Fastly, Inc. [FSLY] Filings

10-Q 1 fsly-20220331.htm 10-Q fsly-20220331

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 March 31, 2022

☐ 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)

____________________________


Delaware						27-5411834
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.00002 par value

FSLY

The 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 filer

☒

Accelerated filer

☐

Non-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 ☒

As of April 29, 2022, 120.9 million shares of the registrants’ Class A common stock were outstanding.

TABLE OF CONTENTS


		Page
	Part I - Financial Information
Item 1.	Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	5
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	7
	Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2022 and 2021	8
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	45
Item 4.	Controls and Procedures	45
	Part II - Other Information	48
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 3.	Defaults Upon Senior Securities	86
Item 4.	Mine Safety Disclosures	86
Item 5.	Other Information	86
Item 6.	Exhibits	87
	Signatures	88

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," "would," 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:

•defects, interruptions, outages, delays in performance, or similar problems with our platform, including the impact of our global platform outage on June 8, 2021;

•our ability to attract new enterprise customers and to have existing enterprise customers continue and increase their use of our platform;

•our ability to forecast our revenue accurately and manage our expenditures;

•the potential loss or significant reduction in usage by one or more of our major customers;

•component delays, shortages, and price increases;

•our limited operating history and history of operating losses;

•our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;

•our ability to effectively develop and expand our marketing and sales capabilities;

•our ability to compete effectively with existing competitors and new market entrants;

•our ability to maintain and enhance our brand;

•our ability to identify and integrate acquisitions, strategic investments, partnerships, or alliances;

•security measures, or those maintained on our behalf, are compromised, or the security, confidentiality, integrity or availability of our information technology, software, services, networks, communications or data is compromised, limited or fails;

•our ability to attract and retain qualified employees and key personnel;

•our potential involvement in class-action lawsuits and other litigation matters;

•the impact of the ongoing COVID-19 pandemic on our business, operations, and the markets and communities in which us, our partners, and our customers operate;

•our ability to remediate material weaknesses and maintain effective internal control over financial reporting; and

•our stock price may be volatile, and the value of our Class A common stock may decline.

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.

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 us, 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 us to review the information that we make available on our website.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FASTLY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)


	As of March 31, 2022		As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	245,794	$	166,068
Marketable securities, current	393,950		361,795
Accounts receivable, net of allowance for credit losses of $3,403 and $3,311 as of March 31, 2022 and December 31, 2021, respectively	73,717		64,625
Prepaid expenses and other current assets	23,616		32,160
Total current assets	737,077		624,648
Property and equipment, net	174,550		166,961
Operating lease right-of-use assets, net	63,455		69,631
Goodwill	637,570		636,805
Intangible assets, net	97,287		102,596
Marketable securities, non-current	394,464		528,911
Other assets	30,020		29,468
Total assets	$	2,134,423	$	2,159,020
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,248	$	9,257
Accrued expenses	49,902		36,112
Finance lease liabilities, current	26,766		21,125
Operating lease liabilities, current	18,688		20,271
Other current liabilities	36,569		45,107
Total current liabilities	140,173		131,872
Long-term debt	934,121		933,205
Finance lease liabilities, noncurrent	28,867		22,293
Operating lease liabilities, noncurrent	52,334		55,114
Other long-term liabilities	2,205		2,583
Total liabilities	1,157,700		1,145,067
Commitments and contingencies (Note 9)
Stockholders’ equity:
Class A common stock	2		2
Additional paid-in capital	1,561,371		1,527,468
Accumulated other comprehensive loss	(9,496)		(2,627)
Accumulated deficit	(575,154)		(510,890)
Total stockholders’ equity	976,723		1,013,953
Total liabilities and stockholders’ equity	$	2,134,423	$	2,159,020

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)


	Three months ended March 31,
	2022		2021
Revenue	$	102,382	$	84,852
Cost of revenue	53,915		37,494
Gross profit	48,467		47,358
Operating expenses:
Research and development	40,437		28,988
Sales and marketing	41,480		34,872
General and administrative	29,554		33,461
Total operating expenses	111,471		97,321
Loss from operations	(63,004)		(49,963)
Interest income	681		174
Interest expense	(1,622)		(661)
Other expense	(279)		(64)
Loss before income taxes	(64,224)		(50,514)
Income tax expense	40		169
Net loss	$	(64,264)	$	(50,683)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.54)	$	(0.44)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	119,673		114,134

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)


	Three months ended March 31,
	2022		2021
Net loss	$	(64,264)	$	(50,683)
Other comprehensive loss:
Foreign currency translation loss	$	(187)	$	(65)
Loss on investments in available-for-sale-securities	(6,682)		(78)
Total other comprehensive loss	$	(6,869)	$	(143)
Comprehensive loss	$	(71,133)	$	(50,826)

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands; unaudited)


	Three months ended March 31, 2022
	Common Stock—Class A			Additional Paid-in Capital	Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	118,811	$	2		$	1,527,468	$	(2,627)	$	(510,890)	$	1,013,953
Exercise of stock options	1,351	—			3,048		—		—		3,048
Vesting of restricted stock units	577	—			—		—		—		—
Vesting of restricted stock awards	38	—			—		—		—		—
Stock-based compensation	—	—			30,855		—		—		30,855
Net loss	—	—			—		—		(64,264)		(64,264)
Other comprehensive loss	—	—			—		(6,869)		—		(6,869)
Balance at March 31, 2022	120,777	$	2		$	1,561,371	$	(9,496)	$	(575,154)	$	976,723



	Three months ended March 31, 2021
	Common Stock—Class A			Common Stock—Class B			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance as of December 31, 2020	103,394	$	1	10,229	$	1	$	1,350,050	$	6	$	(288,193)	$	1,061,865
Exercise of stock options	601	—		—	—		2,719		—		—		2,719
Vesting of early exercised stock options	—	—		14	—		64		—		—		64
Vesting of restricted stock units	490	—		—	—		—		—		—		—
Vesting of restricted stock awards	112	—		—	—		—		—		—		—
Stock-based compensation	—	—		—	—		31,212		—		—		31,212
Conversion of Class B to Class A Stock	352	—		(352)	—		—		—		—		—
Net loss	—	—		—	—		—		—		(50,683)		(50,683)
Other comprehensive loss	—	—		—	—		—		(143)		—		(143)
Balance as of March 31, 2021	104,950	$	1	9,891	$	1	$	1,384,045	$	(137)	$	(338,876)	$	1,045,034

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands; unaudited)


	Three months ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(64,264)	$	(50,683)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense	9,850		6,419
Amortization of intangible assets	5,309		5,363
Amortization of right-of-use assets and other	6,839		6,357
Amortization of debt discount and issuance costs	964		332
Amortization of deferred contract costs	1,851		1,411
Stock-based compensation	40,022		30,838
Provision for credit losses	127		(420)
Interest on finance lease	(591)		(330)
Loss on disposals of property and equipment	268		27
Amortization and accretion of discounts and premiums on investments	957		—
Other adjustments	128		64
Changes in operating assets and liabilities:
Accounts receivable	(9,219)		(1,685)
Prepaid expenses and other current assets	(2,111)		(1,680)
Other assets	(2,451)		(2,952)
Accounts payable	(2,492)		2,119
Accrued expenses	4,891		(755)
Operating lease liabilities	(6,557)		(6,365)
Other liabilities	3,289		1,071
Net cash used in operating activities	(13,190)		(10,869)
Cash flows from investing activities:
Purchases of marketable securities	(148,193)		(64,331)
Sales of marketable securities	2,301		12,497
Maturities of marketable securities	240,547		25,503
Business acquisitions, net of cash acquired	(775)		—
Purchases of property and equipment	(2,387)		(8,079)
Capitalized internal-use software	(3,810)		(989)
Net cash provided by (used in) investing activities	87,683		(35,399)
Cash flows from financing activities:
Issuance of convertible note, net of issuance costs	—		930,775
Payments of other debt issuance costs	—		(1,351)
Repayments of finance lease liabilities	(7,159)		(2,951)
Cash received for restricted stock sold in advance of vesting conditions	10,655		—
Cash paid for early sale of restricted shares	(3,498)		—
Proceeds from exercise of vested stock options	3,048		2,719
Proceeds from employee stock purchase plan	2,406		3,071
Net cash provided by financing activities	5,452		932,263
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	(219)		(112)
Net increase in cash, cash equivalents, and restricted cash	79,726		885,883
Cash, cash equivalents, and restricted cash at beginning of period	166,961		63,880
Cash, cash equivalents, and restricted cash at end of period	$	246,687	$	949,763

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

FASTLY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued

(in thousands)

(unaudited)


	Three months ended March 31,
	2022		2021
Supplemental disclosure of cash flow information:
Cash paid for interest	$	592	$	355
Property and equipment additions not yet paid in cash	$	9,084	$	750
Stock-based compensation capitalized to internal-use software	$	1,415	$	374
Assets obtained in exchange for operating lease obligations	$	2,088	$	8,824
Assets obtained in exchange for finance lease obligations	$	19,374	$	2,009

Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents	$	245,794	$	948,783
Restricted cash, current	—		87
Restricted cash, non-current	893		893
Total cash, cash equivalents, and restricted cash	$	246,687	$	949,763

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

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 March 31, 2022, the Company's edge network spans across 75 markets around the world. The Company was incorporated in Delaware in 2011 and is 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 July 12, 2021, all outstanding shares of Class B common stock automatically converted into the same number of shares of Class A common stock (the "Conversion"), pursuant to the terms of the Company's 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 its 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 and Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022. The Company's condensed consolidated financial statements include its accounts and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company's condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of its quarterly results. The Company's condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Certain changes to presentation have been made to conform the prior period presentation to the current period reporting. Such reclassifications did not affect the condensed consolidated balance sheets, total revenues, operating income, or net income.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable.

Due to the Coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 31, 2022. These estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to the Company's consolidated financial statements in future reporting periods.

Significant Accounting Policies

There have been no material changes to the Company's significant accounting policies as compared to those described in “Note 2 – Summary of Significant Accounting Policies” of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Recently Adopted and Issued Accounting Pronouncements

The Company has not adopted any new accounting pronouncements in the three months ended March 31, 2022. Other recently issued accounting pronouncements are not expected to have a material impact on its condensed consolidated financial statements.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable.

The Company's cash, cash equivalents, and marketable securities primarily consisted of bank deposits, money market funds, investment-grade commercial paper, corporate notes and bonds, U.S. treasury securities, municipal securities, foreign government and supranational securities and asset-backed securities held at major financial institutions. The primary focus of its investment strategy is to preserve capital and meet liquidity requirements. The Company's investment policy limits the amount of credit exposure with any one financial institution or commercial issuer.

Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the Company makes substantial sales. The Company's customer base consists of a large number of geographically dispersed customers diversified across several industries. In the three months ended March 31, 2022 and March 31, 2021, no customer accounted for more than 10% of revenue. As of March 31, 2022 and December 31, 2021, no customer accounted for more than 10% of the total accounts receivable balance.

3. Revenue

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 both the three months ended March 31, 2022 and March 31, 2021. The following table presents the Company's net revenue by geographic region:


	Three months ended March 31,
	2022		2021
	(in thousands)
United States	$	75,614	$	62,734
Asia Pacific	11,720		9,154
Europe	9,353		9,640
All other	5,695		3,324
Total revenue	$	102,382	$	84,852

The majority of the Company's 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 its net revenue for enterprise and non-enterprise customers:


	Three months ended March 31,
	2022		2021
	(in thousands)
Enterprise customers	$	91,101	$	75,465
Non-enterprise customers	11,281		9,387
Total revenue	$	102,382	$	84,852

Contract balances

The following table presents the Company's contract assets and contract liabilities as of March 31, 2022 and as of December 31, 2021:


	As of March 31, 2022		As of December 31, 2021
	(in thousands)
Contract assets	$	56	$	89
Contract liabilities	$	30,660	$	28,907

The Company's payment terms and conditions vary by contract type. Payment terms on invoiced amounts are at a weighted average of 40 days.

The following table presents the revenue recognized during the three months ended March 31, 2022 and 2021 from amounts included in the contract liability at the beginning of the period:


	Three months ended March 31,
	2022		2021
	(in thousands)
Revenue recognized in the period from amounts included in contract liability at the beginning of the period	$	9,238	$	5,903

Remaining performance obligations

As of March 31, 2022, the Company had $157.5 million of remaining performance obligations, which includes deferred revenue and amounts that will be invoiced and recognized in future periods, respectively. As of March 31, 2022, the Company expects to recognize approximately 78% of this balance over the next 12 months in the Company's condensed consolidated statement of operations and comprehensive loss. The typical contract term is one year, although terms may vary by contract.

Costs to obtain a contract

As of March 31, 2022 and December 31, 2021, the Company's costs to obtain contracts were as follows:


	As of March 31, 2022		As of December 31, 2021
	(in thousands)
Deferred contract costs, net	$	26,061	$	23,830

During the three months ended March 31, 2022 and 2021, the Company recognized $1.9 million and $1.4 million of amortization related to deferred contract costs, respectively. These costs are recorded within sales and marketing expenses on the accompanying Condensed Consolidated Statements of Operations.

4. Investments and Fair Value Measurements

The Company's cash equivalents include investments with a remaining maturity date of three months or less. As of March 31, 2022 and December 31, 2021, all of its securities are classified as available-for-sale.

The Company's total cash, cash equivalents and marketable securities as of March 31, 2022 and December 31, 2021 consisted of the following:


	As of March 31,		As of December 31,
	2022		2021
	(in thousands)
Cash and cash equivalents:
Cash	$	118,014	$	134,774
Money market funds	66,792		31,294
U.S. Treasury securities	60,988		—
Total cash and cash equivalents	$	245,794	$	166,068
Marketable securities:
U.S. Treasury securities	$	235,623	$	184,946
Corporate notes and bonds	23,734		11,327
Commercial paper	80,904		124,089
Asset-backed securities	21,438		21,576
Municipal securities	2,249		2,250
Foreign government and supranational securities	30,002		17,607
Total marketable securities, current (1)	$	393,950	$	361,795
U.S. Treasury securities	122,556		239,528
Corporate notes and bonds	187,792		197,298
Asset-backed securities	81,871		77,142
Municipal securities	2,245		2,312
Foreign government and supranational securities	—		12,631
Total marketable securities, non-current (2)	$	394,464	$	528,911
Total marketable securities	$	788,414	$	890,706
Total cash, cash equivalents and marketable securities	$	1,034,208	$	1,056,774

(1)The Company classifies its marketable securities as current, where it intends to hold the securities for less than 12 months.

(2)The Company classifies its marketable securities are non-current, where it intends to hold the securities for longer than 12 months.

Available-for-Sale Investments

The Company’s marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity.

The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to available-for-sale securities classified as marketable securities as of March 31, 2022 and December 31, 2021:


	As of March 31, 2022
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
U.S. Treasury securities	$	362,746	$	—	$	(4,567)	$	358,179
Corporate notes and bonds	215,096		—		(3,570)		211,526
Commercial paper	80,904		—		—		80,904
Asset-backed securities	103,795		—		(486)		103,309
Municipal securities	4,576		—		(82)		4,494
Foreign government and supranational securities	30,221		—		(219)		30,002
Total available-for-sale investments	$	797,338	$	—	$	(8,924)	$	788,414


	As of December 31, 2021
	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value
	(in thousands)
U.S. Treasury securities	$	425,560	$	1	$	(1,086)	$	424,475
Corporate notes and bonds	209,550		—		(925)		208,625
Commercial paper	124,098		—		(9)		124,089
Asset-backed securities	98,857		—		(140)		98,717
Municipal securities	4,577		—		(15)		4,562
Foreign government and supranational securities	30,306		—		(68)		30,238
Total available-for-sale investments	$	892,948	$	1	$	(2,243)	$	890,706

There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive (loss) income into investment income during the three months ended March 31, 2022 and 2021. There were no securities in a continuous loss position for 12 months or longer as of March 31, 2022 and December 31, 2021. Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above, as the Company believes that the decrease in fair value of these securities is temporary.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including cash held in banks, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables below.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.

The Company measures its cash equivalents, marketable securities, and restricted cash at fair value. The Company classifies its cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company's Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company's Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily available pricing sources for the identical underlying security that may not be actively traded.

Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments:


	As of March 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	66,792	$	—	$	—	$	66,792
U.S. Treasury securities	—		60,988		—		60,988
Total cash equivalents	66,792		60,988		—		127,780
Marketable securities:
Corporate notes and bonds	—		211,526		—		211,526
Commercial paper	—		80,904		—		80,904
U.S. Treasury securities	—		358,179		—		358,179
Municipal securities	—		4,494		—		4,494
Asset-backed securities	—		103,309		—		103,309
Foreign government and supranational securities	—		30,002		—		30,002
Total marketable securities	—		788,414		—		788,414
Restricted cash:
Restricted cash, non-current	893		—		—		893
Total restricted cash	893		—		—		893
Total financial assets	$	67,685	$	849,402	$	—	$	917,087


	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents:
Money market funds	$	31,294	$	—	$	—	$	31,294
Total cash equivalents	31,294		—		—		31,294
Marketable securities:
U.S. Treasury securities	—		424,475		—		424,475
Corporate notes and bonds	—		208,625		—		208,625
Commercial paper	—		124,089		—		124,089
Asset-backed securities	—		98,717		—		98,717
Municipal securities	—		4,562		—		4,562
Foreign government and supranational securities	—		30,238		—		30,238
Total marketable securities	—		890,706		—		890,706
Restricted cash:
Restricted cash, non-current	893		—		—		893
Total restricted cash	893		—		—		893
Total financial assets	$	32,187	$	890,706	$	—	$	922,893

The Company classifies its investments, which are comprised of corporate notes and bonds, commercial paper, U.S. treasury securities, foreign government and supranational securities and asset-backed securities within Level 2 of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments.

As of both March 31, 2022 and December 31, 2021, the Company had $0.9 million in restricted cash, consisting of letters of credit related to lease arrangements that are collateralized by restricted cash. This amount is classified as non-current in line with the remaining term of the lease and is included in other assets on the Company's Condensed Consolidated Balance Sheets.

There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the three months ended March 31, 2022 and 2021.

5. Balance Sheet Information

Property and equipment, net

Property and equipment, net consisted of the following:


	As of March 31,		As of December 31,
	2022		2021
	(in thousands)
Computer and networking equipment	$	217,448	$	207,575
Leasehold improvements	5,099		4,631
Furniture and fixtures	1,310		1,606
Office equipment	757		654
Internal-use software	45,570		40,345
Property and equipment, gross	$	270,184	$	254,811
Accumulated depreciation and amortization	(95,634)		(87,850)
Property and equipment, net	$	174,550	$	166,961

Depreciation on property and equipment for the three months ended March 31, 2022 and 2021 was approximately $9.9 million and $6.4 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $1.5 million and $0.9 million, respectively, for the three months ended March 31, 2022 and 2021.

As of March 31, 2022 and December 31, 2021, the unamortized balance of capitalized internal-use software costs on the Company's Condensed Consolidated Balance Sheets was approximately $31.6 million and $27.9 million, respectively.

The Company leases certain networking equipment from various third parties, through equipment finance leases. The Company's networking equipment assets as of March 31, 2022 and December 31, 2021, included a total of $85.3 million and $67.8 million acquired under finance lease agreements, respectively. These leases are capitalized in property and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of the associated networking equipment assets under finance leases totaled $17.1 million and $14.4 million as of March 31, 2022 and December 31, 2021, respectively.

Other assets

Other assets consisted of the following:


	As of March 31,		As of December 31,
	2022		2021
	(in thousands)
Deferred contract costs, net	$	26,061	$	23,830
Restricted cash	893		893
Other assets	3,066		4,745
Total other assets	$	30,020	$	29,468

Accrued expenses

Accrued expenses consisted of the following:


	As of March 31,		As of December 31,
	2022		2021
	(in thousands)
Accrued compensation and related benefits	$	23,126	$	13,543
Accrued colocation and bandwidth costs	10,236		10,205
Sales and use tax liabilities	8,525		8,070
Other accrued liabilities	8,015		4,294
Total accrued expenses	$	49,902	$	36,112

Other Current Liabilities

Other current liabilities consisted of the following:


	As of March 31,		As of December 31,
	2022		2021
	(in thousands)
Deferred revenue, current	$	28,455	$	26,421
Accrued computer and networking equipment	7,408		18,081
Other current liabilities	706		605
Total other current liabilities	$	36,569	$	45,107

6. Leases

The Company has operating leases for corporate offices and data centers ("colocation leases"), and finance leases for networking equipment. The Company's leases have remaining lease terms ranging from 1 to 6 years, some of which include options to extend the leases. The Company also subleases a portion of its corporate office spaces. The Company's subleases have remaining lease terms of 2.5 years. Its sublease income was $0.3 million for both the three months ended March 31, 2022, and 2021.

The Company's components of lease cost were as follows:


	Three months ended March 31,
	2022		2021
	(in thousands)
Operating lease cost:
Operating lease cost	$	6,802	$	6,352
Variable lease cost	2,772		1,358
Total operating lease costs	$	9,574	$	7,710

Finance lease cost:
Amortization of assets under finance lease	$	3,263	$	1,234
Interest	655		330
Total finance lease costs	$	3,918	$	1,564

Other information related to leases was as follows:


	As of March 31,		As of As of December 31,
	2022		2021
Weighted Average Remaining Lease Term (in years):
Operating leases	4.30		4.41
Finance leases	2.28		2.23

Weighted Average Discount Rate:
Operating leases	5.20	%	5.20	%
Finance leases	4.77	%	4.86	%

Future minimum lease payments under non-cancellable leases as of March 31, 2022 were as follows:

Fastly, Inc. [FSLY] Filings
10-Q	[2022-05-05]
10-K	[2022-03-01]
10-Q	[2021-11-08]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-03-01]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
S-1	[2020-05-18]
10-Q	[2020-05-08]
10-K	[2020-03-04]
10-Q	[2019-11-08]
10-Q	[2019-08-09]
S-1	[2019-04-19]