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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-26 · 121 added, 240 removed, 327 unchanged (52% of the section changed)

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Organizations around the world are more dependent on the quality of digital experiences they provide than ever before.

At Fastly, we deliver an edge cloud platform capable of delivering fast, safe, and engaging digital experiences.

By focusing holistically on the edge cloud from developer inspiration to end-user experience, we have the opportunity to differentiate with our global footprint, dynamic infrastructure, and security solution.

Performance, security, and building the most engaging applications are paramount to driving mission success for Fastly’s customers.

The edge cloud is a category of Infrastructure as a Service (“IaaS”) that enables developers to build, secure, and deliver digital experiences, at the edge of the Internet.

This service represents the convergence of the Content Delivery Network (“CDN”) with functionality that has been traditionally delivered by hardware-centric appliances such as Application Delivery Controllers (“ADC”), Web Application Firewalls (“WAF”), Bot Detection, Distributed Denial of Service (“DDoS”) and Observability solutions.

It also includes the emergence of a new, but growing, edge computing market which aims to move compute power and logic as close to the end user as possible.

When milliseconds matter, processing at the edge is an ideal way to handle highly dynamic and time-sensitive data.

This has led to its acceptance and adoption by organizations who monetize or grow their user base with every millisecond saved.

Organizations that want to improve their user experience, whether it’s faster loading websites or reduced shopping cart abandonment, can benefit from processing at the edge.

The edge cloud complements data center, central cloud, and hybrid solutions.

Organizations must keep up with complex and ever-evolving end-user requirements.

We help them surpass their end users’ expectations by powering fast, safe, and engaging digital experiences.

We built a powerful edge cloud platform, designed from the ground up to be programmable and support agile software development.

We believe that our platform gives our customers a significant competitive advantage, whether they were born into the digital age or are just embarking on their digital transformation journey.

Developers on the Fastly platform have a high degree of flexibility with granular control and real-time visibility, where they can write and deploy code in a serverless environment and push application logic to the edge.

Our infrastructure is built for the software-defined future.

Our network is powerful, efficient, and flexible, designed to enable us to rapidly scale to meet the needs of the most demanding customers.

Our approach to scalable, secure reliability integrates security into multiple layers of development:

architecture, engineering, and operations.

That’s why we invest in building security into the fabric of our platform, alongside performance.

We provide developers and security operations teams with a fast and safe environment to create, build, and run modern applications.

We serve established enterprises, mid-market companies, and technology-savvy organizations.

Our customers represent a diverse set of organizations across many industries with one thing in common:

they care about delivering best-in-class digital experiences.

With our edge cloud platform, our customers are disrupting existing industries and creating new ones.

For example, several of our customers have reinvented digital publishing by connecting readers through subscription models to indispensable content.

Fastly’s ability to dynamically manage content in real time enables readers to have instant access to the most up to date information.

Our customers’ ecommerce solutions use Fastly’s edge compute functionality to deliver very low-latency customer experiences, including providing better recommendations to their shoppers, converting more shopping carts into sales and executing fast and secure financial transactions.

Content streaming organizations leverage Fastly’s platform to deliver content

to users around the world and those that livestream gain easy access to enormous edge compute resources for even greater reliability.

The range of applications that developers build with our edge cloud platform continues to expand rapidly.

Our mission is to make the Internet a better place where all experiences are fast, safe, and engaging.

We want all developers to have the ability to deliver the next transformative digital experience on a global scale.

And because big ideas often start small, we love it when developers experiment and iterate on our platform, coming up with exciting new ways to solve today’s complex problems.

For the years ended December 31, 2024 and 2023, our revenue was $543.7 million and $506.0 million, respectively, an increase of 7%.

We incurred a net loss of $158.1 million and $133.1 million in the years ended December 31, 2024 and 2023, respectively.

Our 10 largest customers generated an aggregate of 33% and 37% of our revenue in the trailing 12 months ended December 31, 2024 and 2023, respectively.

No single customer accounted for more than 10% of revenue for the years ended December 31, 2024 and 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 in the streaming entertainment space generated an aggregate of 12% of the Company’s revenue for the year ended December 31, 2023.

As the internet approaches an inflection point where automated, artificial intelligence (“AI”)-driven traffic increases demands on infrastructure, Fastly is the essential platform to deliver resilient, highly performant, always-on software and services at global scale.

The edge cloud is a category of Infrastructure as a Service (“IaaS”) that enables software engineers to build, secure, and deliver digital experiences at the edge of the Internet.

Our platform represents the convergence of the Content Delivery Network (“CDN”) with functionality that has traditionally been delivered by hardware-centric appliances such as Application Delivery Controllers (“ADC”), Web Application Firewalls (“WAF”), API Management, Bot Detection, Distributed Denial of Service (“DDoS”), Web Application and API Protection (“WAAP”), and infrastructure protection.

Processing at the edge is an ideal way to handle highly dynamic and time-sensitive data, especially when performance matters.

Organizations of all sizes, including Fortune 500 companies that run 24/7 operations, leverage our edge cloud platform for a diverse range of critical functions that benefit from processing at the edge, including enhancing user experience, scaling agentic AI workloads, and powering core commerce capabilities to drive conversion and customer success.

The edge cloud complements data center, central cloud, and hybrid solutions, and is critical for responsive, safe, and secure AI-centric experiences.

Fastly focuses holistically on the edge cloud from developer creation to end-user experience, with our global footprint and integrated security core to our platform.

Our platform is poised to capitalize on the rise of agentic AI, where autonomous agent consumption is driving the bulk of internet traffic.

Fastly is uniquely positioned – and has laid the groundwork – to lead the intelligence fabric that helps enterprises adapt to this shift.

We are capturing this opportunity by supporting edge workloads and AI traffic management, allowing organizations to optimize AI-driven services alongside human interactions.

We play a unique role in helping enterprises optimize and accelerate interactions with authorized AI agents and blocking abuse, powering their differentiation and AI-fueled innovation.

Organizations must keep up with a complex and ever-evolving landscape.

We’ve built a powerful unified edge platform designed from the ground up to be programmable and support agile software development, and we continuously drive innovation to meet the ever changing needs of our customers.

We believe that our platform gives our customers a significant competitive advantage – whether they were born into the AI-centric digital age or are just embarking on their transformation journey.

We focus our direct selling efforts on expanding our customers ’ use of our platform, which includes companies that are exhibiting significant growth.

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For additional details on our key metrics, refer to the “Key Business Metrics” section.

We believe that an annual cohort analysis of Fastly’s customers, as depicted in the chart below, demonstrates the continued expansion of our customers’ use of our platform.

Once a customer begins to generate revenue for us, they tend to increase their usage of our platform, in particular in their second year.

Customer accounts acquired in 2020, 2021, 2022, 2023 and 2024 are referred to as the 2020 Cohort, 2021 Cohort, 2022 Cohort, 2023 Cohort, and 2024 Cohort, respectively.

We calculate the Compound Annual Growth Rate (“CAGR”), which represents the rate of revenue return of our revenue cohorts, over a five year history from when they were first customers.

Summary of Revenue Generated by Customer Cohorts Over Time (in millions):

Our 2020 Cohort increased its revenue 2.4 times in fiscal 2021 and has grown at approximately a 27% CAGR over the next four years from fiscal 2021 to fiscal 2024.

We generate substantially all of our revenue from charging our customers based on their usage of our platform, and we generate a substantial majority of our revenue from customers that have negotiated contracts with us.

Initially, customers typically choose to become platform customers, for which we charge fees based on their committed or actual use of our platform, as measured in gigabytes and requests.

Customers typically choose to utilize our platform for Network Services, for which we charge fees based on their committed or actual use of our platform, as measured in gigabytes and requests.

Many of our customers generate billings in excess of their minimum commitment.

We also generate revenue from additional products as well as professional and other services, such as implementation, account management and enhanced customer support.

We also generate revenue from Security and Other product lines, including Compute and Observability, as well as professional and other services, such as implementation, account management and enhanced customer support.

We charge a flat one-time or recurring monthly fee depending on the additional products and services selected.

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In addition, customers can sign up online by providing their credit card information and agreeing to a minimum monthly fee.

We also offer subscriptions to access a unified security web application and application programming interface at a fixed rate.

The majority of our revenue is usage based and changes in usage by our largest customers can create volatility in our revenue.

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The timing of new revenue from our sales efforts and changes in usage by our largest customers can make revenue difficult to predict.

For the years ended December 31, 2025 and 2024, our revenue was $624.0 million and $543.7 million, respectively, an increase of 15%.

We incurred a net loss of $121.7 million and $158.1 million in the years ended December 31, 2025 and 2024, respectively.

Our 10 largest customers generated an aggregate of 32% and 33% of our revenue in the trailing 12 months ended December 31, 2025 and 2024, respectively.

No single customer accounted for more than 10% of revenue for the years ended December 31, 2025 and 2024.

Affiliated customers that are business units of a single company generated an aggregate of 10% of the Company’s revenue for the year ended December 31, 2025.

No affiliated customers that are business units of a single company generated more than 10% of revenue for the year ended December 31, 2024.

Factors Affecting Our Performance

Winning New Customers

We are focused on continuing to attract new customers, including those in diverse vertical markets, and expanding our relationship with existing customers, by enhancing our product experience, investing in technology, and leveraging our partner ecosystem.

Our customer base includes large, established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals.

Developers within these companies often use and advocate for the adoption of our platform by their companies and promotion across the broader developer community.

We will continue to

invest in our products and features and developer outreach, leveraging it as a cost-efficient approach to attracting new customers, and our sales and marketing programs, including various online marketing activities as well as targeted account-based marketing.

We are continuing to bring a durable, consistent, and predictable pipeline of new innovations to our edge cloud platform and software-defined modern network architecture, and are seeing interest from customers in our existing product lines like Network Services and Security, and newer product lines like Compute and Observability.

We will continue to build out a single, unified platform, simplify customer onboarding and service usage, and simplify our pricing and packaging.

We are focused on continuing to attract new customers and expanding our relationship with existing customers by enhancing our product experience, investing in technology, and leveraging our partner ecosystem.

Our customer base ranges from emerging companies to large enterprises undergoing digital transformation across diverse industries and verticals.

Utilizing our direct sales force, we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers.

We will continue to increase our discretionary marketing spend, including account-based, targeted demand generation and brand spend, to drive the effectiveness of our sales teams.

As a result, we expect our total operating expenses to increase as we continue to expand.

A key component of our cost-efficient customer acquisition strategy is developer outreach, as developers often advocate for the adoption and promotion of our platform within their organizations and across the broader developer community.

We will also continue to build out a single, unified platform, simplify customer onboarding and service usage, and simplify our pricing and packaging.

This will require us to dedicate significant resources to further develop the market for our platform and differentiate our platform from competitive products and services.

We will also need to expand, retain, and motivate our sales and marketing personnel in order to target our sales efforts at larger enterprises and senior management of these potential customers.

Many jurisdictions have enacted laws on data localization and cross-border data transfers, and the evolving enforcement and interpretation of such laws has created uncertainty regarding data stored abroad and transferred across borders, which could impact customer growth and acquisition for customers and potential customers conducting business in Europe and elsewhere outside of the United States.

For additional details, refer to the section titled “Risk Factors.”

Expanding into New Markets and within Our Existing Customer Base

We aim to continue to add customers from a diverse set of industry verticals through our differentiated platform that offers a broad range of capabilities.

By focusing on our key differentiators, including performance and security, we have an opportunity to continue to add customers from a diverse set of industries.

We emphasize retaining our customers and expanding their usage of our platform and adoption of our other products.

Customers often begin with smaller deployments of one of our products and then expand their usage over time.

Our platform includes a variety of offerings across Network Services, Security, Compute and Observability product lines.

Our platform includes a variety of offerings across Network Services, Security, and Other product lines, including Compute and Observability.

As our customers mature, we assist them in expanding their use of our platform, including the use of additional offerings beyond content delivery or security.

As enterprises grow and experience increased traffic, their needs evolve, leading them to find additional use cases for our platform and expand their usage accordingly.

In addition, given that customer acquisition costs are incurred largely for acquiring and initial onboarding, we may gain operating leverage to the extent that existing customers expand their use of our platform and products.

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Even if our customers expand their usage of our platform, we cannot guarantee that they will maintain those usage levels for any meaningful period of time or that they will renew their commitments.

The data localization and cross-border data transfer issues described above also impact current customers ’ usage of our products and services.

In addition, we cannot be certain what actions the United States or another country’s government may take with respect to certain of our customers that may adversely affect our ability to do business with our customers that operate in China, target China as a market or that have strong business ties to China.

And any such governmental action could have a negative impact on our business.

In April 2024, President Biden signed into law a bill that would effectively ban TikTok in the United States if ByteDance, its China-based parent company, does not sell its stake in TikTok within a set time frame.

President Trump signed an executive order on January 20, 2025 instructing the Attorney General not to enforce the law or impose any penalties against any entity for noncompliance for a period of 75 days and to provide written guidance as to how the law will be implemented.

TikTok was one of our largest customers for the year ended December 31, 2024 and remains a customer of ours.

While the full impact of the legislation is unknown, it could eventually lead to a reduction in this customer’s United States traffic levels which could have a negative impact on our business.

We do not know whether or how ByteDance might restructure its business and how that may impact our traffic levels.

International Expansion

We intend to continue expanding our efforts to attract customers outside of the United States by augmenting our sales teams and strategically increasing our presence in the number of markets in select international locations.

Our international expansion, including our global sales efforts, continues to add increased complexity and cost to our business.

This requires us to continue to expand our sales and marketing capabilities outside of the United States, increase the number of markets we have a presence in around the world to support our customers, and manage the administrative aspects of

a global organization, each of which place a strain on our business and culture.

In addition, our bandwidth costs are higher in markets outside of the United States and Europe, which may impact our gross margins.

We are closely monitoring the unfolding events of the Russian invasion of Ukraine, as well as the more recent hostilities in Israel, and their global impacts.

While the conflicts are still evolving and the outcomes remain highly uncertain, we do not believe the Russia-Ukraine or Israel-Hamas conflicts will have a material impact on our business and results of operations.

In April 2024, under the prior administration, a bill was signed into law that would effectively ban TikTok in the United States if ByteDance, its China-based parent company, does not sell its stake in TikTok within a set time frame.

Following a series of executive orders in 2025 that suspended enforcement of this law, on January 22, 2026, ByteDance announced the establishment of TikTok USDS Joint Venture LLC in compliance with the law to secure United States user data, apps, and the algorithm through data privacy and cybersecurity measures.

TikTok was one of our largest customers for the year ended December 31, 2025 and remains a customer of ours.

We do not know how the restructuring may impact our traffic levels.

For additional details, refer to the section titled “Risk Factors.”

We are closely monitoring various global conflicts and developments, including, but not limited to, the conflict between Russia and Ukraine, as well as the hostilities in the Middle East, and their global impacts.

While the conflicts are still evolving and the outcomes remain highly uncertain, we do not believe the Russia-Ukraine, Israel-Hamas, or other conflicts will have a material impact on our business and results of operations.

We do not have Points of Presence (“POPs”) in Russia, Ukraine, or Israel.

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During times of war and other major conflicts, we, the third parties upon which we rely, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

If either conflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

Our customers operating in Russia, Ukraine, and Israel represented an immaterial portion of our consolidated revenue as of December 31, 2024 and 2023, respectively.

Investing in Sales and Marketing

Our customers have been pivotal in driving brand awareness and broadening our reach.

While we continue to leverage the self-service approach to drive adoption by developers, we will continue to expand our sales and marketing efforts, with an increased focus on sales to enterprises globally.

Utilizing our direct sales force, we have multiple selling points within organizations to acquire new customers and increase usage from our existing customers.

We will continue to increase our discretionary marketing spend, including account-based, targeted demand generation and brand spend, to drive the effectiveness of our sales teams.

As a result, we expect our total operating expenses to increase as we continue to expand.

Our investments in sales and marketing teams are intended to help accelerate our sales, onboarding, and ramp cycles.

These efforts will require us to continue to invest in sales and marketing resources.

Furthermore, we believe that there is significant competition for sales personnel with the skills and technical knowledge that we require.

Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training, and retaining sufficient numbers of sales personnel to support our growth.

Continued Investment in Our Platform and Network Infrastructure

If such conflicts continue or worsen, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

We must continue to invest in our platform and network infrastructure to maintain our position in the market.

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For the years ended December 31, 2025 and 2024, our research and development expenses as a percentage of revenue were 26% and 25%, respectively.

Our research and development expenses each period is impacted by the amount of software development costs that meet the criteria for capitalization.

Our research and development expenses in each period are impacted by the amount of software development costs that meet the criteria for capitalization.

We may also seek to acquire or invest in businesses, products, or technologies that we believe could complement or expand our platform, enhance our technical capabilities, or otherwise offer growth opportunities.

For example, in May 2022, we acquired Glitch, a software company specializing in developer project management tools to bolster our existing product offerings, by making it easier to innovate at a layer in the Fastly software stack.

Developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications.

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As we continue to experience growth, we may face challenges managing adequate server capacity in our POPs due to potential component delays, shortages, price increases, hardware efficiencies gained through internal development, or any potential changes in server architecture, including due to technological advances or obsolescence.

If we have server asset levels in excess of forecasted network capacity needs, we have in the past and may need to continue to write-down or write-off server assets.

Conversely, if we underestimate network

capacity needs, we may in future periods be unable to meet demand and be required to incur higher costs to secure necessary parts and components of our servers.

If we have server asset levels in excess of forecasted network capacity needs,

we have in the past and may need to continue to write-down or write-off server assets.

Conversely, if we underestimate network capacity needs, we may in future periods be unable to meet demand and be required to incur higher costs to secure necessary parts and components of our servers.

In addition, international trade disputes may further disrupt or delay our supply chain for these components or lead to pricing increases.

For example, the United States has imposed or indicated an intention to impose tariffs on certain countries which may lead to retaliatory actions such as counter-tariffs and increase production costs and disruptions in our supply chain.

The United States and other jurisdictions have also leveraged various trade and value chain requirements, including on environmental and social criteria, which may make sourcing more costly, require us to change suppliers, or otherwise adversely impact our operations.

Further, it is possible that government policy changes, including policy changes made with little to no advance notice, and related uncertainty about policy changes could increase market volatility.

If our supply of certain components is further disrupted or delayed, there can be no assurance that we will be able to obtain adequate replacements for the existing components or that supplies will be available on terms and prices that are favorable to us, if at all.

In the event that there are errors in software, failures of hardware, damages to a facility or misconfigurations of any of our services, whether caused by our own error, security breaches, third-party error, or natural disasters, we could experience lengthy interruptions in our platform availability as well as delays and additional expenses in arranging new facilities and services.

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The calculation of these key metrics below may differ from other similarly titled metrics used by other companies, analysts, or investors.

Effective as of the first quarter of 2024, we no longer consider Average Enterprise Customer Spend, Dollar-Based Net Expansion Rate, and Quarterly Net Retention Rate to be key business metrics.

We believe Average Enterprise Customer Spend to be redundant in light of our disclosure of Total Customer Count and Enterprise Customer Count.

Dollar-Based Net Expansion Rate and Quarterly Net Retention Rate were used infrequently by investors and are no longer used by management to manage and monitor the performance of our business.

In lieu of Quarterly Net Retention Rate, a measure that is seasonal and fluctuates frequently throughout the year, management believes LTM Net Retention Rate, which measures the last twelve-month period and removes seasonality, is a more accurate performance metric to monitor the business.

As such, we will no longer report those metrics because we do not believe they are material to an understanding of our business.

As of December 31,

Customer metrics:

Total Customer Count (based on current quarter revenue) 3,092 3,061

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98.7 % 99.0 %

Other key metrics:

Last-twelve Months Net Retention Rate (“LTM NRR”) 110.1 % 102.3 %

Remaining Performance Obligations (“RPO”) (in millions)

$ 353.8 $ 244.4

Total Customer Count

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We believe that the recruitment and cultivation of enterprise customers is critical to our long-term success.

Historically our revenue has been driven primarily by a subset of our customers, our enterprise customers, who have leveraged our platform substantially from a usage standpoint.

We believe that the recruitment and cultivation of enterprise customers is critical to our long-term success.

Our enterprise customer count is defined as customers with annualized current quarter revenue in excess of $100,000.

This is calculated by taking the revenue we recognized for each customer in the current quarter and multiplying it by four.

As of December 31, 2024, we had 596 of such enterprise customers which generated 93% of the total annualized current quarter revenue for our total customers for the period ended December 31, 2024.

As of December 31, 2023, we had 578 of such enterprise customers which generated 92% of the total annualized current quarter revenue for our total customers for the period ended December 31, 2023.

As of December 31, 2025, we had 628 enterprise customers which generated 94% of the total annualized current quarter revenue for our total customers for the period ended December 31, 2025.

As of December 31, 2024, we had 596 enterprise customers which generated 93% of the total annualized current quarter revenue for our total customers for the period ended December 31, 2024.

Annual Revenue Retention Rate (“ARR”)

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Many customers have tiered usage pricing which reflects discounted rates as usage increases.

For most contracts, usage charges are determined on a monthly basis based on actual usage within the month and do not impact usage charges within any other month.

For most contracts, usage charges are determined on a monthly basis based on actual usage

within the month and do not impact usage charges within any other month.

Our larger customers often enter into contracts that contain minimum billing commitments and reflect discounted pricing associated with such usage levels.

We report our revenue by three product lines:

We present our disaggregated revenue by three product lines:

Network Services, Security, and Other.

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General and administrative expenses consist primarily of personnel costs, including salaries, benefits, bonuses, and stock-based compensation for our administrative support personnel.

General and administrative expenses also include costs related to legal and other professional services fees, SaaS costs, an allocation of our general overhead expenses, credit losses and acquisition-related costs.

General and administrative expenses also include costs related to legal and other professional services fees, an allocation of our general overhead expenses, credit losses, and acquisition-related costs.

In the near term, we expect to continue to incur costs associated with supporting the growth of our business, including international expansion, but expect these costs to decrease as a percentage of our revenue over the long term as we continue to drive efficiencies in our operations.

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Impairment Expense

Our impairment expense relates to write-off charges for certain long-lived assets.

Our impairment expense relates to non-recurring charges for our long-lived assets.

Restructuring Charges

Our restructuring charges relate to a restructuring plan to reduce expenses including a reduction of our workforce.

The charges incurred consist primarily of employee-related severance and termination benefits.

Our restructuring charges relate to a 2024 restructuring plan to reduce expenses including a reduction of the Company’s workforce.

The charges incurred consist primarily of employee-related severance and termination benefits in connection with such 2024 workforce reduction.

Net Gain on Extinguishment of Debt

Our net gain on extinguishment of debt relates to the partial retirement of our outstanding senior convertible notes during the years ended December 31, 2024, 2023, and 2022.

Our net gain on extinguishment of debt relates to the partial retirement of our outstanding senior convertible notes.

Other Income and Expenses

Our interest income consists primarily of interest earned on our cash, cash equivalents, and investments.

Our interest expense consists primarily of the interest expense on our finance leases and amortization of discount and debt issuance costs associated with our debt obligations.

Our other income (expense), net, consists primarily of foreign currency transaction gains and losses.

Our interest expense consists primarily of the interest expense on our finance leases, amortization of discount, coupon interest expense, and debt issuance costs associated with our debt obligations.

Our other expense, net, consists primarily of foreign currency transaction gains and losses.

Our income tax expense (benefit) consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States.

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(721) (1,028)

Loss before income tax expense (benefit) (155,454) (133,309)

Income tax expense (benefit) 2,604 (221)

Loss before income tax expense

(119,189) (155,454)

Income tax expense

Net loss attributable to common stockholders $ (121,677) $ (158,058)

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Other expense, net

Loss before income tax expense (benefit) (29) (26)

Income tax expense (benefit) — —

Loss before income tax expense

Income tax expense

Net loss attributable to common stockholders (19) % (29) %

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Other revenue was $21.2 million for the year ended December 31, 2025, compared to $12.9 million for the year ended December 31, 2024, an increase of $8.2 million, or 64%.

The increase in Other revenue was primarily driven by further adoption of Compute solutions.

revenue was $407.3 million and 75% of revenue for the year ended December 31, 2024, and $370.4 million and 73% of revenue for the year ended December 31, 2023.

This represents an increase of $36.9 million, or 10%.

International revenue was $136.4 million and 25% of revenue for the year ended December 31, 2024, compared to $135.6 million and 27% of revenue for the year ended December 31, 2023.

This represents an increase of $0.8 million, or 1%.

The increase in Other revenue was primarily driven by further adoption of our Compute solutions.

Cost of Revenue

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Cost of revenue was $267.8 million for the year ended December 31, 2025 compared to $247.7 million for the year ended December 31, 2024, an increase of $20.1 million, or 8%.

The increase in cost of revenue is a result of an increase in bandwidth costs of $6.3 million, a $2.4 million increase in depreciation expense as a result of increased investments in our platform as well as an increase in repair and maintenance cost of $1.8 million.

There was also a $1.2 million increase in colocation costs, and a $1.1 million increase in personnel-related costs due to an increase in headcount.

This increase was partially offset by a decrease of $3.0 million in stock-based compensation expenses, a decrease of $1.3 million in software costs and a $0.6 million decrease in travel and entertainment expenses.

The increase in cost of revenue is a result of an increase in bandwidth costs of $8.0 million, a $5.5 million increase in amortization of capitalized software and a $4.4 million increase in software costs.

There was also a $3.9 million increase in colocation costs, a $1.7 million increase in depreciation expense as a result of increased investments in our platform, as well as a $1.5 million increase in stock-based compensation expenses.

This increase was partially offset by a $2.5 million decrease in intangible asset amortization, a $1.3 million decrease in personnel-related costs, a decrease in repair and maintenance cost of $0.6 million, as well as a $0.5 million decrease in network costs.

Gross Profit and Gross Margin

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Restructuring charges

— % 2 % (2) %

Research and Development

Research and development expenses were $138.0 million for the year ended December 31, 2024 compared to $152.2 million for the year ended December 31, 2023, a decrease of $14.2 million, or 9%.

This decrease was primarily due to a decrease of $12.2 million in stock-based compensation expense, a $6.0 million increase in capitalized software costs, a $2.8 million decrease in executive transition costs, as well as a $0.5 million decrease in colocation costs.

This decrease was partially offset by an increase of $5.8 million of personnel-related costs, such as salaries and benefits as well as a $1.5 million increase in software costs.

Research and development expenses were $162.7 million for the year ended December 31, 2025 compared to $138.0 million for the year ended December 31, 2024, an increase of $24.7 million, or 18%.

This increase was primarily due to a $10.8 million increase in stock-based compensation expense, a $9.2 million decrease in capitalized software, an increase of $5.7 million of personnel-related costs, as well as a $1.0 million increase in software costs.

This increase was partially offset by a $1.4 million decrease in travel and entertainment expense, as well as a $0.6 million decrease in corporate costs.

Sales and Marketing

Sales and marketing expenses were $201.4 million for the year ended December 31, 2025 compared to $198.6 million for the year ended December 31, 2024, an increase of $2.8 million, or 1%.

This increase was primarily due to a $14.4 million increase in personnel related costs, such as salaries, sales commissions and benefits.

The increase was also due to a $1.7 million increase in third party commissions as well as a $1.4 million increase in professional fees.

The increase was partially offset by a $4.6 million decrease in stock-based compensation expenses, a $4.4 million decrease in marketing expenses, a $0.8 million decrease in amortization expense as well as a $0.6 million decrease in travel and entertainment expenses.

This increase was primarily due to a $3.9 million increase in stock-based compensation expenses, a $0.7 million increase in marketing expenses, and a $0.5 million increase in third party commissions.

The increase was partially offset by a $0.8 million decrease in personnel related costs including sales commissions, a $0.6 million decrease in software costs, as well as a $0.5 million decrease in corporate costs.

General and Administrative

General and administrative costs were $110.7 million for the year ended December 31, 2025 compared to $113.4 million for the year ended December 31, 2024, a decrease of $2.7 million, or 2%.

The decrease was primarily due a $6.5 million decrease in stock-based compensation expenses as well as a $1.6 million decrease in professional fees.

The decrease was also due to a $0.8 million decrease in insurance expense as well as a $0.8 million increase in capitalized software costs.

This decrease was partially offset by an increase of $4.0 million in uncollected sales taxes, primarily due to a sales tax refund received in the prior year, a $1.8 million increase in bad debt expense and a $0.8 million increase in personnel related costs.

The decrease was primarily due to a $6.9 million decrease in stock-based compensation expenses as well as a $1.4 million decrease in personnel related costs.

This decrease was partially offset by a $2.8 million increase in professional service fees, a $1.3 million increase in corporate costs, as well as a $1.0 million increase in executive transition costs.

Impairment Expense

During the year ended December 31, 2024, we recognized an impairment charge of $4.1 million related to write-off of certain equipment, an internal-use software project as well as right-of-use assets.

During the year ended December 31, 2025, we recognized an impairment charge of $0.4 million, which primarily consisted of the write-off of intangible assets no longer in use.

During the year ended December 31, 2024, we recognized an impairment charge of $4.1 million related to property and equipment.

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Net gain on extinguishment of debt was $0.9 million for the year ended December 31, 2025 compared to $1.4 million for the year ended December 31, 2024, a decrease of $0.4 million, or 31%.

The decrease was primarily due to less convertible notes retired in the year ended December 31, 2024.

The decrease was primarily due to a lower aggregate principal amount of convertible notes retired in the year ended December 31, 2025.

Other Income and Expense

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Interest income was $12.3 million for the year ended December 31, 2025 compared to $14.9 million for the year ended December 31, 2024, a decrease of $2.6 million, or 17%.

This decrease was due to a decrease in the investment portfolio.

This decrease was primarily due to lower interest income on our cash equivalents and marketable security investments as a result of decreased interest rates.

Interest Expense

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Interest expense $ 12,699 $ 2,747 $ 9,952 362 %

Interest expense was $2.7 million for the year ended December 31, 2024 compared to $4.1 million for the year ended December 31, 2023, a decrease of $1.3 million, or 32%.

This decrease was primarily due to the repurchases that occurred during the years ended December 31, 2023 and December 31, 2024, which reduced the principal amount of our notes.

Other income (expense), net

Interest expense was $12.7 million for the year ended December 31, 2025 compared to $2.7 million for the year ended December 31, 2024, an increase of $10.0 million, or 362%.

This increase was primarily due to the coupon interest on our 2028 Notes issued in December 2024.

Other Expense, net

Year ended December 31, Change

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(in thousands)

Income tax expense (benefit)

Income tax expense

$ 2,488 $ 2,604 $ (116) 4 %

Income tax expense was $2.6 million for the year ended December 31, 2024 compared to income tax benefit of $0.2 million for the year ended December 31, 2023.

Income tax expense was $2.5 million for the year ended December 31, 2025 compared to $2.6 million for the year ended December 31, 2024.

The Company continues to maintain a full valuation allowance in the U.S.

and the tax expense (benefit) for the periods were primarily due to foreign tax expense.

and the tax expense for the periods were primarily due to foreign tax expense.

Liquidity and Capital Resources

As of December 31, 2025, we had cash, cash equivalents, and marketable securities totaling $361.8 million.

Our cash, cash equivalents, and marketable securities primarily consisted of money market funds, investment-grade commercial paper, corporate notes and bonds.

Our cash, cash equivalents, and marketable securities primarily consisted of money market funds, investment-grade commercial paper, corporate notes and bonds, U.S.

treasury securities, certificates of deposit, and municipal bonds.

As of December 31, 2025, we did not have any marketable securities classified as non-current.

To date, we have financed our operations primarily through equity issuances, payments received from customers, the net proceeds we received through sales of our debt securities, and proceeds from our convertible notes.

Our principal uses of cash in the near term have primarily been around funding our operations, our capital expenditures, business acquisitions, investments and fulfilling our debt and contractual commitments.

Our principal uses of cash in the near term have primarily been around funding our operations, our capital expenditures, business acquisitions, and investments and fulfilling our debt and contractual commitments.

We have also entered into longer term commitments to support our operations, including arrangements to directly lease and operate our infrastructure assets and colocation facilities.

We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.

We believe that our cash and cash equivalents balances, and available borrowing capacity under our credit facility, and the cash flows generated by our operations, net of the cash outflows used in our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

We have generated losses from operations in the past and expect to continue to incur operating losses for the foreseeable future due to the investments and strategic initiatives we intend to make to grow our business.

We believe that our cash and cash equivalents balances, available borrowing capacity under our credit facility, and the cash flows generated by our operations, net of the cash outflows used in our operations, will be sufficient to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months.

We have generated losses from operations in the past and may continue to incur operating losses for the foreseeable future due to the investments and strategic initiatives we intend to make to grow our business.

Our uses of cash beyond the next 12 months will depend on many factors, including the general economic environment in which we operate and our ability to generate cash flow from operations, which are uncertain.

We may also use our cash to buy back any outstanding debt on our convertible notes or on any future equity issuances.

Senior Secured Credit Facilities Agreement

On February 16, 2021, we entered into a Senior Secured Credit Facilities Agreement (as amended by that certain First Amendment to Credit Agreement, the “Credit Agreement”) with the lenders from time to time party thereto (the “Lenders”) and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as administrative agent, issuing lender and swingline lender (“SVB First-Citizens”), which provides for a $100.0 million senior secured revolving credit facility , with a maturity date of February 16, 2024.

Loans under the Credit Agreement bear interest at a rate per annum equal to at our option, the ABR (as defined in the Credit Agreement) or the Adjusted Term SOFR (as defined in the Credit Agreement), in each case, plus a margin based on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement and ranging from 0.75% to 1.00%, in the case of loans bearing interest at ABR, and 1.75% to 2.00%, in the case of loans bearing interest at Adjusted Term SOFR..

On February 16, 2024, we entered into the Second Amendment to Credit Agreement with the Lenders and SVB First-Citizens, which, among other things, extended the maturity date of the loans under the Credit Agreement to June 14, 2024.

On April 30, 2024, we entered into the Third Amendment to Credit Agreement with the Lenders and SVB First-Citizens, pursuant to which, among other things, we (a) reduced the commitments under the Credit Agreement to $60.0 million, (b) set the interest rate for loans bearing interest at ABR at 1.00% and loans bearing interest at Adjusted Term SOFR at 2.00%, and (c) extended the maturity date under the Credit Agreement to the earliest of (i) April 30, 2027, (ii) so long as any permitted convertible debt is outstanding, on January 30, 2027 unless Net Liquidity as of January 30, 2027 is greater than or equal to $200.0 million (or, if the amount of outstanding permitted convertible debt is less than $35.0 million, $120.0 million), January 30, 2027 and (iii) so long as any permitted convertible debt is outstanding after January 30, 2027, if Net Liquidity is less than $200.0 million (or, if the amount of outstanding permitted convertible debt is less than $35.0 million, $120.0 million), on such date.

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.

The Credit Agreement contains a financial covenant that requires us to maintain a consolidated adjusted quick ratio of at least 1:25 to 1:00 tested on a quarterly basis as well as a springing revenue growth covenant for certain periods if our consolidated adjusted quick ratio falls below 1.75 to 1:00 on the last day of any fiscal quarter.

As of December 31, 2024, we were in compliance with these covenants and we expect to continue to be in compliance for at least the next 12 months.

Senior Secured Credit Facilities Credit Agreement

In 2021, we entered into the Credit Agreement (as defined in Note 8 in our consolidated financial statements).

As of December 31, 2025, we were in compliance with the covenants described in Note 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K, and we expect to continue to be in compliance for at least the next 12 months.

During the year ended December 31, 2025 and 2024, no amounts were drawn down on the Credit Agreement.

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During the year ended December 31, 2024, we 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”) and aggregate transaction costs of $5.8 million.

The remaining 2026 Notes with an aggregate principal balance of $188.6 million will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

On December 9, 2025, we entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to repurchase $150.0 million aggregate principal amount of the 2026 Notes for an aggregate cash repurchase price of $148.9 million and aggregate transaction costs of $6.7 million.

On December 17, 2025, we also issued $180.0 million aggregate principal amount of 0% convertible senior unsecured notes due in 2030 (the “2030 Notes”) in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act.

In connection with the pricing of the issuance of the 2030 Notes, the Company entered into privately negotiated capped call transactions with certain counterparties (the “Capped Calls”).

The Capped Calls resulted in a $18.2 million outflow of cash.

Refer to Note 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

As of December 31, 2025 our material cash requirements include non-cancelable contractual obligations from the 2028 Notes, 2030 Notes, purchase commitments and lease obligations.

Refer to Notes 5, 6, and 8 to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding these material cash requirements.

In addition to the contractual obligations described above, as of December 31, 2025, we had a $7.7 million purchase commitment for equipment due within the next twelve months.

The following table summarizes our cash flows for the period indicated:

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(in thousands)

Net cash (used in) provided by operating activities $ 16,406 $ 362 $ (69,632)

Net cash provided by investing activities $ 178,900 $ 294,940 $ 235,751

Net cash used in financing activities $ (17,099) $ (331,380) $ (189,149)

Net cash provided by operating activities $ 94,444 $ 16,406 $ 362

Net cash (used in) provided by investing activities $ (213,032) $ 178,900 $ 294,940

Net cash (used in) provided by financing activities $ 12,761 $ (17,099) $ (331,380)

Cash Flows from Operating Activities

For the year ended December 31, 2025, cash provided by operating activities consisted primarily of our net loss of $121.7 million, adjusted for non-cash items of $239.0 million, and net cash flows used in operating assets and liabilities of $22.9 million.

The main drivers of the changes in operating assets and liabilities were $26.5 million of operating lease payments, an increase in other assets of $11.9 million related to deferred contract costs, an increase of $7.6 million in prepaid expenses and other current assets due to pre-payments for hosting services and software licenses, a $6.4 million decrease in other liabilities and a $2.9 million decrease in accrued expenses due to timing of payments.

The main drivers of the changes in operating assets and liabilities were $20.7 million of operating lease payments, an increase in other assets of $19.5 million related to deferred contract costs, a $18.0 million increase in other liabilities, a $6.2 million increase in accounts receivable, primarily due to an increase in revenue and the timing of cash receipts, a $4.5 million decrease in accounts payable due to timing of payments, and a decrease of $1.6 million in prepaid expenses and other current assets due to pre-payments for hosting services and software licenses.

For the year ended December 31, 2024, cash provided by operating activities consisted primarily of our net loss of $158.1 million, adjusted for non-cash items of $228.6 million, and net cash flows used in operating assets and liabilities of $54.1 million.

The main drivers of the changes in operating assets and liabilities were an increase in accounts receivable of

$32.9 million, primarily due to an increase in revenue and the timing of cash receipts, an increase in other assets of $23.1 million related to deferred contract costs as well as $22.1 million of operating lease payments.

For the year ended December 31, 2023, cash provided by operating activities consisted primarily of our net loss of $133.1 million, adjusted for non-cash items of $203.3 million, and net cash flows used in operating assets and liabilities of

$69.9 million.

The main drivers of the changes in operating assets and liabilities were an increase in accounts receivable of $32.9 million, primarily due to an increase in revenue and the timing of cash receipts, an increase in other assets of $23.1 million related to deferred contract costs as well as $22.1 million of operating lease payments.

This was partially offset by decreases of $8.7 million in prepaid expenses.

For the year ended December 31, 2022, cash used in operating activities consisted primarily of our net loss of $190.8 million, adjusted for non-cash items of $207.3 million, and net cash flows used in operating assets and liabilities of $86.2 million.

The main drivers of the changes in operating assets and liabilities were an increase in other assets of $35.4 million related to deferred contract costs, an increase in accounts receivable of $27.4 million, primarily due to an increase in revenue and the timing of cash receipts from certain of our larger customers and an increase of $6.8 million in prepaid expenses and other assets due to pre-payments for hosting services and software licenses.

We also had $27.0 million of operating lease payments.

There were also increases of $8.3 million in accrued expenses and $2.1 million in accounts payable and other liabilities due to timing of payments.

Cash Flows from Investing Activities

For the year ended December 31, 2025, cash used in investing activities was $389.8 million in purchases of marketable securities, $17.7 million of additions to capitalized internal-use software, and $28.7 million of payments related to purchases of property and equipment to expand our network.

This was offset by $223.1 million of maturities and sales of marketable securities.

For the year ended December 31, 2024, cash provided by investing activities was $178.9 million, primarily consisting of $371.2 million of maturities and sales of marketable securities.

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This was offset by $132.2 million in purchases of marketable securities, $21.3 million of additions to capitalized internal-use software, and $11.0 million of payments related to purchases of property and equipment to expand our network.

For the year ended December 31, 2022, cash provided by investing activities was $235.8 million, primarily consisting of $697.0 million of maturities and sales of marketable securities.

This was offset by $355.5 million in purchases of marketable securities, $42.2 million of advanced payments and $20.0 million of payments related to purchases of property and equipment to expand our network, $26.0 million related to business acquisitions and $18.1 million of additions to capitalized internal-use software.

Cash Flows from Financing Activities

For the year ended December 31, 2025, cash provided by financing activities was $12.8 million, primarily consisting of proceeds of $180.0 million from issuance of convertible notes, $7.0 million in proceeds from the employee stock purchase plan ( “ ESPP”), and $1.0 million in proceeds from stock option exercises by our employees and directors.

This was partially offset by $148.9 million paid for debt extinguishment, $18.2 million for purchase of capped calls, $5.9 million payment of debt issuance costs, and $2.3 million of finance lease liabilities repayments.

For the year ended December 31, 2024, cash used in financing activities was $17.1 million, primarily consisting of $15.0 million of finance lease liabilities repayments, $5.7 million payment of debt issuance costs and $3.8 million in payments for deferred consideration for business acquisitions.

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This was partially offset by $8.6 million in proceeds from the employee stock purchase plan ( “ ESPP”) and $2.2 million in proceeds from stock option exercises by our employees and directors.

For the year ended December 31, 2022, cash used in financing activities was $189.1 million, primarily consisting of $177.1 million used for the partial repurchase of our convertible debt and $22.5 million of finance lease liabilities repayments.

This was partially offset by $4.8 million in proceeds from the ESPP and $5.7 million in proceeds from stock option exercises by our employees and directors.

Contractual Obligations and Other Commitments

The following table summarizes our non-cancelable contractual obligations as of December 31, 2024:

Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Total

(in thousands)

Purchase obligations – non-equipment (1)

$ 43,320 $ 14,990 $ 288 $ — $ 58,598

Purchase obligations – equipment (2)

3,951 7,538 — — 11,489

Operating lease obligations (3)

29,120 38,465 5,620 442 73,647

Finance lease obligations (4)

2,344 — — — 2,344

Debt obligation (5)

— 188,594 150,000 — 338,594

Total $ 78,735 $ 249,587 $ 155,908 $ 442 $ 484,672

(1) Purchase obligations-non equipment represent total future minimum payments under contracts with our cloud infrastructure providers, network service providers, and other vendors.

Purchase obligations exclude agreements that are cancellable without penalty.

Our purchase obligations exclude our operating lease commitments associated with our colocation arrangements which have been separately disclosed under our operating lease obligations.

(2) Purchase obligations-equipment represent total future minimum payments under contracts for capital expenditures.

(3) Operating lease obligations represent total future minimum rent payments under non-cancelable operating lease agreements, such as our facilities and colocation (i.e.

data center) leases.

(4) Finance lease obligations represents principal and interest payments under our networking equipment leases.

(5) Debt obligation aggregate principal amount of our 0% convertible senior notes due on March 15, 2026 as well as our 7.75% convertible senior notes due on June 1, 2028.

These commitments will generally be settled with existing cash on hand, cash generated from operations and our current or any future financing arrangements.

Critical Accounting Estimates

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Revenue Recognition

We recognize revenue in accordance with ASC 606, where revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.

The processing and recording of certain revenue requires a manual process, which uses a complex set of procedures to generate complete and accurate data to record these revenue transactions.

We enter into contracts that can include various combinations of products and services, each of which are distinct and accounted for as separate performance obligations.

Our performance obligations generally represent stand-ready obligations that are satisfied over time as the customer simultaneously receives and consumes the benefits provided by us.

These obligations can be network services, security, compute, professional services, support, and other edge cloud platform services.

For contracts with multiple performance obligations that are delivered over different time periods, we allocate 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.

We analyze separate sales of our products and services or the discounted list price per our 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 we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs.

We typically have more than one SSP

for individual products and services due to the stratification of those products and services by customers and circumstances.

In these instances, we may use information, such as geographic region and distribution channel, in determining the SSP.

Stock-based Compensation Fair Value determination

We recognize compensation expense related to stock options based on the fair value of stock-based awards on the date of grant.

We determine the grant date fair value of the awards using the Black-Scholes option-pricing model.

The related stock-based compensation expense is recognized on a straight-line basis over the period in which an employee is required to provide service in exchange for the stock-based award, which is generally four years.

Our stock price volatility and expected option life involve management’s best estimates, both of which impact the fair value of the option calculated under the Black-Scholes option pricing model and, ultimately, the expense that will be recognized over the life of the option.

We recognize stock-based compensation expense related to market-based performance stock awards based on the grant-date fair value of the awards.

We determine the grant date fair value of the awards using the Monte Carlo simulation valuation model.

The related stock-based compensation expense is recognized on an accelerated attribution method over the derived service period.

The expected volatility was a blended volatility rate which incorporated both our observed equity volatility and our relevant guideline companies’ volatilities.

The derived service period and the expected volatility involve management’s best estimates, both of which impact the fair value of the option calculated under the Monte Carlo simulation valuation model and, ultimately, the expense that will be recognized over the life of the option.

Valuation of Goodwill and Other Acquired Intangible Assets in Business Combinations

We account for our 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.

Our 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, we 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 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.

Long-lived Assets Impairment

Long-lived assets, including property and equipment, are reviewed for impairment whenever events or changes in circumstances, such as service discontinuance, technological obsolescence, facility closures, planned use of the assets 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, we compare 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 the impairment is calculated as the difference between the carrying amount and the fair value of the asset or asset group.

The estimates required to apply this accounting policy include forecasted usage of the long-lived assets, the useful lives of these assets and expected future cash flows.

Goodwill Impairment

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.

We have a single operating segment and reporting unit structure for all of the periods presented.

To test for goodwill impairment, we compare the carrying value of our reporting unit with its fair value.

If the carrying value of the goodwill is considered impaired, a loss is measured as the excess of the reporting unit’s carrying value over the fair value.

Certain critical assumptions used to estimate the fair value of our reporting unit, including management’s forecasted revenue growth, gross and operating margins and cost of capital, are based on management’s best estimate about our current and future conditions.

These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of significant customer revenues or changes in competition.

If our stock price were to trade below book value per share for an extended period of time or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill in subsequent periods.

We recognize revenue in accordance with ASC 606, where revenue is recognized upon transfer of control of promised services to customers in an amount that reflects the consideration we expect to receive in exchange for those services.

The processing and recording of certain revenue requires a manual process, which uses a set of procedures to generate complete and accurate data to record these revenue transactions.

We enter into contracts that can include various combinations of services, each of which are distinct and accounted for as separate performance obligations.

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis