Nature of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions to power and protect life online. Its massively distributed edge and cloud platform, or Akamai Connected Cloud, comprises more than 4,100 locations across approximately 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company is currently organized and operates as one reportable and operating segment.

The accompanying interim condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation in the accompanying interim condensed consolidated financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited interim condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission on February 28, 2023. The December 31, 2022 condensed consolidated balance sheet included herein is derived from the Company's audited consolidated financial statements.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited interim condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein. The presentation of certain items in the interim condensed consolidated statements of cash flows has changed for the prior periods to be comparable with the presentation for the quarter ended September 30, 2023. The change had no net impact on the Company's cash flows from operating, investing or financing activities for the prior periods.

Revision of Previously Issued Financial Statements

During the preparation of the financial statements for the year ended December 31, 2022, an error was identified in the Company’s accounting for an intercompany sale of intellectual property that occurred during 2022. During each of the first three quarters of 2022, the Company failed to record a deferred tax asset in the jurisdiction where the intellectual property was sold for the step up in tax basis that was achieved with the sale. This caused net deferred taxes to be understated in the interim condensed consolidated balance sheets, the provision for income taxes to be overstated and net income and earnings per share to be understated in the interim condensed consolidated statements of income. Management evaluated the error and determined that the related impact was not material to any of the Company's previously issued financial statements.

Changes to the interim condensed consolidated statements of income for the three and nine months ended September 30, 2022, as a result of the error, were as follows (in thousands, except per share data):


	For the three months ended September 30, 2022						For the nine months ended September 30, 2022
	As Previously Reported		Adjustment		As Revised		As Previously Reported		Adjustment		As Revised
Provision for income taxes	$	(50,006)	$	15,540	$	(34,466)	$	(135,114)	$	48,056	$	(87,058)
Net income	108,154		15,540		123,694		346,854		48,056		394,910
Net income per share:
Basic	$	0.68	$	0.10	$	0.78	$	2.17	$	0.30	$	2.47
Diluted	$	0.68	$	0.10	$	0.78	$	2.15	$	0.30	$	2.45

The condensed consolidated statements of comprehensive income, condensed consolidated statements of cash flows and condensed consolidated statements of shareholders' equity for the three and nine months ended September 30, 2022, were also revised to reflect the impact to net income as stated in the table above. The benefit for deferred income taxes was also adjusted

in the interim condensed consolidated statement of cash flows; however, the error had no net impact on cash flows from operating, investing or financing activities for the nine months ended September 30, 2022.

Significant Accounting Policies Update

The Company's significant accounting policies are detailed in Note 2 of its annual report on Form 10-K for the year ended December 31, 2022. The following policy has been updated as of January 1, 2023.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally includes purchases of items with a per-unit value greater than $1,000 and a useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in income from operations.

The Company has implemented software and hardware initiatives to manage its global network more efficiently and, as a result, the expected average useful life of its servers increased from five years to six years, effective January 1, 2023. These changes decreased depreciation expense by $15.3 million and $48.0 million for the three and nine months ended September 30, 2023, respectively, and increased net income by $12.8 million and $40.1 million for the three and nine months ended September 30, 2023, respectively, or $0.08 and $0.26 per share, for the three and nine months ended September 30, 2023, respectively.