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, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	298,612	$	542,337
Marketable securities	491,947		562,979
Accounts receivable, net of reserves of $8,038 and $5,917 at June 30, 2023, and December 31, 2022, respectively	698,445		679,206
Prepaid expenses and other current assets	229,468		185,040
Total current assets	1,718,472		1,969,562
Marketable securities	249,211		320,531
Property and equipment, net	1,746,081		1,540,182
Operating lease right-of-use assets	884,687		813,372
Acquired intangible assets, net	437,257		441,716
Goodwill	2,848,467		2,763,838
Deferred income tax assets	337,034		337,677
Other assets	124,756		116,522
Total assets	$	8,345,965	$	8,303,400

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS, continued


(in thousands, except share data) (unaudited)	June 30, 2023		December 31, 2022















LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	194,493	$	145,420
Accrued expenses	269,265		367,017
Deferred revenue	138,608		105,109
Revolving credit facility	20,000		—
Operating lease liabilities	217,224		196,094
Other current liabilities	21,184		5,228
Total current liabilities	860,774		818,868
Deferred revenue	27,149		22,117
Deferred income tax liabilities	18,839		18,400
Convertible senior notes	2,287,481		2,285,258
Operating lease liabilities	758,302		693,265
Other liabilities	104,253		105,305
Total liabilities	4,056,798		3,943,213
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; 157,982,228 shares issued and 151,790,861 shares outstanding at June 30, 2023, and 156,494,816 shares issued and outstanding at December 31, 2022	1,580		1,565
Additional paid-in capital	2,751,681		2,578,603
Accumulated other comprehensive loss	(119,964)		(140,332)
Treasury stock, at cost, 6,191,367 shares at June 30, 2023, and no shares at December 31, 2022	(490,403)		—
Retained earnings	2,146,273		1,920,351
Total stockholders’ equity	4,289,167		4,360,187
Total liabilities and stockholders’ equity	$	8,345,965	$	8,303,400

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 June 30,				For the Six Months Ended June 30,
(in thousands, except per share data) (unaudited)	2023		2022		2023		2022
Revenue	$	935,721	$	903,332	$	1,851,419	$	1,806,979
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)	373,275		346,649		734,591		679,401
Research and development	99,041		92,070		190,904		192,005
Sales and marketing	136,554		126,665		265,661		249,384
General and administrative	151,811		141,219		297,950		294,481
Amortization of acquired intangible assets	15,898		16,972		31,810		30,616
Restructuring charge	9,357		4,715		54,080		12,731
Total costs and operating expenses	785,936		728,290		1,574,996		1,458,618
Income from operations	149,785		175,042		276,423		348,361
Interest and marketable securities income (loss), net	4,509		(2,331)		9,801		(2,542)
Interest expense	(3,157)		(2,932)		(5,838)		(5,627)
Other (expense) income, net	(1,130)		816		(3,493)		(8,749)
Income before provision for income taxes	150,007		170,595		276,893		331,443
Provision for income taxes	(21,191)		(32,755)		(50,971)		(52,592)
Loss from equity method investment	—		—		—		(7,635)
Net income	$	128,816	$	137,840	$	225,922	$	271,216
Net income per share:
Basic	$	0.85	$	0.86	$	1.47	$	1.69
Diluted	$	0.84	$	0.85	$	1.46	$	1.67
Shares used in per share calculations:
Basic	152,064		160,038		153,850		160,266
Diluted	153,454		161,710		154,795		162,674

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 June 30,				For the Six Months Ended June 30,
(in thousands) (unaudited)	2023		2022		2023		2022
Net income	$	128,816	$	137,840	$	225,922	$	271,216
Other comprehensive income (loss):
Foreign currency translation adjustments	(1,076)		(49,278)		10,646		(47,242)
Change in unrealized gain (loss) on available-for-sale investments, net of income tax (provision) benefit of $(732), $567, $(3,131) and $5,515 for the three and six months ended June 30, 2023 and 2022, respectively	2,273		(5,190)		9,722		(26,732)
Other comprehensive income (loss)	1,197		(54,468)		20,368		(73,974)
Comprehensive income	$	130,013	$	83,372	$	246,290	$	197,242

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 Six Months Ended June 30,
(in thousands) (unaudited)	2023		2022
Cash flows from operating activities:
Net income	$	225,922	$	271,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	274,582		293,199
Stock-based compensation	149,327		108,109
Provision (benefit) for deferred income taxes	409		(75,980)
Amortization of debt issuance costs	2,196		2,210
(Gain) loss on investments	(201)		15,895
Other non-cash reconciling items, net	38,654		22,643
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(22,778)		(3,947)
Prepaid expenses and other current assets	(18,097)		(38,132)
Accounts payable and accrued expenses	(83,785)		(59,975)
Deferred revenue	37,051		26,178
Other current liabilities	16,145		(5,901)
Other non-current assets and liabilities	(19,615)		8,367
Net cash provided by operating activities	599,810		563,882
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired	(106,326)		(872,099)


Purchases of property and equipment	(254,005)		(125,220)
Capitalization of internal-use software development costs	(144,529)		(124,306)
Purchases of short- and long-term marketable securities	(134,821)		—
Proceeds from sales of short- and long-term marketable securities	200,568		573,274
Proceeds from maturities and redemptions of short- and long-term marketable securities	91,637		120,433
Other, net	(20,766)		(4,206)
Net cash used in investing activities	(368,242)		(432,124)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility	90,000		125,000


Repayment of borrowings under revolving credit facility	(70,000)		(50,000)
Proceeds related to the issuance of common stock under stock plans	31,331		29,145
Employee taxes paid related to net share settlement of stock-based awards	(39,606)		(63,142)
Repurchases of common stock	(485,958)		(267,642)
Other, net	(256)		(104)
Net cash used in financing activities	(474,489)		(226,743)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(710)		(15,260)
Net decrease in cash, cash equivalents and restricted cash	(243,631)		(110,245)
Cash, cash equivalents and restricted cash at beginning of period	543,022		537,751
Cash, cash equivalents and restricted cash at end of period	$	299,391	$	427,506

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


	For the Six Months Ended June 30,
(in thousands) (unaudited)	2023		2022






































Supplemental disclosures of cash flow information:
Cash paid for income taxes, net of refunds received of $691 and $2,061 for the six months ended June 30, 2023 and 2022, respectively	$	100,017	$	113,082
Cash paid for interest expense	3,349		2,875
Cash paid for operating lease liabilities	113,698		111,601
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	196,338		78,189
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses	104,215		39,075
Capitalization of stock-based compensation	36,505		16,180

Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	298,612	$	426,710
Restricted cash	779		796
Cash, cash equivalents and restricted cash	$	299,391	$	427,506

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 June 30, 2023
(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, 2023	152,743,828		$	1,573	$	2,625,244	$	(121,161)	$	(351,772)	$	2,017,457	$	4,171,341

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	283,464		3		(9,909)								(9,906)
Issuance of common stock under employee stock purchase plan	399,395		4		31,265								31,269
Stock-based compensation					105,081								105,081



Repurchases of common stock	(1,635,826)								(138,631)				(138,631)

Net income											128,816		128,816
Foreign currency translation adjustment							(1,076)						(1,076)
Change in unrealized gain on available-for-sale investments, net of tax							2,273						2,273
Balance at June 30, 2023	151,790,861		$	1,580	$	2,751,681	$	(119,964)	$	(490,403)	$	2,146,273	$	4,289,167

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	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)	$	1,530,055	$	4,314,735

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											137,840		137,840
Foreign currency translation adjustment							(49,278)						(49,278)
Change in unrealized loss on available-for-sale 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)	$	1,667,895	$	4,312,994

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AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued


	Six Months Ended June 30, 2023
(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, 2023	156,494,816		$	1,565	$	2,578,603	$	(140,332)	$	—	$	1,920,351	$	4,360,187

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	1,088,017		11		(41,253)								(41,242)
Issuance of common stock under employee stock purchase plan	399,395		4		31,265								31,269
Stock-based compensation					183,066								183,066
Repurchases of common stock	(6,191,367)								(490,403)				(490,403)

Net income											225,922		225,922
Foreign currency translation adjustment							10,646						10,646
Change in unrealized gain on available-for-sale investments, net of tax							9,722						9,722






Balance at June 30, 2023	151,790,861		$	1,580	$	2,751,681	$	(119,964)	$	(490,403)	$	2,146,273	$	4,289,167

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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											271,216		271,216
Foreign currency translation adjustment							(47,242)						(47,242)
Change in unrealized loss on available-for-sale 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)	$	1,667,895	$	4,312,994

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 life online. Its massively distributed edge and cloud platform, or Akamai Connected Cloud, comprises more than 4,100 locations across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company is currently organized and operates as one reportable and operating segment.

The accompanying 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 upon consolidation in the accompanying interim condensed consolidated financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited interim 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, 2022, filed with the Securities and Exchange Commission on February 28, 2023. The December 31, 2022 condensed 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 interim 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. The presentation of certain items in the interim condensed consolidated statements of cash flows has changed for the prior periods to be comparable with the presentation for the quarter ended June 30, 2023. The change had no net impact on the Company's cash flows from operating, investing or financing activities for the prior periods.

Revision of Previously Issued Financial Statements

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

Changes to the interim condensed consolidated statements of income for the three and six months ended June 30, 2022, as a result of the error, were as follows (in thousands, except per share data):


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

The condensed consolidated statements of comprehensive income, condensed consolidated statements of cash flows and condensed consolidated statements of shareholders' equity for the three and six months ended June 30, 2022, were also revised

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to reflect the impact to net income as stated in the table above. The benefit for deferred income taxes was also adjusted in the interim condensed consolidated statement of cash flows; however, the error had no net impact on cash flows from operating, investing or financing activities for the six months ended June 30, 2022.

Significant Accounting Policies Update

The Company's significant accounting policies are detailed in Note 2 of its annual report on Form 10-K for the year ended December 31, 2022. The following policy has been updated as of January 1, 2023.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally includes purchases of items with a per-unit value greater than $1,000 and a useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in income from operations.

The Company has implemented software and hardware initiatives to manage its global network more efficiently and, as a result, the expected average useful life of its servers increased from five years to six years, effective January 1, 2023. These changes decreased depreciation expense by $15.9 million and $32.6 million for the three and six months ended June 30, 2023, respectively, and increased net income by $13.3 million and $27.3 million for the three and six months ended June 30, 2023, respectively, or $0.09 and $0.18 per share, for the three and six months ended June 30, 2023, respectively.

2. Fair Value Measurements

Available-for-sale marketable securities held as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


							Classification on Balance Sheet
	Amortized Cost		Gross Unrealized Losses		Aggregate Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
As of June 30, 2023

Commercial paper	$	973	$	(3)	$	970	$	970	$	—
Corporate bonds	493,528		(12,986)		480,542		280,980		199,562
U.S. government agency obligations	243,775		(5,576)		238,199		209,676		28,523
	$	738,276	$	(18,565)	$	719,711	$	491,626	$	228,085

As of December 31, 2022
Time deposits	$	19,530	$	—	$	19,530	$	19,530	$	—

Corporate bonds	624,082		(21,029)		603,053		362,458		240,595
U.S. government agency obligations	252,573		(10,391)		242,182		180,320		61,862
	$	896,185	$	(31,420)	$	864,765	$	562,308	$	302,457

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 interim 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 interim condensed consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest and marketable securities income (loss), net in the interim condensed consolidated statements of income. As of June 30, 2023, the Company held for investment corporate bonds and U.S. government agency obligations with a fair value of $585.8 million, which are classified as available-for-sale marketable securities and have been in a continuous unrealized loss position for more than 12 months. The unrealized losses related to these securities were $17.3 million and are included in accumulated other comprehensive loss as of June 30, 2023.

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The unrealized losses are attributable to changes in interest rates. Based on the evaluation of available evidence, the Company does not believe any unrealized losses represent credit losses.

The fair value measurements within the fair value hierarchy of the Company’s financial assets as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	Total Fair Value			Fair Value Measurements at Reporting Date Using
			Level 1			Level 2
As of June 30, 2023
Cash Equivalents and Marketable Securities:
Money market funds	$	2,730		$	2,730		$	—
Time deposits	25,591			—			25,591
Commercial paper	970			—			970
Corporate bonds	480,542			—			480,542

U.S. government agency obligations	238,199			—			238,199
Mutual funds	21,447			21,447			—
	$	769,479		$	24,177		$	745,302




As of December 31, 2022
Cash Equivalents and Marketable Securities:
Money market funds	$	999		$	999		$	—
Time deposits	285,830			—			285,830

Corporate bonds	603,053			—			603,053

U.S. government agency obligations	242,182			—			242,182
Mutual funds	18,745			18,745			—
	$	1,150,809		$	19,744		$	1,131,065

As of June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, the Company grouped time deposits, commercial paper, corporate bonds and U.S. government agency obligations using a Level 2 valuation because quoted prices for similar assets in active markets (or identical assets in an inactive market) are available. The Company did not have any transfers of assets or liabilities between Level 1 or Level 2 of the fair value measurement hierarchy during the six months ended June 30, 2023.

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, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
Due in 1 year or less	$	491,626	$	562,308
Due after 1 year through 5 years	228,085		302,457
	$	719,711	$	864,765

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3. Accounts Receivable

Net accounts receivable consisted of the following as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022
Trade accounts receivable	$	499,844	$	490,162
Unbilled accounts receivable	206,639		194,961
Gross accounts receivable	706,483		685,123
Allowances for current expected credit losses and other reserves	(8,038)		(5,917)
Accounts receivable, net	$	698,445	$	679,206

A summary of activity in the accounts receivable allowance for current expected credit losses and other reserves for the six months ended June 30, 2023 and 2022 was as follows (in thousands):


	June 30, 2023		June 30, 2022
Beginning balance	$	5,917	$	1,397
Charges to income from operations	6,152		2,968
Collections from customers previously reserved and other	(4,031)		(2,353)
Ending balance	$	8,038	$	2,012

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

Deferred costs associated with obtaining customer contracts, specifically commission and incentive payments, as of June 30, 2023 and December 31, 2022 were as follows (in thousands):


	June 30, 2023		December 31, 2022
Deferred costs included in prepaid expenses and other current assets	$	38,660	$	37,316
Deferred costs included in other assets	33,420		29,069
Total deferred costs	$	72,080	$	66,385

Information related to incremental costs to obtain a contract with a customer for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Amortization expense related to deferred costs	$	12,210	$	13,150	$	24,385	$	28,172
Incremental costs capitalized	17,381		11,269		29,798		20,753

Amortization expense related to deferred costs is primarily included in sales and marketing expense in the interim 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 June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023						December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Completed technologies	$	354,288	$	(179,471)	$	174,817	$	327,848	$	(162,323)	$	165,525
Customer-related intangible assets	482,586		(257,717)		224,869		480,817		(244,158)		236,659
Non-compete agreements	248		(228)		20		244		(183)		61
Trademarks and trade names	14,657		(8,375)		6,282		14,642		(7,585)		7,057
Acquired license rights	34,810		(3,541)		31,269		34,810		(2,396)		32,414
Total	$	886,589	$	(449,332)	$	437,257	$	858,361	$	(416,645)	$	441,716

Aggregate expense related to amortization of acquired intangible assets for the three and six months ended June 30, 2023 was $15.9 million and $31.8 million, respectively. 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. Based on the Company’s acquired intangible assets as of June 30, 2023, aggregate expense related to amortization of acquired intangible assets is expected to be $32.0 million for the remainder of 2023, and $59.9 million, $62.4 million, $60.8 million and $48.9 million for 2024, 2025, 2026 and 2027, respectively.

The changes in the carrying amount of goodwill for the six months ended June 30, 2023 were as follows (in thousands):


Balance as of January 1, 2023	$	2,763,838
Acquisition of StorageOS, Inc.	14,046

Acquisition of Neosec, Inc.	67,006
Foreign currency translation	3,577
Balance as of June 30, 2023	$	2,848,467

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

6. Acquisitions

Acquisition-related costs during the three and six months ended June 30, 2023 were $0.3 million and $2.5 million, respectively, and are included in general and administrative expense in the interim condensed consolidated statements of income. Pro forma results of operations for the acquisitions completed during the six months ended June 30, 2023 have not been presented because the effects of the acquisitions, individually and in the aggregate, were not material to the Company's consolidated financial results. Revenue and earnings of the acquired companies since the dates of the acquisitions are included in the Company's interim condensed consolidated statements of income and are not presented separately because they are not material.

Neosec

In May 2023, the Company acquired all the outstanding equity interests of Neosec, Inc. ("Neosec") for $91.5 million in cash. Neosec is an application programming interface ("API") detection and response platform based on data and behavioral analytics. The acquisition is intended to complement the Company's application and API security portfolio by extending its visibility into the rapidly growing API threat landscape. The Company allocated $67.0 million of the purchase price to goodwill and $19.9 million to identifiable intangible assets, primarily consisting of completed technologies. The total weighted average useful life of the intangible assets acquired from Neosec is 9.7 years. The value of the goodwill can be attributed to a number of business factors, including the expected impact from the ability to interface with the Company's platform. The Company expects that $33.8 million of the goodwill related to the acquisition of Neosec will be deductible for tax purposes as a result of

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post-acquisition transactions. As of June 30, 2023, the purchase price allocation was substantially complete except for net working capital adjustments and the finalization of certain income tax matters.

StorageOS

In March 2023, the Company acquired all the outstanding equity interests of StorageOS, Inc. ("StorageOS"), also known as Ondat, a cloud-based storage technology provider for $20.6 million in cash. The acquisition of StorageOS's cloud storage technology and its industry-recognized talent is intended to strengthen the Company's cloud computing offerings. Storage is a key component of any cloud computing offering, and this acquisition is expected to enhance the Company's storage capabilities, allowing the Company to offer a fundamentally different approach to cloud that integrates core and distributed computing sites with a massively scaled edge network. The Company allocated $14.0 million of the purchase price to goodwill and $4.5 million to a completed technology identifiable intangible asset with a useful life of 8.8 years. The value of the goodwill is primarily attributable to synergies related to the integration of StorageOS technology onto the Company's platform as well as a trained technical workforce. All of the goodwill related to the acquisition of StorageOS is expected to be deductible for tax purposes as a result of post-acquisition transactions. As of June 30, 2023, the purchase price allocation was substantially complete except for net working capital adjustments and the finalization of certain income tax matters.

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.

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

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

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

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.

In accounting for the issuance of the 2027 Notes, the principal less debt issuance costs is recorded as debt on the Company's interim condensed consolidated balance sheets. The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the 2027 Notes.

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The 2027 Notes consisted of the following components as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022

Principal	$	1,150,000	$	1,150,000
Less: issuance costs, net of amortization	(7,770)		(8,707)
Net carrying amount	$	1,142,230	$	1,141,293

The estimated fair value of the 2027 Notes at June 30, 2023 and December 31, 2022 was $1,118.9 million and $1,111.0 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 $89.87 on June 30, 2023, the value of the 2027 Notes if converted to common stock was less than the principal amount of $1,150.0 million.

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

Note Hedge

To minimize the impact of potential dilution upon conversion of the 2027 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in August 2019. The Company paid $312.2 million for the note hedge transactions. The note hedge transactions cover approximately 9.9 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2027 Notes, also subject to adjustment, and are exercisable upon conversion of the 2027 Notes. The Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its interim 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 or 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 interim 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.

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

during any calendar quarter commencing after the calendar quarter ended June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether

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or not consecutive) during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

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

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

In accounting for the issuance of the 2025 Notes, the principal less debt issuance costs is recorded as debt on the Company's interim condensed consolidated balance sheets. The debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the 2025 Notes.

The 2025 Notes consisted of the following components as of June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023		December 31, 2022

Principal	$	1,150,000	$	1,150,000
Less: issuance costs, net of amortization	(4,749)		(6,035)
Net carrying amount	$	1,145,251	$	1,143,965

The estimated fair value of the 2025 Notes at June 30, 2023 and December 31, 2022 was $1,232.2 million and $1,209.1 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 $89.87 on June 30, 2023, the value of the 2025 Notes if converted to common stock was less than the principal amount of $1,150.0 million.

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

Note Hedge

To minimize the impact of potential dilution upon conversion of the 2025 Notes, the Company entered into convertible note hedge transactions with respect to its common stock in May 2018. The Company paid $261.7 million for the note hedge transactions. The note hedge transactions cover approximately 12.1 million shares of the Company’s common stock at a strike price that corresponds to the initial conversion price of the 2025 Notes, also subject to adjustment, and are exercisable upon conversion of the 2025 Notes. The Company determined that the note hedge meets the definition of a derivative and is classified in stockholders’ equity, as the note hedge is indexed to the Company's common stock, and the Company, at its election, may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock. The Company recorded the purchase of the hedge as a decrease to additional paid-in capital. The Company does not recognize subsequent changes in fair value of the note hedge in its interim condensed consolidated financial statements.

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Warrants

Separately, in May 2018, the Company entered into warrant transactions, whereby the Company sold warrants to acquire, subject to anti-dilution adjustments, up to 12.1 million shares of the Company’s common stock at a strike price of approximately $149.18 per share. The Company received aggregate proceeds of $119.9 million from the sale of the warrants. The convertible note hedge and warrant transactions will generally have the effect of increasing the conversion price of the 2025 Notes to approximately $149.18 per share. The Company determined that the warrants meet the definition of a derivative and are classified in stockholders’ equity, as the warrants are indexed to the Company's common stock, and the Company, at its election, may pay or deliver to holders cash or shares of the Company's common stock. The Company recorded the proceeds from 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 interim condensed consolidated financial statements.

Revolving Credit Facility

In May 2018, the Company entered into a $500.0 million five-year, revolving credit agreement (the “2018 Credit Agreement”). Borrowings under the 2018 Credit Agreement bore interest, at the Company's option, at a base rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of 0.875% to 1.25%, in each case with such spread being determined based on the Company's consolidated leverage ratio specified in the 2018 Credit Agreement. Regardless of what amounts, if any, outstanding under the 2018 Credit Agreement, the Company was also obligated to pay an ongoing commitment fee on undrawn amounts at a rate of 0.075% to 0.15%, with such rate being based on the Company's consolidated leverage ratio specified in the 2018 Credit Agreement.

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

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

The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The negative covenants include restrictions on subsidiary indebtedness, liens and fundamental changes. These covenants are subject to a number of important exceptions and qualifications. The principal financial covenant requires a maximum consolidated leverage ratio. As of June 30, 2023, the Company was in compliance with all covenants. As of June 30, 2023, there were $20.0 million of outstanding borrowings under the 2022 Credit Agreement, which the Company repaid in July 2023.

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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 its credit agreements, in addition to interest payable on outstanding borrowings. Interest expense included in the interim condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Amortization of debt issuance costs	$	1,167	$	1,169	$	2,333	$	2,337
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 agreements	622		404		768		543
Capitalization of interest expense	(69)		(78)		(137)		(127)
Total interest expense	$	3,157	$	2,932	$	5,838	$	5,627

8. Restructuring

During the first quarter of 2023, management committed to an action to restructure certain parts of the Company to enable it to prioritize investments in the fastest growing areas of the business. As a result, certain headcount reductions were necessary. The Company has incurred $20.5 million related to this action during the six months ended June 30, 2023. The Company does not expect to incur material additional charges related to this action.

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, which is a significant change to the way employees worked prior to the program. The Company began to identify certain facilities that were no longer needed in the fourth quarter of 2021. As a result, impairments of right-of-use assets and leasehold improvements were recognized. The Company has incurred $32.8 million of restructuring charges related to this action, of which $6.8 million and $25.4 million was incurred during the three and six months ended June 30, 2023, respectively, and $3.1 million was incurred during the six months ended June 30, 2022. As the Company continues to execute its FlexBase program, additional charges related to this action are expected to occur into early 2024.

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

The changes in the Company's accrual for employee severance and related benefits for all restructuring actions for the six months ended June 30, 2023 were as follows (in thousands):


Balance as of January 1, 2023	$	541
Costs incurred	20,953
Cash disbursements	(5,583)
Translation adjustments and other	6
Balance as of June 30, 2023	$	15,917

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, 2023, the Company repurchased 1.6 million and 6.2 million shares of its common stock, respectively, for $137.4 million and $486.0 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

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ability to pursue other strategic opportunities.

Stock-Based Compensation

Components of total stock-based compensation included in the Company’s interim condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	11,339	$	7,134	$	20,668	$	13,367
Research and development	32,258		17,408		54,102		37,640
Sales and marketing	17,723		11,452		31,268		23,778
General and administrative	26,124		15,888		43,289		33,324
Total stock-based compensation	87,444		51,882		149,327		108,109
Provision for income taxes	(18,808)		(12,861)		(30,221)		(26,904)
Total stock-based compensation, net of income taxes	$	68,636	$	39,021	$	119,106	$	81,205

During 2023, the Company redesigned one of its non-executive short-term incentive compensation programs from a cash-based to a stock-based program that vests in one year. The Company also introduced a non-executive incentive program tied to its initiative to migrate certain applications from third-party cloud platforms onto the Akamai Connected Cloud that vests over two years. These programs, headcount growth and expected achievement of our executive performance-based compensation plans increased stock-based compensation for the three and six months ended June 30, 2023.

In addition to the amounts of stock-based compensation reported in the table above, the Company’s interim condensed consolidated statements of income for the three and six months ended June 30, 2023 include stock-based compensation reflected as a component of amortization primarily consisting of capitalized internal-use software of $7.9 million and $15.4 million, respectively, before taxes, and 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.

10. Accumulated Other Comprehensive Loss

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, 2023 were as follows (in thousands):


	Foreign Currency Translation		Net Unrealized (Losses) Gains on Investments		Total
Balance as of January 1, 2023	$	(116,474)	$	(23,858)	$	(140,332)
Other comprehensive income	10,646		9,722		20,368
Balance as of June 30, 2023	$	(105,828)	$	(14,136)	$	(119,964)

The Company reclassified $0.1 million from accumulated other comprehensive loss to net income for the six months ended June 30, 2023.

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11. Revenue from Contracts with Customers

The Company sells its services through a sales force located both domestically and abroad. Revenue derived from operations outside of the U.S. is determined based on the country in which the sale originated. Other than the U.S., no single country accounted for 10% or more of the Company’s total revenue for any reported period. Revenue by geography included in the Company’s interim condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
U.S.	$	480,062	$	477,154	$	953,895	$	958,161
International	455,659		426,178		897,524		848,818
Total revenue	$	935,721	$	903,332	$	1,851,419	$	1,806,979

The Company reports its revenue in three solution categories: security, delivery and compute. Security includes solutions that are designed to protect business online by keeping infrastructure, websites, applications and users safe. Delivery includes solutions that are designed to enable business online, including media delivery and web performance. Compute includes cloud computing, edge applications, cloud optimization and storage. Revenue by solution category included in the Company’s interim condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 was as follows (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Security	$	432,946	$	380,664	$	838,498	$	762,231
Delivery	379,698		416,678		774,082		860,826
Compute	123,077		105,990		238,839		183,922
Total revenue	$	935,721	$	903,332	$	1,851,419	$	1,806,979

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, 2023 and 2022, the Company recognized $82.1 million and $79.2 million of revenue that was included in deferred revenue as of December 31, 2022 and 2021, respectively.

As of June 30, 2023, the aggregate amount of remaining performance obligations from contracts with customers was $3.3 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months. The remainder of the balance is expected to be recognized over the next two to three years. Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance obligations have not been satisfied. It excludes estimates of variable consideration, such as usage-based contracts with no committed contract, as well as anticipated renewed contracts. Revenue recognized during the six months ended June 30, 2023 and 2022, 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

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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.

The Company’s effective income tax rate was 18.4% and 15.9% for the six months ended June 30, 2023 and 2022, respectively. The higher effective tax rate for the six months ended June 30, 2023 was primarily due to an increase in non-deductible stock-based compensation, an increase in revaluation of certain foreign income tax liabilities due to foreign exchange rate fluctuations and a decrease in the excess tax benefit related to stock-based compensation. These amounts were partially offset by a decrease in intercompany sales of intellectual property.

For the six months ended June 30, 2023, the effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. These amounts were partially offset by tax on global intangible low taxed income, non-deductible stock-based compensation and a shortfall related to stock-based compensation.

For the six months ended June 30, 2022, 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 tax credits. These amounts were partially offset by an intercompany sale of intellectual property, the tax on global intangible low taxed income and non-deductible stock-based compensation.

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 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.

The components used in the computation of basic and diluted net income per share for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands, except per share data):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Numerator:
Net income	$	128,816	$	137,840	$	225,922	$	271,216
Denominator:
Shares used for basic net income per share	152,064		160,038		153,850		160,266
Effect of dilutive securities:
Stock options	14		50		7		25
Stock awards	1,376		565		938		943
Convertible senior notes	—		1,057		—		1,440

Shares used for diluted net income per share	153,454		161,710		154,795		162,674
Basic net income per share	$	0.85	$	0.86	$	1.47	$	1.69
Diluted net income per share	$	0.84	$	0.85	$	1.46	$	1.67

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For the three and six months ended June 30, 2023 and 2022, certain potential outstanding shares from service-based RSUs 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 market- and performance-based RSUs were excluded from the computation of diluted net income per share because the underlying market and performance conditions for such RSUs had not been met as of these dates. The number of potentially outstanding shares excluded from the computation of diluted net income per share for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2023	2022	2023	2022

Service-based RSUs	2,159	2,228	5,013	2,231
Market- and performance-based RSUs	1,270	1,022	1,425	1,038

Warrants related to issuance of convertible senior notes	21,991	21,991	21,991	21,991
Total shares excluded from computation	25,420	25,241	28,429	25,260

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