Akamai Reports Third Quarter 2013 Financial Results

Oct 23, 2013, 16:00 ET from Akamai Technologies, Inc.

CAMBRIDGE, Mass., Oct. 23, 2013 /PRNewswire/ -- 

  • Third quarter revenue of $396 million, up 15% year-over-year, or up 18% year-over-year adjusted for ADS divestiture
  • Third quarter GAAP net income of $80 million, up 65% year-over-year, or $0.44 per diluted share, up 63% year-over-year (includes $8 million, or $0.04 per diluted share, depreciation benefit and $17 million, or $0.09 per diluted share, tax benefit)
  • Third quarter non-GAAP net income* of $90 million, up 31% year-over-year, or $0.50 per diluted share, up 32% year-over-year (includes $8 million, or $0.04 per diluted share, depreciation benefit and $5 million, or $0.03 per diluted share, tax benefit)
  • Board of Directors authorizes new $750 million share repurchase program

Akamai Technologies, Inc. (NASDAQ: AKAM), the leading provider of cloud services for delivering, optimizing and securing online content and business applications, today reported financial results for the third quarter ended September 30, 2013.  Revenue for the third quarter of 2013 was $396 million, a 15% increase over third quarter 2012 revenue of $345 million, or up 18% adjusted for the Advertising Decision Solutions (ADS) divestiture.

(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 2013 was $80 million, or $0.44 per diluted share, a 29% increase from the prior quarter's GAAP net income of $62 million, or $0.34 per diluted share, and a 65% increase over third quarter 2012 GAAP net income of $48 million, or $0.27 per diluted share.

The Company generated non-GAAP net income* of $90 million, or $0.50 per diluted share, in the third quarter of 2013, a 7% increase from the prior quarter's non-GAAP net income of $84 million, or $0.46 per diluted share, and a 31% increase over third quarter 2012 non-GAAP net income of $69 million, or $0.38 per diluted share. 

GAAP and non-GAAP net income results for the third quarter of 2013 include an $8 million, or $0.04 per diluted share, benefit from the previously-announced change in depreciation methodology effective on January 1, 2013. In addition, GAAP and non-GAAP net income results for the third quarter of 2013 include a tax benefit associated with the Company's retroactive adoption of a tax deduction related to its software development activities. The tax benefit due to this deduction was $17 million, or $0.09 per diluted share, included in GAAP net income, and $5 million, or $0.03 per diluted share included in non-GAAP net income.

"Akamai's strong third quarter and year-to-date financial performance highlights our ability to deliver innovative solutions to leading enterprises globally," said Tom Leighton, CEO of Akamai.  "We intend to continue to invest in the business, while also effectively managing the cost and efficiency of our network, to help our customers capitalize on the opportunities enabled by the hyperconnected world."

Adjusted EBITDA* for the third quarter of 2013 was $173 million, an increase from the prior quarter's Adjusted EBITDA of $166 million, and up from $157 million in the third quarter of 2012.  Adjusted EBITDA margin* for the third quarter of 2013 was 44%, consistent with the prior quarter and down a point from the same period last year. 

Cash from operations for the third quarter of 2013 was $158 million, or 40% of revenue.  At the end of the third quarter of 2013, the Company had $1.2 billion of cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 21% and 28%, respectively, of revenue for the third quarter of 2013.

Share Repurchase Program The Company also announced today that its Board of Directors has authorized a new $750 million share repurchase program, effective from October 16, 2013 through December 31, 2016.  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 capital distributions to its shareholders as business and market conditions warrant.

The timing and amount of any shares repurchased will be determined by the Company's management based on its 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.

During the third quarter of 2013, under the share repurchase program replaced by the one announced today, the Company spent approximately $30 million to repurchase 0.7 million shares of its common stock, at an average price of $45.32 per share. During the first three quarters of 2013, the Company spent approximately $112 million to repurchase 2.8 million shares of its common stock, at an average price of $39.65 per share.

The Company had approximately 179 million shares of common stock outstanding as of September 30, 2013. 

*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 1-877-415-3184 (or 1-857-244-7327 for international calls) and using passcode No. 51318276.  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. 10768137.

About Akamai Akamai® is the leading provider of cloud services for delivering, optimizing and securing online content and business applications.  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 or blogs.akamai.com, and follow @Akamai on Twitter.

 

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

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30, 2013

December 31, 2012

ASSETS

Cash and cash equivalents

$

235,015

$

201,989

Marketable securities

331,300

235,592

Accounts receivable, net

256,453

218,777

Prepaid expenses and other current assets

67,452

51,604

Deferred income tax assets

20,422

20,422

Current assets

910,642

728,384

Property and equipment, net

424,605

345,091

Marketable securities

620,204

657,659

Goodwill and acquired intangible assets, net

831,074

808,255

Deferred income tax assets

20,672

21,427

Other assets

77,928

39,811

Total assets

$

2,885,125

$

2,600,627

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses

$

220,600

$

176,378

Other current liabilities

64,824

26,566

Current liabilities

285,424

202,944

Other liabilities

56,571

51,929

Total liabilities

341,995

254,873

Stockholders' equity

2,543,130

2,345,754

Total liabilities and stockholders' equity

$

2,885,125

$

2,600,627

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September 

30, 2013

June 30, 2013

September 

30, 2012

September 

30, 2013

September 

30, 2012

Revenue

$

395,790

$

378,106

$

345,321

$

1,141,942

$

996,075

Costs and operating expenses:

Cost of revenue (1) (2)

132,039

124,705

134,221

377,136

390,406

Research and development (1)

24,857

20,597

19,351

67,359

54,373

Sales and marketing (1)

67,811

67,825

55,206

198,326

160,681

General and administrative (1) (2)

66,634

61,351

51,003

183,365

156,241

Amortization of acquired intangible assets

4,859

5,734

5,381

16,653

15,611

Restructuring charges

69

391

891

14

Total costs and operating expenses

296,269

280,603

265,162

843,730

777,326

Income from operations

99,521

97,503

80,159

298,212

218,749

Interest income, net

1,458

1,477

1,593

4,543

4,865

Other (expense) income, net

(305)

341

(241)

(96)

449

Income before provision for income taxes

100,674

99,321

81,511

302,659

224,063

Provision for income taxes

20,918

37,426

33,280

89,521

88,366

Net income

$

79,756

$

61,895

$

48,231

$

213,138

$

135,697

Net income per share:

Basic

$

0.45

$

0.35

$

0.27

$

1.20

$

0.76

Diluted

$

0.44

$

0.34

$

0.27

$

1.17

$

0.75

Shares used in per share calculations:

Basic

178,235

177,891

177,455

178,008

178,040

Diluted

181,922

181,388

181,053

181,623

181,738

(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

Nine Months Ended

(in thousands)

September 

30, 2013

June 30, 2013

September 

30, 2012

September 

30, 2013

September 

30, 2012

Cash flows from operating activities:

Net income

$

79,756

$

61,895

$

48,231

$

213,138

$

135,697

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

Depreciation and amortization

47,954

44,126

53,457

134,455

149,203

Stock-based compensation

24,479

24,801

22,635

72,211

69,180

Provision for doubtful accounts

(310)

879

(345)

889

(61)

Excess tax benefits from stock-based compensation

(8,530)

(5,503)

(2,540)

(18,152)

(17,589)

Provision for deferred income taxes

826

826

(Gain) loss on disposal of property and equipment

(324)

380

142

(15)

(62)

Gain and other activity related to divestiture of a business

1,093

(1,093)

(1,188)

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

Accounts receivable

(16,118)

(6,848)

(27,974)

(51,321)

(21,587)

Prepaid expenses and other current assets

7,190

(4,969)

2,125

(11,739)

9,790

Accounts payable and accrued expenses

20,035

28,223

39,810

43,730

49,149

Deferred revenue

4,379

(1,613)

1,401

10,991

5,542

Other current liabilities

255

(112)

(28)

32

(2,897)

Other non-current assets and liabilities

(1,722)

689

(897)

(3,328)

(104)

Net cash provided by operating activities

158,137

140,855

136,843

389,703

377,087

Cash flows from investing activities:

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

(27,500)

80

(14,392)

(27,420)

(306,030)

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

(60,638)

(76,311)

(60,626)

(195,265)

(158,817)

Purchases of short- and long-term marketable securities

(93,681)

(164,525)

(137,809)

(403,556)

(554,303)

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

57,509

165,513

98,567

344,702

350,152

Proceeds from the sale of property and equipment

335

166

761

12

Other non-currents assets and liabilities

(2,959)

(361)

(29)

(3,320)

979

Net cash used in investing activities

(126,934)

(75,438)

(114,289)

(284,098)

(668,007)

Cash flows from financing activities:

Proceeds from the issuance of common stock under stock plans

26,157

17,897

11,080

54,418

33,760

Excess tax benefits from stock-based compensation

8,530

5,503

2,540

18,152

17,589

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

(7,434)

(3,810)

(2,370)

(28,559)

(26,566)

Repurchases of common stock

(29,626)

(42,504)

(36,523)

(112,408)

(111,649)

Net cash used in financing activities

(2,373)

(22,914)

(25,273)

(68,397)

(86,866)

Effects of exchange rate changes on cash and cash equivalents

1,319

(2,912)

2,373

(4,182)

1,239

Net increase (decrease) in cash and cash equivalents

30,149

39,591

(346)

33,026

(376,547)

Cash and cash equivalents at beginning of period

204,866

165,275

182,996

201,989

559,197

Cash and cash equivalents at end of period

$

235,015

$

204,866

$

182,650

$

235,015

$

182,650

Note: Revisions have been made to all prior periods presented to reclassify immaterial amounts among operating, investing and financing cash flow categories.

 

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND ADJUSTED EBITDA

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September 

30, 2013

June 30, 2013

September 

30, 2012

September 

30, 2013

September 

30, 2012

Net income

$

79,756

$

61,895

$

48,231

$

213,138

$

135,697

Amortization of acquired intangible assets

4,859

5,734

5,381

16,653

15,611

Stock-based compensation

24,479

24,801

22,635

72,211

69,180

Amortization of capitalized stock-based compensation

2,224

1,978

2,025

6,103

5,719

Acquisition related costs

219

31

279

587

5,107

Restructuring charges

69

391

891

14

Gain and other activity related to divestiture of a business

1,093

(1,093)

(1,188)

Income tax-effect of above non-GAAP adjustments

(22,439)

(9,726)

(9,674)

(40,891)

(30,007)

Non-GAAP net income

90,260

84,011

68,877

267,504

201,321

Interest income, net

(1,458)

(1,477)

(1,593)

(4,543)

(4,865)

Provision for GAAP income taxes

20,918

37,426

33,280

89,521

88,366

Income tax-effect of above non-GAAP adjustments

22,439

9,726

9,674

40,891

30,007

Depreciation and amortization

40,871

36,414

46,051

111,699

127,873

Other expense (income), net

305

(341)

241

96

(449)

Adjusted EBITDA

$

173,335

$

165,759

$

156,530

$

505,168

$

442,253

Adjusted EBITDA margin

44

%

44

%

45

%

44

%

44

%

Non-GAAP net income per share:

Basic

$

0.51

$

0.47

$

0.39

$

1.50

$

1.13

Diluted

$

0.50

$

0.46

$

0.38

$

1.47

$

1.11

Shares used in non-GAAP per share calculations:

Basic

178,235

177,891

177,455

178,008

178,040

Diluted

181,922

181,388

181,053

181,623

181,738

 

RECONCILIATION OF REVENUE TO REVENUE ADJUSTED FOR ADS DIVESTITURE

Three Months Ended

Nine Months Ended

(in thousands)

 

September 

30, 2013

June 30,

 2013

September 

30, 2012

September 

30, 2013

September 

30, 2012

Revenue

$

395,790

$

378,106

$

345,321

$

1,141,942

$

996,075

Less: ADS revenue

(10,045)

(2,747)

(30,621)

Revenue, adjusted for ADS divestiture

$

395,790

$

378,106

$

335,276

$

1,139,195

$

965,454

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL FINANCIAL DATA

Three Months Ended

Nine Months Ended

(in thousands, except end of period statistics)

September 

30, 2013

June 30, 2013

September 

30, 2012

September 

30, 2013

September 

30, 2012

Stock-based compensation:

Cost of revenue

$

2,885

$

2,718

$

2,834

$

8,230

$

8,604

Research and development

4,583

3,867

4,427

12,819

13,258

Sales and marketing

10,048

9,799

8,746

29,278

25,671

General and administrative

6,963

8,417

6,628

21,884

21,647

Total stock-based compensation

$

24,479

$

24,801

$

22,635

$

72,211

$

69,180

Depreciation and amortization:

Network-related depreciation

$

33,909

$

30,299

$

41,022

$

93,128

$

113,616

Other depreciation and amortization

6,962

6,115

5,029

18,571

14,257

Depreciation of property and equipment

40,871

36,414

46,051

111,699

127,873

Capitalized stock-based compensation amortization

2,224

1,978

2,025

6,103

5,719

Amortization of acquired intangible assets

4,859

5,734

5,381

16,653

15,611

Total depreciation and amortization

$

47,954

$

44,126

$

53,457

$

134,455

$

149,203

Capital expenditures:

Purchases of property and equipment

$

40,594

$

58,182

$

46,967

$

140,094

$

118,896

Capitalized internal-use software

20,044

18,129

13,659

55,171

39,921

Capital expenditures, excluding stock-based compensation

60,638

76,311

60,626

195,265

158,817

Capitalized stock-based compensation

3,069

3,245

2,561

9,252

6,694

Total capital expenditures*

$

63,707

$

79,556

$

63,187

$

204,517

$

165,511

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

$

68,107

$

35,978

$

39,889

$

91,279

$

(171,621)

End of period statistics:

Number of employees

3,769

3,453

2,884

Number of deployed servers

141,353

137,788

119,370

* 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 net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, and capital expenditures, 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 and not reflective of the Company's ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating the Company's operating results and future prospects in the same manner as used by management and in comparing financial results across accounting periods and to those of peer companies.

The non-GAAP financial measures do not replace the presentation of the Company's GAAP financial results and should only be used as a supplement to, not as a substitute for, the Company'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 the Company 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 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 to Akamai's employees and executives, the expense varies with changes in the stock price and market conditions 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 in order to better understand the performance of Akamai's core business performance and to be consistent with the way the investors evaluate its performance and comparison of its operating results to peer companies.
  • Restructuring charges – Akamai has incurred restructuring charges, included in its GAAP financial statements, primarily due to workforce reductions and estimated costs of exiting facility lease commitments.  Akamai excludes these items when evaluating its continuing business performance as such items are not consistently recurring, do not reflect expected future operating expense, nor provide meaningful insight into the current and past operations of its business.
  • Acquisition related costs – Acquisition related costs include transaction fees, due diligence costs and other one-time direct costs associated with strategic activities. In addition, subsequent adjustments to the Company's initial estimated amount of contingent consideration 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 and benefits to provide a useful comparison of the Company's operating results to prior periods and to its peer companies because such amounts vary significantly based on magnitude of its acquisition transactions.
  • Gain and other activity related to divestiture of a business – Akamai recognized a gain and other activity associated with the divestiture of its Advertising Decision Solutions business. Akamai excludes gains and other activity related to divestiture of a business because sales of this nature occur infrequently and are not considered part of the Company's core business operations.
  • Income tax-effect of non-GAAP adjustments – 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 the Company to more properly reflect the income attributable to its core operations.  

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

Non-GAAP net income GAAP net income adjusted for the following tax-effected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition related costs; certain gains and losses on investments; gains and other activity related to divestiture of a business; loss on early extinguishment of debt; gains and losses on legal settlements 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 the basic weighted average or diluted common shares outstanding used in GAAP net income per share calculations.

Adjusted EBITDA – GAAP net income excluding the following items: interest; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition related costs; certain gains and losses on investments; gains, losses and other activity related to divestiture of a business; foreign exchange gains and losses; loss on early extinguishment of debt; gains and losses on legal settlements 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.

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

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

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 future business plans and opportunities. 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, effects of increased competition including potential failure to maintain the prices we charge for our services and loss of significant customers; failure of the markets we address or plan to address to develop as we expect or at all; 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; a failure of Akamai's services or network infrastructure; 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.

SOURCE Akamai Technologies, Inc.



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