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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Akamai Technologies, Inc.    AKAM

AKAMAI TECHNOLOGIES, INC.

(AKAM)
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AKAMAI TECHNOLOGIES : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/07/2020 | 05:32pm EDT
This quarterly report on Form 10-Q, particularly Management's Discussion and
Analysis of Financial Condition and Results of Operations set forth below, and
notes to our unaudited consolidated financial statements included herein contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements are subject to risks and
uncertainties and are based on the beliefs and assumptions of our management as
of the date hereof based on information currently available to our management.
Use of words such as "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "should," "forecasts," "if," "continues," "goal," "likely" or
similar expressions indicates a forward-looking statement. Forward-looking
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions. Actual results may differ materially from the
forward-looking statements we make. See "Risk Factors" elsewhere in this
quarterly report on Form 10-Q for a discussion of certain risks associated with
our business. We disclaim any obligation to update forward-looking statements as
a result of new information, future events or otherwise.

Our management's discussion and analysis of our financial condition and results
of operations is based upon our unaudited consolidated financial statements
included elsewhere in this quarterly report on Form 10-Q, which we have prepared
in accordance with accounting principles generally accepted in the United States
of America, or GAAP, for interim periods and with Regulation S-X promulgated
under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The
preparation of these unaudited consolidated financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related items, including, but not limited
to, revenue recognition, accounts receivable and related reserves, valuation and
impairment of marketable securities, goodwill and acquired intangible assets,
capitalized internal-use software development costs, impairment and useful lives
of long-lived assets, income taxes and stock-based compensation. We base our
estimates and judgments on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances at the time
they are made. Actual results may differ from our estimates. See the section
entitled "Application of Critical Accounting Policies and Estimates" in our
annual report on Form 10-K for the year-ended December 31, 2019 for further
discussion of our critical accounting policies and estimates.

Overview


We provide solutions for securing, delivering and optimizing content and
business applications over the Internet. The key factors that influence our
financial success are our ability to build on recurring revenue commitments for
our security and performance offerings, increase media traffic on our network,
effectively manage the prices we charge for our solutions, develop new products
and carefully manage our capital spending and other expenses.

Revenue


For most of our solutions, our customers commit to contracts having terms of a
year or longer, which allows us to have a consistent and predictable base level
of revenue. In addition to a base level of revenue, we are also dependent on
media customers where usage of our solutions is more variable. As a result, our
revenue is impacted by the amount of media and software download traffic we
serve on our network, the rate of adoption of gaming, social media and video
platform offerings, the timing and variability of customer-specific one-time
events and geopolitical, economic and other developments that impact our
customers' businesses. Seasonal variations that impact traffic on our network,
such as holiday shopping, can cause unpredictable revenue swings from quarter to
quarter. Over the longer term, our ability to expand our product portfolio and
to effectively manage the prices we charge for our solutions are key factors
impacting our revenue growth.

We have observed the following trends related to our revenue in recent years:


•Increased sales of our security solutions have made a significant contribution
to revenue growth. We plan to continue to invest in this area with a focus on
further enhancing our product portfolio and extending our go-to-market
capabilities.

•We have experienced increases in the amount of traffic delivered for customers
that use our solutions for video, gaming downloads and social media,
contributing to an increase in our revenue in the first half of 2020 as compared
to the same period in 2019. In addition, as a result of the novel coronavirus,
or COVID-19, outbreak, and resultant shelter-in-place requirements in various
locations around the world, the rate of increase in traffic in the first and
second quarters of 2020, as compared to prior quarters, accelerated
significantly. This increased year-over-year growth could continue in 2020 if
the various shelter-in-place restrictions are extended or moderate if they are
broadly lifted.

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•While we have increased committed recurring revenue from our solutions by
upselling incremental solutions to our existing customers and adding new
customers, we have also experienced slower revenue growth in recent quarters in
our web performance solutions. We expect the trend of slower revenue growth in
our web division to continue in 2020 as our customers, particularly in the
commerce and travel and hospitality industries, continue to experience financial
pressure, especially in light of the negative impacts of the COVID-19 pandemic
on these customers' operations.

•The prices paid by some of our customers have declined, particularly in the
context of contract renewals and large media consolidations, reflecting the
impact of competition and volume discounts. Our revenue would have been higher
absent these price declines.

•Revenue from our international operations has been growing at a faster pace
than from our U.S. operations, particularly in terms of new customer acquisition
and cross-selling of incremental solutions. Because we publicly report in U.S.
dollars, the strong dollar has negatively impacted our results in recent
quarters. If the dollar continues to strengthen, our reported revenue results
will be negatively impacted. Conversely, a weaker dollar would benefit our
reported results.

•We have experienced variations in certain types of revenue from quarter to
quarter. In particular, we typically experience higher revenue in the fourth
quarter of each year for some of our solutions as a result of holiday season
activity. In addition, we experience quarterly variations in revenue
attributable to, among other things, the nature and timing of software and
gaming releases by our customers; whether there are large live sporting or other
events or situations (like the COVID-19 pandemic) that impact the amount of
media traffic on our network; and the frequency and timing of purchases of
custom solutions or licensed software.

Expenses


Our level of profitability is also impacted by our expenses, including direct
costs to support our revenue such as bandwidth and co-location costs. We have
observed the following trends related to our profitability in recent years:

•Our profitability improved in the first half of 2020 as compared to the same
period in 2019 due to higher revenue as well as the effects of cost savings and
efficiency initiatives we have undertaken and lower travel and marketing
expenses resulting from pandemic-related shutdowns. We expect to continue to
undertake efforts intended to improve the efficiency of operations. If we are
able to continue our efficiency efforts such that our rate of revenue growth
exceeds our expense growth rate and our business is not impacted more severely
than currently anticipated by repercussions of the COVID-19 pandemic, we
anticipate overall profitability improvement in 2020 as compared to 2019.

•Network bandwidth costs represent a significant portion of our cost of revenue.
Historically, we have been able to mitigate increases in these costs by reducing
our network bandwidth costs per unit and investing in internal-use software
development to improve the performance and efficiency of our network. Our total
bandwidth costs may increase in the future as a result of expected higher
traffic levels and serving more traffic from higher cost regions. We will need
to continue to effectively manage our bandwidth costs to maintain current levels
of profitability.

•Co-location costs are also a significant portion of our cost of revenue. By
improving our internal-use software and managing our hardware deployments to
enable us to use servers more efficiently, we have been able to manage the
growth of co-location costs. We expect to continue to scale our network in the
future and will need to continue to effectively manage our co-location costs to
maintain current levels of profitability.

•We expect to continue to manage our headcount and payroll costs in the future
to focus investments on certain areas of the business while maintaining
efficient operations in others. We expect to continue to hire employees in
support of our strategic initiatives, but do not expect overall headcount to
increase significantly in 2020. Our ability to hire new employees could be
negatively impacted by the COVID-19 pandemic.

•Depreciation expense related to our network equipment also contributes to our
overall expense levels. During the second quarter of 2020, we accelerated our
purchases of servers and other equipment used in our network to help meet the
increased traffic demands arising during the COVID-19 pandemic and to make up
for supply chain issues we experienced in the first quarter. We expect to
continue to invest in our network in 2020, which will further increase our
capital expenditures and resulting depreciation expense. Due to the negative
effects the COVID-19 pandemic had on
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our supply chain and some of our network deployment operations, there may be
continued limitations on our ability to scale our network in the shorter term
and network equipment costs can rise due to limited supply from manufacturing
delays.

We report our revenue by division, which is a customer-focused reporting view
that reflects revenue from customers that are managed by the division. We report
our revenue in two divisions: the Web Division and the Media and Carrier
Division. As the purchasing patterns and required account expertise of customers
change over time, we may reassign a customer from one division to another. In
2020, we reassigned some of our customers between the Media and Carrier Division
and the Web Division and revised historical results in order to reflect the most
recent categorization and to provide a comparable view for all periods
presented.

Nearly all of our employees are working remotely due to the COVID-19 pandemic.
We have re-opened three smaller offices in Asia (one of which has re-closed) and
are continuously evaluating whether to re-open additional offices or re-close
others that have been re-opened. Our operations have not been significantly
disrupted by the shift to remote working, and we are not requiring employees
whose roles do not require in-person presence to perform their jobs to return to
offices before July 1, 2021. While we expect to incur expenses associated with
enabling remote work and reconfiguring work spaces to ensure the safety and well
being of employees accessing our locations, we do not currently believe those
costs will materially impact our financial condition or results of operations.
In the near term, we expect to continue to rely on the use of online marketing
events and one-on-one web conferencing with customers to promote and sell our
solutions.

Results of Operations

The following table sets forth, as a percentage of revenue, consolidated statements of income data for the periods indicated:

                                                                  For the Three Months                                     For the Six Months
                                                                     Ended June 30,                                          Ended June 30,
                                                                2020                 2019                 2020                 2019
Revenue                                                          100.0  %             100.0  %             100.0  %             100.0  %

Costs and operating expenses: Cost of revenue (exclusive of amortization of acquired intangible assets shown below)

                                    34.8                 34.4                 35.0                 34.2
Research and development                                           8.1                  8.7                  8.7                  9.0
Sales and marketing                                               15.5                 19.2                 15.9                 18.5
General and administrative                                        16.3                 17.0                 16.5                 17.2
Amortization of acquired intangible assets                         1.3                  1.4                  1.3                  1.4
Restructuring (benefit) charge                                       -                  0.1                  0.7                  0.5
Total costs and operating expenses                                76.0                 80.8                 78.1                 80.8
Income from operations                                            24.0                 19.2                 21.9                 19.2
Interest income                                                    1.2                  0.9                  1.1                  1.1
Interest expense                                                  (2.2)                (1.2)                (2.2)                (1.5)
Other expense, net                                                (0.2)                (0.1)                (0.4)                   -
Income before provision for income taxes                          22.8                 18.8                 20.4                 18.8
Provision for income taxes                                        (2.3)                (2.7)                (2.1)                (3.1)
Loss from equity method investment                                (0.1)                   -                 (0.1)                   -
Net income                                                        20.4  %              16.1  %              18.2  %              15.7  %



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Revenue

Revenue by division during the periods presented was as follows (in thousands):

                                             For the Three Months                                                                                                          For the Six Months
                                                Ended June 30,                                                                                                               Ended June 30,
                                                                                % Change at                                                                           % Change at
                                                                                 Constant                                                                              Constant
                      2020               2019              % Change              Currency                2020                 2019               % Change              Currency
Web Division      $ 404,342$ 377,558                   7.1  %                8.3  %       $   810,337$   751,760                   7.8  %                8.9  %
Media and Carrier
Division            390,373            327,516                  19.2                  20.1              748,680              659,822                  13.5                  14.4
Total revenue     $ 794,715$ 705,074                  12.7  %               13.8  %       $ 1,559,017$ 1,411,582                  10.4  %               11.5  %



During the three- and six-month periods ended June 30, 2020, the increase in our
revenue as compared to the same periods in 2019 was primarily the result of
higher media traffic volumes due in part to the impact of the outbreak of
COVID-19 and continued strong growth in sales of our Cloud Security Solutions.
During the three-month period ended June 30, 2020, our Cloud Security Solutions
revenue was $259.3 million as compared to $204.8 million during the three-month
period ended June 30, 2019, which represents a 26.6% increase. During the
six-month period ended June 30, 2020, our Cloud Security Solutions revenue was
$499.6 million, as compared to $394.9 million during the six-month period ended
June 30, 2019, which represents a 26.5% increase. Cloud Security Solutions
revenue increased in both periods due to higher sales of solutions across our
security portfolio.

The increase in Web Division revenue during the three- and six-month periods
ended June 30, 2020, as compared to the same periods in 2019, was primarily the
result of increased sales of both new and existing Cloud Security Solutions to
this customer base. Customers that are experiencing financial difficulties as a
result of the COVID-19 pandemic, specifically those in the commerce, retail and
travel and hospitality verticals, are primarily customers of our Web Division.
Web Division revenue was negatively impacted during the three- and six-month
periods ended June 30, 2020 as a result of the pandemic, and we anticipate this
trend to continue. It is, however, difficult to predict the length of time and
amount by which the Web Division will be impacted due to the uncertain nature of
the pandemic.

The increase in Media and Carrier Division revenue during the three- and six-month periods ended June 30, 2020, as compared to the same periods in 2019, was primarily the result of increased customer traffic volumes from video delivery, gaming and social media usage due in part to the impact of the outbreak of COVID-19 and sales of Cloud Security Solutions to this customer base.


Revenue derived in the U.S. and internationally during the periods presented was
as follows (in thousands):

                                               For the Three Months                                                                                                          For the Six Months
                                                  Ended June 30,                                                                                                               Ended June 30,
                                                                                  % Change at                                                                           % Change at
                                                                                   Constant                                                                              Constant
                        2020               2019              % Change              Currency                2020                 2019               % Change              Currency
U.S.                $ 443,668$ 416,859                   6.4  %                6.4  %       $   872,598$   835,059                   4.5  %                4.5  %
International         351,047            288,215                  21.8                  24.5              686,419              576,523                  19.1                  21.6
Total revenue       $ 794,715$ 705,074                  12.7  %               13.8  %       $ 1,559,017$ 1,411,582                  10.4  %               11.5  %



For the three-month period ended June 30, 2020, approximately 44.2% of our
revenue was derived from our operations located outside the U.S., compared to
40.9% for the three-month period ended June 30, 2019. For the six-month period
ended June 30, 2020, approximately 44.0% of our revenue was derived from our
operations located outside the U.S., compared to 40.8% for the six-month period
ended June 30, 2019. No single country outside the U.S. accounted for 10% or
more of revenue during either of these periods. During the three- and six-month
periods ended June 30, 2020, we continued to see strong revenue growth from our
operations in the Asia-Pacific region and steady revenue growth in our EMEA and
Latin America regions. Changes in foreign currency exchange rates impacted our
revenue by an unfavorable $7.6 million and $14.3 million during the three-and
six-month periods ended June 30, 2020, respectively, as compared to the same
periods in 2019.

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Cost of Revenue

Cost of revenue consisted of the following for the periods presented (in
thousands):

                                                        For the Three Months                                                                 For the Six Months
                                                           Ended June 30,                                                                      Ended June 30,
                                            2020               2019              % Change               2020               2019             % Change
Bandwidth fees                          $  52,076$  42,193                  23.4  %       $  97,856$  84,666                15.6  %
Co-location fees                           37,013             31,421                  17.8             72,402             60,913                18.9
Network build-out and supporting
services                                   33,296             23,397                  42.3             63,857             46,108                38.5
Payroll and related costs                  63,620             61,751                   3.0            129,427            122,014                 6.1
Stock-based compensation, including
amortization of prior capitalized
amounts                                    13,055             12,684                   2.9             26,049             25,993                 0.2
Depreciation of network equipment          38,806             29,394                  32.0             75,203             59,562                26.3
Amortization of internal-use software      38,938             41,353                  (5.8)            80,592             83,680                (3.7)
Total cost of revenue                   $ 276,804$ 242,193                  14.3  %       $ 545,386$ 482,936                12.9  %
As a percentage of revenue                   34.8  %            34.4  %                                  35.0  %            34.2  %



The increase in total cost of revenue for the three- and six-month periods ended
June 30, 2020, as compared to the same periods in 2019, was primarily due to
investments in our network to support current and anticipated future traffic
growth, which resulted in increases to amounts paid for network build-out and
supporting services, higher depreciation costs of our network equipment and
increases to expenses related to our co-location facilities. Bandwidth fees also
increased during this period due to growth in the amount of traffic served on
our network.

During 2020, we plan to continue to focus our efforts on managing our operating
margins, including continuing to manage our bandwidth and co-location costs. We
anticipate depreciation of network equipment to increase in 2020 due to
increased investments in our network with the expectation that our customer base
will continue to expand and that we will continue to deliver more traffic to
existing customers.

Research and Development Expenses


Research and development expenses consisted of the following for the periods
presented (in thousands):

                                                       For the Three Months                                                                For the Six Months
                                                          Ended June 30,                                                                     Ended June 30,
                                           2020              2019              % Change               2020               2019             % Change
Payroll and related costs              $  98,655$ 94,492                   4.4  %       $ 201,476$ 189,436                 6.4  %
Stock-based compensation                  11,549            12,044                  (4.1)            23,614             24,101                (2.0)

Capitalized salaries and related costs (48,957) (48,109)

         1.8            (95,257)           (91,468)                4.1
Other expenses                             2,843             3,012                  (5.6)             5,481              5,511                (0.5)

Total research and development $ 64,090$ 61,439

          4.3  %       $ 135,314$ 127,580                 6.1  %
As a percentage of revenue                   8.1  %            8.7  %                                   8.7  %             9.0  %



The increase in research and development expenses during the three- and
six-month periods ended June 30, 2020, as compared to the same periods in 2019,
was primarily due to growth in payroll and related costs as a result of
headcount growth to support investments in new product development and network
scaling.

Research and development costs are expensed as incurred, other than certain
internal-use software development costs eligible for capitalization. Capitalized
development costs consist of payroll and related costs for personnel and
external consulting expenses involved in the development of internal-use
software used to deliver our services and operate our network. We capitalized
$9.4 million of stock-based compensation during each of the three-month periods
ended June 30, 2020 and June 30, 2019. During each of the six-month periods
ended June 30, 2020 and June 30, 2019, we capitalized $17.5 million of
stock-based compensation. These capitalized internal-use software development
costs are amortized to cost of revenue over
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their estimated useful lives, which is generally two years, but can be up to
seven years based on the software developed and its expected useful life.

We expect research and development costs to increase in 2020 as we maintain our focus on innovation; however, we do not expect these costs to increase as a percentage of revenue.

Sales and Marketing Expenses


Sales and marketing expenses consisted of the following for the periods
presented (in thousands):

                                                       For the Three Months                                                                  For the Six Months
                                                          Ended June 30,                                                                       Ended June 30,
                                           2020               2019              % Change               2020               2019              % Change
Payroll and related costs              $  94,645$  92,126                   2.7  %       $ 188,239$ 184,777                  1.9  %
Stock-based compensation                  16,011             15,740                   1.7             31,746             30,790                  3.1
Marketing programs and related costs      10,577             17,482                 (39.5)            19,714             32,015                (38.4)
Other expenses                             2,236              9,758                 (77.1)             7,556             13,800                (45.2)

Total sales and marketing              $ 123,469$ 135,106                  (8.6) %       $ 247,255$ 261,382                 (5.4) %
As a percentage of revenue                  15.5  %            19.2  %                                  15.9  %            18.5  %



The decrease in sales and marketing expenses during the three- and six-month
periods ended June 30, 2020, as compared to the same periods in 2019, was
primarily due to the cancellation or postponement of certain marketing events as
a result of restrictions associated with the COVID-19 pandemic. The decrease in
sales and marketing expenses during the three-month period ended June 30, 2020,
as compared to the same period in 2019, was also attributed to a decline in
other expenses as a result of travel restrictions due to COVID-19, which
resulted in decreased expenditures for airfare, lodging and other costs related
to in-person customer events and meetings.

During 2020, we expect sales and marketing expenses to decrease, as compared to
2019, as we continue to be impacted by COVID-19, which is limiting in-person
marketing events and customer meetings and eliminating the associated expenses.
These reductions could moderate to the extent restrictions related to the
pandemic are lifted. We also plan to continue to carefully manage costs in our
efforts to refine and optimize our go-to-market efforts and improve operating
margins.

General and Administrative Expenses


General and administrative expenses consisted of the following for the periods
presented (in thousands):

                                                              For the Three Months                                                                  For the Six Months
                                                                 Ended June 30,                                                                       Ended June 30,
                                                  2020               2019              % Change               2020               2019              % Change
Payroll and related costs                     $  49,475$  47,705                   3.7  %       $  98,074$  97,356                   0.7  %
Stock-based compensation                         15,377             14,565                   5.6             29,334             27,193                   7.9
Depreciation and amortization                    20,654             18,778                  10.0             41,119             37,151                  10.7
Facilities-related costs                         23,898             21,042                  13.6             48,570             42,065                  15.5
Allowance for doubtful accounts                   2,893                915                 216.2              5,092              1,715                 196.9
Acquisition-related costs                            62                524                 (88.2)               138                975                 (85.8)
License of patent                                     -             (4,452)               (100.0)                 -             (8,855)               (100.0)
Legal settlements                                   275                  -                 100.0                275                  -                 100.0

Professional fees and other expenses             17,075             21,039                 (18.8)            34,468             45,351                 

(24.0)

Total general and administrative              $ 129,709$ 120,116                   8.0  %       $ 257,070$ 242,951                   5.8  %
As a percentage of revenue                         16.3  %            17.0  %                                  16.5  %            17.2  %



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The increase in general and administrative expenses for the three- and six-month
periods ended June 30, 2020, as compared to the same periods in 2019, was
primarily due to expansion of company infrastructure throughout 2019, including
moving into our new corporate headquarters in Cambridge, Massachusetts, which
increased facilities-related costs and depreciation and amortization.
Additionally, the three- and six-month periods ended June 30, 2019 included
license patent fees received as a result of our litigation with Limelight
Networks, Inc. that did not recur in 2020. The allowance for doubtful accounts
has also increased during these periods in 2020 as a result of the estimated
impact of COVID-19 on our customers' ability to pay. These increases in general
and administrative expenses were partially offset by a decrease in amounts paid
to professional service providers for advisory services provided in connection
internal transformation programs designed to improve operating margins.

Our general and administrative expenses can be categorized across three areas.
Global functions expense includes payroll, stock-based compensation and other
employee-related costs for administrative functions, including finance,
purchasing, order entry, human resources, legal, information technology and
executive personnel, as well as third-party professional service fees.
Infrastructure expense includes payroll, stock-based compensation and other
employee-related costs for our network infrastructure functions, as well as
facility rent expense, depreciation and amortization of facility and IT-related
assets, software and software-related costs, business insurance and taxes. Our
network infrastructure function is responsible for network planning, sourcing,
architecture evaluation and platform security. Other expense includes
acquisition-related costs, allowance for doubtful accounts, legal settlements,
transformation costs and the license of a patent.

General and administrative expenses for the three- and six-month periods ended
June 30, 2020 and 2019 are broken out by category as follows (in thousands):

                                                   For the Three Months                                                                  For the Six Months
                                                      Ended June 30,                                                                       Ended June 30,
                                       2020               2019              % Change               2020               2019              % Change
Global functions                   $  46,818$  49,462                  (5.3) %       $  94,684$  98,930                 (4.3) %

As a percentage of revenue               5.9  %             7.0  %                                   6.1  %             7.0  %
Infrastructure                        79,677             72,332                  10.2            156,897            144,659                  8.5
As a percentage of revenue              10.0  %            10.3  %                                  10.1  %            10.2  %
Other                                  3,214             (1,678)                291.5              5,489               (638)               960.3
Total general and administrative
expenses                           $ 129,709$ 120,116                   8.0  %       $ 257,070$ 242,951                  5.8  %
As a percentage of revenue              16.3  %            17.0  %                                  16.5  %            17.2  %


During 2020, we plan to continue to focus our efforts on managing our operating margins and, in particular, assessing opportunities to reduce third-party spending and increase automation of manual tasks.

Amortization of Acquired Intangible Assets

                                                 For the Three Months                                                              For the Six Months
                                                    Ended June 30,                                                                   Ended June 30,
(in thousands)                       2020               2019             % Change              2020              2019             % Change
Amortization of acquired
intangible assets                $   10,381$ 9,648                   7.6  %       $ 20,815$ 19,247                 8.1  %
As a percentage of revenue              1.3  %           1.4  %                                  1.3  %            1.4  %



The increase in amortization of acquired intangible assets for the three- and
six-month periods ended June 30, 2020, as compared to the same periods in 2019,
was the result of amortization of assets related to our recent acquisitions.
Based on our intangible assets at June 30, 2020, we expect amortization of
acquired intangible assets to be approximately $21.1 million for the remainder
of 2020, and $43.0 million, $37.3 million, $28.9 million and $20.5 million for
2021, 2022, 2023 and 2024, respectively.

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Restructuring (Benefit) Charge

                                                          For the Three Months                                                                For the Six Months
                                                             Ended June 30,                                                                     Ended June 30,
(in thousands)                               2020                   2019             % Change              2020              2019            % Change
Restructuring (benefit) charge          $     (167)$  790                (121.1) %       $ 10,418$ 7,179                45.1  %
As a percentage of revenue                       -   %               0.1  %                                  0.7  %           0.5  %



The restructuring (benefits) charges for the three- and six-month periods ended
June 30, 2020 were primarily the result of management actions initiated in the
fourth quarter of 2019 to focus on investments having the potential to
accelerate revenue growth. The restructuring charges relate to certain headcount
reductions and a $6.2 million impairment of a right-of-use asset related to the
exit of a leased facility. We do not expect material additional restructuring
charges related to these actions.

The restructuring charges for the three- and six-month periods ended June 30,
2019 were primarily the result of certain restructuring actions initiated in the
fourth quarter of 2018. Management's intention in implementing the restructuring
was to re-balance investments with the goal of improving long-term revenue
growth and scale. The restructuring charges primarily consist of costs
associated with headcount reductions. We do not expect significant additional
restructuring charges related to this action.

Non-Operating Income (Expense)

                                                            For the Three Months                                                                  For the Six Months
                                                               Ended June 30,                                                                       Ended June 30,
(in thousands)                                  2020              2019              % Change               2020               2019               % Change
Interest income                             $   9,502$  6,410                  48.2  %       $  16,545$  15,045                   10.0  %
As a percentage of revenue                        1.2  %            0.9  %                                   1.1  %             1.1  %
Interest expense                            $ (17,249)$ (8,446)                104.2  %       $ (34,454)$ (20,562)                  67.6  %
As a percentage of revenue                       (2.2) %           (1.2) %                                  (2.2) %            (1.5) %
Other expense, net                          $  (1,603)$   (578)                177.3  %       $  (5,711)$     (67)               8,423.9  %
As a percentage of revenue                       (0.2) %           (0.1) %                                  (0.4) %               -  %



For the periods presented, interest income primarily consisted of interest
earned on invested cash balances and marketable securities. The increase in
interest income for the three- and six-month periods ended June 30, 2020, as
compared to the same periods in 2019, was primarily the result of higher cash
and marketable securities balances in 2020 as a result of proceeds from the
August 2019 issuance of $1,150.0 million in principal amount of convertible
senior notes due 2027.

Interest expense is related to our debt transactions, which are described in
Note 7 to the consolidated financial statements. The increase in interest
expense for the three- and six-month periods ended June 30, 2020, as compared to
the same periods in 2019, was due to the August 2019 issuance of $1,150.0
million in principle amount of convertible senior notes due 2027.

Other expense, net primarily represents net foreign exchange gains and losses
and other non-operating expense and income items. The fluctuation in other
expense, net for the three- and six-month periods ended June 30, 2020, as
compared to the same periods in 2019, is primarily due to the unfavorable impact
of changes in foreign exchange rates.

Provision for Income Taxes

                                                               For the Three Months                                                                    For the Six Months
                                                                  Ended June 30,                                                                         Ended June 30,
(in thousands)                                   2020                 2019                % Change               2020               2019              % Change
Provision for income taxes                  $  (18,671)$(19,253)                     (3.0) %       $ (32,963)$ (43,678)               (24.5) %
As a percentage of revenue                        (2.3)  %               (2.7) %                                  (2.1) %            (3.1) %
Effective income tax rate                        (10.3)  %              (14.5) %                                 (10.3) %           (16.5) %



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For the three- and six-month periods ended June 30, 2020, as compared to the
same periods in 2019, our provision for income taxes decreased due to an
increase in foreign income taxed at lower rates, an increase in the excess tax
benefit related to stock-based compensation, a decrease in intercompany sales of
intellectual property and a decrease in the valuation allowance recorded against
deferred tax assets related to state tax credits. These amounts were partially
offset by an increase in profitability.

For the three- and six-month periods ended June 30, 2020, our effective income
tax rate was lower than the federal statutory tax rate due to foreign income
taxed at lower rates, the impact of the excess tax benefit related to
stock-based compensation and the benefit of U.S. federal, state and foreign
research and development credits. These amounts were partially offset by the
valuation allowance recorded against deferred tax assets related to state tax
credits, non-deductible stock-based compensation and state taxes.

For the three- and six-month periods ended June 30, 2019, our effective income
tax rate was lower than the federal statutory tax rate due to foreign income
taxed at lower rates, the impact of the excess tax benefit related to
stock-based compensation and the benefit of U.S. federal, state and foreign
research and development credits. These amounts were partially offset by the
valuation allowance recorded against deferred tax assets related to state tax
credits, non-deductible executive compensation, state taxes and an intercompany
sale of intellectual property.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic
Security Act, or CARES Act, was enacted on March 27, 2020. The CARES Act did not
have a material impact on the effective tax rate for the period ended June 30,
2020. We will continue to monitor further changes to the global legislative and
regulatory developments enacted as a result of COVID-19.

In determining our net deferred tax assets and valuation allowances, annualized
effective income tax rates and cash paid for income taxes, management is
required to make judgments and estimates about domestic and foreign
profitability, the timing and extent of the utilization of net operating loss
carryforwards, applicable tax rates, transfer pricing methodologies and tax
planning strategies. Judgments and estimates related to our projections and
assumptions are inherently uncertain; therefore, actual results could differ
materially from our projections.

Loss from Equity Method Investment

                                                  For the Three Months                                                              For the Six Months
                                                     Ended June 30,                                                                   Ended June 30,
(in thousands)                         2020               2019             % Change              2020             2019             % Change
Loss from equity method
investment                        $      (493)          $    -                (100.0) %       $ (1,115)         $    -                (100.0) %
As a percentage of revenue               (0.1)  %            -  %                                 (0.1) %            -  %



During 2019, we began recognizing our share of earnings from our investment with
Mitsubishi UFJ Financial Group in a joint venture, Global Open Network, Inc., or
GO-NET. GO-NET intends to operate a new blockchain-based online payment network.
For the three- and six-month periods ended June 30, 2020, the losses recognized
reflect our share of the losses incurred by GO-NET. We expect to record
additional losses in 2020 and beyond as GO-NET continues executing on the early
stages of its business plan.

Non-GAAP Financial Measures


In addition to providing financial measurements based on generally accepted
accounting principles in the United States of America, or GAAP, we provide
additional financial metrics that are not prepared in accordance with GAAP, or
non-GAAP financial measures. Management uses non-GAAP financial measures, in
addition to GAAP financial measures, to understand and compare operating results
across accounting periods, for financial and operational decision making, for
planning and forecasting purposes, to measure executive compensation and to
evaluate our financial performance. These non-GAAP financial measures are
non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income,
non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital
expenditures and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect our ongoing
business in a manner that allows for meaningful comparisons and analysis of
trends in the business, as they facilitate comparison of financial results
across accounting periods and to those of our peer companies. Management also
believes that these non-GAAP financial measures
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enable investors to evaluate our operating results and future prospects in the
same manner as management. These non-GAAP financial measures may exclude
expenses and gains that may be unusual in nature, infrequent or not reflective
of our ongoing operating results.

The non-GAAP financial measures do not replace the presentation of our GAAP financial measures and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP.

The non-GAAP adjustments, and our basis for excluding them from non-GAAP financial measures, are outlined below:


•Amortization of acquired intangible assets - We have incurred amortization of
intangible assets, included in our GAAP financial statements, related to various
acquisitions we have made. The amount of an acquisition's purchase price
allocated to intangible assets and term of its related amortization can vary
significantly and is unique to each acquisition; therefore, we exclude
amortization of acquired intangible assets from our non-GAAP financial measures
to provide investors with a consistent basis for comparing pre- and
post-acquisition operating results.

•Stock-based compensation and amortization of capitalized stock-based
compensation - Although stock-based compensation is an important aspect of the
compensation paid to our employees, the grant date fair value varies based on
the stock price at the time of grant, varying valuation methodologies,
subjective assumptions and the variety of award types. This makes the comparison
of our current financial results to previous and future periods difficult to
interpret; therefore, we believe it is useful to exclude stock-based
compensation and amortization of capitalized stock-based compensation from our
non-GAAP financial measures in order to highlight the performance of our core
business and to be consistent with the way many investors evaluate our
performance and compare our operating results to peer companies.

•Acquisition-related costs - Acquisition-related costs include transaction fees,
advisory fees, due diligence costs and other direct costs associated with
strategic activities. In addition, subsequent adjustments to our initial
estimated amounts of contingent consideration and indemnification associated
with specific acquisitions are included within acquisition-related costs. These
amounts are impacted by the timing and size of the acquisitions. We exclude
acquisition-related costs from our non-GAAP financial measures to provide a
useful comparison of our operating results to prior periods and to our peer
companies because such amounts vary significantly based on the magnitude of our
acquisition transactions and do not reflect our core operations.

•Restructuring charges - We have incurred restructuring charges that are
included in our GAAP financial statements, primarily related to workforce
reductions and charges associated with exiting facility lease commitments. We
exclude these items from our non-GAAP financial measures when evaluating our
continuing business performance as such items vary significantly based on the
magnitude of the restructuring action and do not reflect expected future
operating expenses. In addition, these charges do not necessarily provide
meaningful insight into the fundamentals of current or past operations of our
business.

•Amortization of debt discount and issuance costs and amortization of
capitalized interest expense - In August 2019, we issued $1,150 million of
convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May
2018, we issued $1,150 million of convertible senior notes due 2025 with a
coupon interest rate of 0.125%. In February 2014, we issued $690 million of
convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed
interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%,
respectively. This is a result of the debt discounts recorded for the conversion
features that are required to be separately accounted for as equity under GAAP,
thereby reducing the carrying values of the convertible debt instruments. The
debt discounts are amortized as interest expense together with the issuance
costs of the debt. The interest expense excluded from our non-GAAP results is
comprised of these non-cash components and is excluded from management's
assessment of our operating performance because management believes the non-cash
expense is not representative of ongoing operating performance.

•Gains and losses on investments - We have recorded gains and losses from the
disposition, changes to fair value and impairment of certain investments. We
believe excluding these amounts from our non-GAAP financial measures is useful
to investors as the types of events giving rise to them are not representative
of our core business operations and ongoing operating performance.

•Legal settlements - We have incurred losses related to the settlement of legal matters. We believe excluding

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these amounts from our non-GAAP financial measures is useful to investors as the
types of events giving rise to them are not representative of our core business
operations.
•Transformation costs - We have incurred professional services fees associated
with internal transformation programs designed to improve operating margins and
that are part of a planned program intended to significantly change the manner
in which business is conducted. We believe excluding these amounts from our
non-GAAP financial measures is useful to investors as the types of events and
activities giving rise to them occur infrequently and are not representative of
our core business operations and ongoing operating performance.

•Income and losses from equity method investment - We record income or losses on
our share of earnings and losses of our equity method investment. We exclude
such income and losses because we lack control over the operations of the
investment and the related income and losses are not representative of our core
business operations.

•Income tax effect of non-GAAP adjustments and certain discrete tax items - The
non-GAAP adjustments described above are reported on a pre-tax basis. The income
tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP
income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax
income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes
certain discrete tax items (such as recording or releasing of valuation
allowances), if any. We believe that applying the non-GAAP adjustments and their
related income tax effect allows us to highlight income attributable to our core
operations.

The following table reconciles GAAP income from operations to non-GAAP income
from operations and non-GAAP operating margin for the periods presented (in
thousands):

                                                                    For the Three Months                                For the Six Months
                                                                       Ended June 30,                                     Ended June 30,
                                                                   2020               2019               2020               2019
Income from operations                                         $ 190,429

$ 135,782$ 342,759$ 270,307 Amortization of acquired intangible assets

                        10,381              9,648             20,815              19,247
Stock-based compensation                                          49,191             48,142             96,684              93,447

Amortization of capitalized stock-based compensation and capitalized interest expense

                                       8,038              8,050             16,627              17,283
Restructuring (benefit) charge                                      (167)               790             10,418               7,179
Acquisition-related costs                                             62                524                138                 975
Legal settlements                                                    275                  -                275                   -

Transformation costs                                                   -              1,336                  -               5,527
Non-GAAP income from operations                                $ 258,209

$ 204,272$ 487,716$ 413,965

GAAP operating margin                                                 24  %              19  %              22  %               19  %
Non-GAAP operating margin                                             32  %              29  %              31  %               29  %



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The following table reconciles GAAP net income to non-GAAP net income for the
periods presented (in thousands):

                                                                    For the Three Months                                For the Six Months
                                                                       Ended June 30,                                     Ended June 30,
                                                                   2020               2019               2020               2019
Net income                                                     $ 161,915

$ 113,915$ 285,061$ 221,045 Amortization of acquired intangible assets

                        10,381              9,648             20,815              19,247
Stock-based compensation                                          49,191             48,142             96,684              93,447

Amortization of capitalized stock-based compensation and capitalized interest expense

                                       8,038              8,050             16,627              17,283
Restructuring (benefit) charge                                      (167)               790             10,418               7,179
Acquisition-related costs                                             62                524                138                 975
Legal settlements                                                    275                  -                275                   -

Transformation costs                                                   -              1,336                  -               5,527
Amortization of debt discount and issuance costs                  15,677              8,010             31,310              19,628
Loss (gain) on investments                                             -                250                  -                (440)
Loss from equity method investment                                   493                  -              1,115                   -
Income tax effect of above non-GAAP adjustments and certain
discrete tax items                                               (19,347)           (14,454)           (39,792)            (26,758)
Non-GAAP net income                                            $ 226,518$ 176,211$ 422,651$  357,133



The following table reconciles GAAP net income per diluted share to non-GAAP net
income per diluted share for the periods presented (in thousands, except per
share data):

                                                                 For the Three Months                                            For the Six Months
                                                                    Ended June 30,                                                 Ended June 30,
                                                                    2020                    2019                  2020                  2019
GAAP net income per diluted share                              $     0.98$    0.69$    1.74$    1.34
Amortization of acquired intangible assets                           0.06                    0.06                  0.13                  0.12
Stock-based compensation                                             0.30                    0.29                  0.59                  0.57

Amortization of capitalized stock-based compensation and capitalized interest expense

                                         0.05                    0.05                  0.10                  0.10
Restructuring (benefit) charge                                          -                       -                  0.06                  0.04
Acquisition-related costs                                               -                       -                     -                  0.01
Legal settlements                                                       -                       -                     -                     -

Transformation costs                                                    -                    0.01                     -                  0.03
Amortization of debt discount and issuance costs                     0.10                    0.05                  0.19                  0.12
Loss (gain) on investments                                              -                       -                     -                     -
Loss from equity method investment                                      -                       -                  0.01                     -

Income tax effect of above non-GAAP adjustments and certain discrete tax items

                                                  (0.12)                  (0.09)                (0.24)                (0.16)
Adjustment for shares(1)                                             0.01                       -                  0.01                     -
Non-GAAP net income per diluted share (2)                      $     1.38$    1.07$    2.58$    2.17

Shares used in GAAP diluted per share calculations                164,768                 165,019               164,226               164,903
Impact of benefit from note hedge transactions(1)                    (653)                      -                  (326)                    -

Shares used in non-GAAP diluted per share calculations(1) 164,115

              165,019               163,900               164,903



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(1) Shares used in non-GAAP diluted per calculations have been adjusted for the
three and six months ended June 30, 2020, for the benefit of our note hedge
transactions. During the three months ended June 30, 2020, our average stock
price was in excess of $95.10, which is the initial conversion price of our
convertible senior notes due in 2025. See further discussion below.

(2) Amounts may not foot due to rounding


Non-GAAP net income per diluted share is calculated as non-GAAP net income
divided by diluted weighted average common shares outstanding. GAAP diluted
weighted average common shares outstanding are adjusted in non-GAAP per share
calculations for the shares that would be delivered to us pursuant to the note
hedge transactions entered into in connection with the issuance of our
convertible senior notes. Under GAAP, shares delivered under hedge transactions
are not considered offsetting shares in the fully-diluted share calculation
until they are delivered. However, we would receive a benefit from the note
hedge transactions and would not allow the dilution to occur, so management
believes that adjusting for this benefit provides a meaningful view of net
income per share. Unless our weighted average stock price is greater than
$95.10, the initial conversion price of the convertible senior notes due 2025,
or $116.18, the initial conversion price of the convertible senior notes due
2027, there will be no difference between our GAAP and non-GAAP diluted weighted
average common shares outstanding.

We consider Adjusted EBITDA to be another important indicator of the operational
strength and performance of our business and a good measure of our historical
operating trends. Adjusted EBITDA eliminates items that we do not consider to be
part of our core operations. We define Adjusted EBITDA as GAAP net income
excluding the following items: interest income; income taxes; depreciation and
amortization of tangible and intangible assets; stock-based compensation;
amortization of capitalized stock-based compensation; acquisition-related costs;
restructuring charges; transformation costs; foreign exchange gains and losses;
interest expense; amortization of capitalized interest expense; certain gains
and losses on investments; gains and losses from equity method investments; and
other non-recurring or unusual items that may arise from time to time. Adjusted
EBITDA margin represents Adjusted EBITDA stated as a percentage of revenue.

The following table reconciles GAAP net income to Adjusted EBITDA and Adjusted EBITDA margin for the periods presented (in thousands):

                                                                    For the Three Months                                For the Six Months
                                                                       Ended June 30,                                     Ended June 30,
                                                                   2020               2019               2020               2019
Net income                                                     $ 161,915$ 113,915$ 285,061$  221,045
Interest income                                                   (9,502)            (6,410)           (16,545)            (15,045)
Provision for income taxes                                        18,671             19,253             32,963              43,678
Depreciation and amortization                                     97,163             88,367            194,348             177,740

Amortization of capitalized stock-based compensation and capitalized interest expense

                                       8,038              8,050             16,627              17,283
Amortization of acquired intangible assets                        10,381              9,648             20,815              19,247
Stock-based compensation                                          49,191             48,142             96,684              93,447
Restructuring (benefit) charge                                      (167)               790             10,418               7,179
Acquisition-related costs                                             62                524                138                 975
Legal settlements                                                    275                  -                275                   -

Transformation costs                                                   -              1,336                  -               5,527
Interest expense                                                  17,249              8,446             34,454              20,562
Loss (gain) on investments                                             -                250                  -                (440)
Loss from equity method investment                                   493                  -              1,115                   -
Other expense, net                                                 1,603                328              5,711                 507
Adjusted EBITDA                                                $ 355,372$ 292,639$ 682,064$  591,705
Adjusted EBITDA margin                                                45  %              42  %              44  %               42  %



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Impact of Foreign Currency Exchange Rates

Revenue and earnings from our international operations have historically been
important contributors to our financial results. Consequently, our financial
results have been impacted, and management expects they will continue to be
impacted, by fluctuations in foreign currency exchange rates. For example, when
the local currencies of our foreign subsidiaries weaken, generally our
consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period
comparisons, management believes the presentation of the impact of foreign
currency exchange rates on revenue and earnings enhances the understanding of
our financial results and evaluation of performance in comparison to prior
periods. The dollar impact of changes in foreign currency exchange rates
presented is calculated by translating current period results using monthly
average foreign currency exchange rates from the comparative period and
comparing them to the reported amount. The percentage change at constant
currency presented is calculated by comparing the prior period amounts as
reported and the current period amounts translated using the same monthly
average foreign currency exchange rates from the comparative period.

Liquidity and Capital Resources


To date, we have financed our operations primarily through public and private
sales of debt and equity securities and cash generated by operations. As of
June 30, 2020, our cash, cash equivalents and marketable securities, which
primarily consisted of corporate bonds, totaled $2.4 billion. Factoring in the
$2.3 billion in principal amount of convertible senior notes we have
outstanding, our net cash at June 30, 2020 was $91.4 million. We place our cash
investments in instruments that meet high-quality credit standards, as specified
in our investment policy. Our investment policy is also designed to limit the
amount of our credit exposure to any one issue or issuer and seeks to manage
these assets to achieve our goals of preserving principal and maintaining
adequate liquidity at all times.

Changes in cash, cash equivalents and marketable securities are dependent upon
changes in, among other things, working capital items such as accounts
receivable, deferred revenues, accounts payable and various accrued expenses, as
well as changes in our capital and financial structure due to common stock
repurchases, debt repayments and issuances, purchases and sales of marketable
securities and similar events. We do not expect events related to the outbreak
of COVID-19 to have a material impact to our liquidity in the near term;
however, some of our customers may be unable to pay us for our services or may
be unable to remit payments in a timely manner due to financial stresses the
outbreak may have caused them. We believe that, particularly in situations like
these, our strong balance sheet and cash position are important competitive
differentiators that provide the financial stability and flexibility to enable
us to continue to make investments at opportune times.

As of June 30, 2020, we had cash and cash equivalents of $361.9 million held in
accounts outside the U.S. The U.S. Tax Cuts and Jobs Act establishes a
territorial tax system in the U.S., which provides companies with the potential
ability to repatriate earnings with minimal U.S. federal income tax impact. As a
result, our liquidity is not materially impacted by the amount of cash and cash
equivalents held in accounts outside the U.S.

Cash Provided by Operating Activities

                                                               For the Six Months
                                                                 Ended June 30,
    (in thousands)                                            2020            2019
    Net income                                            $ 285,061$ 221,045

Non-cash reconciling items included in net income 385,980 353,133

    Changes in operating assets and liabilities            (149,107)       

(95,399)

    Net cash provided by operating activities             $ 521,934       $

478,779




The increase in cash provided by operating activities for the six-month period
ended June 30, 2020, as compared to the same period in 2019, was primarily due
to increased profitability and lower cash paid for taxes in 2020. The increase
was partially offset by the timing of payments from customers.

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Cash Used in Investing Activities

                                                                             For the Six Months
                                                                               Ended June 30,
(in thousands)                                                            2020                2019

Cash received (paid) for business acquisition, net of cash acquired $

  106          $ (121,409)
Cash paid for asset acquisition                                          (36,376)                  -
Cash paid for equity method investment                                         -             (36,008)

Purchases of property and equipment and capitalization of internal-use software development costs

                                 (335,668)           (275,778)
Net marketable securities activity                                       171,484             257,772
Other investing activity                                                      79               2,237
Net cash used in investing activities                                 $ 

(200,375) $ (173,186)




The increase in cash used in investing activities during the six-month period
ended June 30, 2020, as compared to the same period in 2019, was driven by
increased investments of property and equipment to support our network growth
due to continued expansion of our customer base while continuing to deliver more
traffic to our existing customers. The increase was partially offset by higher
net proceeds from our marketable securities in 2019, since we did not reinvest
some of the proceeds from maturities in order to repay our $690 million
convertible senior notes, which were repaid on February 15, 2019. The increase
was also partially offset by cash paid for business acquisitions in 2019 for our
acquisition of Janrain, Inc.

Cash Used in Financing Activities

                                                            For the Six Months
                                                              Ended June 30,
      (in thousands)                                      2020             2019

Activity related to convertible senior notes $ - $ (690,000)

Activity related to stock-based compensation (34,125) (21,184)

      Repurchases of common stock                       (107,880)        

(116,247)

      Other financing activities                               -          

(1,558)

      Net cash used in financing activities           $ (142,005)      $ 

(828,989)




Cash used in financing activities decreased during the six-month period ended
June 30, 2020, as compared to the same period in 2019, due to the repayment of
$690 million in convertible senior notes that were due in February 2019.

Effective November 2018, our Board of Directors authorized a $1.1 billion share
repurchase program through December 2021. Our goals for the share repurchase
program are to offset the dilution created by our employee equity compensation
programs and provide the flexibility to return capital to shareholders as
business and market conditions warrant.

During the six-month period ended June 30, 2020, we repurchased 1.1 million
shares of common stock at a weighted average price of $94.39 per share for an
aggregate of $107.9 million. As of June 30, 2020, $657.6 million remains
available for future share repurchases. The timing and amount of any future
share repurchases will be determined by our management based on its evaluation
of market conditions and other factors.

Convertible Senior Notes


In August 2019, we issued $1,150.0 million in principal amount of convertible
senior notes due 2027 and entered into related convertible note hedge and
warrant transactions. We intend to use the net proceeds of the offering for
share repurchases, working capital and general corporate purposes, including
potential acquisitions and other strategic transactions.

In May 2018, we issued $1,150.0 million in principal amount of convertible
senior notes due 2025 and entered into related convertible note hedge and
warrant transactions. We used a portion of the net proceeds to repay at maturity
all of our $690.0 million outstanding aggregate principal amount of convertible
senior notes due in 2019.

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In February 2014, we issued $690.0 million in principal amount of convertible
senior notes due 2019 and entered into related convertible note hedge and
warrant transactions. We repaid the full principal amount due in cash in
February 2019, as the notes matured and no conversions occurred.

The terms of the notes and hedge transactions are discussed more fully in Note 7
to the consolidated financial statements included elsewhere in this quarterly
report on Form 10-Q.

Revolving Credit Facility

In May 2018, we entered into a $500.0 million, five-year revolving credit
agreement, or the Credit Agreement. Borrowings under the facility may be used to
finance working capital needs and for general corporate purposes. The facility
provides for an initial $500.0 million in revolving loans. Under specified
circumstances, the facility can be increased to up to $1.0 billion in aggregate
principal amount.

Borrowings under the Credit Agreement bear interest, at our option, at a base
rate plus a spread of 0.00% to 0.25% or an adjusted LIBOR rate plus a spread of
0.875% to 1.25%, in each case with such spread being determined based on our
consolidated leverage ratio specified in the Credit Agreement. Regardless of
what amounts, if any, are outstanding under the Credit Agreement, we are also
obligated to pay an ongoing commitment fee on undrawn amounts at a rate of
0.075% to 0.15%, with such rate being based on our consolidated leverage ratio
specified in the Credit Agreement.

The Credit Agreement contains customary representations and warranties,
affirmative and negative covenants, and events of default. Principal covenants
include a maximum consolidated leverage ratio and a minimum consolidated
interest coverage ratio. There were no outstanding borrowings under the Credit
Agreement as of June 30, 2020.

Liquidity Outlook


Based on our present business plan, we expect our current cash, cash equivalents
and marketable securities balances and our forecasted cash flows from operations
to be sufficient to meet our foreseeable cash needs for at least the next 12
months. Our foreseeable cash needs, in addition to our recurring operating
costs, include our expected capital expenditures, investments in information
technology, opportunistic business acquisitions, anticipated share repurchases,
lease and purchase commitments and settlements of other long-term liabilities.

Contractual Obligations


Our principal commitments consist of service agreements with various vendors for
bandwidth usage, obligations under leases with co-location facilities for data
center capacity, obligations under leases for office space and open vendor
purchase orders. Our minimum commitments related to bandwidth usage and
co-location leases may vary from period to period depending on the timing and
length of contract renewals with our vendors. As of June 30, 2020, there have
been no significant changes in our future non-cancelable minimum payments under
these commitments from those reported in our annual report on Form 10-K for the
year ended December 31, 2019, other than normal period-to-period variations.

Off-Balance Sheet Arrangements


We have entered into indemnification agreements with third parties, including
vendors, customers, landlords, our officers and directors, shareholders of
acquired companies, joint venture partners and third parties to which we license
technology. Generally, these indemnification agreements require us to reimburse
losses suffered by a third party due to various events, such as lawsuits arising
from patent or copyright infringement or our negligence. These indemnification
obligations are considered off-balance sheet arrangements in accordance with the
authoritative guidance for guarantor's accounting and disclosure requirements
for guarantees, including indirect guarantees of indebtedness of others. See
also Note 13 to our consolidated financial statements included in our annual
report on Form 10-K for the year ended December 31, 2019 for further discussion
of these indemnification agreements. The fair value of guarantees issued or
modified during the six months ended June 30, 2020 was determined to be
immaterial.

As of June 30, 2020, we did not have any additional material off-balance sheet arrangements.

                                       41
--------------------------------------------------------------------------------

Significant Accounting Policies and Estimates


See Note 1 to the consolidated financial statements included elsewhere in this
quarterly report on Form 10-Q for information regarding recent and newly adopted
accounting pronouncements. See also Note 2 to our consolidated financial
statements included in our annual report on Form 10-K for the year ended
December 31, 2019. There have been no material changes to our significant
accounting policies and estimates from those reported in our annual report on
Form 10-K for the year ended December 31, 2019.

© Edgar Online, source Glimpses


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