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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
____________________________

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2021

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: 001-38897
____________________________
FASTLY, INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware27-5411834
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
475 Brannan Street, Suite 300
San Francisco, CA 94107
(Address of principal executive offices) (Zip code)

(844) 432-7859
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address, or former fiscal year, if changed since last report)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.00002 par valueFSLYThe New York Stock Exchange

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 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   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 and post such files). Yes   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 filerAccelerated filer
Non-accelerated filerSmaller 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 

As of October 29, 2021, 117.5 million shares of the registrants’ Class A common stock were outstanding.

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TABLE OF CONTENTS
Page

2



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "will," or the negative of these terms or other similar expressions.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:
our ability to attract and retain customers;
our ability to increase the usage of our platform by existing customers;
defects, interruptions, security breaches, delays in performance, or similar problems with our platform, including the impact of our global platform outage on June 8, 2021;
the potential impact of the COVID-19 pandemic on our business, operations, and the markets and communities in which we, our partners, and our customers operate;
component delays, shortages and price increases;
our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to attain and sustain profitability;
our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;
the growth of our relevant markets;
our platform’s functionality, scalability, performance, ease of use, reliability, and cost effectiveness relative to that of our competitors’ products and services;
our ability to compete effectively with existing competitors and new market entrants;
our ability to attract and retain qualified employees and key personnel;
our integration of new members of our management team;
our ability to maintain, protect, and enhance our intellectual property; and
our ability to comply with laws and regulations that currently apply or may become applicable to our business or our customers both in the United States and internationally.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
3


Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (www.investors.fastly.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.


4



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FASTLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
As of September 30, 2021As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$282,131 $62,900 
Marketable securities, current361,290 131,283 
Accounts receivable, net of allowance for credit losses of $3,173 and $3,248 as of September 30, 2021 and December 31, 2020, respectively
54,234 50,258 
Restricted cash 87 
Prepaid expenses and other current assets22,230 16,728 
Total current assets719,885 261,256 
Marketable securities, noncurrent429,489 20,448 
Property and equipment, net147,729 95,979 
Operating right-of-use assets70,149 60,019 
Goodwill635,635 635,590 
Intangible assets, net107,905 121,742 
Other assets28,142 24,917 
Total assets$2,138,934 $1,219,951 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$7,766 $9,150 
Accrued expenses36,063 34,334 
Finance lease liabilities, current18,675 11,033 
Operating lease liabilities, current20,007 19,895 
Other current liabilities24,758 19,677 
Total current liabilities107,269 94,089 
Long-term debt932,305  
Finance lease liabilities, noncurrent24,659 14,707 
Operating lease liabilities, noncurrent54,066 44,890 
Other long-term liabilities5,056 4,400 
Total liabilities1,123,355 158,086 
Commitments and contingencies (Note 10)
Stockholders’ equity:
Class A and Class B common stock2 2 
Additional paid-in capital1,469,366 1,350,050 
Accumulated other comprehensive income (loss)(420)6 
Accumulated deficit(453,369)(288,193)
Total stockholders’ equity 1,015,579 1,061,865 
Total liabilities and stockholders’ equity $2,138,934 $1,219,951 


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

5


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended
September 30,
Nine months ended September 30,
2021202020212020
Revenue$86,735 $70,638 $256,613 $208,225 
Cost of revenue41,244 29,292 119,058 86,254 
Gross profit45,491 41,346 137,555 121,971 
Operating expenses:
Research and development32,528 18,271 91,862 49,224 
Sales and marketing39,288 22,568 110,494 66,416 
General and administrative28,609 23,961 97,564 56,199 
Total operating expenses100,425 64,800 299,920 171,839 
Loss from operations(54,934)(23,454)(162,365)(49,868)
Interest income280 353 730 1,450 
Interest expense(1,555)(410)(3,652)(1,097)
Other income 41 69 155 418 
Loss before income taxes(56,168)(23,442)(165,132)(49,097)
Income tax expense30 336 44 1,131 
Net loss$(56,198)$(23,778)$(165,176)$(50,228)
Net loss per share attributable to common stockholders, basic and diluted$(0.48)$(0.22)$(1.43)$(0.50)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted116,475 105,942 115,320 100,413 

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


6


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended
September 30,
Nine months ended September 30,
2021202020212020
Net loss$(56,198)$(23,778)$(165,176)$(50,228)
Other comprehensive loss:
Foreign currency translation loss$(186)$(68)$(228)$(149)
Gain (loss) on investments in available-for-sale-securities, net of tax27 (193)(198)77 
Total other comprehensive loss$(159)$(261)$(426)$(72)
Comprehensive loss$(56,357)$(24,039)$(165,602)$(50,300)

The accompanying notes are an integral part of the condensed consolidated financial statements.
7


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts; unaudited)
Three months ended September 30, 2021
Common Stock—Class ACommon Stock—Class BAdditional Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total Stockholders’ Equity
SharesAmountSharesAmount
Balance at June 30, 2021106,259,339 $1 9,708,299 $1 $1,426,520 $(261)$(397,171)$1,029,090 
Exercise of stock options498,261 — — — 3,489 — — 3,489 
Vesting of early exercised stock options— — 14,366 — 64 — — 64 
Vesting of restricted stock units611,020 — — — — — — — 
Vesting of restricted stock awards112,062 — — — — — — — 
Stock-based compensation— — — — 39,293 — — 39,293 
Conversion of Class B to Class A Stock9,722,665 1 (9,722,665)(1)— — — — 
Net loss— — — — — — (56,198)(56,198)
Other comprehensive loss— — — — — (159)— (159)
Balance at September 30, 2021117,203,347 $2  $ $1,469,366 $(420)$(453,369)$1,015,579 

Three months ended September 30, 2020
Common Stock—Class ACommon Stock—Class BAdditional Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total Stockholders’ Equity
SharesAmountSharesAmount
Balance as of June 30, 202090,321,462 $1 14,716,313 $1 $760,237 $385 $(218,711)$541,913 
Vesting of early exercised stock options— — 28,730 — 127 — — 127 
Vesting of restricted stock units844,635 — — — — — — — 
Exercise of vested stock options979,252 — — — 4,122 — — 4,122 
Stock-based compensation— — — — 12,745 — — 12,745 
Conversion of Class B to Class A Stock3,371,024 — (3,371,024)— — — — — 
Net loss— — — — — — (23,778)(23,778)
Other comprehensive loss— — — — — (261)— (261)
Balance as of September 30, 202095,516,373 $1 11,374,019 1$777,231 $124 $(242,489)$534,868 



8


Nine months ended September 30, 2021
Common Stock—Class ACommon Stock—Class BAdditional Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total Stockholders’ Equity
SharesAmountSharesAmount
Balance at December 31, 2020103,394,496 $1 10,228,700 $1 $1,350,050 $6 $(288,193)$1,061,865 
Exercise of vested stock options1,527,091 — — — 9,094 — — 9,094 
Vesting of early exercised stock options— — 43,095 — 192 — — 192 
Vesting of restricted stock units1,520,101 — — — — — — — 
Vesting of restricted stock awards336,186 — — — — — — — 
Shares issued under ESPP153,678 — — — 5,719 — — 5,719 
Stock-based compensation— — — — 104,311 — — 104,311 
Conversion of Class B to Class A Stock10,271,795 1 (10,271,795)(1)— — — — 
Net loss— — — — — — (165,176)(165,176)
Other comprehensive loss— — — — — (426)— (426)
Balance at September 30, 2021117,203,347 $2  $ $1,469,366 $(420)$(453,369)$1,015,579 


Nine months ended September 30, 2020
Common Stock—Class ACommon Stock—Class BAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Accumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmount
Balance as of December 31, 201960,954,694 $1 33,863,021 $1 $449,463 $196 $(192,009)$257,652 
Change in accounting policy— — — — — — (252)(252)
Issuance of Class A common stock issued in connection with the follow-on public offering, net of underwriting discounts6,900,000 — — — 274,177 — — 274,177 
Vesting of early exercised stock options— — 94,048 — 401 — — 401 
Vesting of restricted stock units905,093 — — — — — — — 
Shares issued under ESPP226,288 — — — 4,247 — — 4,247 
Exercise of vested stock options3,802,613 — — — 12,953 — — 12,953 
Cashless exercise of common stock warrants— — 144,635 — — — — — 
Stock-based compensation— — — — 35,990 — — 35,990 
Conversion of Class B to Class A Stock22,727,685 — (22,727,685)— — — — — 
Net loss— — — — — — (50,228)(50,228)
Other comprehensive income— — — — — (72)— (72)
Balance as of September 30, 202095,516,373 $1 11,374,019 $1 $777,231 $124 $(242,489)$534,868 




The accompanying notes are an integral part of the condensed consolidated financial statements.
9


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended September 30,
20212020
Cash flows from operating activities:
Net loss$(165,176)$(50,228)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense20,710 14,266 
Amortization of intangible assets15,929 145 
Amortization of right-of-use assets and other19,818 15,824 
Amortization of debt discount and issuance costs2,235 58 
Amortization of deferred contract costs4,567 2,375 
Stock-based compensation100,900 34,752 
Provision for credit losses41 1,212 
Interest paid on finance leases(1,259)(454)
Loss on disposals of property and equipment(177)(133)
Other adjustments1,496 176 
Changes in operating assets and liabilities:
Accounts receivable(4,017)(6,669)
Prepaid expenses and other current assets(5,502)(3,778)
Other assets(7,320)(7,410)
Accounts payable(1,653)7,046 
Accrued expenses2,713 17,224 
Operating lease liabilities(19,735)(12,852)
Other liabilities5,856 (321)
Net cash (used in) provided by operating activities(30,574)11,233 
Cash flows from investing activities:
Purchases of marketable securities(777,569)(204,361)
Sales of marketable securities64,236 143,241 
Maturities of marketable securities72,853 83,718 
Purchases of property and equipment(31,267)(23,602)
Proceeds from sale of property and equipment291 150 
Capitalized internal-use software(10,299)(4,082)
Purchases of intangible assets(2,092)(1,811)
Net cash used in investing activities(683,847)(6,747)
Cash flows from financing activities:
Proceeds from follow-on public offering, net of underwriting fees 274,896 
Payments of costs related to initial public offering (675)
Issuance of convertible note, net of issuance costs930,775  
Payments of other debt issuance costs(1,351) 
Repayments of finance lease liabilities(10,564)(3,901)
Proceeds from employee stock purchase plan5,994 6,206 
Proceeds from exercise of vested stock options9,094 12,953 
Net cash provided by financing activities933,948 289,479 
Effects of exchange rate changes on cash, cash equivalents, and restricted cash(383)(139)
Net increase in cash, cash equivalents, and restricted cash219,144 293,826 
Cash, cash equivalents, and restricted cash at beginning of period63,880 86,229 
Cash, cash equivalents, and restricted cash at end of period$283,024 $380,055 

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

10





FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
(in thousands)
(unaudited)
Nine months ended September 30,
20212020
Supplemental disclosure of cash flow information:
Cash paid for interest$1,379 $758 
Cash paid for income taxes, net of refunds received$240 $1,000 
Property and equipment additions not yet paid in cash$443 $9,613 
Vesting of early-exercised stock options$192 $401 
Cashless exercise of common stock warrants$ $1,557 
Stock-based compensation capitalized to internal-use software$3,411 $1,238 
Assets obtained in exchange for operating lease obligations$25,745 $15,095 
Assets obtained in exchange for finance lease obligations$28,399 $11,352 
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents$282,131 $309,968 
Restricted cash 70,087 
Restricted cash included in other assets893  
Total cash, cash equivalents, and restricted cash$283,024 $380,055 



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


11



1.     Nature of Business
Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customer’s applications as close to their end users as possible. As of September 30, 2021, our edge network spans across 68 markets around the world. We were incorporated in Delaware in 2011 and are headquartered in San Francisco, California.
As used herein, "Fastly," "we," "our," "the Company," and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise,
Conversion of dual class common stock structure
On October 12, 2020, the outstanding shares of our Class B common stock represented less than 10% of the aggregate number of shares of the then outstanding Class A common stock and Class B common stock. As a result, all outstanding shares of Class B common stock automatically converted into the same number of shares of Class A common stock on July 12, 2021, pursuant to the terms of our amended and restated certificate of incorporation (the "Certificate"). Upon the conversion, outstanding options denominated in shares of Class B common stock issued under any of our equity incentive plans remained unchanged, except that they now represent the right to receive shares of Class A common stock on exercise. In accordance with the Certificate, the shares of Class B common stock that converted to Class A common stock were retired and will not be reissued by us.

2.     Summary of Significant Accounting Policies
Basis of Presentation
The interim unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") along with instructions to Form 10-Q and Article 10 of Securities and Exchange Commission ("SEC") Regulation S-X.
Certain changes in presentation have been made to conform the prior period presentation to the current period reporting. Such reclassifications did not affect total revenues, operating income, or net income. We have made certain presentation changes to distinguish and disclose as a separate line item, our Marketable securities, noncurrent balance from our Other assets line in the Condensed Consolidated Balance Sheets. We have made certain presentation changes to distinguish and disclose as separate line items, the amortization of intangible assets and depreciation expenses within operating cash flows in the Condensed Consolidated Statements of Cash Flows.
We have also made certain presentation changes to retroactively adjust for the effects of Accounting Standards Codification No. 842, Leases ("ASC 842") that was adopted as part of our form 10-K filing on March 1, 2021 with an adoption effective date of January 1, 2020, using the modified retrospective method. Changes to our Condensed Consolidated Statements of Cash Flows include separately disclosing under operating cash flows the amortization of right-of-use assets and other, and payments associated with operating lease liabilities. We have also updated our supplemental cash flow disclosures accordingly to disclose assets obtained in exchange for operating lease obligations and assets obtained in exchange for finance lease obligations, in accordance with the disclosure requirements of ASC 842. We have also updated our Condensed Consolidated Statement of Stockholders' Equity to include the impact to accumulated deficit upon adoption for the activity in the three and nine months ended September 30, 2020.
The following tables show the affected line items within the condensed consolidated financial statements (in millions):
12


Condensed Consolidated Statement of Stockholders' Equity
Three Months Ended September 30, 2020
As previously reportedAdjustmentsAs adjusted
(in thousands)
Accumulated Deficit:
Balance as of June 30, 2020$(218,459)$(252)$(218,711)
Balance as of September 30, 2020$(242,237)$(252)$(242,489)
Total Stockholders' Equity
Balance as of June 30, 2020$542,165 $(252)$541,913 
Balance as of September 30, 2020$535,120 $(252)$534,868 

Nine months ended September 30, 2020
As previously reportedAdjustmentsAs adjusted
(in thousands)
Accumulated Deficit:
Balance as of December 31, 2019$(192,009)$ $(192,009)
Change in accounting policy$ $(252)$(252)
Balance as of September 30, 2020$(242,237)$(252)$(242,489)
Total Stockholders' Equity
Balance as of December 31, 2019$257,652 $ $257,652 
Change in accounting policy$ $(252)$(252)
Balance as of September 30, 2020$535,120 $(252)$534,868 

Condensed Consolidated Statement of Cash Flows

Nine months ended September 30, 2020
As previously reportedAdjustmentsAs adjusted
(in thousands)
Cash flows from operating activities:
Amortization of deferred rent$2,941 $(2,941)$ 
Amortization of right-of-use asset and other 15,824 15,824 
Other adjustments207 (31)176 
Operating lease liabilities (12,852)(12,852)
Net cash used in operating activities11,233  11,233 
Cash flows from investing activities:
Purchase of property and equipment(24,443)841 (23,602)
Net cash provided by investing activities(7,588)841 (6,747)
Cash flows from financing activities:
Repayments of capital lease liabilities(3,060)3,060  
Repayments of finance lease liabilities (3,901)(3,901)
Net cash provided by financing activities$290,320 $(841)$289,479 
Supplemental disclosure of cash flow information:
Capital lease outstanding on current year addition$5,439 $(5,439)$ 
Assets obtained in exchange for operating lease obligations$ $15,095 $15,095 
Assets obtained in exchange for finance lease obligations$ $11,352 11,352 

Principles of Consolidation
The accompanying interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
13


Unaudited Interim Financial Statements
The accompanying interim condensed consolidated balance sheet as of September 30, 2021, the related interim condensed consolidated statements of operations, the condensed consolidated statements of comprehensive loss, and the condensed consolidated statements of stockholders' equity for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020, and the related footnote disclosures are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of our financial position as of September 30, 2021. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Actual results and outcomes could differ significantly from our estimates, judgments, and assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, fair value of assets acquired and liabilities assumed for business combinations, useful lives and realizability of long-lived assets including our goodwill and intangible assets, income tax reserves and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the condensed consolidated financial statements in the period of change and prospectively from the date of the change in estimate.
The ongoing global COVID-19 pandemic has adversely impacted many operational aspects of our business and may continue to do so in the future. Since the start of the pandemic, we have assessed the impact that COVID-19 had on our results of operations, including, but not limited to an assessment of our allowance for credit losses, the carrying value of short-term and long-term marketable securities, the carrying value of goodwill and other long-lived assets, and the impact on revenue recognition and cost of revenues. The future impacts of the pandemic and any resulting economic impact are largely unknown and are continuing to evolve. We will continue to actively monitor the impact that COVID-19 has on the results of our business operations, and may make decisions required by federal, state or local authorities, or that are determined to be in the best interests of our employees, customers, partners, suppliers and stockholders. As a result, our estimates and judgments may change materially as new events occur or additional information becomes available to us.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The primary focus of our investment strategy is to preserve capital and meet liquidity requirements. Our investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To manage the risk exposure, we invest cash equivalents and marketable securities in a variety of fixed income securities, including government and investment-grade debt securities and money market funds. We place our cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits, if any.
Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across several industries. To reduce this risk, we routinely assess the financial strength of our customers. Based on such assessments, we believe that our accounts receivable credit risk exposure is limited.
No customer accounted for more than 10% of revenue for the three and nine months ended September 30, 2021. No customer accounted for more than 10% of revenue for the three months ended September 30, 2020. One customer accounted for 11% of revenue for the nine months ended September 30, 2020. As of September 30, 2021, we had one customer that accounted for more than 10% of the total accounts receivable balance. As of December 31, 2020, we had a different customer that accounted for more than 10% of the total accounts receivable balance.
14


Significant Accounting Policies
Other than the following updates to our accounting policies in conjunction with the issuance of the convertible debt in March 2021, there have been no material changes to our significant accounting policies as compared to those described in “Note 2 – Summary of Significant Accounting Policies” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Convertible Debt
We early adopted ASU 2020-06 as of January 1, 2021, which in effect, allows for the separation models for convertible debt that contain cash conversion features accounted for as a cash conversion or beneficial conversion features to be removed. We evaluated the terms of our debt in line with ASU 2020-06 and concluded that the instrument does not require separation and that there were no other derivatives that required separation. We have combined these features with the host contract and we account for our convertible debt as a single liability in long-term debt on our condensed consolidated balance sheet. The carrying amount of the liability is based on the gross proceeds, net of the unamortized transaction costs incurred related to the issuance of the convertible debt instrument. This difference represents a debt discount that is amortized to interest expense over the term of the convertible debt instrument using the effective interest rate method. We apply the if-converted method for calculation of diluted earnings per share for our convertible debt instrument.
Recently Adopted Accounting Pronouncements
On December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740), which simplifies the accounting for income taxes, primarily by eliminating certain exceptions to ASC 740. This standard is effective for fiscal periods beginning after December 15, 2020. We adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The update removes separation models for convertible debt that contain cash conversion features accounted for as a cash conversion or beneficial conversion features. Under this ASU, these features will be combined with the host contract. ASU 2020-06 does not impact the accounting treatment for conversion features that are accounted for as a derivative under Topic 815. The update also requires the application of the if-converted method to be used for convertible instruments and the effect of potential share settlement be included in the diluted earnings per share calculation when an instrument may be settled in cash or shares. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The amendment is to be adopted through either a fully retrospective or modified retrospective method of transition, only at the beginning of an entity's fiscal year. Early adoption is permitted. We have elected to early adopt the standard as of January 1, 2021 using the modified retrospective method of transition. We evaluated the terms of our debt and concluded that the instrument does not require separation and that there were no other derivatives that required separation. As a result, there is no equity component and we recorded the convertible note as a single liability within long-term debt on our Condensed Consolidated Balance Sheet. We apply the if-converted method for calculation of diluted earnings per share for our convertible debt instruments.
Other Recent Accounting Pronouncements
Other recently issued accounting pronouncements are not expected to have a material impact on our condensed consolidated financial statements.

3. Revenue

Revenue recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, which uses a complex set of procedures to generate complete and accurate data to record these revenue transactions. We enter into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

15


A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account. Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct good or service in the contract.

Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of our products and services as a basis for estimating the SSP of our products and services. We then use the SSP as the basis for allocating the transaction price when our product and services are sold together in a contract with multiple performance obligations. In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, we may use information, such as geographic region and distribution channel, in determining the SSP.

The transaction price in a contract for usage-based services is typically equal to the minimum commit price in the contract less any discounts provided. The transaction price in a contract that does not contain usage-based services is equal to the total contract value. Because our typical contracts represent distinct services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is limited to the amount we expect to be entitled to receive in exchange for providing services. We have elected to apply the practical expedient for estimating and disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation from our remaining performance obligations under these contracts.

Performance obligations represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by us. These obligations can be content delivery, security, subscription services, professional services, support, edge cloud platform services, and others. Accordingly, our revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement.

At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts should be accounted for as a separate contract or as a modification.

In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined our contracts do not include a significant financing component. We have also elected the practical expedient to not measure financing components for any contract where the timing difference is less than one year.


Nature of products and services

We primarily derive revenue from the sale of services to customers executing contracts in which the standard contract term is one year, although terms may vary by contract. Most of our contracts are non-cancelable over the contractual term. The majority of our usage based contracts commit the customer to a minimum monthly level of usage and specify the rate at which the customer must pay for actual usage above the monthly minimum. Beginning in the fourth quarter of 2020, we also offer subscriptions to access a unified security web application and application programming interface at a fixed rate.

16


Revenue by geography is based on the billing address of the customer. Aside from the United States, no other single country accounted for more than 10% of revenue for the three and nine months ended September 30, 2021 and the three months ended September 30, 2020. Aside from the United States, the only other country with greater than 10% of revenue was Singapore, which accounted for 11% of revenue for the nine months ended September 30, 2020.

The following table presents our net revenue by geographic region:

Three months ended September 30,Nine months ended September 30,
2021202020212020
(in thousands)(in thousands)
United States$62,287 $49,140 $179,860 $136,194 
Asia Pacific9,804 10,306 27,969 34,157 
Europe8,550 8,003 25,969 23,549 
All other6,094 3,189 22,815 14,325 
Total revenue$86,735 $70,638 $256,613 $208,225 

The majority of our revenue is derived from enterprise customers, which are defined as customers with revenue in excess of $100,000 over the previous 12-month period. The following table presents our net revenue for enterprise and non-enterprise customers:
Three months ended September 30,Nine months ended September 30,
2021202020212020
(in thousands)(in thousands)
Enterprise customers$76,006 $63,353 $226,622 $186,490 
Non-enterprise customers10,729 7,285 29,991 21,735 
Total revenue$