10-Q 1 akam-20220331.htm 10-Q akam-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to    
            
Commission file number 000-27275
______________________________________________ 
Akamai Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware 04-3432319
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
145 Broadway
Cambridge, MA 02142
(617) 444-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
______________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock - par value $0.01 per share
AKAMNasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
x    No  ¨

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  x
The number of shares outstanding of the registrant’s common stock as of May 3, 2022: 160,305,193
1

AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

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

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data) (unaudited)March 31,
2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents$377,811 $536,725 
Marketable securities 129,058 541,470 
Accounts receivable, net of reserves of $3,279 and $1,397 at March 31, 2022, and December 31, 2021, respectively
718,793 675,926 
Prepaid expenses and other current assets238,821 166,313 
Total current assets1,464,483 1,920,434 
Marketable securities 786,712 1,088,048 
Property and equipment, net1,579,833 1,534,329 
Operating lease right-of-use assets819,880 815,754 
Acquired intangible assets, net512,188 313,225 
Goodwill2,745,882 2,156,254 
Deferred income tax assets265,946 168,342 
Other assets128,855 142,287 
Total assets$8,303,779 $8,138,673 

3

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS, continued

(in thousands, except share data) (unaudited)March 31,
2022
December 31,
2021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$122,934 $109,928 
Accrued expenses342,802 411,590 
Deferred revenue139,725 86,517 
Revolving credit facility75,000  
Operating lease liabilities183,762 175,683 
Other current liabilities5,042 6,623 
Total current liabilities869,265 790,341 
Deferred revenue30,098 25,342 
Deferred income tax liabilities41,131 40,974 
Convertible senior notes2,281,927 1,976,167 
Operating lease liabilities703,605 707,087 
Other liabilities77,231 68,748 
Total liabilities4,003,257 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; 161,460,261 shares issued and 160,535,769 shares outstanding at March 31, 2022, and 160,512,111 shares issued and outstanding at December 31, 2021
1,615 1,605 
Additional paid-in capital2,974,529 3,340,822 
Accumulated other comprehensive loss(88,611)(69,105)
Treasury stock, at cost, 924,492 shares at March 31, 2022, and no shares at December 31, 2021
(102,853) 
Retained earnings1,515,842 1,256,692 
Total stockholders’ equity4,300,522 4,530,014 
Total liabilities and stockholders’ equity$8,303,779 $8,138,673 

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

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
    
 For the Three Months
Ended March 31,
(in thousands, except per share data) (unaudited)20222021
Revenue$903,647 $842,708 
Costs and operating expenses:
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)332,752 306,687 
Research and development99,935 82,045 
Sales and marketing122,719 116,354 
General and administrative153,262 136,715 
Amortization of acquired intangible assets13,644 11,427 
Restructuring charge8,016 7,116 
Total costs and operating expenses730,328 660,344 
Income from operations173,319 182,364 
Interest and marketable securities (loss) income, net(211)4,578 
Interest expense(2,695)(17,834)
Other expense, net(9,565)(817)
Income before provision for income taxes160,848 168,291 
Provision for income taxes(34,050)(11,898)
Loss from equity method investment(7,635)(698)
Net income$119,163 $155,695 
Net income per share:
Basic$0.74 $0.95 
Diluted$0.73 $0.94 
Shares used in per share calculations:
Basic160,494 163,061 
Diluted163,637 165,688 

The accompanying notes are an integral part of the condensed consolidated financial statements.
5

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 For the Three Months
Ended March 31,
(in thousands) (unaudited)20222021
Net income$119,163 $155,695 
Other comprehensive loss:
Foreign currency translation adjustments2,036 (24,265)
Change in unrealized loss on investments, net of income tax benefit of $4,948 and $937 for the three months ended March 31, 2022 and 2021, respectively
(21,542)(2,881)
Other comprehensive loss(19,506)(27,146)
Comprehensive income$99,657 $128,549 

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

6

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Three Months
Ended March 31,
(in thousands) (unaudited)20222021
Cash flows from operating activities:
Net income$119,163 $155,695 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization142,595 131,471 
Stock-based compensation56,227 54,305 
(Benefit) provision for deferred income taxes(13,579)1,764 
Amortization of debt discount and issuance costs1,119 16,257 
Loss on investments16,536 698 
Other non-cash reconciling items, net12,598 528 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(39,198)(15,580)
Prepaid expenses and other current assets(64,695)(35,388)
Accounts payable and accrued expenses(66,938)(72,986)
Deferred revenue55,394 25,439 
Other current liabilities(1,441)(716)
Other non-current assets and liabilities4,670 (11,694)
Net cash provided by operating activities222,451 249,793 
Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired(872,099)(15,638)
Purchases of property and equipment(51,005)(87,222)
Capitalization of internal-use software development costs(80,354)(77,497)
Purchases of short- and long-term marketable securities (90,279)
Proceeds from sales of short- and long-term marketable securities571,369 7,154 
Proceeds from maturities and redemptions of short- and long-term marketable securities120,433 226,995 
Other, net(5,242)179 
Net cash used in investing activities(316,898)(36,308)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility75,000  
Proceeds related to the issuance of common stock under stock plans21,941 21,410 
Employee taxes paid related to net share settlement of stock-based awards(54,819)(63,946)
Repurchases of common stock(102,853)(58,241)
Other, net(104) 
Net cash used in financing activities(60,835)(100,777)
Effects of exchange rate changes on cash, cash equivalents and restricted cash(1,462)(7,151)
Net (decrease) increase in cash, cash equivalents and restricted cash(156,744)105,557 
Cash, cash equivalents and restricted cash at beginning of period537,751 353,466 
Cash, cash equivalents and restricted cash at end of period$381,007 $459,023 


7

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

 For the Three Months
Ended March 31,
(in thousands) (unaudited)20222021
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net of refunds received of $1,025 and $1,846 for the three months ended March 31, 2022 and 2021, respectively
$50,533 $17,736 
Cash paid for interest expense2,156 2,156 
Cash paid for operating lease liabilities54,285 63,673 
Non-cash activities:
Operating lease right-of-use assets obtained in exchange for operating lease liabilities38,582 82,125 
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses48,326 60,193 
Capitalization of stock-based compensation7,803 9,459 
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents$377,811 $456,799 
Restricted cash3,196 2,224 
Cash, cash equivalents and restricted cash$381,007 $459,023 

The accompanying notes are an integral part of the condensed consolidated financial statements.
8

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

Three Months Ended March 31, 2022
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at January 1, 2022160,512,111 $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 taxes948,150 10 (54,649)(54,639)
Stock-based compensation63,770 63,770 
Repurchases of common stock(924,492)(102,853)(102,853)
Net income119,163 119,163 
Foreign currency translation adjustment2,036 2,036 
Change in unrealized loss on investments, net of tax(21,542)(21,542)
Balance at March 31, 2022160,535,769 $1,615 $2,974,529 $(88,611)$(102,853)$1,515,842 $4,300,522 


9

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

Three Months Ended March 31, 2021
(in thousands, except share data) (unaudited)Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossTreasury StockRetained EarningsTotal Stockholders' Equity
SharesAmount
Balance at January 1, 2021162,709,720 $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 taxes1,128,184 11 (64,017)(64,006)
Stock-based compensation63,765 63,765 
Repurchases of common stock(591,963)(58,241)(58,241)
Net income155,695 155,695 
Foreign currency translation adjustment(24,265)(24,265)
Change in unrealized loss on investments, net of tax(2,881)(2,881)
Balance at March 31, 2021163,245,941 $1,638 $3,664,568 $(47,347)$(58,241)$760,745 $4,321,363 

The accompanying notes are an integral part of the condensed consolidated financial statements.
10

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.

Newly-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 reflects 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 by $0.08 for the three months ended March 31, 2022.
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2. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of March 31, 2022 and December 31, 2021 (in thousands):

Gross UnrealizedClassification on Balance Sheet
Amortized CostGainsLossesAggregate
Fair Value
Short-Term
Marketable
Securities
Long-Term
Marketable
Securities
As of March 31, 2022
Corporate bonds$645,755 $ $(17,750)$628,005 $108,981 $519,024 
U.S. government agency obligations272,133  (7,009)265,124 19,306 245,818 
$917,888 $ $(24,759)$893,129 $128,287 $764,842 
As of December 31, 2021
Commercial paper$25,056 $ $(24)$25,032 $25,032 $ 
Corporate bonds1,268,991 1,191 (4,275)1,265,907 459,012 806,895 
U.S. government agency obligations316,728 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 March 31, 2022, the Company held for investment corporate bonds with a fair value of $43.8 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 $1.1 million and is included in accumulated other comprehensive loss as of March 31, 2022. The unrealized loss is attributable to changes in interest rates. Based on the evaluation of available evidence, the Company does not believe any unrealized losses represent other than temporary impairments.
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The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets as of March 31, 2022 and December 31, 2021 (in thousands):

Total Fair ValueFair Value Measurements at
Reporting Date Using
 Level 1Level 2
As of March 31, 2022
Cash Equivalents and Marketable Securities:
Money market funds$1,428 $1,428 $ 
Corporate bonds628,005  628,005 
U.S. government agency obligations265,124  265,124 
Mutual funds22,641 22,641  
$917,198 $24,069 $893,129 
As of December 31, 2021
Cash Equivalents and Marketable Securities:
Money market funds$109,313 $109,313 $ 
Commercial paper39,031  39,031 
Corporate bonds1,265,907  1,265,907 
U.S. government agency obligations315,450  315,450 
Mutual funds23,129 23,129  
$1,752,830 $132,442 $1,620,388 

As of March 31, 2022 and December 31, 2021, the Company grouped money market and mutual funds using a Level 1 valuation because market prices for such investments are readily available in active markets. As of March 31, 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 three months ended March 31, 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 March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31,
2022
December 31,
2021
Due in 1 year or less$128,287 $540,574 
Due after 1 year through 5 years764,842 1,065,815 
$893,129 $1,606,389 

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3. Accounts Receivable

Net accounts receivable consisted of the following as of March 31, 2022 and December 31, 2021 (in thousands):
 
March 31,
2022
December 31,
2021
Trade accounts receivable$511,584 $501,959 
Unbilled accounts receivable210,488 175,364 
Gross accounts receivable722,072 677,323 
Allowances for current expected credit losses and other reserves(3,279)(1,397)
Accounts receivable, net$718,793 $675,926 

A summary of activity in the accounts receivable allowance for current expected credit losses and other reserves for the three months ended March 31, 2022 and 2021 is as follows (in thousands):

March 31,
2022
March 31,
2021
Beginning balance$1,397 $1,822 
Charges to income from operations1,951 923 
Collections from customers previously reserved and other(69)(1,091)
Ending balance$3,279 $1,654 

Charges to income from operations primarily represents charges to bad debt expense 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 March 31, 2022 and December 31, 2021 (in thousands):

March 31,
2022
December 31,
2021
Deferred costs included in prepaid and other current assets$39,948 $43,562 
Deferred costs included in other assets28,290 30,436 
Total deferred costs$68,238 $73,998 

The following table summarizes additional information related to incremental costs to obtain a contract with a customer for the three months ended March 31, 2022 and 2021 (in thousands):

 For the Three Months
Ended March 31,
20222021
Amortization expense related to deferred costs
$15,022 $13,727 
Incremental costs capitalized
9,484 9,872 

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

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5. Acquired Intangible Assets and Goodwill

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

 March 31, 2022December 31, 2021
 Gross
Carrying
Amount
Accumulated AmortizationNet
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Completed technology$328,516 $(134,891)$193,625 $257,857 $(128,715)$129,142 
Customer-related intangible assets499,945 (224,061)275,884 398,182 (216,192)181,990 
Non-compete agreements254 (127)127 258 (107)151 
Trademarks and trade names14,663 (6,365)8,298 8,039 (6,097)1,942 
Acquired license rights34,810 (556)34,254 490 (490) 
Total$878,188 $(366,000)$512,188 $664,826 $(351,601)$313,225 

Aggregate expense related to amortization of acquired intangible assets for the three months ended March 31, 2022 and 2021 was $13.6 million and $11.4 million, respectively. Based on the Company’s acquired intangible assets as of March 31, 2022, aggregate expense related to amortization of acquired intangible assets is expected to be $50.4 million for the remainder of 2022, and $61.3 million, $65.8 million, $66.2 million and $59.9 million for 2023, 2024, 2025 and 2026, respectively.

The change in the carrying amount of goodwill for the three months ended March 31, 2022 was as follows (in thousands):

Balance as of January 1, 2022$2,156,254 
Acquisition of Linode Limited Liability Company588,440 
Measurement period adjustments related to acquisitions completed in prior years1,884 
Foreign currency translation(696)
Balance as of March 31, 2022$2,745,882 

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 months ended March 31, 2022 were $10.3 million 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 three months ended March 31, 2022 have not been presented because the effects of the acquisition were not material to the Company's consolidated financial results. Revenue and earnings of the acquired company since the date of the acquisition that are included in the Company's condensed consolidated statements of income are also not presented separately because they are not material.

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 edge computing services by creating a unique cloud platform to build, run and secure applications from the cloud to the edge. As of March 31, 2022, the purchase price allocation is preliminary, pending finalization of the fair value of the tangible and intangible assets acquired, certain income tax matters and net working capital.
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The following table presents 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 receivable7,220 
Prepaid expenses and other current assets6,288 
Property and equipment60,670 
Operating lease right-of-use assets16,970 
Identifiable intangible assets 212,520 
Goodwill588,440 
Deferred income tax assets2,901 
Other assets652 
Total assets acquired922,339 
Accounts payable(5,387)
Accrued expenses(970)
Operating lease liabilities(17,205)
Total liabilities assumed(23,562)
Net assets acquired$898,777 

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 AmountWeighted Average Useful Life (in years)
Customer-related intangible assets$100,700 11
Completed technologies70,900 6
Acquired license rights34,320 15
Trademarks6,600 9
Total$212,520 

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 9.7 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 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.

16

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 adoption.

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 March 31, 2022 and December 31, 2021 (in thousands):

March 31,
2022
December 31,
2021
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(10,113)(169,030)
Net carrying amount$1,139,887 $980,970 
Equity component:$— $220,529 

The estimated fair value of the 2027 Notes at March 31, 2022 and December 31, 2021 was $1,327.0 million and $1,359.3 million, respectively. The fair value was determined based on the quoted price of the 2027 Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 within the fair value hierarchy. Based on the
17

closing price of the Company's common stock of $119.39 on March 31, 2022, the value of the 2027 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

The Company used $100.0 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2027 Notes. The repurchase was made in accordance with a share repurchase program previously approved by the board of directors. Additionally, $127.1 million of the proceeds was used for the net cost of 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 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.

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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 adoption.

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 March 31, 2022 and December 31, 2021 (in thousands):

March 31,
2022
December 31,
2021
Liability component:
Principal$1,150,000 $1,150,000 
Less: debt discount and issuance costs, net of amortization(7,960)(154,803)
Net carrying amount$1,142,040 $995,197 
Equity component:$— $285,225 

The estimated fair value of the 2025 Notes at March 31, 2022 and December 31, 2021 was $1,518.8 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 $119.39 on March 31, 2022, the value of the 2025 Notes if converted to common stock was more than the principal amount of $1,150.0 million.

The Company used $46.2 million of the proceeds from the offering to repurchase shares of its common stock, concurrent with the issuance of the 2025 Notes. The repurchase was made in accordance with a share repurchase program previously approved by the board of directors. Additionally, $141.8 million of the proceeds was used for the net cost of convertible note hedge and warrant transactions. The Company also used a portion of the net proceeds to repay at maturity the $690.0 million in par value of convertible senior notes due in 2019. 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.

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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. In March 2022, the Company borrowed $75.0 million under the Credit Agreement, and as of March 31, 2022, $75.0 million remained outstanding. The Company plans to repay amounts outstanding in less than 12 months.

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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 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 months ended March 31, 2022 and 2021 (in thousands):

For the Three Months
Ended March 31,
20222021
Amortization of debt discounts and issuance costs$1,168 $17,182 
Coupon interest payable on 2025 Notes359 359 
Coupon interest payable on 2027 Notes1,078 1,078 
Interest payable under the Credit Agreement139 140 
Capitalization of interest expense(49)(925)
Total interest expense$2,695 $17,834 

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 also provides services to GO-NET. As a result of MUFG's intention to suspend operations, during the three months ended March 31, 2022, the Company recorded as a restructuring charge the impairment of $7.5 million primarily related to certain capitalized internal-use software assets that will no longer be used in operations or will not generate sufficient future cash 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 or a Company office. 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 $3.7 million related to this program, of which a benefit of $0.1 million was incurred in the first quarter of 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 $31.5 million as part of this action, of which $7.0 million was incurred during the three months ended March 31, 2021 and was comprised of $6.3 million of employee severance and related benefits and $0.7 million of internal-use software charges. The Company did not incur any charges related to this action during the three months ended March 31, 2022, nor does it expect to incur material additional charges related to this action.

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

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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 31, 2024. During the three months ended March 31, 2022, the Company repurchased 0.9 million shares of its common stock for $102.9 million. 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 months ended March 31, 2022 and 2021 (in thousands):
 
 For the Three Months
Ended March 31,
20222021
Cost of revenue$6,233 $7,096 
Research and development20,232 18,369 
Sales and marketing12,326 12,478 
General and administrative17,436 16,362 
Total stock-based compensation56,227 54,305 
Provision for income taxes(14,043)(13,044)
Total stock-based compensation, net of income taxes$42,184 $41,261 

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 months ended March 31, 2022 and 2021, include stock-based compensation reflected as a component of amortization of capitalized internal-use software of $7.6 million, and $7.7 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 three months ended March 31, 2022 (in thousands):

Foreign Currency Translation Net Unrealized Gains (Losses) on InvestmentsTotal
Balance as of January 1, 2022$(71,809)$2,704 $(69,105)
Other comprehensive income (loss)2,036 (21,542)(19,506)
Balance as of March 31, 2022$(69,773)$(18,838)$(88,611)

Amounts reclassified from accumulated other comprehensive loss to net income were immaterial for the three months ended March 31, 2022.

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11. Revenue from Contracts with Customers

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

For the Three Months
Ended March 31,
20222021
U.S.$481,007 $463,180 
International422,640 379,528 
Total revenue$903,647 $842,708 

The Company reports its revenue in three solution categories: security, delivery and compute. Revenue by solution was previously reported by 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. 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 edge cloud optimization solutions and net storage. The following table summarizes revenue by solution category included in the Company’s condensed consolidated statements of income for the three months ended March 31, 2022 and 2021 (in thousands):

For the Three Months
Ended March 31,
20222021
Security$381,567 $310,219 
Delivery444,148 473,669 
Compute77,932 58,820 
Total revenue$903,647 $842,708 

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. Any bursting over given commitments is recognized in the period in which the traffic is 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 three months ended March 31, 2022 and 2021, the Company recognized $56.2 million and $43.3 million of revenue that was included in deferred revenue as of December 31, 2021 and 2020, respectively.

As of March 31, 2022, the aggregate amount of remaining performance obligations from contracts with customers was $3.2 billion. The Company expects to recognize approximately 70% of its remaining performance obligations as revenue over the next 12 months, with the remaining recognized thereafter. Remaining performance obligations represent the amount of the transaction price under contracts with customers that are attributable to performance obligations that are unsatisfied or partially satisfied at the reporting date. This consists of future committed revenue for monthly, quarterly or annual periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced in prior periods for which the related performance obligations have not been satisfied. It excludes estimates of variable consideration such as usage-based contracts with no committed contract as well as anticipated renewed contracts. Revenue recognized during each of the three months ended March 31, 2022 and 2021, related to performance obligations satisfied in previous periods was not material.

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12. Income Taxes

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

In the second quarter of 2018, the Company filed an appeal with the Massachusetts Appellate Tax Board (“MATB”) contesting the adverse audit findings related to certain tax benefits and exemptions. In July 2020, the MATB ruled in the Company’s favor; however, the Massachusetts Department of Revenue appealed the decision in January 2022. 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 21.2% and 7.1% for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 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 three months ended March 31, 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, the valuation allowance recorded against deferred tax assets related to state tax credits 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 months ended March 31, 2022, the dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method and the dilutive effect of the convertible securities is reflected in diluted earnings per share by application of the if-converted method. For the three months ended March 31, 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 months ended March 31, 2022 and 2021 (in thousands, except per share data):
 
 For the Three Months
Ended March 31,
 20222021
Numerator:
Net income$119,163 $155,695 
Denominator:
Shares used for basic net income per share160,494 163,061 
Effect of dilutive securities:
Stock options