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Akamai Reports Second Quarter 2016 Financial Results

CAMBRIDGE, Mass., July 26, 2016 /PRNewswire/ --

  • Revenue of $572 million, up 6% year-over-year and also up 6% when adjusted for foreign exchange*
  • GAAP EPS of $0.42 per diluted share, up 14% year-over-year and up 10% when adjusted for foreign exchange*
  • Non-GAAP EPS of $0.64 per diluted share, up 12% year-over-year and up 11% when adjusted for foreign exchange*

Akamai Technologies, Inc. (NASDAQ: AKAM), the global leader in Content Delivery Network (CDN) services, today reported financial results for the second quarter ended June 30, 2016.

Akamai Technologies logo.

"The second quarter was another solid quarter for Akamai, with strong year-over-year earnings growth and cash flow generation," said Dr. Tom Leighton, Chief Executive Officer.  "We were particularly pleased with the continued strength of our Cloud Security Solutions, which grew 42% year over year and exited the quarter at a $360 million annualized revenue run rate."

Akamai delivered the following results for the second quarter ended June 30, 2016:

Revenue: Revenue was $572 million, a 6% increase over second quarter 2015 revenue of $541 million and also a 6% increase when adjusted for foreign exchange.*

Revenue by Solution Category:**

  • Performance and Security Solutions revenue was $327 million, up 16% year-over-year and also up 16% when adjusted for foreign exchange*
  • Cloud Security Solutions revenue, a component of Performance and Security, was $87 million, up 42% year-over-year and also up 42% when adjusted for foreign exchange*
  • Media Delivery Solutions revenue was $197 million, down 9% year-over-year and down 10% when adjusted for foreign exchange*
  • Services and Support Solutions revenue was $48 million, up 18% year-over-year and up 17% when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $395 million, down 1% year-over-year
  • International revenue was $177 million, up 25% year-over-year and up 24% when adjusted for foreign exchange*

Customer Revenue by Division:***

Effective in the second quarter of 2016, the Company is now managing the business in a new division structure. Revenue from customers in the Company's three major divisions is reported below.

  • Media Division revenue was $288 million, down 2% year-over-year and also down 2% when adjusted for foreign exchange*
  • Web Division revenue was $271 million, up 15% year-over-year and also up 15% when adjusted for foreign exchange*
  • Enterprise and Carrier Division revenue was $12 million, up 22% year-over-year and also up 22% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $110 million, a 4% increase from second quarter 2015. GAAP operating margin for the second quarter was 19%, down a percentage point from the same period last year.

Non-GAAP income from operations* was $157 million, a 4% increase from second quarter 2015. Non-GAAP operating margin* for the second quarter was 27%, down a percentage point from the same period last year.

Net income: GAAP net income was $74 million, a 10% increase from second quarter 2015. Non-GAAP net income* was $112 million, a 10% increase from second quarter 2015.

EPS: GAAP EPS was $0.42 per diluted share, a 14% increase from second quarter 2015 and a 10% increase when adjusted for foreign exchange.* Non-GAAP EPS was $0.64 per diluted share, a 12% increase from second quarter 2015 and an 11% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $231 million, an 8% increase from second quarter 2015. Adjusted EBITDA margin* was 40%, consistent with the second quarter of 2015.

Other second quarter 2016 results included:

  • Cash from operations was $243 million, or 42% of revenue
  • Cash, cash equivalents and marketable securities as of June 30, 2016 was $1.6 billion
  • The Company spent $91 million to repurchase 1.7 million shares of its common stock at an average price of $52.55 per share
  • The Company had approximately 175 million shares of common stock outstanding as of June 30, 2016

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

**    Revenue by solution category – A product-focused reporting view that reflects revenue by solution purchased.

***  Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. Historical division revenue can be found on the Investor Relations section of Akamai.com.

Quarterly Conference Call

Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671 (or 1-508-637-5655 for international calls) and using passcode No. 40398195. 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 by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode No. 40398195. 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)

June 30,
 2016


December 31,
2015

ASSETS




Current assets:




Cash and cash equivalents

$

326,644



$

289,473


Marketable securities

542,062



460,088


Accounts receivable, net

364,401



380,399


Prepaid expenses and other current assets

132,477



123,228


Total current assets

1,365,584



1,253,188


Property and equipment, net

786,835



753,180


Marketable securities

731,232



774,674


Goodwill

1,150,137



1,150,244


Acquired intangible assets, net

142,668



156,095


Deferred income tax assets

2,455



4,700


Other assets

90,811



89,603


Total assets

$

4,269,722



$

4,181,684


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

68,249



$

61,982


Accrued expenses

234,013



216,166


Deferred revenue

67,163



54,154


Other current liabilities

7,117



138


Total current liabilities

376,542



332,440


Deferred revenue

3,735



4,163


Deferred income tax liabilities

10,248



12,888


Convertible senior notes

628,970



618,047


Other liabilities

99,754



93,268


Total liabilities

1,119,249



1,060,806


Total stockholders' equity

3,150,473



3,120,878


Total liabilities and stockholders' equity

$

4,269,722



$

4,181,684


 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended


Six Months Ended

(in thousands, except per share data)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Revenue

$

572,135



$

567,725



$

540,723



$

1,139,860



$

1,067,259


Costs and operating expenses:










Cost of revenue (1) (2)

206,323



194,736



179,910



401,059



349,204


Research and development (1)

37,690



40,842



36,693



78,532



72,521


Sales and marketing (1)

103,223



102,211



111,501



205,434



214,980


General and administrative (1) (2)

107,538



102,283



99,152



209,821



188,744


Amortization of acquired intangible assets

6,711



6,716



6,752



13,427



13,532


Restructuring charges

470



6,818



455



7,288



497


Total costs and operating expenses

461,955



453,606



434,463



915,561



839,478


Income from operations

110,180



114,119



106,260



224,299



227,781


Interest income

3,393



3,320



2,541



6,713



5,542


Interest expense

(4,639)



(4,653)



(4,678)



(9,292)



(9,254)


Other income (expense), net

415



(189)



(1,605)



226



(1,906)


Income before provision for income taxes

109,349



112,597



102,518



221,946



222,163


Provision for income taxes

35,714



37,739



35,318



73,453



77,217


Net income

$

73,635



$

74,858



$

67,200



$

148,493



$

144,946












Net income per share:










Basic

$

0.42



$

0.42



$

0.38



$

0.84



$

0.81


Diluted

$

0.42



$

0.42



$

0.37



$

0.84



$

0.80












Shares used in per share calculations:










Basic

175,499



176,403



178,682



175,951



178,614


Diluted

176,420



177,539



180,738



176,980



180,782


(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


Six Months Ended

(in thousands)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Cash flows from operating activities:










Net income

$

73,635



$

74,858



$

67,200



$

148,493



$

144,946


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










Depreciation and amortization

85,114



80,669



73,989



165,783



144,449


Stock-based compensation

34,911



31,741



32,251



66,652



61,920


Excess tax benefits from stock-based compensation

(1,497)



(1,135)



(9,609)



(2,632)



(22,737)


Provision (benefit) for deferred income taxes

1,713



1,072



(24,580)



2,785



(16,275)


Amortization of debt discount and issuance costs

4,639



4,653



4,677



9,292



9,253


Other non-cash reconciling items, net

749



2,752



703



3,501



1,146


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










Accounts receivable

1,880



15,906



18,260



17,786



(14,292)


Prepaid expenses and other current assets

(7,510)



(3,481)



13,839



(10,991)



12,022


Accounts payable and accrued expenses

44,659



(32,377)



84,376



12,282



31,673


Deferred revenue

1,473



10,653



76



12,126



7,023


Other current liabilities

95



6,876



157



6,971



199


Other non-current assets and liabilities

3,011



(1,949)



2,684



1,062



4,425


Net cash provided by operating activities

242,872



190,238



264,023



433,110



363,752


Cash flows from investing activities:










Cash paid for acquired businesses, net of cash acquired





(106,883)





(122,945)


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

(78,141)



(82,340)



(96,013)



(160,481)



(233,082)


Purchases of short- and long-term marketable securities

(288,742)



(95,843)



(308,685)



(384,585)



(405,989)


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

227,234



125,109



222,030



352,343



529,685


Other non-current assets and liabilities

842



(2,354)



(1,827)



(1,512)



(1,909)


Net cash used in investing activities

(138,807)



(55,428)



(291,378)



(194,235)



(234,240)


Cash flows from financing activities:










Proceeds from the issuance of common stock under stock plans

8,745



18,350



12,072



27,095



36,512


Excess tax benefits from stock-based compensation

1,497



1,135



9,609



2,632



22,737


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

(5,914)



(26,496)



(8,253)



(32,410)



(39,354)


Repurchases of common stock

(90,985)



(108,725)



(63,388)



(199,710)



(126,068)


Other non-current assets and liabilities





(1,250)





(1,250)


Net cash used in financing activities

(86,657)



(115,736)



(51,210)



(202,393)



(107,423)


Effects of exchange rate changes on cash and cash equivalents

(3,676)



4,365



3,456



689



(3,291)


Net increase (decrease) in cash and cash equivalents

13,732



23,439



(75,109)



37,171



18,798


Cash and cash equivalents at beginning of period

312,912



289,473



332,557



289,473



238,650


Cash and cash equivalents at end of period

$

326,644



$

312,912



$

257,448



$

326,644



$

257,448


 

AKAMAI TECHNOLOGIES, INC.

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



Three Months Ended


Six Months Ended

(in thousands, except per share data)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Income from operations

$

110,180



$

114,119



$

106,260



$

224,299



$

227,781


GAAP operating margin

19

%


20

%


20

%


20

%


21

%

Amortization of acquired intangible assets

6,711



6,716



6,752



13,427



13,532


Stock-based compensation

34,911



31,741



32,251



66,652



61,920


Amortization of capitalized stock-based compensation and capitalized interest expense

4,071



3,608



3,636



7,679



6,744


Restructuring charges

470



6,818



455



7,288



497


Acquisition-related costs (benefits)

361



(79)



(530)



282



(135)


Legal matter costs

101



789



1,514



890



2,786


Operating adjustments

46,625



49,593



44,078



96,218



85,344


Non-GAAP income from operations

$

156,805



$

163,712



$

150,338



$

320,517



$

313,125


Non-GAAP operating margin

27

%


29

%


28

%


28

%


29

%











Net income

$

73,635



$

74,858



$

67,200



$

148,493



$

144,946


Operating adjustments (from above)

46,625



49,593



44,078



96,218



85,344


Amortization of debt discount and issuance costs

4,639



4,653



4,678



9,292



9,254


Loss on investments









25


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

(12,832)



(11,323)



(13,788)



(24,155)



(26,225)


Non-GAAP net income

112,067



117,781



102,168



229,848



213,344












Depreciation and amortization

74,332



70,345



63,601



144,677



124,173


Interest income

(3,393)



(3,320)



(2,541)



(6,713)



(5,542)


Other (income) expense, net

(415)



189



1,605



(226)



1,881


Provision for GAAP income taxes

35,714



37,739



35,318



73,453



77,217


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

12,832



11,323



13,788



24,155



26,225


Adjusted EBITDA

$

231,137



$

234,057



$

213,939



$

465,194



$

437,298


Adjusted EBITDA margin

40

%


41

%


40

%


41

%


41

%











Non-GAAP net income per share:










Basic

$

0.64



$

0.67



$

0.57



$

1.31



$

1.19


Diluted

$

0.64



$

0.66



$

0.57



$

1.30



$

1.18












Shares used in non-GAAP per share calculations:










Basic

175,499



176,403



178,682



175,951



178,614


Diluted

176,420



177,539



180,738



176,980



180,782


 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Revenue by solution category(1):










Performance and Security Solutions

$

326,642



$

315,863



$

282,391



$

642,505



$

554,350


Media Delivery Solutions

197,077



205,939



217,151



403,016



432,016


Services and Support Solutions

48,416



45,923



41,181



94,339



80,893


Total revenue

$

572,135



$

567,725



$

540,723



$

1,139,860



$

1,067,259


Cloud Security Solutions revenue

$

86,980



$

80,660



$

61,462



$

167,640



$

116,645












Revenue growth rates year-over-year:










Performance and Security Solutions

16

%


16

%


14

%


16

%


16

%

Media Delivery Solutions

(9)

%


(4)



13



(7)

%


13


Services and Support Solutions

18

%


16



14



17

%


13


Total revenue

6

%


8

%


14

%


7

%


15

%

Cloud Security Solutions revenue growth rates

42

%


46

%


41

%


44

%


58

%











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










Performance and Security Solutions

16

%


17

%


18

%


16

%


20

%

Media Delivery Solutions

(10)



(4)



18



(7)



17


Services and Support Solutions

17



16



18



17



17


Total revenue

6

%


9

%


18

%


7

%


19

%

Cloud Security Solutions revenue growth rates(2)

42

%


47

%


45

%


44

%


63

%

(1)  See revenue by solution category definition in press release
(2)  See Use of Non-GAAP Financial Measures below for a definition

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY DIVISION



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Customer revenue by division(1):










Media Division

$

288,432



$

291,933



$

294,551



$

580,365



$

588,517


Web Division

271,327



263,743



236,017



535,070



460,257


Enterprise and Carrier Division

12,376



12,049



10,155



24,425



18,485


Total revenue

$

572,135



$

567,725



$

540,723



$

1,139,860



$

1,067,259












Revenue growth rates year-over-year:










Media Division

(2)

%


(1)

%


10

%


(1)

%


12

%

Web Division

15



18



18



16



18


Enterprise and Carrier Division

22



45



27



32



29


Total revenue

6

%


8

%


14

%


7

%


15

%











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










Media Division

(2)

%


%


14

%


(1)

%


16

%

Web Division

15



18



23



16



22


Enterprise and Carrier Division

22



44



28



32



30


Total revenue

6

%


9

%


18

%


7

%


19

%

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Revenue by geography:










U.S.

$

395,085



$

397,283



$

399,103



$

792,368



$

788,076


International

177,050



170,442



141,620



347,492



279,183


Total revenue

$

572,135



$

567,725



$

540,723



$

1,139,860



$

1,067,259












Revenue growth rates year-over-year:










U.S.

(1)

%


2

%


16

%


1

%


18

%

International

25



24



7



24



7


Total revenue

6

%


8

%


14

%


7

%


15

%











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










U.S.

(1)

%


2

%


16

%


1

%


18

%

International

24



27



22



25



21


Total revenue

6

%


9

%


18

%


7

%


19

%

(1)  See customer revenue by division definition in press release
(2)  See Use of Non-GAAP Financial Measures below for a definition

 

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL FINANCIAL DATA



Three Months Ended


Six Months Ended

(in thousands, except end of period statistics)

June 30,
2016


March 31,
2016


June 30,
2015


June 30,
2016


June 30,
2015

Stock-based compensation:










Cost of revenue

$

4,553



$

3,970



$

3,502



$

8,523



$

6,665


Research and development

6,752



6,438



6,009



13,190



11,375


Sales and marketing

13,259



12,352



12,847



25,611



25,830


General and administrative

10,347



8,981



9,893



19,328



18,050


Total stock-based compensation

$

34,911



$

31,741



$

32,251



$

66,652



$

61,920












Depreciation and amortization:










Network-related depreciation

$

58,615



$

55,174



$

50,145



$

113,789



$

99,133


Other depreciation and amortization

15,717



15,171



13,456



30,888



25,040


Depreciation of property and equipment

74,332



70,345



63,601



144,677



124,173


Capitalized stock-based compensation amortization

3,628



3,257



3,435



6,885



6,387


Capitalized interest expense amortization

443



351



201



794



357


Amortization of acquired intangible assets

6,711



6,716



6,752



13,427



13,532


Total depreciation and amortization

$

85,114



$

80,669



$

73,989



$

165,783



$

144,449












Capital expenditures(1)(2):










Purchases of property and equipment

$

50,726



$

50,067



$

76,492



$

100,793



$

165,621


Capitalized internal-use software development costs

36,288



35,172



30,835



71,460



64,818


Capitalized stock-based compensation

6,209



5,203



4,471



11,412



8,615


Capitalized interest expense

868



785



619



1,653



1,294


Total capital expenditures

$

94,091



$

91,227



$

112,417



$

185,318



$

240,348












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

$

76,706



$

(1,003)



$

9,816



$

75,703



$

(103,329)












End of period statistics:










Number of employees

6,263



6,119



5,733






Number of deployed servers

219,595



216,435



189,136






 

(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, but not paid, 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, to measure executive compensation 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 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 and investor presentations 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, 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, advisory 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 chargesAkamai 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 expenses. In addition, these charges do not necessarily 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. 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 representative of ongoing operating performance.
  • Loss on investments and legal matter costsAkamai has incurred losses from the impairment of certain investments and the settlement of legal matters. Akamai has also incurred costs with respect to its internal Foreign Corrupt Practices Act (FCPA) investigation in addition to the disgorgement Akamai was required to pay to resolve it. 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; acquisition-related costs; restructuring charges; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; 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; acquisition-related costs; restructuring charges; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; 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 operating performance. Unless and 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; 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; costs incurred with respect to Akamai's internal FCPA investigation; 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.

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 and/or our quarterly earnings conference call scheduled for later today contain 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. 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, 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 and on such call 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.