Akamai Reports Fourth Quarter 2015 And Full-Year 2015 Financial Results

Feb 09, 2016, 16:01 ET from Akamai Technologies, Inc.

CAMBRIDGE, Mass., Feb. 9, 2016 /PRNewswire/ --

Fourth Quarter Highlights

  • Revenue of $579 million, up 8% year-over-year and up 11% adjusted for foreign exchange*
  • GAAP EPS of $0.49 per diluted share, down 9% year-over-year and down 5% when adjusted for foreign exchange*
  • Non-GAAP EPS* of $0.72 per diluted share, up 3% year-over-year and up 5% when adjusted for foreign exchange* (includes $0.06 per diluted share tax benefit from the reinstatement of the federal R&D tax credit)

Full-Year Highlights

  • Revenue of $2.2 billion, up 12% year-over-year and up 16% adjusted for foreign exchange*
  • GAAP EPS of $1.78 per diluted share, down 3% year-over-year and up 2% when adjusted for foreign exchange*
  • Non-GAAP EPS* of $2.52 per diluted share, up 2% year-over-year and up 6% when adjusted for foreign exchange*

Board of Directors Authorizes New $1 Billion Share Repurchase Program

Akamai Technologies, Inc. (NASDAQ: AKAM), the global leader in Content Delivery Network (CDN) services, today reported financial results for the fourth quarter and full-year ended December 31, 2015. 

"Akamai's solid fourth quarter performance capped off an excellent year on both the top and bottom lines," said Dr. Tom Leighton, CEO of Akamai. "Revenue achievement in the quarter was driven by a robust online holiday shopping season, as well as continued rapid growth of our Cloud Security Solutions.  Our Security business grew 50% year-over-year in constant currency and has now achieved an annualized run rate of nearly $300 million."

Akamai delivered the following results for the fourth quarter and full-year ended December 31, 2015:

Revenue: Revenue for the fourth quarter was $579 million, an 8% increase over fourth quarter 2014 revenue of $536 million, and an 11% increase when adjusted for foreign exchange.* Total revenue for 2015 was $2.197 billion, a 12% increase over 2014 revenue of $1.964 billion and a 16% increase when adjusted for foreign exchange.*

Revenue by Solution Category:

  • Performance and Security Solutions revenue for the fourth quarter was $286 million, up 16% year-over-year and up 19% when adjusted for foreign exchange.* Performance and Security Solutions revenue for 2015 was $1.050 billion, up 17% year-over-year and up 20% when adjusted for foreign exchange.*
  • Cloud Security Solutions revenue, a component of Performance and Security, for the fourth quarter was $73 million, up 46% year-over-year and up 50% when adjusted for foreign exchange.* Cloud Security Solutions revenue for 2015 was $254 million, up 50% year-over-year and up 54% when adjusted for foreign exchange.*
  • Media Delivery Solutions revenue for the fourth quarter was $247 million, down 2% year-over-year and up 1% when adjusted for foreign exchange.* Media Delivery Solutions revenue for 2015 was $977 million, up 7% year-over-year and up 10% when adjusted for foreign exchange.*
  • Service and Support Solutions revenue for the fourth quarter was $46 million, up 18% year-over-year and up 21% when adjusted for foreign exchange.* Service and Support Solutions revenue for 2015 was $170 million, up 16% year-over-year and up 20% when adjusted for foreign exchange.*

Revenue by Geography:

  • U.S. revenue was $416 million for the fourth quarter, a 5% increase over fourth quarter 2014 revenue. U.S. revenue for 2015 was $1.604 billion, a 12% increase over 2014 revenue.
  • International revenue was $163 million for the fourth quarter, a 17% increase over fourth quarter 2014 revenue and a 27% increase when adjusted for foreign exchange.* International revenue for 2015 was $593 million, an 11% increase over 2014 revenue and a 24% increase when adjusted for foreign exchange.*

Income from operations: GAAP income from operations for the fourth quarter was $123 million, a 10% decrease from fourth quarter 2014 GAAP income from operations of $136 million.  GAAP operating margin for the fourth quarter was 21%, down 4 percentage points from the same period last year. GAAP income from operations for 2015 was $466 million, a 5% decrease from the prior year's GAAP income from operations of $490 million. Full-year GAAP operating margin was 21%, down 4 percentage points from the prior year.

Non-GAAP income from operations* for the fourth quarter was $168 million, a 4% decrease from fourth quarter 2014 non-GAAP income from operations of $175 million. Non-GAAP operating margin* for the fourth quarter was 29%, down 4 percentage points from the same period last year. Non-GAAP income from operations* for 2015 was $638 million, a 1% decrease from the prior year's non-GAAP income from operations of $648 million. Full-year non-GAAP operating margin* was 29%, down 4 percentage points from the prior year.

Net Income: GAAP net income for the fourth quarter was $88 million, a 9% decrease from fourth quarter 2014 GAAP net income of $97 million.  Full-year GAAP net income was $321 million, a 4% decrease from 2014 GAAP net income of $334 million.

Non-GAAP net income* for the fourth quarter was $129 million, a 1% increase over fourth quarter 2014 non-GAAP net income of $127 million.  Full-year non-GAAP net income* was $454 million, a 1% increase over 2014 non-GAAP net income of $449 million.

GAAP and non-GAAP net income* results for the fourth quarter include a $12 million, or $0.06 per diluted share, benefit from the reinstatement of the federal R&D tax credit, which was retroactive to January 1, 2015.

EPS: GAAP EPS was $0.49 per diluted share, a 9% decrease from fourth quarter 2014 GAAP EPS of $0.54 and a 5% decrease when adjusted for foreign exchange*. Full-year GAAP EPS was $1.78 per diluted share, a 3% decrease from 2014 GAAP EPS of $1.84 per diluted share and a 2% increase when adjusted for foreign exchange.*

Non-GAAP EPS* was $0.72 per diluted share, a 3% increase over fourth quarter 2014 non-GAAP EPS* of $0.70 and a 5% increase when adjusted for foreign exchange*. Full-year non-GAAP EPS* was $2.52 per diluted share, a 2% increase over 2014 non-GAAP EPS* of $2.48 per diluted share and a 6% increase when adjusted for foreign exchange.*

Adjusted EBITDA: Adjusted EBITDA* for the fourth quarter was $238 million, a 3% increase over fourth quarter 2014 Adjusted EBITDA* of $232 million. Adjusted EBITDA margin* for the fourth quarter was 41%, down 2 percentage points from the same period last year.  Adjusted EBITDA* for the full-year was $897 million, a 5% increase from the prior year's Adjusted EBITDA* of $853 million.  Full-year adjusted EBITDA margin* was 41%, down 2 percentage points from the prior year.

Cash flow from operations: Cash from operations for the fourth quarter was $218 million, or 38% of revenue, and for the full-year was $764 million, or 35% of revenue. Cash, cash equivalents and marketable securities were $1.5 billion at December 31, 2015.

Share Repurchase Program The Company also announces today that its Board of Directors has authorized a new $1 billion share repurchase program, effective from February 9, 2016 through December 31, 2018.  The Company's goal for this program is to offset the dilution created by its employee equity compensation programs and provide the flexibility to increase its capital distributions to shareholders as business and market conditions warrant.

The timing and amount of any shares repurchased will be determined by the Company's management based upon the evaluation of market conditions and other factors. Repurchases will be executed in the open market subject to Rule 10b-18, and may also be made under a Rule 10b5-1 plan, which would permit the Company to repurchase shares when the Company might otherwise be precluded from doing so under insider trading laws. Other structured repurchase programs may be considered from time to time. The Company may choose to suspend, expand or discontinue the repurchase program at any time.

The Company spent $100 million in the fourth quarter to repurchase 1.7 million shares of its common stock at an average price of $60.14 per share, under the Company's previous share repurchase plan.  For the full-year, the Company spent $303 million to repurchase 4.5 million shares of its common stock at an average price of $67.05 per share.

The Company had approximately 177 million shares of common stock outstanding as of December 31, 2015.

*See Use of Non-GAAP Financial Measures below for definitions.

Quarterly Conference Call Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-877-258-4918 (or 1-480-405-6743 for international calls) and using passcode No. 12553604. A live webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode No. 12553604. The archived webcast of this event may be accessed through the Akamai website.

About Akamai As the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company's advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere. To learn how Akamai solutions and its team of Internet experts are helping businesses move faster forward, please visit www.akamai.com or blogs.akamai.com, and follow @Akamai on Twitter.

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

December 31, 2015

December 31, 2014

ASSETS

Current assets:

Cash and cash equivalents

$

289,473

$

238,650

Marketable securities

460,088

519,642

Accounts receivable, net

380,399

329,578

Prepaid expenses and other current assets

123,228

128,981

Deferred income tax assets

45,704

Total current assets

1,253,188

1,262,555

Property and equipment, net

753,180

601,591

Marketable securities

774,674

869,992

Goodwill

1,150,244

1,051,294

Acquired intangible assets, net

156,095

132,412

Deferred income tax assets

4,700

1,955

Other assets

95,844

81,747

Total assets

$

4,187,925

$

4,001,546

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

61,982

$

77,412

Accrued expenses

216,166

204,686

Deferred revenue

54,154

49,679

Other current liabilities

138

2,234

Total current liabilities

332,440

334,011

Deferred revenue

4,163

3,829

Deferred income tax liabilities

12,888

39,299

Convertible senior notes

624,288

604,851

Other liabilities

93,268

74,221

Total liabilities

1,067,047

1,056,211

Total stockholders' equity

3,120,878

2,945,335

Total liabilities and stockholders' equity

$

4,187,925

$

4,001,546

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Year Ended

(in thousands, except per share data)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Revenue

$

579,159

$

551,030

$

536,295

$

2,197,448

$

1,963,874

Costs and operating expenses:

Cost of revenue (1) (2)

193,212

183,204

163,201

725,620

610,943

Research and development (1)

37,674

38,396

32,417

148,591

125,286

Sales and marketing (1)

118,582

107,426

110,293

440,988

379,035

General and administrative (1) (2)

99,978

99,543

85,899

388,265

325,845

Amortization of acquired intangible assets

6,783

6,752

8,403

27,067

32,057

Restructuring charges

250

20

767

1,189

Total costs and operating expenses

456,479

435,341

400,213

1,731,298

1,474,355

Income from operations

122,680

115,689

136,082

466,150

489,519

Interest income

2,935

2,723

2,291

11,200

7,680

Interest expense

(4,641)

(4,630)

(4,524)

(18,525)

(15,463)

Other (expense) income, net

(499)

204

8

(2,201)

(1,960)

Income before provision for income taxes

120,475

113,986

133,857

456,624

479,776

Provision for income taxes

32,055

25,946

36,750

135,218

145,828

Net income

$

88,420

$

88,040

$

97,107

$

321,406

$

333,948

Net income per share:

Basic

$

0.50

$

0.49

$

0.55

$

1.80

$

1.87

Diluted

$

0.49

$

0.49

$

0.54

$

1.78

$

1.84

Shares used in per share calculations:

Basic

177,788

178,547

178,144

178,391

178,279

Diluted

179,732

180,364

180,910

180,415

181,186

(1) Includes stock-based compensation (see supplemental table for figures) (2) Includes depreciation and amortization (see supplemental table for figures)

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

Year Ended

(in thousands)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Cash flows from operating activities:

Net income

$

88,420

$

88,040

$

97,107

$

321,406

$

333,948

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

80,329

74,785

67,763

299,563

247,406

Stock-based compensation

33,711

31,046

27,196

126,677

111,996

Excess tax benefits from stock-based compensation

(4,450)

(2,114)

(8,280)

(29,301)

(32,238)

Provision (benefit) for deferred income taxes

22,039

(1,666)

(36,502)

4,098

(25,880)

Amortization of debt discount and issuance costs

4,641

4,630

4,524

18,525

15,463

Other non-cash reconciling items, net

2,533

2,126

30

5,804

2,565

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:

Accounts receivable

(15,540)

(26,415)

(8,184)

(56,247)

(58,397)

Prepaid expenses and other current assets

(8,982)

4,097

(38,442)

7,137

(60,788)

Accounts payable and accrued expenses

25,526

(5,575)

57,822

51,624

94,698

Deferred revenue

(3,684)

(115)

37

3,224

7,725

Other current liabilities

(491)

(53)

1

(345)

(702)

Other non-current assets and liabilities

(6,261)

13,822

32,469

11,986

22,274

Net cash provided by operating activities

217,791

182,608

195,541

764,151

658,070

Cash flows from investing activities:

Cash (paid) received for acquired businesses, net of cash acquired

(18,702)

500

(141,147)

(386,532)

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

(78,837)

(133,064)

(92,320)

(444,983)

(318,627)

Purchases of short- and long-term marketable securities

(108,690)

(178,200)

(157,211)

(692,879)

(1,225,409)

Proceeds from sales and maturities of short- and long-term marketable securities

118,814

197,440

114,595

845,939

746,017

Other non-current assets and liabilities

543

(1,128)

(1,477)

(2,494)

5,745

Net cash used in investing activities

(86,872)

(114,452)

(136,413)

(435,564)

(1,178,806)

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

Three Months Ended

Year Ended

(in thousands)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Cash flows from financing activities:

Proceeds from the issuance of convertible senior notes, net

678,735

Proceeds from the issuance of warrants

77,970

Payment for bond hedge

(101,292)

Repayment of acquired debt and capital leases

(17,862)

Proceeds from the issuance of common stock under stock plans

7,503

17,776

11,748

61,791

87,109

Excess tax benefits from stock-based compensation

4,450

2,114

8,280

29,301

32,238

Employee taxes paid related to net share settlement of stock-based awards

(6,993)

(7,817)

(7,444)

(54,164)

(50,649)

Repurchases of common stock

(100,180)

(76,358)

(42,134)

(302,606)

(268,647)

Other non-current assets and liabilities

(800)

(2,050)

(1,575)

Net cash (used in) provided by financing activities

(95,220)

(65,085)

(29,550)

(267,728)

436,027

Effects of exchange rate changes on cash and cash equivalents

(2,697)

(4,048)

(5,267)

(10,036)

(10,532)

Net increase (decrease) in cash and cash equivalents

33,002

(977)

24,311

50,823

(95,241)

Cash and cash equivalents at beginning of period

256,471

257,448

214,339

238,650

333,891

Cash and cash equivalents at end of period

$

289,473

$

256,471

$

238,650

$

289,473

$

238,650

 

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND ADJUSTED EBITDA

Three Months Ended

Year Ended

(in thousands, except per share data)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Income from operations

$

122,680

$

115,689

$

136,082

$

466,150

$

489,519

GAAP operating margin

21

%

21

%

25

%

21

%

25

%

Amortization of acquired intangible assets

6,783

6,752

8,403

27,067

32,057

Stock-based compensation

33,711

31,046

27,196

126,677

111,996

Amortization of capitalized stock-based compensation and capitalized interest expense

3,722

3,152

2,943

13,618

10,506

Other operating expenses(1)

1,067

708

638

4,923

3,611

Operating adjustments

45,283

41,658

39,180

172,285

158,170

Non-GAAP income from operations

$

167,963

$

157,347

$

175,262

$

638,435

$

647,689

Non-GAAP operating margin

29

%

29

%

33

%

29

%

33

%

Net income

$

88,420

$

88,040

$

97,107

$

321,406

$

333,948

Operating adjustments (from above)

45,283

41,658

39,180

172,285

158,170

Amortization of debt discount and issuance costs

4,641

4,630

4,524

18,525

15,463

Loss on investments

50

25

443

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

(9,631)

(22,453)

(13,869)

(58,309)

(59,202)

Non-GAAP net income

128,713

111,875

126,992

453,932

448,822

Depreciation and amortization

69,824

64,881

56,417

258,878

204,843

Interest income

(2,935)

(2,723)

(2,291)

(11,200)

(7,680)

Other expense (income), net

499

(204)

(58)

2,176

1,517

Provision for GAAP income taxes

32,055

25,946

36,750

135,218

145,828

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

9,631

22,453

13,869

58,309

59,202

Adjusted EBITDA

$

237,787

$

222,228

$

231,679

$

897,313

$

852,532

Adjusted EBITDA margin

41

%

40

%

43

%

41

%

43

%

Non-GAAP net income per share:

Basic

$

0.72

$

0.63

$

0.71

$

2.54

$

2.52

Diluted

$

0.72

$

0.62

$

0.70

$

2.52

$

2.48

Shares used in non-GAAP per share calculations:

Basic

177,788

178,547

178,144

178,391

178,279

Diluted

179,732

180,364

180,910

180,415

181,186

(1)  Other operating expenses excluded from non-GAAP results include: acquisition-related costs, restructuring charges and certain legal matter costs.  See the non-GAAP adjustment definitions below for additional information.

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY

Three Months Ended

Year Ended

(in thousands)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Revenue by solution category:

Performance and Security Solutions

$

286,015

$

262,696

$

245,687

$

1,049,732

$

899,232

Media Delivery Solutions

247,137

244,887

251,550

977,369

917,407

Service and Support Solutions

46,007

43,447

39,058

170,347

147,235

Total revenue

$

579,159

$

551,030

$

536,295

$

2,197,448

$

1,963,874

Cloud Security Solutions revenue

$

72,537

$

65,212

$

49,618

$

254,394

$

170,022

Revenue growth rates year-over-year(1):

Performance and Security Solutions

16

%

15

%

26

%

17

%

29

%

Media Delivery Solutions

(2)

5

21

7

21

Service and Support Solutions

18

19

21

16

25

Total revenue

8

%

11

%

23

%

12

%

24

%

Cloud Security Solutions revenue growth rates

46

%

40

%

50

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1)(2):

Performance and Security Solutions

19

%

18

%

28

%

20

%

29

%

Media Delivery Solutions

1

10

23

10

21

Service and Support Solutions

21

24

23

20

26

Total revenue

11

%

15

%

25

%

16

%

25

%

Cloud Security Solutions revenue growth rates(2)

50

%

45

%

54

%

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY

Three Months Ended

Year Ended

(in thousands)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Revenue by geography:

U.S.

$

415,835

$

400,581

$

397,182

$

1,604,492

$

1,429,063

International

163,324

150,449

139,113

592,956

534,811

Total revenue

$

579,159

$

551,030

$

536,295

$

2,197,448

$

1,963,874

Revenue growth rates year-over-year(1):

U.S.

5

%

10

%

26

%

12

%

25

%

International

17

12

16

11

24

Total revenue

8

%

11

%

23

%

12

%

24

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1)(2):

U.S.

5

%

10

%

26

%

12

%

25

%

International

27

27

24

24

25

Total revenue

11

%

15

%

25

%

16

%

25

%

(1)  Growth rates for the year ended December 31, 2014 exclude the impact of revenue from the Advertising Decision Solutions (ADS) business that was divested during the three months ended March 31, 2013 (2)  See Use of Non-GAAP Financial Measures below for a definition

 

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL FINANCIAL DATA

Three Months Ended

Year Ended

(in thousands, except end of period statistics)

December 31, 2015

September 30, 2015

December 31, 2014

December 31, 2015

December 31, 2014

Stock-based compensation:

Cost of revenue

$

3,901

$

3,579

$

3,033

$

14,145

$

11,934

Research and development

6,570

5,982

4,824

23,927

19,341

Sales and marketing

14,247

13,465

12,132

53,542

47,570

General and administrative

8,993

8,020

7,207

35,063

33,151

Total stock-based compensation

$

33,711

$

31,046

$

27,196

$

126,677

$

111,996

Depreciation and amortization:

Network-related depreciation

$

54,978

$

50,937

$

45,433

$

205,048

$

165,211

Other depreciation and amortization

14,846

13,944

10,984

53,830

39,632

Depreciation of property and equipment

69,824

64,881

56,417

258,878

204,843

Capitalized stock-based compensation amortization

3,414

2,916

2,845

12,717

10,345

Capitalized interest expense amortization

308

236

98

901

161

Amortization of acquired intangible assets

6,783

6,752

8,403

27,067

32,057

Total depreciation and amortization

$

80,329

$

74,785

$

67,763

$

299,563

$

247,406

Capital expenditures(1)(2):

Purchases of property and equipment

$

58,541

$

65,429

$

66,285

$

289,591

$

223,565

Capitalized internal-use software development costs

30,017

33,401

31,630

128,236

116,062

Capitalized stock-based compensation

5,199

4,518

3,649

18,332

15,226

Capitalized interest expense

791

760

680

2,845

2,193

Total capital expenditures

$

94,548

$

104,108

$

102,244

$

439,004

$

357,046

Net increase (decrease) in cash, cash equivalents and marketable securities

$

19,362

$

(20,082)

$

66,525

$

(104,049)

$

381,362

End of period statistics:

Number of employees

6,084

5,943

5,105

Number of deployed servers

210,533

199,962

170,295

(1)  Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of cash flows.  The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for at period end. (2)  See Use of Non-GAAP Financial Measures below for a definition

 

Use of Non-GAAP Financial Measures In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures, revenue adjusted for ADS divestiture and impact of foreign currency exchange rates, as discussed below.

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

The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting to the most directly comparable GAAP financial measure. This reconciliation captioned "Reconciliation of GAAP to Non-GAAP Financial Measures" can be found on the Investor Relations section of Akamai's website.

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

  • Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and are unique to each acquisition; therefore, Akamai excludes amortization of acquired intangible assets from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.
  • Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees and executives, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai's current financial results to previous and future periods difficult to interpret; therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to peer companies.
  • Acquisition-related costs – Acquisition-related costs include transaction fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions.
  • Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expense, nor provide meaningful insight into the fundamentals of current or past operations of its business.
  • Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rate of the convertible senior notes was approximately 3.2%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt which are recorded as an asset in the consolidated balance sheet. All of Akamai's interest expense is comprised of these non-cash components and is excluded from management's assessment of the company's operating performance because management believes the non-cash expense is not indicative of ongoing operating performance.
  • Loss on investments and legal matters – Akamai has incurred losses from the impairment of certain investments and the settlement of legal matters. In addition, Akamai has incurred costs with respect to its internal investigation relating to sales practices in a country outside the U.S. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them occur infrequently and are not representative of Akamai's core business operations.
  • Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or release of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

Akamai's definitions of its non-GAAP financial measures are outlined below:

Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; other operating expenses (comprised of acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; and costs incurred with respect to Akamai's internal investigation relating to sales practices in a country outside the U.S); and other non-recurring or unusual items that may arise from time to time.

Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.

Non-GAAP net income – GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; other operating expenses (comprised of acquisition-related costs, restructuring charges, benefit from adoption of software development activities, gains and other activity related to divestiture of a business, gains and losses on legal settlements, and costs incurred with respect to Akamai's internal investigation relating to sales practices in a country outside the U.S.);  loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP net income per share – Non-GAAP net income divided by basic weighted average or diluted common shares outstanding. Basic weighted average shares outstanding are those used in GAAP net income per share calculations. Diluted weighted average shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transaction entered into in connection with the issuance of $690 million of convertible senior notes due 2019. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the company would receive a benefit from the note hedge transaction and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of net income per share. Until Akamai's weighted average stock price is greater than $89.56, the initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.

Adjusted EBITDA – GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; other operating expenses (comprised of acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements;  and costs incurred with respect to Akamai's internal investigation relating to sales practices in a country outside the U.S.); foreign exchange gains and losses; loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.

Adjusted EBITDA margin – Adjusted EBITDA stated as a percentage of revenue.

Capital expenditures – Purchases of property and equipment, capitalization of internal-use software development costs, capitalization of stock-based compensation and capitalization of interest expense.

Revenue, adjusted for ADS divestiture – Revenue excluding the impact of Akamai's Advertising Decision Solutions (ADS) divestiture.

Impact of Foreign Currency Exchange Rates – Revenue and earnings from international operations have historically been an important contributor to Akamai's financial results.  Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates.  For example, when the local currencies of Akamai's foreign subsidiaries weaken, consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of financial results and evaluation of performance in comparison to prior periods. The information presented is calculated by translating current period results using the same average foreign currency exchange rates per month from the comparative period.

Akamai Statement Under the Private Securities Litigation Reform Act This release contains information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about our share repurchase plan. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, changes in liquidity affecting the number of shares we repurchase; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.

In addition, the statements in this press release represent Akamai's expectations and beliefs as of the date of this press release. Akamai anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Akamai may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Akamai's expectations or beliefs as of any date subsequent to the date of this press release.

 

Contacts:

Jeff Young

Tom Barth

Media Relations

Investor Relations

Akamai Technologies

Akamai Technologies

617-444-3913

617-274-7130

jyoung@akamai.com

tbarth@akamai.com

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SOURCE Akamai Technologies, Inc.



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