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)	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	426,710	$	536,725
Marketable securities	263,979		541,470
Accounts receivable, net of reserves of $2,012 and $1,397 at June 30, 2022, and December 31, 2021, respectively	668,425		675,926
Prepaid expenses and other current assets	207,043		166,313
Total current assets	1,566,157		1,920,434
Marketable securities	640,668		1,088,048
Property and equipment, net	1,541,875		1,534,329
Operating lease right-of-use assets	797,313		815,754
Acquired intangible assets, net	476,707		313,225
Goodwill	2,763,828		2,156,254
Deferred income tax assets	292,817		168,342
Other assets	131,689		142,287
Total assets	$	8,211,054	$	8,138,673

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS, continued


(in thousands, except share data) (unaudited)	June 30, 2022		December 31, 2021















LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	131,649	$	109,928
Accrued expenses	306,402		411,590
Deferred revenue	111,771		86,517
Revolving credit facility	75,000		—
Operating lease liabilities	186,945		175,683
Other current liabilities	5,317		6,623
Total current liabilities	817,084		790,341
Deferred revenue	25,448		25,342
Deferred income tax liabilities	39,367		40,974
Convertible senior notes	2,283,037		1,976,167
Operating lease liabilities	679,031		707,087
Other liabilities	86,609		68,748
Total liabilities	3,930,576		3,608,659
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; 162,029,136 shares issued and 159,469,828 shares outstanding at June 30, 2022, and 160,512,111 shares issued and outstanding at December 31, 2021	1,620		1,605
Additional paid-in capital	3,054,200		3,340,822
Accumulated other comprehensive loss	(143,079)		(69,105)
Treasury stock, at cost, 2,559,308 shares at June 30, 2022, and no shares at December 31, 2021	(267,642)		—
Retained earnings	1,635,379		1,256,692
Total stockholders’ equity	4,280,478		4,530,014
Total liabilities and stockholders’ equity	$	8,211,054	$	8,138,673

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

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except per share data) (unaudited)	2022		2021		2022		2021
Revenue	$	903,332	$	852,824	$	1,806,979	$	1,695,532
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	346,649		320,000		679,401		626,687
Research and development	92,070		77,255		192,005		159,300
Sales and marketing	126,665		111,894		249,384		228,248
General and administrative	141,219		134,295		294,481		271,010
Amortization of acquired intangible assets	16,972		12,060		30,616		23,487
Restructuring charge (benefit)	4,715		(2,114)		12,731		5,002
Total costs and operating expenses	728,290		653,390		1,458,618		1,313,734
Income from operations	175,042		199,434		348,361		381,798
Interest and marketable securities (loss) income, net	(2,331)		4,736		(2,542)		9,314
Interest expense	(2,932)		(18,037)		(5,627)		(35,871)
Other income (expense), net	816		(811)		(8,749)		(1,628)
Income before provision for income taxes	170,595		185,322		331,443		353,613
Provision for income taxes	(51,058)		(18,009)		(85,108)		(29,907)
Loss from equity method investment	—		(10,816)		(7,635)		(11,514)
Net income	$	119,537	$	156,497	$	238,700	$	312,192
Net income per share:
Basic	$	0.75	$	0.96	$	1.49	$	1.91
Diluted	$	0.74	$	0.94	$	1.47	$	1.88
Shares used in per share calculations:
Basic	160,038		163,074		160,266		163,067
Diluted	161,710		166,263		162,674		165,976

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

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands) (unaudited)	2022		2021		2022		2021
Net income	$	119,537	$	156,497	$	238,700	$	312,192
Other comprehensive (loss) income:
Foreign currency translation adjustments	(49,278)		16,981		(47,242)		(7,284)
Change in unrealized loss on investments, net of income tax benefit of $567, $410, $5,515 and $1,347 for the three and six months ended June 30, 2022 and 2021, respectively	(5,190)		(1,191)		(26,732)		(4,072)
Other comprehensive (loss) income	(54,468)		15,790		(73,974)		(11,356)
Comprehensive income	$	65,069	$	172,287	$	164,726	$	300,836

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

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30,
(in thousands) (unaudited)	2022		2021
Cash flows from operating activities:
Net income	$	238,700	$	312,192
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	293,199		269,186
Stock-based compensation	108,109		104,786
(Benefit) provision for deferred income taxes	(43,464)		7,225
Amortization of debt discount and issuance costs	2,210		32,717
Loss on investments	15,895		11,514
Other non-cash reconciling items, net	22,643		2,140
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(3,947)		(4,404)
Prepaid expenses and other current assets	(38,132)		(10,849)
Accounts payable and accrued expenses	(59,975)		(83,059)
Deferred revenue	26,178		18,094
Other current liabilities	(5,901)		(16,230)
Other non-current assets and liabilities	8,367		(15,386)
Net cash provided by operating activities	563,882		627,926
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(872,099)		(15,638)


Purchases of property and equipment	(125,220)		(194,453)
Capitalization of internal-use software development costs	(124,306)		(124,835)
Purchases of short- and long-term marketable securities	—		(382,236)
Proceeds from sales of short- and long-term marketable securities	573,274		7,596
Proceeds from maturities and redemptions of short- and long-term marketable securities	120,433		513,850
Other, net	(4,206)		(212)
Net cash used in investing activities	(432,124)		(195,928)
Cash flows from financing activities:
Net proceeds from borrowings and repayments under revolving credit facility	75,000		—



Proceeds related to the issuance of common stock under stock plans	29,145		31,122
Employee taxes paid related to net share settlement of stock-based awards	(63,142)		(76,260)
Repurchases of common stock	(267,642)		(154,416)
Other, net	(104)		(67)
Net cash used in financing activities	(226,743)		(199,621)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(15,260)		(4,148)
Net (decrease) increase in cash, cash equivalents and restricted cash	(110,245)		228,229
Cash, cash equivalents and restricted cash at beginning of period	537,751		353,466
Cash, cash equivalents and restricted cash at end of period	$	427,506	$	581,695

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	For the Six Months Ended June 30,
(in thousands) (unaudited)	2022		2021






































Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds received of $2,061 and $6,550 for the six months ended June 30, 2022 and 2021, respectively	$	113,082	$	56,995
Cash paid for interest expense	2,875		2,875
Cash paid for operating lease liabilities	111,601		117,632
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	78,189		131,962
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses	39,075		43,520
Capitalization of stock-based compensation	16,180		19,524

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	426,710	$	581,068
Restricted cash	796		627
Cash, cash equivalents and restricted cash	$	427,506	$	581,695

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

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	Three Months Ended June 30, 2022
(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 April 1, 2022	160,535,769		$	1,615	$	2,974,529	$	(88,611)	$	(102,853)	$	1,515,842	$	4,300,522

Issuance of common stock upon the vesting of restricted and deferred stock units, net of shares withheld for employee taxes	233,231		2		(9,891)								(9,889)
Issuance of common stock under employee stock purchase plan	335,644		3		29,305								29,308
Stock-based compensation					60,257								60,257



Repurchases of common stock	(1,634,816)								(164,789)				(164,789)

Net income											119,537		119,537
Foreign currency translation adjustment							(49,278)						(49,278)
Change in unrealized loss on investments, net of tax							(5,190)						(5,190)
Balance at June 30, 2022	159,469,828		$	1,620	$	3,054,200	$	(143,079)	$	(267,642)	$	1,635,379	$	4,280,478

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Three Months Ended June 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 April 1, 2021	163,245,941		$	1,638	$	3,664,568	$	(47,347)	$	(58,241)	$	760,745	$	4,321,363

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	284,735		3		(12,878)								(12,875)
Issuance of common stock under employee stock purchase plan	358,384		4		31,527								31,531
Stock-based compensation					60,526								60,526



Repurchases of common stock	(870,292)								(96,175)				(96,175)

Net income											156,497		156,497
Foreign currency translation adjustment							16,981						16,981
Change in unrealized loss on investments, net of tax							(1,191)						(1,191)
Balance at June 30, 2021	163,018,768		$	1,645	$	3,743,743	$	(31,557)	$	(154,416)	$	917,242	$	4,476,657

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Six Months Ended June 30, 2022
(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, 2022	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 vesting of restricted and deferred stock units, net of shares withheld for employee taxes	1,181,381		12		(64,540)								(64,528)
Issuance of common stock under employee stock purchase plan	335,644		3		29,305								29,308
Stock-based compensation					124,027								124,027



Repurchases of common stock	(2,559,308)								(267,642)				(267,642)

Net income											238,700		238,700
Foreign currency translation adjustment							(47,242)						(47,242)
Change in unrealized loss on investments, net of tax							(26,732)						(26,732)
Balance at June 30, 2022	159,469,828		$	1,620	$	3,054,200	$	(143,079)	$	(267,642)	$	1,635,379	$	4,280,478

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Six Months Ended June 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	1,412,919		14		(76,895)								(76,881)
Issuance of common stock under employee stock purchase plan	358,384		4		31,527								31,531
Stock-based compensation					124,291								124,291



Repurchases of common stock	(1,462,255)								(154,416)				(154,416)

Net income											312,192		312,192
Foreign currency translation adjustment							(7,284)						(7,284)
Change in unrealized loss on investments, net of tax							(4,072)						(4,072)
Balance at June 30, 2021	163,018,768		$	1,645	$	3,743,743	$	(31,557)	$	(154,416)	$	917,242	$	4,476,657

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

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 life online. Its globally-distributed platform is comprised of more than 350,000 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 reportable and operating segment: providing solutions to power and protect life online.

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, 2021, filed with the Securities and Exchange Commission on February 28, 2022. The December 31, 2021 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.

N**ewly-Adopted Accounting Pronouncements

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 adopted this guidance on January 1, 2022 on a modified retrospective basis.

The convertible senior notes included on the Company's condensed 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 condensed 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 our 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 our basic and diluted earnings per share for the three and six month periods ended June 30, 2022 by $0.08 and $0.16, respectively.

2. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of June 30, 2022 and December 31, 2021 (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 June 30, 2022


Corporate bonds	$	644,104	$	—	$	(21,749)	$	622,355	$	239,659	$	382,696
U.S. government agency obligations	272,113		—		(8,766)		263,347		23,710		239,637
	$	916,217	$	—	$	(30,515)	$	885,702	$	263,369	$	622,333

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 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 June 30, 2022, the Company held for investment corporate bonds with a fair value of $137.9 million, which were classified as available-for-sale marketable securities that had been in a continuous unrealized loss position for more than 12 months. The unrealized loss related to these corporate bonds was $4.2 million and is included in accumulated other comprehensive loss as of June 30, 2022. The unrealized loss is attributable to changes in interest rates. Based on the evaluation of available evidence, the Company has determined that any unrealized losses do not represent other than temporary impairments.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of June 30, 2022 and December 31, 2021 (in thousands):


	Total Fair Value			Fair Value Measurements at Reporting Date Using
			Level 1			Level 2
As of June 30, 2022
Cash Equivalents and Marketable Securities:
Money market funds	$	2,517		$	2,517		$	—


Corporate bonds	622,355			—			622,355
U.S. government agency obligations	263,347			—			263,347
Mutual funds	18,945			18,945			—
	$	907,164		$	21,462		$	885,702




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 June 30, 2022 and December 31, 2021, 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 June 30, 2022 and December 31, 2021, the Company grouped 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 between Level 1 or Level 2 of the fair value measurement hierarchy during the six months ended June 30, 2022.

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 June 30, 2022 and December 31, 2021 were as follows (in thousands):


	June 30, 2022		December 31, 2021
Due in 1 year or less	$	263,369	$	540,574
Due after 1 year through 5 years	622,333		1,065,815
	$	885,702	$	1,606,389

3. Accounts Receivable

Net accounts receivable consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Trade accounts receivable	$	479,071	$	501,959
Unbilled accounts receivable	191,366		175,364
Gross accounts receivable	670,437		677,323
Allowances for current expected credit losses and other reserves	(2,012)		(1,397)
Accounts receivable, net	$	668,425	$	675,926

A summary of activity in the accounts receivable allowance for current expected credit losses and other reserves for the six months ended June 30, 2022 and 2021 is as follows (in thousands):


	June 30, 2022		June 30, 2021
Beginning balance	$	1,397	$	1,822
Charges to income from operations	2,968		2,399
Collections from customers previously reserved and other	(2,353)		(2,274)
Ending balance	$	2,012	$	1,947

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

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 June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Deferred costs included in prepaid expenses and other current assets	$	37,192	$	43,562
Deferred costs included in other assets	26,865		30,436
Total deferred costs	$	64,057	$	73,998

The following table summarizes additional information related to incremental costs to obtain a contract with a customer for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Amortization expense related to deferred costs	$	13,150	$	14,676	$	28,172	$	28,403
Incremental costs capitalized	11,269		13,921		20,753		23,793

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

5. Acquired Intangible Assets and Goodwill

Acquired intangible assets that are subject to amortization consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022						December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Completed technology	$	327,466	$	(143,589)	$	183,877	$	257,857	$	(128,715)	$	129,142
Customer-related intangible assets	481,593		(230,323)		251,270		398,182		(216,192)		181,990
Non-compete agreements	238		(139)		99		258		(107)		151
Trademarks and trade names	14,641		(6,738)		7,903		8,039		(6,097)		1,942
Acquired license rights	34,810		(1,252)		33,558		490		(490)		—
Total	$	858,748	$	(382,041)	$	476,707	$	664,826	$	(351,601)	$	313,225

Aggregate expense related to amortization of acquired intangible assets for the three and six months ended June 30, 2022 was $17.0 million and $30.6 million, respectively. Aggregate expense related to amortization of acquired intangible assets for the three and six months ended June 30, 2021 was $12.1 million and $23.5 million, respectively. Based on the Company’s acquired intangible assets as of June 30, 2022, aggregate expense related to amortization of acquired intangible assets is expected to be $33.6 million for the remainder of 2022, and $61.3 million, $62.5 million, $63.3 million and $57.4 million for 2023, 2024, 2025 and 2026, respectively.

The change in the carrying amount of goodwill for the six months ended June 30, 2022 was as follows (in thousands):


Balance as of January 1, 2022	$	2,156,254
Acquisition of Linode Limited Liability Company	617,827

Measurement period adjustments related to an acquisition completed in 2021	2,630
Foreign currency translation	(12,883)
Balance as of June 30, 2022	$	2,763,828

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 that a potential impairment exists.

6. Acquisitions

Acquisition-related costs during the three and six months ended June 30, 2022 were $0.1 million and $10.4 million, respectively, and are included in general and administrative expense in the condensed consolidated statements of income. Pro forma results of operations for the acquisition completed during the six months ended June 30, 2022 have not been presented because the effects of the acquisition were not material to the Company's consolidated financial results.

Linode

In March 2022, the Company acquired all the outstanding equity interests of Linode Limited Liability Company ("Linode") for $898.8 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, and included in the Company's condensed consolidated statements of income, for the three and six months ended June 30, 2022 was $32.0 million and $35.8 million, respectively. Earnings included in the Company's condensed consolidated statements of income since the date of the acquisition are not material.

The following table represents the preliminary allocation of the purchase price for Linode (in thousands):


Total purchase consideration	$	898,777

Allocation of the purchase consideration:
Cash	$	26,678
Accounts receivable	9,161
Prepaid expenses and other current assets	4,478
Property and equipment	56,300
Operating lease right-of-use assets	17,000
Identifiable intangible assets	197,520
Goodwill	617,827
Deferred income tax assets	1,390
Other assets	292
Total assets acquired	930,646
Accounts payable	(7,757)
Accrued expenses	(1,958)

Operating lease liabilities	(17,235)


Other liabilities	(4,919)
Total liabilities assumed	(31,869)
Net assets acquired	$	898,777

As of June 30, 2022, the purchase price allocation is preliminary,pending final valuations of certain tangible and intangible assets acquired, certain income tax matters, and net working capital. Measurement period adjustments to goodwill recognized during the three months ended June 30, 2022 were $29.4 million and primarily related to property and equipment and intangible asset adjustments. The measurement period adjustments did not have a material effect on our 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.

The following were the identified intangible assets acquired and their respective weighted average useful lives (in thousands, except years):


	Gross Carrying Amount		Weighted Average Useful Life (in years)
Customer-related intangible assets	$	85,700	11
Completed technologies	70,900		6
Acquired license rights	34,320		15
Trademarks and trade name	6,600		9

Total	$	197,520

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 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 9.6 years. The intangible assets are being amortized based upon the pattern in which the economic benefits of the intangible assets are being utilized.

7. 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.

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 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 the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's election. 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.

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 condensed consolidated balance sheet to meet the conditions for equity classification. On January 1, 2022, the Company adopted the revised guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report for details on the revised 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 revised 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 revised 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 June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(9,644)		(169,030)
Net carrying amount	$	1,140,356	$	980,970

Equity component:	$	—	$	220,529

The estimated fair value of the 2027 Notes at June 30, 2022 and December 31, 2021 was $1,142.5 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 $91.33 on June 30, 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 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 the 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 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.

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 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. 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.

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 condensed consolidated balance sheet to meet the conditions for equity classification. On January 1, 2022, the Company adopted the new revised guidance for accounting for convertible instruments, which eliminated the equity component. Refer to Note 1 to the condensed consolidated financial statements included elsewhere in this report for details on the revised 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 revised 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 revised 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 June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Liability component:
Principal	$	1,150,000	$	1,150,000
Less: debt discount and issuance costs, net of amortization	(7,319)		(154,803)
Net carrying amount	$	1,142,681	$	995,197

Equity component:	$	—	$	285,225

The estimated fair value of the 2025 Notes at June 30, 2022 and December 31, 2021 was $1,270.0 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 $91.33 on June 30, 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 the $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 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 the 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. As of June 30, 2022, there were $75.0 million of outstanding borrowings under the Credit Agreement.

Interest Expense

The 2027 Notes bear interest at a fixed rate of 0.375%, with interest 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 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 the Credit Agreement, in addition to interest payable on outstanding borrowings. Prior to the adoption of the revised 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. The following table sets forth total interest expense included in the condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Amortization of debt discounts and issuance costs	$	1,169	$	17,343	$	2,337	$	34,525
Coupon interest payable on 2025 Notes	359		359		718		718
Coupon interest payable on 2027 Notes	1,078		1,078		2,156		2,156
Interest payable under the Credit Agreement	404		140		543		280
Capitalization of interest expense	(78)		(883)		(127)		(1,808)
Total interest expense	$	2,932	$	18,037	$	5,627	$	35,871

8. Restructuring

During the first quarter of 2022, Mitsubishi UFJ Financial Group ("MUFG"), the majority owner of Global Open Network, Inc. (“GO-NET"), announced its intention to suspend the operations of GO-NET and to eventually liquidate it. The Company has a 20% stake in GO-NET and provided services to GO-NET through June 30, 2022. 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 six months ended June 30, 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 identified certain facilities that were no longer needed. As a result, an impairment of right-of-use assets and leasehold improvements was recognized. The Company has incurred expenses of $6.8 million related to this program, of which $3.1 million was incurred during the six months ended June 30, 2022. Management is still evaluating the Company's future work environment and additional charges related to such type of action may occur in 2022.

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 $31.3 million as part of this action, of which $0.6 million and $7.6 million was incurred during the three and six months ended June 30, 2021, respectively. The Company does not expect to incur any material additional charges related to this action.

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

9. Stockholders’ Equity

Share Repurchase Program

Effective January 2022, the board of directors of the Company authorized a $1.8 billion share repurchase program through December 2024. During the three and six months ended June 30, 2022, the Company repurchased 1.6 million and 2.6 million shares of its common stock, respectively, for $164.8 million and $267.6 million, respectively. The Company's goals for the share repurchase program are to offset the dilution created by its employee equity compensation programs over time and provide the flexibility to return capital to stockholders as business and market conditions warrant, while still preserving its ability to pursue other strategic opportunities.

Stock-Based Compensation

The following table summarizes stock-based compensation included in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Cost of revenue	$	7,134	$	6,874	$	13,367	$	13,970
Research and development	17,408		15,937		37,640		34,306
Sales and marketing	11,452		11,547		23,778		24,025
General and administrative	15,888		16,123		33,324		32,485
Total stock-based compensation	51,882		50,481		108,109		104,786
Provision for income taxes	(12,861)		(15,518)		(26,904)		(28,562)
Total stock-based compensation, net of income taxes	$	39,021	$	34,963	$	81,205	$	76,224

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 six months ended June 30, 2022 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.7 million, and $15.3 million, respectively, before taxes, and for the three and six months ended June 30, 2021 include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $8.9 million and $16.6 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 six months ended June 30, 2022 (in thousands):


	Foreign Currency Translation		Net Unrealized Gains (Losses) on Investments		Total
Balance as of January 1, 2022	$	(71,809)	$	2,704	$	(69,105)
Other comprehensive loss	(47,242)		(26,732)		(73,974)
Balance as of June 30, 2022	$	(119,051)	$	(24,028)	$	(143,079)

Amounts reclassified from accumulated other comprehensive loss to net income were immaterial for the six months ended June 30, 2022.

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 six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
U.S.	$	477,154	$	449,553	$	958,161	$	912,733
International	426,178		403,271		848,818		782,799
Total revenue	$	903,332	$	852,824	$	1,806,979	$	1,695,532

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. The following table summarizes revenue by solution category included in the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2022 and 2021 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Security	$	380,664	$	325,128	$	762,231	$	635,347
Delivery	416,678		466,739		860,826		940,408
Compute	105,990		60,957		183,922		119,777
Total revenue	$	903,332	$	852,824	$	1,806,979	$	1,695,532

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 six months ended June 30, 2022 and 2021, the Company recognized $79.2 million and $61.4 million of revenue that was included in deferred revenue as of December 31, 2021 and 2020, respectively.

As of June 30, 2022, the aggregate amount of remaining performance obligations from contracts with customers was $3.3 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 each of the six months ended June 30, 2022 and 2021, related to performance obligations satisfied in previous periods was not material.

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 issued by the Massachusetts Department of Revenue (the "DOR"). The City of Cambridge, Massachusetts ("Cambridge") was an intervenor in the MATB proceedings. In July 2020, the MATB ruled in the Company’s favor. The DOR and Cambridge appealed the MATB decision in January 2022; however in June 2022 the appeal from the DOR was withdrawn. Cambridge has upheld its appeal. The Company has determined that it is more-likely-than-not that it will prevail and no reserve has been recorded related to these controversies.

The Company’s effective income tax rate was 25.7% and 8.5% for the six months ended June 30, 2022 and 2021, respectively. The higher effective tax rate for the six months ended June 30, 2022 is primarily due to an intercompany sale of intellectual property, an increase in tax on global intangible low taxed income and a decrease in the excess tax benefit related to stock-based compensation.

For the six months ended June 30, 2022, the effective income tax rate was higher than the federal statutory tax rate due to an intercompany sale of intellectual property, tax on global intangible low taxed income and non-deductible stock-based compensation. These amounts were partially offset by 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.

For the six months ended June 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.

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. For the three and six months ended June 30, 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 three and six months ended June 30, 2021, the dilutive effect of outstanding awards and convertible securities is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the components used in the computation of basic and diluted net income per share for the three and six months ended June 30, 2022 and 2021 (in thousands, except per share data):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Net income	$	119,537	$	156,497	$	238,700	$	312,192
Denominator:
Shares used for basic net income per share	160,038		163,074		160,266		163,067
Effect of dilutive securities:
Stock options	50		48		25		27
RSUs and DSUs	565		1,359		943		1,513
Convertible senior notes	1,057		1,782		1,440		1,369
Warrants related to issuance of convertible senior notes	—		—		—		—
Shares used for diluted net income per share	161,710		166,263		162,674		165,976
Basic net income per share	$	0.75	$	0.96	$	1.49	$	1.91
Diluted net income per share	$	0.74	$	0.94	$	1.47	$	1.88

For the three and six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021 are as follows (in thousands):


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2022	2021	2022	2021

Service-based RSUs	2,228	214	2,231	1,142
Market- and performance-based RSUs	1,022	1,217	1,038	1,278
Convertible senior notes	—	9,898	—	9,898
Warrants related to issuance of convertible senior notes	21,991	21,991	21,991	21,991
Total shares excluded from computation	25,241	33,320	25,260	34,309

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