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What changed in Akamai Technologies's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Akamai Technologies's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+392 added−393 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-28)

Top changes in Akamai Technologies's 2023 10-K

392 paragraphs added · 393 removed · 293 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeFlexBase In May 2022, we launched FlexBase, which is a flexible workspace arrangement that allows over 95% of employees to choose to work from their home office, a Company office or a combination of both. This is a significant change to the way employees worked prior to the program, and prior to office shutdowns as part of the COVID-19 pandemic.
Biggest changeIn addition to these required trainings, nearly all of our employees and contractors completed at least one training in our Akamai University program during 2023. FlexBase In May 2022, we launched FlexBase, which is a flexible workspace arrangement that allows over 95% of employees to choose to work from their home office, a Company office or a combination of both.
Human Capital Our employees – our human capital – are our most valuable resources as they are fundamental to our innovation, the operation and ongoing enhancement of the Akamai Connected Cloud, the fostering and maintenance of relationships with our customers and the management of our operations.
Human Capital Our employees – our human capital – are our most valuable resources as they are fundamental to our innovation, the operation and ongoing enhancement of Akamai Connected Cloud, the fostering and maintenance of relationships with our customers and the management of our operations.
We believe that we compete favorably with other companies in our industry through the global scale of the Akamai Connected Cloud, which we believe provides the most effective means of meeting the needs of enterprise customers and is unique to us.
We believe that we compete favorably with other companies in our industry through the global scale of Akamai Connected Cloud, which we believe provides the most effective means of meeting the needs of enterprise customers and is unique to us.
Other laws and regulations that apply to the internet related to, among other things, content liability, security requirements, critical infrastructure designations, internet resiliency, law enforcement access to information, net neutrality, so-called "fair share" or internet content taxes, data localization requirements, industry regulations applicable to key suppliers to some of our customers and restrictions on social media or other content can have an impact on our business.
Other laws and regulations that apply to the internet related to, among other things, content liability, security and disclosure requirements, critical infrastructure designations, internet resiliency, law enforcement access to information, net neutrality, so-called "fair share" or internet content taxes, data localization requirements, industry regulations applicable to key suppliers to some of our customers and restrictions on social media or other content can have an impact on our business.
Akamai media delivery solutions include video streaming and video player services, game and software delivery, broadcast operations, authoritative domain name system ("DNS"), resolution and data and analytics. Compute Akamai cloud computing services (which we sometimes refer to as "Compute") include compute, storage, networking, database and container management services that are required to build, deploy and secure applications and workloads.
Akamai media delivery solutions include video streaming and video player services, game and software delivery, broadcast operations, authoritative domain name system ("DNS"), resolution and data and analytics. Compute Akamai's cloud computing services, which we sometimes refer to as compute, include compute, storage, networking, database and container management services that are required to build, deploy and secure applications and workloads.
We believe that flexible workforce positions and a focus on employee choice, will make us a more attractive employer, increase productivity, enable us to recruit from a more diverse pool of applicants and present additional growth and development opportunities for our employees.
We believe that flexible workforce positions and a focus on employee choice, make us a more attractive employer, increase productivity, enable us to recruit from a more diverse pool of applicants and present additional growth and development opportunities for our employees.
We compete with companies offering products and services that address internet performance problems, including companies that provide internet content delivery and hosting services, security and cloud computing solutions, technologies used by carriers to improve the efficiency of their systems, streaming content delivery services and equipment-based solutions for internet performance problems, such as load balancers and server switches.
We compete with companies offering products and services that provide internet content delivery and hosting services, security and cloud computing solutions, technologies used by carriers to improve the efficiency of their systems, streaming content delivery services and equipment-based solutions for internet performance problems, such as load balancers and server switches.
Government Regulation As a global technology company, Akamai is subject to complex foreign and U.S. laws and regulations in areas such as data privacy and localization, liability for content delivered over our network, bribery, sanctions, export controls, competition, tax and foreign exchange controls. 7 Table of Contents Privacy laws, such as the European Union General Data Protection Regulation and the California Consumer Privacy Act of 2018, impact how we use data generated from our network as well as our ability to reach current and prospective customers, understand how our solutions are being used, transfer data about our employees and respond to customer requests allowed under the laws.
Government Regulation As a global technology company, Akamai is subject to complex foreign and U.S. laws and regulations in areas such as data privacy and localization, cybersecurity, liability for content delivered over our network, various internet regulations, bribery, sanctions, export controls, competition, tax and foreign exchange controls. 7 Table of Contents Privacy laws, such as the European Union General Data Protection Regulation and the California Consumer Privacy Act of 2018, impact how we use data generated from our network as well as our ability to reach current and prospective customers, understand how our solutions are being used, transfer data about our employees and respond to customer requests allowed under the applicable laws.
We have nine employee resource groups ("ERGs") that offer opportunities for employees to come together for mutual support, education and development. ERGs encompass different racial and ethnic groups, persons with different physical or cognitive abilities, parents, military veterans, the LGBTQIA+ community and women.
We have eight employee resource groups ("ERGs") that offer opportunities for employees to come together for mutual support, education and development. ERGs encompass different racial and ethnic groups, persons with different physical or cognitive abilities, parents, military veterans, the LGBTQIA+ community and women.
Content Delivery Our web and mobile performance solutions are architected to enable dynamic websites and applications to have rapid response times, no matter where the user is, what device or browser they are using or how they are connected to the internet.
Our web and mobile performance solutions are architected to enable dynamic websites and applications to have rapid response times, no matter where the user is, what device or browser they are using or how they are connected to the internet.
To foster a stronger sense of ownership and align the interests of employees with shareholders, restricted stock units are held by the vast majority of our employees under our broad-based stock incentive programs, and most employees are eligible to participate in our employee stock purchase plan. We monitor voluntary attrition in assessing our overall human capital.
To foster a stronger sense of ownership and align the interests of employees with shareholders, stock awards are held by the vast majority of our employees under our broad-based stock incentive programs and most employees are eligible to participate in our employee stock purchase plan. We monitor voluntary attrition in assessing our overall human capital.
The cloud computing services running on the Akamai Connected Cloud enable companies to distribute workloads and applications across our core to edge infrastructure to help solve the cost, performance and scale that centralized cloud computing platforms present today. In early 2022, Akamai acquired Linode Limited Liability Company ("Linode"), an established cloud computing platform.
The cloud computing services running on Akamai Connected Cloud enable companies to distribute workloads and applications across our core to edge infrastructure to help solve the cost, performance and scale challenges that centralized cloud computing platforms present today. In March 2022, Akamai acquired Linode Limited Liability Company ("Linode"), an established cloud computing platform.
We currently conduct bi-annual internal pay equity analyses (with the assistance of a nationally-recognized outside consultant), covering gender globally and race and gender in the U.S. We take action to remedy identified discrepancies as appropriate. To date, no widespread patterns of disparity have been identified. In addition, succession planning is an ongoing priority for our leadership.
We currently conduct bi-annual internal pay equity analyses (with the assistance of a nationally-recognized outside consultant), covering gender globally and race and gender in the U.S. We take action to remedy identified discrepancies when we believe it is appropriate. To date, no widespread patterns of disparity have been identified. In addition, succession planning is an ongoing priority for our leadership.
To the extent we export technical services, data, products or other technology outside of the U.S., we are subject to U.S. and international laws and regulations governing international trade and exports, including, but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations and sanctions against embargoed countries.
To the extent we export technical services, data, products or other technology outside of the U.S., we are subject to U.S. and international laws and regulations governing international trade and exports, including, but not limited to, the International Traffic in Arms Regulations, the Export Administration Regulations, and sanctions against embargoed countries and other designated entities and individuals.
Different aspects of our human capital management are overseen by our board of directors as well as its Talent, Leadership & Compensation and Environmental, Social & Governance Committees.
Different aspects of our human capital management are overseen by our board of directors as well as its Talent, Leadership and Compensation Committee and Environmental, Social and Governance Committee.
Customers Our customers include many of the world's leading corporations, such as Adobe, Airbnb, Alibaba, Autodesk, Capital Group, Carnival Corporation, The Coca-Cola Company, Comcast, Crate & Barrel, eBay, Electronic Arts, Epic Games, FedEx, Fidelity Investments, Honda, IKEA, Japan Airlines, Lufthansa, Maersk Transportation & Logistics, Marriott, NBCUniversal, Panasonic, Panera Bread, PayPal, Philips, Rabobank, Riot Games, Sony Interactive Entertainment, Spotify, Telefonica, Toshiba, Ubisoft, Viacom, WarnerMedia and The Washington Post.
Customers Our customers include many of the world's leading corporations, such as Adobe, Airbnb, Alibaba, Autodesk, Capital Group, Carnival Corporation, The Coca-Cola Company, Comcast, Crate & Barrel, eBay, Electronic Arts, Epic Games, FedEx, Fidelity Investments, Honda, IKEA, Japan Airlines, Liberty Mutual, Lufthansa, Maersk Transportation & Logistics, Marriott, NBCUniversal, Panasonic, Panera Bread, Paramount Global, Philips, Rabobank, Riot Games, Sony Interactive Entertainment, Spotify, Telefonica, Toshiba, Ubisoft, WarnerMedia and The Washington Post.
Throughout 2022, we rolled out a number of tools and resources to support this program, such as supporting employees with guidance on maximizing our internal tools to deliver great virtual meeting experiences.
Since 2022, we have rolled out a number of tools and resources to support this program, such as supporting employees with guidance on maximizing our internal tools to deliver great virtual meeting experiences.
We also provide solutions for carriers and certain services and support for our customers as they utilize our core solutions. Security Our cloud security solutions are designed to keep infrastructure, websites, applications, application programming interfaces ("APIs"), and users safe from a multitude of cyberattacks and online threats while improving performance.
We also provide services and support for our customers as they utilize our solutions. Security Our security solutions are designed to keep infrastructure, websites, applications, application programming interfaces ("APIs") and users safe from a multitude of cyberattacks and online threats while improving performance.
The Akamai Connected Cloud provides us with visibility and insight into traffic volumes, congestion, attack patterns, vulnerabilities and other activities across the internet's complex intersections of networks and systems.
With this scale and distribution, Akamai Connected Cloud provides us with visibility and insight into traffic volumes, congestion, attack patterns, vulnerabilities and other activities across the internet's complex intersections of networks and systems.
Less than 10% of our total revenue in each of the years ended December 31, 2022, 2021 and 2020 was derived from contracts or subcontracts terminable at the election of the federal government, and we do not expect such contracts to account for more than 10% of our total revenue in 2023.
Less than 10% of our total revenue in each of the years ended December 31, 2023, 2022 and 2021 was derived from contracts 6 Table of Contents or subcontracts terminable at the election of the federal government, and we do not expect such contracts to account for more than 10% of our total revenue in 2024.
Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from making improper payments to foreign government officials for the purpose of obtaining or retaining business.
Foreign Corrupt Practices Act and similar anti-bribery laws, which generally prohibit companies and their intermediaries from offering payments or inducements to foreign government officials for the purpose of obtaining or retaining business.
We compete primarily on the basis of: • the performance and reliability of our solutions; • return on investment in terms of cost savings and new revenue opportunities for our customers; • reduced infrastructure complexity; • sophistication and functionality of our offerings; • scalability; • security; • ease of implementation, distribution of our network and use of service; • customer support; and • price.
We compete primarily on the basis of: • the performance and reliability of our solutions; • massive distribution and availability of our network; • return on investment in terms of cost savings and new revenue opportunities for our customers; • reduced infrastructure complexity; • sophistication and functionality of our offerings; • our long-term product roadmaps; • scalability; • security; • ease of implementation and use of service; • customer support; and • price.
Racial and ethnic minority representation in the U.S. was 40.3%, down from 41.4% at the end of 2021; however, since the end of 2021 our Black representation and Hispanic representation have both increased. To help us improve the diversity of our workforce, we participate in or sponsor professional development and recruiting forums.
Racial and ethnic minority representation in the U.S. was 41.1%, up from 40.3% at the end of 2022, and since the end of 2021, our Black representation and Hispanic representation have both increased. To help us improve the diversity of our workforce, we participate in or sponsor professional development and recruiting forums.
We also actively sell to government agencies. As of December 31, 2022, our public-sector customers included the U.S. Census Bureau, the U.S. Department of Defense, the U.S. Department of Labor, the U.S. Department of State, the U.S. Department of Transportation and the U.S.
We also actively sell to government agencies. As of December 31, 2023, our public-sector customers included the U.S. Census Bureau, the U.S. Department of Defense, the U.S. Department of Labor, the U.S. Department of Transportation and the U.S. Department of the Treasury.
Based on the concept of least privilege, which dictates that users, applications and services utilize the bare minimum amount of access needed to perform their function, these tools are intended to shift protections from a legacy approach based on establishing a corporate perimeter, to a more modern, 3 Table of Contents risk-based approach.
Based on the concept of least privilege, which dictates that users, applications and services utilize the bare minimum amount of access needed to perform their function, these tools are intended to shift protections from a legacy approach based on establishing a corporate perimeter, to a more modern, risk-based approach. Our acquisition of Guardicore Ltd.
As of December 31, 2022, we owned, or had exclusive rights to, over 520 U.S. patents covering our technology as well as patents issued by other countries. Our U.S.-issued patents have terms extendable to various dates between 2023 and 2041.
As of December 31, 2023, we owned, or had exclusive rights to, over 550 U.S. patents covering our technology as well as patents issued by other countries. Our U.S.-issued patents have terms extendable to various dates between 2024 and 2042.
We track the diversity of our workforce and report quarterly to the board of directors on our progress to improve our representation. At December 31, 2022, global female representation was 27.2%, down slightly from 27.3% at the end of 2021.
We track the diversity of our workforce and report quarterly to the board of directors on our progress to improve our representation. At December 31, 2023, global female representation was 27.4%, up slightly from 27.2.% at the end of 2022.
In addition, existing and potential customers may decide to purchase or develop their own hardware, software or other technology solutions rather than rely on a third-party provider like us. Our security solutions compete with those offered by both hardware and software providers, many of which are more established security vendors than we are.
In addition, existing and potential customers may decide to purchase or develop their own hardware, software or other technology solutions rather than rely on a third-party provider like us. Our security solutions compete with those offered by both hardware and software providers.
Akamai’s cloud security solutions include web application and API protection, bot management and mitigation to protect against credential abuse and account takeover, customer identity and access management, distributed denial of service ("DDoS") mitigation, protection from in-browser threats to protect against supply chain compromise and audience hijacking.
Akamai’s security solutions include web 3 Table of Contents application and API protection, bot management and mitigation to protect against credential abuse and account takeover, distributed denial of service ("DDoS") mitigation, protection from in-browser threats to protect against supply chain compromise and audience hijacking.
As of December 31, 2022, we had over 9,800 employees located in more than 30 countries (with approximately 60% of those employees located outside of the U.S.) and representing over 95 nationalities, which we believe helps bring a global perspective to our operations.
As of December 31, 2023, we had over 10,250 employees located in more than 30 countries (with approximately 60% of those employees located outside of the U.S.) and representing over 100 nationalities, which we believe helps bring a global perspective to our operations.
Our employees are grouped across the following roles, with the approximate percentage of the overall population noted: engineering and research and development (33%), services and support (28%), sales and marketing (19%) and administrative functions (20%).
Our employees are grouped across the following roles, with the approximate percentage of the overall population noted: engineering and research and development (35%), services and support (27%), sales and marketing (18%) and administrative functions (20%).
We do not tolerate discrimination on the basis of gender, gender identity, sexual orientation, race or ethnicity, protected veteran status, disability or other protected group status. Akamai supports varied programs and practices designed to promote a diverse and inclusive working environment.
Diversity Akamai is an equal opportunity employer that values the strength that diversity brings to the workplace. We do not tolerate discrimination on the basis of gender, gender identity, sexual orientation, race or ethnicity, protected veteran status, disability, or other protected group status. Akamai supports varied programs and practices designed to promote a diverse and inclusive working environment.
("Guardicore") in late 2021 was a significant milestone in positioning Akamai as a leader in technology that powers and protects life online. Guardicore’s microsegmentation solution helps our customers prevent malicious lateral movement in their network through precise segmentation policies, visuals of activity within their IT environment and network security alerts.
("Guardicore") in October 2021 was a significant milestone in positioning Akamai as a leader in implementing "zero trust" methodology. Guardicore’s microsegmentation solution helps our customers prevent malicious lateral movement in their network through precise segmentation policies, visuals of activity within their IT environment and network security alerts.
Our sales, services and marketing professionals are based in locations across the Americas, Europe, the Middle East and Asia-Pacific and focus on direct and channel sales, sales operations, professional services, account management and technical consulting. To support our sales efforts and promote the Akamai brand, we conduct comprehensive marketing programs.
Our sales, services and marketing professionals are based in locations across the Americas, Europe, the Middle East and Asia-Pacific and focus on direct and channel sales, sales operations, professional services, account management and technical consulting.
Department of the Treasury. 6 Table of Contents No customer accounted for 10% or more of total revenue for any of the years ended December 31, 2022, 2021 and 2020.
No customer accounted for 10% or more of total revenue for any of the years ended December 31, 2023, 2022 and 2021.
Sales, Services and Marketing We market and sell our solutions globally through our direct sales and services organization and through many channel partners, including AT&T, Deutsche Telecom, Kyndryl, IBM, Microsoft, Orange Business Services and Telefonica Group.
Sales, Services and Marketing We market and sell our solutions globally through our field sales and services organization and through many channel partners, including AT&T, Avant, BV Tech, Carahsoft, Deutsche Telecom, Kyndryl, Microsoft Azure and Telefonica Group.
Services and Support We provide an array of service and support offerings designed to assist customers with integrating, configuring, optimizing and managing our core offerings. Once customers are deployed on the Akamai Connected Cloud, they can rely on our 4 Table of Contents professional services and security experts for customized solutions, problem resolution and 24/7 customer support.
Through our service and support offerings we work closely with our customers to develop creative and tailored solutions to assist them with integrating, configuring, optimizing and managing our core offerings. Once customers are deployed on Akamai Connected Cloud, they can rely on our professional services and security experts for customized solutions, problem resolution and 24/7 customer support.
Attrition was slightly down in 2022 when compared to 2021, and, we believe our attrition rate is significantly lower than the global average for technology companies. As a signatory to the White House Equal Pay Pledge, we are committed to monitoring our pay practices regularly and making adjustments, as necessary, to deliver on this pledge.
Attrition was down in 2023 when compared to 2022. As a signatory to the White House Equal Pay Pledge, we are committed to monitoring our pay practices regularly and making adjustments, as necessary, to deliver on this pledge.
While Linode was traditionally focused on individual developers, we are looking to leverage the Linode cloud computing services for enterprise customers by building new enterprise-grade core and distributed sites and connecting them to the Akamai backbone, which we believe will give Akamai an advantage over its bigger cloud rivals.
This acquisition was a significant milestone in our expansion into cloud computing services. While Linode was traditionally focused on individual developers, we are leveraging the Linode cloud computing services for enterprise customers by building new enterprise-grade core computing regions and connecting them to the Akamai network, which we believe will give Akamai an advantage over its bigger cloud rivals.
Development We invest significant resources in professional development, career advancement and training for our global workforce. All employees participate in our Akamai Elevation performance review program, which provides guidance around setting objectives, developing competencies and receiving feedback. For select employees, we offer leadership training workshops, 360-degree feedback and succession planning exercises to encourage and enable internal promotion and advancement.
Development We invest significant resources in professional development, career advancement and training for our global workforce. All employees are eligible to participate in our Akamai Elevation performance review program, which provides guidance around setting annual performance objectives, developing competencies and receiving feedback.
While many other cloud providers are building their cloud platforms based on a regional, data center-centric model, Akamai is designing its cloud based on the fundamental belief that modern applications will be comprised of workloads that will be distributed across a continuum of computing sites that meet the specific needs of that workload.
While many other cloud providers are building their cloud platforms based on a centralized, data center-centric model, Akamai designed its cloud to be massively distributed based on the fundamental belief that modern applications will be comprised of workloads that will need to be automatically and efficiently distributed across a continuum of computing from cloud to edge in order to meet the specific performance and latency needs of that workload.
Solutions in this category include Zero Trust Network Access ("ZTNA"), and multi-factor authentication ("MFA"), which replace legacy virtual private networks ("VPNs"), micro-segmentation which replaces legacy network firewalls and helps protect businesses from the threat of ransomware and Secure Web Gateway ("SWG"), that helps protect against the threat of malware and phishing attacks. Our acquisition of Guardicore Ltd.
Other solutions in this category include zero trust network access, which replaces legacy virtual private networks, multi-factor authentication, micro-segmentation, which replaces legacy network firewalls and helps protect businesses from the threat of ransomware, and secure internet access, which helps protect against the threat of malware and phishing attacks. In May 2023, Akamai acquired Neosec, Inc.
Our strategy is to help continue to drive this transformation by offering compute, security and content delivery services on Akamai Connected Cloud that empower our customers to compete and operate with the scale, resilience and efficiency that their businesses demand. Our platform spans more than 350,000 servers in over 4,100 locations, with roughly 1,300 network partners.
Our strategy is to help continue to drive this transformation by offering compute, security and content delivery services on Akamai Connected Cloud that empower our customers to compete and operate with the scale, resilience and efficiency that their businesses demand. Our Solutions We provide solutions in three core offerings: security, content delivery and compute.
We have been acknowledged in respected publications across the U.S., India and Poland as a great place to work. Continuing in 2022, all employees were invited to participate in a company-wide program, developed by a behavioral research organization, that was intended to help us increase inclusivity, become more open to change and accelerate our innovation.
Continuing in 2023, all employees were able to participate in a company-wide program, developed by a behavioral research organization, that was intended to help us increase inclusivity, become more open to change and accelerate our innovation.
In addition to entering into agreements with resellers, we have several other types of sales and marketing focused alliances with entities such as system integrators, application service providers, referral partners and sales agents. By aligning with these partners, we believe we are better able to market our solutions and encourage increased adoption of our technology throughout the industry.
In addition to entering into agreements with resellers, we have several other types of sales and marketing focused alliances with entities such as system integrators, application service providers, technology solution distributors, referral partners and marketplaces.
In 2022, the Akamai Compassion Fund, created by employees for employees with support from the Akamai Foundation, was established as a way for Akamai employees to unite and support global colleagues and their families during times of unexpected hardships following a catastrophic event. Diversity Akamai is an equal opportunity employer that values the strength that diversity brings to the workplace.
The Akamai Compassion Fund, created in 2020 by employees for employees with support from the Akamai Foundation, continued to provide a way for Akamai employees to unite and support global colleagues and their families during times of unexpected hardships following a catastrophic event, such as the ongoing war in Ukraine.
After multiple years of the COVID-19 pandemic, which shifted how millions of people work and communicate globally, we firmly believe that the internet’s role in transforming the way we exchange ideas and information and conduct business is more vital than ever.
We firmly believe that the internet’s role in transforming the way we exchange ideas and information and conduct business is more vital than ever.
We expect competition for our offerings to increase both from existing competitors and new market entrants.
Competition The market for our solutions is intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service innovations. We expect competition for our offerings to increase both from existing competitors and new market entrants.
As a result of these investments and others, approximately 21% of open positions were filled with internal candidates in 2022. All employees are required to complete annual ethics and compliance and data security training. In addition to these required trainings, nearly all of our employees and contractors completed at least one training in our Akamai University program during 2022.
For select employees, we offer leadership training workshops, 360-degree feedback and succession planning exercises to encourage and enable internal promotion and advancement. As a result of these investments and others, approximately 20% of open positions were filled with internal candidates in 2023. All employees are required to complete annual ethics and compliance and data security trainings.
Leveraging these insights, the Akamai Connected Cloud offers solutions designed to protect our customers from threats and attacks, while empowering them to securely deliver their business as they engage, entertain and interact with their customers; and extend their internal systems beyond their corporate perimeters to control access and better leverage the cloud by efficiently building, deploying and securing performant workloads that require single-digit millisecond latency and global reach.
Leveraging these insights, Akamai Connected Cloud offers solutions designed to protect our customers from threats and attacks, while empowering them to securely deliver digital experiences to engage, entertain and interact with their customers.
We are planning to significantly increase the number of core and distributed cloud computing sites on our platform in order to continue the expansion of our cloud computing services. Our Solutions We provide solutions in three core categories: security, content delivery and compute.
In order to continue the expansion of our cloud computing services, we plan to continue increasing the number of computing regions on our platform. 4 Table of Contents Services and Support We provide an array of service and support offerings across our core offerings.
The importance of our workforce to our success is underscored by the inclusion of corporate mission critical goals centered on our employees – in 2022 we focused on further developing an inclusive, diverse, productive and flexible work environment by embracing the future of work, and on putting our culture and our purpose into action by applying a growth mindset to creatively and collaboratively solve our toughest challenges.
The importance of our workforce to our success is underscored by the inclusion of corporate mission critical goals centered on our employees. In 2023, we focused on fostering an inclusive community that supports the success of our employees and continuing to deliver a positive experience for both employees and customers by living our values each day.
Item 1. Business Overview For 25 years, Akamai has developed and provided solutions to power and protect life online through our massively distributed worldwide network of servers. This platform, which we recently began referring to as the Akamai Connected Cloud is comprised of an edge and cloud architecture for cloud computing, security and content delivery.
Item 1. Business Overview Akamai's mission is to power and protect life online. Since 1998, Akamai has developed and provided solutions for global enterprises to build, deliver and secure their digital experiences on our massively distributed worldwide network.
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This acquisition was a significant milestone in our expansion into cloud computing services.
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This platform, which we refer to as Akamai Connected Cloud, is comprised of an edge and cloud architecture and underlying network for cloud computing, security and content delivery services. Akamai Connected Cloud spans more than 4,100 edge points-of-presence in approximately 130 countries and nearly 750 cities, with roughly 1,200 network partners.
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Carrier Our carrier offerings are designed to help customers operate a cost-efficient network that capitalizes on traffic growth and new subscriber services for security, traffic management and content delivery. Our solutions help carriers sell easy-to-deploy cybersecurity protection offerings to their subscriber base; offerings include protection from phishing, viruses, malware and ransomware.
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Akamai Connected Cloud also offers a continuum of computing designed to efficiently build, deploy and secure performant applications and workloads that require single-digit millisecond latency and global reach. Today, billions of people work, learn, shop, bank, communicate and do more online globally.
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Additionally, our carrier security solutions include parental controls to tailor internet access. We also offer DNS infrastructure and content delivery solutions for carriers through our intelligent recursive DNS offering and managed content delivery network, which has dedicated servers for the carriers’ own services with Akamai providing content provisioning, delivery and reporting.
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("Neosec"), which enabled us to offer a solution we refer to as API Security that works to discover and audit APIs and monitor API activity. API Security uses behavioral analytics to detect and respond to threats and abuse detection and operates using a response platform based on data and behavioral analytics.
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Results from these surveys have consistently shown a strong sense of engagement and confidence in Akamai’s future; as Akamai, in 2022, outperformed the high performing benchmark comparative index used by our third-party survey provider, an internationally-recognized consulting firm specializing in corporate culture.
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We believe API Security will complement our application and API security portfolio by extending our visibility into the growing API threat landscape. Content Delivery Our content delivery solutions consist primarily of web and mobile performance focused solutions and media delivery solutions.
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Our marketing strategies include an active public relations campaign, print advertisements, online advertisements, participation at trade shows (virtually or in person), strategic alliances, ongoing customer communication programs, training and sales support. Competition The market for our solutions is intensely competitive and characterized by rapidly changing technology, evolving industry standards and frequent new product and service innovations.
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In 2023, we launched 13 new core computing regions, bringing our total footprint to 24 regions around the world.
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Results from these surveys have consistently shown a strong sense of engagement and confidence in Akamai’s future. We have been acknowledged in respected publications across the U.S., India and Poland, among other countries, as a great place to work.
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By aligning with these partners, we believe we are better able to market our solutions and leverage partners to add valuable services to complement our offerings and improve the customer experience.
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To support our sales efforts and promote the Akamai brand, we conduct comprehensive marketing programs to shape perception and drive awareness and consideration of our solutions.
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Our marketing strategies include public relations, digital programmatic advertising, paid search and SEO marketing, content marketing, social media, strategic alliances, e-mail marketing programs, events and webinars, participation at industry trade shows and ongoing training and sales enablement.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese risks include: • foreign exchange rate risks, including the recent strengthening of the U.S. dollar which has led to a decrease in our revenue from certain customers and corresponding pressure on our earnings; • uncertainty regarding liability for content or services, including uncertainty as a result of local laws and lack of legal precedent; • loss of revenues if the U.S. or foreign governments impose limitations on doing business with significant current or potential customers; • adjusting to different employee/employer relationships and different regulations governing such relationships; • becoming subject to regulatory oversight; • corporate and personal liability for alleged or actual violations of laws and regulations; • difficulty in staffing, training, developing and managing foreign operations as a result of distance, language, cultural differences or regulations; • theft of intellectual property in high-risk countries where we operate; • difficulties in enforcing contracts, collecting accounts and longer payment cycles in certain countries; • difficulties in transferring funds from, or converting currencies in, certain countries; • managing the costs and processes necessary to comply with export control, sanctions, such as the sanctions imposed in connection with the Russian invasion of Ukraine, anti-corruption, data protection and competition laws and regulations or other regulatory or contractual limitations on our ability to sell or develop our products and services in certain foreign markets; • macroeconomic developments and changes in the labor markets in which we operate; • geopolitical developments, including any that impact our or our customers’ ability to operate or deliver content to a country; • other circumstances outside of our control such as trade disputes, political unrest, the imposition of sanctions, export controls, warfare, military or armed conflict, such as the Russian invasion of Ukraine, terrorist attacks, public health emergencies such as the ongoing COVID-19 pandemic, energy crises and natural disasters that could disrupt our ability to provide services or limit customer purchases of them; • reliance on one or more channel partners over which we have limited control or influence on a day-to-day basis; and • potentially adverse tax consequences.
Biggest changeThese risks include: foreign exchange rate risks; uncertainty regarding liability for content or services, including uncertainty as a result of local laws and lack of legal precedent; loss of revenues if the U.S. or international governments impose limitations on doing business with significant current or potential customers; difficulty in staffing, training, developing and managing international operations as a result of distance, language, cultural differences, differences in employee/employer relationships or regulations; theft of intellectual property in high-risk countries where we operate; difficulties in enforcing contracts, collecting accounts and longer payment cycles in certain countries; difficulties in transferring funds from, or converting currencies in, certain countries; managing the costs and processes necessary to comply with export control, sanctions, such as the sanctions imposed in connection with the Russian invasion of Ukraine, anti-corruption, data protection, cybersecurity and competition laws and regulations or other regulatory or contractual limitations on our ability to sell or develop our products and services in certain international markets; macroeconomic developments and changes in the labor markets in which we operate; geopolitical developments, including any that impact our or our customers’ ability to operate in or deliver content to a country; other circumstances outside of our control such as trade disputes, political unrest, warfare, military or armed conflict, such as the Russian invasion of Ukraine and the ongoing Israel-Hamas War, terrorist attacks, public health emergencies, energy crises and natural disasters that could disrupt our ability to provide services or limit customer purchases of them.
We regularly face attempts to gain unauthorized access or deliver malicious software to the Akamai Connected Cloud and our internal IT systems, with the goal of stealing proprietary information related to our business, products, employees and customers; disrupting our systems and services or those of our customers or others; or demanding ransom to return control of such systems and services.
We regularly face attempts to gain unauthorized access or deliver malicious software to Akamai Connected Cloud and our internal IT systems, with the goal of stealing proprietary information related to our business, products, employees and customers; disrupting our systems and services or those of our customers or others; or demanding ransom to return control of such systems and services.
Failure to put in place the capacity we require to operate our business effectively could result in a reduction in, or disruption of, service to our customers and ultimately a loss of those customers. The Akamai Connected Cloud relies on hardware equipment, including hundreds of thousands of servers deployed around the world.
Failure to put in place the capacity we require to operate our business effectively could result in a reduction in, or disruption of, service to our customers and ultimately a loss of those customers. Akamai Connected Cloud relies on hardware equipment, including hundreds of thousands of servers deployed around the world.
Interpretations of laws or regulations that would subject us to regulatory enforcement actions, supervision or, in the alternative, require us to exit a line of business or a country, could lead to loss of significant revenues and have a negative impact on the quality of our solutions.
Interpretations of laws or regulations that would subject us to regulatory enforcement actions, supervision or, in the alternative, require us to exit a line of business or a country, could lead to the loss of significant revenues and have a negative impact on the quality of our solutions.
Failure to develop, on a cost-effective basis, innovative new or enhanced solutions that are attractive to customers and profitable to us could have a material detrimental effect on our business, results of operations, financial condition and cash flows. If we are unable to compete effectively and adapt to changing market conditions, our business will be adversely affected.
Failure to develop, on a cost-effective basis, innovative or enhanced solutions that are attractive to customers and profitable to us could have a material detrimental effect on our business, results of operations, financial condition and cash flows. If we are unable to compete effectively and adapt to changing market conditions, our business will be adversely affected.
In the past, some of those customers have determined that it is better for them to employ a “do-it-yourself” or “DIY” strategy by putting in place equipment, software and other technology solutions for content and application delivery and security protection within their internal systems instead of using our solutions for some or all of their needs.
In the past, some of our customers have determined that it is better for them to employ a “do-it-yourself” or “DIY” strategy by putting in place equipment, software and other technology solutions for content and application delivery and security protection within their internal systems instead of using our solutions for some or all of their needs.
We also entered into a credit facility in November 2022 that provides for an initial $500.0 million revolving credit facility, and under specified circumstances, the credit facility can be increased to up to $1 billion in aggregate principal amount. As of December 31, 2022, there were no outstanding borrowings under the credit facility.
We also entered into a credit facility in November 2022 that provides for an initial $500.0 million revolving credit facility, and under specified circumstances, the credit facility can be increased to up to $1 billion in aggregate principal amount. As of December 31, 2023, there were no outstanding borrowings under the credit facility.
Compliance with such requirements can be onerous and expensive and may otherwise impact our business operations negatively. Although we have policies, controls and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers or agents will not violate such laws or our policies.
Compliance with such requirements can be onerous and expensive and may otherwise impact our business operations negatively. Although we have policies, controls and procedures designed to help ensure compliance with applicable laws, there can be no assurance that our employees, contractors, suppliers, customers or agents will not violate such laws or our policies.
We might experience reduced demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under the GDPR, the CCPA or other data regulations, or if the changes we implement to comply with such laws and regulations make our offerings less attractive.
We might experience reduced demand for our offerings if we are unable to engineer products that meet our legal duties or help our customers meet their obligations under the GDPR, the CCPA or other applicable data regulations, or if the changes we implement to comply with such laws and regulations make our offerings less attractive.
If we fail to mitigate these or if there is a significant cybersecurity event using our compute products or our compute products are perceived to be less reliable than our competitors, it could result in loss of customers and reputational damage.
If we fail to mitigate these harms or if there is a significant cybersecurity event using our compute products or our compute products are perceived to be less reliable than our competitors, it could result in loss of customers and reputational damage.
We utilize third-party technology in our business, and failures or vulnerabilities, and/or litigation, related to these technologies may adversely affect our business. We utilize third-party technology software, services, and other technology in order to operate critical functions of our business, including the integration of certain of these technologies into our network, products and services.
We utilize third-party technology in our business, and failures or vulnerabilities, and/or litigation, related to these technologies may adversely affect our business. We utilize third-party technology software, services, and other technology to operate critical functions of our business, including the integration of certain of these technologies into our network, products and services.
For example, approximately 1% of our 2021 revenue had been generated from traffic into Russia, Belarus and Ukraine, and we experienced a decline in revenue in 2022 related to the war in Ukraine due to a decrease in traffic in these countries.
For example, approximately 1% of our 2021 revenue had been generated from traffic into Russia, Belarus and Ukraine, and we experienced a decline in revenue in 2022 and 2023 related to the war in Ukraine due to a decrease in traffic in these countries.
In addition, catastrophic natural disasters, such as an earthquake, fire, flood or other act of God, catastrophic event or pandemic, and any similar disruption, as well as any derivative disruption, such as those to services provided through localized physical infrastructure, including utility or telecommunication outages, or any to the continuity of our, our partners’, suppliers’ and our customers’ workforce, could have a material adverse impact on our business and operating results.
In addition, catastrophic natural disasters, such as an earthquake, fire, flood or other act of God and any similar disruption, as well as any derivative disruption, such as those to services provided through localized physical infrastructure, including utility or telecommunication outages, or any to the continuity of our, our partners’, suppliers’ and our customers’ workforce, could have a material adverse impact on our business and operating results.
Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices or internal systems that result in increased costs, lower revenue, reduced efficiency or greater difficulty in competing with other firms. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate.
Compliance with applicable laws and regulations regarding personal data may require changes in services, business practices or internal systems that result in increased costs, lower revenue, reduced efficiency or greater difficulty in competing with other companies. Compliance with data regulations might limit our ability to innovate or offer certain features and functionality in some jurisdictions where we operate.
As our solutions are adopted by an increasing number of enterprises and governments, it is possible that the adversaries behind advanced malicious actions will specifically focus on finding ways to defeat our products and services. If they are successful, we could experience a serious impact on our reputation as a provider of security solutions.
As our solutions are adopted by an increasing number of enterprises and governments, it is possible that the adversaries behind advanced malicious actions will specifically focus on finding ways to defeat our products and services. If they are successful, we could experience a serious impact on our reputation and financial condition as a provider of security solutions.
In the future, our customer contracting models may 21 Table of Contents change to move away from a committed revenue structure to a “pay-as-you-go” approach, which could make it easier for customers to reduce the amount of business they do with us or leave altogether.
In the future, our customer contracting models may change to move away from a committed revenue structure to a “pay-as-you-go” approach, which could make it easier for 20 Table of Contents customers to reduce the amount of business they do with us or leave altogether.
Failure to have adequate equipment, including server equipment, could harm the quality of our services, which could lead to the loss of customers and revenue. Acquisitions and other strategic transactions we complete could result in operating difficulties, dilution, diversion of management attention and other harmful consequences that may adversely impact our business and results of operations.
Failure to have adequate equipment, including server equipment, could harm the quality of our services, which could lead to the loss of customers and revenue. Acquisitions and other strategic transactions could result in operating difficulties, dilution, diversion of management attention and other harmful consequences that may adversely impact our business and results of operations.
Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties. We have customer contracts with the U.S. government, as well as foreign, state and local governments and their respective agencies and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks.
Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties. We have customer contracts with the U.S. government, as well as international, state and local governments and their respective agencies, and we may in the future increase sales to government entities. Sales to government entities are subject to a number of risks.
To protect our corporate and deployed networks, we must continuously engineer more secure solutions, enhance security and reliability features, improve the deployment of software updates to address security vulnerabilities, develop mitigation technologies that help to secure customers from attacks and maintain the digital security infrastructure that protects the integrity of our network and services.
To protect our corporate and deployed networks, we aim to continuously engineer more secure solutions, enhance security and reliability features, improve the deployment of software updates to address security vulnerabilities, develop mitigation technologies that help to secure customers from attacks and maintain the digital security infrastructure that protects the integrity of our network and services.
These provisions include: • our board of directors having the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director; 22 Table of Contents • stockholders needing to provide advance notice, additional disclosures and representations and warranties to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders' meeting; and • the ability of our board of directors to issue, without stockholder approval, shares of undesignated preferred stock.
These provisions include: our board of directors having the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director; stockholders needing to provide advance notice, additional disclosures and representations and warranties to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders' meeting; and the ability of our board of directors to issue, without stockholder approval, shares of undesignated preferred stock.
As a result, some of these competitors may be able to: • develop superior products or services; • leverage better name recognition, particularly in the security and compute markets; • enter new markets more easily or better manage the impact of changes in general economic conditions, geopolitical conditions and industry pressures; • gain greater market acceptance for their products and services; • enter into long-term contracts with our potential customers; • increase their points of presence and proximity to enterprise data centers and end users faster than us; • expand their offerings more efficiently and more rapidly; • bundle their products that are competitive with ours with other solutions they offer in a way that makes our offerings less appealing to, or more costly for, current and potential customers; • more quickly adapt to new or emerging technologies and changes in customer requirements; • take advantage of acquisition, investment and other opportunities more readily; • offer lower prices than ours, including at levels that may not be profitable for us to match; • spend more money on the promotion, marketing and sales of their products and services; • spend more money on research and development, including offering higher salaries to talented professionals which may impact our ability to hire or retain engineering and other personnel; and • implement shorter sales cycles with customers and prospects.
As a result, some competitors may be able to: develop superior products or services; leverage better name recognition, particularly in the security and compute markets; enter new markets more easily or better manage the impact of changes in general economic conditions, geopolitical conditions and industry pressures; gain greater market acceptance for their products and services; enter into long-term contracts with our potential customers; increase their points of presence and proximity to enterprise data centers and end users faster than us; expand their offerings more efficiently and more rapidly; bundle their products that are competitive with ours with other solutions they offer in a way that makes our offerings less appealing to, or more costly for, current and potential customers; more quickly adapt to new or emerging technologies and changes in customer requirements; take advantage of acquisition, 10 Table of Contents investment and other opportunities more readily; offer lower prices than ours, including at levels that may not be profitable for us to match; spend more money on the promotion, marketing and sales of their products and services; offer higher salaries to talented professionals which may impact our ability to hire or retain engineering and other personnel; and implement shorter sales cycles with customers and prospects.
Any actual, alleged or perceived breach of network security in our systems or networks, or any other actual, alleged or perceived data security incident we, our customers or our third-party suppliers suffer, can result in damage to our reputation; negative publicity; loss of channel partners, customers and sales; loss of competitive advantages; increased costs to remedy any problems and otherwise respond to any incident; regulatory investigations and enforcement actions; costly litigation; and other liabilities.
Any actual, alleged or perceived breach of network security in our systems or networks, or any other actual, alleged or perceived compromise or data security incident we, our customers or our third-party suppliers suffer, can result in damage to our reputation; negative publicity; loss of channel partners, customers and sales; loss of revenue; loss of competitive advantages; increased costs to remedy any problems and otherwise respond to any incident; regulatory investigations and enforcement actions and fines; costly litigation; and other liabilities.
Engineering efforts to build new capabilities to facilitate compliance with increasing international data transfer restrictions and new and changing privacy laws and related customer demands could require us to take on substantial expense and divert engineering resources from other projects.
Engineering efforts to build new capabilities to facilitate compliance with increasing international data transfer restrictions and new and changing privacy laws and related customer demands could require us to take on substantial expenses and divert engineering resources from other projects.
Like other companies in our industry, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and, if we fail to attract new personnel or fail to retain and motivate our current personnel or effectively train our current employees to support our business needs, our business and future growth prospects could suffer.
Like other companies in our industry, we have experienced difficulty in hiring and retaining highly skilled employees with appropriate qualifications, and, if we fail to attract new personnel or fail to retain and motivate our current personnel or effectively train our current employees to support our business needs, our business and future growth prospects could suffer.
In addition, certain security systems in homes or other remote workplaces may be less secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related 16 Table of Contents events, and expose us to risks of data or financial loss and associated disruptions to our business operations.
In addition, certain security systems in homes or other remote workplaces may be less secure than those used in our offices, which may subject us to increased security risks, including cybersecurity-related events, and expose us to risks of data or financial loss and associated disruptions to our business operations.
Improper disclosure or misuse of personal data could harm our reputation, lead to legal exposure to customers or end users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. Other regulatory developments could negatively impact our business.
Improper disclosure or misuse of personal data could harm our reputation, lead to legal exposure to customers or end users, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. 18 Table of Contents Other regulatory developments could negatively impact our business.
Failure to adequately and rapidly deploy additional points of presence, increased proximity to enterprise data centers and end users and develop competitive offerings could result in negative publicity, loss of business, diminishing customer appeal and other negative consequences which could harm our business.
Failure to adequately and rapidly deploy additional points of presence, increased proximity to enterprise data centers and end users and develop competitive offerings 11 Table of Contents could result in negative publicity, loss of business, diminishing customer appeal and other negative consequences which could harm our business.
We rolled out our FlexBase program in May 2022, which allows the more than 95% of our workforce designated as flexible to choose whether they want to work from an Akamai office, their home office or a combination of both.
We rolled out our FlexBase program in May 2022, which allows the more than 95% of our workforce designated as flexible to choose to work from an Akamai office, their home office or a combination of both.
It is also important to our continued success that we hire qualified personnel, properly train them and manage out poorly-performing personnel, all while maintaining our corporate culture and spirit of innovation. If we are not successful in these efforts, our growth and operations could be adversely affected.
It is also important to our continued success that we hire qualified personnel, properly train them and manage 15 Table of Contents poorly-performing personnel, all while maintaining our corporate culture and spirit of innovation. If we are not successful in these efforts, our growth and operations could be adversely affected.
If we are unable to efficiently and cost-effectively fix errors or other problems that we identify and improve the quality of our solutions or systems, or if there are unidentified errors that allow persons to improperly access our services or systems, we could experience litigation, the need to issue credits to customers, loss of revenue and market share, damage to our reputation, diversion of management attention, increased expenses and reduced profitability.
If we are unable to efficiently and cost-effectively fix errors or other problems that we identify and improve the quality of our solutions or systems, or if there are unidentified errors that allow persons to improperly access our services or systems, we could experience litigation, the need to issue credits to customers, loss of revenue and market share, damage to our reputation, diversion of management attention, increased expenses, reduced profitability and other negative consequences which could harm our business.
We are subject to laws and regulations worldwide that differ among jurisdictions, affecting our operations in areas such as intellectual property ownership and infringement; tax; anti-corruption; internet and technology regulations; so-called "fair share" or internet content taxes; foreign exchange controls and cash repatriation; data privacy; cyber security; competition; consumer protection; and employment.
In addition, we are subject to laws and regulations worldwide that differ among jurisdictions, affecting our operations in areas such as intellectual property ownership and infringement; tax; anti-corruption; internet and technology regulations; so- 13 Table of Contents called "fair share" or internet content taxes; foreign exchange controls and cash repatriation; data privacy; cyber security; competition; consumer protection; and employment.
Local and foreign laws and regulations that apply to the internet related to, among other things, content liability, security requirements, law enforcement access to information, critical infrastructure, so-called "fair share" or internet content taxes, international data transfer restrictions, sanctions, export controls and restrictions on social media or other content could pose risks to our revenues, intellectual property and customer relationships as well as increase expenses or create other disadvantages to our business.
U.S. and international laws and regulations that apply to the internet related to, among other things, content liability, security requirements, law enforcement access to information, critical infrastructure, net neutrality, so-called "fair share" or internet content taxes, international data transfer restrictions, sanctions, export controls and restrictions on social media or other content could pose risks to our revenues, intellectual property and customer relationships as well as increase expenses or create other disadvantages to our business.
We may not have in place adequate quality assurance procedures to ensure that we detect errors in our hardware, software and open-source components we use in a timely manner, and we may have insufficient resources to efficiently address multiple service incidents happening simultaneously or in rapid succession. We continue to invest in improving our processes and systems.
We may not have in place adequate quality assurance procedures to ensure that we detect errors in our hardware, software and open-source components we use in a timely manner, and we may have insufficient resources to efficiently address multiple service incidents happening simultaneously or in rapid succession.
Open-source code is software that is freely accessible, usable and modifiable; however, certain open-source code is governed by license agreements, the terms of which could require users of such software to make any derivative works of the software available to others on unfavorable terms or at no cost.
Certain of our offerings use software that is subject to open-source licenses. Open-source code is software that is freely accessible, usable and modifiable; however, certain open-source code is governed by license agreements, the terms of which could require users of such software to make any derivative works of the software available to others on unfavorable terms or at no cost.
We cannot be certain that our internal control measures will provide in the future adequate control over our financial processes and reporting and ensure compliance with Section 404.
We cannot be certain that our internal control measures will provide adequate control over our financial processes and reporting and ensure compliance with Section 404.
The primary competitive factors in our market are differentiation of technology, global presence, quality of solutions, customer service, technical expertise, security, ease-of-use, breadth of services offered, price and financial strength.
The primary competitive factors in our market are differentiation of technology, global presence, quality of solutions, long-term product roadmap, customer service, technical expertise, security, ease-of-use, breadth of services offered, price and financial strength.
From time to time, we have needed to correct errors and defects in the proprietary and open-source software that underlies our platform that have given rise to service incidents, outages and disruptions or otherwise impacted our operations. We could face the loss of customers as a result of recent and any future incidents as they seek alternative or supplemental providers.
From time to time, we have needed to correct errors and defects in the proprietary and open-source software that underlies our platform that have given rise to service incidents, outages and disruptions or otherwise impacted our operations. We could face the loss of customers from these incidents as they seek alternative or supplemental providers.
Cybersecurity breaches and attacks on us, as well as steps we need to take in an effort to prevent them, can lead to significant costs and disruptions that would harm our business, financial results and reputation.
Cybersecurity breaches and attacks on us, our contractors or our third-party vendors, as well as steps we need to take in an effort to prevent them, can lead to significant costs and disruptions that would harm our business, financial results and reputation.
For example, from time to time, it has been, and may continue to be, more difficult to purchase equipment that is manufactured in areas that face disruptions to operations due to unrest, trade sanctions or other political activity, public health issues (such as the ongoing COVID-19 pandemic), safety issues, natural disasters or general economic conditions.
For example, from time to time, it has been, and may continue to be, more difficult to purchase equipment that is manufactured in areas that face disruptions to operations due to unrest, trade sanctions or other political activity, public health issues, safety issues, natural disasters or general economic conditions.
For example, restrictions were adopted in India in 2020 prohibiting access to identified Chinese applications which caused a reduction in revenue to us. In addition, such laws and regulations could cause internet service providers, or others, to block our products in order to enforce content-blocking efforts.
Enactment and expansion of such laws and regulations would negatively impact our revenues. For example, restrictions were adopted in India in 2020 prohibiting access to identified Chinese applications, which caused a reduction in revenue to us. In addition, such laws and regulations could cause internet service providers, or others, to block our products in order to enforce content-blocking efforts.
As noted with privacy compliance above, engineering efforts to build new capabilities to facilitate compliance with law enforcement access requirements, content access restrictions or other regulations could require us to take on substantial expense and divert engineering resources from other projects. These circumstances could harm our profitability.
Engineering efforts to build new capabilities to facilitate compliance with law enforcement access requirements, content access restrictions or other regulations could require us to take on substantial expenses and divert engineering resources from other projects. These circumstances could harm our profitability.
Financial and Operational Risks We may face slowing revenue growth which could negatively impact our profitability and stock price. The revenue growth we have enjoyed in recent years may not continue in future periods and could decline, which could negatively impact our profitability and stock price.
Financial and Operational Risks Slowing revenue growth has in the past and may continue to negatively impact our profitability and stock price. The overall revenue growth we have enjoyed in recent years may not continue in future periods and could decline, which could negatively impact our profitability and stock price.
Violations of these laws and regulations can result in fines; criminal sanctions against us, our officers or our employees; prohibitions on the conduct of our business; and damage to our reputation.
Violations of these laws and regulations can result in fines; additional costs related to governmental investigations; criminal sanctions against us, our officers or our employees; prohibitions on the conduct of our business; and damage to our reputation.
Such economic volatility could adversely affect our business, financial condition, results of operations and cash flows, and future market disruptions could negatively impact us. These unfavorable economic conditions could increase our operating costs, which could negatively impact our profitability.
Such economic volatility has in the past and could in the future adversely affect our business, financial condition, results of operations and cash flows and future market disruptions could negatively impact us. For example, these unfavorable economic conditions could increase our operating costs, which could negatively impact our profitability.
The success of our activities is affected by general economic and market conditions, including, among others, inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, reduced consumer confidence and spending and economic and trade sanctions.
The success of our activities is affected by general economic and market conditions, including, among others, inflation, interest rates, tax rates, economic uncertainty, political instability, warfare, changes in laws, trade barriers, the actual or perceived failure or financial difficulties of financial institutions, reduced consumer confidence and spending and economic and trade sanctions.
In addition, we are retasking certain of our employees to work on our compute solutions which will require the use of our resources and if we are unable to successfully retrain our employees, our compute business may suffer.
In addition, we are retasking certain employees to work on our compute solutions which will require the use of our resources and if we are unable to successfully retrain our employees, our compute business may suffer. Furthermore, geopolitical events may impact our retention efforts.
Such licenses may also be non-exclusive, meaning our competition may also be able to access such technology. Litigation may adversely impact our business.
Such licenses may also be non-exclusive, meaning our competition may also be able to access such technology. 19 Table of Contents Litigation may adversely impact our business.
A significant portion of our employee increases, customer additions and revenue growth in recent quarters has been attributable to our business outside the U.S. Our operations in foreign countries subject us to risks that may increase our costs, impact our financial results, disrupt our operations or make our operations less efficient and require significant management attention.
A significant portion of our hiring, new customers and revenue growth in recent quarters has been attributable to our business outside the U.S. Our operations in international countries subject us to risks that may increase our costs, impact our financial results, disrupt our operations or make our operations less efficient and require significant management attention.
As a result, there can be no assurance that we are adequately prepared for unexpected increases in capacity demands by our customers, particularly those under cyber-attack or impacted by geopolitical conditions.
As a result, there can be no assurance that we are adequately prepared for unexpected increases in capacity demands by our customers, particularly those under cyber-attack or impacted by geopolitical conditions, such as the ongoing war in Ukraine or the Israel-Hamas War.
Global climate change and related natural resource conservation regulations could adversely impact our business. The long-term effects of climate change on the global economy and our industry in particular remain unknown. For example, changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.
The long-term effects of climate change on the global economy and our industry in particular remain unknown. For example, changes in weather where we operate may increase the costs of powering and cooling computer hardware we use to develop software and provide cloud-based services.
Such contracts are also subject to audits and investigations that could result in civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
Such contracts are also subject to audits and investigations that could result in civil and criminal penalties and administrative sanctions, including contract termination, fee refunds, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
Essentially, this is another form of competition for us. As the amount of money a customer spends with us increases, the risk that they will seek alternative solutions such as DIY or a multi-vendor policy likewise increases.
As the amount of money a customer spends with us increases, the risk that they will seek alternative solutions such as DIY or a multi-vendor policy likewise increases.
Our restructuring and reorganization activities may be disruptive to our operations and harm our business. Over the past several years, we have implemented internal restructurings and reorganizations designed to reduce the size and cost of our operations, improve operational efficiencies, enhance our ability to pursue market opportunities and accelerate our technology development initiatives.
Over the past several years, we have implemented internal restructurings and reorganizations designed to reduce the size and cost of our operations, improve operational efficiencies and reprioritize investments, enhance our ability to pursue market opportunities and accelerate our technology development initiatives.
Trading prices may continue to fluctuate in response to a number of events and factors, including the following: • quarterly variations in operating results; • announcements by our customers related to their businesses that could be viewed as impacting their usage of our solutions; • market speculation about whether we are a takeover target or considering a strategic transaction; • announcements by competitors; • activism by any single large stockholder or combination of stockholders or rumors about such activity; • changes in financial estimates and recommendations by securities analysts; • failure to meet the expectations of securities analysts; • purchases or sales of our stock by our officers and directors; • general economic conditions and other macroeconomic factors, such as inflationary pressures, foreign currency exchange rate fluctuations, energy prices, reduced consumer spending, increasing interest rates, recessionary economic cycles, protracted economic slowdowns and overall market volatility; • repurchases of shares of our common stock; • successful cyber-attacks affecting our network or systems; • changes in the composition of company management, including company executives and the board of directors; • entry into, or termination of, relationships with material customers and partners; • performance by other companies in our industry; and • geopolitical conditions such as acts of terrorism, military or armed conflicts, such as the Russian invasion of Ukraine, or global pandemics.
Trading prices for our common stock may continue to fluctuate in response to a number of events and factors, including the following: quarterly variations in operating results; announcements by our customers related to their businesses that could be viewed as impacting their usage of our solutions; market speculation about whether we are a takeover target or considering a strategic transaction; announcements by us regarding acquisitions; announcements by competitors; activism by any single large stockholder or combination of stockholders or rumors about such activity; changes in financial estimates and recommendations by securities analysts; failure to meet the expectations of securities analysts; purchases or sales of our stock by our officers and directors; general economic conditions and other macroeconomic factors, such as inflationary pressures, foreign currency exchange rate fluctuations, energy prices, reduced consumer spending, elevated interest rates, recessionary economic cycles, protracted economic slowdowns and overall market volatility; repurchases of shares of our common stock; the issuance of additional shares or securities convertible into, or exchangeable or exercisable for, shares of our common stock, including under our equity compensation plans; entry into, or termination of, relationships with material customers and partners; and performance by other companies in our industry.
Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse impact on our results of operations.
In addition, our disaster recovery plans may be ineffective or inadequate. Any inability to integrate completed acquisitions or combinations in an efficient and timely manner could have an adverse impact on our results of operations.
Additionally, we have offices and employees located in regions that historically have and may experience periods of political instability, warfare, changes in laws, trade barriers, and economic and trade sanctions. Adverse conditions in these countries directly affect our operations.
Additionally, we have offices and employees located in regions that historically have and may again experience periods of political instability, warfare, changes in laws, trade barriers and economic and trade sanctions.
While the impact to date of Log4Shell on our systems was relatively modest, these vulnerabilities, resident in either software or configurations, may require significant operational efforts to mitigate and may persist for extended periods of time and the effects of any such vulnerability could be exacerbated.
Vulnerabilities, resident in either software or configurations, may require significant operational efforts to mitigate and may persist for extended periods of time and the effects of any such vulnerability could be exacerbated.
Although we take steps intended to improve the security controls across our business groups and geographies, our security controls over personal data, our training of employees and third parties on privacy, data security and other practices we follow may not prevent the improper disclosure or misuse of customer or end-user data we process.
Our security controls over personal data, our training of employees and third parties on privacy, data security and other ethical data use practices we follow may not prevent the improper disclosure or misuse of customer or end-user data we process.
Our failure to effectively manage our operations and maintain our company culture as our business evolves and our work practices change could harm us. Our future operating results will depend on our ability to manage our operations and we believe our culture has been a key contributor to our success to date.
Our failure to maintain our company culture and manage new risks as our business evolves and our work practices change could harm us. We believe our culture has been a key contributor to our success to date.
These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different jurisdictions. We are currently subject to tax audits in various jurisdictions.
We have recorded certain tax reserves to address potential exposures involving our income tax and indirect tax positions. These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by different jurisdictions. We are currently subject to tax audits in various jurisdictions.
See also the risk factor captioned Other regulatory developments could negatively impact our business below. 14 Table of Contents Our business strategy depends on the ability to source adequate transmission capacity, co-location facilities and the equipment we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions.
Our business strategy depends on the ability to source adequate transmission capacity, co-location facilities and the equipment we need to operate our network; failure to have access to those resources could lead to loss of revenue and service disruptions.
To date, cyber threats and other attacks have not resulted in any material adverse impact to our business or operations, but such threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them.
While we have, from time to time, experienced threats to and breaches of our and our third-party vendors' data and systems, to date, to our knowledge, cyber threats and other attacks have not resulted in any material adverse effect to our business or operations, but such threats are constantly evolving, increasing the difficulty of detecting and successfully defending against them.
If we do not increase our industry recognition as a security and compute solutions provider, develop or acquire new solutions in a rapidly-changing environment where security threats are constantly evolving or ensure that our solutions operate effectively and are competitive with products offered by others, our security or compute revenue, or both, may decline.
Our ability to generate revenue in our security business depends on our ability to increase our industry recognition as a provider of security solutions, develop or acquire new solutions in a rapidly-changing environment where security threats are constantly evolving and ensure that our solutions operate effectively and are competitive with products offered by others.
As disclosed in this Form 10-K, in the course of our audit for fiscal 2022, we identified a material weakness in the Company’s internal control over financial reporting as of December 31, 2022 related to income taxes.
As previously disclosed for the year ended December 31, 2022, we identified a material weakness in the Company’s internal control over financial reporting as of December 31, 2022 related to income taxes.
If additional large customers shift to this model, traffic on our network and our contracted revenue commitments would decrease, which would negatively impact our business, profitability, financial condition, results of operations and cash flows.
While the number of customers implementing a DIY strategy has decreased in recent years, if multiple large customers shift to this model, traffic on our network and our contracted revenue commitments would decrease, which would negatively impact our business, profitability, financial condition, results of operations and cash flows.
Revenue generated and expenses incurred by our international subsidiaries are often denominated in the currencies of the local countries. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars.
As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as the financial results of our international subsidiaries are translated from local currencies into U.S. dollars. For example, in 2023, the strength of the U.S. dollar had a negative impact on our revenue and a positive impact on our operating expenses.
Innovation is important to our future success. In particular, as security and compute solutions have become, and are expected to continue to be, an increasingly important part of our business, we must be particularly adept at developing new security and compute services that meet the constantly-changing threat landscape.
In particular, as security and compute solutions have become, and are expected to continue to be, an important part of our business, we must be particularly adept at developing new security solutions that meet the constantly-changing threat landscape and compute and compute-to-edge solutions that meet the needs of professional users and enterprises looking to increase the utility of the internet for their business.
In addition, our future success will depend upon our ability to attract, train and retain employees, particularly in our expected areas of growth such as security and cloud computing.
In addition, our future success will depend upon our ability to attract, train and retain employees, particularly in our expected areas of growth such as security and cloud computing. Such efforts will require time, expense and attention by our employees as there is significant competition for talented individuals.
Our revenue depends on the amount of services we deliver, continued growth in demand for our delivery, compute and security solutions and our ability to maintain the prices we charge for them. In particular, varying levels of the amount of traffic on our network can have a significant impact on our short-term revenue growth rate.
Our ability to generate revenue depends on the amount of services we deliver, continued growth in demand for our security, delivery and compute solutions and our ability to maintain the prices we charge for them.
We experienced a significant increase in revenue from our delivery solutions in 2020 due in large part to greater consumption of online media and games during the onset of the COVID-19 pandemic and associated stay-at-home orders across the globe. In 2021 and 2022, our revenue growth from delivery solutions declined as stay-at-home orders were lifted.
For example, revenue from our delivery solutions increased significantly in 2020 due in large part to greater consumption of online media and games during the onset of the COVID-19 pandemic and the associated stay-at-home orders across the globe. However, as these orders were lifted and more return-to-work policies were adopted, our revenue from delivery solutions declined.
With the recent acquisition of Linode, we are adapting procedures for mitigating harms that may arise from abuse of our compute products.
For example, with the acquisition of Linode, we are adapting procedures for mitigating risks that have in the past or may in the future materialize, including any harms that may arise from abuse of our compute products.
Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.
See the risk factor titled “ Our stock price has been, and may continue to be, volatile, and your investment could lose value ” above. Provisions of our charter, by-laws and Delaware law may have anti-takeover effects that could prevent a change in control even if the change in control would be beneficial to our stockholders.
Acquisitions and other complex transactions are accompanied by a number of risks, including the following: • difficulty integrating the technologies, operations and personnel of acquired businesses; • potential disruptions of our ongoing business; • potential distraction of management; • diversion of business resources from core operations; • financial consequences, such as increased operating expenses, incurrence of material post-closing liabilities, incurrence of additional debt and other dilutive effects on our earnings, particularly in the current environment where we have generally seen escalating valuations of many technology companies and increasing allocation of risk to acquirors; • assumption of legal risks related to compliance with laws, including privacy and anti-corruption regulations; • failure to realize synergies or other expected benefits; • lawsuits resulting from an acquisition or disposition; • retention of the acquired company's key talent; • there may be unexpected regulatory changes resulting in operating difficulties and expenditures; • acquisition of IT systems that expose us to cybersecurity risks and additional costs to remedy such risks; • increased accounting charges such as impairment of goodwill or intangible assets, amortization of intangible assets acquired and a reduction in the useful lives of intangible assets acquired; and • potential unknown liabilities associated with acquired businesses.
Acquisitions and other complex transactions are accompanied by a number of risks, including the following: difficulty integrating technologies, operations and personnel while maintaining the quality standards that are consistent with our reputation; potential disruptions of our ongoing business and distraction of management attention; diversion of financial and business resources from core operations or other attractive investments; financial consequences, such as increased operating expenses, incurrence of material post-closing liabilities, incurrence of additional debt and other dilutive effects on our earnings, particularly in the current environment where we have seen relatively high valuations of, and valuation expectations for, many technology companies and increasing allocation of risk to acquirors; failure to realize synergies or other expected benefits; lawsuits resulting from an acquisition or disposition; the inability to retain the acquired company's key talent; exposure to cybersecurity risks and the cost associated with remediating those risks in connection with the acquisition of IT systems; increased accounting charges such as impairment of goodwill or intangible assets, amortization of intangible assets acquired and a reduction in the useful lives of intangible assets acquired; the need to use substantial portions of available cash or dilutive issuances of securities to finance large transactions; and potential unknown liabilities and regulatory requirements associated with an acquired business.
While we have taken and continue to take actions to mitigate against attacks by state actors and others, we may not be able to anticipate the techniques used in such attacks, as they change frequently and may not be recognized until launched.
We may not be able to anticipate the techniques used in such attacks, as they change frequently and may not be recognized until launched.
If a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we could be required to make certain of our key software generally available at no cost.
In addition, the terms relating to disclosure of derivative works in many open-source licenses are unclear and have not been interpreted by U.S. courts. If a court interprets one or more such open-source licenses in a manner that is unfavorable to us, we could be required to make certain of our key software generally available at no cost.
Our Acceptable Use Policy prohibits customers from using our network to deliver illegal or inappropriate content; if customers violate that policy, we may nonetheless face reputational damage, enforcement actions or lawsuits related to their content.
Our Acceptable Use Policy prohibits customers from using our network to deliver illegal or inappropriate content; if customers violate that policy, we may nonetheless face reputational damage, enforcement actions or lawsuits related to their content. Regulations have been enacted or proposed in a number of countries that limit the delivery of certain types of content into those countries.
All of these systems have become increasingly complex due to the complexity of our business, use of third-party software and services, acquisitions of new businesses with different systems, and increased regulation over controls and procedures. As a result, these systems could generate errors that impact traffic measurement or invoicing, revenue recognition and financial forecasting or other parts of our business.
All of these systems have become increasingly complex due to the complexity of our business, use of third-party software and services, acquisitions of new businesses with different systems, and increased regulation over controls and procedures.
Further, if employees fail to inform us of changes in their work location, we may be exposed to additional risks without our knowledge. If we are unable to effectively transition to a hybrid workforce, manage the cybersecurity and other risks of remote work, and maintain our corporate culture and workforce morale, our business could be harmed or otherwise negatively impacted.
If we are unable to effectively maintain a hybrid workforce, manage the cybersecurity and other risks of remote work and maintain our corporate culture and workforce morale, our business could be harmed or otherwise negatively impacted. Our restructuring and reorganization activities may be disruptive to our operations and harm our business.
Any failure to meet our debt obligations or obtain financing would damage our business. As of the date of this report, we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2025, and we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2027.
As of the date of this report, we had total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2025, total principal amount of $1,150.0 million of convertible senior notes outstanding due in 2027 and total principal amount of $1,265 million of convertible senior notes outstanding due in 2029.
Although we believe a flexible working policy will help us attract and retain talent, our FlexBase program could, among other things, negatively impact employee morale and productivity, inhibit our ability to hire and train new employees and impede our ability to support customers at the levels they expect.
This program could, among other things, negatively impact employee morale and productivity, inhibit our ability to effectively train new employees and impede our ability to support customers at the levels they expect.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our headquarters is located in Cambridge, Massachusetts where we lease approximately 659,000 square feet, of which approximately 258,000 square feet is currently subleased to third parties. We also have offices in other locations in the United States and other countries, the largest of which are in Santa Clara, California; Bangalore, India; and Krakow, Poland.
Biggest changeItem 2. Properties Since May 2022 we have operated as a flexible workplace, where employees can choose to work from their home office, a Company office or a combination of both. However, our headquarters is located in Cambridge, Massachusetts where we lease approximately 659,000 square feet, of which approximately 285,000 square feet is currently subleased to third parties.
All of our facilities are leased. We are continuing to evaluate our facility footprint in light of our FlexBase program, including our plans and ability to sublease or terminate excess space. We believe our facilities are sufficient to meet our needs.
We also have offices in other locations in the United States and other countries, the largest of which are Bangalore, India; Krakow, Poland; and Tel Aviv, Israel. All of our facilities are leased. We are continuing to evaluate our facility footprint in light of our FlexBase program, including our plans and ability to sublease excess space.
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We believe our facilities are sufficient to meet our needs. 23 Table of Contents

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24 Item 6. [Reserved] 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 46 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24 Item 6. [Reserved] 24 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 45 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change(2) Consists of shares of our common stock, par value $0.01 per share. (3) Includes commissions paid. (4) Effective January 2022, our board of directors authorized a $1.8 billion share repurchase program through December 2024. During the year ended December 31, 2022, we repurchased 6.4 million shares of our common stock for an aggregate of $608.0 million.
Biggest change(2) Consists of shares of our common stock, par value $0.01 per share. (3) Includes commissions paid, but excludes any estimated excise taxes payable on share repurchases. (4) Effective January 2022, our board of directors authorized a $1.8 billion share repurchase program through December 2024.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock, par value $0.01 per share, trades under the symbol “AKAM” on the Nasdaq Global Select Market. As of February 24, 2023, there were 166 holders of record of our common stock.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock, par value $0.01 per share, trades under the symbol “AKAM” on the Nasdaq Global Select Market. As of February 23, 2024, there were 157 holders of record of our common stock.
Issuer Purchases of Equity Securities The following is a summary of our repurchases of our common stock in the fourth quarter of 2022 (in thousands, except share and per share data): Period (1) Total Number of Shares Purchased (2) Average Price Paid per Share (3) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (4) Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs (4) October 1, 2022 – October 31, 2022 749,861 $ 83.10 749,861 $ 1,307,415 November 1, 2022 – November 30, 2022 639,122 89.21 639,122 1,250,398 December 1, 2022 – December 31, 2022 665,811 87.72 665,811 1,191,990 Total 2,054,794 $ 86.50 2,054,794 (1) Information is based on settlement dates of repurchase transactions.
Issuer Purchases of Equity Securities The following is a summary of our repurchases of our common stock in the fourth quarter of 2023 (in thousands, except share and per share data): Period (1) Total Number of Shares Purchased (2) Average Price Paid per Share (3) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (4) Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs (4) October 1, 2023 – October 31, 2023 170,075 $ 105.83 170,075 $ 574,837 November 1, 2023 – November 30, 2023 171,914 109.90 171,914 555,943 December 1, 2023 – December 31, 2023 153,634 117.15 153,634 537,944 Total 495,623 $ 110.75 495,623 (1) Information is based on settlement dates of repurchase transactions.
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During the year ended December 31, 2023, we repurchased 7.8 million shares of our common stock for an aggregate purchase price of $654.0 million.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCost of Revenue Cost of revenue consisted of the following for the periods presented (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2022 2021 % Change 2021 2020 % Change Bandwidth fees $ 205,268 $ 209,288 (1.9) % $ 209,288 $ 200,167 4.6 % Co-location fees 197,375 177,950 10.9 177,950 156,275 13.9 Network build-out and supporting services 195,669 157,234 24.4 157,234 134,952 16.5 Payroll and related costs 298,269 276,544 7.9 276,544 262,972 5.2 Acquisition-related costs 4,982 — 100.0 — — — Stock-based compensation, including amortization of prior capitalized amounts 57,146 57,390 (0.4) 57,390 52,863 8.6 Depreciation of network equipment 259,359 226,384 14.6 226,384 167,017 35.5 Amortization of internal-use software 165,751 164,166 1.0 164,166 158,426 3.6 Total cost of revenue $ 1,383,819 $ 1,268,956 9.1 % $ 1,268,956 $ 1,132,672 12.0 % As a percentage of revenue 38.3 % 36.7 % 36.7 % 35.4 % 29 Table of Contents The increases in cost of revenue for 2022 as compared to 2021, and 2021 as compared to 2020, was primarily due to increased network build-out and supporting services, particularly related to increased supporting services for third-party cloud applications, and increased investment in our network in prior years to support traffic growth, which resulted in higher depreciation costs of our network equipment and growth in expenses related to our co-location facilities including energy to power our network.
Biggest changeCost of Revenue Cost of revenue consisted of the following for the periods presented (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2023 2022 % Change 2022 2021 % Change Bandwidth fees $ 228,038 $ 205,268 11.1 % $ 205,268 $ 209,288 (1.9) % Co-location fees 256,062 197,375 29.7 197,375 177,950 10.9 Network build-out and supporting services 215,557 195,669 10.2 195,669 157,234 24.4 Payroll and related costs 325,851 298,269 9.2 298,269 276,544 7.9 Acquisition-related costs 3,190 4,982 (36.0) 4,982 — 100.0 Stock-based compensation, including amortization of prior capitalized amounts 73,786 57,146 29.1 57,146 57,390 (0.4) Depreciation of network equipment 231,500 259,359 (10.7) 259,359 226,384 14.6 Amortization of internal-use software 177,079 165,751 6.8 165,751 164,166 1.0 Total cost of revenue $ 1,511,063 $ 1,383,819 9.2 % $ 1,383,819 $ 1,268,956 9.1 % As a percentage of revenue 39.6 % 38.3 % 38.3 % 36.7 % The increase in cost of revenue for 2023 as compared to 2022 was primarily due to: • co-location fees as a result of investment in Akamai Connected Cloud, particularly as we build out our compute infrastructure to support future growth and scalability; • bandwidth fees to support the increase in traffic served on our network and for traffic served from higher cost regions; 29 Table of Contents • network build-out and supporting services due to our infrastructure investment in Akamai Connected Cloud and costs associated with the transition services agreements to support the migration of customer contracts acquired from Lumen and StackPath; and • payroll and related costs, including stock-based compensation, as a result of headcount growth to support our network, the increased expected achievement of our performance-based compensation plans and higher average equity awards to employees driven by the talent market; additionally, stock-based compensation increased due to the shift in one of our compensation programs from cash-based to stock-based.
In addition, we experience quarterly variations in revenue attributable to, among other things, the nature and timing of software and gaming releases by our customers; whether there are large live sporting or other events or situations that impact the amount of media traffic on our network; the timing of large customer contract renewals; and the frequency and timing of purchases of custom solutions or licensed software.
In addition, we experience quarterly variations in revenue attributable to, among other things, the timing of large customer contract renewals; the frequency and timing of purchases of custom solutions or licensed software; the nature and timing of software and gaming releases by our customers; and whether there are large live sporting or other events or situations that impact the amount of media traffic on our network.
During the periods presented, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See further discussion below. (2) May not foot due to rounding. Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by diluted weighted average common shares outstanding.
During the periods presented, our average stock price was in excess of $95.10, which is the initial conversion price of our convertible senior notes due in 2025. See further discussion below. (2) May not foot due to rounding. Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by weighted average diluted common shares outstanding.
We may also resell the licenses or services of third parties. If we are acting as an agent in an arrangement with a customer to provide third party services, the transaction price reflects only the net amount to which we will be entitled, after accounting for payments made to the third party responsible for satisfying the performance obligation.
We may also resell licenses or services of third parties. If we are acting as an agent in an arrangement with a customer to provide third party services, the transaction price reflects only the net amount to which we will be entitled, after accounting for payments made to the third party responsible for satisfying the performance obligation.
We currently have net deferred tax assets, comprised of net operating loss, or NOL, carryforwards, tax credit carryforwards and deductible temporary differences. Our management periodically weighs the positive and negative evidence to determine if it is more-likely-than-not that some or all of the deferred tax assets will be realized.
We currently have net deferred tax assets, comprised of net operating loss ("NOL"), carryforwards, tax credit carryforwards and deductible temporary differences. Our management periodically weighs the positive and negative evidence to determine if it is more-likely-than-not that some or all of the deferred tax assets will be realized.
Capitalized Internal-Use Software Costs We capitalize salaries and related costs, including stock-based compensation, of employees and consultants who devote time to the development of internal-use software development projects, as well as interest expense related to our senior convertible notes. Capitalization begins during the application development stage, once the preliminary project stage has been completed.
Capitalized Internal-Use Software Costs We capitalize salaries and related costs, including stock-based compensation, of employees and consultants who devote time to the development of internal-use software development projects, as well as interest expense related to our convertible senior notes. Capitalization begins during the application development stage, once the preliminary project stage has been completed.
Expenses Our level of profitability is also impacted by our expenses, including direct costs to support our revenue such as bandwidth and co-location costs, which includes energy to power our network. We have observed the following trends related to our profitability in recent years: • Network bandwidth costs represent a significant portion of our cost of revenue.
Expenses Our level of profitability is impacted by our expenses, including direct costs to support our revenue such as bandwidth and co-location costs, which includes energy to power our network. We have observed the following trends related to our profitability in recent years: • Network bandwidth costs represent a significant portion of our cost of revenue.
Consequently, our financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, generally our consolidated results stated in U.S. dollars are negatively impacted.
Consequently, our financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our international subsidiaries weaken, generally our consolidated results stated in U.S. dollars are negatively impacted.
We plan to continue to control costs, including reducing our real estate expenses due to excess capacity created by our FlexBase program, in an effort to manage our operating margins.
However, we plan to continue to control costs, including reducing our real estate expenses due to excess capacity created by our FlexBase program, in an effort to manage our operating margins.
The restructuring charge for this action includes severance and related expenses for certain headcount reductions and software charges for software not yet placed into service that will not be implemented due to this action. In addition to the 2020 action, additional charges were incurred in 2021, related to management’s plans to launch its new FlexBase program in May 2022.
The restructuring charge for this action includes severance and related expenses for certain headcount reductions and software charges for software not yet placed into service that will not be implemented due to this action. In addition to the 2020 action, additional charges were incurred in 2021, related to management’s launch of its new FlexBase program in May 2022.
During 2023, we expect our cost of revenue to increase as compared to 2022, in particular co-location costs, due to investments in our network to support the continued growth of our compute solutions. We plan to continue to focus our efforts on managing our operating margins, including our bandwidth and network build-out costs.
During 2024, we expect our cost of revenue to increase as compared to 2023, in particular our co-location costs, due to investments in our network to support the continued growth of our compute solutions. We plan to continue to focus our efforts on managing our operating margins, including our bandwidth and network build-out costs.
See Note 13 to our consolidated financial statements included elsewhere in this annual report on Form 10-K for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during 2022 and 2021 was determined to be immaterial.
See Note 13 to our consolidated financial statements included elsewhere in this annual report on Form 10-K for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during 2023 and 2022 was determined to be immaterial.
Management believes that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies.
Management believes that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparison of financial results across accounting periods and to those of our peer companies.
Impairment and Useful Lives of Long-Lived Assets We review our long-lived assets, such as property and equipment, operating lease right-of-use assets and acquired intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Impairment of Long-Lived Assets We review our long-lived assets, such as property and equipment, operating lease right-of-use assets and acquired intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
We have assigned the entire balance of goodwill to our one reporting unit. The fair value of the reporting unit was based on our market capitalization as of each of December 31, 2022 and 2021, and it was substantially in excess of the carrying value of the reporting unit at each date.
We have assigned the entire balance of goodwill to our one reporting unit. The fair value of the reporting unit was based on our market capitalization as of each of December 31, 2023 and 2022, and it was substantially in excess of the carrying value of the reporting unit at each date.
Significant Accounting Policies and Estimates See Note 2 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for information regarding recent and newly adopted accounting pronouncements. 42 Table of Contents Application of Critical Accounting Policies and Estimates Overview Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Significant Accounting Policies and Estimates See Note 2 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for information regarding recent and newly adopted accounting pronouncements. Application of Critical Accounting Policies and Estimates Overview Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.
Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working capital items such as accounts receivable, deferred revenue, accounts payable and various accrued expenses, as well as changes in our capital and financial structure due to common stock repurchases, debt repayments and issuances, acquisitions, purchases and sales of marketable securities, cash paid for acquisitions and similar events.
Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working capital items such as accounts receivable, deferred revenue, accounts payable, various accrued expenses and operating lease obligations, as well as changes in our capital and financial structure due to common stock repurchases, debt repayments and issuances, acquisitions, purchases and sales of marketable securities, cash paid for acquisitions and similar events.
Our estimates are based upon assumptions and judgments about matters that are highly uncertain at the time an accounting estimate is made and applied and require us to assess a range of potential outcomes. Review of Critical Accounting Policies and Estimates Revenue Recognition Our contracts with customers sometimes include promises to transfer multiple services to a customer.
Our estimates are based upon assumptions and judgments about matters that are highly uncertain at the time an accounting estimate is made and applied and require us to assess a range of potential outcomes. 42 Table of Contents Review of Critical Accounting Policies and Estimates Revenue Recognition Our contracts with customers sometimes include promises to transfer multiple services to a customer.
Our estimate of the value of our tax reserves contains assumptions based on past experiences and judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be more or less than the amount that we estimated.
Our estimate of the value of our tax reserves contains assumptions based on past experiences and judgments about 44 Table of Contents the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the ultimate tax liability or benefit from these matters may be more or less than the amount that we estimated.
Management uses non-GAAP financial measures to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate our financial performance.
Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate our financial performance.
The decrease to interest and marketable securities income, net for 2022 as compared to 2021 was due to increased losses associated with the non-qualified deferred compensation plan and lower interest earned on invested cash balances and marketable securities as a result of lower marketable securities balances in 2022 due to the funding of our recent acquisitions.
The decrease to interest and marketable securities income, net for 2022 as compared to 2021 was due to increased losses associated with the non-qualified deferred compensation plan and lower interest earned on invested cash balances and marketable securities as a result of lower marketable securities balances in 2022 due to the funding of our acquisitions of Linode and Guardicore.
We continue to improve our internal-use software and remain disciplined in managing our hardware deployments, particularly for our delivery platform, which enables us to use servers more efficiently. With these efficiencies we have been able to minimize the impact of rising energy costs, particularly in Europe.
We continue to improve our internal-use software and remain disciplined in managing our hardware deployments, particularly for our delivery platform, which enables us to use servers more efficiently. With these efficiencies we have been able to moderate the impact of rising energy costs.
Management also believes that these non-GAAP financial measures enable investors to evaluate our operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of our ongoing operating results.
Management also believes that these non-GAAP financial measures enable investors to evaluate our operating results and future prospects in the same manner as management. These non-GAAP 35 Table of Contents financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of our ongoing operating results.
We will need to continue to effectively manage our bandwidth costs to maintain current levels of profitability. • Co-location costs are also a significant portion of our cost of revenue.
We will need to continue to effectively manage our bandwidth costs to maintain or improve current levels of profitability. • Co-location costs are also a significant portion of our cost of revenue.
We exclude acquisition-related costs from our non-GAAP financial measures to provide a useful comparison of our operating results to prior periods and to our peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions and do not reflect our core operations. • Restructuring charge – We have incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by us or the manner in which that business is conducted.
Acquisition-related costs are impacted by the timing and size of the acquisitions, and we exclude acquisition-related costs from our non-GAAP financial measures to provide a useful comparison of operating results to prior periods and to peer companies because such amounts vary significantly based on the magnitude of our acquisition transactions and do not reflect our core operations. • Restructuring charge – We have incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by us or the manner in which that business is conducted.
We expect to continue to scale our network in the future, which will allow us to continue to effectively manage our co-location costs to maintain current levels of profitability. • Network build-out and supporting service costs represent another significant portion of our cost of revenue.
We expect to continue to scale our network in the future, which we believe will allow us to effectively manage our co-location costs to maintain or improve current levels of profitability. • Network build-out and supporting service costs represent another significant portion of our cost of revenue.
Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible assets. 44 Table of Contents Income Taxes Our provision for income taxes is comprised of a current and a deferred portion.
Acquired intangible assets, other than goodwill, are amortized over their estimated useful lives based upon the estimated economic value derived from the related intangible assets. Income Taxes Our provision for income taxes is comprised of a current and a deferred portion.
These costs include maintenance and supporting services incurred as we continue to build-out our compute infrastructure and maintain our global network, and costs of third-party cloud providers used for some of our operations. We have seen these costs increase in recent years, as a result of our network expansion and increased use of third-party cloud services.
These costs include maintenance and supporting services incurred as we continue to build out our compute infrastructure and maintain our global network, and costs of third-party cloud providers used for some of our operations. We have seen these costs increase in recent years as a result of our network expansion, and particularly the build out of our compute infrastructure.
Refer to Note 19 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for additional information regarding unrecognized tax benefits that, if recognized, would impact the effective income tax rate in the next 12 months.
See "Risk Factors" and refer to Note 19 to the consolidated financial statements included elsewhere in this annual report on Form 10-K for additional information regarding unrecognized tax benefits that, if recognized, would impact the effective income tax rate in the next 12 months.
Fair values determined by Level 3 inputs are based on unobservable data points for the asset or liability. Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary.
Fair values determined by Level 3 inputs are based on unobservable data points for the asset or liability. 43 Table of Contents Marketable securities are considered to be impaired when a decline in fair value below cost basis is determined to be other-than-temporary.
Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, we would receive a benefit from the note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of net income per share.
Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, we would receive a benefit from the note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance.
We periodically assess whether triggering events are present to review internal-use software for impairment. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period. 45 Table of Contents
We periodically assess whether triggering events are present to review internal-use software for impairment. Changes in our estimates related to internal-use software would increase or decrease operating expenses or amortization recorded during the period.
We define Adjusted EBITDA as GAAP net income excluding the following items: interest and marketable securities income and losses; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs incurred related to endowment contributions to the Akamai Foundation; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investments; and other non-recurring or unusual items that may arise from time to time.
We define Adjusted EBITDA as GAAP net income excluding the following items: interest and marketable securities income and losses; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investments; and other non-recurring or unusual items that may arise from time to time.
We have been able to mitigate some of the negative impacts to our revenue growth rates by upselling incremental solutions to our existing customers.
We have been able to mitigate some of the negative impacts to our revenue growth rates by upselling incremental solutions to our existing delivery and security customers.
Different determinations related to combining services into performance obligations could result in differences in the timing and amount of revenue recognized in a period. Determination of the standalone selling price ("SSP") also requires the exercise of judgment by management.
Different determinations related to combining services into performance obligations could result in differences in the timing and amount of revenue recognized in a period. Determination of the standalone selling price ("SSP") for each distinct performance obligation in a contract also requires the exercise of judgment by management.
These increases were partially offset by a decrease in payroll and related costs due to a decline in performance-based compensation programs.
These increases were partially offset by a decrease in payroll and related costs due to a decline in performance-based compensation program achievement.
We have observed the following trends related to our revenue in recent years: • Increased sales of our security solutions, led by application security solutions and segmentation solutions from our Guardicore acquisition, and more recently, increased sales of our compute solutions primarily attributable to our acquisition of Linode in the first quarter of 2022, have made a significant contribution to revenue growth.
We have observed the following trends related to our revenue in recent years: • Increased sales of our security solutions, led by application security solutions and segmentation solutions from our acquisition of Guardicore Ltd., and increased sales of our compute solutions, primarily attributable to our acquisition of Linode in early 2022, have made a significant contribution to revenue growth.
Changes to the assumptions may have a significant impact on the fair value of stock-based awards, which could have a material impact on our financial statements. Judgment is also required in estimating the number of stock-based awards that are expected to be forfeited.
Changes to the assumptions may have an impact on the fair value of stock awards, which could have an impact on our financial statements. Judgment is also required in estimating the number of stock awards that are expected to be forfeited.
Amortization of Acquired Intangible Assets For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2022 2021 % Change 2021 2020 % Change Amortization of acquired intangible assets $ 64,983 $ 48,019 35.3 % $ 48,019 $ 42,049 14.2 % As a percentage of revenue 1.8 % 1.4 % 1.4 % 1.3 % The increase in amortization of acquired intangible assets for 2022 as compared to 2021, as well as 2021 as compared to 2020, was the result of amortization of acquired intangible assets related to our recent acquisitions.
Amortization of Acquired Intangible Assets For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2023 2022 % Change 2022 2021 % Change Amortization of acquired intangible assets $ 66,751 $ 64,983 2.7 % $ 64,983 $ 48,019 35.3 % As a percentage of revenue 1.8 % 1.8 % 1.8 % 1.4 % The increase in amortization of acquired intangible assets for 2023 as compared to 2022, as well as 2022 as compared to 2021, was the result of amortization of acquired intangible assets related to our recent acquisitions.
Our goals for the share repurchase programs are to offset the dilution created by our employee equity compensation programs over time and provide the flexibility to return capital to shareholders as business and market conditions warrant, while still preserving our ability to pursue other strategic opportunities.
Our goal for the share repurchase program is to offset the dilution created by our employee equity compensation programs over time and provide the flexibility to return capital to stockholders as business and market conditions warrant, while still preserving our ability to pursue other strategic opportunities.
Changes to the estimates we make from time to time may have a significant impact on our stock-based compensation expense and could materially impact our results of operations.
Changes to the estimates we make from time to time may have an impact on our stock-based compensation expense and our results of operations.
As we build out our new compute locations to provide us with the ability to scale our platform, we expect to enter into longer term leases that include certain financial commitments in order to achieve more favorable unit economics. The costs of the financial commitments are straight-lined over the life of the lease.
As we continue to build out our new compute locations to provide us with the ability to scale our platform, we expect to enter into longer term leases that include certain financial commitments in order to achieve more favorable unit economics.
The increase in 2022 as compared to 2021 was negatively impacted by the significant strengthening of the U.S. dollar and a decline in revenue from our delivery solutions.
The increase in 2022 as compared to 2021 was negatively impacted by the significant strengthening of the U.S. dollar and a decline in revenue from our delivery solutions due to a reduction in traffic growth and pricing impact of renewals.
General and administrative expenses for 2022, 2021 and 2020 are broken out by category as follows (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2022 2021 % Change 2021 2020 % Change Global functions $ 212,674 $ 212,456 0.1 % $ 212,456 $ 193,719 9.7 % As a percentage of revenue 5.9 % 6.1 % 6.1 % 6.1 % Infrastructure 345,391 326,480 5.8 326,480 325,434 0.3 As a percentage of revenue 9.6 % 9.4 % 9.4 % 10.2 % Other 26,141 14,088 85.6 14,088 28,735 (51.0) Total general and administrative expenses $ 584,206 $ 553,024 5.6 % $ 553,024 $ 547,888 0.9 % As a percentage of revenue 16.2 % 16.0 % 16.0 % 17.1 % Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees.
General and administrative expenses for 2023, 2022 and 2021 are broken out by category as follows (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2023 2022 % Change 2022 2021 % Change Global functions $ 246,753 $ 212,674 16.0 % $ 212,674 $ 212,456 0.1 % As a percentage of revenue 6.5 % 5.9 % 5.9 % 6.1 % Infrastructure 344,399 345,391 (0.3) 345,391 326,480 5.8 As a percentage of revenue 9.0 % 9.6 % 9.6 % 9.4 % Other 9,699 26,141 (62.9) 26,141 14,088 85.6 Total general and administrative expenses $ 600,851 $ 584,206 2.8 % $ 584,206 $ 553,024 5.6 % As a percentage of revenue 15.8 % 16.2 % 16.2 % 16.0 % Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees.
Prior to January 1, 2022, we excluded this non-cash interest expense from our non-GAAP results because it was not representative of ongoing operating performance. After January 1, 2022, this interest expense is no longer included in or excluded from GAAP or non-GAAP results.
Prior to January 1, 2022, we excluded this non-cash interest expense from our non-GAAP results because it was not representative of ongoing operating performance.
Liquidity and Capital Resources To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of December 31, 2022, our cash, cash equivalents and marketable securities, which primarily consisted of time deposits, corporate bonds and U.S. government agency obligations, totaled $1.4 billion.
Liquidity and Capital Resources To date, we have financed our operations primarily through public and private sales of debt and equity securities and cash generated by operations. As of December 31, 2023, our cash, cash equivalents and marketable securities, which primarily consisted of corporate bonds, U.S. government agency obligations and money market funds, totaled $2.3 billion.
Unless our weighted average stock price is greater than $95.10, the initial conversion price of the convertible senior notes due 2025, or $116.18, the initial conversion price of the convertible senior notes due 2027, there will be no difference between our GAAP and non-GAAP diluted weighted average common shares outstanding.
With respect to the convertible senior notes due in each of 2029, 2027 and 2025, unless our weighted average stock price is greater than $126.31, $116.18 and $95.10, respectively, the initial conversion prices, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.
We believe that our strong balance sheet and 39 Table of Contents cash position are important competitive differentiators that provide the financial stability and flexibility to enable us to continue to make investments at opportune times. We expect to continue to evaluate strategic investments to strengthen our business.
We believe that our strong balance sheet and cash position are important competitive differentiators that provide the financial stability and flexibility to enable us to continue to make investments at opportune times.
GAAP diluted weighted average common shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to us pursuant to the note hedge transactions entered into in connection with the issuance of our convertible senior notes.
Diluted weighted average common shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to us pursuant to the note hedge transactions entered into in connection with the issuance of $1,265 million of convertible senior notes due 2029 and the issuances of $1,150 million of convertible senior notes due 2027 and 2025, respectively.
Because we publicly report in U.S. dollars, and due to the strengthening U.S. dollar, our reported revenue results have been negatively impacted during 2022. 25 Table of Contents • We have experienced variations in certain types of revenue from quarter to quarter.
Because we 25 Table of Contents publicly report in U.S. dollars, our reported revenue results are negatively impacted when the dollar strengthens and benefit when the dollar weakens. • We have experienced variations in certain types of revenue from quarter-to-quarter.
Changes in foreign currency exchange rates negatively impacted our revenue by $122.1 million in 2022 as compared to 2021, and positively impacted our revenue by $28.8 million in 2021 as compared to 2020.
Changes in foreign currency exchange rates negatively impacted our revenue by $13.9 million in 2023 as compared to 2022, and negatively impacted our revenue by $122.1 million in 2022 as compared to 2021.
The additional compensation cost was initiated by and determined by the seller, and is in addition to normal levels of compensation, including retention programs, offered by Akamai. Acquisition-related costs are impacted by the timing and size of the acquisitions.
The additional compensation cost was initiated by and determined by the seller and is in addition to normal levels of compensation, including retention programs, offered by Akamai.
Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in calculating present values.
Fair value and useful life determinations may be based on, among other factors, estimates of future expected cash flows, royalty cost savings and appropriate discount rates used in calculating present values. The value of our acquired intangible assets could be different if we had used different assumption.
In October 2021, we acquired Guardicore for $610.7 million in cash. Guardicore's micro-segmentation solution is designed to limit user access to only those applications that are authorized to communicate with each other, thereby limiting the spread of malware and protecting the flow of enterprise data across the network.
In October 2021, we acquired Guardicore whose micro-segmentation solution is designed to limit user access to only those applications that are authorized to communicate with each other, thereby limiting the spread of malware and protecting the flow of enterprise data across the network. Guardicore had approximately 270 employees when we completed the acquisition.
Adjusted EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue. 38 Table of Contents The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the years ended December 31, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Net income $ 523,672 $ 651,642 $ 557,054 Amortization of acquired intangible assets 64,983 48,019 42,049 Stock-based compensation 217,185 202,759 197,411 Amortization of capitalized stock-based compensation and capitalized interest expense 31,768 35,894 33,202 Restructuring charge 13,529 10,737 37,286 Acquisition-related costs 29,049 13,317 5,579 Legal settlements — — 275 Interest and marketable securities income, net (3,258) (15,620) (29,122) Endowment of Akamai Foundation — — 20,000 Interest expense 11,096 72,332 69,120 Provision for income taxes 126,696 62,571 45,922 Depreciation and amortization 496,909 467,048 403,160 Loss (gain) on investments 8,260 (3,680) (7,228) Loss from equity method investment 7,635 14,008 13,106 Other expense, net 2,173 1,895 9,682 Adjusted EBITDA $ 1,529,697 $ 1,560,922 $ 1,397,496 Net income margin 14 % 19 % 17 % Adjusted EBITDA margin 42 % 45 % 44 % Impact of Foreign Currency Exchange Rates Revenue and earnings from our international operations have historically been an important contributor to our financial results.
Adjusted EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue. 38 Table of Contents The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Net income $ 547,629 $ 523,672 $ 651,642 Amortization of acquired intangible assets 66,751 64,983 48,019 Stock-based compensation 328,467 217,185 202,759 Amortization of capitalized stock-based compensation and capitalized interest expense 32,981 31,768 35,894 Restructuring charge 56,643 13,529 10,737 Acquisition-related costs 13,345 29,049 13,317 Interest and marketable securities income, net (45,194) (3,258) (15,620) Interest expense 17,709 11,096 72,332 Provision for income taxes 106,373 126,696 62,571 Depreciation and amortization 472,035 496,909 467,048 (Gain) loss on investments (311) 8,260 (3,680) (Gain) loss from equity method investment (1,475) 7,635 14,008 Other expense, net 12,607 2,173 1,895 Adjusted EBITDA $ 1,607,560 $ 1,529,697 $ 1,560,922 Net income margin 14.4 % 14.5 % 18.8 % Adjusted EBITDA margin 42.2 % 42.3 % 45.1 % Impact of Foreign Currency Exchange Rates Revenue and earnings from our international operations have historically been an important contributor to our financial results.
In addition, the allowance for current expected credit losses considers outstanding balances on a customer-specific, account-by-account basis. We assess collectability based upon a review of customer receivables from prior sales with collection issues where we no longer believe that the customer has the ability to pay for services previously provided. We also perform ongoing credit evaluations of our customers.
We assess collectability based upon a review of customer receivables from prior sales with collection issues where we no longer believe that the customer has the ability to pay for services previously provided. We also perform ongoing credit evaluations of our customers.
For the year ended December 31, 2022, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits.
These amounts were partially offset by a decrease in profitability. For the year ended December 31, 2023, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits.
Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from discrete events, such as tax benefits from the settlement of employee equity awards, tax law changes and settlements of tax audits and assessments.
These amounts were partially offset by non-deductible stock-based compensation and state income taxes. Our effective income tax rate may fluctuate between fiscal years and from quarter to quarter due to items arising from discrete events, such as tax benefits from the settlement of employee equity awards, tax law changes and settlements of tax audits and assessments.
Linode is an infrastructure-as-a-service platform provider that allows for developer-friendly cloud computing capabilities. The acquisition is intended to enhance our computing services by enabling us to create a unique cloud platform to build, run and secure applications from the cloud to the edge. Linode had approximately 250 employees when we completed the acquisition.
The acquisition was intended to enhance our computing services by enabling us to create a unique cloud platform to build, run and secure applications from the cloud to the edge. Linode had approximately 250 employees when we completed the acquisition.
Other (expense) income, net for the year ended December 31, 2022 includes an $8.9 million impairment from an equity investment, partially offset by a favorable impact of changes in foreign currency exchange rates.
Other (expense) income, net for 2022 includes impairments of $8.9 million from equity investments, partially offset by a favorable impact of changes in foreign currency exchange rates. Other (expense) income, net for 2021 includes a $3.7 million gain from the sale of an equity investment.
We believe excluding these amounts from non-GAAP financial measures is useful to investors as these infrequent expenses are not representative of our core business operations. • Income and losses from equity method investment – We record income or losses on our share of earnings and losses from our equity method investment.
We believe excluding these amounts from our non-GAAP financial measures is useful to investors as the types of events giving rise to these gains and losses are not representative of our core business operations and ongoing operating performance. • Gains and losses from equity method investment – We record income or losses on our share of earnings and losses from our equity method investment, and any gains from returns of investments or impairments.
We believe that applying the non-GAAP adjustments and their related income tax effect allows us to highlight income attributable to our core operations. 36 Table of Contents The following table reconciles GAAP income from operations to non-GAAP income from operations and non-GAAP operating margin for the years ended December 31, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Income from operations $ 676,274 $ 783,148 $ 658,534 Amortization of acquired intangible assets 64,983 48,019 42,049 Stock-based compensation 217,185 202,759 197,411 Amortization of capitalized stock-based compensation and capitalized interest expense 31,768 35,894 33,202 Restructuring charge 13,529 10,737 37,286 Acquisition-related costs 29,049 13,317 5,579 Legal settlements — — 275 Endowment of Akamai Foundation — — 20,000 Non-GAAP income from operations $ 1,032,788 $ 1,093,874 $ 994,336 GAAP operating margin 19 % 23 % 21 % Non-GAAP operating margin 29 % 32 % 31 % The following table reconciles GAAP net income to non-GAAP net income for the years ended December 31, 2022, 2021 and 2020 (in thousands): 2022 2021 2020 Net income $ 523,672 $ 651,642 $ 557,054 Amortization of acquired intangible assets 64,983 48,019 42,049 Stock-based compensation 217,185 202,759 197,411 Amortization of capitalized stock-based compensation and capitalized interest expense 31,768 35,894 33,202 Restructuring charge 13,529 10,737 37,286 Acquisition-related costs 29,049 13,317 5,579 Legal settlements — — 275 Endowment of Akamai Foundation — — 20,000 Amortization of debt discount and issuance costs 4,395 66,025 62,823 Loss (gain) on investments 8,260 (3,680) (7,228) Loss from equity method investment 7,635 14,008 13,106 Income tax effect of above non-GAAP adjustments and certain discrete tax items (42,768) (96,164) (103,280) Non-GAAP net income $ 857,708 $ 942,557 $ 858,277 37 Table of Contents The following table reconciles GAAP net income per diluted share to non-GAAP net income per diluted share for the years ended December 31, 2022, 2021 and 2020 (in thousands, except per share data): 2022 2021 2020 GAAP net income per diluted share $ 3.26 $ 3.93 $ 3.37 Adjustments to net income: Amortization of acquired intangible assets 0.40 0.29 0.25 Stock-based compensation 1.35 1.22 1.19 Amortization of capitalized stock-based compensation and capitalized interest expense 0.20 0.22 0.20 Restructuring charge 0.08 0.06 0.23 Acquisition-related costs 0.18 0.08 0.03 Legal settlements — — — Endowment of Akamai Foundation — — 0.12 Amortization of debt discount and issuance costs 0.03 0.40 0.38 Loss (gain) on investments 0.05 (0.02) (0.04) Loss from equity method investment 0.05 0.08 0.08 Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.27) (0.58) (0.63) Adjustment for shares (1) 0.02 0.06 0.04 Non-GAAP net income per diluted share (2) $ 5.37 $ 5.74 $ 5.22 Shares used in GAAP per diluted share calculations 160,467 165,804 165,213 Impact of benefit from note hedge transactions (1) (720) (1,600) (873) Shares used in non-GAAP per diluted share calculations (1) 159,747 164,204 164,340 (1) Shares used in non-GAAP per diluted share calculations have been adjusted for the periods presented for the benefit of our note hedge transactions.
The following table reconciles GAAP income from operations to non-GAAP income from operations and non-GAAP operating margin for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Income from operations $ 637,338 $ 676,274 $ 783,148 Amortization of acquired intangible assets 66,751 64,983 48,019 Stock-based compensation 328,467 217,185 202,759 Amortization of capitalized stock-based compensation and capitalized interest expense 32,981 31,768 35,894 Restructuring charge 56,643 13,529 10,737 Acquisition-related costs 13,345 29,049 13,317 Non-GAAP income from operations $ 1,135,525 $ 1,032,788 $ 1,093,874 GAAP operating margin 16.7 % 18.7 % 22.6 % Non-GAAP operating margin 29.8 % 28.6 % 31.6 % The following table reconciles GAAP net income to non-GAAP net income for the years ended December 31, 2023, 2022 and 2021 (in thousands): 2023 2022 2021 Net income $ 547,629 $ 523,672 $ 651,642 Amortization of acquired intangible assets 66,751 64,983 48,019 Stock-based compensation 328,467 217,185 202,759 Amortization of capitalized stock-based compensation and capitalized interest expense 32,981 31,768 35,894 Restructuring charge 56,643 13,529 10,737 Acquisition-related costs 13,345 29,049 13,317 Amortization of debt discount and issuance costs 5,341 4,395 66,025 (Gain) loss on investments (311) 8,260 (3,680) (Gain) loss from equity method investment (1,475) 7,635 14,008 Income tax effect of above non-GAAP adjustments and certain discrete tax items (89,364) (42,768) (96,164) Non-GAAP net income $ 960,007 $ 857,708 $ 942,557 37 Table of Contents The following table reconciles GAAP net income per diluted share to non-GAAP net income per diluted share for the years ended December 31, 2023, 2022 and 2021 (in thousands, except per share data): 2023 2022 2021 GAAP net income per diluted share $ 3.52 $ 3.26 $ 3.93 Adjustments to net income: Amortization of acquired intangible assets 0.43 0.40 0.29 Stock-based compensation 2.11 1.35 1.22 Amortization of capitalized stock-based compensation and capitalized interest expense 0.21 0.20 0.22 Restructuring charge 0.36 0.08 0.06 Acquisition-related costs 0.09 0.18 0.08 Amortization of debt discount and issuance costs 0.03 0.03 0.40 (Gain) loss on investments — 0.05 (0.02) (Gain) loss from equity method investment (0.01) 0.05 0.08 Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.58) (0.27) (0.58) Adjustment for shares (1) 0.02 0.02 0.06 Non-GAAP net income per diluted share (2) $ 6.20 $ 5.37 $ 5.74 Shares used in GAAP per diluted share calculations 155,397 160,467 165,804 Impact of benefit from note hedge transactions (1) (574) (720) (1,600) Shares used in non-GAAP per diluted share calculations (1) 154,823 159,747 164,204 (1) Shares used in non-GAAP per diluted share calculations have been adjusted for the periods presented for the benefit of our note hedge transactions.
The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any.
The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as the impact of intercompany sales of intellectual property related to our acquisitions), if any.
Loss from Equity Method Investment For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2022 2021 % Change 2021 2020 % Change Loss from equity method investment $ 7,635 $ 14,008 (45.5) % $ 14,008 $ 13,106 6.9 % As a percentage of revenue 0.2 % 0.4 % 0.4 % 0.4 % Loss from equity method investment includes our share of losses from our investment with MUFG in the joint venture GO-NET, in addition to impairment charges realized.
(Gain) Loss from Equity Method Investment For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2023 2022 % Change 2022 2021 % Change (Gain) loss from equity method investment $ (1,475) $ 7,635 (119.3) % $ 7,635 $ 14,008 (45.5) % As a percentage of revenue — % 0.2 % 0.2 % 0.4 % The amounts reflected in (gain) loss from equity method investment relate to our investment with MUFG in a joint venture, GO-NET.
We are taking steps to try to maintain alignment between customer traffic volumes and unit pricing. • Revenue from our international operations has generally been growing at a faster pace in recent years than from our U.S. operations, particularly from cross-selling of incremental solutions.
We are taking steps upon contract renewals to optimize how we charge certain high-volume traffic delivery customers, including charging a premium for higher-cost destinations and continuing to maintain alignment between customer traffic volumes and unit pricing. • Revenue from our international operations has generally been growing at a faster pace in recent years than from our U.S. operations, particularly from new customer acquisition and cross-selling of incremental solutions.
As of December 31, 2022, we had cash and cash equivalents of $249.5 million held in accounts outside the U.S. The U.S. Tax Cuts and Jobs Act establishes a territorial tax system in the U.S., which provides companies with the potential ability to repatriate earnings with minimal U.S. federal income tax impact.
Tax Cuts and Jobs Act establishes a territorial tax system in the U.S., which provides companies with the potential ability to repatriate earnings with minimal U.S. federal income tax impact. As a result, our liquidity is not expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.
For the year ended December 31, 2020, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates, the impact of the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits.
These amounts were partially offset by non-deductible stock-based compensation and the tax on global intangible low-taxed income. 34 Table of Contents For the year ended December 31, 2022, our effective income tax rate was lower than the federal statutory tax rate due to foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits.
Non-Operating Income (Expense) For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2022 2021 % Change 2021 2020 % Change Interest and marketable securities income, net $ 3,258 $ 15,620 (79.1) % $ 15,620 $ 29,122 (46.4) % As a percentage of revenue 0.1 % 0.5 % 0.5 % 0.9 % Interest expense $ (11,096) $ (72,332) (84.7) % $ (72,332) $ (69,120) 4.6 % As a percentage of revenue (0.3) % (2.1) % (2.1) % (2.2) % Other (expense) income, net $ (10,433) $ 1,785 (684.5) % $ 1,785 $ (2,454) (172.7) % As a percentage of revenue (0.3) % 0.1 % 0.1 % (0.1) % Interest and marketable securities income, net primarily consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan.
These restructuring charges were partially offset by the release of a lease obligation for a facility previously exited as part of management actions initiated in late 2019. 33 Table of Contents Non-Operating Income (Expense) For the Years Ended December 31, For the Years Ended December 31, (in thousands) 2023 2022 % Change 2022 2021 % Change Interest and marketable securities income, net $ 45,194 $ 3,258 1,287.2 % $ 3,258 $ 15,620 (79.1) % As a percentage of revenue 1.2 % 0.1 % 0.1 % 0.5 % Interest expense $ (17,709) $ (11,096) 59.6 % $ (11,096) $ (72,332) (84.7) % As a percentage of revenue (0.5) % (0.3) % (0.3) % (2.1) % Other (expense) income, net $ (12,296) $ (10,433) 17.9 % $ (10,433) $ 1,785 (684.5) % As a percentage of revenue (0.3) % (0.3) % (0.3) % 0.1 % Interest and marketable securities income, net primarily consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan.
However, we remain disciplined in allocating our resources to support our faster growing security and compute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. We are prioritizing our hiring to our high growth areas.
It is important to the success of operations that we offer competitive compensation packages. However, we remain disciplined in allocating our resources to support our faster growing security and compute solutions, including maintaining operational efficiencies to mitigate the rising cost of talent.
During 2022, security and compute revenue represented over half of our total revenue.
During 2023, security represented the largest share of revenue with security and compute revenue representing over half of our total revenue.
In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business. 35 Table of Contents • Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In August 2019, we issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%.
In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of our business. • Amortization of debt discount and issuance costs and amortization of capitalized interest expense – We have convertible senior notes outstanding that mature in 2029, 2027 and 2025.
We will need to effectively manage our network build-out and supporting costs to maintain current levels of profitability. • Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is one of our largest expenses. It is important to the success of operations that we offer competitive compensation packages.
We will need to continue to effectively manage our network build-out and supporting service costs and continue to migrate third-party cloud services to Akamai Connected Cloud to maintain or improve current levels of profitability. • Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is our largest expense.
For the years ended December 31, 2022, 2021 and 2020, we capitalized $30.0 million, $32.2 million and $35.7 million, respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to seven years based on the software developed and its expected useful life.
These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to ten years based on the software developed and its expected useful life.
Based on acquired intangible assets as of December 31, 2022, future amortization is expected to be $63.5 million, $59.2 million, $61.2 million, $56.3 million and $43.7 million for the years ending December 31, 2023, 2024, 2025, 2026 and 2027, respectively.
Based on acquired intangible assets as of December 31, 2023, future amortization is expected to be $84.8 million, $80.5 million, $76.1 million, $62.0 million and $49.6 million for the years ending December 31, 2024, 2025, 2026, 2027 and 2028, respectively.
We expect research and development costs to increase in 2023, in particular payroll and related costs and stock-based compensation, to support the continued growth of our compute and security solutions. 30 Table of Contents Sales and Marketing Expenses Sales and marketing expenses consisted of the following for the periods presented (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2022 2021 % Change 2021 2020 % Change Payroll and related costs $ 374,110 $ 366,501 2.1 % $ 366,501 $ 393,800 (6.9) % Stock-based compensation 47,789 46,342 3.1 46,342 65,257 (29.0) Marketing programs and related costs 55,033 40,553 35.7 40,553 39,272 3.3 Acquisition-related costs 2,166 — 100.0 — — — Other expenses 23,311 8,571 172.0 8,571 12,076 (29.0) Total sales and marketing $ 502,409 $ 461,967 8.8 % $ 461,967 $ 510,405 (9.5) % As a percentage of revenue 13.9 % 13.3 % 13.3 % 16.0 % The increase in sales and marketing expenses for 2022 as compared to 2021 was primarily due to increased marketing programs and related costs due to advertising and customer events held in 2022.
Sales and Marketing Expenses Sales and marketing expenses consisted of the following for the periods presented (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2023 2022 % Change 2022 2021 % Change Payroll and related costs $ 376,305 $ 374,110 0.6 % $ 374,110 $ 366,501 2.1 % Stock-based compensation 66,453 47,789 39.1 47,789 46,342 3.1 Marketing programs and related costs 59,151 55,033 7.5 55,033 40,553 35.7 Acquisition-related costs 1,387 2,166 (36.0) 2,166 — 100.0 Other expenses 29,930 23,311 28.4 23,311 8,571 172.0 Total sales and marketing $ 533,226 $ 502,409 6.1 % $ 502,409 $ 461,967 8.8 % As a percentage of revenue 14.0 % 13.9 % 13.9 % 13.3 % The increase in sales and marketing expenses for 2023 as compared to 2022 was due to higher payroll and related costs, including stock-based compensation, as a result of annual merit increases, headcount growth and the increased expected achievement of our performance-based compensation plans and other expenses due to increased travel expenses associated with customer meetings and sales events.
Increases and decreases in the allowance for current expected credit losses are included as a component of general and administrative expense in the consolidated statements of income. 43 Table of Contents Estimates are used in determining our allowance for current expected credit losses using historical loss rates for the previous twelve months as well as expectations about the future where we have been able to develop forecasts to supports our estimates.
Estimates are used in determining our allowance for current expected credit losses using historical loss rates for the previous twelve months as well as expectations about the future where we have been able to develop forecasts to supports our estimates. In addition, the allowance for current expected credit losses considers outstanding balances on a customer-specific, account-by-account basis.
As a result, our revenue is impacted by the amount of traffic we serve on our network or the usage of cloud computing services, the rate of adoption of gaming, social media and video platform offerings, the timing and variability of customer-specific one-time events and geopolitical, economic and other developments that impact our customers' businesses.
Our revenue is also impacted by customer renewals, the rate of adoption and timing of customer offerings, variability of one-time events, usage of cloud computing services and the amount of traffic we serve on our network.
Revenue derived in the U.S. and internationally during the periods presented is as follows (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2022 2021 % Change % Change at Constant Currency 2021 2020 % Change % Change at Constant Currency U.S. $ 1,902,051 $ 1,837,508 3.5 % 3.5 % $ 1,837,508 $ 1,777,435 3.4 % 3.4 % International 1,714,603 1,623,715 5.6 13.2 1,623,715 1,420,714 14.3 12.3 Total revenue $ 3,616,654 $ 3,461,223 4.5 % 8.0 % $ 3,461,223 $ 3,198,149 8.2 % 7.3 % For each of the years ended December 31, 2022 and 2021, approximately 47% of our revenue was derived from our operations located outside of the U.S., compared to 44% for the year ended December 31, 2020.
Revenue derived in the U.S. and internationally during the periods presented is as follows (in thousands): For the Years Ended December 31, For the Years Ended December 31, 2023 2022 % Change % Change at Constant Currency 2022 2021 % Change % Change at Constant Currency U.S. $ 1,968,779 $ 1,902,051 3.5 % 3.5 % $ 1,902,051 $ 1,837,508 3.5 % 3.5 % As a percentage of revenue 51.6 % 52.6 % 52.6 % 53.1 % International 1,843,141 1,714,603 7.5 8.3 1,714,603 1,623,715 5.6 % 13.2 As a percentage of revenue 48.4 % 47.4 % 47.4 % 46.9 % Total revenue $ 3,811,920 $ 3,616,654 5.4 % 5.8 % $ 3,616,654 $ 3,461,223 4.5 % 8.0 % For each of the years ended December 31, 2023, 2022 and 2021, no single country outside of the U.S. accounted for 10% or more of revenue.
The increase in security solutions revenue for 2022 as compared to 2021, was due to growth in a number of key products in our security solutions portfolio, including our application security portfolio, driven by application and application performance interfaces protection, as well as our Zero Trust Enterprise portfolio, which is led by our Guardicore segmentation solution.
The increase in security solutions revenue for 2023 as compared to 2022, and 2022 as compared to 2021, was due to growth in a number of key products in our security solutions portfolio, including our segmentation and web application firewall solutions, denial of service and bot management solutions.
Cash Provided by Operating Activities For the Years Ended December 31, (in thousands) 2022 2021 2020 Net income $ 523,672 $ 651,642 $ 557,054 Non-cash reconciling items included in net income 756,321 793,445 727,829 Changes in operating assets and liabilities (5,317) (40,524) (69,883) Net cash flows provided by operating activities $ 1,274,676 $ 1,404,563 $ 1,215,000 The decrease in cash provided by operating activities for 2022 as compared to 2021 was primarily due to income taxes paid on an intercompany sale of intellectual property, lower profitability and timing of vendor payments.
Cash Provided by Operating Activities For the Years Ended December 31, (in thousands) 2023 2022 2021 Net income $ 547,629 $ 523,672 $ 651,642 Non-cash reconciling items included in net income 931,507 756,321 793,445 Changes in operating assets and liabilities (130,697) (5,317) (40,524) Net cash flows provided by operating activities $ 1,348,439 $ 1,274,676 $ 1,404,563 The increase in cash provided by operating activities for 2023 as compared to 2022 was due to increased profitability in 2023, as well as cash paid for income taxes related to an intercompany sale of intellectual property and additional compensation costs paid to employees acquired from the Linode acquisition based on an agreement with the acquiree, both of which occurred in 2022 and did not re-occur in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+1 added−0 removed7 unchanged
Biggest changeHowever, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value can be affected when the market price of our common stock fluctuates. We carry the notes at face value less an unamortized discount on our consolidated balance sheet, and we present the fair value for required disclosure purposes only.
Biggest changeWe carry the notes at face value less an unamortized discount on our consolidated balance sheet, and we present the fair value for required disclosure purposes only. Our exposure to risk for changes in interest rates relates primarily to any borrowings under our 2022 Credit Agreement, which has a variable rate of interest.
Foreign currency transaction gains and losses from these forward contracts were determined to be immaterial during the years ended December 31, 2022, 2021 and 2020. We do not enter into derivative financial instruments for trading or speculative purposes.
Foreign currency transaction gains and losses from these forward contracts were determined to be immaterial during the years ended December 31, 2023, 2022 and 2021. We do not enter into derivative financial instruments for trading or speculative purposes.
We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes. If market interest rates were to increase by 100 basis points from December 31, 2022 levels, the fair value of our available-for-sale portfolio would decline by approximately $7.0 million.
We do not currently hedge our interest rate exposure and do not enter into financial instruments for trading or speculative purposes. If market interest rates were to increase by 100 basis points from December 31, 2023 levels, the fair value of our available-for-sale portfolio would decline by approximately $19.2 million.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our portfolio of cash equivalents and short- and long-term investments is maintained in a variety of securities, including U.S. government agency obligations, commercial paper and high-quality corporate bonds.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Our portfolio of cash equivalents and short- and long-term investments is maintained in a variety of securities, including money market funds, time deposits, commercial paper, corporate bonds, U.S. government agency obligations and mutual funds.
We believe that our accounts receivable credit risk exposure is limited. As of December 31, 2022 and 2021, there was one customer with an accounts receivable balance greater than 10% of our accounts receivable. We believe that at December 31, 2022, the concentration of credit risk related to accounts receivable was insignificant. 47 Table of Contents
As of December 31, 2023, no customer had an accounts receivable balance greater than 10%, and as of December 31, 2022, there was one customer with an accounts receivable balance greater than 10% of our accounts receivable. We believe that at December 31, 2023, the concentration of credit risk related to accounts receivable was insignificant. 46 Table of Contents
Foreign exchange rate fluctuations may also adversely impact our consolidated financial condition as the assets and liabilities of our foreign operations are translated into U.S. dollars in preparing our consolidated balance sheet.
Foreign exchange rate fluctuations may also adversely impact our consolidated financial condition as the assets and liabilities of our international operations are translated into U.S. dollars in preparing our consolidated balance sheet. These gains or losses are recorded as a component of accumulated other comprehensive loss within stockholders' equity.
These gains or losses are recorded as a component of accumulated other comprehensive loss within stockholders' equity. 46 Table of Contents Credit Risk Concentrations of credit risk with respect to accounts receivable are limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across numerous industries.
Credit Risk Concentrations of credit risk with respect to accounts receivable are limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across numerous industries. We believe that our accounts receivable credit risk exposure is limited.
In August 2019, we issued $1,150.0 million aggregate principal amount of 0.375% convertible senior notes due 2027. In May 2018, we issued $1,150.0 million aggregate principal amount of 0.125% convertible senior notes due 2025. These notes have a fixed annual interest rate, so they do not give rise to financial or economic interest exposure associated with changes in interest rates.
In August 2023, we issued $1,265 million in aggregate principal amount of 1.125% convertible senior notes due 2029. In August 2019, we issued $1,150.0 million aggregate principal amount of 0.375% convertible senior notes due 2027. In May 2018, we issued $1,150.0 million aggregate principal amount of 0.125% convertible senior notes due 2025.
Our exposure to risk for changes in interest rates relates primarily to any borrowings under our 2022 Credit Agreement, which has a variable rate of interest. There were no outstanding borrowings under the 2022 Credit Agreement as of December 31, 2022.
There were no outstanding borrowings under the 2022 Credit Agreement as of December 31, 2023.
Added
These notes have a fixed annual interest rate, so they do not give rise to financial or economic interest exposure associated with changes in interest rates. However, the fair value of fixed rate debt instruments fluctuates when interest rates change. Additionally, the fair value 45 Table of Contents can be affected when the market price of our common stock fluctuates.

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