AKAM
$55.38
Akamai Technologies
($.06)
(.11%)
Earnings Details
3rd Quarter September 2017
Tuesday, October 24, 2017 4:01:00 PM
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Summary

Akamai Technologies Misses

Akamai Technologies (AKAM) reported 3rd Quarter September 2017 earnings of $0.58 per share on revenue of $621.4 million. The consensus earnings estimate was $0.59 per share on revenue of $610.3 million. The Earnings Whisper number was $0.60 per share. Revenue grew 6.4% on a year-over-year basis.

The company said during its conference call it expects fourth quarter non-GAAP earnings of $0.60 to $0.65 per share on revenue of $638.0 million to $656.0 million. The current consensus earnings estimate is $0.61 per share on revenue of $642.5 million for the quarter ending December 31, 2017.

Akamai Technologies Inc provides cloud services for delivering, optimizing and securing online content and business applications.

Results
Reported Earnings
$0.58
Earnings Whisper
$0.60
Consensus Estimate
$0.59
Reported Revenue
$621.4 Mil
Revenue Estimate
$610.3 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Akamai Reports Third Quarter 2017 Financial Results

Akamai Technologies, Inc. (AKAM), the world’s largest and most trusted cloud delivery platform, today reported financial results for the third quarter ended September 30, 2017.

https://mma.prnewswire.com/media/589574/AKAMAI_TECHNOLOGIES_LOGO.jpg

"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,
December 31,
2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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
June 30,
September
September
September
30, 2017
2017
30, 2016
30, 2017
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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