Akamai Reports Third Quarter 2011 Financial Results

Oct 26, 2011, 16:01 ET from Akamai Technologies, Inc.

CAMBRIDGE, Mass., Oct. 26, 2011 /PRNewswire/ --

  • Revenue of $281.9 million, up 11 percent year-over-year
  • GAAP net income of $42.3 million, or $0.23 per diluted share, up 6 percent year-over-year
  • Normalized net income* of $63.4 million, or $0.34 per diluted share, down 1 percent year-over-year

Akamai Technologies, Inc. (NASDAQ: AKAM), the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere, today reported financial results for the third quarter ended September 30, 2011.  Revenue for third quarter 2011 was $281.9 million, an 11 percent increase over third quarter 2010 revenue of $253.6 million, and a 2 percent increase over second quarter 2011 revenue of $277.0 million

(Logo: http://photos.prnewswire.com/prnh/20100225/AKAMAILOGO)

Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2011 was $42.3 million, or $0.23 per diluted share, a 6 percent increase from third quarter 2010 GAAP net income of $39.7 million, or $0.21 per diluted share, and a 12 percent decrease from second quarter 2011 GAAP net income of $47.9 million, or $0.25 per diluted share. 

The Company generated normalized net income* of $63.4 million, or $0.34 per diluted share, in the third quarter of 2011, down 1 percent from third quarter 2010 normalized net income of $64.2 million, or $0.34 per diluted share, and down 4 percent from second quarter 2011 normalized net income of $65.8 million, or $0.35 per diluted share.  (*See Use of Non-GAAP Financial Measures below for definitions.) 

"We are pleased with Akamai's performance in the third quarter, as more customers adopted the Akamai Platform for their online businesses," said Paul Sagan, president and CEO of Akamai.  "We have continued to develop the platform of choice for businesses seeking to capitalize on opportunities in mobile, cloud, security, and video, as well as manage the risks of the hyperconnected world."  

Adjusted EBITDA* for the third quarter of 2011 was $122.4 million, up 7 percent from $114.1 million in the third quarter of 2010 and down 3 percent from $126.2 million in the prior quarter.  Adjusted EBITDA margin* for the third quarter of 2011 was 43 percent, down 2 points from the same period last year.  (*See Use of Non-GAAP Financial Measures below for definitions.) 

Cash from operations was $116.3 million in the third quarter of 2011, or 41 percent of revenue.  At the end of the third quarter of 2011, the Company had approximately $1.2 billion in cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 19 percent and 29 percent, respectively, of revenue for the third quarter 2011.

Akamai also announced today that David Kenny resigned as president and director of the Company.  

"As a director, David was a strong advocate for innovation, mobile capabilities and global expansion.  As president, he helped to re-align the organization to deliver faster on those critical strategies," Mr. Sagan said. "Thanks in part to David's leadership, we have established a strong path for growth that we intend to follow for many years to come."

Mr. Kenny said, "It has been a privilege to serve Akamai as a director and to be a part of the management team to help Paul strengthen the Company's foundation for future growth.  While I now want to return to my first passion of pursuing emerging opportunities on the consumer Internet, I will miss the great people at Akamai and their relentless pursuit of excellence in everything they do. I believe Akamai is well-positioned to capture the opportunities ahead in the enterprise marketplace."

Mr. Kenny, who will serve as a consultant to the Company on business strategy, joined Akamai as president in September 2010 after previously serving as a member of the Company's Board of Directors for three years.  

Akamai also announced today that the Board re-appointed Mr. Sagan as president, a title that he will hold in addition to CEO and director.  

Share Repurchase Program

During the third quarter of 2011, under a share repurchase program that was approved by the Board of Directors in April 2011 and expanded in August 2011, the Company repurchased approximately 6.8 million shares of its common stock for $155.1 million, an average price of $22.75 per share.  As of September 30, 2011, the Company had repurchased 15.2 million shares of its common stock for $406 million, at an average price of $26.82 per share, since the commencement of the current repurchase program.

As of September 30, 2011, the Company had approximately 179.5 million shares of common stock outstanding.

Quarterly Conference Call

Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-800-573-4754 (or 1-617-224-4325 for international calls) and using passcode No. 35896882.  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 one week following the conference through the Akamai Website or by calling 1-888-286-8010 (or 1-617-801-6888 for international calls) and using passcode No. 90643566.

About Akamai

Akamai® is the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere.  At the core of the Company's solutions is the Akamai Intelligent Platform™ providing extensive reach, coupled with unmatched reliability, security, visibility and expertise.  Akamai removes the complexities of connecting the increasingly mobile world, supporting 24/7 consumer demand, and enabling enterprises to securely leverage the cloud.  To learn more about how Akamai is accelerating the pace of innovation in a hyperconnected world, please visit www.akamai.com and follow @Akamai on Twitter.

Financial Statements

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

(unaudited)

Sept. 30, 2011

Dec. 31, 2010

Assets

Cash and cash equivalents

$           355,599

$           231,866

Marketable securities

331,916

374,733

Restricted marketable securities

51

272

Accounts receivable, net

182,665

175,366

Deferred income tax assets, current portion

7,163

28,201

Prepaid expenses and other current assets

47,085

48,029

Current assets

924,479

858,467

Marketable securities

503,384

636,486

Restricted marketable securities

45

45

Property and equipment, net

285,476

255,929

Goodwill and other intangible assets, net

502,616

515,370

Other assets

9,210

11,153

Deferred income tax assets, net

76,747

75,226

Total assets

$        2,301,957

$        2,352,676

Liabilities and stockholders' equity

Accounts payable and accrued expenses

$           115,614

$           120,046

Other current liabilities

23,264

25,105

Current liabilities

138,878

145,151

Other liabilities

41,068

29,920

Total liabilities

179,946

175,071

Stockholders' equity

2,122,011

2,177,605

Total liabilities and stockholders' equity

$        2,301,957

$        2,352,676

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share data)

(unaudited)

Three Months Ended

Nine Months Ended

Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,

2011

2011

2010

2011

2010

Revenues

$           281,856

$           276,989

$           253,551

$           834,798

$           738,898

Costs and operating expenses:  

Cost of revenues * +

93,284

89,647

77,812

271,999

217,126

Research and development *

13,542

11,006

14,235

37,142

40,991

Sales and marketing *

54,520

52,837

55,603

160,722

160,474

General and administrative * +

50,834

45,975

42,729

140,710

125,986

Amortization of other intangible assets

4,185

4,292

4,130

12,754

12,390

Restructuring charge

158

-

-

158

-

Total costs and operating expenses

216,523

203,757

194,509

623,485

556,967

Operating income

65,333

73,232

59,042

211,313

181,931

Interest income, net

(3,002)

(3,096)

(2,636)

(9,058)

(8,069)

Loss on early extinguishment of debt

-

-

-

-

294

Other loss, net

188

107

1,366

1,330

1,319

Income before provision for income taxes

68,147

76,221

60,312

219,041

188,387

Provision for income taxes

25,862

28,300

20,603

78,218

69,677

Net income

$             42,285

$             47,921

$             39,709

$           140,823

$           118,710

Net income per share:

   Basic

$                 0.23

$                 0.26

$                 0.22

$                 0.76

$                 0.68

   Diluted

$                 0.23

$                 0.25

$                 0.21

$                 0.74

$                 0.63

Shares used in per share calculations:

   Basic

183,085

186,612

181,457

185,515

175,292

   Diluted

185,704

190,179

191,271

189,089

190,254

* Includes stock-based compensation (see supplemental table for figures)

+ Includes depreciation and amortization (see supplemental table for figures)

Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

Three Months Ended

Nine Months Ended

Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,

2011

2011

2010

2011

2010

Cash flows from operating activities:

Net income

$             42,285

$             47,921

$                 39,709

$           140,823

$           118,710

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

Depreciation and amortization of intangible assets and deferred financing costs

41,761

41,333

36,542

124,228

104,570

Stock-based compensation

15,141

11,612

18,589

42,465

57,973

Provision for deferred income taxes, net

20,906

-

22,287

20,906

66,898

Excess tax benefits from stock-based compensation

(610)

(1,838)

(9,456)

(11,460)

(22,379)

(Gain) loss on investments and disposal of property and equipment, net

(176)

(113)

22

(172)

(223)

Provision for doubtful accounts

782

132

662

1,236

2,107

Non-cash portion of loss on early extinguishment of debt

-

-

-

-

294

Changes in operating assets and liabilities:

Accounts receivable

(8,277)

(7,101)

10,064

(7,821)

(6,342)

Prepaid expenses and other current assets

(919)

6,917

(1,109)

(78)

(41,393)

Accounts payable, accrued expenses and other current liabilities

445

2,678

8,695

(5,268)

20,573

Accrued restructuring

(148)

(32)

(74)

(180)

(167)

Deferred revenue

796

1,271

(5,807)

(1,386)

(7,126)

Other noncurrent assets and liabilities  

4,303

9,068

(2,161)

13,355

(1,399)

Net cash provided by operating activities

116,289

111,848

117,963

316,648

292,096

Cash flows from investing activities:

Cash paid for acquired business, net of cash received

-

(375)

(200)

(550)

(12,210)

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

(47,317)

(42,740)

(42,058)

(136,292)

(143,345)

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

388,983

263,870

284,460

900,120

789,182

Purchases of short- and long-term marketable securities

(149,318)

(302,520)

(285,408)

(727,453)

(900,087)

Proceeds from the sale of property and equipment

47

63

14

135

52

Increase in other investments

-

-

-

-

(500)

Decrease in restricted investments held for security deposits

-

-

-

221

8

Net cash provided by (used in) in investing activities

192,395

(81,702)

(43,192)

36,181

(266,900)

Cash flows from financing activities:

Proceeds from the issuance of common stock under stock option and employee stock purchase plans

1,183

8,163

10,953

13,305

31,946

Excess tax benefits from stock-based compensation

610

1,838

9,456

11,460

22,379

Taxes paid related to net share settlement of equity awards

(2,173)

(3,507)

-

(5,680)

-

Repurchase of common stock

(155,125)

(48,935)

(22,505)

(247,738)

(65,126)

Net cash used in financing activities

(155,505)

(42,441)

(2,096)

(228,653)

(10,801)

Effects of exchange rate changes on cash and cash equivalents

(3,209)

750

4,386

(443)

1,867

Net increase (decrease) in cash and cash equivalents

149,970

(11,545)

77,061

123,733

16,262

Cash and cash equivalents, beginning of period

205,629

217,174

120,506

231,866

181,305

Cash and cash equivalents, end of period

$           355,599

$           205,629

$               197,567

$           355,599

$           197,567

Three Months Ended

Nine Months Ended

Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,

2011

2011

2010

2011

2010

Supplemental financial data (in thousands):

Stock-based compensation:

Cost of revenues

$                  634

$                  590

$                  702

$               1,779

$               2,110

Research and development

2,629

2,124

3,687

7,515

11,222

Sales and marketing

6,951

5,315

8,862

19,112

26,662

General and administrative

4,927

3,583

5,338

14,059

17,979

    Total stock-based compensation

$             15,141

$             11,612

$             18,589

$             42,465

$             57,973

Depreciation and amortization:

Network-related depreciation

$             31,662

$             31,245

$             26,504

$             93,594

$             74,264

Capitalized stock-based compensation amortization

1,592

1,938

1,817

5,595

5,522

Other depreciation and amortization

4,322

3,858

4,028

12,285

11,937

Amortization of other intangible assets

4,185

4,292

4,130

12,754

12,390

Total depreciation and amortization

$             41,761

$             41,333

$             36,479

$           124,228

$           104,113

Capital expenditures:

Purchases of property and equipment

$             37,244

$             32,925

$             33,145

$           105,769

$           119,591

Capitalized internal-use software

10,073

9,815

8,913

30,523

23,754

Capitalized stock-based compensation

1,941

1,641

1,918

5,406

5,597

Total capital expenditures

$             49,258

$             44,381

$             43,976

$           141,698

$           148,942

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

$           (94,478)

$             28,236

$             77,930

$           (52,407)

$           128,721

End of period statistics:

Number of employees

2,356

2,244

2,108

Number of deployed servers

100,770

95,811

77,885

*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 has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Legislative and regulatory pronouncements discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. We believe that the inclusion of these non-GAAP financial measures in this press release and our earnings call helps investors to gain a meaningful understanding of our past performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. These measures are also used by management in its financial and operational decision-making. There are limitations associated with reliance on these non-GAAP financial metrics because they are specific to our operations and financial performance, which may make comparisons with other companies' financial results more challenging. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining a better understanding of our operating performance as evaluated by management.

Akamai defines "Adjusted EBITDA" as net income, before interest, income taxes, depreciation and amortization of tangible and intangible assets, stock-based compensation expense, amortization of capitalized stock-based compensation, restructuring charges and benefits, acquisition related costs and benefits, certain gains and losses on investments, foreign exchange gains and losses, loss on early extinguishment of debt and gains on legal settlements. Akamai considers Adjusted EBITDA to be an important indicator of the Company's operational strength and performance of its business and a good measure of the Company's historical operating trend.

Adjusted EBITDA eliminates items that are either not part of the Company's core operations, such as investment gains and losses, foreign exchange gains and losses, early debt extinguishment and net interest income, or that do not require a cash outlay, such as stock-based compensation. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the Company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on the historical cost incurred to build out the Company's deployed network, and may not be indicative of current or future capital expenditures.

Akamai defines "Adjusted EBITDA margin" as a percentage of Adjusted EBITDA as a percentage of revenues. Akamai considers Adjusted EBITDA margin to be an indicator of the Company's operating trend and performance of its business in relation to its revenue growth.

Akamai defines "capital expenditures" or "capex" as purchases of property and equipment, capitalization of internal-use software development costs and capitalization of stock-based compensation. Capital expenditures or capex are disclosed in Akamai's consolidated Statement of Cash Flows in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Akamai defines "normalized net income" as net income before amortization of other intangible assets, stock-based compensation expense, amortization of capitalized stock-based compensation, restructuring charges and benefits, acquisition related costs and benefits, certain gains and losses on investments and loss on early extinguishment of debt. Akamai considers normalized net income to be another important indicator of the overall performance of the Company because it eliminates the effects of events that are either not part of the Company's core operations or are non-cash.

Akamai defines "normalized net income per share" as normalized net income, plus interest add-back for diluted share calculation, divided by the basic weighted average or diluted common shares outstanding used in GAAP net income per share calculations. Akamai considers normalized net income per share to be another important indicator of overall performance of the Company because it eliminates the effect of non-cash items.

Adjusted EBITDA and normalized net income should be considered in addition to, not as a substitute for, the Company's operating income and net income, as well as other measures of financial performance reported in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the Company is presenting the most directly comparable GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable GAAP measures.

Reconciliation of GAAP net income to Normalized net income

and Adjusted EBITDA

(amounts in thousands, except per share data)

Three Months Ended

Nine Months Ended

Sept. 30

June 30,

Sept. 30,

Sept. 30

Sept. 30

2011

2011

2010

2011

2010

Net income

$             42,285

$             47,921

$             39,709

$           140,823

$           118,710

Amortization of other intangible assets

4,185

4,292

4,130

12,754

12,390

Stock-based compensation

15,141

11,612

18,589

42,465

57,973

Amortization of capitalized stock-based compensation

1,592

1,938

1,817

5,595

5,522

Loss on early extinguishment of debt

-

-

-

-

294

Acquisition related costs (benefits)

-

-

-

(440)

345

Restructuring charge

158

-

-

158

-

Total normalized net income:

63,361

65,763

64,245

201,355

195,234

Interest income, net

(3,002)

(3,096)

(2,636)

(9,058)

(8,069)

Provision for income taxes

25,862

28,300

20,603

78,218

69,677

Depreciation and amortization

35,984

35,103

30,532

105,879