Akamai Agrees to Acquire Nominum
CAMBRIDGE, Mass., Oct. 11, 2017 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM) today announced the company has entered into an agreement to acquire Nominum, a market leader in DNS and enterprise security solutions for carriers. The acquisition is intended to add complementary capabilities to Akamai's portfolio of security offerings while expanding Akamai's distribution to carriers that serve enterprise customers. The all-cash transaction is expected to close later this quarter.
Carriers and enterprises are increasingly targeted by attackers attempting to exploit weaknesses and gaps in cybersecurity defenses. By combining Nominum's carrier-grade cybersecurity solutions with Akamai's enterprise security offerings and threat intelligence, Akamai intends to serve a larger base of carrier and enterprise customers with more comprehensive security products. These products will be designed to more effectively identify, block, and mitigate cybersecurity threats such as malware, ransomware, phishing, and data exfiltration.
"Akamai knows how critical it is for carriers and enterprises to ensure their online experiences are safe, reliable and fast for their users," said Robert Blumofe, Executive Vice President, Platform & General Manager, Enterprise and Carrier Division. "We believe this acquisition is a key investment in our security capabilities because Nominum will bring complementary technology, engineering, technical support and sales talent to better reach and serve our carrier partners and their enterprise customers."
Nominum is a privately-funded company headquartered in Redwood City, CA. Akamai expects the acquisition to be dilutive to non-GAAP earnings in the fiscal fourth quarter and 2018 due to integration costs and the impact purchase accounting has on revenue recognition. The dilutive impact in the fiscal fourth quarter of 2017 is expected to be approximately $0.05, and approximately $0.11 for fiscal 2018. Akamai expects the acquisition to be accretive in 2019.
Akamai reiterates its intention to manage the Company's EBITDA margins within its previously stated range of mid-30s while it integrates Nominum.
To learn more about the acquisition, Akamai CEO Dr. Tom Leighton's keynote address from Akamai EDGE 2017, the Company's tenth annual customer conference, will be available at 12:00 noon PT today at edge.akamai.com/tomleightonkeynote.
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.
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. The non-GAAP financial measures used in this release are non-GAAP net income per share and Adjusted EBITDA margin.
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.
Akamai provides forward-looking statements in the form of guidance. This guidance is provided on a non-GAAP basis and cannot be reconciled to the closest GAAP measures without unreasonable effort because of the unpredictability of the amounts and timing of events affecting the items we exclude from non-GAAP measures. For example, stock-based compensation is unpredictable for Akamai's performance-based awards, which can fluctuate significantly based on current expectations of future achievement of performance-based targets. Amortization of intangible assets, acquisition-related costs and restructuring costs are all impacted by the timing and size of potential future actions, which are difficult to predict. In addition, from time to time, Akamai excludes certain items that occur infrequently, which are also inherently difficult to predict and estimate. It is also difficult to predict the tax effect of the items we exclude and to estimate certain discrete tax items, like the resolution of tax audits or changes to tax laws. As such, the costs that are being excluded from non-GAAP guidance are difficult to predict and a reconciliation or a range of results could lead to disclosure that would be imprecise or potentially misleading. Material changes to any one of the exclusions could have a significant effect on our guidance and future GAAP results.
Akamai's definitions of the non-GAAP financial measures used in this press release are outlined below:
-- 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.
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.
The release contains information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about expected benefits to Akamai from the acquisition. 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 to close the transaction expeditiously or at all, inability to successfully integrate the technology and personnel of Nominum, failure to achieve expected post-closing financial results, failure to provide expected benefits of combined solutions, 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.
Contacts:
Jeff Young Tom Barth
Media Relations Investor Relations
617-444-3913 617-274-7130
jyoung@akamai.com
tbarth@akamai.com
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SOURCE Akamai Technologies, Inc.
