Fast, Intelligent and Secure at the Edge

Press Release Details

Akamai Reports Third Quarter 2018 Financial Results

October 29, 2018 at 4:01 PM EDT
Record revenue of $670 million, up 7% year-over-year and up 8% when adjusted for foreign exchange*
Cloud Security Solutions revenue grew 37%, now nearly $700 million annualized run rate
GAAP EPS of $0.64, up 73% year-over-year, and non-GAAP EPS of $0.94, up 47% year-over-year
Board of Directors authorizes a new multi-year $1.1 billion share repurchase program

CAMBRIDGE, Mass., Oct. 29, 2018 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the third quarter ended September 30, 2018.

(PRNewsfoto/Akamai Technologies, Inc.)

"We are very pleased with our excellent results in the third quarter, which includes 37% year-over-year growth in our security business and tremendous growth in our earnings," said Dr. Tom Leighton, Chief Executive Officer.  "We are also pleased to report our fourth consecutive quarter of non-GAAP operating margin improvement.  We are well on our way to achieving our 30% margin goal in 2020, while continuing to invest in innovation and new products to drive future growth."

Revenue: Revenue was $670 million, a 7% increase over third quarter 2017 revenue of $624 million and an 8% increase when adjusted for foreign exchange.*

Revenue by Division(1):

  • Web Division revenue was $357 million, up 8% year-over-year and up 9% when adjusted for foreign exchange*
  • Media and Carrier Division revenue was $313 million, up 6% year-over-year and up 7% when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

  • Cloud Security Solutions revenue was $169 million, up 37% year-over-year and up 39% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers was $43 million, down 15% year-over-year and when adjusted for foreign exchange*
  • Revenue excluding Internet Platform Customers was $627 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $413 million, consistent year-over-year
  • International revenue was $257 million, up 21% year-over-year and up 24% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $117 million, a 28% increase from third quarter 2017. GAAP operating margin for the third quarter was 17%, up 2 percentage points from the same period last year.

Non-GAAP income from operations* was $181 million, a 23% increase from third quarter 2017. Non-GAAP operating margin* for the third quarter was 27%, up 3 percentage points from the same period last year.

Net income: GAAP net income was $108 million, a 68% increase from third quarter 2017. Non-GAAP net income* was $158 million, a 43% increase from third quarter 2017.

EPS: GAAP EPS was $0.64 per diluted share, a 73% increase from third quarter 2017 and a 75% increase when adjusted for foreign exchange.*  Non-GAAP EPS was $0.94 per diluted share, a 47% increase from third quarter 2017 and a 48% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $273 million, an 18% increase from third quarter 2017. Adjusted EBITDA margin* was 41%, an increase of 4 percentage points as compared to the third quarter of 2017.

Other third quarter 2018 results:

  • Cash from operations was $310 million, or 46% of revenue
  • Cash, cash equivalents and marketable securities was $2.1 billion as of September 30, 2018
  • The Company spent $440 million to repurchase 5.9 million shares of its common stock at an average price of $74.71 per share
  • The Company had approximately 164 million shares of common stock outstanding as of September 30, 2018

Share Repurchase Program: The Company also announces today that its Board of Directors has authorized a new $1.1 billion share repurchase program, effective from November 1, 2018 through December 31, 2021, which is in addition to $124 million remaining on its prior authorization. The Company's goal for the new program is to continue to return to shareholders a significant percentage of Akamai's free cash flow while preserving its flexibility for other strategic opportunities.

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

Adoption of new revenue recognition standard: Prior period results have been revised for the adoption of the new revenue recognition standard.  Under this standard, the way revenue is recognized changed for some of Akamai's customers and primarily impacts the revenue timing of a small number of licensed software customers.  The way Akamai recognizes revenue for its core Web and Media products is substantially unchanged.  Akamai will also begin capitalizing certain commission and incentive payments.  The revisions as a result of the new standard did not have a material impact on Akamai's annual revenue or results of operations, but did cause quarter-to-quarter fluctuations.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

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

(1)

Revenue by Division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. As of January 1, 2018, Akamai now reports its revenue in two divisions compared to the three divisions reported in 2017; the Media Division and Enterprise and Carrier Division were combined to form the new Media and Carrier Division. In addition, as the purchasing patterns and required account expertise of customers changes over time, Akamai may reassign a customer's division from one to another. In 2018 Akamai reassigned some of its customers from the Media and Carrier Division to the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented.


(2)

Revenue from Cloud Security Solutions – A product-focused reporting view that illustrates revenue from Cloud Security Solutions separately from all other solution categories.  During 2018, Akamai updated its methodology for allocating revenue to specific solutions when solutions are sold as a bundle.  During 2018, Akamai reassigned amounts from CDN and other solutions revenue to Cloud Security Solutions revenue and revised historical results in order to reflect the most recent allocation methodologies and to provide a comparable view for all periods presented.


(3)

Revenue from Internet Platform Customers – Revenue from six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

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 8889239. A live webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode 8889239. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
Akamai secures and delivers digital experiences for the world's largest companies. Akamai's intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart, and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone - and attacks and threats far away. Akamai's portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world's top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.


 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)

September 30,
 2018

December 31,
2017 (1)

ASSETS


Current assets:


Cash and cash equivalents

$

705,407

$

313,382

Marketable securities

1,096,233

398,554

Accounts receivable, net

466,364

461,457

Prepaid expenses and other current assets

161,785

172,853

Total current assets

2,429,789

1,346,246

Property and equipment, net

884,483

862,535

Marketable securities

257,135

567,592

Goodwill

1,488,868

1,498,688

Acquired intangible assets, net

176,640

201,259

Deferred income tax assets

23,688

36,231

Other assets

103,284

136,365

Total assets

$

5,363,887

$

4,648,916

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


Accounts payable

$

96,051

$

80,278

Accrued expenses

305,267

283,743

Deferred revenue

93,732

70,495

Convertible senior notes

680,564

—

Other current liabilities

20,324

22,178

Total current liabilities

1,195,938

456,694

Deferred revenue

5,218

6,062

Deferred income tax liabilities

18,827

17,823

Convertible senior notes

864,679

662,913

Other liabilities

123,695

142,955

Total liabilities

2,208,357

1,286,447

Total stockholders' equity

3,155,530

3,362,469

Total liabilities and stockholders' equity

$

5,363,887

$

4,648,916

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Revenue

$

669,628

$

662,759

$

624,440

$

2,001,111

$

1,830,565

Costs and operating expenses:








Cost of revenue(2) (3)

239,246

235,487

225,490

709,558

645,897

Research and development(2)

61,049

59,709

57,226

185,823

162,761

Sales and marketing(2)

125,323

131,680

117,863

379,556

350,299

General and administrative(2) (3)

119,911

170,206

124,523

444,502

363,050

Amortization of acquired intangible assets

8,294

8,294

7,753

25,019

23,075

Restructuring (benefit) charges

(732)

266

332

14,442

3,303

Total costs and operating expenses

553,091

605,642

533,187

1,758,900

1,548,385

Income from operations

116,537

57,117

91,253

242,211

282,180

Interest income

9,258

6,409

4,463

19,632

13,368

Interest expense

(14,566)

(9,204)

(4,746)

(28,620)

(13,989)

Other (expense) income, net

(459)

(2,769)

535

(3,207)

414

Income before provision for income taxes

110,770

51,553

91,505

230,016

281,973

Provision for income taxes

3,187

8,492

27,594

25,658

86,727

Net income

$

107,583

$

43,061

$

63,911

$

204,358

$

195,246










Net income per share:








Basic

$

0.65

$

0.25

$

0.37

$

1.21

$

1.13

Diluted

$

0.64

$

0.25

$

0.37

$

1.20

$

1.13










Shares used in per share calculations:








Basic

165,924

170,250

170,976

168,763

172,269

Diluted

167,900

172,307

171,505

170,732

173,371

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

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

(3)

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, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Cash flows from operating activities:








Net income

$

107,583

$

43,061

$

63,911

$

204,358

$

195,246

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








Depreciation and amortization

107,833

106,298

97,178

318,226

272,917

Stock-based compensation

46,632

47,497

41,848

138,815

122,103

(Benefit) provision for deferred income
taxes

25,022

(4,302)

(12,089)

12,906

23,134

Amortization of debt discount and issuance
costs

14,085

8,909

4,746

27,844

13,989

Restructuring-related software charges

—

—

—

2,818

—

Other non-cash reconciling items, net

1,345

3,636

2,046

9,360

3,655

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








Accounts receivable

3,278

1,530

(5,158)

(13,611)

(9,423)

Prepaid expenses and other current
assets

(10,662)

13,505

14,644

(2,084)

(36,580)

Accounts payable and accrued expenses

35,012

4,221

39,691

7,921

22,150

Deferred revenue

(5,625)

4,309

(8,283)

23,927

1,528

Other current liabilities

(3,625)

(8,046)

(2,250)

2,030

3,651

Other non-current assets and liabilities

(10,397)

(937)

7

(10,338)

(8,828)

Net cash provided by operating
activities

310,481

219,681

236,291

722,172

603,542

Cash flows from investing activities:








Cash paid for acquired businesses, net of cash
acquired

—

—

—

(79)

(197,201)

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

(86,698)

(88,634)

(119,740)

(288,407)

(307,926)

Purchases of short- and long-term marketable
securities

(314,200)

(394,534)

(67,879)

(782,086)

(249,098)

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

254,450

64,830

85,263

395,016

498,379

Other non-current assets and liabilities

(2,199)

236

(23)

(2,678)

(1,166)

Net cash used in investing activities

(148,647)

(418,102)

(102,379)

(678,234)

(257,012)

 

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Cash flows from financing activities:








Proceeds from the issuance of convertible
senior notes

(437)

1,132,622

—

1,132,185

—

Proceeds from the issuance of warrants

—

119,945

—

119,945

—

Purchase of note hedge related to convertible
senior notes

—

(261,740)

—

(261,740)

—

Proceeds from the issuance of common stock
under stock plans

18,394

11,365

16,060

52,497

41,740

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

(10,837)

(11,594)

(6,784)

(52,145)

(48,122)

Repurchases of common stock

(440,413)

(165,727)

(129,014)

(625,925)

(306,629)

Other non-current assets and liabilities

(241)

(944)

—

(5,085)

(1,096)

Net cash (used in) provided by
financing activities

(433,534)

823,927

(119,738)

359,732

(314,107)

Effects of exchange rate changes on cash, cash
equivalents and restricted cash

(68)

(12,625)

2,107

(11,528)

12,359

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

(271,768)

612,881

16,281

392,142

44,782

Cash, cash equivalents and restricted cash at
beginning of period

978,339

365,458

353,127

314,429

324,626

Cash, cash equivalents and restricted cash at end 
period

$

706,571

$

978,339

$

369,408

$

706,571

$

369,408

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.




On January 1, 2018, Akamai also adopted Accounting Standards Update No. 2016-18, Statement of Cash Flows. Under this standard, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period cash on the statement of cash flows. Akamai retrospectively adopted this standard and revised cash flows from investing activities by $0.6 million and $0.7 million for the three and nine months ended September 30, 2017, respectively, with a corresponding revision to the net (decrease) increase in cash, cash equivalents and restricted cash.

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY DIVISION


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Web Division

$

356,856

$

351,084

$

329,684

$

1,060,777

$

950,580

Media and Carrier Division

312,772

311,675

294,756

940,334

879,985

Total revenue

$

669,628

$

662,759

$

624,440

$

2,001,111

$

1,830,565

Revenue growth rates year-over-year:








Web Division

8

%

11

%

14

%

12

%

14

%

Media and Carrier Division

6

8

(4)

7

(3)

Total revenue

7

%

9

%

5

%

9

%

5

%

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








Web Division

9

%

9

%

14

%

10

%

15

%

Media and Carrier Division

7

7

(4)

6

(2)

Total revenue

8

%

8

%

5

%

8

%

6

%

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM CLOUD SECURITY SOLUTIONS


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Cloud Security Solutions

$

168,626

$

155,250

$

122,899

$

473,081

$

349,681

CDN and other solutions

501,002

507,509

501,541

1,528,030

1,480,884

Total revenue

$

669,628

$

662,759

$

624,440

$

2,001,111

$

1,830,565










Revenue growth rates year-over-year:








Cloud Security Solutions

37

%

33

%

26

%

35

%

31

%

CDN and other solutions

—

4

1

3

1

Total revenue

7

%

9

%

5

%

9

%

5

%

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








Cloud Security Solutions

39

%

31

%

26

%

34

%

31

%

CDN and other solutions

1

3

1

2

1

Total revenue

8

%

8

%

5

%

8

%

6

%

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

See Use of Non-GAAP Financial Measures below for a definition

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

Revenue from Internet Platform Customers

$

43,086

$

44,062

$

50,734

$

131,539

$

153,291

Revenue excluding Internet Platform Customers

626,542

618,697

573,706

1,869,572

1,677,274

Total revenue

$

669,628

$

662,759

$

624,440

$

2,001,111

$

1,830,565

Revenue growth rates year-over-year:








Revenue from Internet Platform Customers

(15)

%

(14)

%

(13)

%

(14)

%

(20)

%

Revenue excluding Internet Platform Customers

9

12

7

11

9

Total revenue

7

%

9

%

5

%

9

%

5

%

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








Revenue from Internet Platform Customers

(15)

%

(14)

%

(13)

 

%

(14)

%

(20)

%

Revenue excluding Internet Platform Customers

10

10

7

10

9

Total revenue

8

%

8

%

5

%

8

%

6

%

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

U.S.

$

412,573

$

413,129

$

412,348

$

1,249,041

$

1,211,454

International

257,055

249,630

212,092

752,070

619,111

Total revenue

$

669,628

$

662,759

$

624,440

$

2,001,111

$

1,830,565

Revenue growth rates year-over-year:








U.S.

—

%

3

%

(1)

%

3

%

—

%

International

21

21

18

21

17

Total revenue

7

%

9

%

5

%

9

%

5

%

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








U.S.

—

%

3

%

(1)

%

3

%

—

%

International

24

18

18

18

19

Total revenue

8

%

8

%

5

%

8

%

6

%

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

See Use of Non-GAAP Financial Measures below for a definition

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017

September
30, 2018

September
30, 2017

General and administrative expenses:








Payroll and related costs

$

46,866

$

46,874

$

51,605

$

145,634

$

144,012

Stock-based compensation

13,054

14,269

10,780

40,245

33,525

Depreciation and amortization

18,646

21,207

19,686

59,741

56,283

Facilities-related costs

21,567

20,529

20,399

63,891

59,381

Provision for doubtful accounts

652

420

1,499

1,593

2,404

Acquisition-related costs

329

500

773

1,972

4,803

Legal and stockholder matter costs

—

—

—

23,091

—

License of patent

(4,310)

(4,266)

(4,128)

(12,791)

(12,252)

Endowment of Akamai Foundation

—

50,000

—

50,000

—

Professional fees and other expenses

23,107

20,673

23,909

71,126

74,894

Total general and administrative expenses

$

119,911

$

170,206

$

124,523

$

444,502

$

363,050










General and administrative expenses–functional(1):








Global functions

$

46,680

$

47,497

$

50,355

$

149,830

$

148,721

As a percentage of revenue

7

%

7

%

8

%

7

%

8

%

Infrastructure

74,009

76,055

76,267

228,256

220,799

As a percentage of revenue

11

%

11

%

12

%

11

%

12

%

Other

(778)

46,654

(2,099)

66,416

(6,470)

Total general and administrative expenses

$

119,911

$

170,206

$

124,523

$

444,502

$

363,050

As a percentage of revenue

18

%

26

%

20

%

22

%

20

%










Stock-based compensation:








Cost of revenue

$

5,494

$

5,553

$

5,296

$

16,343

$

15,055

Research and development

11,249

10,926

10,100

32,684

28,743

Sales and marketing

16,835

16,749

15,672

49,543

44,780

General and administrative

13,054

14,269

10,780

40,245

33,525

Total stock-based compensation

$

46,632

$

47,497

$

41,848

$

138,815

$

122,103

(1)

Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, provision for doubtful accounts, the license of a patent, legal and stockholder matter costs and the endowment of the Akamai Foundation and transformation costs.

 

 

AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA


Three Months Ended

Nine Months Ended

(in thousands, except end of period statistics)

September
30, 2018

June 30,
2018

September
30, 2017

September
30, 2018

September
30, 2017

Depreciation and amortization:








Network-related depreciation

$

36,883

$

37,748

$

35,943

$

112,866

$

106,601

Capitalized internal-use software development
amortization

36,822

32,822

28,426

101,312

73,782

Other depreciation and amortization

18,259

20,837

19,320

58,594

55,256

Depreciation of property and equipment

91,964

91,407

83,689

272,772

235,639

Capitalized stock-based compensation
amortization

6,647

5,846

5,046

18,062

12,489

Capitalized interest expense amortization

928

751

690

2,373

1,714

Amortization of acquired intangible assets

8,294

8,294

7,753

25,019

23,075

Total depreciation and amortization

$

107,833

$

106,298

$

97,178

$

318,226

$

272,917










Capital expenditures, excluding stock-based
compensation and interest expense(1)(2):








Purchases of property and equipment

$

76,070

$

52,815

$

62,755

$

155,482

$

183,777

Capitalized internal-use software development
costs

49,122

49,028

45,213

147,407

123,255

Total capital expenditures, excluding stock-
based compensation and interest expense

$

125,192

$

101,843

$

107,968

$

302,889

$

307,032










End of period statistics:








Number of employees

7,574

7,443

7,438





(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

 

 

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS AND NET INCOME


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017

September
30, 2018

September
30, 2017

Income from operations

$

116,537

$

57,117

$

91,253

$

242,211

$

282,180

GAAP operating margin

17

%

9

%

15

%

12

%

15

%

Amortization of acquired intangible assets

8,294

8,294

7,753

25,019

23,075

Stock-based compensation

46,632

47,497

41,848

138,815

122,103

Amortization of capitalized stock-based
compensation and capitalized interest expense

7,575

6,597

5,736

20,435

14,203

Restructuring (benefit) charges

(732)

266

332

14,442

3,303

Acquisition-related costs

329

500

530

1,972

3,379

Legal and stockholder matter costs

—

—

—

23,091

—

Endowment of Akamai Foundation

—

50,000

—

50,000

—

Transformation costs

2,552

—

—

2,552

—

Operating adjustments

64,650

113,154

56,199

276,326

166,063

Non-GAAP income from operations

$

181,187

$

170,271

$

147,452

$

518,537

$

448,243

Non-GAAP operating margin

27

%

26

%

24

%

26

%

24

%










Net income

$

107,583

$

43,061

$

63,911

$

204,358

$

195,246

Operating adjustments (from above)

64,650

113,154

56,199

276,326

166,063

Amortization of debt discount and issuance costs

14,085

8,909

4,746

27,844

13,989

(Gain) loss on investments

(519)

2,000

—

1,481

—

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

(27,958)

(24,191)

(14,802)

(73,432)

(44,243)

Non-GAAP net income

$

157,841

$

142,933

$

110,054

$

436,577

$

331,055

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

 

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE


Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2018

June 30,
2018

September
30, 2017 (1)

September
30, 2018

September
30, 2017 (1)

GAAP net income per diluted share

$

0.64

$

0.25

$

0.37

$

1.20

$

1.13

Amortization of acquired intangible assets

0.05

0.05

0.05

0.15

0.13

Stock-based compensation

0.28

0.28

0.24

0.81

0.70

Amortization of capitalized stock-based
compensation and capitalized interest expense

0.05

0.04

0.03

0.12

0.08

Restructuring (benefit) charges

—

—

—

0.08

0.02

Acquisition-related costs

—

—

—

0.01

0.02

Legal and stockholder matter costs

—

—

—

0.14

—

Endowment of Akamai Foundation

—

0.29

—

0.29

—

Transformation costs

0.02

—

—

0.01

—

Amortization of debt discount and issuance costs

0.08

0.05

0.03

0.16

0.08

(Gain) loss on investments

—

0.01

—

0.01

—

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

(0.17)

(0.14)

(0.09)

(0.43)

(0.26)

Non-GAAP net income per diluted share

$

0.94

$

0.83

$

0.64

$

2.56

$

1.91










Shares used in diluted per share calculations

167,900

172,307

171,505

170,732

173,371

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

 

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA


Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September
30, 2018

June 30,
2018

September
30, 2017

September
30, 2018

September
30, 2017 (1)

Net income

$

107,583

$

43,061

63,911

204,358

$

195,246

Interest income

(9,258)

(6,409)

(4,463)

(19,632)

(13,368)

Provision for income taxes

3,187

8,492

27,594

25,658

86,727

Depreciation and amortization

91,964

91,407

83,689

272,772

235,639

Amortization of capitalized stock-based
compensation and capitalized interest expense

7,575

6,597

5,736

20,435

14,203

Amortization of acquired intangible assets

8,294

8,294

7,753

25,019

23,075

Stock-based compensation

46,632

47,497

41,848

138,815

122,103

Restructuring (benefit) charges

(732)

266

332

14,442

3,303

Acquisition-related costs

329

500

530

1,972

3,379

Legal and stockholder matter costs

—

—

—

23,091

—

Endowment of Akamai Foundation

—

50,000

—

50,000

—

Transformation costs

2,552

—

—

2,552

—

Interest expense

14,566

9,204

4,746

28,620

13,989

(Gain) loss on investments

(519)

2,000

—

1,481

—

Other expense (income), net

978

769

(535)

1,726

(414)

Adjusted EBITDA

$

273,151

$

261,678

$

231,141

$

791,309

$

683,882

Adjusted EBITDA margin

41

%

39

%

37

%

40

%

37

%

(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

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 the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. 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 exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.

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 and do not reflect Akamai's core operations.

  • Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating 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 May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results 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.

  • Gains and losses on investments – Akamai has recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations and ongoing operating performance.

  • Legal and stockholder matter costs – Akamai has incurred losses related to the settlement of legal matters, costs from professional service providers related to a non-routine stockholder matter and costs with respect to its internal U.S. Foreign Corrupt Practices Act ("FCPA") investigation. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations.

  • Endowment of Akamai Foundation – During the second quarter of 2018, Akamai incurred a charge to endow the Akamai Foundation. Akamai believes excluding these amounts from non-GAAP financial measures is useful to investors as this one-time expense is not representative of its core business operations.

  • Transformation costs – Akamai has incurred professional services fees associated with internal transformation programs designed to improve its operating margins and that are part of a planned program intended to significantly change the manner in which business in conducted. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of Akamai's core business operations and ongoing operating performance.

  • 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 releasing 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; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; transformation costs; 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; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; transformation costs; 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 $1,150 million of convertible senior notes due 2025 and $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. With respect to the convertible senior notes due 2025, unless and until Akamai's weighted average stock price is greater than $95.10, the intial conversion price, and with respect to the convertible senior notes due 2019, 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 from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; transformation costs; foreign exchange gains and losses; loss on early extinguishment of debt; interest expense; 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, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included 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.

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 our foreign subsidiaries weaken, our 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 our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount.  The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates 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, including statements about expected future stock repurchases. 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 continue to generate cash at the same level as prior years; change in stock price; failure of our investments in innovation to generate solutions that are accepted in the market; 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:

Gina Sorice

Tom Barth

Media Relations

Investor Relations

Akamai Technologies

Akamai Technologies

646-320-4107

617-274-7130

gsorice@akamai.com


tbarth@akamai.com

 

 

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SOURCE Akamai Technologies, Inc.