company has incurred restructuring charges of $20.6 million as part of this action, of which an insignificant amount was incurred during the three months ended September 30, 2020 and a charge of $10.4 million was incurred during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, a benefit of $2.8 million was recorded to reflect the release by the landlord of the remaining lease obligation for the exited facility. No additional charges related to this action are expected.

The Company also recognizes restructuring charges for redundant employees, facilities and contracts associated with completed acquisitions.

The following table summarizes the activity of the Company's accrual for employee severance and related benefits for all restructuring actions during the nine months ended September 30, 2021 (in thousands):


Balance as of January 1, 2021	$	22,051
Costs incurred	5,194
Cash disbursements	(23,856)
Translation adjustments and other	(300)
Balance as of September 30, 2021	$	3,089

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9. Stockholders’ Equity

Share Repurchase Program

Effective November 2018, the board of directors of the Company authorized a $1.1 billion share repurchase program through December 2021. In October 2021, the board of directors authorized a new $1.8 billion share repurchase program, effective January 1, 2022 through December 31, 2024. As of September 30, 2021, the Company had $320.6 million remaining on its prior authorization which is expiring on December 31, 2021. 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 three and nine months ended September 30, 2021, the Company repurchased 0.8 million and 2.3 million shares of its common stock, respectively, for $96.8 million and $251.3 million, respectively.

Stock-Based Compensation

The following table summarizes stock-based compensation included in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	6,738	$	6,384	$	20,708	$	18,374
Research and development	16,329		12,722		50,635		36,336
Sales and marketing	10,973		16,809		34,998		48,555
General and administrative	14,978		14,302		47,463		43,636
Total stock-based compensation	49,018		50,217		153,804		146,901
Provision for income taxes	(11,683)		(15,604)		(40,245)		(45,063)
Total stock-based compensation, net of income taxes	$	37,335	$	34,613	$	113,559	$	101,838

In addition to the amounts of stock-based compensation reported in the table above, the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2021 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.9 million and $24.5 million, respectively, before taxes, and for the three and nine months ended September 30, 2020 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.1 million and $21.9 million, respectively, before taxes.

10. Accumulated Other Comprehensive Loss

The following table summarizes the changes in accumulated other comprehensive loss, net of tax, which is reported as a component of stockholders' equity, for the nine months ended September 30, 2021 (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	(28,444)		(5,081)		(33,525)
Balance as of September 30, 2021	$	(61,739)	$	8,013	$	(53,726)

There were no amounts reclassified from accumulated other comprehensive loss to net income for the nine months ended September 30, 2021.

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11. Revenue from Contracts with Customers

The Company sells its solutions through a sales force located both domestically and abroad. Revenue derived from operations outside of the U.S. is determined based on the country in which the sale originated. Other than the U.S., no single country accounted for 10% or more of the Company’s total revenue for any reported period. The following table summarizes revenue by geography included in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
U.S.	$	448,792	$	437,381	$	1,361,525	$	1,309,979
International	411,541		355,464		1,194,340		1,041,883
Total revenue	$	860,333	$	792,845	$	2,555,865	$	2,351,862

Leveraging its Intelligent Edge Platform and a global sales organization, the Company offers solutions that are developed and maintained through two groups: the Security Technology Group and the Edge Technology Group. The Security Technology Group includes solutions that are designed to protect business online by keeping infrastructure, websites, applications and users safe, while the Edge Technology Group includes solutions that are designed to enable business online, including media delivery, web performance and edge computing solutions. The following table summarizes revenue by product group included in the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Security Technology Group	$	334,649	$	265,869	$	969,996	$	765,485
Edge Technology Group	525,684		526,976		1,585,869		1,586,377
Total revenue	$	860,333	$	792,845	$	2,555,865	$	2,351,862

Most security and content delivery 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 traffic commitments that expire each period. A small percentage of the Company's services are satisfied at a point in time, such as one-time professional services contracts, integration services and most license sales where the primary obligation is delivery of the license at the start of the term. In these cases, revenue is recognized at a point in time of delivery or satisfaction of the performance obligation.

During the nine months ended September 30, 2021 and 2020, the Company recognized $72.2 million and $66.0 million of revenue that was included in deferred revenue as of December 31, 2020 and 2019, respectively.

As of September 30, 2021, the aggregate amount of remaining performance obligations from contracts with customers was $2.8 billion. The Company expects to recognize approximately 70% 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 each of the nine months ended September 30, 2021 and 2020, related to performance obligations satisfied in previous periods was not material.

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12. Income Taxes

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

In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting adverse audit findings related to certain tax benefits and exemptions. In July 2020, the MATB ruled in the Company’s favor; however, the decision is eligible for appeal by the Massachusetts Department of Revenue. The Company has determined that it is more-likely-than-not that it will ultimately prevail in the event of any such appeal. Accordingly, no reserve has been recorded related to these controversies. The Company has, however, estimated that an adverse ruling could result in a gross income tax charge of approximately $48.0 million, which may be partially offset by certain state tax credits of $30.0 million, which the Company does not currently benefit from as a result of the Company's valuation allowance assessment.

The Company’s effective income tax rate was 8.0% and 8.6% for the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation, the revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and state taxes.

For the nine months ended September 30, 2020, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by non-deductible stock-based compensation and state taxes.

13. Net Income per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the applicable period. Diluted net income per share is computed using the weighted average number of common shares outstanding during the period, plus the dilutive effect of potential common stock. Potential common stock consists of shares issuable pursuant to stock options, restricted stock units ("RSUs"), deferred stock units ("DSUs"), convertible senior notes and warrants issued by the Company. The dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.

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The following table sets forth the components used in the computation of basic and diluted net income per share for the three and nine months ended September 30, 2021 and 2020 (in thousands, except per share data):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator:
Net income	$	178,916	$	158,623	$	491,108	$	443,684
Denominator:
Shares used for basic net income per share	162,767		162,757		162,967		162,387
Effect of dilutive securities:
Stock options	3		6		19		27
RSUs and DSUs	1,520		2,024		1,515		1,781
Convertible senior notes	2,028		1,732		1,589		795
Warrants related to issuance of convertible senior notes	—		—		—		—
Shares used for diluted net income per share	166,318		166,519		166,090		164,990
Basic net income per share	$	1.10	$	0.97	$	3.01	$	2.73
Diluted net income per share	$	1.08	$	0.95	$	2.96	$	2.69

For the three and nine months ended September 30, 2021 and 2020, certain potential outstanding common shares issuable in respect of stock options, service-based RSUs, convertible notes and warrants were excluded from the computation of diluted net income per share because the effect of including these items was anti-dilutive. Additionally, certain performance-based RSUs were excluded from the computation of diluted net income per share because the underlying performance conditions for such RSUs had not been met as of these dates. The number of potentially outstanding common shares excluded from the computation of diluted net income per share for the three and nine months ended September 30, 2021 and 2020 are as follows (in thousands):


	For the Three Months Ended September 30,		For the Nine Months Ended September 30,
	2021	2020	2021	2020

Service-based RSUs	149	116	811	751
Market- and performance-based RSUs	1,189	1,383	1,248	1,418
Convertible senior notes	9,898	9,898	9,898	13,929
Warrants related to issuance of convertible senior notes	21,991	21,991	21,991	21,991
Total shares excluded from computation	33,227	33,388	33,948	38,089

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