FASTLY, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with the condensed consolidated financial
statements and related notes that are included elsewhere in this Quarterly
Report on Form 10-Q. This discussion contains forward-looking statements based
upon current plans, expectations, and beliefs that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors" and in other parts of this Quarterly Report
on Form 10-Q. Our fiscal year ends on
Overview
Developers are reinventing the way we live, work, and play online. Yet they
repeatedly encounter innovation barriers when delivering modern digital
experiences. Expectations for digital experiences are at an all-time high; they
must be fast, secure, and highly personalized. If they aren't reliable,
end-users simply take their business elsewhere. The challenge today is enabling
developers to deliver a modern digital experience while simultaneously providing
scale, security, and performance. We built our edge cloud platform to solve this
problem.
The edge cloud is an emerging 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, and
Distributed Denial of Service ("DDoS") 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. The edge cloud uses the emerging
cloud computing, serverless paradigm in which the cloud provider runs the server
and dynamically manages the allocation of machine resources. When milliseconds
matter, processing at the edge is an ideal way to handle highly dynamic and
time-sensitive data. The edge cloud complements data center, central cloud, and
hybrid solutions.
Our mission is to fuel the next modern digital experience by providing
developers with a programmable and reliable edge cloud platform that they adopt
as their own.
Organizations must keep up with complex and ever-evolving end-user requirements.
We help them surpass their end-users' expectations by powering fast, secure, and
scalable digital experiences. We built a powerful edge cloud platform, designed
from the ground up to be programmable and support agile software development. We
believe 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. Our platform consists of four key components: a
programmable edge, a software-defined modern network, safety in depth, and a
philosophy of customer empowerment. Our programmable edge provides developers
with real-time visibility and control, where they can write and deploy code in a
serverless environment and to push application logic to the edge. It supports
modern application delivery processes, freeing developers to innovate without
constraints. Our software-defined modern network is built for the
software-defined future. It is powerful, efficient, and flexible, designed to
enable us to rapidly scale to meet the needs of the most demanding customers and
never be a barrier to their growth. Our 145 terabit software-centric network is
located across 61 markets as of June 30, 2021 . We define markets as unique
metropolitan areas where we have one or more Points of Presence ("POPs"). Our
safety in depth approach 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, safe environment
to create, build, and run modern applications.
Our platform provides developers and security operations teams with solutions that foster innovation without impacting performance. Finally, being developers ourselves, we empower customers to build great things while supporting their efforts through frictionless tools and a deeply technical support team that facilitates ongoing collaboration.
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We serve both 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 are competing by using the power of software to build differentiation at the edge. 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, helping people understand the world through deeply reported independent journalism. Our customers' software applications use our edge cloud platform to deliver consistently excellent experiences, such as online shopping, fast and more secure financial transactions, and broadcast quality live streaming on any device. The range of applications that developers build with our edge cloud platform continues to expand rapidly.
So where do we go from here? Our vision is to create a trustworthy internet, where good thrives. 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 edge cloud platform, coming up with exciting new ways to solve today's complex problems.
We generate substantially all of our revenue from charging our customers based on their usage of our platform. 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. 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. We charge a flat one-time or recurring fee for these additional products and services. In the fourth quarter of 2020, we also began offering subscriptions to access a unified security web application and application programming interface at a fixed rate.
We focus our direct selling efforts on medium to large organizations as well as
smaller companies that are exhibiting significant growth. We engage with and
support these customers with our field sales representatives, account managers,
and technical account managers who focus on customer satisfaction and drive
expansion of their usage of our platform and products. These teams work with
technical and business leaders to help our customers' end-users receive the best
possible digital experience, while also lowering our customers' total cost of
ownership.
We are continuing to bring new innovations to our edge cloud platform and
software-defined modern network architecture, and are seeing an increased
interest from customers in our programmable edge computing solution. The success
of these direct selling efforts is reflected by our 408 enterprise customers, as
of
Our DBNER was 126.2% and 137.4% for the trailing 12 months ended
Customers that have negotiated contracts with us generate a substantial majority of our revenue. These customers typically purchase one or more products, for which we charge a monthly recurring or one-time fee depending on the products selected. Some of these customers also choose to purchase various levels of account management and enhanced customer support for a monthly fee. Typically, the term of these contracts is 12 months and includes a minimum monthly billing commitment in exchange for more favorable pricing terms. Many of these customers generate billings in excess of their minimum commitment. In addition, customers can sign up online by providing their credit card information and agreeing to a minimum monthly fee. Beginning in the fourth quarter of 2020, we also offer subscriptions to access a unified security web application and application programming interface at a fixed rate.
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The timing of new revenue from our sales efforts is difficult to predict. The
length of our sales cycle, from initial evaluation to payment, can range from
several months to well over a year and can vary substantially from customer to
customer. Similarly, the onboarding and ramping process with new enterprise
customers can take several months, as well as existing enterprise customers with
new business, can take several months and can be subject to delays for
unanticipated reasons.
We have achieved significant growth in recent periods. For the three months
ended
Recent Events
Departure and Appointment of Principal Financial Officer
On
Conversion of dual class common stock structure
On
Factors Affecting Our Performance Winning New Customers We are focused on continuing to attract new customers. Our customer base includes both large, established enterprises that are undergoing digital transformation and emerging companies spanning a wide array of industries and verticals. In both instances, developers within these companies often use and advocate the adoption of our platform by their companies. We also benefit from word-of-mouth promotion across the broader developer community. We will continue to invest in our developer outreach, leveraging it as a cost-efficient approach to attracting new customers. With our newly expanded security portfolio from the acquisition of Signal Sciences at the end of 2020 and our edge computing capabilities, we will increase our focus on brand awareness, public relations and analyst relations in efforts to help generate awareness and demand for these offerings. We also plan to dedicate significant resources to sales and marketing programs, including various online marketing activities as well as targeted account-based advertising. 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.
The uncertainty surrounding the EU-US Privacy Shield framework, which was
invalidated by the
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In addition, onJune 8, 2021 , we experienced a global platform outage due to an undiscovered software bug caused by human error. The outage was triggered by a valid customer configuration change and could influence potential customers' buying decisions. Expanding within our Existing Customer Base 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 our programmable edge platform and then expand their usage over time. In addition, our programmable edge platform includes a variety of other offerings, such as load balancing, shielding, web security, and WAF. As our customers mature, we assist them in expanding their use of our platform, including the use of additional offerings beyond edge cloud delivery. 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 gain operating leverage to the extent that existing customers expand their use of our platform and products. Our ability to retain our customers and expand their usage could be impaired for a variety of reasons, including a customer moving to another provider or reducing usage within the term of their contract to their minimum usage commitment. 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. For example, onJune 8, 2021 , we experienced a global platform outage due to an undiscovered software bug caused by human error. The outage was triggered by a valid customer configuration change and has resulted in customers reducing or removing traffic from our platform and service level agreement claims. In addition, we cannot be certain what actions theU.S. 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 other countries, target those countries as a market or that have strong business ties to such countries. For example, our largest customer during the year endedDecember 31, 2020 has strong business ties toChina and significantly reduced its usage of our platform in the later part of 2020. We believe this was in response to various actions taken by theU.S. and other governments against them. Further reductions in this, or other, customer's traffic levels could have an additional negative impact on our business. For additional details, refer to the section titled "Risk Factors." International Customer Growth We intend to continue expanding our efforts to attract customers outside ofthe United States by augmenting our sales teams and strategically increasing our presence in the number of markets in select international locations. As ofJune 30, 2021 , our edge network spans across 42 markets and 27 countries that are outside ofthe United States . As ofDecember 31, 2020 , our edge network spans across 40 markets and 25 countries that are outside ofthe United States . Our international expansion, including our global sales efforts, will add increased complexity and cost to our business. This will require us to significantly expand our sales and marketing capabilities outside ofthe United States , as well as increase the number of markets we have a presence in around the world to support our customers. We have limited experience managing the administrative aspects of a global organization, and we have only recently begun to establish and operate offices in foreign countries, which could place a strain on our business and culture. Investing in Sales and Marketing Our customers have been pivotal in driving brand awareness and broadening our reach. While we continue to leverage our self-service approach to drive adoption by developers, we intend to 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 intend to increase our discretionary marketing spend, including account based 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 our sales and marketing teams are intended to help accelerate our sales, onboarding, and ramp cycles. These efforts will require us to invest significantly in financial and other 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. 45
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Continued Investment in Our Platform and Network Infrastructure We must continue to invest in our platform and network infrastructure to maintain our position in the market. We expect our revenue growth to be dependent on an expanding customer base and continued adoption of our edge cloud platform. In anticipation of winning new customers and staying ahead of our customers' needs, we plan to continue to invest in order to expand the scale and capacity of our software-defined modern network, resulting in increased network service provider fees, which could adversely affect our gross margins if we are unable to offset these costs with revenue from new customers and increase revenue from existing customers. Our suppliers have been impacted by the COVID-19 pandemic, which has reduced the availability of or resulted in delays, and may continue to reduce the availability or result in delays, of most of the parts and components needed to construct our servers. In addition, supplier production constraints as well as third parties making large quantity purchases have impacted, and may continue to impact, our ability to procure a sufficient quantity of the same parts and components required to construct our servers. Any such delays or shortages could interrupt our ability to complete the construction of our servers to meet the usage needs of our customers. Our customers require constant innovation within their own organizations and expect the same from us. Therefore, we will continue to invest in resources to enhance our development capabilities and introduce new products and features on our platform. We believe that investment in research and development will contribute to our long-term growth but may also negatively impact our short-term profitability. For the three and six months endedJune 30, 2021 , our research and development expenses as a percentage of revenue was 36% and 35%, respectively. 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, towards the end of 2020, we acquired Signal Sciences, a security software company that provides protection from web, API, and mobile security threats, expanding our security portfolio. Developers use our platform to build custom applications and require a state-of-the-art infrastructure to test and run these applications. We will continue to invest in our network infrastructure by strategically increasing our POPs. We also anticipate making investments in upgrading our technology and hardware to continue providing our customers a fast and secure platform. Our total investment in property and equipment for the three and six months endedJune 30, 2021 was$4.6 million and$13.7 million , representing 5% and 8% of our revenue in the period, respectively. We expect our investment in property and equipment to increase on an absolute basis and may increase as a percentage of revenue in future periods. Our gross margins and operating results are impacted by these investments. As ofJune 30, 2021 , our network is located in 61 markets across 28 countries. 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 products, third-party error, our own error, natural disasters, or security breaches-we could experience lengthy interruptions in our platform as well as delays and additional expenses in arranging new facilities and services. For example, onJune 8, 2021 , we experienced a global platform outage due to an undiscovered software bug caused by human error. The outage was triggered by a valid customer configuration change and has resulted in customers reducing or removing traffic from our platform and service level agreement claims. Within 49 minutes, 95% of our network was operating as normal. In addition, there can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly when customers experience cyber-attacks. The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including service outages, payment disputes, network providers going out of business, natural disasters, networks imposing traffic limits, or governments adopting regulations that impact network operations. Uncertainty of the Coronavirus (COVID-19) Pandemic The ongoing global COVID-19 pandemic has adversely impacted, and may continue to adversely impact, many aspects of our business. As certain of our customers or potential customers experience downturns or uncertainty in their own business operations and revenue resulting from the spread of COVID-19, they have and may continue to decrease or delay their technology spending, request pricing concessions or payment extensions, or seek renegotiation of their contracts. In addition, a portion of our revenue is related to usage of our platform in connection with live events, such as sporting events, that have continued to be impacted. Usage of our platform fluctuated following the implementation of preventative measures to contain or mitigate the outbreak of COVID-19, and we cannot predict how usage levels will continue to be impacted by these preventative measures. There is no assurance that customers will continue to use our platform, or to the same extent, as the COVID-19 pandemic begins to taper off or when it has ended. As a result, it has been difficult to accurately forecast our revenues or financial results, especially given that the near and long term impacts of the pandemic remains uncertain. Our results of operations could be materially above or below our forecasts, which could adversely affect our results of operations, disappoint analysts and investors, and/or cause our stock price to decline. 46
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In response to the COVID-19 pandemic, many state, local, and foreign governments
have put in place restrictions in order to control the spread of the disease.
Such restrictions, or the perception that further restrictions could occur, have
resulted in business closures, work stoppages, slowdowns and delays,
work-from-home policies, travel restrictions, and cancellation or postponement
of events, among other effects that impacted productivity and disrupted our
operations and those of our partners and customers. For example, we experienced
delays in the ramping of new traffic due to travel and data center restrictions
in
In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, and may reduce our ability to access additional capital, which could negatively affect our liquidity in the future.
We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While there have recently been vaccines developed and administered, and the spread of COVID-19 may eventually be contained or mitigated, we cannot predict the timing of the vaccine roll-out globally or the efficacy of such vaccines, including against variants that emerge, and we do not yet know how businesses, customers, or our partners will operate in a post COVID-19 environment. There may be additional costs or impacts to our business and operations, including when we are able to return to our offices and resume in-person activities, travel, and events. In addition, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could harm our business.
For additional details, refer to the section titled "Risk Factors."
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Key Business Metrics
We regularly review a number of metrics, including the key metrics presented in
the table below, to evaluate our business, measure our performance, identify
trends affecting our business, prepare financial projections, and make strategic
decisions. The calculation of the key metrics and other measures discussed below
may differ from other similarly titled metrics used by other companies,
securities analysts, or investors. The results of Signal Sciences have been
consolidated into our financial results and our key metrics as of
June 30,
2021 2020
Number of customers (as of end of period) 2,581 1,951
Number of enterprise customers (as of end of period) 408 304
Dollar-Based Net Expansion Rate ("DBNER") (trailing 12 months) 126.2 % 137.4 % NRR (as of end of period)
93.2 % 137.8 %
LTM NRR (trailing 12 months) 120.7 % 135.6 %
Number of Customers
We believe that the number of customers is an important indicator of the
adoption of our platform. Our definition of a customer consists of identifiable
operating entities with which we have a billing relationship in good standing
and from which we recognized revenue during the period. An identifiable
operating entity is defined as a company, a government entity, or a distinct
business unit of a larger company that has a relationship with Fastly through
direct sale or through one of our reseller partners where charges are identified
on an end-customer basis. In cases where charges are identified through a
reseller partner rather than on an end-customer basis, we record a single
customer record for the reseller partner. Our customer groupings may be impacted
by changes to our customers' business, including any impact from merger and
acquisition activities, internal business reorganizations leading to operational
and decision making changes, and corporate structure changes such as subsidiary
consolidation and reorganization that may arise in the future. In addition to
our paying customers, we also have trial, developer, nonprofit and open source
program, and other non-paying accounts that are excluded from our customer count
metric. As of June 30, 2021 and 2020, we had 2,581 and 1,951 customers,
respectively.
Number of Enterprise Customers
Historically our revenue has been driven primarily by a subset of customers who
have leveraged our platform substantially from a usage standpoint. These
enterprise customers are defined as customers with revenue in excess of $100,000
over the previous 12-month period. Legacy Signal Sciences customers are counted
as enterprise customers if they have had revenue in excess of $75,000 during the
previous 9-month period, since the closing of the Signal Sciences acquisition on
October 1, 2020 (Note 5). As of June 30, 2021 , we had 408 enterprise customers
which generated 89% of our revenue for the trailing 12 months ended June 30,
2021 . As of June 30, 2020 , we had 304 enterprise customers which generated 90%
of our revenue for the trailing 12 months ended June 30, 2020 . We believe the
recruitment and cultivation of enterprise customers is critical to our long-term
success.
Dollar Based Net Expansion Rate ("DBNER") Our ability to generate and increase our revenue is dependent upon our ability to increase the number of new customers and usage of our platform and increase the purchase of additional products by our existing customers. We track our growth, in part, by measuring our DBNER. Our DBNER increases when customers increase their usage of our platform or purchase additional products, and declines when they reduce their usage, benefit from lower pricing on their existing usage, or curtail their purchases of additional products. We believe DBNER is a key metric in measuring the long-term value of our customer relationships and our ability to grow our revenue through increased usage of our platform and purchase of additional products by our existing customers. However, our calculation of DBNER indicates only expansion among continuing customers and does not indicate any decrease in revenue attributable to former customers, which may differ from similar metrics of other companies.
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We calculate DBNER by dividing the revenue for a given period from customers who
remained customers as of the last day of the given period ("current period") by
the revenue from the same customers for the same period measured one year prior
("base period"). The revenue included in the current period excludes revenue
from (i) customers that churned after the end of the base period and (ii) new
customers that entered into a customer agreement after the end of the base
period. For example, to calculate our DBNER for the trailing 12 months ended
Our LTM NRR is intended to be supplemental to our NRR as we believe that it
removes some of the volatility that is inherent in a usage-based business model.
We calculate LTM NRR by dividing the total customer revenue for the prior
twelve-month period ("prior 12-month period") ending at the beginning of the
last twelve-month period ("LTM period") minus revenue contraction due to billing
decreases or customer churn, plus revenue expansion due to billing increases
during the LTM period from the same customers by the total prior 12-month period
revenue. For the last month of the quarters ended
Key Components of Statement of Operations Revenue We derive our revenue primarily from usage-based fees earned from customers using our platform. We also earn fixed-rate recurring revenue from certain products, services and subscriptions, including revenue from Signal Sciences customers. Our usage-based fees earned from customers are generally billed in arrears. Our security products are primarily annual subscriptions that are billed in advance. 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. Our larger customers often enter into contracts that contain minimum billing commitments and reflect discounted pricing associated with such usage levels. We defineU.S. revenue as revenue from customers that have a billing address inthe United States , and we define international revenue as revenue from customers that have a billing address outside ofthe United States . Our revenue has been and will continue to be impacted by new and existing customers' usage of our products, international expansion, and the success of our sales efforts. 49
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Cost of Revenue and Gross Margin
Cost of revenue consists primarily of fees paid for bandwidth, peering, and
colocation. Cost of revenue also includes personnel costs, such as salaries,
benefits, bonuses, and stock-based compensation for our customer support and
infrastructure employees, and non-personnel costs, such as amortization of
capitalized internal-use software development costs and depreciation of our
network equipment and amortization of certain intangible assets. Our
arrangements with network service providers require us to pay fees based on
bandwidth use, in some cases subject to minimum commitments, which may be
underutilized. We expect our cost of revenue to continue to increase on an
absolute basis and may increase as a percentage of revenue, including as a
result of depreciation and amortization associated with capital expenditures as
well as amortization of any acquired intangibles and technology in future
periods.
Our gross margin has been and will continue to be affected by a number of
factors, including the timing and extent of our investments in our operations,
our ability to manage our network service providers and cloud
infrastructure-related fees, the timing of amortization of capitalized software
development costs, depreciation of our network equipment, and the extent to
which we periodically choose to pass on our cost savings from network
optimization efforts to our customers in the form of lower usage rates.
Research and Development
Research and development expenses consist primarily of personnel costs,
including salaries, benefits, bonuses, and stock-based compensation. Research
and development expenses also include cloud infrastructure fees for development
and testing, and an allocation of our general overhead expenses. We capitalize
the portion of our software development costs that meet the criteria for
capitalization.
We continue to focus our research and development efforts on adding new features
and products including new use cases, improving the efficiency and performance
of our network, and increasing the functionality of our existing products. Over
the long term we expect our research and development expenses to decrease as a
percentage of our revenue. However, our research and development expenses may
fluctuate as a percentage of our revenue from period to period due to the timing
and extent of these expenses and the impact of any acquisitions.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel costs, including
commissions for our sales employees, salaries, benefits, bonuses, and
stock-based compensation. Sales and marketing expenses also include expenditures
related to advertising, marketing, our brand awareness activities, costs related
to our Altitude conferences, professional services fees, amortization of certain
intangible assets, and an allocation of our general overhead expenses.
We focus our sales and marketing efforts on generating awareness of our company,
platform and products, creating sales leads, and establishing and promoting our
brand, both domestically and internationally. We plan to increase our investment
in sales and marketing by hiring additional sales and marketing personnel,
expanding our sales channels, driving our go-to-market strategies, building our
brand awareness, and sponsoring additional marketing events. Over the long term,
we expect our sales and marketing expenses to decrease as a percentage of our
revenue. However, our sales and marketing expenses may fluctuate as a percentage
of our revenue from period to period due to the timing and extent of these
expenses and the impact of any acquisitions.
General and Administrative
General and administrative expenses consist primarily of personnel costs,
including salaries, benefits bonuses, and stock-based compensation for our
accounting, finance, legal, trust, human resources and administrative support
personnel, and executives. General and administrative expenses also include
costs related to legal and other professional services fees, sales and other
taxes, depreciation and amortization, an allocation of our general overhead
expenses, and bad debt expense and acquisition-related costs. We expect that we
will incur costs associated with supporting the growth of our business,
including future acquisitions. Additionally we expect that we will incur ongoing
costs to support our operations as a public company and to meet the increased
compliance requirements associated with our international expansion.
Our general and administrative expenses include a significant amount of sales
and other taxes to which we are subject based on the manner we sell and deliver
our products. Historically, we have not collected such taxes from our customers
and have therefore recorded such taxes as general and administrative expenses.
We expect that these expenses will decline in future years as we continue to
implement our sales tax collection mechanisms and start collecting these taxes
from our customers.
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Overall, we expect our general and administrative expenses to continue to increase on an absolute basis and may increase as a percentage of revenue in future periods. Over the long term, we expect our general and administrative expenses to decrease as a percentage of our revenue.
Income Taxes
Our income tax expense consists primarily of income taxes in certain foreign
jurisdictions where we conduct business and state minimum income taxes in
Our interest income consists primarily of interest earned on our cash, cash equivalents and investments. Our interest expense consists primarily of contractual interest expense, amortization of discount and debt issuance costs associated with our debt obligations. Our other income (expense), net, consists primarily of our foreign currency transaction gains and losses.
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