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Press Release -- October 24th, 2012
Source: Akamai
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Akamai Reports Third Quarter 2012 Financial Results

CAMBRIDGE, Mass., Oct. 24, 2012 /PRNewswire/ --

  • Third quarter revenue of $345 million, up 23 percent year over year
  • GAAP net income of $48 million, up 14 percent year over year; or $0.27 per diluted share, up 17 percent year over year
  • Normalized net income* of $79 million, up 24 percent year over year; or $0.43 per diluted share, up 26 percent year over year

Akamai Technologies, Inc. (AKAM), the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere, today reported financial results for the third quarter ended September 30, 2012.  Revenue for the third quarter of 2012 was $345 million, a 23 percent increase over third quarter 2011 revenue of $282 million, and a 4 percent increase over second quarter 2012 revenue of $331 million.

Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2012 was $48 million, or $0.27 per diluted share, a 14 percent increase from third quarter 2011 GAAP net income of $42 million, or $0.23 per diluted share, and a 9 percent increase from second quarter 2012 GAAP net income of $44 million, or $0.24 per diluted share.

The Company generated normalized net income* of $79 million, or $0.43 per diluted share, in the third quarter of 2012, a 24 percent increase over third quarter 2011 normalized net income of $63 million, or $0.34 per diluted share, and a 1 percent increase from the prior quarter normalized net income of $78 million, or $0.43 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)

"Akamai experienced its fourth consecutive quarter of accelerating revenue growth and delivered higher margins," said Paul Sagan, President and CEO of Akamai.  "We continued to capitalize on our investments in cloud computing, web security, mobile services, and online video by expanding our product portfolio, while effectively managing the cost and efficiency of our network. These efforts paid off in both the Company's top and bottom line performance."

Adjusted EBITDA* for the third quarter of 2012 was $157 million, up 28 percent from $122 million in the third quarter of 2011, and up 9 percent from $143 million in the prior quarter.  Adjusted EBITDA margin* for the third quarter was 45 percent, up two points from the prior quarter and from the same period last year.  (*See Use of Non-GAAP Financial Measures below for definitions.)

Cash from operations was $141 million in the third quarter of 2012, or 41 percent of revenue.  At the end of the third quarter of 2012, the Company had over $1 billion in cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 22 percent and 29 percent, respectively, of revenue for the third quarter of 2012.

Share Repurchase Program
During the third quarter of 2012, under a share repurchase program that was approved by the Board of Directors in May 2012, the Company repurchased approximately 1 million shares of its common stock for $37 million, at an average price of $31.53 per share.  During the three quarters ended September 30, 2012, the Company repurchased approximately 4 million shares of its common stock for $112 million, at an average price of $31.31 per share. The Company has $68 million remaining on its current authorization, which runs through April 30, 2013.

The Company had approximately 177 million shares of common stock outstanding as of September 30, 2012.

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-800-706-7745 (or 1-617-614-3472 for international calls) and using passcode No. 82472044.  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 through the Akamai Website or by calling 1-888-286-8010 (or 1-617-801-6888 for international calls) and using passcode No. 96448745.

About Akamai
Akamai® is the leading cloud platform for helping enterprises provide secure, high-performing user experiences on any device, anywhere.  At the core of the Company's solutions is the Akamai Intelligent Platform™ providing extensive reach, coupled with unmatched reliability, security, visibility and expertise.  Akamai removes the complexities of connecting the increasingly mobile world, supporting 24/7 consumer demand, and enabling enterprises to securely leverage the cloud.  To learn more about how Akamai is accelerating the pace of innovation in a hyperconnected world, please visit www.akamai.com or blogs.akamai.com, and follow @Akamai on Twitter.

Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
(unaudited)
Sep. 30, 2012 Dec. 31, 2011
Assets
Cash and cash equivalents $ 182,650 $ 559,197
Marketable securities 282,579 290,029
Accounts receivable, net 236,232 210,936
Deferred income tax assets, current portion 6,444 6,444
Prepaid expenses and other current assets 45,784 55,414
Current assets 753,689 1,122,020
Marketable securities 593,105 380,729
Property and equipment, net 331,218 293,043
Goodwill and other intangible assets, net 803,976 498,300
Other assets 15,365 7,924
Deferred income tax assets, net 42,101 43,485
Total assets $ 2,539,454 $ 2,345,501
Liabilities and stockholders' equity
Accounts payable and accrued expenses $ 184,365 $ 123,618
Other current liabilities 28,555 24,774
Current liabilities 212,920 148,392
Other liabilities 66,596 40,859
Total liabilities 279,516 189,251
Stockholders' equity 2,259,938 2,156,250
Total liabilities and stockholders' equity $ 2,539,454 $ 2,345,501
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2012 2012 2011 2012 2011
Revenues $                345,321 $                    331,306 $                    281,856 $            996,075 $           834,798
Costs and operating expenses:
Cost of revenues * + 109,995 107,457 93,284 320,018 271,999
Research and development * 19,351 17,542 13,542 54,373 37,142
Sales and marketing * 75,924 75,882 54,520 219,096 160,722
General and administrative * + 54,511 57,997 50,834 168,214 140,710
Amortization of other intangible assets 5,381 5,463 4,185 15,611 12,754
Restructuring (benefit) charge - (46) 158 14 158
Total costs and operating expenses 265,162 264,295 216,523 777,326 623,485
Operating income 80,159 67,011 65,333 218,749 211,313
Interest income, net 1,593 1,626 3,002 4,865 9,058
Other (expense) income , net (241) 1,131 (188) 449 (1,330)
Income before provision for income taxes 81,511 69,768 68,147 224,063 219,041
Provision for income taxes 33,280 25,529 25,862 88,366 78,218
Net income $                  48,231 $                      44,239 $                      42,285 $            135,697 $           140,823
Net income per share:
    Basic $                      0.27 $                          0.25 $                          0.23 $                  0.76 $                 0.76
    Diluted $                      0.27 $                          0.24 $                          0.23 $                  0.75 $                 0.74
Shares used in per share calculations:
    Basic 177,455 178,547 183,085 178,040 185,515
    Diluted 181,053 181,817 185,704 181,738 189,089
* Includes stock-based compensation (see supplemental table for figures)
+ Includes depreciation and amortization (see supplemental table for figures)
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended Nine Months Ended
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2012 2012 2011 2012 2011
 Cash flows from operating activities:
 Net income $              48,231 $             44,239 $             42,285 $           135,697 $          140,823
 Adjustments to reconcile net income to net cash
provided by operating activities:
 Depreciation and amortization 53,457 50,112 41,761 149,203 124,228
 Stock-based compensation 22,635 25,621 15,141 69,180 42,465
 Provision for deferred income taxes, net 826 - 20,906 826 20,906
 Excess tax benefits from stock-based
compensation
(2,540) (1,635) (610) (17,589) (11,460)
 Loss (gain) on investments and disposal
of property and equipment, net
142 (107) (176) (62) (172)
 Provision for doubtful accounts (345) (86) 782 (61) 1,236
 Changes in operating assets and liabilities:
 Accounts receivable (27,974) 7,803 (8,277) (21,587) (7,821)
 Prepaid expenses and other
current assets
2,131 4,663 (919) 11,103 (78)
 Accounts payable, accrued
expenses and other current
liabilities
44,591 15,939 445 54,732 (5,268)
 Accrued restructuring (28) (725) (148) (2,897) (180)
 Deferred revenue 1,401 2,667 796 5,542 (1,386)
 Other noncurrent assets and
liabilities
(1,031) 1,061 4,303 (536) 13,355
 Net cash provided by operating activities 141,496 149,552 116,289 383,551 316,648
 Cash flows from investing activities:
 Cash paid for acquired businesses,
net of cash received
(14,392) - - (306,030) (550)
 Purchases of property and equipment
and capitalization of internal-use software
costs
(60,294) (55,539) (47,317) (159,177) (136,292)
 Proceeds from sales and maturities of
short- and long-term marketable securities
98,567 134,171 388,983 350,152 900,120
 Purchases of short- and long-term
marketable securities
(137,809) (135,845) (149,318) (554,303) (727,453)
 Proceeds from the sale of property and
equipment
- 2 47 12 135
 Decrease in restricted investments held for
security deposits
- - - - 221
 Net cash (used in) provided by investing
activities
(113,928) (57,211) 192,395 (669,346) 36,181
 Cash flows from financing activities:
 

Proceeds from the issuance of common
stock under stock option and employee
stock purchase plans

6,066 15,491 1,183 28,635 13,305
 Excess tax benefits from stock-based
compensation
2,540 1,635 610 17,589 11,460
 Taxes paid related to net share settlement
of equity awards
(2,370) (2,541) (2,173) (26,566) (5,680)
 Repurchase of common stock (36,523) (67,213) (155,125) (111,649) (247,738)
 Net cash used in financing activities (30,287) (52,628) (155,505) (91,991) (228,653)
 Effects of exchange rate changes on cash and
cash equivalents
2,373 (1,441) (3,209) 1,239 (443)
 Net (decrease) increase in cash and cash equivalents (346) 38,272 149,970 (376,547) 123,733
 Cash and cash equivalents, beginning of period 182,996 144,724 205,629 559,197 231,866
 Cash and cash equivalents, end of period $            182,650 $           182,996 $           355,599 $           182,650 $          355,599
Three Months Ended Nine Months Ended
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2012 2012 2011 2012 2011
Supplemental financial data
(in thousands):
Stock-based compensation:
Cost of revenues $                     684 $                   884 $                  634 $               2,251 $               1,779
Research and development 4,427 4,901 2,629 13,258 7,515
Sales and marketing 10,896 10,994 6,951 32,024 19,112
General and administrative 6,628 8,842 4,927 21,647 14,059
     Total stock-based compensation $                22,635 $              25,621 $             15,141 $             69,180 $             42,465
Depreciation and amortization:
Network-related depreciation $                41,022 $              37,989 $             31,662 $           113,616 $             93,594
Capitalized stock-based compensation
amortization
2,025 1,939 1,592 5,719 5,595
Other depreciation and amortization 5,029 4,721 4,322 14,257 12,285
Amortization of other intangible assets 5,381 5,463 4,185 15,611 12,754
Total depreciation and amortization $                53,457 $              50,112 $             41,761 $           149,203 $           124,228
Capital expenditures:
Purchases of property and equipment $                46,635 $              42,188 $             37,244 $           119,256 $           105,769
Capitalized internal-use software 13,659 13,351 10,073 39,921 30,523
Capitalized stock-based compensation 2,561 1,835 1,941 6,694 5,406
Total capital expenditures $                62,855 $              57,374 $             49,258 $           165,871 $           141,698
 

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

$                39,889 $              39,725 $           (94,478) $          (171,621) $           (52,407)
End of period statistics:
Number of employees 2,884 2,654 2,356
Number of deployed servers 119,370 115,008 100,770

*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 has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Legislative and regulatory pronouncements discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. We believe that the inclusion of these non-GAAP financial measures in this press release and our earnings call helps investors to gain a meaningful understanding of our past performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. These measures are also used by management in its financial and operational decision-making. There are limitations associated with reliance on these non-GAAP financial metrics because they are specific to our operations and financial performance, which may make comparisons with other companies' financial results more challenging. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining a better understanding of our operating performance as evaluated by management.

Akamai defines "Adjusted EBITDA" as net income, before interest, income taxes, depreciation and amortization of tangible and intangible assets, stock-based compensation expense, amortization of capitalized stock-based compensation, restructuring charges and benefits, acquisition related costs and benefits, certain gains and losses on investments, foreign exchange gains and losses, loss on early extinguishment of debt and gains and losses on legal settlements. Akamai considers Adjusted EBITDA to be an important indicator of the Company's operational strength and performance of its business and a good measure of the Company's historical operating trend.

Adjusted EBITDA eliminates items that are either not part of the Company's core operations, such as investment gains and losses, foreign exchange gains and losses, early debt extinguishment and net interest income, or that do not require a cash outlay, such as stock-based compensation. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the Company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on the historical cost incurred to build out the Company's deployed network, and may not be indicative of current or future capital expenditures.

Akamai defines "Adjusted EBITDA margin" as a percentage of Adjusted EBITDA as a percentage of revenues. Akamai considers Adjusted EBITDA margin to be an indicator of the Company's operating trend and performance of its business in relation to its revenue growth.

Akamai defines "capital expenditures" or "capex" as purchases of property and equipment, capitalization of internal-use software development costs and capitalization of stock-based compensation. Capital expenditures or capex are disclosed in Akamai's consolidated Statement of Cash Flows in the Company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Akamai defines "normalized net income" as net income before amortization of other intangible assets, stock-based compensation expense, amortization of capitalized stock-based compensation, restructuring charges and benefits, acquisition related costs and benefits, certain gains and losses on investments, loss on early extinguishment of debt and gains and losses on legal settlements. Akamai considers normalized net income to be another important indicator of the overall performance of the Company because it eliminates the effects of events that are either not part of the Company's core operations or are non-cash.

Akamai defines "normalized net income per share" as normalized net income, plus interest add-back for diluted share calculation, divided by the basic weighted average or diluted common shares outstanding used in GAAP net income per share calculations. Akamai considers normalized net income per share to be another important indicator of overall performance of the Company because it eliminates the effect of non-cash items. Adjusted EBITDA and normalized net income should be considered in addition to, not as a substitute for, the Company's operating income and net income, as well as other measures of financial performance reported in accordance with GAAP.

Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the Company is presenting the most directly comparable GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable GAAP measures.

Reconciliation of GAAP net income to Normalized net income
and Adjusted EBITDA
(amounts in thousands, except per share data)
Three Months Ended Nine Months Ended
Sep. 30, Jun. 30, Sep. 30, Sep. 30, Sep. 30,
2012 2012 2011 2012 2011
Net income $ 48,231 $ 44,239 $ 42,285 $ 135,697 $ 140,823
Amortization of other intangible
assets
5,381 5,463 4,185 15,611 12,754
Stock-based compensation 22,635 25,621 15,141 69,180 42,465
Amortization of capitalized
stock-based compensation
2,025 1,939 1,592 5,719 5,595
Acquisition related costs (benefits) 279 376 - 5,107 (440)
Restructuring (benefit) charge - (46) 158 14 158
Total normalized net income: 78,551 77,592 63,361 231,328 201,355
Interest income, net (1,593) (1,626) (3,002) (4,865) (9,058)
Provision for income taxes 33,280 25,529 25,862 88,366 78,218
Depreciation and amortization 46,051 42,710 35,984 127,873 105,879
Other expense (income), net 241 (1,131) 188 (449) 1,330
Total Adjusted EBITDA: $ 156,530 $ 143,074 $ 122,393 $ 442,253 $ 377,724
Normalized net income per share:
  Basic $ 0.44 $ 0.43 $ 0.35 $ 1.30 $ 1.09
  Diluted $ 0.43 $ 0.43 $ 0.34 $ 1.27 $ 1.06
Shares used in normalized
per share calculations:
  Basic 177,455 178,547 183,085 178,040 185,515
  Diluted 181,053 181,817 185,704 181,738 189,089

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 revenue growth. 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 potentially 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; 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 Natalie Temple
Media Relations Investor Relations
Akamai Technologies --or-- Akamai Technologies
617-444-3913 617-444-3635
jyoung@akamai.com ntemple@akamai.com

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