Market Overview

Akamai Reports Third Quarter 2016 Financial Results

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CAMBRIDGE, Mass., Oct. 25, 2016 /PRNewswire/ --

  • Revenue of $584 million, up 6% year-over-year and up 5% when adjusted for foreign exchange*
  • Revenue excluding Internet Platform Customers(1) up 15% year-over-year and up 15% when adjusted for foreign exchange*
  • GAAP EPS of $0.43 per diluted share, down 12% year-over-year and down 15% when adjusted for foreign exchange*
  • Non-GAAP EPS of $0.68 per diluted share, up 10% year-over-year and up 7% 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 third quarter ended September 30, 2016.

Akamai Technologies logo.

"Akamai's strong third quarter revenue and earnings performance was primarily driven by accelerated growth in both our Cloud Security and Web Performance Solutions," said Dr. Tom Leighton, Chief Executive Officer.  "As the cyber-attacks from last week demonstrate, enterprises need solutions capable of defending against massive botnets that are exploiting millions of online devices. This is an area where Akamai's unique architecture and ongoing investments in global scale and security innovation continue to make a critical difference."

Akamai delivered the following financial results for the third quarter ended September 30, 2016:

Revenue: Revenue was $584 million, a 6% increase over third quarter 2015 revenue of $551 million and a 5% increase when adjusted for foreign exchange.*

Revenue by Solution Category(2):

  • Performance and Security Solutions revenue was $345 million, up 19% year-over-year and also up 19% when adjusted for foreign exchange*
  • Cloud Security Solutions revenue, a component of Performance and Security, was $95 million, up 46% year-over-year and also up 46% when adjusted for foreign exchange*
  • Media Delivery Solutions revenue was $188 million, down 14% year-over-year and down 15% when adjusted for foreign exchange*
  • Services and Support Solutions revenue was $51 million, up 17% year-over-year and up 16% when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $404 million, up 1% year-over-year
  • International revenue was $180 million, up 20% year-over-year and up 17% when adjusted for foreign exchange*

Customer Revenue by Division(3):

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 $284 million, down 4% year-over-year and down 5% when adjusted for foreign exchange*
  • Web Division revenue was $285 million, up 17% year-over-year and up 16% when adjusted for foreign exchange*
  • Enterprise and Carrier Division revenue was $15 million, up 43% year-over-year and also up 43% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(1):

  • Revenue from Internet Platform Customers was $58 million, down 39% year-over-year and down 40% when adjusted for foreign exchange.*
  • Revenue excluding Internet Platform Customers was $526 million, up 15% year-over-year and also up 15% when adjusted for foreign exchange.*

Income from operations: GAAP income from operations was $112 million, a 3% decrease from third quarter 2015. GAAP operating margin for the third quarter was 19%, down 2 percentage points from the same period last year.

Non-GAAP income from operations* was $164 million, a 4% increase from third quarter 2015. Non-GAAP operating margin* for the third quarter was 28%, down a percentage point from the same period last year.

Net income: GAAP net income was $76 million, a 14% decrease from third quarter 2015. Non-GAAP net income* was $120 million, a 7% increase from third quarter 2015.

EPS: GAAP EPS was $0.43 per diluted share, a 12% decrease from third quarter 2015 and a 15% decrease when adjusted for foreign exchange.* Non-GAAP EPS was $0.68 per diluted share, a 10% increase from third quarter 2015 and a 7% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $238 million, a 7% increase from third quarter 2015. Adjusted EBITDA margin* was 41%, up a percentage point from the third quarter of 2015.

Other third quarter 2016 results included:

  • Cash from operations was $251 million, or 43% of revenue
  • Cash, cash equivalents and marketable securities as of September 30, 2016 was $1.7 billion
  • The Company spent $95 million to repurchase 1.8 million shares of its common stock at an average price of $53.33 per share
  • The Company had approximately 174 million shares of common stock outstanding as of September 30, 2016

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

(1)   Internet Platform Customers – Six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

(2)   Revenue by solution category – A product-focused reporting view that reflects revenue by solution purchased

(3)   Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division.

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 86580404. 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 No. 86580404. 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)

September 30,
 2016


December 31,
2015

ASSETS




Current assets:




Cash and cash equivalents

$

381,803



$

289,473


Marketable securities

529,416



460,088


Accounts receivable, net

357,997



380,399


Prepaid expenses and other current assets

117,748



123,228


Total current assets

1,386,964



1,253,188


Property and equipment, net

797,923



753,180


Marketable securities

767,691



774,674


Goodwill

1,151,216



1,150,244


Acquired intangible assets, net

138,870



156,095


Deferred income tax assets

21,156



4,700


Other assets

89,815



89,603


Total assets

$

4,353,635



$

4,181,684


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

74,328



$

61,982


Accrued expenses

291,101



216,166


Deferred revenue

61,292



54,154


Other current liabilities

4,815



138


Total current liabilities

431,536



332,440


Deferred revenue

4,134



4,163


Deferred income tax liabilities

8,963



12,888


Convertible senior notes

634,504



618,047


Other liabilities

105,567



93,268


Total liabilities

1,184,704



1,060,806


Total stockholders' equity

3,168,931



3,120,878


Total liabilities and stockholders' equity

$

4,353,635



$

4,181,684


 

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Revenue

$

584,065



$

572,135



$

551,030



$

1,723,925



$

1,618,289


Costs and operating expenses:










Cost of revenue (1) (2)

204,467



206,323



183,204



605,526



532,408


Research and development (1)

42,341



37,690



38,396



120,873



110,917


Sales and marketing (1)

102,626



103,223



107,426



308,060



322,406


General and administrative (1) (2)

113,320



107,538



99,543



323,141



288,287


Amortization of acquired intangible assets

6,598



6,711



6,752



20,025



20,284


Restructuring charges

2,948



470



20



10,236



517


Total costs and operating expenses

472,300



461,955



435,341



1,387,861



1,274,819


Income from operations

111,765



110,180



115,689



336,064



343,470


Interest income

3,809



3,393



2,723



10,522



8,265


Interest expense

(4,666)



(4,639)



(4,630)



(13,958)



(13,884)


Other income (expense), net

778



415



204



1,004



(1,702)


Income before provision for income taxes

111,686



109,349



113,986



333,632



336,149


Provision for income taxes

35,686



35,714



25,946



109,139



103,163


Net income

$

76,000



$

73,635



$

88,040



$

224,493



$

232,986












Net income per share:










Basic

$

0.44



$

0.42



$

0.49



$

1.28



$

1.30


Diluted

$

0.43



$

0.42



$

0.49



$

1.27



$

1.29












Shares used in per share calculations:










Basic

174,429



175,499



178,547



175,444



178,591


Diluted

175,617



176,420



180,364



176,525



180,642



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

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

 

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Cash flows from operating activities:










Net income

$

76,000



$

73,635



$

88,040



$

224,493



$

232,986


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










Depreciation and amortization

84,511



85,114



74,785



250,294



219,234


Stock-based compensation

38,652



34,911



31,046



105,304



92,966


Excess tax benefits from stock-based compensation

(448)



(1,497)



(2,114)



(3,080)



(24,851)


(Benefit) provision for deferred income taxes

(16,646)



1,713



(1,666)



(13,861)



(17,941)


Amortization of debt discount and issuance costs

4,666



4,639



4,630



13,958



13,884


Other non-cash reconciling items, net

4,866



749



2,126



8,367



3,271


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










Accounts receivable

4,691



1,880



(26,415)



22,477



(40,707)


Prepaid expenses and other current assets

15,005



(7,510)



4,097



4,014



16,119


Accounts payable and accrued expenses

42,610



44,659



(5,575)



54,892



26,098


Deferred revenue

(5,241)



1,473



(115)



6,885



6,908


Other current liabilities

(2,301)



95



(53)



4,670



146


Other non-current assets and liabilities

5,035



3,011



13,822



6,097



18,247


Net cash provided by operating activities

251,400



242,872



182,608



684,510



546,360


Cash flows from investing activities:










Cash paid for acquired businesses, net of cash acquired

(2,936)





500



(2,936)



(122,445)


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

(79,870)



(78,141)



(133,064)



(240,351)



(366,146)


Purchases of short- and long-term marketable securities

(230,223)



(288,742)



(178,200)



(614,808)



(584,189)


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

204,190



227,234



197,440



556,533



727,125


Other non-current assets and liabilities

(1,633)



842



(1,128)



(3,145)



(3,037)


Net cash used in investing activities

(110,472)



(138,807)



(114,452)



(304,707)



(348,692)


Cash flows from financing activities:










Proceeds from the issuance of common stock under stock plans

15,244



8,745



17,776



42,339



54,288


Excess tax benefits from stock-based compensation

448



1,497



2,114



3,080



24,851


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

(6,150)



(5,914)



(7,817)



(38,560)



(47,171)


Repurchases of common stock

(95,157)



(90,985)



(76,358)



(294,867)



(202,426)


Other non-current assets and liabilities





(800)





(2,050)


Net cash used in financing activities

(85,615)



(86,657)



(65,085)



(288,008)



(172,508)


Effects of exchange rate changes on cash and cash equivalents

(154)



(3,676)



(4,048)



535



(7,339)


Net increase (decrease) in cash and cash equivalents

55,159



13,732



(977)



92,330



17,821


Cash and cash equivalents at beginning of period

326,644



312,912



257,448



289,473



238,650


Cash and cash equivalents at end of period

$

381,803



$

326,644



$

256,471



$

381,803



$

256,471


 

 

 

AKAMAI TECHNOLOGIES, INC.

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



Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September
30, 2016


June 30,

2016


September
30, 2015


September
30, 2016


September
30, 2015

Income from operations

$

111,765



$

110,180



$

115,689



$

336,064



$

343,470


GAAP operating margin

19

%


19

%


21

%


19

%


21

%

Amortization of acquired intangible assets

6,598



6,711



6,752



20,025



20,284


Stock-based compensation

38,652



34,911



31,046



105,304



92,966


Amortization of capitalized stock-based compensation and capitalized interest expense

3,983



4,071



3,152



11,662



9,896


Restructuring charges

2,948



470



20



10,236



517


Acquisition-related costs

241



361



258



523



124


Legal matter costs



101



430



890



3,215


Operating adjustments

52,422



46,625



41,658



148,640



127,002


Non-GAAP income from operations

$

164,187



$

156,805



$

157,347



$

484,704



$

470,472


Non-GAAP operating margin

28

%


27

%


29

%


28

%


29

%











Net income

$

76,000



$

73,635



$

88,040



$

224,493



$

232,986


Operating adjustments (from above)

52,422



46,625



41,658



148,640



127,002


Amortization of debt discount and issuance costs

4,666



4,639



4,630



13,958



13,884


Loss on investments









25


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

(12,939)



(12,832)



(22,453)



(37,094)



(48,678)


Non-GAAP net income

120,149



112,067



111,875



349,997



325,219












Depreciation and amortization

73,930



74,332



64,881



218,607



189,054


Interest income

(3,809)



(3,393)



(2,723)



(10,522)



(8,265)


Other (income) expense, net

(778)



(415)



(204)



(1,004)



1,677


Provision for GAAP income taxes

35,686



35,714



25,946



109,139



103,163


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

12,939



12,832



22,453



37,094



48,678


Adjusted EBITDA

$

238,117



$

231,137



$

222,228



$

703,311



$

659,526


Adjusted EBITDA margin

41

%


40

%


40

%


41

%


41

%











Non-GAAP net income per share:










Basic

$

0.69



$

0.64



$

0.63



$

1.99



$

1.82


Diluted

$

0.68



$

0.64



$

0.62



$

1.98



$

1.80












Shares used in non-GAAP per share calculations:










Basic

174,429



175,499



178,547



175,444



178,591


Diluted

175,617



176,420



180,364



176,525



180,642


 

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY



Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Revenue by solution category(1):










Performance and Security Solutions

$

345,118



$

326,642



$

289,046



$

987,623



$

843,396


Media Delivery Solutions

188,075



197,077



218,537



591,091



650,553


Services and Support Solutions

50,872



48,416



43,447



145,211



124,340


Total revenue

$

584,065



$

572,135



$

551,030



$

1,723,925



$

1,618,289


Cloud Security Solutions revenue

$

95,232



$

86,980



$

65,212



$

262,872



$

181,857












Revenue growth rates year-over-year:










Performance and Security Solutions

19

%


16

%


14

%


17

%


15

%

Media Delivery Solutions

(14)



(9)



6



(9)



10


Services and Support Solutions

17



18



19



17



15


Total revenue

6

%


6

%


11

%


7

%


13

%

Cloud Security Solutions revenue growth rates

46

%


42

%


40

%


45

%


51

%











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










Performance and Security Solutions

19

%


16

%


18

%


17

%


19

%

Media Delivery Solutions

(15)



(10)



10



(9)



15


Services and Support Solutions

16



17



24



17



19


Total revenue

5

%


6

%


15

%


7

%


17

%

Cloud Security Solutions revenue growth rates(2)

46

%


42

%


45

%


45

%


56

%

 

 

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY



Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Revenue by geography:










U.S.

$

404,065



$

395,085



$

400,581



$

1,196,433



$

1,188,657


International

180,000



177,050



150,449



527,492



429,632


Total revenue

$

584,065



$

572,135



$

551,030



$

1,723,925



$

1,618,289












Revenue growth rates year-over-year:










U.S.

1

%


(1)

%


10

%


1

%


15

%

International

20



25



12



23



9


Total revenue

6

%


6

%


11

%


7

%


13

%











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










U.S.

1

%


(1)

%


10

%


1

%


15

%

International

17



24



27



23



23


Total revenue

5

%


6

%


15

%


7

%


17

%


(1)  See customer 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


Nine Months Ended

(in thousands)

September
30, 2016


June 30,
2016


September

30, 2015


September
30, 2016


September
30, 2015

Customer revenue by division(1):










Media Division

$

284,107



$

288,432



$

296,848



$

864,472



$

885,365


Web Division

284,629



271,327



243,430



819,699



703,687


Enterprise and Carrier Division

15,329



12,376



10,752



39,754



29,237


Total revenue

$

584,065



$

572,135



$

551,030



$

1,723,925



$

1,618,289












Revenue growth rates year-over-year:










Media Division

(4)

%


(2)

%


5

%


(2)

%


10

%

Web Division

17



15



17



16



18


Enterprise and Carrier Division

43



22



40



36



33


Total revenue

6

%


6

%


11

%


7

%


13

%











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










Media Division

(5)

%


(2)

%


9

%


(2)

%


13

%

Web Division

16



15



22



16



22


Enterprise and Carrier Division

43



22



41



36



34


Total revenue

5

%


6

%


15

%


7

%


17

%

 

 

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS



Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Revenue from Internet Platform Customers(3)

$

58,012



$

61,497



$

95,264



$

192,014



$

287,612


Revenue excluding Internet Platform Customers

526,053



510,638



455,766



1,531,911



1,330,677


Total revenue

$

584,065



$

572,135



$

551,030



$

1,723,925



$

1,618,289












Revenue growth rates year-over-year:










Revenue from Internet Platform Customers

(39)

%


(36)

%


%


(33)

%


14

%

Revenue excluding Internet Platform Customers

15



15



13



15



13


Total revenue

6

%


6

%


11

%


7

%


13

%











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










Revenue from Internet Platform Customers

(40)

%


(36)

%


1

%


(33)

%


15

%

Revenue excluding Internet Platform Customers

15



15



18



15



18


Total revenue

5

%


6

%


15

%


7

%


17

%


(1)  See customer revenue by division definition in press release

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

(3)  See Internet Platform Customers definition in press release

 

 

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL FINANCIAL DATA



Three Months Ended


Nine Months Ended

(in thousands, except end of period statistics)

September
30, 2016


June 30,
2016


September
30, 2015


September
30, 2016


September
30, 2015

Stock-based compensation:










Cost of revenue

$

4,701



$

4,553



$

3,579



$

13,224



$

10,244


Research and development

7,727



6,752



5,982



20,917



17,357


Sales and marketing

14,729



13,259



13,465



40,340



39,295


General and administrative

11,495



10,347



8,020



30,823



26,070


Total stock-based compensation

$

38,652



$

34,911



$

31,046



$

105,304



$

92,966












Depreciation and amortization:










Network-related depreciation

$

57,521



$

58,615



$

50,937



$

171,310



$

150,070


Other depreciation and amortization

16,409



15,717



13,944



47,297



38,984


Depreciation of property and equipment

73,930



74,332



64,881



218,607



189,054


Capitalized stock-based compensation amortization

3,544



3,628



2,916



10,429



9,303


Capitalized interest expense amortization

439



443



236



1,233



593


Amortization of acquired intangible assets

6,598



6,711



6,752



20,025



20,284


Total depreciation and amortization

$

84,511



$

85,114



$

74,785



$

250,294



$

219,234












Capital expenditures(1)(2):










Purchases of property and equipment

$

51,332



$

50,726



$

65,429



$

152,125



$

231,050


Capitalized internal-use software development costs

35,507



36,288



33,401



106,967



98,219


Capitalized stock-based compensation

5,662



6,209



4,518



17,074



13,133


Capitalized interest expense

887



868



760



2,540



2,054


Total capital expenditures

$

93,388



$

94,091



$

104,108



$

278,706



$

344,456












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

$

78,972



$

76,706



$

(20,082)



$

154,675



$

(123,411)












End of period statistics:










Number of employees

6,334



6,263



5,943






Number of deployed servers

222,906



219,595



199,962







(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 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 also 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.
  • 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 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 costs – Akamai 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 U.S. 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 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; 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 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 potential areas for future investment. 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.

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