Market Overview

Akamai Reports Third Quarter 2017 Financial Results

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Company exceeds guidance on top and bottom line with revenue of $621 million, GAAP EPS of $0.35 per diluted share and non-GAAP EPS of $0.62 per diluted share

CAMBRIDGE, Mass., Oct. 24, 2017 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the third quarter ended September 30, 2017.

Akamai Technologies logo. (PRNewsFoto/AKAMAI TECHNOLOGIES)

"Akamai delivered another strong quarter of top and bottom line performance," said Dr. Tom Leighton, CEO of Akamai.  "Revenue achievement in the quarter was driven by continued strong growth of our Cloud Security Solutions and an acceleration of traffic growth in our Media business."

Akamai delivered the following financial results for the third quarter ended September 30, 2017:

Revenue: Revenue was $621 million, a 6% increase over third quarter 2016 revenue of $584 million and a 6% increase when adjusted for foreign exchange.*

Customer Revenue by Division(1):

  • Web Division revenue was $328 million, up 14% year-over-year and when adjusted for foreign exchange*
  • Media Division revenue was $273 million, down 1% year-over-year and when adjusted for foreign exchange*
  • Enterprise and Carrier Division revenue was $20 million, up 2% year-over-year and up 1% when adjusted for foreign exchange*

Revenue by Solution Category(2):

  • Performance and Security Solutions revenue was $381 million, up 11% year-over-year and up 10% when adjusted for foreign exchange*
  • Cloud Security Solutions revenue, a component of Performance and Security, was $121 million, up 27% year-over-year and when adjusted for foreign exchange*
  • Media Delivery Solutions revenue was $183 million, down 3% year-over-year and when adjusted for foreign exchange*
  • Services and Support Solutions revenue was $57 million, up 12% year-over-year and when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $409 million, up 1% year-over-year
  • International revenue was $213 million, up 18% year-over-year and when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers was $51 million, down 13% year-over-year and when adjusted for foreign exchange*
  • Revenue excluding Internet Platform Customers was $571 million, up 9% year-over-year and up 8% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $86 million, a 23% decrease from third quarter 2016. GAAP operating margin for the third quarter was 14%, down 5 percentage points from the same period last year.

Non-GAAP income from operations* was $142 million, a 13% decrease from third quarter 2016. Non-GAAP operating margin* for the third quarter was 23%, down 5 percentage points from the same period last year.

Net income: GAAP net income was $61 million, a 20% decrease from third quarter 2016. Non-GAAP net income* was $107 million, an 11% decrease from third quarter 2016.

EPS: GAAP EPS was $0.35 per diluted share, a 19% decrease from third quarter 2016 and a 17% decrease when adjusted for foreign exchange.*  The year-over-year GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was a decrease of 10%.

Non-GAAP EPS was $0.62 per diluted share, a 9% decrease from third quarter 2016 and an 8% decrease when adjusted for foreign exchange.* The year-over-year non-GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was a decrease of 5%.

Adjusted EBITDA*: Adjusted EBITDA was $226 million, a 5% decrease from third quarter 2016. Adjusted EBITDA margin* was 36%, down 5 percentage points from the third quarter of 2016.

Other third quarter 2017 results:

  • Cash from operations was $236 million, or 38% of revenue
  • Cash, cash equivalents and marketable securities as of September 30, 2017 was $1.4 billion
  • The Company spent $129 million to repurchase 2.7 million shares of its common stock at an average price of $47.75 per share
  • The Company had approximately 170 million shares of common stock outstanding as of September 30, 2017

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

(1)    Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. During the first quarter of 2017, the divisional categorization of certain customers was adjusted based on how those customer categorizations are currently being managed. The historical presentation of divisional revenue was revised in order to reflect the most recent categorization and to provide a comparable view for all periods presented.

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

(3)   Internet Platform Customers – 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 89360127. 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 89360127. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
As the world's largest and most trusted cloud delivery platform, Akamai makes it easier for its customers to provide the best and most secure digital experiences on any device, anytime, anywhere.  Akamai's massively distributed platform is unparalleled in scale with over 200,000 servers across 130 countries, giving customers superior performance and threat protection. Akamai's portfolio of web and mobile performance, cloud security, enterprise access, and video delivery solutions are supported by exceptional customer service and 24/7 monitoring.  To learn why the top financial institutions, e commerce leaders, media & entertainment providers, and government organizations trust Akamai please visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)

September 30,
 2017


December 31,
2016

ASSETS




Current assets:




Cash and cash equivalents

$

368,152



$

324,169


Marketable securities

383,849



512,849


Accounts receivable, net

400,839



368,596


Prepaid expenses and other current assets

142,943



104,303


Total current assets

1,295,783



1,309,917


Property and equipment, net

883,754



801,017


Marketable securities

661,929



779,311


Goodwill

1,358,762



1,228,503


Acquired intangible assets, net

176,288



149,463


Deferred income tax assets

18,930



8,982


Other assets

113,688



95,953


Total assets

$

4,509,134



$

4,373,146


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

88,339



$

76,120


Accrued expenses

267,966



238,777


Deferred revenue

64,716



52,972


Other current liabilities

9,285



6,719


Total current liabilities

430,306



374,588


Deferred revenue

4,224



3,758


Deferred income tax liabilities

15,984



11,652


Convertible senior notes

657,131



640,087


Other liabilities

128,834



118,691


Total liabilities

1,236,479



1,148,776


Total stockholders' equity

3,272,655



3,224,370


Total liabilities and stockholders' equity

$

4,509,134



$

4,373,146



 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Revenue

$

621,399



$

608,908



$

584,065



$

1,839,544



$

1,723,925


Costs and operating expenses:










Cost of revenue(1) (2)

225,468



214,650



204,467



645,821



605,526


Research and development(1)

57,226



53,373



42,341



162,761



120,873


Sales and marketing(1)

120,220



119,432



102,626



353,218



308,060


General and administrative(1) (2)

124,523



123,518



113,320



363,050



323,141


Amortization of acquired intangible assets

7,753



7,753



6,598



23,075



20,025


Restructuring charges

332



2,971



2,948



3,303



10,236


Total costs and operating expenses

535,522



521,697



472,300



1,551,228



1,387,861


Income from operations

85,877



87,211



111,765



288,316



336,064


Interest income

4,463



4,281



3,809



13,368



10,522


Interest expense

(4,746)



(4,646)



(4,666)



(13,989)



(13,958)


Other income, net

535



563



778



414



1,004


Income before provision for income taxes

86,129



87,409



111,686



288,109



333,632


Provision for income taxes

25,617



29,637



35,686



88,895



109,139


Net income

$

60,512



$

57,772



$

76,000



$

199,214



$

224,493












Net income per share:










Basic

$

0.35



$

0.33



$

0.44



$

1.16



$

1.28


Diluted

$

0.35



$

0.33



$

0.43



$

1.15



$

1.27












Shares used in per share calculations:










Basic

170,976



172,674



174,429



172,269



175,444


Diluted

171,505



173,439



175,617



173,371



176,525



















(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, 2017


June 30,

 2017


September
30, 2016


September
30, 2017


September
30, 2016

Cash flows from operating activities(1):










Net income

$

60,512



$

57,772



$

76,000



$

199,214



$

224,493


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










Depreciation and amortization

97,178



89,206



84,511



272,917



250,294


Stock-based compensation

41,848



41,269



38,652



122,103



105,304


(Benefit) provision for deferred income taxes

(14,066)



7,396



(16,646)



25,302



(13,861)


Amortization of debt discount and issuance costs

4,746



4,646



4,666



13,989



13,958


Other non-cash reconciling items, net

2,046



1,738



4,866



3,655



8,367


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










Accounts receivable

(1,326)



12,273



4,691



(19,199)



22,477


Prepaid expenses and other current assets

15,913



(3,043)



15,005



(34,195)



4,014


Accounts payable and accrued expenses

39,691



6,399



42,610



22,150



54,892


Deferred revenue

(9,415)



(470)



(5,241)



991



6,885


Other current liabilities

(2,250)



2,385



(2,301)



3,651



4,670


Other non-current assets and liabilities

1,414



5,062



5,035



(7,036)



6,097


Net cash provided by operating activities

236,291



224,633



251,848



603,542



687,590


Cash flows from investing activities:










Cash paid for acquired businesses, net of cash acquired



(197,191)



(2,936)



(197,201)



(2,936)


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

(119,740)



(97,005)



(79,870)



(307,926)



(240,351)


Purchases of short- and long-term marketable securities

(67,879)



(88,913)



(230,223)



(249,098)



(614,808)


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

85,263



88,978



204,190



498,379



556,533


Other non-current assets and liabilities

(646)



(19)



(1,633)



(1,895)



(3,145)


Net cash used in investing activities

(103,002)



(294,150)



(110,472)



(257,741)



(304,707)


Cash flows from financing activities:










Proceeds from the issuance of common stock under stock plans

16,060



8,150



15,244



41,740



42,339


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

(6,784)



(7,417)



(6,150)



(48,122)



(38,560)


Repurchases of common stock

(129,014)



(105,148)



(95,157)



(306,629)



(294,867)


Other non-current assets and liabilities



(1,096)





(1,096)




Net cash used in financing activities

(119,738)



(105,511)



(86,063)



(314,107)



(291,088)


Effects of exchange rate changes on cash and cash equivalents

2,100



5,210



(154)



12,289



535


Net increase (decrease) in cash and cash equivalents

15,651



(169,818)



55,159



43,983



92,330


Cash and cash equivalents at beginning of period

352,501



522,319



326,644



324,169



289,473


Cash and cash equivalents at end of period

$

368,152



$

352,501



$

381,803



$

368,152



$

381,803






(1)

On January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this standard, excess tax benefits are no longer classified as a reduction of cash flows from operating activities. The Company retrospectively adopted this standard and revised cash flows from operating activities by $0.4 million and $3.1 million for the three and nine months ended September 30, 2016, respectively. The increase caused a corresponding decrease to cash flows from financing activities.


 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION








Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Customer revenue by division(1):










Web Division

$

327,926



$

314,988



$

288,104



$

947,600



$

828,662


Media Division

273,415



276,071



276,205



834,887



843,756


Enterprise and Carrier Division

20,058



17,849



19,756



57,057



51,507


Total revenue

$

621,399



$

608,908



$

584,065



$

1,839,544



$

1,723,925


Revenue growth rates year-over-year:










Web Division

14

%


15

%


17

%


14

%


16

%

Media Division

(1)



(2)



(5)



(1)



(2)


Enterprise and Carrier Division

2



9



41



11



32


Total revenue

6

%


6

%


6

%


7

%


7

%

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










Web Division

14

%


16

%


16

%


15

%


16

%

Media Division

(1)



(1)



(5)



(1)



(2)


Enterprise and Carrier Division

1



10



41



11



33


Total revenue

6

%


7

%


5

%


7

%


7

%










AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY








Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Revenue by solution category(3):










Performance and Security Solutions

$

381,461



$

375,807



$

345,118



$

1,126,416



$

987,623


Media Delivery Solutions

182,753



178,905



188,075



549,054



591,091


Services and Support Solutions

57,185



54,196



50,872



164,074



145,211


Total revenue

$

621,399



$

608,908



$

584,065



$

1,839,544



$

1,723,925


Cloud Security Solutions revenue

$

121,420



$

115,135



$

95,232



$

346,313



$

262,872


Revenue growth rates year-over-year:










Performance and Security Solutions

11

%


15

%


19

%


14

%


17

%

Media Delivery Solutions

(3)



(9)



(14)



(7)



(9)


Services and Support Solutions

12



12



17



13



17


Total revenue

6

%


6

%


6

%


7

%


7

%

Cloud Security Solutions revenue growth rates

27

%


32

%


46

%


32

%


45

%

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










Performance and Security Solutions

10

%


16

%


19

%


15

%


17

%

Media Delivery Solutions

(3)



(9)



(15)



(7)



(9)


Services and Support Solutions

12



13



16



13



17


Total revenue

6

%


7

%


5

%


7

%


7

%

Cloud Security Solutions revenue growth rates

27

%


34

%


46

%


33

%


45

%





(1)

See customer revenue by division definition in press release

(2)

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

(3)

See revenue by solution category definition in press release

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY








Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Revenue by geography:










U.S.

$

408,544



$

403,085



$

404,065



$

1,218,194



$

1,196,433


International

212,855



205,823



180,000



621,350



527,492


Total revenue

$

621,399



$

608,908



$

584,065



$

1,839,544



$

1,723,925


Revenue growth rates year-over-year:










U.S.

1

%


2

%


1

%


2

%


1

%

International

18

%


16



20



18



23


Total revenue

6

%


6

%


6

%


7

%


7

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):










U.S.

1

%


2

%


1

%


2

%


1

%

International

18



19



17



20



23


Total revenue

6

%


7

%


5

%


7

%


7

%







AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS







Three Months Ended


Nine Months Ended

(in thousands)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Revenue from Internet Platform Customers(2)

$

50,567



$

51,169



$

58,012



$

153,103



$

192,014


Revenue excluding Internet Platform Customers

570,832



557,739



526,053



1,686,441



1,531,911


Total revenue

$

621,399



$

608,908



$

584,065



$

1,839,544



$

1,723,925


Revenue growth rates year-over-year:










Revenue from Internet Platform Customers

(13)

%


(17)

%


(39)

%


(20)

%


(33)

%

Revenue excluding Internet Platform Customers

9



9



15



10



15


Total revenue

6

%


6

%


6

%


7

%


7

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):










Revenue from Internet Platform Customers

(13)

%


(17)

%


(40)

%


(20)

%


(33)

%

Revenue excluding Internet Platform Customers

8



10



15



11



15


Total revenue

6

%


7

%


5

%


7

%


7

%





(1)

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

(2)

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, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Stock-based compensation:










Cost of revenue

$

5,296



$

5,074



$

4,701



$

15,055



$

13,224


Research and development

10,100



9,614



7,727



28,743



20,917


Sales and marketing

15,672



13,951



14,729



44,780



40,340


General and administrative

10,780



12,630



11,495



33,525



30,823


Total stock-based compensation

$

41,848



$

41,269



$

38,652



$

122,103



$

105,304












Depreciation and amortization:










Network-related depreciation

$

64,369



$

59,170



$

57,521



$

180,383



$

171,310


Other depreciation and amortization

19,320



17,727



16,409



55,256



47,297


Depreciation of property and equipment

83,689



76,897



73,930



235,639



218,607


Capitalized stock-based compensation amortization

5,046



3,972



3,544



12,489



10,429


Capitalized interest expense amortization

690



584



439



1,714



1,233


Amortization of acquired intangible assets

7,753



7,753



6,598



23,075



20,025


Total depreciation and amortization

$

97,178



$

89,206



$

84,511



$

272,917



$

250,294












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










Purchases of property and equipment

$

62,755



$

64,522



$

51,332



$

183,777



$

152,125


Capitalized internal-use software development costs

45,213



40,957



35,507



123,255



106,967


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

$

107,968



$

105,479



$

86,839



$

307,032



$

259,092












End of period statistics:










Number of employees

7,438



7,084



6,334










(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, NET INCOME AND NET INCOME PER DILUTED SHARE






Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September
30, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Income from operations

$

85,877



$

87,211



$

111,765



$

288,316



$

336,064


GAAP operating margin

14

%


14

%


19

%


16

%


19

%

Amortization of acquired intangible assets

7,753



7,753



6,598



23,075



20,025


Stock-based compensation

41,848



41,269



38,652



122,103



105,304


Amortization of capitalized stock-based compensation and capitalized interest expense

5,736



4,556



3,983



14,203



11,662


Restructuring charges

332



2,971



2,948



3,303



10,236


Acquisition-related costs

530



3,057



241



3,379



523


Legal matter costs









890


Operating adjustments

56,199



59,606



52,422



166,063



148,640


Non-GAAP income from operations

$

142,076



$

146,817



$

164,187



$

454,379



$

484,704


Non-GAAP operating margin

23

%


24

%


28

%


25

%


28

%











Net income

$

60,512



$

57,772



$

76,000



$

199,214



$

224,493


Operating adjustments (from above)

56,199



59,606



52,422



166,063



148,640


Amortization of debt discount and issuance costs

4,746



4,646



4,666



13,989



13,958


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

(14,802)



(13,974)



(12,939)



(44,243)



(37,094)


Non-GAAP net income

$

106,655



$

108,050



$

120,149



$

335,023



$

349,997












GAAP net income per diluted share

$

0.35



$

0.33



$

0.43



$

1.15



$

1.27


Amortization of acquired intangible assets

0.05



0.04



0.04



0.13



0.11


Stock-based compensation

0.24



0.24



0.22



0.70



0.60


Amortization of capitalized stock-based compensation and capitalized interest expense

0.03



0.03



0.02



0.08



0.07


Restructuring charges



0.02



0.02



0.02



0.06


Acquisition-related costs



0.02





0.02




Legal matter costs









0.01


Amortization of debt discount and issuance costs

0.03



0.03



0.03



0.08



0.08


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

(0.09)



(0.08)



(0.07)



(0.26)



(0.21)


Non-GAAP net income per diluted share

$

0.62



$

0.62



$

0.68



$

1.93



$

1.98












Shares used in diluted per share calculations

171,505



173,439



175,617



173,371



176,525


 

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, 2017


June 30,
2017


September
30, 2016


September
30, 2017


September
30, 2016

Net income

$

60,512



$

57,772



$

76,000



$

199,214



$

224,493


Interest income

(4,463)



(4,281)



(3,809)



(13,368)



(10,522)


Provision for income taxes

25,617



29,637



35,686



88,895



109,139


Depreciation and amortization

83,689



76,897



73,930



235,639



218,607


Amortization of capitalized stock-based compensation and capitalized interest expense

5,736



4,556



3,983



14,203



11,662


Amortization of acquired intangible assets

7,753



7,753



6,598



23,075



20,025


Stock-based compensation

41,848



41,269



38,652



122,103



105,304


Restructuring charges

332



2,971



2,948



3,303



10,236


Acquisition-related costs

530



3,057



241



3,379



523


Legal matter costs









890


Amortization of debt discount and issuance costs

4,746



4,646



4,666



13,989



13,958


Other income, net

(535)



(563)



(778)



(414)



(1,004)


Adjusted EBITDA

$

225,765



$

223,714



$

238,117



$

690,018



$

703,311


Adjusted EBITDA margin

36

%


37

%


41

%


38

%


41

%

 

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.
  • 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.
  • Legal matter costs – Akamai has incurred losses from the settlement of legal matters and 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 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; 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; 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 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, 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.

EPS growth rates, adjusted for the Soasta acquisition – Earnings per share adjusted for the April 6, 2017 acquisition of Soasta, Inc.

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 revenue growth and future profitability levels. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, failure 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:   


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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