AKAM
$72.51
Akamai Technologies
$1.07
1.50%
Earnings Details
2nd Quarter June 2018
Tuesday, July 31, 2018 4:01:00 PM
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Summary

Akamai Technologies Misses

Akamai Technologies (AKAM) reported 2nd Quarter June 2018 earnings of $0.79 per share on revenue of $662.8 million. The consensus earnings estimate was $0.80 per share on revenue of $662.8 million. The Earnings Whisper number was $0.82 per share. Revenue grew 8.8% on a year-over-year basis.

The company said in its supplemental earnings document it expects third quarter non-GAAP earnings of $0.80 to $0.86 per share on revenue of $656.0 million to $668.0 million. The current consensus earnings estimate is $0.80 per share on revenue of $668.6 million for the quarter ending September 30, 2018. The company said it expects 2018 earnings of $3.26 to $3.38 per share on revenue of $2.68 billion to $2.705 billion. The company's previous guidance was earnings of $3.20 to $3.30 per share on revenue of $2.675 billion to $2.705 billion and the current consensus earnings estimate is $3.27 per share on revenue of $2.71 billion for the year ending December 31, 2018.

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

Results
Reported Earnings
$0.79
Earnings Whisper
$0.82
Consensus Estimate
$0.80
Reported Revenue
$662.8 Mil
Revenue Estimate
$662.8 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Akamai Reports Second Quarter 2018 Financial Results

CAMBRIDGE, Mass., July 31, 2018 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the second quarter ended June 30, 2018.

(PRNewsfoto/Akamai Technologies, Inc.)

"We are very pleased with our second quarter performance, highlighted by outstanding growth in our security portfolio, further improvement in our Media and Carrier Division, overall margin expansion and very strong non-GAAP earnings growth of 34% year-over-year," said Dr. Tom Leighton, Chief Executive Officer.

Revenue: Revenue was $663 million, a 9% increase over second quarter 2017 revenue of $606 million and an 8% increase when adjusted for foreign exchange.*

Revenue by Division(1):

  • Web Division revenue was $351 million, up 11% year-over-year and up 9% when adjusted for foreign exchange*
  • Media and Carrier Division revenue was $312 million, up 8% year-over-year and up 7% when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

  • Cloud Security Solutions revenue was $155 million, up 33% year-over-year and up 31% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers was $44 million, down 14% year-over-year and when adjusted for foreign exchange*
  • Revenue excluding Internet Platform Customers was $619 million, up 12% year-over-year and up 10% when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $413 million, up 3% year-over-year
  • International revenue was $250 million, up 21% year-over-year and up 18% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $57 million, a 33% decrease from second quarter 2017. GAAP operating margin for the second quarter was 9%, down 5 percentage points from the same period last year.  The second quarter of 2018 was impacted by a one-time $50 million endowment to the Akamai Foundation.

Non-GAAP income from operations* was $170 million, a 17% increase from second quarter 2017. Non-GAAP operating margin* for the second quarter was 26%, up 2 percentage points from the same period last year.

Net income: GAAP net income was $43 million, a 24% decrease from second quarter 2017, which was also impacted by the Akamai Foundation endowment. Non-GAAP net income* was $143 million, a 34% increase from second quarter 2017.

EPS: GAAP EPS was $0.25 per diluted share, a 24% decrease from second quarter 2017 and a 33% decrease when adjusted for foreign exchange.*  Non-GAAP EPS was $0.83 per diluted share, a 34% increase from second quarter 2017 and a 32% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $262 million, an 18% increase from second quarter 2017. Adjusted EBITDA margin* was 39%, an increase of 2 percentage points as compared to the second quarter of 2017.

Other second quarter 2018 results:

  • Cash from operations was $220 million, or 33% of revenue
  • Cash, cash equivalents and marketable securities was $2.3 billion as of June 30, 2018
  • The Company spent $166 million to repurchase 2.2 million shares of its common stock at an average price of $76.76 per share
  • The Company had approximately 169 million shares of common stock outstanding as of June 30, 2018

Adoption of new revenue recognition standard: Prior period results have been revised for the adoption of the new revenue recognition standard.  Under this standard, the way revenue is recognized changed for some of Akamai's customers and primarily impacts the revenue timing of a small number of licensed software customers.  The way Akamai recognizes revenue for its core Web and Media products is substantially unchanged.  Akamai will also begin capitalizing certain commission and incentive payments.  The revisions as a result of the new standard did not have a material impact on Akamai's annual revenue or results of operations, but did cause quarter-to-quarter fluctuations.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

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

(1)

Revenue by Division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. As of January 1, 2018, Akamai now reports its revenue in two divisions compared to the three divisions reported in 2017; the Media Division and Enterprise and Carrier Division were combined to form the new Media and Carrier Division. In addition, as the purchasing patterns and required account expertise of customers changes over time, Akamai may reassign a customer's division from one to another. In 2018 Akamai reassigned some of its customers from the Media and Carrier Division to the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented.

(2)

Revenue from Cloud Security Solutions – A product-focused reporting view that illustrates revenue from Cloud Security Solutions separately from all other solution categories.  During 2018, Akamai updated its methodology for allocating revenue to specific solutions when solutions are sold as a bundle.  During 2018, Akamai reassigned amounts from CDN and other solutions revenue to Cloud Security Solutions revenue and revised historical results in order to reflect the most recent allocation methodologies and to provide a comparable view for all periods presented.

(3)

Revenue from Internet Platform Customers – Revenue from 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 7877618. 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 7877618. 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)

June 30,
 2018


December 31,
2017 (1)

ASSETS




Current assets:




Cash and cash equivalents

$

977,488



$

313,382


Marketable securities

879,483



398,554


Accounts receivable, net

479,865



461,457


Prepaid expenses and other current assets

147,324



172,853


Total current assets

2,484,160



1,346,246


Property and equipment, net

852,950



862,535


Marketable securities

411,746



567,592


Goodwill

1,494,311



1,498,688


Acquired intangible assets, net

184,934



201,259


Deferred income tax assets

44,230



36,231


Other assets

132,373



136,365


Total assets

$

5,604,704



$

4,648,916


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

84,167



$

80,278


Accrued expenses

253,241



283,743


Deferred revenue

100,314



70,495


Convertible senior notes

674,629




Other current liabilities

23,977



22,178


Total current liabilities

1,136,328



456,694


Deferred revenue

6,075



6,062


Deferred income tax liabilities

18,236



17,823


Convertible senior notes

855,378



662,913


Other liabilities

143,409



142,955


Total liabilities

2,159,426



1,286,447


Total stockholders' equity

3,445,278



3,362,469


Total liabilities and stockholders' equity

$

5,604,704



$

4,648,916



(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.



 

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended


Six Months Ended

(in thousands, except per share data)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Revenue

$

662,759



$

668,724



$

605,832



$

1,331,483



$

1,206,125


Costs and operating expenses:










Cost of revenue(2) (3)

235,487



234,825



214,680



470,312



420,407


Research and development(2)

59,709



65,065



53,373



124,774



105,535


Sales and marketing(2)

131,680



122,553



117,944



254,233



232,436


General and administrative(2) (3)

170,206



154,385



123,518



324,591



238,527


Amortization of acquired intangible assets

8,294



8,431



7,753



16,725



15,322


Restructuring charges

266



14,908



2,971



15,174



2,971


Total costs and operating expenses

605,642



600,167



520,239



1,205,809



1,015,198


Income from operations

57,117



68,557



85,593



125,674



190,927


Interest income

6,409



3,965



4,281



10,374



8,905


Interest expense

(9,204)



(4,850)



(4,646)



(14,054)



(9,243)


Other (expense) income, net

(2,769)



21



563



(2,748)



(121)


Income before provision for income taxes

51,553



67,693



85,791



119,246



190,468


Provision for income taxes

8,492



13,979



29,039



22,471



59,133


Net income

$

43,061



$

53,714



$

56,752



$

96,775



$

131,335












Net income per share:










Basic

$

0.25



$

0.32



$

0.33



$

0.57



$

0.76


Diluted

$

0.25



$

0.31



$

0.33



$

0.56



$

0.75












Shares used in per share calculations:










Basic

170,250



170,116



172,674



170,183



172,916


Diluted

172,307



172,004



173,439



172,156



174,305



(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

Includes stock-based compensation (see supplemental table for figures)

(3)

Includes depreciation and amortization (see supplemental table for figures)

 

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017

Cash flows from operating activities:










Net income

$

43,061



$

53,714



$

56,752



$

96,775



$

131,335


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










Depreciation and amortization

106,298



104,095



89,206



210,393



175,739


Stock-based compensation

47,497



44,686



41,269



92,183



80,255


(Benefit) provision for deferred income
taxes

(4,302)



(7,814)



6,798



(12,116)



35,223


Amortization of debt discount and issuance
costs

8,909



4,850



4,646



13,759



9,243


Restructuring-related software charges



2,818





2,818




Other non-cash reconciling items, net

3,636



4,379



1,738



8,015



1,609


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










Accounts receivable

1,530



(18,419)



15,611



(16,889)



(4,265)


Prepaid expenses and other current
assets

13,505



(4,927)



(4,052)



8,578



(51,224)


Accounts payable and accrued expenses

4,221



(31,312)



6,399



(27,091)



(17,541)


Deferred revenue

4,309



25,243



(232)



29,552



9,811


Other current liabilities

(8,046)



13,701



2,385



5,655



5,901


Other non-current assets and liabilities

(937)



996



4,113



59



(8,835)


Net cash provided by operating
activities

219,681



192,010



224,633



411,691



367,251


Cash flows from investing activities:










Cash paid for acquired businesses, net of cash
acquired



(79)



(197,191)



(79)



(197,201)


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

(88,634)



(113,075)



(97,005)



(201,709)



(188,186)


Purchases of short- and long-term marketable
securities

(394,534)



(73,352)



(88,913)



(467,886)



(181,219)


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

64,830



75,736



88,978



140,566



413,116


Other non-current assets and liabilities

236



(715)



(808)



(479)



(1,143)


Net cash used in investing activities

(418,102)



(111,485)



(294,939)



(529,587)



(154,633)


 

 

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017(1)


June 30,
2018


June 30,
2017(1)

Cash flows from financing activities:










Proceeds from the issuance of convertible
senior notes

1,132,622







1,132,622




Proceeds from the issuance of warrants

119,945







119,945




Purchase of note hedge related to convertible
senior notes

(261,740)







(261,740)




Proceeds from the issuance of common stock
under stock plans

11,365



22,738



8,150



34,103



25,680


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

(11,594)



(29,714)



(7,417)



(41,308)



(41,338)


Repurchases of common stock

(165,727)



(19,785)



(105,148)



(185,512)



(177,615)


Other non-current assets and liabilities

(944)



(3,900)



(1,096)



(4,844)



(1,096)


Net cash provided by (used in)
financing activities

823,927



(30,661)



(105,511)



793,266



(194,369)


Effects of exchange rate changes on cash, cash
equivalents and restricted cash

(12,625)



1,165



5,233



(11,460)



10,252


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

612,881



51,029



(170,584)



663,910



28,501


Cash, cash equivalents and restricted cash at
beginning of period

365,458



314,429



523,711



314,429



324,626


Cash, cash equivalents and restricted cash at end
of period

$

978,339



$

365,458



$

353,127



$

978,339



$

353,127























(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.




On January 1, 2018, Akamai also adopted Accounting Standards Update No. 2016-18, Statement of Cash Flows. Under this standard, restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period cash on the statement of cash flows. Akamai retrospectively adopted this standard and revised cash flows from investing activities by ($0.8) million and $0.1 million for the three and six months ended June 30, 2017, respectively, with a corresponding revision to the net increase (decrease) in cash, cash equivalents and restricted cash.

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY DIVISION



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Web Division

$

351,084



$

352,837



$

317,408



$

703,921



$

620,896


Media and Carrier Division

311,675



315,887



288,424



627,562



585,229


Total revenue

$

662,759



$

668,724



$

605,832



$

1,331,483



$

1,206,125


Revenue growth rates year-over-year:










Web Division

11

%


16

%


15

%


13

%


14

%

Media and Carrier Division

8



6



(3)



7



(2)


Total revenue

9

%


11

%


6

%


10

%


6

%

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










Web Division

9

%


13

%


16

%


11

%


15

%

Media and Carrier Division

7



4



(2)



5



(2)


Total revenue

8

%


9

%


7

%


8

%


6

%

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM CLOUD SECURITY SOLUTIONS



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Cloud Security Solutions

$

155,250



$

149,205



$

116,776



$

304,455



$

226,782


CDN and other solutions

507,509



519,519



489,056



1,027,028



979,343


Total revenue

$

662,759



$

668,724



$

605,832



$

1,331,483



$

1,206,125












Revenue growth rates year-over-year:










Cloud Security Solutions

33

%


36

%


33

%


34

%


34

%

CDN and other solutions

4



6



1



5



1


Total revenue

9

%


11

%


6

%


10

%


6

%

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










Cloud Security Solutions

31

%


32

%


34

%


32

%


35

%

CDN and other solutions

3



3



2



3



1


Total revenue

8

%


9

%


7

%


8

%


6

%


(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

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

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Revenue from Internet Platform Customers

$

44,062



$

44,391



$

51,166



$

88,453



$

102,557


Revenue excluding Internet Platform Customers

618,697



624,333



554,666



1,243,030



1,103,568


Total revenue

$

662,759



$

668,724



$

605,832



$

1,331,483



$

1,206,125


Revenue growth rates year-over-year:










Revenue from Internet Platform Customers

(14)

%


(14)

%


(17)

%


(14)

%


(23)

%

Revenue excluding Internet Platform Customers

12



14



8



13



9


Total revenue

9

%


11

%


6

%


10

%


6

%

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










Revenue from Internet Platform Customers

(14)

%


(14)

%


(17)

%


(14)

%


(23)

%

Revenue excluding Internet Platform Customers

10



11



9



10



10


Total revenue

8

%


9

%


7

%


8

%


6

%

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

U.S.

$

413,129



$

423,339



$

400,236



$

836,468



$

799,106


International

249,630



245,385



205,596



495,015



407,019


Total revenue

$

662,759



$

668,724



$

605,832



$

1,331,483



$

1,206,125


Revenue growth rates year-over-year:










U.S.

3

%


6

%


2

%


5

%


1

%

International

21



22



15



22



17


Total revenue

9

%


11

%


6

%


10

%


6

%

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










U.S.

3

%


6

%


2

%


5

%


1

%

International

18



14



18



16



19


Total revenue

8

%


9

%


7

%


8

%


6

%


(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

(2)

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

 

 

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA



Three Months Ended


Six Months Ended

(in thousands)

June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017

General and administrative expenses:










Payroll and related costs

$

46,874



$

51,894



$

47,516



$

98,768



$

92,407


Stock-based compensation

14,269



12,922



12,630



27,191



22,745


Depreciation and amortization

21,207



19,888



18,069



41,095



36,597


Facilities-related costs

20,529



21,795



20,184



42,324



38,982


Provision for doubtful accounts

420



521



752



941



905


Acquisition-related costs

500



1,143



3,057



1,643



2,848


Legal and stockholder matter costs



23,091





23,091




License of patent

(4,266)



(4,215)



(4,089)



(8,481)



(8,124)


Endowment of Akamai Foundation

50,000







50,000




Professional and other expenses

20,673



27,346



25,399



48,019



52,167


Total general and administrative expenses

$

170,206



$

154,385



$

123,518



$

324,591



$

238,527












General and administrative expenses–functional(1):










Global functions

$

47,497



$

55,653



$

49,639



$

103,150



$

98,366


As a percentage of revenue

7

%


8

%


8

%


8

%


8

%

Infrastructure

76,055



78,192



74,159



154,247



144,532


As a percentage of revenue

11

%


12

%


12

%


12

%


12

%

Other

46,654



20,540



(280)



67,194



(4,371)


Total general and administrative expenses

$

170,206



$

154,385



$

123,518



$

324,591



$

238,527


As a percentage of revenue

26

%


23

%


20

%


24

%


20

%











Stock-based compensation:










Cost of revenue

$

5,553



$

5,296



$

5,074



$

10,849



$

9,759


Research and development

10,926



10,509



9,614



21,435



18,643


Sales and marketing

16,749



15,959



13,951



32,708



29,108


General and administrative

14,269



12,922



12,630



27,191



22,745


Total stock-based compensation

$

47,497



$

44,686



$

41,269



$

92,183



$

80,255



(1)

Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, provision for doubtful accounts, the license of a patent, legal and stockholder matter costs and the endowment of the Akamai Foundation.

 

 

AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA



Three Months Ended


Six Months Ended

(in thousands, except end of period statistics)

June 30,
2018


March 31,
2018


June 30,
2017


June 30,
2018


June 30,
2017

Depreciation and amortization:










Network-related depreciation

$

37,748



$

38,235



$

35,404



$

75,983



$

70,659


Capitalized internal-use software development
amortization

32,822



31,668



23,766



64,490



45,355


Other depreciation and amortization

20,837



19,498



17,727



40,335



35,936


Depreciation of property and equipment

91,407



89,401



76,897



180,808



151,950


Capitalized stock-based compensation
amortization

5,846



5,569



3,972



11,415



7,443


Capitalized interest expense amortization

751



694



584



1,445



1,024


Amortization of acquired intangible assets

8,294



8,431



7,753



16,725



15,322


Total depreciation and amortization

$

106,298



$

104,095



$

89,206



$

210,393



$

175,739












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










Purchases of property and equipment

$

52,815



$

26,597



$

64,522



$

79,412



$

121,022


Capitalized internal-use software development
costs

49,028



49,257



40,957



98,285



78,042


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

$

101,843



$

75,854



$

105,479



$

177,697



$

199,064












End of period statistics:










Number of employees

7,443



7,454



7,084







(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


Six Months Ended

(in thousands, except per share data)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Income from operations

$

57,117



$

68,557



$

85,593



$

125,674



$

190,927


GAAP operating margin

9

%


10

%


14

%


9

%


16

%

Amortization of acquired intangible assets

8,294



8,431



7,753



16,725



15,322


Stock-based compensation

47,497



44,686



41,269



92,183



80,255


Amortization of capitalized stock-based
compensation and capitalized interest expense

6,597



6,263



4,556



12,860



8,467


Restructuring charges

266



14,908



2,971



15,174



2,971


Acquisition-related costs

500



1,143



3,057



1,643



2,849


Legal and stockholder matter costs



23,091





23,091




Endowment of Akamai Foundation

50,000







50,000




Operating adjustments

113,154



98,522



59,606



211,676



109,864


Non-GAAP income from operations

$

170,271



$

167,079



$

145,199



$

337,350



$

300,791


Non-GAAP operating margin

26

%


25

%


24

%


25

%


25

%











Net income

$

43,061



$

53,714



$

56,752



$

96,775



$

131,335


Operating adjustments (from above)

113,154



98,522



59,606



211,676



109,864


Amortization of debt discount and issuance costs

8,909



4,850



4,646



13,759



9,243


Loss on investments

2,000







2,000




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

(24,191)



(21,283)



(13,974)



(45,474)



(29,441)


Non-GAAP net income

$

142,933



$

135,803



$

107,030



$

278,736



$

221,001












GAAP net income per diluted share

$

0.25



$

0.31



$

0.33



$

0.56



$

0.75


Amortization of acquired intangible assets

0.05



0.05



0.04



0.10



0.09


Stock-based compensation

0.28



0.25



0.24



0.54



0.46


Amortization of capitalized stock-based
compensation and capitalized interest expense

0.04



0.04



0.03



0.07



0.05


Restructuring charges



0.09



0.02



0.09



0.02


Acquisition-related costs



0.01



0.02



0.01



0.02


Legal and stockholder matter costs



0.13





0.13




Endowment of Akamai Foundation

0.29







0.29




Amortization of debt discount and issuance costs

0.05



0.03



0.03



0.08



0.05


Loss on investments

0.01







0.01




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

(0.14)



(0.12)



(0.08)



(0.26)



(0.17)


Non-GAAP net income per diluted share

$

0.83



$

0.79



$

0.62



$

1.62



$

1.27












Shares used in diluted per share calculations

172,307



172,004



173,439



172,156



174,305





(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

 

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA



Three Months Ended


Six Months Ended

(in thousands, except per share data)

June 30,
2018


March 31,
2018


June 30,
2017 (1)


June 30,
2018


June 30,
2017 (1)

Net income

$

43,061



$

53,714



$

56,752



$

96,775



$

131,335


Interest income

(6,409)



(3,965)



(4,281)



(10,374)



(8,905)


Provision for income taxes

8,492



13,979



29,039



22,471



59,133


Depreciation and amortization

91,407



89,401



76,897



180,808



151,950


Amortization of capitalized stock-based
compensation and capitalized interest expense

6,597



6,263



4,556



12,860



8,467


Amortization of acquired intangible assets

8,294



8,431



7,753



16,725



15,322


Stock-based compensation

47,497



44,686



41,269



92,183



80,255


Restructuring charges

266



14,908



2,971



15,174



2,971


Acquisition-related costs

500



1,143



3,057



1,643



2,849


Legal and stockholder matter costs



23,091





23,091




Endowment of Akamai Foundation

50,000







50,000




Interest expense

9,204



4,850



4,646



14,054



9,243


Loss on investments

2,000







2,000




Other expense (income), net

769



(21)



(563)



748



121


Adjusted EBITDA

$

261,678



$

256,480



$

222,096



$

518,158



$

452,741


Adjusted EBITDA margin

39

%


38

%


37

%


39

%


38

%


(1)

Prior period information has been restated for the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, which Akamai adopted retrospectively on January 1, 2018. Under this standard, the way revenue is recognized changed for some of Akamai's contracts with customers.  Akamai will also begin capitalizing costs associated with obtaining customer contracts, specifically certain commission and incentive payments. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.

 

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 and do not reflect Akamai's core operations.

  • 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 May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results 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.

  • Gains and losses on investments – Akamai has recorded gains and losses from the disposition and impairment of certain investments. 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 and ongoing operating performance.

  • Legal and stockholder matter costs – Akamai has incurred losses related to the settlement of legal matters, costs from professional service providers related to a non-routine stockholder matter and costs with respect to its internal U.S. Foreign Corrupt Practices Act ("FCPA") investigation. 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.

  • Endowment of Akamai Foundation – During the second quarter of 2018, Akamai incurred a charge to endow the Akamai Foundation. Akamai believes excluding these amounts from non-GAAP financial measures is useful to investors as this one-time expense is not representative of its 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 from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; 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 from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; 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 $1,150 million of convertible senior notes due 2025 and $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. With respect to the convertible senior notes due 2025, unless and until Akamai's weighted average stock price is greater than $95.10, the intial conversion price, and with respect to the convertible senior notes due 2019, 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 from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; foreign exchange gains and losses; loss on early extinguishment of debt; interest expense; 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.

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:

Chris Nicholson


Tom Barth

Media Relations


Investor Relations

Akamai Technologies


Akamai Technologies

617-444-2987


617-274-7130

cnichols@akamai.com


tbarth@akamai.com

 

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SOURCE Akamai Technologies, Inc.