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Item 9A. Controls and Procedures

2023-02-27 compared with 2022-03-01 · 60 added, 84 removed, 165 unchanged (47% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this Annual Report on Form 10-K.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our principal executive officer and principal financial officer concluded that, as of such date, due to the material weaknesses described below, our disclosure controls and procedures were not effective as of December 31, 2021.

Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act) as of December 31, 2022.

Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that as of December 31, 2022, our disclosure controls and procedures were, in design and operation, effective at a reasonable assurance level.

Management's Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

Internal control over financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, to provide reasonable assurance regarding the reliability of financing reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer and oversight of the board of directors, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021, based on the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

Based on this evaluation, due to the material weaknesses described below, management concluded that our internal control over financial reporting is disclosure not effective as of December 31, 2021.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which is included in Item 8 of this Annual Report on Form 10-K.

Remediation of Previously Reported Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Material Weaknesses

We identified a material weakness in our internal control over financial reporting for the year ended December 31, 2020 which remains unremediated for the year ended December 31, 2021.

The material weakness related to a lack of sufficient, qualified finance and accounting resources commensurate with the complexity of the Company's operations and financial reporting requirements.

This control deficiency, aggregated with the other deficiencies, constitutes a material weakness and impacted our overall control environment.

We also identified a material weakness in our internal control over financial reporting during the quarter ended September 30, 2021 related to our accounting for internal-use software costs.

The material weakness resulted from a lack of timely and complete identification of internal-use software costs for capitalization, for which we recorded out-of-period adjustments during the year ended December 31, 2021.

We also identified a material weakness in our internal control over financial reporting during the year ended December 31, 2021 related to the system implementation of our stock plan administration system.

Specifically, certain of our systems controls were not designed to prevent the sale of unvested shares, which allowed certain holders of restricted stock to sell shares that had not yet vested.

The above material weaknesses resulted in misstatements to our financial statements, or could result in misstatements to our financial statements in the future, if not remediated.

Notwithstanding the material weaknesses, management has concluded that the financial statements included elsewhere in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows in the conformity with U.S.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is included in Part II, Item 8—Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

Remediation Efforts with Respect to the Material Weaknesses

The process of implementing an effective system of internal control over financial reporting is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations.

We continue to evaluate and implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively.

The Audit Committee is fully engaged and supportive of management’s efforts to remediate the material weaknesses.

These remediation actions are ongoing and include or are expected to include:

Actions related to the remediation of all material weaknesses in internal control over financial reporting, including the material weakness related to a lack of sufficient, qualified finance and accounting resources commensurate with the complexity of the Company's operations and financial reporting requirements:

• We appointed our new CFO in the third quarter of 2021, and we have recruited and hired several senior leaders in the finance and accounting teams since then.

We will continue to hire, retain and oversee qualified finance and accounting resources at all levels to support the Company, including external advisors when appropriate.

• We are enhancing quarterly reporting of the remediation measures and progress to the Audit Committee of the Board of Directors.

Actions specific to the remediation of the material weakness in internal control over financial reporting during the quarter ended September 30, 2021 related to our accounting for internal-use software costs:

• We have and will continue to enhance our process and expand our review controls to ensure complete and timely identification of internal use software costs subject to capitalization.

• We have and will continue to implement additional training of finance, accounting and other Company personnel involved in this process.

• We will continue to work with qualified external advisors to support these efforts.

Actions specific to remediate the material weakness in internal control over financial reporting financial reporting during the year ended December 31, 2021 related to the design of controls for system implementations associated with a migration of our stock plan administration system:

• Updating the design and review of controls for system implementations.

• We have and will continue to leverage internal expertise in systems implementation for the design of controls for systems implementations.

• We will continue to work with qualified external advisors to support these efforts.

As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address control deficiencies or modify the remediation plans described above.

We believe that these actions will remediate the material weaknesses, however the weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Management believes the foregoing plans will effectively remediate the deficiencies constituting the material weaknesses.

However, there is no assurance as to when such remediation will be completed.

As the remediation plans are or continue to be implemented, management may take additional measures or modify the plan elements described above.

As previously reported in Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, management identified material weaknesses in the fiscal years ended December 31, 2021 and 2020.

The previously reported material weaknesses were related to the lack of sufficient qualified accounting resources, lack of timely and complete identification of internal-use software costs for capitalization, and lack of appropriate design of system implementation of stock plan administration system.

We identified and implemented changes to our internal control over financial reporting to remediate the control deficiencies that led to the material weaknesses, including:

• Hired a new Chief Financial Officer, Chief Accounting Officer and additional senior resources in Finance and Accounting teams;

• Hired qualified external advisors to support remediation efforts, as needed;

• Enhanced process and review controls for internal-use software;

• Enhanced controls and procedures for new system implementations and upgrades;

• Enhanced management review and reconciliations controls;

• Provided additional trainings to Finance and Accounting teams.

The applicable measures have been implemented for a sufficient period of time and management has concluded, through testing, that the enhanced controls are operating effectively.

Management concluded that the material weaknesses were remediated as of December 31, 2022.

Changes in Internal Control over Financial Reporting

Except for the identification of the material weaknesses and remediation activities described above, there were no changes during the quarter ended December 31, 2021 in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As described above, we implemented changes to our internal control over financial reporting to remediate the existing material weaknesses previously identified.

There were no other changes during the quarter ended December 31, 2022 in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud.

Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Fastly, Inc.

To the stockholders and the Board of Directors of Fastly, Inc.

Opinion on Internal Control over Financial Reporting

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and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and the related notes (collectively referred to as the “financial statements”) as of and for the year ended December 31, 2021, of the Company and our report dated March 1, 2022, expressed an unqualified opinion on those financial statements.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and the related notes (collectively referred to as the "financial statements") as of and for the year ended December 31, 2022, of the Company and our report dated February 24, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

1 unchanged sentence

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting :

Sufficiency of Finance and Accounting Resources - There is a lack of sufficient qualified finance and accounting resources commensurate with the complexity of the Company's operations and financial reporting requirements.

Accounting for Internal-Use Software Costs – Certain of the Company’s controls were not designed to identify on a timely basis qualified costs for capitalization as internal-use software, which resulted in the Company recording out-of-period adjustments during the fiscal year ended December 31, 2021.

System Implementation of Stock Plan Administration System – Certain of the Company’s systems controls were not designed to prevent the sale of unvested shares, which allowed certain holders of restricted stock to sell shares that had not yet vested.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the financial statements as of and for the year ended December 31, 2021, of the Company, and this report does not affect our report on such financial statements.

/s/ Deloitte & Touche LLP

San Francisco, California

March 1, 2022

February 24, 2023

Other Information

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Information required by this Item is incorporated by reference to the sections of our proxy statement to be filed with the SEC no later than 120 days after December 31, 2022 in connection with our 2023 Annual Meeting of Stockholders (the "Proxy Statement").

We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees, which is available on our website at www.fastly.com.

The Code of Business Conduct and Ethics is intended to qualify as a "code of ethics" within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of Regulation S-K.

In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future.

We have adopted a Code of Business Conduct and Ethics for our directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees.

Our Code of Business Conduct and Ethics is available on our website at www.fastly.com/investors under the “Governance” tab.

Within the time period required by the SEC and the NYSE, we will post on our website at www.fastly.com/investors under the “Governance” tab any amendment to our Code of Business Conduct and Ethics or any waivers of such provisions granted to executive officers and directors.

Executive Compensation

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(a)(1) Financial statements

The information concerning Fastly’s financial statements and the Report of Independent Registered Public Accounting Firm required by this Item 15(a)(1) is incorporated by reference herein to the section of this Annual Report on Form 10-K in Part II, Item 8, "Financial Statements and Supplementary Data."

The information concerning the Company's financial statements and the Report of Independent Registered Public Accounting Firm required by this Item 15(a)(1) is incorporated by reference herein to the section of this Annual Report on Form 10-K in Part II, Item 8, "Financial Statements and Supplementary Data."

(a)(2) Financial statement schedules

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4.5 Description of Securities.

10-K 001-38897 4.5 March 1, 2022

10.1+ 2011 Equity Incentive Plan, as amended to date.

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S-1/A 333-230953 10.8 May 6, 2019

10.8+ Cash Incentive Bonus Plan.

S-1/A 333-230953 10.9 May 6, 2019

Number Exhibit Description Form File No.

Exhibit Filing Date Filed Herewith

10.8+ Cash Incentive Bonus Plan.

S-1/A 333-230953 10.9 May 6, 2019

10.9+ Employment Terms by and between Fastly, Inc.

1 unchanged sentence

S-1/A 333-230953 10.10 May 6, 2019

10.10+ Transition and Separation Agreement by and between Fastly, Inc.

and Adriel Lares, dated May 4, 2021.

8-K 001-38897 10.1 May 5, 2021

10.10+ Offer Letter Agreement, by and between Fastly, Inc.

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and Brett Shirk, dated February 9, 2021 .

10-K 001-38897 10.23 March 1, 2022

10.23+ Offer Letter by and between Fastly, Inc.

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8-K 001-38897 10.1 June 29, 2021

10.24+ Offer Letter by and between Fastly, Inc.

and Todd Nightingale, dated August 1, 2022.

8-K 001-38897 10.1 August 3, 2002

10.25+ Transition and Separation Agreement by and between Fastly, Inc.

and Joshua Bixby, dated September 6, 2022.

8-K 001-38897 10.1 September 6, 2022

21.1 Subsidiaries of the Registrant.

10-K 001-38897 21.1 March 1, 2021

23.1 Consent of Independent Registered Public Accounting Firm.

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31.2 Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Number Exhibit Description Form File No.

Exhibit Filing Date Filed Herewith

32.1* Certification of the Chief Executive Officer pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2* Certification of the Chief Financial Officer pursuant to 18 U.S.C.

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has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

March 1, 2022 By:

/s/ Joshua Bixby

February 24, 2023 By:

/s/ Todd Nightingale

Todd Nightingale

Chief Executive Officer (Principal Executive Officer)

March 1, 2022 By:

February 24, 2023 By:

/s/ Ronald W.

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POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Joshua Bixby and Ronald W.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Todd Nightingale and Ronald W.

Kisling, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such individual in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or the individual’s substitute, may lawfully do or cause to be done by virtue hereof.

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Signature Title Date

/s/ Joshua Bixby Chief Executive Officer and Director March 1, 2022

Joshua Bixby (Principal Executive Officer)

/s/ Todd Nightingale Chief Executive Officer February 24, 2023

Todd Nightingale (Principal Executive Officer)

/s/ Ronald W.

Kisling Chief Financial Officer March 1, 2022

Kisling Chief Financial Officer February 24, 2023

Kisling (Principal Financial Officer and Principal Accounting Officer)

/s/ Artur Bergman Chief Architect, Executive Chairperson and Chairperson of the March 1, 2022

/s/ Artur Bergman Chief Architect, Executive Chairperson and Chairperson of the February 24, 2023

Artur Bergman Board of Directors

/s/ Aida Álvarez Director March 1, 2022

/s/ Richard Daniels Director March 1, 2022

/s/ Aida Álvarez Director February 24, 2023

/s/ Richard Daniels Director February 24, 2023

Richard Daniels

/s/ David Hornik Director March 1, 2022

/s/ Paula Loop Director March 1, 2022

/s/ Charles Meyers Director March 1, 2022

/s/ David Hornik Director February 24, 2023

/s/ Paula Loop Director February 24, 2023

/s/ Charles Meyers Director February 24, 2023

Charles Meyers

/s/ Christopher B.

Paisley Director March 1, 2022

Paisley Director February 24, 2023

Christopher B.

/s/ Vanessa Smith Director March 1, 2022

/s/ Vanessa Smith Director February 24, 2023

Vanessa Smith

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures