AKAM
$45.49
Akamai Technologies
($7.79)
(14.62%)
Earnings Details
2nd Quarter June 2017
Tuesday, July 25, 2017 4:01:00 PM
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Summary

Akamai Technologies Beats but Guides Lower

Akamai Technologies (AKAM) reported 2nd Quarter June 2017 earnings of $0.62 per share on revenue of $608.9 million. The consensus earnings estimate was $0.60 per share on revenue of $606.1 million. The Earnings Whisper number was $0.61 per share. Revenue grew 6.4% on a year-over-year basis.

The company said during its conference call it expects third quarter non-GAAP earnings of $0.57 to $0.60 per share on revenue of $604.0 million to $616.0 million. The current consensus earnings estimate is $0.61 per share on revenue of $619.4 million for the quarter ending September 30, 2017.

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

Results
Reported Earnings
$0.62
Earnings Whisper
$0.61
Consensus Estimate
$0.60
Reported Revenue
$608.9 Mil
Revenue Estimate
$606.1 Mil
Growth
Earnings Growth
Revenue Growth
Guidance
Power Rating
Grade
Earnings Release

Akamai Reports Second Quarter 2017 Financial Results

Revenue of $609 million, up 6% year-over-year and 7% when adjusted for foreign exchange*

Revenue excluding Internet Platform Customers(1) up 9% year-over-year and 10% when adjusted for foreign exchange*

GAAP EPS of $0.33 per diluted share, down 21% year-over-year and up 1% when adjusted for foreign exchange and the dilutive effect of the Soasta acquisition*

Non-GAAP EPS of $0.62 per diluted share, down 3% year-over-year and up 4% when adjusted for foreign exchange and the dilutive effect of the Soasta acquisition*

https://mma.prnewswire.com/media/198300/akamai_technologies_logo.jpg

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

"Akamai delivered another solid quarter for revenue and earnings as we continued to diversify our portfolio and customer base," said Dr. Tom Leighton, Chief Executive Officer. "Revenue from our Web Division customers grew 15% and now accounts for a majority of revenue. Revenue from our security products alone grew 32% year-over-year to an annualized revenue run rate of nearly half-a-billion dollars."

Akamai delivered the following financial results for the second quarter ended June 30, 2017:

Revenue: Revenue was $609 million, a 6% increase over second quarter 2016 revenue of $572 million and a 7% increase when adjusted for foreign exchange.*

Customer Revenue by Division(2):

Web Division revenue was $315 million, up 15% year-over-year and up 16% when adjusted for foreign exchange*

Media Division revenue was $276 million, down 2% year-over-year and down 1% when adjusted for foreign exchange*

Enterprise and Carrier Division revenue was $18 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*

Revenue by Solution Category(3):

Performance and Security Solutions revenue was $376 million, up 15% year-over-year and up 16% when adjusted for foreign exchange*

Cloud Security Solutions revenue, a component of Performance and Security, was $115 million, up 32% year-over-year and up 34% when adjusted for foreign exchange*

Media Delivery Solutions revenue was $179 million, down 9% year-over-year and when adjusted for foreign exchange*

Services and Support Solutions revenue was $54 million, up 12% year-over-year and up 13% when adjusted for foreign exchange*

Revenue by Geography:

-- U.S. revenue was $403 million, up 2% year-over-year

International revenue was $206 million, up 16% year-over-year and up 19% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(1):

Revenue from Internet Platform Customers was $51 million, down 17% year-over-year and when adjusted for foreign exchange*

Revenue excluding Internet Platform Customers was $558 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $87 million, a 21% decrease from second quarter 2016. GAAP operating margin for the second quarter was 14%, down 5 percentage points from the same period last year.

Non-GAAP income from operations* was $147 million, a 6% decrease from second quarter 2016. Non-GAAP operating margin* for the second quarter was 24%, down 3 percentage points from the same period last year.

Net income: GAAP net income was $58 million, a 22% decrease from second quarter 2016. Non-GAAP net income* was $108 million, a 4% decrease from second quarter 2016.

EPS: GAAP EPS was $0.33 per diluted share, a 21% decrease from second quarter 2016 and an 18% 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 an increase of 1%.

Non-GAAP EPS was $0.62 per diluted share, a 3% decrease from second quarter 2016 and flat 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 an increase of 4%.

Adjusted EBITDA*: Adjusted EBITDA was $224 million, a 3% decrease from second quarter 2016. Adjusted EBITDA margin* was 37%, down 3 percentage points from second quarter of 2016.

Other second quarter 2017 results:

-- Cash from operations was $225 million, or 37% of revenue

-- Cash, cash equivalents and marketable securities as of June 30, 2017 was $1.4 billion

The Company spent $105 million to repurchase 2.0 million shares of its common stock at an average price of $52.06 per share

The Company had approximately 172 million shares of common stock outstanding as of June 30, 2017

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

(1) Internet Platform Customers - Six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

(2) 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.

(3) Revenue by solution category - A product-focused reporting view that reflects revenue by solution purchased

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 45211864. 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 45211864. 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,
December 31,
2017
2016
ASSETS
Current assets:
Cash and cash equivalents
$
352,501
$
324,169
Marketable securities
330,620
512,849
Accounts receivable, net
395,865
368,596
Prepaid expenses and other current assets
159,371
104,303
Total current assets
1,238,357
1,309,917
Property and equipment, net
856,039
801,017
Marketable securities
731,781
779,311
Goodwill
1,356,623
1,228,503
Acquired intangible assets, net
184,041
149,463
Deferred income tax assets
7,448
8,982
Other assets
114,750
95,953
Total assets
$
4,489,039
$
4,373,146
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
91,741
$
76,120
Accrued expenses
222,023
238,777
Deferred revenue
73,772
52,972
Other current liabilities
11,528
6,719
Total current liabilities
399,064
374,588
Deferred revenue
3,848
3,758
Deferred income tax liabilities
21,762
11,652
Convertible senior notes
651,400
640,087
Other liabilities
125,793
118,691
Total liabilities
1,201,867
1,148,776
Total stockholders’ equity
3,287,172
3,224,370
Total liabilities and stockholders’ equity $
4,489,039
$
4,373,146
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Six Months Ended
(in thousands, except per share data)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Revenue
$
608,908
$
609,237
$
572,135
$
1,218,145
$
1,139,860
Costs and operating expenses:
Cost of revenue(1) (2)
214,650
205,703
206,323
420,353
401,059
Research and development(1)
53,373
52,162
37,690
105,535
78,532
Sales and marketing(1)
119,432
113,566
103,223
232,998
205,434
General and administrative(1) (2)
123,518
115,009
107,538
238,527
209,821
Amortization of acquired intangible assets 7,753
7,569
6,711
15,322
13,427
Restructuring charges
2,971
--
470
2,971
7,288
Total costs and operating expenses
521,697
494,009
461,955
1,015,706
915,561
Income from operations
87,211
115,228
110,180
202,439
224,299
Interest income
4,281
4,624
3,393
8,905
6,713
Interest expense
(4,646)
(4,597)
(4,639)
(9,243)
(9,292)
Other income (expense), net
563
(684)
415
(121)
226
Income before provision for income taxes
87,409
114,571
109,349
201,980
221,946
Provision for income taxes
29,637
33,641
35,714
63,278
73,453
Net income
$
57,772
$
80,930
$
73,635
$
138,702
$
148,493
Net income per share:
Basic
$
0.33
$
0.47
$
0.42
$
0.80
$
0.84
Diluted
$
0.33
$
0.46
$
0.42
$
0.80
$
0.84
Shares used in per share calculations:
Basic
172,674
173,158
175,499
172,916
175,951
Diluted
173,439
175,171
176,420
174,305
176,980

(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
Six Months Ended
(in thousands)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Cash flows from operating activities(1):
Net income
$
57,772
$
80,930
$
73,635
$
138,702
$
148,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
89,206
86,533
85,114
175,739
165,783
Stock-based compensation
41,269
38,986
34,911
80,255
66,652
Provision for deferred income taxes
7,396
31,972
1,713
39,368
2,785
Amortization of debt discount and issuance costs
4,646
4,597
4,639
9,243
9,292
Other non-cash reconciling items, net
1,738
(129)
749
1,609
3,501
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
12,273
(30,146)
1,880
(17,873)
17,786
Prepaid expenses and other current assets
(3,043)
(47,065)
(7,510)
(50,108)
(10,991)
Accounts payable and accrued expenses
6,399
(23,940)
44,659
(17,541)
12,282
Deferred revenue
(470)
10,876
1,473
10,406
12,126
Other current liabilities
2,385
3,516
95
5,901
6,971
Other non-current assets and liabilities
5,062
(13,512)
3,011
(8,450)
1,062
Net cash provided by operating activities
224,633
142,618
244,369
367,251
435,742
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired
(197,191)
(10)
--
(197,201)
--
Purchases of property and equipment and capitalization of internal-use software development costs (97,005)
(91,181)
(78,141)
(188,186)
(160,481)
Purchases of short- and long-term marketable securities
(88,913)
(92,306)
(288,742)
(181,219)
(384,585)
Proceeds from sales and maturities of short- and long-term marketable securities
88,978
324,138
227,234
413,116
352,343
Other non-current assets and liabilities
(19)
(1,230)
842
(1,249)
(1,512)
Net cash (used in) provided by investing activities
(294,150)
139,411
(138,807)
(154,739)
(194,235)
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans
8,150
17,530
8,745
25,680
27,095
Employee taxes paid related to net share settlement of stock-based awards
(7,417)
(33,921)
(5,914)
(41,338)
(32,410)
Repurchases of common stock
(105,148)
(72,467)
(90,985)
(177,615)
(199,710)
Other non-current assets and liabilities
(1,096)
--
--
(1,096)
--
Net cash used in financing activities
(105,511)
(88,858)
(88,154)
(194,369)
(205,025)
Effects of exchange rate changes on cash and cash equivalents
5,210
4,979
(3,676)
10,189
689
Net (decrease) increase in cash and cash equivalents
(169,818)
198,150
13,732
28,332
37,171
Cash and cash equivalents at beginning of period
522,319
324,169
312,912
324,169
289,473
Cash and cash equivalents at end of period
$
352,501
$
522,319
$
326,644
$
352,501
$
326,644

(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 $1.5 million and $2.6 million for the three and six months ended June 30, 2016, respectively. The increase caused a corresponding decrease to cash flows from financing activities.

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY
Three Months Ended
Six Months Ended
(in thousands)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Revenue by solution category(1):
Performance and Security Solutions
$
375,807
$
369,148
$
326,642
$
744,955
$
642,505
Media Delivery Solutions
178,905
187,396
197,077
366,301
403,016
Services and Support Solutions
54,196
52,693
48,416
106,889
94,339
Total revenue
$
608,908
$
609,237
$
572,135
$
1,218,145
$
1,139,860
Cloud Security Solutions revenue
$
115,135
$
109,758
$
86,980
$
224,893
$
167,640
Revenue growth rates year-over-year:
Performance and Security Solutions
15
%
17
%
16
%
16
%
16
%
Media Delivery Solutions
(9)
(9)
(9)
(9)
(7)
Services and Support Solutions
12
15
18
13
17
Total revenue
6
%
7
%
6
%
7
%
7
%
Cloud Security Solutions revenue growth rates
32
%
36
%
42
%
34
%
44
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Performance and Security Solutions
16
%
18
%
16
%
17
%
16
%
Media Delivery Solutions
(9)
(9)
(10)
(9)
(7)
Services and Support Solutions
13
15
17
14
17
Total revenue
7
%
8
%
6
%
8
%
7
%
Cloud Security Solutions revenue growth rates
34
%
37
%
42
%
35
%
44
%
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION
Three Months Ended
Six Months Ended
(in thousands)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Customer revenue by division(3):
Web Division
$
314,988
$
304,686
$
273,891
$
619,674
$
540,558
Media Division
276,071
285,401
281,937
561,472
567,551
Enterprise and Carrier Division
17,849
19,150
16,307
36,999
31,751
Total revenue
$
608,908
$
609,237
$
572,135
$
1,218,145
$
1,139,860
Revenue growth rates year-over-year:
Web Division
15
%
14
%
14
%
15
%
15
%
Media Division
(2)
--
(2)
(1)
(1)
Enterprise and Carrier Division
9
24
24
17
28
Total revenue
6
%
7
%
6
%
7
%
7
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Web Division
16
%
15
%
13
%
16
%
15
%
Media Division
(1)
1
(2)
--
(1)
Enterprise and Carrier Division
10
24
25
17
28
Total revenue
7
%
8
%
6
%
8
%
7
%

(1) See customer revenue by solution category definition in press release (2) See Use of Non-GAAP Financial Measures below for a definition (3) See customer revenue by division definition in press release

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY
Three Months Ended
Six Months Ended
(in thousands)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Revenue by geography:
U.S.
$
403,085
$
406,565
$
395,085
$
809,650
$
792,368
International
205,823
202,672
177,050
408,495
347,492
Total revenue
$
608,908
$
609,237
$
572,135
$
1,218,145
$
1,139,860
Revenue growth rates year-over-year:
U.S.
2
%
2
%
(1)%
2
%
1
%
International
16
19
25
18
24
Total revenue
6
%
7
%
6
%
7
%
7
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
U.S.
2
%
2
%
(1)%
2
%
1
%
International
19
21
24
20
25
Total revenue
7
%
8
%
6
%
8
%
7
%
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS
Three Months Ended
Six Months Ended
(in thousands)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Revenue from Internet Platform Customers(2)
$
51,169
$
51,367
$
61,497
$
102,536
$
134,002
Revenue excluding Internet Platform Customers
557,739
557,870
510,638
1,115,609
1,005,858
Total revenue
$
608,908
$
609,237
$
572,135
$
1,218,145
$
1,139,860
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers
(17)%
(29)%
(36)%
(23)%
(30)%
Revenue excluding Internet Platform Customers
9
13
15
11
15
Total revenue
6
%
7
%
6
%
7
%
7
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
Revenue from Internet Platform Customers
(17)%
(29)%
(36)%
(23)%
(30)%
Revenue excluding Internet Platform Customers
10
13
15
12
15
Total revenue
7
%
8
%
6
%
8
%
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
Six Months Ended
(in thousands, except end of period statistics)
June 30,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Stock-based compensation:
Cost of revenue
$
5,074
$
4,685
$
4,553
$
9,759
$
8,523
Research and development
9,614
9,029
6,752
18,643
13,190
Sales and marketing
13,951
15,157
13,259
29,108
25,611
General and administrative
12,630
10,115
10,347
22,745
19,328
Total stock-based compensation
$
41,269
$
38,986
$
34,911
$
80,255
$
66,652
Depreciation and amortization:
Network-related depreciation
$
59,170
$
56,844
$
58,615
$
116,014
$
113,789
Other depreciation and amortization
17,727
18,209
15,717
35,936
30,888
Depreciation of property and equipment
76,897
75,053
74,332
151,950
144,677
Capitalized stock-based compensation amortization
3,972
3,471
3,628
7,443
6,885
Capitalized interest expense amortization
584
440
443
1,024
794
Amortization of acquired intangible assets
7,753
7,569
6,711
15,322
13,427
Total depreciation and amortization
$
89,206
$
86,533
$
85,114
$
175,739
$
165,783
Capital expenditures, excluding stock-based compensation and interest expense(1)(2):
Purchases of property and equipment
$
64,522
$
56,500
$
50,726
$
121,022
$
100,793
Capitalized internal-use software development costs
40,957
37,085
36,288
78,042
71,460
Total capital expenditures, excluding stock-based compensation and interest expense
$
105,479
$
93,585
$
87,014
$
199,064
$
172,253
End of period statistics:
Number of employees
7,084
6,672
6,263

(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,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Income from operations
$
87,211
$
115,228
$
110,180
$
202,439
$
224,299
GAAP operating margin
14
%
19
%
19
%
17
%
20
%
Amortization of acquired intangible assets
7,753
7,569
6,711
15,322
13,427
Stock-based compensation
41,269
38,986
34,911
80,255
66,652
Amortization of capitalized stock-based compensation and capitalized interest expense 4,556
3,911
4,071
8,467
7,679
Restructuring charges
2,971
--
470
2,971
7,288
Acquisition-related costs (benefits)
3,057
(208)
361
2,849
282
Legal matter costs
--
--
101
--
890
Operating adjustments
59,606
50,258
46,625
109,864
96,218
Non-GAAP income from operations
$
146,817
$
165,486
$
156,805
$
312,303
$
320,517
Non-GAAP operating margin
24
%
27
%
27
%
26
%
28
%
Net income
$
57,772
$
80,930
$
73,635
$
138,702
$
148,493
Operating adjustments (from above)
59,606
50,258
46,625
109,864
96,218
Amortization of debt discount and issuance costs
4,646
4,597
4,639
9,243
9,292
Income tax-effect of above non-GAAP adjustments and certain discrete tax items
(13,974)
(15,467)
(12,832)
(29,441)
(24,155)
Non-GAAP net income
$
108,050
$
120,318
$
112,067
$
228,368
$
229,848
GAAP net income per diluted share
$
0.33
$
0.46
$
0.42
$
0.80
$
0.84
Amortization of acquired intangible assets
0.04
0.05
0.04
0.09
0.08
Stock-based compensation
0.24
0.22
0.20
0.46
0.38
Amortization of capitalized stock-based compensation and capitalized interest expense 0.03
0.02
0.02
0.05
0.04
Restructuring charges
0.02
--
--
0.02
0.04
Acquisition-related costs (benefits)
0.02
--
--
0.02
--
Legal matter costs
--
--
--
--
0.01
Amortization of debt discount and issuance costs
0.03
0.03
0.03
0.05
0.05
Income tax effect of above non-GAAP adjustments and certain discrete tax items
(0.08)
(0.09)
(0.07)
(0.17)
(0.14)
Non-GAAP net income per diluted share
$
0.62
$
0.69
$
0.64
$
1.31
$
1.30
Shares used in diluted per share calculations
173,439
175,171
176,420
174,305
176,980
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,
March 31,
June 30,
June 30,
June 30,
2017
2017
2016
2017
2016
Net income
$
57,772
$
80,930
$
73,635
$
138,702
$
148,493
Interest income
(4,281)
(4,624)
(3,393)
(8,905)
(6,713)
Provision for income taxes
29,637
33,641
35,714
63,278
73,453
Depreciation and amortization
76,897
75,053
74,332
151,950
144,677
Amortization of capitalized stock-based compensation and capitalized interest expense 4,556
3,911
4,071
8,467
7,679
Amortization of acquired intangible assets
7,753
7,569
6,711
15,322
13,427
Stock-based compensation
41,269
38,986
34,911
80,255
66,652
Restructuring charges
2,971
--
470
2,971
7,288
Acquisition-related costs (benefits)
3,057
(208)
361
2,849
282
Legal matter costs
--
--
101
--
890
Amortization of debt discount and issuance costs
4,646
4,597
4,639
9,243
9,292
Other (income) expense, net
(563)
684
(415)
121
(226)
Adjusted EBITDA
$
223,714
$
240,539
$
231,137
$
464,253
$
465,194
Adjusted EBITDA margin
37
%
39
%
40
%
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:
Rob Morton
Tom Barth
Media Relations
Investor Relations
Akamai Technologies
Akamai Technologies
617-444-3641
617-274-7130
rmorton@akamai.com
tbarth@akamai.com

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SOURCE Akamai Technologies, Inc.

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