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Form 10-Q Fastly, Inc. For: Mar 31

May 5, 2022 4:19 PM
fsly-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
____________________________

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2022

or
 
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to      

Commission File Number: 001-38897
____________________________
FASTLY, INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware27-5411834
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
475 Brannan Street, Suite 300
San Francisco, CA 94107
(Address of principal executive offices) (Zip code)

(844) 432-7859
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address, or former fiscal year, if changed since last report)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.00002 par valueFSLYThe New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of April 29, 2022, 120.9 million shares of the registrants’ Class A common stock were outstanding.

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TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "will," "would," or the negative of these terms or other similar expressions.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:
defects, interruptions, outages, delays in performance, or similar problems with our platform, including the impact of our global platform outage on June 8, 2021;
our ability to attract new enterprise customers and to have existing enterprise customers continue and increase their use of our platform;
our ability to forecast our revenue accurately and manage our expenditures;
the potential loss or significant reduction in usage by one or more of our major customers;
component delays, shortages, and price increases;
our limited operating history and history of operating losses;
our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;
our ability to effectively develop and expand our marketing and sales capabilities;
our ability to compete effectively with existing competitors and new market entrants;
our ability to maintain and enhance our brand;
our ability to identify and integrate acquisitions, strategic investments, partnerships, or alliances;
security measures, or those maintained on our behalf, are compromised, or the security, confidentiality, integrity or availability of our information technology, software, services, networks, communications or data is compromised, limited or fails;
our ability to attract and retain qualified employees and key personnel;
our potential involvement in class-action lawsuits and other litigation matters;
the impact of the ongoing COVID-19 pandemic on our business, operations, and the markets and communities in which us, our partners, and our customers operate;
our ability to remediate material weaknesses and maintain effective internal control over financial reporting; and
our stock price may be volatile, and the value of our Class A common stock may decline.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
3


Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (www.investors.fastly.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about us, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in us to review the information that we make available on our website.
4



PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FASTLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
As of March 31, 2022As of December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents$245,794 $166,068 
Marketable securities, current393,950 361,795 
Accounts receivable, net of allowance for credit losses of $3,403 and $3,311 as of March 31, 2022 and December 31, 2021, respectively
73,717 64,625 
Prepaid expenses and other current assets23,616 32,160 
Total current assets737,077 624,648 
Property and equipment, net174,550 166,961 
Operating lease right-of-use assets, net63,455 69,631 
Goodwill637,570 636,805 
Intangible assets, net97,287 102,596 
Marketable securities, non-current394,464 528,911 
Other assets30,020 29,468 
Total assets$2,134,423 $2,159,020 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$8,248 $9,257 
Accrued expenses49,902 36,112 
Finance lease liabilities, current26,766 21,125 
Operating lease liabilities, current18,688 20,271 
Other current liabilities36,569 45,107 
Total current liabilities140,173 131,872 
Long-term debt934,121 933,205 
Finance lease liabilities, noncurrent28,867 22,293 
Operating lease liabilities, noncurrent52,334 55,114 
Other long-term liabilities2,205 2,583 
Total liabilities1,157,700 1,145,067 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Class A common stock2 2 
Additional paid-in capital1,561,371 1,527,468 
Accumulated other comprehensive loss(9,496)(2,627)
Accumulated deficit(575,154)(510,890)
Total stockholders’ equity 976,723 1,013,953 
Total liabilities and stockholders’ equity $2,134,423 $2,159,020 


The accompanying notes are an integral part of the condensed consolidated financial statements.

5


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended
March 31,
20222021
Revenue$102,382 $84,852 
Cost of revenue53,915 37,494 
Gross profit48,467 47,358 
Operating expenses:
Research and development40,437 28,988 
Sales and marketing41,480 34,872 
General and administrative29,554 33,461 
Total operating expenses111,471 97,321 
Loss from operations(63,004)(49,963)
Interest income681 174 
Interest expense(1,622)(661)
Other expense(279)(64)
Loss before income taxes(64,224)(50,514)
Income tax expense40 169 
Net loss$(64,264)$(50,683)
Net loss per share attributable to common stockholders, basic and diluted$(0.54)$(0.44)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted119,673 114,134 

The accompanying notes are an integral part of the condensed consolidated financial statements.


6


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
Three months ended
March 31,
20222021
Net loss$(64,264)$(50,683)
Other comprehensive loss:
Foreign currency translation loss$(187)$(65)
Loss on investments in available-for-sale-securities(6,682)(78)
Total other comprehensive loss$(6,869)$(143)
Comprehensive loss$(71,133)$(50,826)

The accompanying notes are an integral part of the condensed consolidated financial statements.
7


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands; unaudited)
Three months ended March 31, 2022
Common Stock—Class AAdditional Paid-in
Capital
Accumulated Other Comprehensive LossAccumulated
Deficit
Total Stockholders’ Equity
SharesAmount
Balance at December 31, 2021118,811 $2 $1,527,468 $(2,627)$(510,890)$1,013,953 
Exercise of stock options1,351 — 3,048 — — 3,048 
Vesting of restricted stock units577 — — — — — 
Vesting of restricted stock awards38 — — — — — 
Stock-based compensation— — 30,855 — — 30,855 
Net loss— — — — (64,264)(64,264)
Other comprehensive loss— — — (6,869)— (6,869)
Balance at March 31, 2022120,777 $2 $1,561,371 $(9,496)$(575,154)$976,723 

Three months ended March 31, 2021
Common Stock—Class ACommon Stock—Class BAdditional Paid-in
Capital
Accumulated Other Comprehensive Income (Loss)Accumulated
Deficit
Total Stockholders’ Equity
SharesAmountSharesAmount
Balance as of December 31, 2020103,394 $1 10,229 $1 $1,350,050 $6 $(288,193)$1,061,865 
Exercise of stock options601 — — — 2,719 — — 2,719 
Vesting of early exercised stock options— — 14 — 64 — — 64 
Vesting of restricted stock units490 — — — — — — — 
Vesting of restricted stock awards112 — — — — — — — 
Stock-based compensation— — — — 31,212 — — 31,212 
Conversion of Class B to Class A Stock352 — (352)— — — — — 
Net loss— — — — — — (50,683)(50,683)
Other comprehensive loss— — — — — (143)— (143)
Balance as of March 31, 2021104,950 $1 9,891 $1 $1,384,045 $(137)$(338,876)$1,045,034 








The accompanying notes are an integral part of the condensed consolidated financial statements.
8


FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Three months ended March 31,
20222021
Cash flows from operating activities:
Net loss$(64,264)$(50,683)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense9,850 6,419 
Amortization of intangible assets5,309 5,363 
Amortization of right-of-use assets and other6,839 6,357 
Amortization of debt discount and issuance costs964 332 
Amortization of deferred contract costs1,851 1,411 
Stock-based compensation40,022 30,838 
Provision for credit losses127 (420)
Interest on finance lease(591)(330)
Loss on disposals of property and equipment268 27 
Amortization and accretion of discounts and premiums on investments957  
Other adjustments128 64 
Changes in operating assets and liabilities:
Accounts receivable(9,219)(1,685)
Prepaid expenses and other current assets(2,111)(1,680)
Other assets(2,451)(2,952)
Accounts payable(2,492)2,119 
Accrued expenses4,891 (755)
Operating lease liabilities(6,557)(6,365)
Other liabilities3,289 1,071 
Net cash used in operating activities(13,190)(10,869)
Cash flows from investing activities:
Purchases of marketable securities(148,193)(64,331)
Sales of marketable securities2,301 12,497 
Maturities of marketable securities240,547 25,503 
Business acquisitions, net of cash acquired(775) 
Purchases of property and equipment(2,387)(8,079)
Capitalized internal-use software(3,810)(989)
Net cash provided by (used in) investing activities87,683 (35,399)
Cash flows from financing activities:
Issuance of convertible note, net of issuance costs 930,775 
Payments of other debt issuance costs (1,351)
Repayments of finance lease liabilities(7,159)(2,951)
Cash received for restricted stock sold in advance of vesting conditions10,655  
Cash paid for early sale of restricted shares(3,498) 
Proceeds from exercise of vested stock options3,048 2,719 
Proceeds from employee stock purchase plan2,406 3,071 
Net cash provided by financing activities5,452 932,263 
Effects of exchange rate changes on cash, cash equivalents, and restricted cash(219)(112)
Net increase in cash, cash equivalents, and restricted cash79,726 885,883 
Cash, cash equivalents, and restricted cash at beginning of period166,961 63,880 
Cash, cash equivalents, and restricted cash at end of period$246,687 $949,763 

The accompanying notes are an integral part of the condensed consolidated financial statements.


9






FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
(in thousands)
(unaudited)
Three months ended March 31,
20222021
Supplemental disclosure of cash flow information:
Cash paid for interest$592 $355 
Property and equipment additions not yet paid in cash$9,084 $750 
Stock-based compensation capitalized to internal-use software$1,415 $374 
Assets obtained in exchange for operating lease obligations$2,088 $8,824 
Assets obtained in exchange for finance lease obligations$19,374 $2,009 
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows:
Cash and cash equivalents$245,794 $948,783 
Restricted cash, current 87 
Restricted cash, non-current893 893 
Total cash, cash equivalents, and restricted cash$246,687 $949,763 



The accompanying notes are an integral part of the condensed consolidated financial statements.


10



1.     Nature of Business
Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customer’s applications as close to their end users as possible. As of March 31, 2022, the Company's edge network spans across 75 markets around the world. The Company was incorporated in Delaware in 2011 and is headquartered in San Francisco, California.
As used herein, "Fastly," "we," "our," "the Company," and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.
Conversion of dual class common stock structure
On July 12, 2021, all outstanding shares of Class B common stock automatically converted into the same number of shares of Class A common stock (the "Conversion"), pursuant to the terms of the Company's amended and restated certificate of incorporation (the "Certificate"). Upon the Conversion, outstanding options denominated in shares of Class B common stock issued under any of its equity incentive plans remained unchanged, except that they now represent the right to receive shares of Class A common stock on exercise. In accordance with the Certificate, the shares of Class B common stock that converted to Class A common stock were retired and will not be reissued by us.
2.     Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), consistent in all material respects with those applied in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022. The Company's condensed consolidated financial statements include its accounts and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company's condensed consolidated financial statements are unaudited but include all adjustments of a normal recurring nature necessary for a fair presentation of its quarterly results. The Company's condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Certain changes to presentation have been made to conform the prior period presentation to the current period reporting. Such reclassifications did not affect the condensed consolidated balance sheets, total revenues, operating income, or net income.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and also on assumptions that it believes are reasonable.
Due to the Coronavirus (“COVID-19”) pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of March 31, 2022. These estimates may change, as new events occur and additional information is obtained, as well as other factors related to COVID-19 that could result in material impacts to the Company's consolidated financial statements in future reporting periods.
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies as compared to those described in “Note 2 – Summary of Significant Accounting Policies” of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
11


Recently Adopted and Issued Accounting Pronouncements
The Company has not adopted any new accounting pronouncements in the three months ended March 31, 2022. Other recently issued accounting pronouncements are not expected to have a material impact on its condensed consolidated financial statements.
Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and accounts receivable.
The Company's cash, cash equivalents, and marketable securities primarily consisted of bank deposits, money market funds, investment-grade commercial paper, corporate notes and bonds, U.S. treasury securities, municipal securities, foreign government and supranational securities and asset-backed securities held at major financial institutions. The primary focus of its investment strategy is to preserve capital and meet liquidity requirements. The Company's investment policy limits the amount of credit exposure with any one financial institution or commercial issuer.
Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which the Company makes substantial sales. The Company's customer base consists of a large number of geographically dispersed customers diversified across several industries. In the three months ended March 31, 2022 and March 31, 2021, no customer accounted for more than 10% of revenue. As of March 31, 2022 and December 31, 2021, no customer accounted for more than 10% of the total accounts receivable balance.
3. Revenue
Revenue by geography is based on the billing address of the customer. Aside from the United States, no other single country accounted for more than 10% of revenue for both the three months ended March 31, 2022 and March 31, 2021. The following table presents the Company's net revenue by geographic region:
Three months ended March 31,
20222021
(in thousands)
United States$75,614 $62,734 
Asia Pacific11,720 9,154 
Europe9,353 9,640 
All other5,695 3,324 
Total revenue$102,382 $84,852 
The majority of the Company's revenue is derived from enterprise customers, which are defined as customers with revenue in excess of $100,000 over the previous 12-month period. The following table presents its net revenue for enterprise and non-enterprise customers:
Three months ended March 31,
20222021
(in thousands)
Enterprise customers$91,101 $75,465 
Non-enterprise customers11,281 9,387 
Total revenue$102,382 $84,852 
12


Contract balances
The following table presents the Company's contract assets and contract liabilities as of March 31, 2022 and as of December 31, 2021:
As of March 31, 2022As of December 31, 2021
(in thousands)
Contract assets$56 $89 
Contract liabilities$30,660 $28,907 
The Company's payment terms and conditions vary by contract type. Payment terms on invoiced amounts are at a weighted average of 40 days.
The following table presents the revenue recognized during the three months ended March 31, 2022 and 2021 from amounts included in the contract liability at the beginning of the period:
Three months ended March 31,
20222021
(in thousands)
Revenue recognized in the period from amounts included in contract liability at the beginning of the period$9,238 $5,903 
Remaining performance obligations
As of March 31, 2022, the Company had $157.5 million of remaining performance obligations, which includes deferred revenue and amounts that will be invoiced and recognized in future periods, respectively. As of March 31, 2022, the Company expects to recognize approximately 78% of this balance over the next 12 months in the Company's condensed consolidated statement of operations and comprehensive loss. The typical contract term is one year, although terms may vary by contract.
Costs to obtain a contract
As of March 31, 2022 and December 31, 2021, the Company's costs to obtain contracts were as follows:
As of March 31, 2022As of December 31, 2021
(in thousands)
Deferred contract costs, net$26,061 $23,830 
During the three months ended March 31, 2022 and 2021, the Company recognized $1.9 million and $1.4 million of amortization related to deferred contract costs, respectively. These costs are recorded within sales and marketing expenses on the accompanying Condensed Consolidated Statements of Operations.
13


4.     Investments and Fair Value Measurements
The Company's cash equivalents include investments with a remaining maturity date of three months or less. As of March 31, 2022 and December 31, 2021, all of its securities are classified as available-for-sale.
The Company's total cash, cash equivalents and marketable securities as of March 31, 2022 and December 31, 2021 consisted of the following:
As of March 31,As of December 31,
20222021
(in thousands)
Cash and cash equivalents:
Cash$118,014 $134,774 
Money market funds66,792 31,294 
U.S. Treasury securities60,988  
Total cash and cash equivalents$245,794 $166,068 
Marketable securities:
U.S. Treasury securities$235,623 $184,946 
Corporate notes and bonds23,734 11,327 
Commercial paper80,904 124,089 
Asset-backed securities21,438 21,576 
Municipal securities2,249 2,250 
Foreign government and supranational securities30,002 17,607 
Total marketable securities, current (1)
$393,950 $361,795 
U.S. Treasury securities122,556 239,528 
Corporate notes and bonds187,792 197,298 
Asset-backed securities81,871 77,142 
Municipal securities2,245 2,312 
Foreign government and supranational securities 12,631 
Total marketable securities, non-current (2)
$394,464 $528,911 
Total marketable securities$788,414 $890,706 
Total cash, cash equivalents and marketable securities$1,034,208 $1,056,774 
(1)The Company classifies its marketable securities as current, where it intends to hold the securities for less than 12 months.
(2)The Company classifies its marketable securities are non-current, where it intends to hold the securities for longer than 12 months.
14


Available-for-Sale Investments
The Company’s marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value with unrealized gains and losses reported, net of tax, as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity.
The following table summarizes adjusted cost, gross unrealized gains and losses, and fair value related to available-for-sale securities classified as marketable securities as of March 31, 2022 and December 31, 2021:
As of March 31, 2022
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in thousands)
U.S. Treasury securities$362,746 $ $(4,567)$358,179 
Corporate notes and bonds215,096  (3,570)211,526 
Commercial paper80,904   80,904 
Asset-backed securities103,795  (486)103,309 
Municipal securities4,576  (82)4,494 
Foreign government and supranational securities30,221  (219)30,002 
Total available-for-sale investments$797,338 $ $(8,924)$788,414 
As of December 31, 2021
Amortized
Cost
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair
Value
(in thousands)
U.S. Treasury securities$425,560 $1 $(1,086)$424,475 
Corporate notes and bonds209,550  (925)208,625 
Commercial paper124,098  (9)124,089 
Asset-backed securities98,857  (140)98,717 
Municipal securities4,577  (15)4,562 
Foreign government and supranational securities30,306  (68)30,238 
Total available-for-sale investments$892,948 $1 $(2,243)$890,706 
There were no material realized gains or losses from sales of marketable securities that were reclassified out of accumulated other comprehensive (loss) income into investment income during the three months ended March 31, 2022 and 2021. There were no securities in a continuous loss position for 12 months or longer as of March 31, 2022 and December 31, 2021. Investments are reviewed periodically to identify possible other-than-temporary impairments. No impairment loss has been recorded on the securities included in the tables above, as the Company believes that the decrease in fair value of these securities is temporary.
Fair Value of Financial Instruments
For certain of the Company's financial instruments, including cash held in banks, accounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short maturities, and are therefore excluded from the fair value tables below.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There is a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities;
15


Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity, which require management judgment or estimation.
The Company measures its cash equivalents, marketable securities, and restricted cash at fair value. The Company classifies its cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because the Company values these investments using quoted market prices or alternative pricing sources and models utilizing market observable inputs. The fair value of the Company's Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of the Company's Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily available pricing sources for the identical underlying security that may not be actively traded.
Financial assets and liabilities measured and recorded at fair value on a recurring basis consisted of the following types of instruments:
As of March 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Cash equivalents:
Money market funds$66,792 $ $ $66,792 
U.S. Treasury securities 60,988  60,988 
Total cash equivalents66,792 60,988  127,780 
Marketable securities:
Corporate notes and bonds 211,526  211,526 
Commercial paper 80,904  80,904 
U.S. Treasury securities 358,179  358,179 
Municipal securities 4,494  4,494 
Asset-backed securities 103,309  103,309 
Foreign government and supranational securities 30,002  30,002 
Total marketable securities 788,414  788,414 
Restricted cash:
Restricted cash, non-current893   893 
Total restricted cash893   893 
Total financial assets$67,685 $849,402 $ $917,087 
16


As of December 31, 2021
Level 1Level 2Level 3Total
(in thousands)
Cash equivalents:
Money market funds$31,294 $ $ $31,294 
Total cash equivalents31,294   31,294 
Marketable securities:
U.S. Treasury securities 424,475  424,475 
Corporate notes and bonds 208,625  208,625 
Commercial paper 124,089  124,089 
Asset-backed securities 98,717  98,717 
Municipal securities 4,562  4,562 
Foreign government and supranational securities 30,238  30,238 
Total marketable securities 890,706  890,706 
Restricted cash:
Restricted cash, non-current893   893 
Total restricted cash893   893 
Total financial assets$32,187 $890,706 $ $922,893 
The Company classifies its investments, which are comprised of corporate notes and bonds, commercial paper, U.S. treasury securities, foreign government and supranational securities and asset-backed securities within Level 2 of the fair value hierarchy because the fair value of these securities is priced by using inputs based on non-binding market consensus prices that are primarily corroborated by observable market data or quoted market prices for similar instruments.
As of both March 31, 2022 and December 31, 2021, the Company had $0.9 million in restricted cash, consisting of letters of credit related to lease arrangements that are collateralized by restricted cash. This amount is classified as non-current in line with the remaining term of the lease and is included in other assets on the Company's Condensed Consolidated Balance Sheets.
There were no transfers of assets and liabilities measured at fair value between Level 1 and Level 2, or between Level 2 and Level 3, during the three months ended March 31, 2022 and 2021.
5.     Balance Sheet Information
Property and equipment, net
Property and equipment, net consisted of the following:
As of March 31,As of December 31,
20222021
(in thousands)
Computer and networking equipment$217,448 $207,575 
Leasehold improvements5,099 4,631 
Furniture and fixtures1,310 1,606 
Office equipment757 654 
Internal-use software45,570 40,345 
Property and equipment, gross$270,184 $254,811 
Accumulated depreciation and amortization(95,634)(87,850)
Property and equipment, net$174,550 $166,961 
17


Depreciation on property and equipment for the three months ended March 31, 2022 and 2021 was approximately $9.9 million and $6.4 million, respectively. Included in these amounts was amortization expense for capitalized internal-use software costs of approximately $1.5 million and $0.9 million, respectively, for the three months ended March 31, 2022 and 2021.
As of March 31, 2022 and December 31, 2021, the unamortized balance of capitalized internal-use software costs on the Company's Condensed Consolidated Balance Sheets was approximately $31.6 million and $27.9 million, respectively.
The Company leases certain networking equipment from various third parties, through equipment finance leases. The Company's networking equipment assets as of March 31, 2022 and December 31, 2021, included a total of $85.3 million and $67.8 million acquired under finance lease agreements, respectively. These leases are capitalized in property and equipment, and the related amortization of assets under finance leases is included in depreciation and amortization expense. The accumulated depreciation of the associated networking equipment assets under finance leases totaled $17.1 million and $14.4 million as of March 31, 2022 and December 31, 2021, respectively.
Other assets
Other assets consisted of the following:
As of March 31,As of December 31,
20222021
(in thousands)
Deferred contract costs, net$26,061 $23,830 
Restricted cash893 893 
Other assets3,066 4,745 
Total other assets$30,020 $29,468 
Accrued expenses
Accrued expenses consisted of the following:
As of March 31,As of December 31,
20222021
(in thousands)
Accrued compensation and related benefits$23,126 $13,543 
Accrued colocation and bandwidth costs10,236 10,205 
Sales and use tax liabilities8,525 8,070 
Other accrued liabilities8,015 4,294 
Total accrued expenses$49,902 $36,112 
Other Current Liabilities
Other current liabilities consisted of the following:
As of March 31,As of December 31,
20222021
(in thousands)
Deferred revenue, current$28,455 $26,421 
Accrued computer and networking equipment7,408 18,081 
Other current liabilities706 605 
Total other current liabilities$36,569 $45,107 
18


6.     Leases
The Company has operating leases for corporate offices and data centers ("colocation leases"), and finance leases for networking equipment. The Company's leases have remaining lease terms ranging from 1 to 6 years, some of which include options to extend the leases. The Company also subleases a portion of its corporate office spaces. The Company's subleases have remaining lease terms of 2.5 years. Its sublease income was $0.3 million for both the three months ended March 31, 2022, and 2021.
The Company's components of lease cost were as follows:
Three months ended March 31,
20222021
(in thousands)
Operating lease cost:
Operating lease cost$6,802 $6,352 
Variable lease cost2,772 1,358 
Total operating lease costs$9,574 $7,710 
Finance lease cost:
Amortization of assets under finance lease$3,263 $1,234 
Interest655 330 
Total finance lease costs$3,918 $1,564 
Other information related to leases was as follows:
As of March 31,As of As of December 31,
20222021
Weighted Average Remaining Lease Term (in years):
Operating leases4.304.41
Finance leases2.282.23
Weighted Average Discount Rate:
Operating leases5.20 %5.20 %
Finance leases4.77 %4.86 %
Future minimum lease payments under non-cancellable leases as of March 31, 2022 were as follows:
Operating LeasesFinance Leases
(in thousands)
Remainder of 2022$17,764 $22,405 
202318,726 23,493 
2024