Akamai Reports Third Quarter 2010 Financial Results

Oct 27, 2010, 16:01 ET from Akamai Technologies, Inc.

CAMBRIDGE, Mass., Oct. 27 /PRNewswire-FirstCall/ --

- Revenue of $253.6 million, up 23 percent year-over-year

- GAAP net income of $39.7 million, or $0.21 per diluted share, up 21 percent year-over-year

- Fully taxed normalized net income* of $64.2 million, or $0.34 per diluted share, up 23 percent year-over-year

Akamai Technologies, Inc. (Nasdaq: AKAM), the leading provider of cloud optimization services, today reported financial results for the third quarter ended September 30, 2010.  Revenue for third quarter 2010 was $253.6 million, a 23 percent increase over third quarter 2009 revenue of $206.5 million, and a 3 percent increase over second quarter 2010 revenue of $245.3 million.  

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Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2010 was $39.7 million, or $0.21 per diluted share, a 21 percent increase from third quarter 2009 GAAP net income of $32.7 million, or $0.18 per diluted share, and a 4 percent increase from second quarter 2010 GAAP net income of $38.1 million, or $0.20 per diluted share.

The Company generated fully taxed normalized net income* of $64.2 million, or $0.34 per diluted share, in the third quarter of 2010, a 23 percent improvement over third quarter 2009 fully taxed normalized net income of $52.3 million, or $0.28 per diluted share, and a 1 percent decrease from second quarter 2010 fully taxed normalized net income of $65.0 million, or $0.34 per diluted share.  (*See Use of Non-GAAP Financial Measures below for definitions.)

"Akamai performed very well in the third quarter, and we believe we have solid momentum heading into our seasonally strongest quarter of the year," said Paul Sagan, CEO of Akamai.  "We continued to make key investments to support our customers' online businesses and successfully meet the growing demand we have been seeing for our portfolio of cloud-based services."

Adjusted EBITDA* for the third quarter of 2010 was $114.1 million, up 19 percent from $95.9 million in the third quarter of 2009 and up 2 percent from $112.1 million in the prior quarter.  Adjusted EBITDA margin* for the third quarter of 2010 was 45 percent, down 1 point from the same period last year.  (*See Use of Non-GAAP Financial Measures below for definitions.)  

Cash from operations was $118 million in the third quarter of 2010 or 47 percent of revenue.   At the end of the third quarter of 2010, the Company had $1.2 billion in cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 18 percent and 28 percent, respectively, of revenue for the third quarter 2010.

During the third quarter of 2010, under a share repurchase program that was approved by the Board of Directors in April 2009 and extended in April 2010, the Company repurchased approximately 522,000 shares of common stock for an aggregate of $22.7 million at an average price of $43.57 per share.  As of September 30, 2010, the Company had repurchased a total of 5.2 million shares for an aggregate of $131.4 million at an average price of $25.17 per share under the program.

As of September 30, 2010, the Company had approximately 182.4 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 1-866-510-0704 (or 1-617-597-5362 for international calls) and using passcode No. 63374268.  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. 81364618.

About Akamai

Akamai® provides market-leading, cloud-based services for optimizing Web and mobile content and applications, online HD video, and secure e-commerce.  Combining highly-distributed, energy-efficient computing with intelligent software, Akamai's global platform is transforming the cloud into a more viable place to inform, entertain, advertise, transact and collaborate.  To learn how the world's leading enterprises are optimizing their business in the cloud, please visit www.akamai.com and follow @Akamai on Twitter.


Contacts:

Liz Bradley
Media Relations
Akamai Technologies
617-444-2938

ebradley@akamai.com

    --or--

Natalie Temple
Investor Relations
Akamai Technologies
617-444-3635

ntemple@akamai.com





Financial Statements

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

(unaudited)






Sept. 30, 2010


Dec. 31, 2009

Assets




Cash and cash equivalents

$                              197,567


$                            181,305

Marketable securities

409,427


384,834

Restricted marketable securities

602


602

Accounts receivable, net

158,115


154,269

Deferred income tax assets, current portion

13,658


8,514

Prepaid expenses and other current assets

76,439


31,649

Current assets

855,808


761,173

Marketable securities

582,581


494,707

Restricted marketable securities

28


36

Property and equipment, net

239,508


182,404

Goodwill and other intangible assets, net

519,673


517,620

Other assets

12,185


4,416

Deferred income tax assets, net

52,969


127,154

Total assets

$                           2,262,752


$                         2,087,510





Liabilities and stockholders' equity




Accounts payable and accrued expenses

$                              112,379


$                              92,563

Other current liabilities

30,166


34,975

Convertible notes, current portion

58,620


199,755

Current liabilities

201,165


327,293

Other liabilities

27,440


21,495

Total liabilities

228,605


348,788

Stockholders' equity

2,034,147


1,738,722

Total liabilities and stockholders' equity

$                           2,262,752


$                         2,087,510











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,




2010


2010


2009


2010


2009














Revenues


$       253,551


$           245,318


$        206,500


$        738,898


$       621,468














Costs and operating expenses:  












Cost of revenues *+


77,812


71,840


61,987


217,126


182,358


Research and development *


14,235


13,577


10,904


40,991


31,138


Sales and marketing *


55,603


55,203


44,106


160,474


127,813


General and administrative * +


42,729


43,707


34,655


125,986


105,867


Amortization of other intangible assets


4,130


4,152


4,103


12,390


12,580


Restructuring charge


-


-


-


-


454


Total costs and operating expenses


194,509


188,479


155,755


556,967


460,210


Operating income


59,042


56,839


50,745


181,931


161,258














Interest income, net


(2,636)


(2,771)


(2,807)


(8,069)


(10,291)


Loss on early extinguishment of debt


-


294


-


294


-


Gain on investments, net


-


-


-


-


(455)


Other loss (income), net


1,366


(122)


659


1,319


(659)


Income before provision for income taxes


60,312


59,438


52,893


188,387


172,663


Provision for income taxes


20,603


21,315


20,148


69,677


66,830


Net income


$         39,709


$             38,123


$          32,745


$        118,710


$       105,833














Net income per share:












   Basic


$             0.22


$                 0.22


$              0.19


$              0.68


$             0.62


   Diluted


$             0.21


$                 0.20


$              0.18


$              0.63


$             0.57














Shares used in per share calculations:












   Basic


181,457


173,317


171,686


175,292


171,588


   Diluted


191,271


190,479


188,273


190,254


188,671














* 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,






2010


2010


2009


2010


2009















Cash flows from operating activities:











Net income

$                 39,709


$         38,123


$           32,745


$             118,710


$       105,833


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












Depreciation and amortization of intangible assets and deferred financing costs

36,542


34,858


31,775


104,570


90,551



Stock-based compensation

18,589


20,276


13,612


57,973


41,999



Provision for deferred income taxes, net

22,287


19,973


18,617


66,898


61,784



Excess tax benefits from stock-based compensation

(9,456)


(9,750)


(713)


(22,379)


(1,371)



Loss (gain) on investments and disposal of property and equipment, net

22


(264)


20


(223)


(367)



Gain on divesture of certain assets

-


-


-


-


(1,062)



Provision for doubtful accounts

662


292


740


2,107


4,261



Non-cash portion of loss on early extinguishment of debt

-


294


-


294


-



Changes in operating assets and liabilities:













Accounts receivable

10,064


(18,988)


(6,765)


(6,342)


3,895




Prepaid expenses and other current assets

(1,109)


(28,906)


(6,452)


(41,393)


(10,727)




Accounts payable, accrued expenses and other current liabilities

8,695


25,198


17,900


20,573


(3,437)




Accrued restructuring

(74)


(48)


(347)


(167)


(1,022)




Deferred revenue

(5,807)


1,090


1,315


(7,126)


2,261




Other noncurrent assets and liabilities  

(2,161)


4,232


2,796


(1,399)


6,945


Net cash provided by operating activities

117,963


86,380


105,243


292,096


299,543















Cash flows from investing activities:












Cash paid for acquired business, net of cash received

(200)


(12,010)


-


(12,210)


(5,779)



Proceeds from the divesture of certain assets

-


-


-


-


1,350



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

(42,058)


(66,097)


(31,183)


(143,345)


(78,903)



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

284,460


317,165


204,630


789,182


396,302



Purchases of short- and long-term marketable securities

(285,408)


(382,614)


(366,912)


(900,087)


(530,794)



Proceeds from the sale of property and equipment

14


15


28


52


32



Increase in other investments

-


-


-


(500)


-



Decrease in restricted investments held for security deposits

-


-


103


8


233


Net cash used in investing activities

(43,192)


(143,541)


(193,334)


(266,900)


(217,559)















Cash flows from financing activities:












Proceeds from the issuance of common stock under stock option

 and employee stock purchase plans












10,953


16,947


2,996


31,946


13,759



Excess tax benefits from stock-based compensation

9,456


9,750


713


22,379


1,371



Repurchase of common stock

(22,505)


(20,376)


(34,663)


(65,126)


(51,568)


Net cash (used in) provided by financing activities

(2,096)


6,321


(30,954)


(10,801)


(36,438)
















Effects of exchange rate changes on cash and cash equivalents

4,386


(1,878)


764


1,867


1,182
















Net increase (decrease) in cash and cash equivalents

77,061


(52,718)


(118,281)


16,262


46,728


Cash and cash equivalents, beginning of period

120,506


173,224


321,083


181,305


156,074


Cash and cash equivalents, end of period

$               197,567


$       120,506


$         202,802


$             197,567


$       202,802



















---------------Three Months Ended----------------


-------------Nine Months Ended------------


Sept. 30,


June 30,


Sept. 30,



Sept. 30,


Sept. 30,



2010


2010


2009



2010


2009


Supplemental financial data (in thousands):
























Stock-based compensation:












Cost of revenues

$              702


$             707


$              532



$           2,110


$           1,582


Research and development

3,687


3,542


2,654



11,222


7,603


Sales and marketing

8,862


8,776


6,787



26,662


19,851


General and administrative

5,338


7,251


3,639



17,979


12,963


    Total stock-based compensation

$         18,589


$        20,276


$         13,612



$         57,973


$         41,999














Depreciation and amortization:












Network-related depreciation

$         26,504


$        24,705


$         21,733



$         74,264


$         61,290


Capitalized stock-based compensation amortization

1,817


1,830


1,794



5,522


4,562


Other depreciation and amortization

4,028


3,987


3,935



11,937


11,488


Amortization of other intangible assets

4,130


4,152


4,103



12,390


12,580


Total depreciation and amortization

$         36,479


$        34,674


$         31,565



$       104,113


$         89,920














Capital expenditures:












Purchases of property and equipment

$         33,145


$        58,243


$         24,423



$       119,591


$         58,455


Capitalized internal-use software

8,913


7,854


6,760



23,754


20,448


Capitalized stock-based compensation

1,918


2,202


1,373



5,597


4,525


Total capital expenditures

$         43,976


$        68,299


$         32,556



$       148,942


$         83,428














Net increase in cash, cash equivalents, marketable












securities and restricted marketable securities

$         77,930


$        15,894


$         46,498



$       128,721


$       201,649














End of period statistics:












Number of customers under recurring contract

         3,438


        3,342


         3,031







Number of employees

         2,108


        1,976


         1,682







Number of deployed servers

       77,885


      73,197


       56,066









*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 changes 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 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 makes 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, 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 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 historic 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 "fully taxed 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, certain gains and losses on investments and loss on early extinguishment of debt. Akamai considers fully taxed 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 "fully taxed normalized net income per share" as fully taxed 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 fully taxed normalized net income per share to be another important indicator of overall performance of the Company because it eliminates the effect of a non-cash item.

Adjusted EBITDA and fully taxed 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 Fully taxed 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,


2010


2010


2009


2010


2009





















Net income

$          39,709


$           38,123


$           32,745


$        118,710


$        105,833











Amortization of other intangible assets

4,130


4,152


4,103


12,390


12,580

Stock-based compensation

18,589


20,276


13,612


57,973


41,999

Amortization of capitalized stock-based compensation

1,817


1,830


1,794


5,522


4,562

Gain on investments, net

-


-


-


-


(455)

Utilization of tax NOLs/credits *

-


-


-


-


-

Loss on early extinguishment of debt

-


294


-


294


-

Acquisition related costs

-


345


-


345


-

Restructuring charge

-


-


-


-


454











Total fully taxed normalized net income:

64,245


65,020


52,254


195,234


164,973











Interest income, net

(2,636)


(2,771)


(2,807)


(8,069)


(10,291)

Provision for income taxes

20,603


21,315


20,148


69,677


66,830

Depreciation and amortization

30,532


28,692


25,668


86,201


72,778

Other loss (income), net

1,366


(122)


659


1,319


(659)











Total Adjusted EBITDA:

$        114,110


$         112,134


$           95,922


$        344,362


$        293,631











Fully taxed normalized net income per share:










   Basic

$              0.35


$               0.38


$               0.30


$              1.11


$              0.96

   Diluted

$              0.34


$               0.34


$               0.28


$              1.03


$              0.88











Shares used in fully taxed normalized per share calculations:










   Basic

181,457


173,317


171,686


175,292


171,588

   Diluted

191,271


190,479


188,273


190,254


188,671











*  Previously reported Utilization of tax NOLs/credits

$                 -


$                  -


$           18,563


$                 -


$         61,650























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 concerning the anticipated growth and development of our business and the markets in which we operate.  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, failure to maintain the prices we charge for our services, loss of significant customers, failure to increase our revenue and keep our expenses consistent with revenues, inability to continue to generate positive cash flow, the effects of any attempts to intentionally disrupt our services or network by unauthorized users or others, failure to have available sufficient transmission capacity, a failure of Akamai's services or network infrastructure, inability to realize the benefits of our net operating loss carryforward, 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, 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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