AKAMAI TECHNOLOGIES INC

Previous wording

We develop and provide solutions for global enterprises to build, secure and accelerate their applications and digital experiences through our massively distributed global infrastructure, which underpins our security, delivery and other cloud applications and cloud infrastructure services solutions, and is central to our financial success. Together, these solutions are positioned to benefit from the rapid evolution of AI. The key factors that influence our financial success are our ability to build on recurring revenue commitments across our product portfolios, increase traffic on our network, continue to develop, scale and successfully bring to market our cloud infrastructure services, including Akamai Inference Cloud ("AIC") and compute-to-edge solutions, that meet the needs of professional users and enterprises, including with respect to reliability, effectively manage the prices we charge for our solutions considering the market dynamics on our cost structure driven by hyperscalers, continuously develop new and existing products and appropriately manage our capital spending and other operational expenses. The purpose of this discussion and analysis section is to provide material information relevant to an assessment of our financial condition and results of operations from management’s perspective, including to describe and explain key trends, events and other factors that impacted our reported results and that are likely to impact our future performance.

Current wording

We develop and provide solutions for global enterprises to build, secure and accelerate their applications and digital experiences through our massively distributed global infrastructure, which underpins our security, delivery and other cloud applications and cloud infrastructure services solutions, and is central to our financial success. Together, these solutions are positioned to benefit from the rapid evolution of AI. The key factors that influence our financial success include our ability to build on recurring revenue commitments across our product portfolios and increase traffic on our network. We must also continue to develop, scale and successfully bring to market our cloud infrastructure services, including Akamai Cloud and compute-to-edge solutions, that meet the reliability needs of professional users and enterprises. Additionally, our performance depends on our ability to effectively manage the prices we charge for our solutions considering the market dynamics on our cost structure driven by hyperscalers, continuously develop new and existing products and appropriately manage our capital spending and other operational expenses.

Previous wording

We primarily derive revenue from the sale of services to customers pursuant to contracts having terms of one year or longer, which allows us to have a consistent and predictable base level of revenue. Services included in our contracts consist of security solutions, the delivery of content, applications and software over the internet, cloud infrastructure solutions and professional services. In addition to a base level of revenue, we are also dependent on our ability to increase our product offerings and to cross-sell additional services to our new and existing customers, particularly for our security and cloud infrastructure services portfolios. Our revenue is also impacted by customer renewals and the pricing for such renewals, the rate of adoption and timing of customer offerings, variability of one-time events, usage of cloud computing services and the amount of traffic we serve on our network. Geopolitical, economic and other developments that impact our customers' businesses can also impact our ability to attract new customers or continue to cross-sell additional services to existing customers and traffic levels for customers with variable usage. Over the longer term, our ability to continually develop and expand our product portfolio, to successfully bring those products to market and to effectively manage the prices we charge for our solutions considering the market dynamics on our cost structure driven by hyperscalers, are key factors impacting our revenue growth.

Current wording

We primarily derive revenue from the sale of solutions to customers pursuant to contracts having terms of one year or longer, which allows us to have a consistent and predictable base level of revenue. Services included in our contracts consist of security, the delivery of content, applications and software over the internet, cloud infrastructure and professional services. In addition to a base level of revenue, we are also dependent on our ability to increase our product offerings and to cross-sell additional solutions to our new and existing customers, particularly for our security and cloud infrastructure services portfolios. Our revenue is also impacted by customer renewals and the pricing for such renewals, the rate of adoption and timing of customer offerings, variability of one-time events, usage of cloud computing services and the amount of traffic we serve on our network. Geopolitical, economic and other developments that impact our customers' businesses can also impact our ability to attract new customers or continue to cross-sell additional services to existing customers and traffic levels for customers with variable usage. Over the longer term, our ability to continually develop and expand our product portfolio, to successfully bring those products to market and to effectively manage the prices we charge for our solutions considering the market dynamics on our cost structure driven by hyperscalers, are key factors impacting our revenue growth.

Previous wording

•Increased sales of our security solutions, led by application security solutions and microsegmentation solutions, and increased sales of our cloud infrastructure services solutions, attributable to enhanced services on our platform, have made a significant contribution to revenue growth. Our security and cloud infrastructure services solutions continue to contribute to a large portion of our revenue. We plan to continue to invest in these areas with a focus on AI applications for our security products and cloud infrastructure services, including expanding our platform, to further advance our product portfolios and sales capabilities.

Current wording

•Increased sales of our security solutions, led by application security solutions and microsegmentation solutions, and increased sales of our cloud infrastructure services solutions, attributable to enhanced services on our platform, have made a significant contribution to revenue growth. Our security and cloud infrastructure services solutions continue to contribute to a large portion of our revenue. We plan to continue to invest in these areas with a focus on AI applications for our security products and cloud infrastructure services, including expanding our platform, to further advance our product portfolios, sales capabilities and our recent large multi-year cloud infrastructure services commitments.

Previous wording

•We have experienced variations in certain types of revenue from quarter-to-quarter. These quarterly variations in revenue are attributable to, among other things, the timing of large customer contract signings and renewals; the frequency and timing of purchases of custom solutions or licensed software; the nature and timing of software and gaming releases by our customers; holiday season activity; and whether there are large live sporting or other events or situations that impact the amount of media traffic on our network.

Current wording

•We have experienced variations in certain types of revenue from quarter-to-quarter. These quarterly variations in revenue are attributable to, among other things, the timing of large customer contract renewals; the frequency and timing of purchases of custom solutions or licensed software; the nature and timing of software and gaming releases by our customers; holiday season activity; and whether there are large live sporting or other events or situations that impact the amount of media traffic on our network.

Previous wording

•Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is our largest expense. It is important to the success of our operations that we offer competitive compensation packages. However, we are focused on remaining disciplined in allocating our resources to support our faster growing security and cloud infrastructure services solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. Over the past few years, we redesigned some of our compensation programs by shifting certain plans from a cash-based to stock-based program, such as our 401(k) match program in 2025. Additionally, in 2026, we introduced a new retirement benefit to our existing compensation programs. These programs are designed to better align employee incentives with the interests of our stockholders, which has increased our stock-based compensation.

Current wording

•Our employees are core to the operations of our business, and payroll and related costs, including stock-based compensation, is our largest expense. It is important to the success of our operations that we offer competitive compensation packages. However, we are focused on remaining disciplined in allocating our resources to support our faster growing security and cloud infrastructure services solutions, including maintaining operational efficiencies to mitigate the rising cost of talent. Over the past few years, we redesigned some of our compensation programs by shifting certain plans from a cash-based to stock-based, such as our 401(k) matching program in 2025. Additionally, in 2026, we introduced a new retirement benefit to our existing compensation programs. These programs are designed to better align employee incentives with the interests of our stockholders, which has increased our stock-based compensation.

Previous wording

•Depreciation expense related to our network equipment also contributes to our overall expense levels. In recent years, we have invested in our network, particularly as part of building out our platform to support our cloud infrastructure services, which increased our capital expenditures and resulting depreciation expense. We plan to continue investing in our platform to support our faster growing cloud infrastructure services, including support for new enterprise customers, all to support future revenue growth from AI applications. We are experiencing a significant increase in server and memory costs due to market dynamics driven by hyperscalers, which will increase our future capital expenditures and resulting depreciation expense.

Current wording

•Depreciation expense related to our network equipment also contributes to our overall expense levels. In recent years, we have invested in our network, particularly as part of building out our platform to support our cloud infrastructure services, which increased our capital expenditures and resulting depreciation expense. We plan to continue investing in our platform to support our faster growing cloud infrastructure services, including support for new enterprise customers, and to support future revenue growth from AI applications. We are also experiencing a significant increase in server and memory costs due to market dynamics driven by hyperscalers, which will increase our future capital expenditures and resulting depreciation expense.

Previous wording

Global macroeconomic and geopolitical conditions continue to impact our customers, as well as our business and revenue growth rates. We, along with our customers, continue to manage through an uncertain period of fluctuating inflation, regulatory policies and resources that may negatively impact business, economic and political uncertainty, decreased consumer confidence and pressure on prices during contract renewals, uncertain energy supplies, heightened geopolitical tensions and conflict, potential for supply chain disruptions, changes in legislation and regulations, including U.S. and international tax laws, volatility and increasing tensions related to changing trade policies, including announced or expected tariffs, fluctuations in foreign exchange rates and elevated interest rates. To the extent these macroeconomic conditions continue, the impact may adversely affect our business, operations and financial results.

Current wording

Global macroeconomic and geopolitical conditions continue to impact our customers, as well as our business and revenue growth rates. We, along with our customers, continue to manage through an uncertain period of fluctuating inflation, regulatory policies and resources that may negatively impact business, economic and political uncertainty, decreased consumer confidence and pressure on prices during contract renewals, uncertain energy supplies, heightened geopolitical tensions and conflict, potential for supply chain disruptions, changes in legislation and regulations, including U.S. and international tax laws, volatility and increasing tensions related to changing trade policies, including tariffs, fluctuations in foreign exchange rates and elevated interest rates. To the extent these macroeconomic conditions continue, the impact may adversely affect our business, operations and financial results.

Previous wording

During the three months ended March 31, 2026, the increase in our revenue, as compared to the same period in 2025, was primarily the result of continued growth in sales of our security and cloud infrastructure services solutions, partially offset by a decline in revenue from our delivery and other cloud applications solutions due to downward pricing of contract renewals.

Current wording

During the three and six months ended June 30, 2026, the increase in our revenue, as compared to the same periods in 2025, was primarily the result of continued growth in sales of our security and cloud infrastructure services solutions, partially offset by a decline in revenue from our delivery and other cloud applications solutions due to downward pricing of contract renewals.

Previous wording

The increase in security solutions revenue for the three months ended March 31, 2026, as compared to the same period in 2025, was due to growth in sales of key products in our security solutions portfolio, including our API security, web application and Guardicore segmentation solutions.

Current wording

The increase in security solutions revenue for the three and six months ended June 30, 2026, as compared to the same periods in 2025, was due to growth in sales of key products in our security solutions portfolio, including our API security, web application and Guardicore segmentation solutions.

Previous wording

The decrease in delivery and other cloud applications solutions revenue for the three months ended March 31, 2026, as compared to the same period in 2025, was driven by a decrease in delivery revenue due to downward pricing of contract renewals. Additionally, we believe macroeconomic headwinds are causing some delivery and other cloud applications customers to increase their focus on cost optimization, which negatively impacted traffic on our network and had a negative impact on delivery and other cloud applications revenue.

Current wording

The decrease in delivery and other cloud applications solutions revenue for the three and six months ended June 30, 2026, as compared to the same periods in 2025, was driven by a decrease in delivery revenue due to downward pricing of contract renewals. Additionally, we believe macroeconomic headwinds are causing some delivery and other cloud applications customers to increase their focus on cost optimization, which negatively impacted traffic on our network and had a negative impact on delivery and other cloud applications revenue.

Previous wording

The increase in cloud infrastructure services solutions revenue for the three months ended March 31, 2026, as compared to the same period in 2025, was due to growth in sales to new and existing customers of our compute solutions, as well as the compute partner solutions running on our platform.

Current wording

The increase in cloud infrastructure services solutions revenue for the three and six months ended June 30, 2026, as compared to the same periods in 2025, was due to growth in sales to new and existing customers of our compute solutions, as well as the compute partner solutions running on our platform.

Previous wording

For the three months ended March 31, 2026 and 2025, no single country outside the U.S. accounted for 10% or more of revenue during these periods. Changes in foreign currency exchange rates positively impacted our revenue by $18.5 million during the three months ended March 31, 2026 as compared to the same period in 2025.

Current wording

For the three and six months ended June 30, 2026 and 2025, no single country outside the U.S. accounted for 10% or more of revenue during these periods. Changes in foreign currency exchange rates negatively impacted our revenue by $1.1 million during the three months ended June 30, 2026 and positively impacted our revenue by $17.5 million during the six months ended June 30, 2026, as compared to the same periods in 2025.

Previous wording

The increase in cost of revenue during the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to:

Current wording

The increase in cost of revenue during the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to:

Previous wording

•co-location costs and depreciation of network equipment as a result of investment in our network, particularly as we build out our platform, including to support cloud infrastructure services and AI applications, to support future growth and scalability;

Current wording

•co-location costs, depreciation of network equipment and bandwidth fees as a result of investment in our network, particularly as we build out our platform, including to support cloud infrastructure services and AI applications, to support future growth and scalability;

Previous wording

•payroll and related costs as a result of headcount growth to support our operations and the impact of the prior year annual merit increases; and

Current wording

•payroll and related costs as a result of headcount growth to support our operations and the impact of annual merit increases.

Previous wording

The increase in research and development expenses during the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to higher payroll and related costs and stock-based compensation as a result of headcount growth from our strategic initiatives and the impact of prior year annual merit increases. Additionally, stock-based compensation increased as a result of a new benefit that reduced the service period for retirement eligible employees effective in 2026.

Current wording

The increase in research and development expenses during the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to higher payroll and related costs and stock-based compensation as a result of headcount growth from our strategic initiatives and the impact of annual merit increases. Additionally, stock-based compensation increased as a result of a new benefit that reduced the service period for retirement eligible employees effective in 2026 and from achievement of our performance-based compensation plan.

Previous wording

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. During the three months ended March 31, 2026 and 2025, we capitalized $31.9 million and $29.4 million, respectively, of stock-based compensation. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to ten years based on the software developed and its expected useful life.

Current wording

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. During the three months ended June 30, 2026 and 2025, we capitalized $37.1 million and $29.0 million, respectively, of stock-based compensation. During the six months ended June 30, 2026 and 2025, we capitalized $69.0 million and $58.4, respectively. These capitalized internal-use software development costs are amortized to cost of revenue over their estimated useful lives, ranging from two to ten years based on the software developed and its expected useful life.

Previous wording

During the remainder of 2026, we expect our research and development costs to increase as compared to 2025, in particular payroll and related costs, including stock-based compensation, in support of our faster growing security and cloud infrastructure services solutions. We also expect stock-based compensation to increase during the remainder of 2026 as a result of a new benefit that reduced the service period for retirement eligible employees. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Current wording

During the remainder of 2026, we expect our research and development costs to increase as compared to 2025, in particular payroll and related costs, including stock-based compensation, in support of our faster growing security and cloud infrastructure services solutions and employees acquired through recent acquisitions. We also expect stock-based compensation to increase during the remainder of 2026 as a result of a new benefit that reduced the service period for retirement eligible employees. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Previous wording

The increase in sales and marketing expenses during the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to:

Current wording

The increase in sales and marketing expenses during the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to higher payroll and related costs as a result of headcount growth as part of our reinvestment in our go-to-market strategy. Additionally, stock-based compensation increased as a result of a new benefit that reduced the service period for retirement eligible employees effective in 2026 and from achievement of our performance-based compensation plan. The increase in sales and marketing expenses during the six months ended June 30, 2026, as compared to the same period in 2025, was also due to marketing programs and related costs from the timing of events and increased campaigns.

Previous wording

During the remainder of 2026, we expect our sales and marketing expenses to increase as compared to 2025, in particular payroll and related costs primarily due to our reinvestment in headcount as part of our go-to-market strategy to drive acquisition of new customers for our faster growing security and cloud infrastructure services solutions, and from stock-based compensation as a result of a new benefit that reduced the service period for retirement eligible employees. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Current wording

During the remainder of 2026, we expect our sales and marketing expenses to increase as compared to 2025, in particular payroll and related costs primarily due to our reinvestment in headcount as part of our go-to-market strategy to drive acquisition of new customers for our faster growing security and cloud infrastructure services solutions and from employees acquired through recent acquisitions. Additionally, we expect an increase in stock-based compensation as a result of a new benefit that reduced the service period for retirement eligible employees. However, we plan to continue to carefully manage costs in an effort to manage our operating margins.

Previous wording

The increase in general and administrative expenses during the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to higher payroll and related costs and stock-based compensation as a result of headcount growth to support our operations and the impact of the prior year annual merit increases. Additionally, stock-based compensation increased as a result of a new benefit that reduced the service period for retirement eligible employees effective in 2026.

Current wording

The increase in general and administrative expenses during the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to higher payroll and related costs and stock-based compensation as a result of headcount growth to support our operations and the impact of the annual merit increases. Additionally, stock-based compensation increased as a result of a new benefit that reduced the service period for retirement eligible employees effective in 2026 and from achievement of our performance-based compensation plan.

Previous wording

The decrease in amortization of acquired intangible assets for the three months ended March 31, 2026, as compared to the same period in 2025, was primarily due to a decrease in the value of acquired intangible assets as a result of impairments of certain completed technologies recognized in the fourth quarter of 2025. Based on acquired intangible assets at March 31, 2026, we expect amortization of acquired intangible assets to be approximately $75.0 million for the remainder of 2026, and $85.6 million, $79.0 million, $74.0 million and $66.7 million for 2027, 2028, 2029 and 2030, respectively.

Current wording

The decrease in amortization of acquired intangible assets for the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to a decrease in the value of acquired intangible assets as a result of impairments of certain completed technologies recognized in the fourth quarter of 2025. Based on acquired intangible assets at June 30, 2026, we expect amortization of acquired intangible assets to be approximately $49.8 million for the remainder of 2026, and $85.6 million, $79.0 million, $74.0 million and $66.7 million for 2027, 2028, 2029 and 2030, respectively.

Previous wording

The restructuring charge for the three months ended March 31, 2026 was primarily driven by management's commitment to an action initiated during the fourth quarter of 2025 to restructure certain parts of the company to align investments and simplify organizational structure to long-term growth priorities. We do not expect to incur material additional charges related to this action.

Current wording

The restructuring charge for the three and six months ended June 30, 2026 was driven by management's commitment to an action initiated during the fourth quarter of 2025 to restructure certain parts of the company to align investments and simplify organizational structure to long-term growth priorities, as well as actions related to our acquisitions. We do not expect to incur material additional charges related to these actions.

Previous wording

The restructuring charge for the three months ended March 31, 2025 was primarily driven by management's commitment to an action initiated during the third quarter of 2024 with the primary intent to redeploy headcount and resources to support our faster growing security and cloud infrastructure services solutions. We do not expect to incur material additional charges related to this action.

Current wording

The restructuring charge for the three and six months ended June 30, 2025 was primarily driven by management's commitment to redeploy headcount and resources to support our faster growing security and cloud computing solutions. The charges recognized during these periods include severance and related expenses for certain headcount reductions and impairments to capitalized internal-use software. We do not expect to incur material additional charges related to this action.

Previous wording

Interest and marketable securities income, net consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan. The decrease for the three months ended March 31, 2026, as compared to the same period in 2025, was primarily the result of investing in marketable securities at lower rates of return due to lower interest rates in 2026 as compared to the same period in 2025.

Current wording

Interest and marketable securities income, net consists of interest earned on invested cash and marketable securities balances and income and losses on mutual funds that are associated with our employee non-qualified deferred compensation plan. The increase for the three and six months ended June 30, 2026, as compared to the same periods in 2025, was primarily due to interest earned from marketable securities purchased during the three months ended June 30, 2026 using proceeds from our convertible senior notes due 2032 and 2030.

Previous wording

For the three months ended March 31, 2026, as compared to the same period in 2025, our provision for income taxes decreased due to an increase in the excess tax benefit related to stock-based compensation, a decrease in profitability and a decrease in net controlled foreign corporation tested income (formerly global intangible low-taxed income). These amounts were partially offset by an increase in certain tax reserves.

Current wording

For the three months ended June 30, 2026, as compared to the same period in 2025, our provision for income taxes decreased due to a decrease in profitability, an increase in the excess tax benefit related to stock-based compensation, a change in the valuation allowance recorded against state credits and a decrease in certain tax reserves. These amounts were partially offset by a decrease in foreign income taxed at lower rates. For the six months ended June 30, 2026, as compared to the same period in 2025, our provision for income taxes decreased due to an increase in the excess tax benefit related to stock-based compensation, a decrease in profitability, a decrease in certain tax reserves and a decrease in net controlled foreign corporation tested income (formerly global intangible low-taxed income). These amounts were partially offset by a decrease in foreign income taxed at lower rates.

Previous wording

For the three months ended March 31, 2026, our effective income tax rate was lower than the federal statutory tax rate due to the excess tax benefit related to stock-based compensation, the benefit of U.S. federal, state and foreign research and development credits and foreign income taxed at lower rates. These amounts were partially offset by non-deductible transfer pricing and non-deductible stock-based compensation.

Current wording

For the three months ended June 30, 2026, our effective income tax rate was consistent with the federal statutory tax rate as the impacts of the excess tax benefit related to stock-based compensation and the benefit of U.S. federal, state and foreign research and development credits were largely offset by an increase in certain tax reserves and non-deductible stock-based compensation. For the six months ended June 30, 2026, our effective income tax rate was lower than the federal statutory tax rate due to the excess tax benefit related to stock-based compensation, the benefit of U.S. federal, state and foreign research and development credits and foreign income taxed at lower rates. These amounts were partially offset by an increase in certain tax reserves and non-deductible stock-based compensation.

Previous wording

For the three months ended March 31, 2025, our effective income tax rate was higher than the federal statutory tax rate due to a shortfall in the tax benefit related to stock-based compensation, non-deductible stock-based compensation and non-deductible transfer pricing. These amounts were partially offset by the benefit of U.S. federal, state and foreign research and development credits and foreign income taxed at lower rates.

Current wording

For the three months ended June 30, 2025, our effective income tax rate was higher than the federal statutory tax rate due to an increase in certain tax reserves and non-deductible stock-based compensation. These amounts were partially offset by foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits. For the six months ended June 30, 2025, our effective income tax rate was higher than the federal statutory tax rate due to a shortfall in the tax benefit related to stock-based compensation, non-deductible stock-based compensation and an increase in certain tax reserves. These amounts were partially offset by foreign income taxed at lower rates and the benefit of U.S. federal, state and foreign research and development credits.

Previous wording

(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the three months ended March 31, 2026, for the benefit of our note hedge transactions. During these periods, our average stock price was in excess of $93.01, which is the initial conversion price of Akamai's convertible senior notes due in May 2033. See further definition below.

Current wording

(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the three and six months ended June 30, 2026, for the benefit of our note hedge transactions. During these periods, our average stock price was in excess of one or more of our convertible senior notes' initial conversion prices. See further definition below.

Previous wording

Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by weighted average diluted common shares outstanding. 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 issuances 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 operating performance. With respect to the convertible senior notes due in each of 2033, 2029 and 2027, and those that matured in 2025, unless our weighted average stock price is greater than $93.01, $126.31, $116.18 and $95.10, respectively, the initial conversion prices, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.

Current wording

Non-GAAP net income per diluted share is calculated as non-GAAP net income divided by weighted average diluted common shares outstanding. 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 issuances 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 operating performance. With respect to the convertible senior notes due in each of 2033, 2032, 2030, 2029 and 2027, and those that matured in 2025, unless our weighted average stock price is greater than $93.01, $190.81, $201.41, $126.31, $116.18 and $95.10, respectively, the initial conversion prices, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.

Previous wording

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 March 31, 2026, our cash, cash equivalents and marketable securities, which are detailed in Note 2 to the interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, totaled $1.7 billion. 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.

Current wording

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, 2026, our cash, cash equivalents and marketable securities, which are detailed in Note 2 to the interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, totaled $4.6 billion. 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.

Previous wording

As of March 31, 2026, we had cash and cash equivalents of $382.7 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 expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Current wording

As of June 30, 2026, we had cash and cash equivalents of $363.5 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 expected to be materially impacted by the amount of cash and cash equivalents held in accounts outside the U.S.

Previous wording

In May 2024, our board of directors authorized a $2.0 billion share repurchase program, effective May 2024 through June 2027. During the three months ended March 31, 2026, we repurchased 2.0 million shares of common stock at a weighted average price of $105.47 per share for an aggregate of $205.9 million. As of March 31, 2026, $974.6 million remained available for future share repurchases under the authorization program. Our goals for the share repurchase program are to offset the dilution created by our employee equity compensation programs over time and provide the flexibility to return capital to stockholders as business and market conditions warrant, while still preserving our ability to pursue other strategic opportunities. 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.

Current wording

In May 2024, our board of directors authorized a $2.0 billion share repurchase program, effective May 2024 through June 2027. During the six months ended June 30, 2026, we repurchased 5.0 million shares of common stock at a weighted average price of $123.19 per share for an aggregate of $615.7 million. As of June 30, 2026, $564.8 million remained available for future share repurchases under the authorization program. Our goals for the share repurchase program are to offset the dilution created by our employee equity compensation programs over time and provide the flexibility to return capital to stockholders as business and market conditions warrant, while still preserving our ability to pursue other strategic opportunities. The timing and amount of any future share repurchases is determined by our management based on its evaluation of market conditions and other factors. We do not expect any share repurchases for the remainder of 2026 as we continue to invest in our platform to support cloud infrastructure services.

Previous wording

As of March 31, 2026, we had $4,140.0 million of convertible senior notes outstanding that are senior unsecured obligations and bear interest payable semi-annually in arrears. These notes mature between September 2027 and May 2033. The terms of the notes and related hedge and warrant transactions are discussed more fully in Note 6 to the interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Current wording

As of June 30, 2026, we had $7,640.0 million of convertible senior notes outstanding that are senior unsecured obligations and bear interest payable semi-annually in arrears, except for the 2030 Notes and 2032 Notes, which have zero coupon interest. These notes mature between September 2027 and May 2033. We have reclassified the carrying value of the convertible senior notes due 2033 ("2033 Notes") from non-current liabilities to current liabilities in the interim condensed consolidated balance sheets as of June 30, 2026 because the market price trigger condition for the 2033 Notes was met as of June 30, 2026. Accordingly, the 2033 Notes are convertible at the option of the holders during the three months ended September 30, 2026. As of June 30, 2026, and through the date of this filing, no holders have submitted notes for conversion, and no conversions have occurred. The terms of the notes and related hedge and warrant transactions are discussed more fully in Note 7 to the interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Previous wording

Our foreseeable cash needs, in addition to our recurring operating costs, include our expected capital expenditures, particularly planned investments in AI infrastructure, investments in information technology, potential strategic acquisitions, anticipated share repurchases, lease and purchase commitments and settlements of other liabilities.

Current wording

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, particularly planned investments in support of our cloud infrastructure services and our AI infrastructure, investments in information technology, potential strategic acquisitions, anticipated share repurchases, lease and purchase commitments and settlements of other liabilities.

Previous wording

We have entered into indemnification agreements with third parties, including vendors, customers, landlords, our officers and directors, stockholders 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, 2025 for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during the three months ended March 31, 2026 was determined to be immaterial.

Current wording

We have entered into indemnification agreements with third parties, including vendors, customers, landlords, our officers and directors, stockholders 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, 2025 for further discussion of these indemnification agreements. The fair value of guarantees issued or modified during the six months ended June 30, 2026 was determined to be immaterial.