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Press Release -- February 5th, 2014
Source: Akamai
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Akamai Reports Record Fourth Quarter 2013 And Full-Year 2013 Financial Results

CAMBRIDGE, Mass., Feb. 5, 2014 /PRNewswire/ --

Fourth Quarter Highlights

  • Revenue of $436 million, up 15% year-over-year, or up 20% year-over-year adjusted for ADS divestiture
  • GAAP net income of $80 million, up 18% year-over-year, or $0.44 per diluted share, up 16% year-over-year (includes $6 million, or $0.03 per diluted share, depreciation benefit)
  • Non-GAAP net income* of $100 million, up 11% year-over-year, or $0.55 per diluted share, up 10% year-over-year (includes $6 million, or $0.03 per diluted share, depreciation benefit)

Full-Year Highlights

  • Revenue of $1,578 million, up 15% year-over-year, or up 18% year-over-year adjusted for ADS divestiture
  • GAAP net income of $293 million, up 44% year-over-year, or $1.61 per diluted share, up 44% year-over-year (includes $34 million, or $0.18 per diluted share, depreciation benefit)
  • Non-GAAP net income* of $367 million, up 26% year-over-year, or $2.02 per diluted share, up 26% year-over-year (includes $34 million, or $0.18 per diluted share, depreciation benefit)

Akamai Technologies, Inc. (AKAM), the leading provider of cloud services for delivering, optimizing and securing online content and business applications, today reported financial results for the fourth quarter and full-year ended December 31, 2013.  Revenue for the fourth quarter of 2013 was $436 million, a 15% increase over fourth quarter 2012 revenue of $378 million, or up 20% adjusted for the Advertising Decision Solutions (ADS) divestiture*.  Total revenue for 2013 was $1,578 million, a 15% increase over 2012 revenue of $1,374 million, or up 18% adjusted for the ADS divestiture*.

"We were extremely pleased with how the business performed in the fourth quarter and throughout 2013, with strong growth across all our solution offerings and geographies," said Tom Leighton, CEO of Akamai.  "We achieved gross margin expansion through continued improvements in network efficiencies while at the same time invested in growth drivers intended to enable us to take advantage of the significant opportunities in front of us.  As we enter 2014, Akamai's focus is clear, and we believe we are well positioned to meet the needs of our customers and prospects as they embrace the hyperconnected world."

Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2013 was $80 million, or $0.44 per diluted share, relatively flat from the prior quarter's GAAP net income and net income per diluted share, and an 18% increase over fourth quarter 2012 GAAP net income of $68 million, or $0.38 per diluted share.  Full-year GAAP net income for 2013 was $293 million, or $1.61 per diluted share, a 44% increase from 2012 GAAP net income of $204 million, or $1.12 per diluted share.

The Company generated non-GAAP net income* of $100 million, or $0.55 per diluted share, in the fourth quarter of 2013, an 11% increase from the prior quarter's non-GAAP net income of $90 million, or $0.50 per diluted share, and an 11% increase over fourth quarter 2012 non-GAAP net income of $90 million, or $0.50 per diluted share.  Full-year non-GAAP net income* was $367 million, or $2.02 per diluted share, a 26% increase over 2012 non-GAAP net income of $291 million or $1.60 per diluted share.

GAAP and non-GAAP net income results for the fourth quarter of 2013 include a $6 million, or $0.03 per diluted share, benefit from the previously-announced change in depreciation methodology effective on January 1, 2013.  The full-year 2013 GAAP and non-GAAP results include a $34 million, or $0.18 per diluted share, benefit from the depreciation change.

Adjusted EBITDA* for the fourth quarter of 2013 was $192 million, an increase from the prior quarter's Adjusted EBITDA of $173 million, and also up from $173 million in the fourth quarter of 2012.  Adjusted EBITDA margin* for the fourth quarter of 2013 was 44%, consistent with the prior quarter and down 2 points from the same period last year.  Adjusted EBITDA* for the full-year 2013 was $697 million, an increase from the prior year's Adjusted EBITDA* of $615 million.  Full-year adjusted EBITDA margin* in 2013 was 44%, down a point from the prior year.

Cash from operations for the fourth quarter of 2013 was $172 million, or 39% of revenue, and for the full year was $564 million, or 36% of revenue.  At the end of the fourth quarter of 2013, the Company had $1.2 billion of cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 21% and 29%, respectively, of revenue for the fourth quarter of 2013.

Share Repurchase Program
During the fourth quarter of 2013, under the share repurchase program authorized by the Board of Directors in October 2013, the Company spent $48 million to repurchase 1.1 million shares of its common stock, at an average price of $45.19 per share. During 2013, the Company spent $160 million to repurchase 3.9 million shares of its common stock, at an average price of $41.16 per share.

The Company had approximately 179 million shares of common stock outstanding as of December 31, 2013.

*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 1-877-703-6103 (or 1-857-244-7302 for international calls) and using passcode No. 58552946.  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. 16968403.

About Akamai
Akamai® is the leading provider of cloud services for delivering, optimizing and securing online content and business applications.  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.

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) December

31, 2013

December

31, 2012

ASSETS
Cash and cash equivalents $ 333,891 $ 201,989
Marketable securities 340,005 235,592
Accounts receivable, net 271,988 218,777
Prepaid expenses and other current assets 62,096 51,604
Deferred income tax assets 21,734 20,422
Current assets 1,029,714 728,384
Property and equipment, net 450,287 345,091
Marketable securities 573,026 657,659
Goodwill and acquired intangible assets, net 834,797 808,255

Deferred income tax assets

2,325 21,427
Other assets 67,536 39,811
Total assets $ 2,957,685 $ 2,600,627
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 224,095 $ 176,378
Other current liabilities 39,071 26,566
Current liabilities 263,166 202,944
Deferred income tax liabilities 4,737
Other liabilities 60,351 51,929
Total liabilities 328,254 254,873
Stockholders' equity 2,629,431 2,345,754
Total liabilities and stockholders' equity $ 2,957,685 $ 2,600,627
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Year Ended
(in thousands, except per share data) December

31, 2013

September

30, 2013

December

31, 2012

December

31, 2013

December

31, 2012

Revenue $ 435,980 $ 395,790 $ 377,872 $ 1,577,922 $ 1,373,947
Costs and operating expenses:
Cost of revenue (1) (2) 133,951 132,039 139,494 511,087 529,900
Research and development (1) 26,520 24,857 20,371 93,879 74,744
Sales and marketing (1) 82,054 67,811 62,667 280,380 223,348
General and administrative (1) (2) 71,853 66,634 53,859 255,218 210,100
Amortization of acquired intangible assets 4,894 4,859 5,351 21,547 20,962
Restructuring charges 952 69 392 1,843 406
Total costs and operating expenses 320,224 296,269 282,134 1,163,954 1,059,460
Income from operations 115,756 99,521 95,738 413,968 314,487
Interest income, net 1,534 1,458 1,590 6,077 6,455
Other (expense) income, net (395) (305) 200 (491) 649
Income before provision for income taxes 116,895 100,674 97,528 419,554 321,591
Provision for income taxes 36,546 20,918 29,236 126,067 117,602
Net income $ 80,349 $ 79,756 $ 68,292 $ 293,487 $ 203,989
Net income per share:
Basic $ 0.45 $ 0.45 $ 0.38 $ 1.65 $ 1.15
Diluted $ 0.44 $ 0.44 $ 0.38 $ 1.61 $ 1.12
Shares used in per share calculations:
Basic 178,758 178,235 177,479 178,196 177,900
Diluted 182,258 181,922 181,768 181,783 181,749
(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 Year Ended
(in thousands) December

31, 2013

September

30, 2013

December

31, 2012

December

31, 2013

December

31, 2012

Cash flows from operating activities:
Net income $ 80,349 $ 79,756 $ 68,292 $ 293,487 $ 203,989
Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization 49,976 47,954 54,960 184,431 204,163
Stock-based compensation 23,673 24,479 21,405 95,884 90,585
Provision for doubtful accounts 280 (310) (255) 1,169 (316)
Excess tax benefits from stock-based compensation (4,649) (8,530) (5,426) (22,801) (23,015)
Provision for deferred income taxes 27,343 (6,645) 27,343 (5,819)
Loss (gain) on disposal of property and equipment 429 (324) 65 414 3
Gain from divestiture of a business 1,093 (1,188)
Noncash portion of restructuring charge 781 781
Changes in operating assets and liabilities, net of

effects of acquisitions and divestitures:

Accounts receivable (15,863) (16,118) 19,479 (67,184) (2,108)
Prepaid expenses and other current assets 5,424 6,941 (3,653) (3,842) 6,357
Accounts payable and accrued expenses (3,197) 20,035 9,523 40,533 58,672
Deferred revenue 504 4,379 (990) 11,495 4,552
Other current liabilities 20 255 (381) 52 (3,278)
Other non-current assets and liabilities 6,662 (1,722) (3,661) 3,334 (3,765)
Net cash provided by operating activities 171,732 157,888 152,713 563,908 530,020
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired (3,237) (27,500) (30,650) (30,657) (336,680)
Purchases of property and equipment and capitalization of internal-use software costs (62,335) (60,388) (61,940) (260,073) (220,977)
Purchases of short- and long-term marketable securities (91,329) (93,681) (198,039) (494,885) (752,342)
Proceeds from sales and maturities of short- and long-term marketable securities 130,433 57,509 179,913 475,135 530,065
Proceeds from the sale of property and equipment 66 335 827 12
Other non-current assets and liabilities (135) (2,959) (167) (3,455) 812
Net cash used in investing activities (26,537) (126,684) (110,883) (313,108) (779,110)
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans 9,289 26,157 11,354 63,707 45,114
Excess tax benefits from stock-based compensation 4,649 8,530 5,426 22,801 23,015
Employee taxes paid related to net share settlement of stock-based awards (12,773) (7,434) (8,124) (41,332) (34,690)
Repurchases of common stock (48,011) (29,626) (29,819) (160,419) (141,468)
Net cash used in financing activities (46,846) (2,373) (21,163) (115,243) (108,029)
Effects of exchange rate changes on cash and cash equivalents 527 1,319 (1,328) (3,655) (89)
Net increase (decrease) in cash and cash equivalents 98,876 30,150 19,339 131,902 (357,208)
Cash and cash equivalents at beginning of period 235,015 204,865 182,650 201,989 559,197
Cash and cash equivalents at end of period $ 333,891 $ 235,015 $ 201,989 $ 333,891 $ 201,989
Note: Revisions have been made to the 2012 periods previously presented to reclassify immaterial amounts among operating, investing and financing cash flow categories.
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND ADJUSTED EBITDA
Three Months Ended Year Ended
(in thousands, except per share data) December

31, 2013

September

30, 2013

December

31, 2012

December

31, 2013

December

31, 2012

Net income $ 80,349 $ 79,756 $ 68,292 $ 293,487 $ 203,989
Amortization of acquired intangible assets 4,894 4,859 5,351 21,547 20,962
Stock-based compensation 23,673 24,479 21,405 95,884 90,585
Amortization of capitalized stock-based compensation 1,974 2,224 1,961 8,077 7,680
Acquisition related costs 1,266 219 680 1,853 5,787
Restructuring charges 952 69 392 1,843 406
Gain and other activity related to divestiture of a business 1,093 (1,188)
Income tax-effect of above non-GAAP adjustments (13,233) (22,439) (8,054) (54,124) (38,061)
Non-GAAP net income 99,875 90,260 90,027 367,379 291,348
Interest income, net (1,534) (1,458) (1,590) (6,077) (6,455)
Provision for GAAP income taxes 36,546 20,918 29,236 126,067 117,602
Income tax-effect of above non-GAAP adjustments 13,233 22,439 8,054 54,124 38,061
Depreciation and amortization 43,108 40,871 47,648 154,807 175,521
Other expense (income), net 395 305 (200) 491 (649)
Adjusted EBITDA $ 191,623 $ 173,335 $ 173,175 $ 696,791 $ 615,428
Adjusted EBITDA margin 44 % 44 % 46 % 44 % 45 %
Non-GAAP net income per share:
Basic $ 0.56 $ 0.51 $ 0.51 $ 2.06 $ 1.64
Diluted $ 0.55 $ 0.50 $ 0.50 $ 2.02 $ 1.60
Shares used in non-GAAP per share calculations:
Basic 178,758 178,235 177,479 178,196 177,900
Diluted 182,258 181,922 181,768 181,783 181,749
RECONCILIATION OF REVENUE TO REVENUE ADJUSTED FOR ADS DIVESTITURE
Three Months Ended Year Ended
(in thousands) December

31, 2013

September

30, 2013

December

31, 2012

December

31, 2013

December

31, 2012

Revenue $ 435,980 $ 395,790 $ 377,872 $ 1,577,922 $ 1,373,947
Less: ADS revenue (13,350) (2,747) (43,971)
Revenue, adjusted for ADS divestiture $ 435,980 $ 395,790 $ 364,522 $ 1,575,175 $ 1,329,976
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL FINANCIAL DATA
Three Months Ended Year Ended
(in thousands, except end of period statistics) December

31, 2013

September

30, 2013

December

31, 2012

December

31, 2013

December

31, 2012

Stock-based compensation:
Cost of revenue $ 2,637 $ 2,885 $ 2,705 $ 10,867 $ 11,309
Research and development 4,653 4,583 4,017 17,472 17,275
Sales and marketing 10,012 10,048 8,651 39,290 34,322
General and administrative 6,371 6,963 6,032 28,255 27,679
Total stock-based compensation $ 23,673 $ 24,479 $ 21,405 $ 95,884 $ 90,585
Depreciation and amortization:
Network-related depreciation $ 35,066 $ 33,909 $ 42,143 $ 128,194 $ 155,759
Other depreciation and amortization 8,042 6,962 5,505 26,613 19,762
Depreciation of property and equipment 43,108 40,871 47,648 154,807 175,521
Capitalized stock-based compensation amortization 1,974 2,224 1,961 8,077 7,680
Amortization of acquired intangible assets 4,894 4,859 5,351 21,547 20,962
Total depreciation and amortization $ 49,976 $ 47,954 $ 54,960 $ 184,431 $ 204,163
Capital expenditures:
Purchases of property and equipment $ 45,397 $ 40,344 $ 47,657 $ 187,964 $ 166,773
Capitalized internal-use software 16,938 20,044 14,283 72,109 54,204
Capital expenditures included in the statement of cash flows 62,335 60,388 61,940 260,073 220,977
Change in purchases of property and equipment and capitalization of internal-use software costs included in accrued expenses 534 1,714 (69) 225 (527)
Capital expenditures, excluding stock-based compensation 62,869 62,102 61,871 260,298 220,450
Capitalized stock-based compensation 3,073 3,069 2,582 12,325 9,276
Total capital expenditures* $ 65,942 $ 65,171 $ 64,453 $ 272,623 $ 229,726
Net increase (decrease) in cash, cash equivalents and marketable securities $ 60,403 $ 68,107 $ 36,906 $ 151,682 $ (134,715)
End of period statistics:
Number of employees 3,908 3,769 3,074
Number of deployed servers 147,468 141,353 127,638
* 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 net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, revenue adjusted for ADS divestiture and capital expenditures, 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 and not reflective of Akamai's ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors in understanding and evaluating Akamai's operating results and future prospects in the same manner as management and in 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 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 to Akamai's employees and executives, the expense varies with changes in the stock price and market conditions 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 in order to better understand the performance of Akamai's core business performance and to be consistent with the way the investors evaluate its performance and comparison of its operating results to peer companies.
  • Restructuring charges – Akamai has incurred restructuring charges which are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments.  Akamai excludes these items when evaluating its continuing business performance as such items are not consistently recurring and not do reflect expected future operating expense, nor provide meaningful evaluation of current and past operations of its business.
  • Acquisition related costs – Acquisition related costs include transaction fees, due diligence costs and other one-time direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition related costs and benefits. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition related costs and benefits 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 its acquisition transactions.
  • Gain and other activity related to divestiture of a business – Akamai recognized a gain and other activity related to the divestiture of ADS. Akamai excludes gains and other activity related to divestiture of a business because sales of this nature occur infrequently and are not considered part of Akamai's core business operations.
  • Income tax-effect of non-GAAP adjustments – 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 more properly reflect the income attributable to its core operations.

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

Non-GAAP net income – GAAP net income adjusted for the following tax-effected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition related costs; certain gains and losses on investments; gains and other activity related to divestiture of a business; loss on early extinguishment of debt; gains and losses on legal settlements 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 used in GAAP net income per share calculations.

Adjusted EBITDA – GAAP net income excluding the following items: interest; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition-related costs; certain gains and losses on investments; gains and other activity related to divestiture of a business; foreign exchange gains and losses; loss on early extinguishment of debt; gains and losses on legal settlements 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.

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

Capital expenditures – Purchases of property and equipment, capitalization of internal-use software development costs and capitalization of stock-based compensation.

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; unexpected delays in the closing of the proposed acquisition of Prolexic or failure of such closing to occur 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 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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