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Press Release -- October 28th, 2015
Source: Akamai
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Akamai Reports Third Quarter 2015 Financial Results

CAMBRIDGE, Mass., Oct. 27, 2015 /PRNewswire/ —

  • Revenue of $551 million, up 11% year-over-year and up 15% adjusted for foreign exchange*
  • GAAP EPS of $0.49 per diluted share, down 2% year-over-year and up 3% adjusted for foreign exchange*
  • Non-GAAP EPS of $0.62 per diluted share, consistent year-over-year and up 5% adjusted for foreign exchange*

Akamai Technologies, Inc. (AKAM), the global leader in Content Delivery Network (CDN) services, today reported financial results for the third quarter ended September 30, 2015.

“The third quarter was another solid quarter for Akamai on both the top and bottom lines.  We delivered earnings that exceeded our expectations, even as we continued to invest in innovation, new products and global infrastructure to meet future demand,” said Dr. Tom Leighton, Chief Executive Officer.  “We were particularly pleased with the continued, very strong growth of our Cloud Security Solutions.  Revenue from our Cloud Security Solutions grew 44% year-over-year in constant currency, and now exceeds an annualized run rate of $250 million, making Akamai one of the world’s largest cloud security service providers.”

Akamai delivered the following results for the third quarter ended September 30, 2015:

Revenue: Revenue was $551 million, an 11% increase over third quarter 2014 revenue of $498 million and a 15% increase when adjusted for foreign exchange*.

Revenue by Solution Category:

  • Media Delivery Solutions revenue was $245 million, up 5% year-over-year and up 10% when adjusted for foreign exchange*
  • Performance and Security Solutions revenue was $263 million, up 15% year-over-year and up 18% when adjusted for foreign exchange*
  • Cloud Security Solutions revenue, a component of Performance and Security, was $65 million, up 39% year-over-year and up 44% when adjusted for foreign exchange*
  • Service and Support Solutions revenue was $43 million, up 19% year-over-year and up 24% when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $401 million, a 10% increase over third quarter 2014
  • International revenue was $150 million, a 12% increase over third quarter 2014 and a 27% increase when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $116 million, a 4% decrease over third quarter 2014 GAAP income from operations of $120 million. GAAP operating margin for the third quarter of 2015 was 21%, down three percentage points from the same period last year.

Non-GAAP income from operations* was $157 million, relatively consistent with third quarter 2014 non-GAAP income from operations of $158 million. Non-GAAP operating margin* for the third quarter of 2015 was 29%, down three percentage points from the same period last year.

Net income: GAAP net income was $88 million, a 3% decrease over third quarter 2014 GAAP net income of $91 million. Non-GAAP net income* was $112 million, relatively consistent with third quarter 2014 non-GAAP net income of $111 million.

EPS: GAAP EPS was $0.49 per diluted share, a 2% decrease over third quarter 2014 GAAP EPS of $0.50, and a 3% increase when adjusted for foreign exchange*. GAAP EPS for the quarter included a $0.06 per diluted share tax benefit from the retroactive application of a U.S. tax court ruling with respect to the treatment of stock-based compensation in intercompany transactions.

Non-GAAP EPS was $0.62 per diluted share, consistent with third quarter 2014 non-GAAP EPS and a 5% increase when adjusted for foreign exchange*.

Adjusted EBITDA*: Adjusted EBITDA was $222 million, a 4% increase over third quarter 2014 Adjusted EBITDA of $213 million. Adjusted EBITDA margin* for the third quarter of 2015 was 40%, down three percentage points from the same period last year.

Other third quarter 2015 results included:

  • Cash from operations was $183 million, or 33% of revenue
  • Cash, cash equivalents and marketable securities as of September 30, 2015 was $1.5 billion
  • The Company spent $76 million to repurchase 1.1 million shares of its common stock at an average price of $72.02 per share
  • The Company had approximately 178 million shares of common stock outstanding as of September 30, 2015

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

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-877-703-6109 (or 1-857-244-7308 for international calls) and using passcode No. 16030768. A live webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for one week following the conference by calling 1-888-286-8010 (or 1-617-801-6888 for international calls) and using passcode No. 32698839. 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,
2015

December 31,
2014

ASSETS

Cash and cash equivalents

$

256,471

$

238,650

Marketable securities

411,382

519,642

Accounts receivable, net

365,957

329,578

Prepaid expenses and other current assets

115,601

128,981

Deferred income tax assets

61,574

45,704

Current assets

1,210,985

1,262,555

Property and equipment, net

734,540

601,591

Marketable securities

837,020

869,992

Goodwill and acquired intangible assets, net

1,294,478

1,183,706

Deferred income tax assets

1,888

1,955

Other assets

105,898

81,747

Total assets

$

4,184,809

$

4,001,546

LIABILITIES AND STOCKHOLDERS’ EQUITY

Accounts payable and accrued expenses

$

276,192

$

282,098

Other current liabilities

55,814

51,913

Current liabilities

332,006

334,011

Deferred income tax liabilities

49,925

39,299

Convertible senior notes

619,365

604,851

Other liabilities

97,850

78,050

Total liabilities

1,099,146

1,056,211

Stockholders’ equity

3,085,663

2,945,335

Total liabilities and stockholders’ equity

$

4,184,809

$

4,001,546

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Nine Months Ended

(in thousands, except per share data)

September
30, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Revenue

$

551,030

$

540,723

$

498,042

$

1,618,289

$

1,427,579

Costs and operating expenses:

Cost of revenue (1) (2)

183,204

179,910

158,812

532,408

447,742

Research and development (1)

38,396

36,693

32,583

110,917

92,869

Sales and marketing (1)

107,426

111,501

96,215

322,406

268,742

General and administrative (1) (2)

99,543

99,152

81,905

288,287

239,946

Amortization of acquired intangible assets

6,752

6,752

8,403

20,284

23,654

Restructuring charges (benefits)

20

455

(115)

517

1,189

Total costs and operating expenses

435,341

434,463

377,803

1,274,819

1,074,142

Income from operations

115,689

106,260

120,239

343,470

353,437

Interest income

2,723

2,541

2,010

8,265

5,389

Interest expense

(4,630)

(4,678)

(4,482)

(13,884)

(10,939)

Other income (expense), net

204

(1,605)

(188)

(1,702)

(1,968)

Income before provision for income taxes

113,986

102,518

117,579

336,149

345,919

Provision for income taxes

25,946

35,318

26,424

103,163

109,078

Net income

$

88,040

$

67,200

$

91,155

$

232,986

$

236,841

Net income per share:

Basic

$

0.49

$

0.38

$

0.51

$

1.30

$

1.33

Diluted

$

0.49

$

0.37

$

0.50

$

1.29

$

1.31

Shares used in per share calculations:

Basic

178,547

178,682

178,186

178,591

178,324

Diluted

180,364

180,738

180,955

180,642

181,278

(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, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Cash flows from operating activities:

Net income

$

88,040

$

67,200

$

91,155

$

232,986

$

236,841

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

Depreciation and amortization

74,785

73,989

67,415

219,234

179,643

Stock-based compensation

31,046

32,251

28,008

92,966

84,800

Excess tax benefits from stock-based compensation

(2,114)

(9,609)

(4,297)

(24,851)

(23,958)

(Benefit) provision for deferred income taxes

(1,666)

(24,580)

(11,218)

(17,941)

10,622

Amortization of debt discount and issuance costs

4,630

4,677

4,482

13,884

10,939

Other non-cash reconciling items, net

2,126

703

1,340

3,271

2,535

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

Accounts receivable

(26,415)

18,260

(8,959)

(40,707)

(50,213)

Prepaid expenses and other current assets

4,097

13,839

(9,348)

16,119

(22,346)

Accounts payable and accrued expenses

(5,575)

84,376

15,417

26,098

36,876

Deferred revenue

(115)

76

2,938

6,908

7,688

Other current liabilities

(53)

157

(2,122)

146

(703)

Other non-current assets and liabilities

13,822

2,684

(1,529)

18,247

(10,195)

Net cash provided by operating activities

182,608

264,023

173,282

546,360

462,529

Cash flows from investing activities:

Cash received (paid) for acquired businesses, net of cash acquired

500

(106,883)

(122,445)

(386,532)

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

(133,064)

(96,013)

(71,782)

(366,146)

(226,307)

Purchases of short- and long-term marketable securities

(178,200)

(308,685)

(204,607)

(584,189)

(1,068,198)

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

197,440

222,030

93,300

727,125

631,422

Other non-current assets and liabilities

(1,128)

(1,827)

5,194

(3,037)

7,222

Net cash used in investing activities

(114,452)

(291,378)

(177,895)

(348,692)

(1,042,393)

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September 30,
2014

Cash flows from financing activities:

Proceeds from the issuance of convertible senior notes, net

678,735

Proceeds from the issuance of warrants

77,970

Payment for bond hedge

(101,292)

Repayment of acquired debt and capital leases

(17,862)

Proceeds from the issuance of common stock under stock plans

17,776

12,072

17,362

54,288

75,361

Excess tax benefits from stock-based compensation

2,114

9,609

4,297

24,851

23,958

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

(7,817)

(8,253)

(8,957)

(47,171)

(43,205)

Repurchases of common stock

(76,358)

(63,388)

(39,022)

(202,426)

(226,513)

Other non-current assets and liabilities

(800)

(1,250)

(1,575)

(2,050)

(1,575)

Net cash (used in) provided by
financing activities

(65,085)

(51,210)

(27,895)

(172,508)

465,577

Effects of exchange rate changes on cash and cash equivalents

(4,048)

3,456

(7,318)

(7,339)

(5,265)

Net (decrease) increase in cash and cash equivalents

(977)

(75,109)

(39,826)

17,821

(119,552)

Cash and cash equivalents at beginning of period

257,448

332,557

254,165

238,650

333,891

Cash and cash equivalents at end of period

$

256,471

$

257,448

$

214,339

$

256,471

$

214,339

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, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Income from operations

$

115,689

$

106,260

$

120,239

$

343,470

$

353,437

GAAP operating margin

21

%

20

%

24

%

21

%

25

%

Amortization of acquired intangible assets

6,752

6,752

8,403

20,284

23,654

Stock-based compensation

31,046

32,251

28,008

92,966

84,800

Amortization of capitalized stock-based compensation and capitalized interest expense

3,152

3,636

3,601

9,896

7,563

Other operating expenses(1)

708

1,439

(2,515)

3,856

2,973

Operating adjustments

41,658

44,078

37,497

127,002

118,990

Non-GAAP income from operations

$

157,347

$

150,338

$

157,736

$

470,472

$

472,427

Non-GAAP operating margin

29

%

28

%

32

%

29

%

33

%

Net income

$

88,040

$

67,200

$

91,155

$

232,986

$

236,841

Operating adjustments (from above)

41,658

44,078

37,497

127,002

118,990

Amortization of debt discount and issuance costs

4,630

4,678

4,482

13,884

10,939

Loss on investments

25

393

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

(22,453)

(13,788)

(21,771)

(48,678)

(45,333)

Non-GAAP net income

111,875

102,168

111,363

325,219

321,830

Depreciation and amortization

64,881

63,601

55,411

189,054

148,426

Interest income

(2,723)

(2,541)

(2,010)

(8,265)

(5,389)

Other (income) expense, net

(204)

1,605

188

1,677

1,575

Provision for GAAP income taxes

25,946

35,318

26,424

103,163

109,078

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

22,453

13,788

21,771

48,678

45,333

Adjusted EBITDA

$

222,228

$

213,939

$

213,147

$

659,526

$

620,853

Adjusted EBITDA margin

40

%

40

%

43

%

41

%

43

%

Non-GAAP net income per share:

Basic

$

0.63

$

0.57

$

0.62

$

1.82

$

1.80

Diluted

$

0.62

$

0.57

$

0.62

$

1.80

$

1.78

Shares used in non-GAAP per share calculations:

Basic

178,547

178,682

178,186

178,591

178,324

Diluted

180,364

180,738

180,955

180,642

181,278

(1)

Other operating expenses excluded from non-GAAP results include: acquisition-related costs, restructuring charges and certain legal matter costs.  See the

non-GAAP adjustment definitions below for additional information.

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY

Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Revenue by solution category:

Media Delivery Solutions

$

244,887

$

243,503

$

232,368

$

730,232

$

665,857

Performance and Security Solutions

262,696

256,039

229,204

763,717

653,545

Service and Support Solutions

43,447

41,181

36,470

124,340

108,177

Total revenue

$

551,030

$

540,723

$

498,042

$

1,618,289

$

1,427,579

Cloud Security Solutions revenue

$

64,672

$

60,973

$

46,517

$

180,684

$

120,404

Revenue growth rates year-over-year(1):

Media Delivery Solutions

5

%

12

%

22

%

10

%

21

%

Performance and Security Solutions

15

15

30

17

30

Service and Support Solutions

19

14

21

15

27

Total revenue

11

%

14

%

26

%

13

%

25

%

Cloud Security Solutions revenue growth rates

39

%

39

%

50

%

Revenue growth rates year-over-year, adjusted
for the impact of foreign exchange rates(1)(2):

Media Delivery Solutions

10

%

17

%

23

%

14

%

21

%

Performance and Security Solutions

18

19

30

21

30

Service and Support Solutions

24

18

21

19

27

Total revenue

15

%

18

%

26

%

17

%

25

%

Cloud Security Solutions revenue growth rates(2)

44

%

44

%

55

%

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY

Three Months Ended

Nine Months Ended

(in thousands)

September
30, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Revenue by geography:

U.S.

$

400,581

$

399,103

$

363,469

$

1,188,657

$

1,031,878

International

150,449

141,620

134,573

429,632

395,701

Total revenue

$

551,030

$

540,723

$

498,042

$

1,618,289

$

1,427,579

Revenue growth rates year-over-year(1):

U.S.

10

%

16

%

25

%

15

%

24

%

International

12

7

28

9

26

Total revenue

11

%

14

%

26

%

13

%

25

%

Revenue growth rates year-over-year, adjusted
for the impact of foreign exchange rates(1)(2):

U.S.

10

%

16

%

25

%

15

%

24

%

International

27

22

27

23

26

Total revenue

15

%

18

%

26

%

17

%

25

%

(1)

Growth rates for the nine months ended September 30, 2014 exclude the impact of revenue from the Advertising Decision Solutions (ADS) business that

was divested during the three months ended March 31, 2013

(2)

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

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL FINANCIAL DATA

Three Months Ended

Nine Months Ended

(in thousands, except end of period statistics)

September
30, 2015

June 30,
2015

September
30, 2014

September
30, 2015

September
30, 2014

Stock-based compensation:

Cost of revenue

$

3,579

$

3,502

$

3,030

$

10,244

$

8,901

Research and development

5,982

6,009

4,979

17,357

14,517

Sales and marketing

13,465

12,847

12,110

39,295

35,438

General and administrative

8,020

9,893

7,889

26,070

25,944

Total stock-based compensation

$

31,046

$

32,251

$

28,008

$

92,966

$

84,800

Depreciation and amortization:

Network-related depreciation

$

50,937

$

50,145

$

44,617

$

150,070

$

119,778

Other depreciation and amortization

13,944

13,456

10,794

38,984

28,648

Depreciation of property and equipment

64,881

63,601

55,411

189,054

148,426

Capitalized stock-based compensation amortization

2,916

3,435

3,556

9,303

7,500

Capitalized interest expense amortization

236

201

45

593

63

Amortization of acquired intangible assets

6,752

6,752

8,403

20,284

23,654

Total depreciation and amortization

$

74,785

$

73,989

$

67,415

$

219,234

$

179,643

Capital expenditures(1)(2):

Purchases of property and equipment

$

65,429

$

76,492

$

47,034

$

231,050

$

157,280

Capitalized internal-use software development costs

33,401

30,835

31,466

98,219

84,432

Capitalized stock-based compensation

4,518

4,471

3,850

13,133

11,577

Capitalized interest expense

760

619

679

2,054

1,513

Total capital expenditures

$

104,108

$

112,417

$

83,029

$

344,456

$

254,802

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

$

(20,082)

$

9,816

$

69,357

$

(123,411)

$

314,837

End of period statistics:

Number of employees

5,943

5,733

4,858

Number of deployed servers

199,962

189,136

161,273

(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 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 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, revenue adjusted for ADS divestiture and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect Akamai’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in its business, as they exclude expenses and gains that may be infrequent, unusual in nature or not reflective of Akamai’s ongoing operating results. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai’s operating results and future prospects in the same manner as management. These non-GAAP financial measures may also facilitate comparing financial results across accounting periods and to those of peer companies.

The non-GAAP financial measures do not replace the presentation of Akamai’s GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai’s financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting 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 and executives, 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, 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 expense, nor 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 which are recorded as an asset in the consolidated balance sheet. 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 indicative of ongoing operating performance.
  • Loss on investments and legal matters – Akamai has incurred losses from the impairment of certain investments and the settlement of legal matters. In addition, Akamai has incurred costs with respect to its internal investigation relating to sales practices in a country outside the U.S. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them occur infrequently and are not representative of Akamai’s core business operations.
  • Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or release of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

Akamai’s definitions of its non-GAAP financial measures are outlined below:

Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; other operating expenses (comprised of 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; and costs incurred with respect to Akamai’s internal investigation relating to sales practices in a country outside the U.S); 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; other operating expenses (comprised of 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, and costs incurred with respect to Akamai’s internal investigation relating to sales practices in a country outside the U.S.);  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 net income per share. 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; other operating expenses (comprised of 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;  and costs incurred with respect to Akamai’s internal investigation relating to sales practices in a country outside the U.S.); 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.

Revenue, adjusted for ADS divestiture – Revenue excluding the impact of Akamai’s Advertising Decision Solutions (ADS) divestiture.

Impact of Foreign Currency Exchange Rates – Revenue and earnings from international operations have historically been an important contributor to Akamai’s financial results.  Consequently, Akamai’s financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates.  For example, when the local currencies of Akamai’s foreign subsidiaries weaken, consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of financial results and evaluation of performance in comparison to prior periods. The information presented is calculated by translating current period results using the same average foreign currency exchange rates per month from the comparative period.

Akamai Statement Under the Private Securities Litigation Reform Act
This release contains information about future expectations, plans and prospects of Akamai’s management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about future business plans and opportunities. 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, effects of increased competition including potential failure to maintain the prices we charge for our services and loss of significant customers; failure of the markets we address or plan to address to develop as we expect or at all; failure to maintain growth in cloud security revenue, 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; a failure of Akamai’s services or network infrastructure; 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 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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