Fastly, Inc. 10-K

Item 8. Financial Statements and Supplementary Data FASTLY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The following financial statements are filed as part of this Annual Report on form 10-K: Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 91 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Fastly, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Fastly, Inc. and subsidiaries (the “ Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “ financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2025, expressed an adverse opinion on the Company’s internal control over financial reporting because of a material weakness. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Revenue – Refer to Notes 2 and 3 to the financial statements Critical Audit Matter Description Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, and therefore the Company uses a complex set of procedures to generate complete and accurate data to record its revenue transactions. We identified manually processed revenue as a critical audit matter as the manually processed revenue requires a complex set of manual procedures to generate complete and accurate data to process and record revenue. This required an increased extent of effort to audit these manually processed revenue transactions. 92 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to manually processed revenue included the following, among others: • We tested the effectiveness of controls over the recognition of manually processed revenue. • We obtained an understanding of the nature of the manually processed revenue through inquiry with the Company personnel responsible for the invoice, as well as review of the contract with the customer. • For a sample of manually processed revenue transactions, we recalculated the manually processed revenue by comparing key attributes utilized in our recalculation to source information and documents, including usage, bandwidth, and other services provided. We compared our recalculation of manually processed revenue transactions to the Company’s recorded revenue and evaluated any differences. /s/ Deloitte & Touche LLP San Francisco, California February 25, 2025 We have served as the Company’s auditor since 2015. 93 FASTLY, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) As of December 31, 2024 As of December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 286,175 $ 107,921 Marketable securities, current 9,707 214,799 Accounts receivable, net of allowance for credit losses of $ 8,254 and $ 7,054 as of December 31, 2024 and December 31, 2023, respectively 115,988 120,498 Prepaid expenses and other current assets 28,325 20,455 Total current assets 440,195 463,673 Property and equipment, net 179,097 176,608 Operating lease right-of-use assets, net 50,433 55,212 Goodwill 670,356 670,356 Intangible assets, net 42,876 62,475 Marketable securities, non-current — 6,088 Other assets 68,402 90,779 Total assets $ 1,451,359 $ 1,525,191 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 6,044 $ 5,611 Accrued expenses 41,622 61,818 Finance lease liabilities, current 2,328 15,684 Operating lease liabilities, current 25,155 24,042 Other current liabilities 29,307 40,539 Total current liabilities 104,456 147,694 Long-term debt 337,614 343,507 Finance lease liabilities, non-current — 1,602 Operating lease liabilities, non-current 39,561 48,484 Other long-term liabilities 4,478 4,416 Total liabilities 486,109 545,703 Commitments and contingencies (Note 10) Stockholders’ equity: Common stock, $ 0.00002 par value; 1,000,000,000 shares authorized as of both December 31, 2024 and 2023; 142,086,129 and 132,992,126 shares issued and outstanding at December 31, 2024 and 2023, respectively 3 3 Additional paid-in capital 1,958,157 1,815,245 Accumulated other comprehensive loss ( 100 ) ( 1,008 ) Accumulated deficit ( 992,810 ) ( 834,752 ) Total stockholders’ equity 965,250 979,488 Total liabilities and stockholders’ equity $ 1,451,359 $ 1,525,191 The accompanying notes are an integral part of the consolidated financial statements. 94 FASTLY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year ended December 31, 2024 2023 2022 Revenue $ 543,676 $ 505,988 $ 432,725 Cost of revenue 247,738 239,660 222,944 Gross profit 295,938 266,328 209,781 Operating expenses: Research and development 137,980 152,190 155,308 Sales and marketing 198,610 191,773 179,869 General and administrative 113,399 116,077 120,803 Impairment expense 4,144 4,316 — Restructuring charges 9,720 — — Total operating expenses 463,853 464,356 455,980 Loss from operations ( 167,915 ) ( 198,028 ) ( 246,199 ) Net gain on extinguishment of debt 1,365 52,416 54,391 Interest income 14,871 18,186 7,044 Interest expense ( 2,747 ) ( 4,051 ) ( 5,887 ) Other expense, net ( 1,028 ) ( 1,832 ) ( 29 ) Loss before income tax expense (benefit) ( 155,454 ) ( 133,309 ) ( 190,680 ) Income tax expense (benefit) 2,604 ( 221 ) 94 Net loss $ ( 158,058 ) $ ( 133,088 ) $ ( 190,774 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 1.14 ) $ ( 1.03 ) $ ( 1.57 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 138,099 128,770 121,723 The accompanying notes are an integral part of the consolidated financial statements. 95 FASTLY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Year ended December 31, 2024 2023 2022 Net loss $ ( 158,058 ) $ ( 133,088 ) $ ( 190,774 ) Other comprehensive loss: Foreign currency translation adjustment — 565 ( 255 ) Gain (loss) on investments in available-for-sale-securities 908 7,713 ( 6,404 ) Total other comprehensive income (loss) $ 908 $ 8,278 $ ( 6,659 ) Comprehensive loss $ ( 157,150 ) $ ( 124,810 ) $ ( 197,433 ) The accompanying notes are an integral part of the consolidated financial statements. 96 FASTLY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total Stockholders’ Equity Shares Amount Balance as of December 31, 2021 118,811 $ 2 $ 1,527,468 $ ( 2,627 ) $ ( 510,890 ) $ 1,013,953 Exercise of vested stock options 1,778 — 5,688 — — 5,688 Vesting of restricted stock units 3,119 — — — — — Issuance of restricted stock awards 112 — — — — — Shares issued under employee stock purchase program 516 — 4,665 — — 4,665 Stock-based compensation — — 128,285 — — 128,285 Net loss — — — — ( 190,774 ) ( 190,774 ) Other comprehensive loss — — — ( 6,659 ) — ( 6,659 ) Balance as of December 31, 2022 124,336 $ 2 $ 1,666,106 $ ( 9,286 ) $ ( 701,664 ) $ 955,158 Exercise of vested stock options 291 — 2,169 — — 2,169 Vesting of restricted stock units 6,150 1 — — — 1 Shares issued under bonus program 1,193 — 16,599 — — 16,599 Shares issued under employee stock purchase program 1,022 — 8,692 — — 8,692 Stock-based compensation — — 121,679 — — 121,679 Net loss — — — — ( 133,088 ) ( 133,088 ) Other comprehensive income — — — 8,278 — 8,278 Balance at December 31, 2023 132,992 $ 3 $ 1,815,245 $ ( 1,008 ) $ ( 834,752 ) $ 979,488 Exercise of vested stock options 292 — 1,115 — — 1,115 Vesting of restricted stock units 5,886 — — — — — Shares issued under bonus program 1,889 — 26,849 — — 26,849 Shares issued under employee stock purchase program 1,027 — 6,714 — — 6,714 Stock-based compensation — — 108,234 — — 108,234 Net loss — — — — ( 158,058 ) ( 158,058 ) Other comprehensive income — — — 908 — 908 Balance as of December 31, 2024 142,086 $ 3 $ 1,958,157 $ ( 100 ) $ ( 992,810 ) $ 965,250 97 FASTLY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2024 2023 2022 Cash flows from operating activities: Net loss $ ( 158,058 ) $ ( 133,088 ) $ ( 190,774 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 54,037 51,602 42,619 Amortization of intangible assets 19,599 20,424 21,696 Non-cash lease expense 22,474 22,678 25,448 Amortization of debt discount and issuance costs 1,377 2,476 3,169 Amortization of deferred contract costs 18,623 15,548 8,916 Stock-based compensation 107,930 136,303 145,796 Deferred income taxes 1,793 ( 900 ) — Provision for credit losses 3,834 2,025 2,406 Loss on disposals of property and equipment 540 505 854 Amortization of premiums (discounts) on investments ( 3,973 ) ( 646 ) 3,137 Impairment of operating lease right-of-use assets 371 744 2,083 Impairment expense 4,144 4,316 — Net gain on extinguishment of debt ( 1,365 ) ( 52,416 ) ( 54,391 ) Other adjustments ( 814 ) 648 3,688 Changes in operating assets and liabilities: Accounts receivable 676 ( 32,945 ) ( 27,359 ) Prepaid expenses and other current assets ( 7,627 ) 8,709 ( 6,758 ) Other assets ( 11,869 ) ( 23,137 ) ( 35,396 ) Accounts payable 611 382 ( 4,724 ) Accrued expenses ( 2,922 ) ( 7,856 ) 8,289 Operating lease liabilities ( 26,541 ) ( 22,074 ) ( 22,778 ) Other liabilities ( 6,434 ) 7,064 4,447 Net cash (used in) provided by operating activities 16,406 362 ( 69,632 ) Cash flows from investing activities: Purchases of marketable securities ( 155,099 ) ( 132,233 ) ( 355,479 ) Sales of marketable securities — 25,625 161,918 Maturities of marketable securities 371,189 433,767 535,040 Business acquisitions, net of cash acquired — — ( 25,902 ) Advance payment for purchase of property and equipment ( 790 ) — ( 42,197 ) Purchases of property and equipment ( 10,330 ) ( 10,976 ) ( 19,975 ) Proceeds from sale of property and equipment 24 49 492 Capitalized internal-use software ( 26,094 ) ( 21,292 ) ( 18,146 ) Net cash provided by investing activities 178,900 294,940 235,751 Cash flows from financing activities: Payments of debt issuance costs ( 5,729 ) — — Cash paid for debt extinguishment — ( 310,540 ) ( 177,082 ) Repayments of finance lease liabilities ( 14,958 ) ( 27,175 ) ( 22,532 ) Cash received for restricted stock sold in advance of vesting conditions — — 10,655 Cash paid for early sale of restricted shares — — ( 10,655 ) Payment of deferred consideration for business acquisitions ( 3,771 ) ( 4,393 ) — Proceeds from exercise of vested stock options 1,115 2,169 5,688 Proceeds from employee stock purchase plan 6,244 8,559 4,777 Net cash used in financing activities ( 17,099 ) ( 331,380 ) ( 189,149 ) Effects of exchange rate changes on cash, cash equivalents, and restricted cash ( 103 ) 608 ( 390 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 178,104 ( 35,470 ) ( 23,420 ) Cash, cash equivalents, and restricted cash at beginning of period 108,071 143,541 166,961 Cash, cash equivalents, and restricted cash at end of period $ 286,175 $ 108,071 $ 143,541 98 FASTLY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued (in thousands) Year ended December 31, 2024 2023 2022 Supplemental disclosure of cash flow information: Cash paid for interest $ 527 $ 1,574 $ 2,656 Cash paid for income taxes, net of refunds received $ 809 $ 331 $ 250 Noncash investing and financing activities: Property and equipment additions not yet paid in cash or financed $ 983 $ 640 $ 1,492 Capitalized stock-based compensation $ 9,716 $ 9,975 $ 7,997 Assets obtained in exchange for operating lease obligations $ 8,543 $ 5,769 $ 29,606 Assets obtained in exchange for finance lease obligations $ — $ — $ 23,575 Net noncash change in operating lease assets and liabilities associated with modifications and terminations $ 10,439 $ ( 4,425 ) $ 3,126 Interest paid for finance leases $ 378 $ 1,329 $ 2,381 Purchase consideration associated with business combination, accrued but not paid $ — $ — $ 8,000 Deployments of prepaid capital equipment $ 14,598 $ 8,665 $ 5,184 Debt issued in exchange for extinguishment of existing notes $ 155,730 $ — $ — Debt retired in exchange for issuance of new notes $ ( 157,095 ) $ — $ — Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows Cash and cash equivalents $ 286,175 $ 107,921 $ 143,391 Restricted cash — 150 150 Total cash, cash equivalents, and restricted cash $ 286,175 $ 108,071 $ 143,541 The accompanying notes are an integral part of the consolidated financial statements. 99 FASTLY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customers' applications as close to their end users as possible. The Company was incorporated in Delaware in 2011 and is headquartered in San Francisco, California. As used herein, “Fastly,” “the Company,” “its” and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The accompanying consolidated financial statements and footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Actual results and outcomes could differ significantly from the Company’s estimates, judgments, and assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, internal-use software development costs, the incremental borrowing rate related to the Company’s lease liabilities, fair value of assets acquired and liabilities assumed during business combinations, useful lives of acquired intangible assets and property and equipment, fair value of the Company’s long-lived assets, reporting unit as well as financial instruments, income tax reserves, and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements in the period of change and prospectively from the date of the change in estimate. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable. The Company’s cash, cash equivalents, and marketable securities primarily consisted of money market funds, investment-grade commercial paper, corporate notes and bonds, U.S. treasury securities and agency bonds. The primary focus of its investment strategy is to preserve capital and meet liquidity requirements. The Company’s investment policy limits the amount of credit exposure with any one financial institution or commercial issuer. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company is exposed to credit risk in the event of default by the financial institutions holding its cash and cash equivalents to the extent recorded in the balance sheets. Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the Company makes substantial sales. The Company’s customer base consists of a large number of geographically dispersed customers diversified across several industries . No single customer accounted for more than 10% of revenue for the years ended December 31, 2024, 2023 and 2022. No single customer accounted for more than 10% of the total accounts receivable balance as of December 31, 2024, and one customer accounted for more than 10 % of the total accounts receivable balance as of December 31, 2023. No affiliated customers that are business units of a single company generated more than 10% of revenue for the year ended December 31, 2024. Affiliated customers that are business units of a single company generated an aggregate of 12 % and 11 % of the Company’s revenue for the years ended, December 31, 2023 and 2022, respectively. The same affiliated customers accounted for an aggregate of 11 % and 23 % of the Company’s accounts receivable balance as of December 31, 2024 and 2023, respectively. 100 Cash, Cash Equivalents and Marketable Securities Cash and cash equivalents include cash held in banks, highly liquid money market funds, U.S. treasury securities and commercial paper, all with original maturities of three months or less when acquired. The Company’s short-term and long-term marketable securities consists of fixed income U.S. and foreign government agency securities, corporate bonds, agency bonds, asset-backed securities and commercial paper. Management determines the appropriate classification of the Company’s investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying remaining contractual maturity date. The Company classifies its marketable securities as available-for-sale as it has the ability to sell the marketable securities prior to its maturity. The Company’s marketable securities are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Cash and cash equivalents are stated at cost, which approximate fair market value. Short-term and long-term marketable securities are classified as available-for-sale debt securities and are also carried at fair market value. When the available-for-sale debt securities are sold, cost is based on the specific identification method, and the realized gains and losses are included in other income (expense), net in the consolidated statements of operations. The Company evaluates its investments periodically for possible other-than-temporary impairment. A decline in fair value below the amortized costs of its available-for-sale debt securities is considered an other-than-temporary impairment if the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of the entire amortized cost basis. Otherwise, the credit loss component of the impairment is recorded as allowance for credit losses with an offsetting entry charged to other income (expense), net, while the remaining loss is recognized in other comprehensive income (loss). Restricted Cash As of December 31, 2024, the Company did not have any restricted cash. As of December 31, 2023, the Company had a restricted cash balance of $ 0.2 million, which consists of a letter of credit related to a lease arrangement that is collateralized by restricted cash. As of December 31, 2023, this amount is included in prepaid expenses and other current assets on the consolidated balance sheets. Accounts Receivable, net Accounts receivable are recorded and carried at the original invoiced amount, net of an allowance for any potential credit losses. The allowance for credit losses is determined based upon the assessment of various factors, such as historical experience, credit quality of its customers, age of the accounts receivable balances, geographic related risks, economic conditions, and other factors that may affect a customer’s ability to pay. The Company records these charges as a component of general and administrative expenses in the consolidated statements of operations in the period in which the change occurs. The Company does not have any off-balance sheet credit exposure related to its customers. Incremental Costs to Obtain a Contract with a Customer The Company capitalizes incremental costs associated with obtaining customer contracts, specifically certain commission payments. The Company pays commissions based on contract value upon signing an arrangement with a new customer and upon upgrades of existing contracts with customers only if the upgrades result in an incremental increase in contract value. These costs are deferred on the consolidated balance sheets and amortized over the expected period of benefit on a straight-line basis. The Company also pays commissions on an ongoing basis based upon revenue recognized. In these cases, no incremental costs are deferred, as the commissions are earned and expensed in the same period for which the associated revenue is recognized. Based on the nature of the Company’s technology and services, and the duration of its relationships with its customers, the expected period of benefit is determined to be five years . Management periodically reviews the carrying amount of deferred commission costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. Amortization is primarily included in sales and marketing expense in the consolidated statements of operations. Deferred commission and incentive payments are included in other assets on the consolidated balance sheets. 101 Fair Value of Financial Instruments The Company’s available-for-sale securities are recorded at fair value. The Company’s cash and cash equivalents and restricted cash are recorded at cost, which approximates fair value. Additionally, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term nature. For disclosure purposes, the Company measures the fair value of its outstanding senior convertible notes using a market approach based on actual bids and offers in an over-the-counter market, or Level 2 inputs, on the last trading day of the period. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of each asset category is as follows: Computer and networking equipment 3 to 5 years Leasehold improvements Shorter of lease term or 5 years Furniture and fixtures 3 years Office equipment 3 years Internal-use software 3 to 5 years The Company periodically reviews the estimated useful lives of property and equipment and any changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the consolidated statements of operations. Repairs and maintenance costs are expensed as incurred. Internal-Use Software Development Costs Labor and related costs associated with internal-use software incurred during the application development stage are capitalized. Capitalization of costs begins when the preliminary project stage is completed, management has committed to funding the project, and it is probable that the project will be completed and the software will be used to perform the function intended. Capitalization ceases at the point when the project is fully tested, is substantially completed and is ready for its intended purpose. The capitalized amounts are included in property and equipment, net on the consolidated balance sheets. The Company amortizes such costs on a straight-line basis over the estimated useful life of the software, which is generally between three to five years . Completed internal-use software that is related to the Company’s network is amortized to cost of revenue over its estimated useful life. Costs incurred during the planning, training, and post-implementation stages of the software development life-cycle are expensed as incurred. Business Combinations The Company accounts for its acquisitions using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires significant judgment and estimates including the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives. The Company’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates. During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date. At the conclusion of the 102 measurement period, or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are reflected in the consolidated statements of operations. Transaction costs associated with business combinations are expensed as incurred, and are included in general and administrative expense in the consolidated statements of operations. Goodwill, Intangible Assets and Other Long-Lived Assets Goodwill represents the excess of the purchase price of an acquired business over the fair value of the net tangible and identifiable intangible assets acquired. The carrying amount of goodwill is reviewed for impairment at least annually, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has a single operating segment and reporting unit structure for all of the periods presented. As part of the annual goodwill impairment test, the Company may first perform a qualitative assessment to determine whether further impairment testing is necessary. If, as a result of the qualitative assessment, it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test will be required. If the Company has determined it necessary to perform a quantitative impairment assessment, the Company will compare the fair value of the reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill of the reporting unit. The Company did not recognize any goodwill impairment charges for any of the periods presented. The Company’s definite lived intangible assets are carried at cost, net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company estimates the useful life by estimating the expected period of economic benefit. The useful lives of the intangible assets are as follows: Customer relationships 3 to 8 years Developed technology 4 to 5 years Trade names 3 to 4 years Internet protocol addresses 10 years Long-lived assets, including property and equipment, definite lived intangible assets, and operating lease right-of-use assets, are reviewed for impairment whenever events or changes in circumstances, such as service discontinuance, technological obsolescence, significant decreases in market capitalization, facility closures, or work-force reductions indicate that the carrying amount of the long-lived asset or asset group may not be recoverable. When such events occur, the Company compares the carrying amount of the asset or asset group to the undiscounted expected future cash flows related to the asset or asset group. If this comparison indicates that an impairment is present, the amount of impairment is calculate as the difference between the carrying amount and the fair value of the asset or asset group. In addition to the recoverability assessment, the Company periodically reviews the remaining estimated useful lives of long-lived assets. If the estimated useful life assumption for any asset is changed due to new information, the remaining unamortized balance would be depreciated or amortized over the revised estimated useful life, on a prospective basis. Refer to Note 6 — Balance Sheet Information and Note 7 — Leases for discussion of impairment of property and equipment and impairment of operating lease right-of-use asset, respectively. 103 Leases The Company leases office space and data centers (“colocation leases”) under non-cancelable operating leases with various expiration dates. The Company also leases server equipment under non-cancelable finance leases with various expiration dates. The Company determines if an arrangement contains a lease at inception. Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company’s operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Operating lease right-of-use assets also include any prepaid lease payments and exclude lease incentives. Operating lease expense is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The lease terms may include options to extend or terminate the lease. The Company generally uses the base, non-cancelable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the option will be exercised. The lease agreements may contain variable costs such as common area maintenance, operating expenses or other costs. Variable lease costs are expensed as incurred on the consolidated statements of operations. The Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants. Certain of our operating leases contain both lease and non-lease components. Non-lease components for our office spaces include fixed payments for maintenance, utilities, real estate taxes, and management fees. Non-lease components for colocation leases include fixed payments for utilities and other operating costs. For both office spaces and colocation leases, the Company combines fixed lease and non-lease components and account for them as a single lease component. The Company leases networking equipment from a third party through equipment finance leases. These leases include a bargain purchase option, resulting in a full transfer of ownership at the completion of the lease term. Operating leases are reflected in operating lease right-of-use assets, operating lease liabilities, and operating lease liabilities, non-current on the consolidated balance sheets. Finance leases are included in property and equipment, net, finance lease liabilities, and finance lease liabilities, non-current on the consolidated balance sheets. Convertible Debt The Company evaluated the terms of its debt in line with ASC 470-20, as amended by Accounting Standards Update (“ASU”) 2020-06, and concluded that the instrument does not require separation and that there were no other derivatives that required separation. The Company has combined these features with the host contract and accounted for the convertible debt as a single liability in long-term debt on the consolidated balance sheets. The carrying amount of the liability is either based on fair value or the gross proceeds, net of the unamortized transaction costs incurred related to the issuance of the convertible debt instrument, and any partial repurchases made. The debt discount from the net unamortized transaction cost is amortized to interest expense over the term of the convertible debt instrument using the effective interest rate method. Revenue recognition The Company primarily derives revenue from the sale of services to customers executing contracts in which the standard contract term is one year, although terms may vary by contract. Most of the Company’s contracts are non-cancelable over the contractual term. The majority of the Company’s usage-based contracts commit the customer to a minimum monthly level of usage and specify the rate at which the customer must pay for actual usage above the monthly minimum. The Company also offers subscriptions to access a unified security web application at a fixed rate. The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) 606, where revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The processing and recording of certain revenue requires a manual process, which uses a complex set of procedures to generate complete and accurate data to record these revenue transactions. The Company enters into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. 104 The Company’s contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Performance obligations generally represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by the Company. These obligations can be network services, security, compute, professional services, support, and other edge cloud platform services. Accordingly, the Company’s revenue is recognized over time, consistent with the pattern of benefit provided to the customer over the term of the agreement. For contracts with multiple performance obligations that are delivered over different time periods, the Company allocates the contract transaction price to each performance obligation using the estimated standalone selling price ( “ SSP”) of each distinct good or service in the contract. Judgment is required to determine the SSP for each distinct performance obligation. The Company analyzes separate sales of its products and services or the discounted list price per management’s approved price list as a basis for estimating the SSP of these products and services. In instances where SSP is not directly observable, such as when the Company does not sell the product or service separately, the Company determines the SSP using information that may include market conditions and other observable inputs. The Company typically has more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances. In these instances, the Company may use information, such as geographic region and distribution channel, in determining the SSP. The transaction price in a contract for usage-based services is typically equal to the minimum commit price in the contract plus any variable amounts of usage above the minimum commitment, less any discounts provided. The transaction price in a contract that does not contain usage-based services is equal to the total contract value. Because the Company’s typical contracts represent distinct services delivered over time with the same pattern of transfer to the customer, usage-based consideration primarily related to actual consumption over the minimum commit levels is allocated to the period to which it relates. The amount of consideration recognized for usage above the minimum commit price is limited to the amount the Company expects to be entitled to receive in exchange for providing services. The Company has elected to apply the practical expedient for estimating and disclosing the variable consideration when variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation from its remaining performance obligations under these contracts. For contracts to which such practical expedient cannot be applied, consideration is estimated. For custom arrangements, other methods may be used as a measure of progress towards satisfying the performance obligations. Revenue on the Company’s subscription services are recognized ratably over their respective contractual term. At times, customers may request changes that either amend, replace, or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts should be accounted for as a separate contract or as a prospective modification. In contracts where there are timing differences between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service, the Company has determined its contracts do not include a significant financing component. The Company has also elected the practical expedient to not measure financing components for any contract where the timing difference is less than one year. Cost of Revenue Cost of revenue consists primarily of fees paid to network providers for bandwidth and to third-party network data centers for housing servers, also known as colocation costs. Cost of revenue also includes employee costs for network operation, build-out and support and services delivery, network storage costs, cost of managed services and software-as-a-service, depreciation of network equipment used to deliver services, and amortization of network-related internal-use software. The Company enters into contracts for bandwidth with third-party network providers with terms of typically one year . These contracts generally commit the Company to pay minimum monthly fees plus additional fees for bandwidth usage above the committed level. The Company enters into contracts for colocation services with third-party providers with terms typically ranging from one to six years . 105 Research and Development Costs Research and development costs consist of primarily payroll and related personnel costs for the design, development, testing, and enhancement of the Company’s edge cloud platform. Research and development expenses also include cloud infrastructure fees for development and testing. Costs incurred in the development of the Company’s edge cloud platform are expensed as incurred, excluding those expenses which meet the criteria for the capitalization of internal-use software. Advertising Expense The Company recognizes advertising expense as incurred. The Company recognized total advertising expense of approximately $ 5.8 million, $ 4.6 million and $ 2.5 million for the years ended December 31, 2024, 2023, and 2022, respectively. Accounting for Stock-Based Compensation The Company recognizes stock-based compensation expense based on the grant-date fair value of the awards. The fair values of the restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and performance stock awards (“PSUs”) are based on the fair value of the Company’s stock price on the grant date. The fair values of stock options and employee stock purchase program (“ESPP”) are based on the Black-Scholes option-pricing model. The fair value of the market-based performance stock awards (“MPSUs”) is measured using a Monte Carlo simulation valuation model. The determination of the fair value of a stock-based award is affected by the deemed fair value of the underlying stock price on the grant date, as well as assumptions regarding a number of other complex and subjective variables, including expected term and stock price volatility of the awards. Stock-based compensation expense for awards with service-based vesting only is recognized on a straight-line basis over the requisite service period of the awards, which is generally three or four years . In addition to service-based conditions, stock-based compensation expense for awards that have performance-based or market-based conditions are recognized over the requisite service period for each separately-vesting tranche as though each tranche of the award is its own separate grant, which results in an accelerated recognition of compensation cost. The Company accounts for forfeitures as they occur. Foreign Currency The functional currency of the Company’s foreign subsidiaries is the U.S. dollar. The monetary assets and liabilities that are denominated in a currency other than the U.S. dollar of the Company’s foreign subsidiaries are remeasured into U.S. dollars at the exchange rate on the balance sheet date, while non-monetary items are remeasured at historical rates. Revenue and expenses are remeasured at average exchange rates during the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other income (expense), net in the consolidated statements of operations. The aggregate transaction gain or loss for the years ended December 31, 2024, 2023 and 2022 is included in the determination of net income for the period and was not material to the respective periods. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of 106 their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations and consolidated statement of comprehensive loss. Accrued interest and penalties are included in accrued expenses on the consolidated balance sheet. Net Loss Per Share Attributable to Common Stockholders Basic and diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders adjusts basic earnings per share for the potentially dilutive impact of stock options, restricted stock units, restricted stock awards, shares issuable under its employee stock purchase place and performance stock awards. The Company also applies the if-converted method for calculation of diluted earnings per share for its convertible debt instruments. As the Company has reported losses for all periods presented, all potentially dilutive securities are antidilutive and accordingly, basic net loss per share equals diluted net loss per share. Recently Issued and Adopted Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07 “Segment Reporting - Improvements to Reportable Segment Disclosures”, which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance. The guidance is effective for the Company's annual periods beginning in 2024 and interim periods beginning in the first quarter of fiscal year 2025. The Company adopted the standard on December 31, 2024. For further information, refer to Note 14 Segment and Geographic Information in the accompanying notes to the consolidated financial statements. In December, 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The guidance is effective for the Company's annual periods beginning in 2025. The Company is currently evaluating the impact of the new guidance and intends to adopt the guidance prospectively when it becomes effective in 2025. In November 2024, the FASB issued ASU 2024-03 “Disaggregation of Income Statement Expenses,” which aims to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. The guidance is effective for the Company's annual periods beginning in 2027 and interim periods beginning in the first quarter of fiscal year 2028. The Company is currently evaluating the impact of the new guidance. In November 2024, the FASB issued ASU 2024-04 “Induced Conversions of Convertible Debt Instruments,” which amends ASC 470-202 to clarify the requirements related to accounting for the settlement of a debt instrument as an induced conversion. The guidance is effective for the Company's annual periods beginning in 2026 and interim periods within those annual reporting periods. The Company did not early adopt and is currently evaluating the impact of the new guidance. 107 3. Revenue Disaggregation of revenue Revenue by geography is based on the billing address of the customer. Aside from the United States, no other single country accounted for more than 10% of revenue for the years ended December 31, 2024, 2023 and 2022. The following table presents the Company’s net revenue by geographic region: Year ended December 31, 2024 2023 2022 (in thousands) United States $ 407,324 $ 370,424 $ 316,149 Asia Pacific 65,907 72,873 58,073 Europe 49,961 42,770 38,469 All other 20,484 19,921 20,034 Total revenue $ 543,676 $ 505,988 $ 432,725 The majority of the Company’s revenue is derived from enterprise customers, which are defined as customers with annualized current quarter revenue in excess of $ 100,000 . This is calculated by taking the sum of revenue for each customer within the quarter and multiplying it by four. The following table presents the Company’s net revenue for enterprise and non-enterprise customers: Year ended December 31, 2024 2023 2022 (in thousands) Enterprise customers $ 499,576 $ 464,452 $ 393,152 Non-enterprise customers 44,100 41,536 39,573 Total revenue $ 543,676 $ 505,988 $ 432,725 The Company reports its revenue by three product lines: Network Services, Security and Other. Network Services include solutions designed to improve performance of websites, apps, application programming interfaces (“APIs”) and digital media. Security includes products designed to protect websites, apps, APIs and users. Other includes Compute solutions that allow developers to build and deploy modern web applications on Fastly's edge cloud platform, and Observability solutions that provide real-time logs, data and metrics streamed from Fastly's edge platform for actionable insights. The following table presents the Company’s revenue by product line: Year ended December 31, 2024 2023 2022 (in thousands) Network Services $ 427,690 $ 405,116 $ 349,660 Security 103,037 92,864 77,841 Other 12,949 8,008 5,224 Total revenue $ 543,676 $ 505,988 $ 432,725 108 Contract balances The timing of revenue recognition may differ from the timing of invoicing to customers. The Company has an unconditional right to consideration when it invoices its customers and records a receivable. The Company records a contract asset, or unbilled receivable, when revenue is recognized prior to invoicing. The Company records a contract liability, or deferred revenue, when a contract is billed in advance of revenue being recognized. Deferred revenue pertains to amounts billed to customers for which revenue has not been recognized, which primarily consists of the unearned portions of billings for the Company’s security subscription services and the unearned portion of edge cloud platform usage. Amounts that have been invoiced for annual subscriptions, but not collected, are recorded in accounts receivable and in unearned revenue or in revenue depending on whether services have been delivered to the customer. The Company’s payment terms and conditions vary by contract type, and generally range from 30 to 90 days. The following table presents the Company’s contract assets and contract liabilities as of December 31, 2024 and 2023: As of December 31, 2024 As of December 31, 2023 (in thousands) Contract assets $ 1,072 $ 621 Contract liabilities $ 29,585 $ 38,150 The following table presents revenue recognized during the years ended December 31, 2024 and 2023 from amounts included in the contract liability at the beginning of the period: Year ended December 31, 2024 2023 (in thousands) Revenue recognized in the period from amounts included in contract liability at the beginning of the period $ 33,719 $ 28,616 Remaining performance obligations As of December 31, 2024, the aggregate amount of the transaction price in our contracts allocated to remaining performance obligations that are unsatisfied or partially unsatisfied was $ 244.4 million. This amount includes future committed revenue for periods within current contracts with customers, as well as deferred revenue arising from consideration invoiced for which the related performance obligations have not been satisfied. The Company has elected to not provide certain information about its remaining performance obligations for service contracts with an original contract duration of one year or less. As of December 31, 2024, the Company expects to recognize approximately 80 % of its remaining performance obligations over the next 12 months. The Company’s typical contractual term with its customers is one year, although terms may vary by contract. Costs to obtain a contract As of December 31, 2024 and December 31, 2023, the Company’s costs to obtain contracts were as follows: As of December 31, 2024 As of December 31, 2023 (in thousands) Deferred contract costs, net $ 52,583 $ 61,981 During the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 18.6 million, $ 15.5 million and $ 8.9 million of amortization related to deferred contract costs, respectively. These costs are recorded within sales and marketing expenses on the accompanying consolidated statements of operations. 109 4. Investments and Fair Value Measurements The Company’s total cash, cash equivalents and marketable securities consisted of the following: As of December 31, 2024 2023 (in thousands) Cash and cash equivalents: Cash $ 52,951 $ 21,269 U.S. Treasury securities — 52,830 Money market funds 233,224 21,166 Commercial paper — 12,656 Total cash and cash equivalents $ 286,175 $ 107,921 Marketable securities: U.S. Treasury securities $ — $ 73,448 Corporate notes and bonds 6,008 105,566 Commercial paper 3,699 25,934 Agency bonds — 9,851 Total marketable securities, current $ 9,707 $ 214,799 Corporate notes and bonds — 5,999 Asset-backed securities — 89 Total marketable securities, non-current $ — $ 6,088 Total marketable securities $ 9,707 $ 220,887 Total cash, cash equivalents and marketable securities $ 295,882 $ 328,808 110 The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to cash and cash equivalents and available-for-sale securities on the accompanying consolidated balance sheets as of December 31, 2024 and December 31, 2023: As of December 31, 2024 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value (in thousands) Cash and cash equivalents: Money market funds $ 233,224 $ — $ — $ 233,224 Marketable securities: Corporate notes and bonds 6,005 3 — 6,008 Commercial paper 3,699 — — 3,699 Total available-for-sale investments $ 242,928 $ 3 $ — $ 242,931 As of December 31, 2023 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value (in thousands) Cash and cash equivalents: U.S. Treasury securities $ 52,824 $ 6 $ — $ 52,830 Commercial paper 12,663 — ( 7 ) 12,656 Marketable securities: U.S. Treasury securities 73,444 8 ( 4 ) 73,448 Corporate notes and bonds 112,487 9 ( 931 ) 111,565 Commercial paper 25,946 — ( 12 ) 25,934 Asset-backed securities 89 — — 89 Agency bonds 9,854 — ( 3 ) 9,851 Total available-for-sale investments $ 287,307 $ 23 $ ( 957 ) $ 286,373 There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive income (loss) into other income (expense), net as of December 31, 2024 and December 31, 2023. For the years ended December 31, 2024, 2023 and 2022, the Company did not record any impairment charges for its marketable debt securities in its consolidated statements of operations. No impairment loss has been recorded on the securities as the Company does not intend to sell any impaired securities, nor is it more likely than not that the Company would be required to sell impaired securities before recovery of amortized cost basis. Fair Value of Financial Instruments For certain of the Company’s financial instruments, including cash held in banks, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables below. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities; 111 Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3—Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation. The Company measures its cash equivalents, marketable securities, and restricted cash at fair value. The Company classifies its cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The Company classifies its investments, which are comprised of corporate notes and bonds, commercial paper, U.S. treasury securities, agency bonds, foreign government and supranational securities and asset-backed securities within Level 2 of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments. Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments: As of December 31, 2024 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents: Money market funds $ 233,224 $ — $ — $ 233,224 Total cash equivalents 233,224 — — 233,224 Marketable securities: Corporate notes and bonds — 6,008 — 6,008 Commercial paper — 3,699 — 3,699 Total marketable securities — 9,707 — 9,707 Total financial assets $ 233,224 $ 9,707 $ — $ 242,931 As of December 31, 2023 Level 1 Level 2 Level 3 Total (in thousands) Cash equivalents: Money market funds $ 21,166 $ — $ — $ 21,166 U.S. Treasury securities — 52,830 — 52,830 Commercial paper — 12,656 — 12,656 Total cash equivalents 21,166 65,486 — 86,652 Marketable securities: U.S. Treasury securities — 73,448 — 73,448 Corporate notes and bonds — 111,565 — 111,565 Commercial paper — 25,934 — 25,934 Asset-backed securities — 89 — 89 Agency bonds — 9,851 — 9,851 Total marketable securities — 220,887 — 220,887 Restricted cash: Restricted cash, current 150 — — 150 Total restricted cash 150 — — 150 Total financial assets $ 21,316 $ 286,373 $ — $ 307,689 112 The Company did no t have a restricted cash balance as of December 31, 2024. Restricted cash was $ 0.2 million as of December 31, 2023. The restricted cash balance consisted of letters of credit related to lease arrangements that were collateralized by the Company’s cash. The amount as of December 31, 2023 was classified as current on the Company’s consolidated balance sheets. There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the years ended December 31, 2024 and 2023. 5. Business Combinations Glitch, Inc. On May 18, 2022, the Company acquired 100 % of the voting equity interest of Glitch, Inc. (“Glitch”), a software company specializing in developer project management tools, for $ 34.9 million in cash, of which $ 8.0 million was held back as security for indemnification claims under the terms of the merger agreement (“Holdback”). During the year ended December 31, 2023, $ 4.1 million of the Holdback was distributed to certain shareholders of Glitch, and during the year ended December 31, 2024, the remaining $ 3.8 million of the Holdback, net of indemnification claims, was distributed. The acquisition expands the Company’s brand awareness within the developer community and bolsters the Company’s existing product offerings by making it easier to innovate at a layer in the Company’s software stack. The Company accounted for the transaction as a business combination. The purchase price was preliminarily allocated based on the estimated fair value of the identified intangible assets of $ 2.0 million, cash of $ 1.6 million and other net assets of $ 0.6 million, and goodwill of $ 32.5 million. The goodwill was primarily attributed to the value of synergies created with the acquisition of Glitch’s technology offering. Goodwill is not deductible for income tax purposes. Identifiable finite-lived intangible assets were comprised of the following (in thousands): Total Estimated useful life (in years) Developed technology $ 630 4 Customer relationships 760 3 Trade name 610 4 Total intangible assets acquired $ 2,000 For the year ended December 31, 2022, we incurred $ 2.0 million in acquisition-related expenses. The acquired intangible assets have a total weighted average amortization period of 3.6 years. From the date of the acquisition, the financial results of Glitch have been included in and are not material to the Company’s consolidated financial statements. Pro forma revenue and results of operations have not been presented because the historical results are not material to the consolidated financial statements in any period presented. 113 6. Balance Sheet Information Allowance for Credit Losses The activity in the accounts receivable reserves is as follows: As of December 31, 2024 2023 2022 (in thousands) Beginning balance $ 7,054 $ 5,029 $ 3,311 Additions to the reserves 3,834 2,025 2,406 Write-offs and adjustments ( 2,634 ) — ( 688 ) Ending balance $ 8,254 $ 7,054 $ 5,029 Property and Equipment, Net Property and equipment, net consisted of the following: As of December 31, 2024 2023 (in thousands) Computer and networking equipment $ 237,148 $ 224,313 Leasehold improvements 8,139 8,605 Furniture and fixtures 2,153 2,142 Office equipment 1,218 1,228 Internal-use software 123,849 97,623 Property and equipment, gross 372,507 333,911 Accumulated depreciation and amortization ( 193,410 ) ( 157,303 ) Property and equipment, net $ 179,097 $ 176,608 During the year ended December 31, 2024, the Company recognized an impairment charge of $ 2.8 million related to equipment and an internal-use software project that the Company does not plan to continue with and therefore abandoned. During the year ended December 31, 2023, the Company recognized an impairment charge of $ 4.3 million, of which $ 3.0 million related to property and equipment, net and $ 1.3 million related to advance payments for the purchase of property and equipment. The write-off was primarily related to excess computer and networking equipment including software the Company does not expect to use and therefore abandoned. Impairment charges are included within impairment expense in the consolidated statements of operations. Depreciation on property and equipment for the years ended December 31, 2024, 2023 and 2022 was $ 54.0 million, $ 51.6 million, and $ 42.6 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of $ 17.0 million, $ 14.0 million and $ 8.6 million for the years ended December 31, 2024, 2023 and 2022, respectively. As of December 31, 2024 and 2023, the unamortized balance of capitalized internal-use software costs on the Company’s consolidated balance sheets was approximately $ 79.5 million and $ 62.6 million, respectively. The Company leases certain networking equipment from various third parties through equipment finance leases. The Company’s networking equipment assets as of December 31, 2024 and 2023 , included a total of $ 73.2 million and $ 74.7 million acquired under finance lease agreements, respectively. These leases are capitalized in property and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of the associated networking equipment assets under finance leases totaled $ 52.2 million and $ 40.1 million as of December 31, 2024 and 2023 , respectively. 114 Other Assets Other assets consisted of the following: As of December 31, 2024 2023 (in thousands) Deferred contract costs, net $ 52,583 $ 61,981 Advance payment for purchase of property and equipment 9,837 24,509 Other assets 5,982 4,289 Total other assets $ 68,402 $ 90,779 Accrued Expenses Accrued expenses consisted of the following: As of December 31, 2024 2023 (in thousands) Accrued compensation and related benefits $ 12,700 $ 14,918 Accrued bonus 6,566 24,614 Accrued colocation and bandwidth costs 15,317 14,362 Other tax liabilities 4,266 4,344 Other accrued expenses 2,773 3,580 Total accrued expenses $ 41,622 $ 61,818 Other Current Liabilities Other current liabilities consisted of the following: As of December 31, 2024 2023 (in thousands) Deferred revenue $ 26,511 $ 33,824 Accrued computer and networking equipment 743 1,673 Holdback payable — 3,771 Other current liabilities 2,053 1,271 Total other current liabilities $ 29,307 $ 40,539 115 Accumulated Other Comprehensive Loss The following table summarizes the changes in accumulated other comprehensive loss, which is reported as a component of stockholders’ equity: Foreign Currency Translation Unrealized gain/(loss) for available-for-sale investments Accumulated Other Comprehensive Income (Loss) (in thousands) Balance at December 31, 2021 $ ( 322 ) $ ( 2,305 ) $ ( 2,627 ) Other comprehensive loss ( 255 ) ( 6,404 ) ( 6,659 ) Balance at December 31, 2022 $ ( 577 ) $ ( 8,709 ) $ ( 9,286 ) Other comprehensive loss 565 7,713 8,278 Balance at December 31, 2023 $ ( 12 ) $ ( 996 ) $ ( 1,008 ) Other comprehensive income — 908 908 Balance at December 31, 2024 $ ( 12 ) $ ( 88 ) $ ( 100 ) There were no material reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2024, 2023, and 2022. Additionally, there was no material tax impact on the amounts presented. 7. Leases The Company has operating leases for corporate offices and data centers (“colocation” leases), and finance leases for networking equipment. The Company’s operating leases have remaining lease terms ranging from less than 1 year to 5 years, some of which include options to extend the leases. The Company’s finance leases have remaining lease terms less than 1 year. The Company also subleases a portion of its corporate office spaces. The Company’s subleases have remaining lease terms ranging from 1 year to 5 years. Sublease income was $ 1.4 million, $ 1.2 million, and $ 0.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. The components of lease cost were as follows: As of December 31, 2024 2023 2022 (in thousands) Operating lease cost: Operating lease cost $ 26,581 $ 26,996 $ 30,976 Variable lease cost 17,003 15,112 11,736 Total operating lease cost $ 43,584 $ 42,108 $ 42,712 Finance lease cost: Amortization of assets under finance lease $ 13,521 $ 14,391 $ 14,539 Interest 378 1,328 2,381 Total finance lease cost $ 13,899 $ 15,719 $ 16,920 The short-term lease costs were not material for the years ended December 31, 2024, 2023 and 2022. During the year ended December 31, 2024, the Company recognized an impairment charge of $ 1.7 million related to right-of-use assets, of which $ 1.3 million was related to the Company exiting a certain office facility and is included within the impairment expense line in the Company's consolidated statements of operations. During the years ended December 31, 2023 and 2022, the Company recognized impairment on its operating lease right-of-use assets of $ 0.7 million and $ 2.1 million, respectively. 116 As of December 31, 2024 2023 2022 (in thousands) Weighted Average Remaining Lease term (in years): Operating leases 2.84 3.48 4.09 Finance leases 0.32 1.00 1.74 Weighted Average Discount Rate: Operating leases 6.36 % 6.03 % 5.36 % Finance leases 4.67 % 4.67 % 4.73 % Future minimum lease payments under non-cancellable leases as of December 31, 2024 were as follows: Operating Leases Finance Leases (in thousands) Year ending December 31, 2025 $ 29,120 $ 2,344 2026 23,796 — 2027 14,669 — 2028 3,778 — 2029 1,842 — Thereafter 442 — Total future minimum lease payments $ 73,647 $ 2,344 Less: imputed interest ( 6,127 ) ( 16 ) Total liability $ 67,520 $ 2,328 As of December 31, 2024, the Company has undiscounted commitments of $ 2.8 million for operating leases that have not yet commenced, and therefore are not included in the right-of-use asset or operating lease liability. These operating leases will commence in the first quarter of 2025 with lease terms of 3 years. 8. Goodwill and Intangible Assets Goodwill The changes in the carrying amount of goodwill for th e years ended December 31, 2024 and 2023 are as follows : Year ended December 31, 2024 2023 (in thousands) Beginning balance $ 670,356 $ 670,185 Foreign currency translation and other adjustments — 171 Ending balance $ 670,356 $ 670,356 The goodwill acquired from business combinations are from the Company’s acquisition described in Note 5 — Business Combinations. During the year ended December 31, 2024, the Company identified certain triggering events, including a sustained decrease in our stock price and market capitalization and performed an interim and an annual fair value assessment, as of June 30, 2024 and October 31, 2024, respectively, of its one single reporting unit by using a combination of income and market approaches and concluded that the estimated fair value of our single reporting unit substantially exceeded its carrying value. 117 During the year ended December 31, 2022, the Company identified certain triggering events, including a sustained decrease in our stock price and market capitalization and performed an annual fair value assessment, as of October 31, 2023, of its one single reporting unit by using a combination of income and market approaches and concluded that the estimated fair value of our single reporting unit substantially exceeded its carrying value. The Company did not record an impairment charge on goodwill for the fiscal years ended December 31, 2024, 2023 and 2022. Intangible Assets, net As of December 31, 2024 and December 31, 2023, the Company’s intangible assets consisted of the following: As of December 31, 2024 As of December 31, 2023 Gross carrying value Accumulated amortization Net carrying value Gross carrying value Accumulated amortization Net carrying value (in thousands) Intangible assets: Customer relationships $ 69,860 $ ( 37,364 ) $ 32,496 $ 69,860 $ ( 28,473 ) $ 41,387 Developed technology 50,130 ( 42,482 ) 7,648 50,130 ( 32,424 ) 17,706 Trade names 3,910 ( 3,694 ) 216 3,910 ( 3,542 ) 368 Internet protocol addresses 4,984 ( 2,468 ) 2,516 4,984 ( 1,970 ) 3,014 Total intangible assets $ 128,884 $ ( 86,008 ) $ 42,876 $ 128,884 $ ( 66,409 ) $ 62,475 The Company’s customer relationships, developed technology, trade names and Internet protocol addresses represent intangible assets subject to amortization. Amortization expense was $ 19.6 million, $ 20.4 million and $ 21.7 million, for the years ended December 31, 2024, 2023 and 2022, respectively. The Company did not purchase any intangible assets during the years ended December 31, 2024 and 2023. During the year ended December 31, 2022, the Company added $ 2.0 million of intangible assets from the acquisition of Glitch, which are subject to amortization. The Company did no t record any impairments during the years ended December 31, 2024, 2023 and 2022. The expected amortization expense of intangible assets subject to amortization as of December 31, 2024 is as follows: As of December 31, 2024 (in thousands) 2025 $ 16,976 2026 9,193 2027 9,051 2028 6,891 2029 378 Thereafter 387 Total $ 42,876 118 9. Debt Instruments Senior Secured Credit Facilities Agreement On February 16, 2021, the Company entered into a Senior Secured Credit Facilities Agreement (“Credit Agreement”) with the lenders from time to time party thereto (the “Lenders”) and Silicon Valley Bank, as a lender and as administrative agent and collateral agent for the Lenders, for an aggregate commitment amount of $ 100.0 million with a maturity date of February 16, 2024. The Company recorded $ 0.6 million of debt issuance costs associated with the Credit Agreement in other assets on the Company’s consolidated balance sheet. The Credit Agreement originally bore interest at a rate per annum equal to the sum of LIBOR for the applicable interest period plus 1.75 % to 2.00 %, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. On June 28, 2023, the Company entered into the First Amendment to Credit Agreement with the Lenders and First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A. (as successor to Silicon Valley Bank)), as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, amended the interest rate provisions of the Credit Agreement to replace LIBOR with the Secured Overnight Finance Rate (“SOFR”) as the interest rate benchmark. On February 16, 2024, the Company entered into the Second Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to June 14, 2024. On April 30, 2024, the Company entered into the Third Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to April 30, 2027 and decreased the commitment amount from $ 100.0 million to $ 60.0 million, including a $ 10.0 million sublimit for the issuance of letters of credit, and a swingline subfacility of up to $ 20.0 million. As amended, the revolving loans bear interest, at the Company’s election, at an annual rate based on SOFR or a base rate. Loans based on SOFR bear interest at a rate per annum equal to SOFR, plus an adjustment of 0.10 %, plus 1.75 % to 2.00 %, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. Loans based on the base rate bear interest at a rate per annum equal to the base rate plus 0.75 % to 1.00 %, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. Interest payments on outstanding borrowings are due on the last day of each interest period. The Credit Agreement has a commitment fee on the unused portion of the borrowing commitment, which is payable on the last day of each calendar quarter at a rate per annum of 0.20 % to 0.25 % depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement. In addition, the Company’s Credit Agreement contains a financial covenant that requires the Company to maintain a consolidated adjusted quick ratio of at least 1.25 tested on a quarterly basis as well as a springing revenue growth covenant for certain periods if the Company’s consolidated adjusted quick ratio falls below 1.75 on the last day of any fiscal quarter. The Credit Agreement requires the Company to comply with various affirmative and negative covenants, and contains customary events of default. As of December 31, 2024 and 2023, the Company was in compliance with all of the Credit Agreement’s covenants. During the years ended December 31, 2024 and 2023, no amounts were drawn down on the Company’s Credit Agreement. As of the years ended December 31, 2024 and 2023, no amounts were outstanding under the Credit Agreement. Convertible Senior Notes due 2026 On March 5, 2021, the Company issued approximately $ 948.8 million aggregate principal amount of 0 % convertible senior notes due 2026 (the “2026 Notes”), including the exercise in full by the initial purchasers of their option to purchase up to an additional approximately $ 123.8 million principal amount of the 2026 Notes. The 2026 Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2026 Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased. The net proceeds from the issuance of the 2026 Notes were approximately $ 930.0 million after deducting the initial purchasers’ discounts and transaction costs. The Company may not redeem the 2026 Notes prior to March 20, 2024. On or after March 20, 2024, the Company may redeem for cash, all or any portion of the 2026 Notes, at the Company’s option, at a redemption price equal to 100 % of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the 119 redemption date, if the last reported sale price of the Company’s common stock has been at least 130 % of the conversion price for the 2026 Notes then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. No sinking fund is provided for the 2026 Notes. Holders of the 2026 Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2025, only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2026 Notes on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “Measurement Period”) in which the trading price, as defined in the indenture agreement governing the Note filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 5, 2021, per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) if the Company calls such 2026 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the applicable redemption date, but only with respect to the 2026 Notes called (or deemed called) for redemption; or (iv) upon the occurrence of specified corporate events. On or after December 15, 2025 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 9.7272 shares of common stock per $1,000 principal amount of 2026 Notes, equivalent to an initial conversion price of approximately $ 102.80 per share of common stock. The conversion rate is subject to adjustment as described in the indenture governing the 2026 Notes but will not be adjusted for any accrued and unpaid special interest. In addition, following certain corporate events that occur prior to the maturity date of the 2026 Notes or if the Company delivers a notice of redemption in respect of the 2026 Notes, the Company will, in certain circumstances, increase the conversion rate of the 2026 Notes for a holder who elects to convert its 2026 Notes, in connection with such a corporate event or convert its 2026 Notes called (or deemed called) for redemption during the related redemption period, as the case may be. The indenture includes customary covenants and sets forth certain events of default after which the 2026 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the 2026 Notes become automatically due and payable. If the Company undergoes a fundamental change, as defined in the indenture agreement governing the 2026 Notes, then subject to certain conditions and except as described in the indenture governing the 2026 Notes, holders may require the Company to repurchase for cash all or any portion of their 2026 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2026 Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. The Company evaluated the terms of the 2026 Notes and concluded that the conversion feature does not require separation and that there were no other derivatives that required separation. As such, the Company has combined these features with the host contract and the Company accounts for the 2026 Notes as a single liability in long-term debt on its consolidated balance sheet. The initial purchasers’ discounts and transaction costs of $ 18.6 million incurred related to the issuance of the 2026 Notes were classified as a contra-liability and represents the difference between the principal and carrying amount of the 2026 Notes, which is amortized to interest expense using the effective interest method over the term of the 2026 Notes. As of December 31, 2024, the conversion conditions had not been met and therefore the 2026 Notes were not yet convertible. On May 25, 2022, the Company entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to repurchase (the “Repurchases”) $ 235.0 million aggregate principal amount of the 2026 Notes for an aggregate cash repurchase price of $ 176.4 million and aggregate transaction costs of $ 0.7 million. The Repurchases were accounted for as a debt extinguishment that resulted in a net gain of $ 54.4 million, which was recorded as non-operating income on the Company's consolidated statement of operations for the year ended December 31, 2022. 120 During the year ended December 31, 2023, the Company entered into several separate privately negotiated transactions with certain holders of the 2026 Notes to repurchase $ 367.3 million aggregate principal amount of the 2026 Notes for an aggregate cash repurchase price of $ 309.1 million and aggregate transaction costs of $ 2.0 million. During the year ended December 31, 2024, the Company entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to exchange $ 157.9 million aggregate principal amount of the 2026 Notes for $ 150.0 million aggregate principal amount of 7.75 % convertible senior notes due 2028 (the “2028 Notes”), which were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The exchange was accounted for as a debt extinguishment and an issuance of new debt that resulted in a net gain of $ 1.4 million, which was recorded as non-operating income on the Company’s consolidated statement of operations for the year ended December 31, 2024. Convertible Senior Notes due 2028 The 2028 Notes will accrue interest at a rate of 7.75 % per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2025. The 2028 Notes will mature on June 1, 2028, unless earlier converted or repurchased. The principal amount of the 2028 Notes was $ 150.0 million. The Company may not redeem the 2028 Notes prior to the maturity date. Holders of the 2028 Notes may convert their notes at their option at any time prior to the close of business on the business day immediately preceding March 1, 2028, only under the following circumstances: (i) during any calendar quarter commencing after the calendar quarter ending on March 31, 2025 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price for the 2028 Notes on each applicable trading day; (ii) during the five business day period after any ten consecutive trading day period (the “Measurement Period”) in which the trading price, as defined in the indenture agreement governing the note filed with the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 5, 2024, per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (iii) upon the occurrence of specified corporate events. On or after March 1, 2028 and prior to the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes at any time, regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election. The initial conversion rate is 50.6568 shares of common stock per $1,000 principal amount of 2028 Notes, equivalent to an initial conversion price of approximately $ 19.74 per share of common stock. The conversion rate is subject to adjustment as described in the indenture governing the 2028 Notes but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date of the 2028 Notes, the Company will, in certain circumstances, increase the conversion rate of the 2028 Notes for a holder who elects to convert its 2028 Notes, in connection with such a corporate event. The indenture includes customary covenants and sets forth certain events of default after which the 2028 Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving the Company after which the 2028 Notes become automatically due and payable. If the Company undergoes a fundamental change, as defined in the indenture agreement governing the 2028 Notes, then subject to certain conditions and except as described in the indenture governing the 2028 Notes, holders may require the Company to repurchase for cash all or any portion of their 2028 Notes at a fundamental change repurchase price equal to 100 % of the principal amount of the 2028 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The Company evaluated the terms of the 2028 Notes and concluded that the conversion feature does not require separation and that there were no other derivatives that required separation. As such, the Company has combined these features with the host contract and the Company accounts for the 2028 Notes as a single liability in long-term debt on its consolidated balance sheet. The Company determined the fair value of the 2028 Notes on December 5, 2024 to be $ 155.7 million using valuation technique of quoted prices in dealer markets under market approach that resulted in a debt premium of $ 5.7 million. Transaction costs of $ 5.8 million incurred related to the issuance of the 2028 Notes, partially offset by the aforementioned premium, were recorded as contra-liability and represents the difference between the principal and the carrying amount of the 2028 Notes, which is amortized to interest expense using the effective interest method over the term of the 2028 Notes. 121 As of December 31, 2024, the conversion conditions had not been met and therefore the 2028 Notes were not yet convertible. The following table reflects the carrying values of the debt agreements as of December 31, 2024 and 2023 as follows : Year ended December 31, 2024 2023 (in thousands) Convertible Senior notes (effective interest rate of 0.38 % for both the years ended December 31, 2024 and 2023 for the 2026 Notes and an effective interest rate of 7.77 % for the year ended December 31, 2024 for the 2028 Notes) Principal amount $ 338,594 $ 346,489 Less: unamortized debt issuance costs ( 980 ) ( 2,982 ) Less: current portion of long-term debt — — Long-term debt, less current portion $ 337,614 $ 343,507 For the years ended December 31, 2024, 2023 and 2022, interest expense related to the Company’s debt obligations was $ 2.3 million, $ 2.7 million, and $ 3.4 million respectively. As of December 31, 2024 and 2023, the total estimated fair value of the Company's convertible senior notes were $ 327.7 million and $ 301.4 million, respectively. 10. Commitments and Contingencies Purchase Commitments As of December 31, 2024, the Company had long-term commitments for cost of revenue related agreements (i.e., bandwidth usage, peering and other managed services with various networks, fixed asset vendors, Internet service providers and other third-party vendors). The Company also has non-cost of revenue long-term commitments for various non-cancelable agreements. Aside from the Company’s finance and operating lease commitments, including its colocation operating commitments, which have been disclosed in Note 7—Leases, the minimum future commitments related to the Company’s purchase commitments as of December 31, 2024 were as follows: Cost of Revenue Commitments Operating Expense Commitments Total Purchase Commitments (in thousands) 2025 $ 39,905 $ 7,366 $ 47,271 2026 13,535 6,870 20,405 2027 1,058 1,065 2,123 2028 70 200 270 2029 18 — 18 Total $ 54,586 $ 15,501 $ 70,087 Sales and Use Tax The Company conducts its operations in many tax jurisdictions throughout the United States. In some of these jurisdictions the Company is subject to indirect taxes, such as sales and use taxes, and may be subject to certain other taxes. In accordance with GAAP, the Company has recorded a provision for its tax exposure in these jurisdictions when it is both probable that a liability has been incurred and the amount of the exposure can be reasonably estimated. The Company has accrued $ 4.3 million as of both December 31, 2024 and 2023, for sales and use tax. These estimates are based on several key assumptions, including the taxability of the Company’s operations and the jurisdictions in which the Company believes it has nexus. In the event these jurisdictions challenge the Company’s assumptions and analysis, its actual exposure could differ materially from its current estimates. 122 Legal Matters From time to time, the Company has been and may be subject to legal proceedings and claims. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues for contingencies when it believes that a loss is probable and that the Company can reasonably estimate the amount of any such loss. On May 24, 2024, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of California, captioned Ken Kula v. Fastly, Inc., et al. (Case No. 4:24-cv-03170), naming the Company and certain of its officers as defendants. Motions for lead plaintiff were filed on July 23, 2024. On August 22, 2024, the court appointed lead plaintiff ("Lead Plaintiff") and lead counsel. On November 1, 2024, Lead Plaintiff filed an amended complaint. The amended complaint alleges violations of Section 10(b) and 20(a) of the Exchange Act purportedly on behalf of all those who purchased or acquired Fastly securities between November 15, 2023 and August 7, 2024. The complaint seeks unspecified compensatory damages, and other relief. Defendants filed a motion to dismiss on January 15, 2025. It is possible that additional lawsuits will be filed, or allegations made by stockholders, regarding these same or other matters and also naming as defendants the Company and its officers and directors. On June 12, 2024, certain of the Company’s officers and directors were named as defendants in a stockholder derivative action filed in the United States District Court for the Northern District of California, captioned Roy v. Nightingale, et al. (Case No. 3:24-cv-03549-JCS). On July 1, 2024, a stockholder derivative complaint was also filed against certain of the Company's officers and directors in the same court, captioned Steffens v. Nightingale et al. (Case No. 4:24-cv-03984-DMR). The derivative complaints are based on substantially similar allegations as those in the securities class action. The derivative complaints assert that defendants breached their fiduciary duties as directors and/or officers of the Company, as well as claims of unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, violations of Section 14(a) of the Exchange Act, and contribution under Sections 10(b) and 21D of the Exchange Act. On September 17, 2024, the court consolidated and stayed the derivative actions until after resolution of the Company’s motion to dismiss in the above-referenced securities class action. On August 23, 2024, a substantially similar stockholder derivative complaint was filed against certain of the Company’s officers and directors in the United States District Court for the District of Delaware, captioned Mark Sweitzer v. Nightingale, et al. (Case No. 1:24-cv-00969-GBW) (the “Sweitzer Action”). On September 26, 2024, the court stayed the Sweitzer Action until after resolution of the Company's motion to dismiss in the above-referenced securities class action. On December 20, 2024, a substantially similar stockholder derivative complaint was filed against certain of the Company’s officers and directors in the United States District Court for the District of Delaware, captioned Bushansky v. Nightingale, et al. (Case No. 2024-1322) (the “Bushansky Action”). On January 8, 2024, the court stayed the Bushansky Action until after resolution of the Company's motion to dismiss in the above-referenced securities class action. It is possible that additional lawsuits will be filed, or allegations made by stockholders, regarding these same or other matters and also naming as defendants the Company and its officers and directors. The Company is also party to various disputes that management considers routine and incidental to its business. Management does not expect the results of any of these routine actions to have a material effect on the Company's business, results of operations, financial conditions, or cash flows. The pending lawsuits and any other related lawsuits are subject to inherent uncertainties, and the actual defense and disposition costs will depend upon many unknown factors. The outcome of the pending lawsuits and any other related lawsuits is necessarily uncertain. The Company could be forced to expend significant resources in the defense of the pending lawsuits and any additional lawsuits, and it may not prevail. In addition, the Company may incur substantial legal fees and costs in connection with such lawsuits. The Company is not currently able to estimate the possible cost to it from these matters, as the pending lawsuits are currently at an early stage, and it cannot be certain how long it may take to resolve the pending lawsuits or the possible amount of any damages that it may be required to pay. Such amounts could be material to the Company's financial statements if the Company does not prevail in the defense against the pending lawsuits and any other related lawsuits, or even if it does prevail. As of December 31, 2024, the Company has not recorded any significant accruals for loss contingencies associated with the above mentioned lawsuits as it does not believe an outcome resulting in a loss is probable. It will accrue for loss contingencies if it becomes both probable that it will incur a loss and if the Company can reasonably estimate the amount or range of the loss. 123 Indemnification The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with its provision of its services. Generally, these obligations are limited to claims relating to infringement of a patent, copyright, or other intellectual property right, breach of the Company’s security or data protection obligations, or its negligence, willful misconduct, or violation of law. Subject to applicable statutes of limitation, the term of these indemnification agreements is generally for the duration of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company carries insurance that covers certain third-party claims relating to the Company’s services and could limit its exposure in that respect. The Company has agreed to indemnify each of its officers and directors during his or her lifetime for certain events or occurrences that happen by reason of the fact that the officer or director is, was, or has agreed to serve as an officer or director of the Company. The Company has director and officer insurance policies that may limit its exposure and may enable it to recover a portion of certain future amounts paid. To date, the Company has not encountered material costs as a result of such indemnification obligations and has not accrued any related liabilities in its financial statements. In assessing whether to establish an accrual, the Company considers such factors as the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. 11. Stockholders’ Equity Common Stock The Company’s Amended and Restated Certificate of Incorporation, as amended and restated in May 2019, authorizes the issuance of 1.0 billion shares of common stock, each at a par value per share of $ 0.00002 . Holders of common stock are entitled to one vote per share. Equity Incentive Plans The Company maintains four equity incentive plans: the 2019 Equity Incentive Plan (the “2019 Plan”), 2011 Equity Incentive Plan (“2011 Plan”), Employee Stock Purchase Plan and the Signal Sciences Corp. 2014 Stock Option and Grant Plan, as amended (the “Signal Plan”). The 2019 Plan became effective in May 2019 and replaced the 2011 Plan. The Company’s 2019 Plan provides for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units (“RSUs”), restricted stock awards, performance-based stock awards (“PSUs”), and other forms of equity compensation, which are collectively referred to as stock awards to its employees, directors, and consultants. The Signal Plan includes 251,754 registered shares which can be exercised to purchase shares of Fastly’s common stock. As of December 31, 2024 and 2023, there were 6.9 million and 8.9 million common stock available for issuance under the 2019 Plan, respectively. As of December 31, 2024 and 2023, 142.1 million and 133.0 million shares of common stock were issued and outstanding, respectively. Stock Options Options granted under the 2011 Plan and 2019 Plan are exercisable for common stock and generally expire within 10 years from the date of grant and generally vest over four years , at the rate of 25 % on the first anniversary of the date of grant and ratably on a monthly basis over the remaining 36-month period thereafter based on continued service. Forfeitures are recognized as they occur. 124 The following table summarizes stock option activity during the year ended December 31, 2024: Number of Shares Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) (in years) (in thousands) Outstanding at December 31, 2023 2,710 $ 8.14 5.1 $ 26,383 Granted — — Exercised ( 293 ) 3.80 Forfeited ( 53 ) 11.93 Outstanding at December 31, 2024 2,364 $ 8.60 4.3 $ 7,592 Vested and exercisable at December 31, 2024 1,950 $ 6.93 3.3 $ 7,592 The total pre-tax intrinsic value of options exercised during the years ended December 31, 2024, 2023, and 2022 was $ 1.9 million, $ 3.1 million, and $ 8.9 million, respectively. The total grant date fair value of employee options vested for the years ended December 31, 2024, 2023, 2022 was $ 1.9 million, $ 2.1 million, and $ 5.6 million, respectively. The weighted-average grant date fair value for options granted to employees during the years ended December 31, 2023 was $ 10.97 . The Company did not grant any options for the years ended December 31, 2024. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Company did not grant any options for the years ended December 31, 2024. The Company estimated the fair value of stock option awards during the year ended December 31, 2023 on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions: Year ended December 31, 2023 Fair value of common stock $ 16.47 Expected term (in years) 5.96 Risk-free interest rate 4.67 % Expected volatility 71.2 % Dividend yield — % During the years ended December 31, 2024 and 2023, and 2022, the Company recognized stock-based compensation expense from stock options of approximately $ 1.9 million, $ 2.1 million, and $ 6.1 million, respectively. As of December 31, 2024, total unrecognized stock-based compensation cost related to outstanding unvested stock options that are expected to vest was $ 4.3 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 2.6 years. Restricted Stock Units (“RSUs”) The Company began granting RSUs under the 2019 Plan during the fiscal year ended December 31, 2019. The fair value of RSUs is based on the grant date fair value and is expensed on a straight-line basis over the applicable vesting period. RSUs granted to new hires typically vest over three or four years , at the annual rate of 33 % or 25 %, respectively, on the first anniversary of the vesting start date and ratably on a quarterly basis over the remaining 24-month or 36-month period thereafter, respectively. RSUs granted to existing employees typically vest in equal quarterly installments over a three or four-year service period. All vesting is contingent on continued service. Forfeitures are recognized as they occur. 125 The following table summarizes RSU activity during the years ended December 31, 2024: Number of Shares Weighted-Average Grant Date Fair Value Per Share (in thousands) Nonvested RSUs as of December 31, 2023 11,244 $ 17.46 Granted 10,434 11.62 Vested ( 7,497 ) 16.87 Cancelled/forfeited ( 2,199 ) 16.27 Nonvested RSUs as of December 31, 2024 11,982 $ 13.06 During the years ended December 31, 2024, 2023 and 2022, the weighted-average grant date fair value for RSUs granted was $ 11.62 , $ 15.80 and $ 14.63 per share, respectively. During the years ended December 31, 2024, 2023 and 2022, the total weighted-average grant date fair value of RSUs vested was $ 126.5 million, $ 127.3 million and $ 97.9 million, respectively. During the years ended December 31, 2024, 2023 and 2022, the Company recognized stock-based compensation expense related to RSUs of $ 96.7 million, $ 105.2 million and $ 98.5 million, respectively. As of December 31, 2024, total unrecognized stock-based compensation cost related to non-vested RSUs was $ 141.6 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 2.2 years. Stock Subject to Revest (“Revest Shares”) In conjunction with a prior acquisition in fiscal 2020, a restriction was placed on 896,499 shares belonging to the three co-founders of the target which are subject to revesting on a quarterly basis over a 2-year period. The Company did no t recognize any stock-based compensation expense related to revest shares for the years ended December 31, 2024 and 2023. For the year ended December 31, 2022, the Company recognized stock-based compensation expense related to revest shares of $ 27.6 million. As of December 31, 2024, there is no unrecognized stock-based compensation cost related to revest shares. On January 24, 2022, the Company entered into an agreement with certain holders of restricted stock, who had sold their awards in advance of their vesting conditions, in order to return the proceeds associated with the remaining 224,124 unvested shares as of December 31, 2021. These stockholders are eligible to continue vesting under the original agreements as long as they have continued service as either an employee or consultant. On January 31, 2022, the Company received $ 10.7 million from these stockholders related to the settlement of the matter, which the Company classified as unrestricted cash on its consolidated balance sheets. This amount will similarly be returned to the holders in accordance with the vesting under the original agreements. Correspondingly, the Company reclassified the award from equity to liability as the award will now be settled for the fixed monetary amount received, rather than a release of the restrictions on shares. The modification did not result in any incremental expense to be recognized. In February 2022, one of the stockholders had a change in employment status and the Company accelerated the remaining stock-based compensation associated with his awards on his last day of service as an employee as his services under the modified arrangement were not substantive. For the year ended December 31, 2022, the Company recognized stock-based compensation expense of $ 5.6 million associated with the modification of these awards, which is included in the total stock-based compensation expense. For the years ended December 31, 2024 and 2023, the Company did no t recognize any stock-based compensation expense associated with the modification of these awards. 126 Performance-Based Restricted Stock Units ("PSUs") Performance stock awards for executive officers ("executive PSUs”) In February 2022, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of executive PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2022. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees’ requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period. In March and May, 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of executive PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2023. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees’ requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period. In February 2024, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of PSUs, which are to vest based on the level of achievement of certain Company-wide targets related to the Company’s operating plan for the fiscal year 2024. The Company has accounted for these awards as equity-based awards and will recognize stock-based compensation expense over the employees' requisite service period based on the expected attainment of the Company-wide targets as of the end of each reporting period. Number of Shares Weighted-Average Grant Date Fair Value Per Share (in thousands) Nonvested executive PSUs as of December 31, 2023 732 $ 16.49 Granted 909 12.60 Vested ( 277 ) 16.48 Cancelled/forfeited ( 275 ) 16.62 Nonvested executive PSUs as of December 31, 2024 1,089 $ 13.21 For the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 3.5 million, $ 4.3 million, and $ 1.4 million of stock-based compensation expense associated with these awards, respectively. Company-wide Bonus Program (“Bonus Program”) In February 2022, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2022. Shares awarded under the program were paid out in February 2023 in fully vested RSUs and based on the final attainment of Company-wide performance targets which were tied to its operating plan for fiscal year 2022. The Company recognized stock-based compensation expense over the employees requisite service period, based on the final attainment of the Company-wide targets. In February 2023, the Company paid out the bonus liability associated with the 2022 Bonus Program in 1.2 million of restricted stock units, and correspondingly recorded a charge to additional paid-in-capital of $ 16.6 million. In March 2023, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2023. Shares awarded under the program were paid out in February 2024 in fully vested RSUs and based on the final attainment of Company-wide performance targets which were tied to its operating plan for fiscal year 2023. The Company recognized stock-based compensation expense over the employees requisite service period, based on the final attainment of the Company-wide targets. In February 2024, the Company paid out the bonus liability associated with the 2023 Bonus Program in 1.9 million of restricted stock units, and correspondingly recorded a charge to additional paid-in-capital of $ 26.8 million. In February 2024, the Compensation Committee approved a company-wide bonus program, including performance targets, to most of the Company’s employees on active payroll in fiscal year 2024. Shares awarded under the program will be in fully vested RSUs and will be based on the final attainment of Company-wide performance targets which are tied to its operating plan for fiscal year 2024. The payout of the 2024 Company-wide bonus program will vary linearly between 50 %, 100 % and 150 % based on the achievement of these targets. Employees are required to be employed through the payout date to 127 earn the awards. The Company has accounted for these awards as liability-based awards, since the monetary value of the obligation associated with the award is based predominantly on a fixed monetary amount known at inception, and it has an unconditional obligation that it must or may settle by issuing a variable number of its equity shares. The Company is recognizing the stock-based compensation expense over the employees requisite service period, based on the expected attainment of the Company-wide targets as of the end of each reporting period. During the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 10.0 million, $ 24.7 million and $ 14.9 million of stock-based compensation expense associated with the Bonus Programs, respectively. Market-Based Performance Stock Awards (“MPSUs”) In September 2022 and January 2023, pursuant to the Company’s 2019 Equity Incentive Plan, the Company granted certain employees shares of MPSUs, which are to vest upon the satisfaction of the Company’s achievement of specified Fastly common stock price targets during the applicable performance period. In addition, the awards are subject to each recipient’s continuous service through each applicable vest dates. The Company measured the fair value of the MPSUs using a Monte Carlo simulation valuation model. The risk-free interest rates used were 3.37 % - 3.68 %, which were based on five-year US treasury yield, adjusted to a continuous time basis. The expected volatility was a blended volatility rate of 80 %, which incorporated both the Company’s observed equity volatility and the relevant guideline company volatility. Number of Shares Weighted-Average Grant Date Fair Value Per Share (in thousands) Nonvested MPSUs as of December 31, 2023 1,471 $ 6.46 Granted — — Vested — — Cancelled/forfeited ( 158 ) 6.56 Nonvested MPSUs as of December 31, 2024 1,313 $ 6.45 Stock-based compensation expense relating to the MPSUs are recognized using the accelerated attribution method over the derived service period. For the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 2.8 million, $ 5.9 million and $ 2.1 million of stock-based compensation expense associated with these awards, respectively. Total unrecognized stock-based compensation expense related to the unvested portion of the MPSUs was $ 1.9 million as of December 31, 2024. This expense is expected to be amortized over a weighted-average vesting period of 2.9 years. Employee Stock Purchase Program (“ESPP”) The ESPP allows eligible employees to purchase shares of the Company’s common stock through payroll deductions of up to 15 % of their eligible compensation. The ESPP provides for six-month offering periods, commencing in May and November of each year. At the end of each offering period employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the date of purchase. The Company estimates the fair value of shares to be issued under the ESPP on the first day of the offering period using the Black-Scholes valuation model. The inputs to the Black-Scholes option pricing model are the Company’s stock price on the first date of the offering period, the risk-free interest rate, the estimated volatility of the Company’s stock price over the term of the offering period, the expected term of the offering period and the expected dividend rate. Stock-based compensation 128 expense related to the ESPP is recognized on a straight-line basis over the offering period. Forfeitures are recognized as they occur. The Company estimated the fair value of shares granted under the ESPP on the first date of the offering period using the Black-Scholes option pricing model with the following assumptions: Year ended December 31, 2024 2023 2022 Fair value of common stock $ 2.33 – $ 3.56 $ 3.33 – $ 6.09 $ 8.40 – $ 11.85 Expected term (in years) 0.49 – 0.50 0.49 – 0.50 0.49 Risk-free interest rate 4.45 % – 5.40 % 4.65 % – 5.43 % 1.57 % – 4.65 % Expected volatility 54 % – 93 % 70 % – 88 % 88 % – 101 % Dividend yield — % — % — % During the years ended December 31, 2024, 2023 and 2022, the Company recognized $ 3.4 million, $ 4.1 million, and $ 3.2 million in stock-based compensation expense related to the ESPP, respectively. As of December 31, 2024, total unrecognized stock-based compensation cost related to ESPP was $ 0.1 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted-average period of approximately 0.4 years. During the years ended December 31, 2024, 2023 and 2022, an aggregate of 1.0 million, 1.0 million and 0.5 million shares of the Company’s common stock was purchased under the ESPP, respectively. Equity Awards Modification There were no material equity modifications in the year ended December 31, 2024. In September 2023, as part of one employee's separation and transition plan, the Company modified this employee’s outstanding equity awards in an amount that would have vested if this individual had remained an employee for an additional period of time. As a result of the modification, the Company recognized stock-based compensation expense of $ 2.0 million for the year ended December 31, 2023. In September 2022, as part of one employee's separation and transition plan, the Company modified this employee’s outstanding equity awards in an amount that would have vested if this individual had remained an employee for an additional period of time. As a result of the modification, the Company recognized stock-based compensation expense of $ 3.1 million for the year ended December 31, 2022. Stock-based Compensation Expense The following table summarizes the components of total stock-based compensation expense included in the accompanying consolidated statements of operations: Year ended December 31, 2024 2023 2022 (in thousands) Cost of revenue $ 8,644 $ 11,656 $ 12,050 Research and development 33,606 47,827 58,435 Sales and marketing 29,061 33,703 39,083 General and administrative 36,619 43,117 36,228 Total $ 107,930 $ 136,303 $ 145,796 129 For the years ended December 31, 2024, 2023 and 2022, the Company capitalized $ 10.3 million, $ 10.1 million, and $ 8.0 million of stock-based compensation expense, respectively. For the years ended December 31, 2024 and 2023, the Company recognized $ 10.0 million and $ 24.7 million of stock-based compensation expense associated with liability classified awards related to the company-wide Bonus Program, respectively. For the year ended December 31, 2022, the Company recognized $ 25.5 million of stock-based compensation expense associated with liability classified awards related to the company-wide Bonus Program and certain of the Company’s Revest Shares that were modified. 12. Net Loss Per Share Attributable to Common Stockholders Basic net loss per share is computed by dividing net loss by basic weighted-average shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by diluted weighted-average shares outstanding, including potentially dilutive securities. The following table presents the computation of basic and diluted net loss per share of common stock (in millions, except per share data): Year ended December 31, 2024 2023 2022 (in thousands, except per share amounts) Net loss attributable to common stockholders $ ( 158,058 ) $ ( 133,088 ) $ ( 190,774 ) Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted 138,099 128,770 121,723 Net loss per share attributable to common stockholders, basic and diluted $ ( 1.14 ) $ ( 1.03 ) ( 1.57 ) The following securities were excluded from the computation of diluted net loss per share of common stock for the periods presented as their effect would have been antidilutive: Number of Shares Year ended December 31, 2024 2023 2022 (in thousands) Stock options 2,364 2,710 2,443 RSUs 11,982 11,244 11,990 PSUs 1,089 732 267 MPSUs 1,313 1,471 2,174 Bonus PSUs 767 1,572 1,777 Shares issuable pursuant to the ESPP 70 410 186 Convertible senior notes (if-converted) 9,433 3,370 7,338 Total 27,018 21,509 26,175 130 13. Income Taxes Loss before income ta xes includes the following components: Year ended December 31, 2024 2023 2022 (in thousands) United States $ ( 161,398 ) $ ( 137,240 ) $ ( 196,469 ) Foreign 5,944 3,931 5,789 Loss before income taxes $ ( 155,454 ) $ ( 133,309 ) $ ( 190,680 ) The income tax expense (benefit) consists of the following: Year ended December 31, 2024 2023 2022 (in thousands) Current tax provision (benefit): Federal $ — $ — $ — State 200 57 ( 79 ) Foreign 611 622 173 Deferred tax expense (benefit): Federal — — — State — — — Foreign 1,793 ( 900 ) — Total tax expense (benefit) $ 2,604 $ ( 221 ) $ 94 Reconciliation between the Company’s effective tax rate on income from continuing operations and the U.S. federal statutory rate is as follows: Year ended December 31, 2024 2023 2022 Provision at federal statutory tax rate 21 % 21 % 21 % Change in valuation allowance ( 17 ) ( 25 ) ( 14 ) Foreign tax rate differential ( 1 ) 1 — Stock-based compensation ( 7 ) ( 4 ) ( 9 ) Research and development credits 4 10 2 Disallowed executive compensation ( 2 ) ( 3 ) — Restructuring — — — Effective tax rate ( 2 ) % — % — % 131 The Company recorded tax expense of $ 2.6 million and a tax benefit of $ 0.2 million for the years ended December 31, 2024 and 2023, respectively, and recorded tax expense of $ 0.1 million for the year ended December 31, 2022. The Company’s income tax expense (benefit) is primarily due to income taxes from certain foreign jurisdictions where the Company conducts business and state minimum income taxes in the United States. The Company’s deferred tax assets and liabilities were as follows: Year ended December 31, 2024 2023 (in thousands) Deferred tax assets: Net operating losses $ 183,824 $ 178,149 Lease liability 17,329 20,137 Research and development credits 46,759 38,280 Capitalized research and development 62,615 45,418 Stock-based compensation 6,924 11,765 Deferred revenue 5,158 4,934 Reserves and accruals 4,885 4,336 Other 4,582 1,889 Deferred tax assets 332,076 304,908 Intangible asset amortization ( 10,995 ) ( 16,310 ) Right-of-use asset ( 13,377 ) ( 15,322 ) State taxes ( 14,844 ) ( 13,032 ) Prepaid commissions ( 13,306 ) ( 13,868 ) Other ( 1 ) — Deferred tax liabilities ( 52,523 ) ( 58,532 ) Valuation allowance ( 279,204 ) ( 245,476 ) Net deferred tax (liabilities) assets $ 349 $ 900 As of December 31, 2024 and 2023 , t he Company had NOL carryforwards for U.S. federal income tax purposes of approximately $ 635.9 million and $ 626.4 million, respectively; and for state income tax purposes of approximately $ 621.0 million and $ 568.3 million, respectively. The federal NOL carryforwards, if not utilized, will begin to expire in 2034. The state NOL carryforward, if not utilized, will begin to expire on various dates starting in 2025. The Company also has federal and California research and development credit carryforwards totaling $ 50.8 million and $ 14.7 million as of December 31, 2024, respectively. The federal research and development credit carryforwards will begin to expire in 2027, unless previously utilized. The California research credits do not expire. As of December 31, 2024, the Company has NOL carryforwards for United Kingdom purposes of approximately $ 21.9 million. The UK NOL carryforwards do not expire. Based on all available evidence on a jurisdictional basis t he Company believes that it is more likely than not that the Company’s U.S. deferred tax assets will not be utilized and have recorded a full valuation allowance against its U.S. net deferred tax assets. The Company assesses on a periodic basis the likelihood that it will be able to recover its deferred tax assets. The Company considers all available evidence, both positive and negative, including historical losses. The Company determined that it is more likely than not that the U.S. net deferred tax assets will not be fully realizable for the years ended December 31, 2024 and 2023. T he Company has a valuation allowance for U.S. deferred tax assets, including NOL carryforwards. The Company expects to maintain this valuation allowance for the foreseeable future. During the year ended December 31, 2024, the valuation allowance related to the Company’s U.S. deferred tax assets increased by $ 33.7 million. 132 Utilization of the net operating loss carryforwards may be subject to a substantial annual limitation due to the ownership change limitations under the Code and similar state provisions. Under Section 382 of the Code, a corporation that undergoes an “ownership change” may be subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. A detailed analysis was performed through December 31, 2021 for the Company to determine whether an ownership change under Section 382 of the Code has occurred, and ownership changes were identified in 2013 and 2020. As a result of this analysis, the Company concluded that there is no longer any limitation on the utilization of such NOLs. A detailed analysis was performed for the period March 1, 2014 to October 1, 2020 for Signal Sciences to determine whether an ownership change under Section 382 of the Code has occurred and an ownership change was identified in 2020. As a result of this analysis, the Company concluded that there is no longer any limitation on its utilization of the NOLs of Signal Sciences. No provision for U.S. income and foreign withholding taxes has been made for these permanently reinvested foreign earnings because it is management’s intention to permanently reinvest such undistributed earnings outside the United States. A reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands): Year ended December 31, 2024 2023 Balance at beginning of year $ 23,245 $ 17,337 Increases related to prior year tax positions — 2,674 Decreases related to prior year tax positions ( 39 ) — Increases related to current year tax positions 2,797 3,234 Balance at end of year $ 26,003 $ 23,245 The Company has considered the amounts and probabilities of the outcomes that can be realized upon ultimate settlement with the tax authorities and determined unrecognized tax benefits primarily related to credits should be established as noted in the summary rollforward above. The unrecognized tax benefits, if recognized and in absence of full valuation allowance, would impact the income tax provision by $ 26.0 million and $ 23.2 million at December 31, 2024 and 2023, respectively. As of December 31, 2024, the Company believes that it is reasonably possible that its unrecognized tax benefits will decrease by $ 4.3 million in the following 12 months. The Company’s policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on its consolidated balance sheet. To date, t he Company has not recognized any interest and penalties in its consolidated statements of operations, nor has it accrued for or made payments for interest and penalties. Generally, in the U.S. federal and state taxing jurisdictions, tax periods in which certain loss and credit carryovers are generated remain open for audit until such time as the limitation period ends for the year in which such losses or credits are utilized. 14. Segment and Geographic Information Segment The Company operates as one single operating and reportable segment. The Chief Operating Decision Maker (“CODM”) is the Company's Chief Executive Officer (“CEO”), who reviews financial information presented on a consolidated basis, accompanied by disaggregated information about its revenue, for purposes of making operating decisions, assessing financial performance and allocating resources. Net loss is the Company's primary measure of profit or loss, and all costs and expenses categories on the Company's consolidated statements of operations, as well as share-based compensation, depreciation and amortization expenses, are significant. Refer to Note 11 for additional information about the Company's share-based compensation expense. Refer to Note 6 and 8 for additional information about the Company's depreciation and amortization expenses, respectively. The Company's other segment items include net gain on extinguishment of debt, interest income, interest expense, other expense, net and income tax expense (benefit) on the Company's consolidated statements of operations. 133 Revenue Revenue by geography is based on the billing address of the customer. Refer to Note 3—Revenue for more information on net revenue by geographic area. Long-Lived Assets The Company’s property and equipment and operating lease right-of-use assets, each net, by geographic area were as follows: As of December 31, 2024 2023 (in thousands) United States $ 169,285 $ 166,413 All other countries 60,245 65,407 Total long-lived assets $ 229,530 $ 231,820 15. Restructuring Charges During the year ended December 31, 2024, in an effort to streamline its organization, the Company initiated a restructuring plan to reduce expenses including a reduction of the Company’s workforce. In connection with this plan, the Company incurred charges of $ 9.7 million primarily consisting of employee-related severance and termination benefits. These charges are included within the restructuring charges line in the Company's consolidated statements of operations. The plan was substantially completed by December 31, 2024. The following table presents activity related to the liability, which is recorded in accrued expenses in the Company's consolidated balance sheet, for restructuring-related employee severance and benefits: Total (in thousands) Balance as of January 1, 2024 $ — Restructuring charges 9,720 Cash payments ( 9,560 ) Balance as of December 31, 2024 $ 160 134 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.