Akamai Reports Third Quarter 2017 Financial Results
CAMBRIDGE, Mass., Oct. 24, 2017 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the third quarter ended September 30, 2017.
"Akamai delivered another strong quarter of top and bottom line performance," said Dr. Tom Leighton, CEO of Akamai. "Revenue achievement in the quarter was driven by continued strong growth of our Cloud Security Solutions and an acceleration of traffic growth in our Media business."
Akamai delivered the following financial results for the third quarter ended September 30, 2017:
Revenue: Revenue was $621 million, a 6% increase over third quarter 2016 revenue of $584 million and a 6% increase when adjusted for foreign exchange.*
Customer Revenue by Division((1)):
-- Web Division revenue was $328 million, up 14% year-over-year and when
adjusted for foreign exchange*
-- Media Division revenue was $273 million, down 1% year-over-year and when
adjusted for foreign exchange*
-- Enterprise and Carrier Division revenue was $20 million, up 2%
year-over-year and up 1% when adjusted for foreign exchange*
Revenue by Solution Category((2)):
-- Performance and Security Solutions revenue was $381 million, up 11%
year-over-year and up 10% when adjusted for foreign exchange*
-- Cloud Security Solutions revenue, a component of Performance and
Security, was $121 million, up 27% year-over-year and when adjusted for
foreign exchange*
-- Media Delivery Solutions revenue was $183 million, down 3%
year-over-year and when adjusted for foreign exchange*
-- Services and Support Solutions revenue was $57 million, up 12%
year-over-year and when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $409 million, up 1% year-over-year
-- International revenue was $213 million, up 18% year-over-year and when
adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $51 million, down 13%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $571 million, up 9%
year-over-year and up 8% when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $86 million, a 23% decrease from third quarter 2016. GAAP operating margin for the third quarter was 14%, down 5 percentage points from the same period last year.
Non-GAAP income from operations* was $142 million, a 13% decrease from third quarter 2016. Non-GAAP operating margin* for the third quarter was 23%, down 5 percentage points from the same period last year.
Net income: GAAP net income was $61 million, a 20% decrease from third quarter 2016. Non-GAAP net income* was $107 million, an 11% decrease from third quarter 2016.
EPS: GAAP EPS was $0.35 per diluted share, a 19% decrease from third quarter 2016 and a 17% decrease when adjusted for foreign exchange.* The year-over-year GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was a decrease of 10%.
Non-GAAP EPS was $0.62 per diluted share, a 9% decrease from third quarter 2016 and an 8% decrease when adjusted for foreign exchange.* The year-over-year non-GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was a decrease of 5%.
Adjusted EBITDA*: Adjusted EBITDA was $226 million, a 5% decrease from third quarter 2016. Adjusted EBITDA margin* was 36%, down 5 percentage points from the third quarter of 2016.
Other third quarter 2017 results:
-- Cash from operations was $236 million, or 38% of revenue
-- Cash, cash equivalents and marketable securities as of September 30,
2017 was $1.4 billion
-- The Company spent $129 million to repurchase 2.7 million shares of its
common stock at an average price of $47.75 per share
-- The Company had approximately 170 million shares of common stock
outstanding as of September 30, 2017
* See Use of Non-GAAP Financial Measures below for definitions
(1) Customer revenue by division - A customer-focused reporting view that reflects revenue from customers that are managed by the division. During the first quarter of 2017, the divisional categorization of certain customers was adjusted based on how those customer categorizations are currently being managed. The historical presentation of divisional revenue was revised in order to reflect the most recent categorization and to provide a comparable view for all periods presented.
(2) Revenue by solution category - A product-focused reporting view that reflects revenue by solution purchased
(3) Internet Platform Customers - Six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix
Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671 (or 1-508-637-5655 for international calls) and using passcode 89360127. A live webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode 89360127. The archived webcast of this event may be accessed through the Akamai website.
About Akamai
As the world's largest and most trusted cloud delivery platform, Akamai makes it easier for its customers to provide the best and most secure digital experiences on any device, anytime, anywhere. Akamai's massively distributed platform is unparalleled in scale with over 200,000 servers across 130 countries, giving customers superior performance and threat protection. Akamai's portfolio of web and mobile performance, cloud security, enterprise access, and video delivery solutions are supported by exceptional customer service and 24/7 monitoring. To learn why the top financial institutions, e commerce leaders, media & entertainment providers, and government organizations trust Akamai please visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) September 30, December 31,
2017 2016
---- ----
ASSETS
Current assets:
Cash and cash
equivalents $368,152 $324,169
Marketable securities 383,849 512,849
Accounts receivable,
net 400,839 368,596
Prepaid expenses and
other current assets 142,943 104,303
-------
Total current assets 1,295,783 1,309,917
Property and equipment,
net 883,754 801,017
Marketable securities 661,929 779,311
Goodwill 1,358,762 1,228,503
Acquired intangible
assets, net 176,288 149,463
Deferred income tax
assets 18,930 8,982
Other assets 113,688 95,953
------- ------
Total assets $4,509,134 $4,373,146
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $88,339 $76,120
Accrued expenses 267,966 238,777
Deferred revenue 64,716 52,972
Other current
liabilities 9,285 6,719
----- -----
Total current
liabilities 430,306 374,588
Deferred revenue 4,224 3,758
Deferred income tax
liabilities 15,984 11,652
Convertible senior
notes 657,131 640,087
Other liabilities 128,834 118,691
------- -------
Total liabilities 1,236,479 1,148,776
--------- ---------
Total stockholders'
equity 3,272,655 3,224,370
--------- ---------
Total liabilities and
stockholders' equity $4,509,134 $4,373,146
========== ==========
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
(in thousands, except per share data) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Revenue $621,399 $608,908 $584,065 $1,839,544 $1,723,925
Costs and operating expenses:
Cost of revenue(1) (2) 225,468 214,650 204,467 645,821 605,526
Research and development(1) 57,226 53,373 42,341 162,761 120,873
Sales and marketing(1) 120,220 119,432 102,626 353,218 308,060
General and administrative(1) (2) 124,523 123,518 113,320 363,050 323,141
Amortization of acquired intangible assets 7,753 7,753 6,598 23,075 20,025
Restructuring charges 332 2,971 2,948 3,303 10,236
--- ----- ----- ----- ------
Total costs and operating expenses 535,522 521,697 472,300 1,551,228 1,387,861
------- ------- ------- --------- ---------
Income from operations 85,877 87,211 111,765 288,316 336,064
Interest income 4,463 4,281 3,809 13,368 10,522
Interest expense (4,746) (4,646) (4,666) (13,989) (13,958)
Other income, net 535 563 778 414 1,004
--- --- --- --- -----
Income before provision for income taxes 86,129 87,409 111,686 288,109 333,632
Provision for income taxes 25,617 29,637 35,686 88,895 109,139
------ ------ ------ ------ -------
Net income $60,512 $57,772 $76,000 $199,214 $224,493
======= ======= ======= ======== ========
Net income per share:
Basic $0.35 $0.33 $0.44 $1.16 $1.28
Diluted $0.35 $0.33 $0.43 $1.15 $1.27
Shares used in per share calculations:
Basic 170,976 172,674 174,429 172,269 175,444
Diluted 171,505 173,439 175,617 173,371 176,525
(1) Includes stock-based compensation
(see supplemental table for
figures)
(2) Includes depreciation and
amortization (see supplemental
table for figures)
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
(in thousands) September June 30, September September September
30, 2017 30, 2016 30, 2017 30, 2016
2017
----
Cash flows from operating activities(1):
Net income $60,512 $57,772 $76,000 $199,214 $224,493
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 97,178 89,206 84,511 272,917 250,294
Stock-based compensation 41,848 41,269 38,652 122,103 105,304
(Benefit) provision for deferred income taxes (14,066) 7,396 (16,646) 25,302 (13,861)
Amortization of debt discount and issuance costs 4,746 4,646 4,666 13,989 13,958
Other non-cash reconciling items, net 2,046 1,738 4,866 3,655 8,367
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (1,326) 12,273 4,691 (19,199) 22,477
Prepaid expenses and other current assets 15,913 (3,043) 15,005 (34,195) 4,014
Accounts payable and accrued expenses 39,691 6,399 42,610 22,150 54,892
Deferred revenue (9,415) (470) (5,241) 991 6,885
Other current liabilities (2,250) 2,385 (2,301) 3,651 4,670
Other non-current assets and liabilities 1,414 5,062 5,035 (7,036) 6,097
----- ----- ----- ------ -----
Net cash provided by operating activities 236,291 224,633 251,848 603,542 687,590
------- ------- ------- ------- -------
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired - (197,191) (2,936) (197,201) (2,936)
Purchases of property and equipment and capitalization of internal-use software development costs (119,740) (97,005) (79,870) (307,926) (240,351)
Purchases of short- and long-term marketable securities (67,879) (88,913) (230,223) (249,098) (614,808)
Proceeds from sales and maturities of short- and long-term marketable securities 85,263 88,978 204,190 498,379 556,533
Other non-current assets and liabilities (646) (19) (1,633) (1,895) (3,145)
---- --- ------ ------ ------
Net cash used in investing activities (103,002) (294,150) (110,472) (257,741) (304,707)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans 16,060 8,150 15,244 41,740 42,339
Employee taxes paid related to net share settlement of stock-based awards (6,784) (7,417) (6,150) (48,122) (38,560)
Repurchases of common stock (129,014) (105,148) (95,157) (306,629) (294,867)
Other non-current assets and liabilities - (1,096) - (1,096) -
--- ------ --- ------ ---
Net cash used in financing activities (119,738) (105,511) (86,063) (314,107) (291,088)
-------- -------- -------
Effects of exchange rate changes on cash and cash equivalents 2,100 5,210 (154) 12,289 535
----- ----- ---- ------ ---
Net increase (decrease) in cash and cash equivalents 15,651 (169,818) 55,159 43,983 92,330
Cash and cash equivalents at beginning of period 352,501 522,319 326,644 324,169 289,473
------- ------- ------- ------- -------
Cash and cash equivalents at end of period $368,152 $352,501 $381,803 $368,152 $381,803
======== ======== ======== ======== ========
(1) On January 1, 2017, the Company
adopted Accounting Standards Update
No. 2016-09, Improvements to
Employee Share-Based Payment
Accounting. Under this standard,
excess tax benefits are no longer
classified as a reduction of cash
flows from operating activities. The
Company retrospectively adopted this
standard and revised cash flows from
operating activities by $0.4 million
and $3.1 million for the three and
nine months ended September 30,
2016, respectively. The increase
caused a corresponding decrease to
cash flows from financing
activities.
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION
Three Months Ended Nine Months Ended
(in thousands) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Customer revenue by division(1):
Web Division $327,926 $314,988 $288,104 $947,600 $828,662
Media Division 273,415 276,071 276,205 834,887 843,756
Enterprise and Carrier Division 20,058 17,849 19,756 57,057 51,507
------ ------ ------ ------ ------
Total revenue $621,399 $608,908 $584,065 $1,839,544 $1,723,925
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Web Division 14% 15% 17% 14% 16%
Media Division (1) (2) (5) (1) (2)
Enterprise and Carrier Division 2 9 41 11 32
Total revenue 6% 6% 6% 7% 7%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Web Division 14% 16% 16% 15% 16%
Media Division (1) (1) (5) (1) (2)
Enterprise and Carrier Division 1 10 41 11 33
--- --- --- --- ---
Total revenue 6% 7% 5% 7% 7%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY
Three Months Ended Nine Months Ended
(in thousands) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Revenue by solution category(3):
Performance and Security Solutions $381,461 $375,807 $345,118 $1,126,416 $987,623
Media Delivery Solutions 182,753 178,905 188,075 549,054 591,091
Services and Support Solutions 57,185 54,196 50,872 164,074 145,211
------ ------ ------ ------- -------
Total revenue $621,399 $608,908 $584,065 $1,839,544 $1,723,925
======== ======== ======== ========== ==========
Cloud Security Solutions revenue $121,420 $115,135 $95,232 $346,313 $262,872
Revenue growth rates year-over-year:
Performance and Security Solutions 11% 15% 19% 14% 17%
Media Delivery Solutions (3) (9) (14) (7) (9)
Services and Support Solutions 12 12 17 13 17
--- --- --- ---
Total revenue 6% 6% 6% 7% 7%
=== === === ===
Cloud Security Solutions revenue growth rates 27% 32% 46% 32% 45%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Performance and Security Solutions 10% 16% 19% 15% 17%
Media Delivery Solutions (3) (9) (15) (7) (9)
Services and Support Solutions 12 13 16 13 17
--- --- --- ---
Total revenue 6% 7% 5% 7% 7%
=== === === === ===
Cloud Security Solutions revenue growth rates 27% 34% 46% 33% 45%
(1) See customer revenue by
division definition in
press release
(2) See Use of Non-GAAP
Financial Measures below
for a definition
(3) See revenue by solution
category definition in
press release
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY
Three Months Ended Nine Months Ended
(in thousands) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Revenue by geography:
U.S. $408,544 $403,085 $404,065 $1,218,194 $1,196,433
International 212,855 205,823 180,000 621,350 527,492
------- ------- ------- ------- -------
Total revenue $621,399 $608,908 $584,065 $1,839,544 $1,723,925
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
U.S. 1% 2% 1% 2% 1%
International 18% 16 20 18 23
Total revenue 6% 6% 6% 7% 7%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
U.S. 1% 2% 1% 2% 1%
International 18 19 17 20 23
--- --- --- --- ---
Total revenue 6% 7% 5% 7% 7%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS
Three Months Ended Nine Months Ended
(in thousands) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Revenue from Internet Platform Customers(2) $50,567 $51,169 $58,012 $153,103 $192,014
Revenue excluding Internet Platform Customers 570,832 557,739 526,053 1,686,441 1,531,911
------- ------- ------- --------- ---------
Total revenue $621,399 $608,908 $584,065 $1,839,544 $1,723,925
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers (13)% (17)% (39)% (20)% (33)%
Revenue excluding Internet Platform Customers 9 9 15 10 15
Total revenue 6% 6% 6% 7% 7%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
Revenue from Internet Platform Customers (13)% (17)% (40)% (20)% (33)%
Revenue excluding Internet Platform Customers 8 10 15 11 15
Total revenue 6% 7% 5% 7% 7%
=== === === === ===
(1) See Use of Non-GAAP
Financial Measures below for
a definition
(2) See Internet Platform
Customers definition in
press release
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL FINANCIAL DATA
Three Months Ended Nine Months Ended
(in thousands, except end of period statistics) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- ---- -------- -------- --------
Stock-based compensation:
Cost of revenue $5,296 $5,074 $4,701 $15,055 $13,224
Research and development 10,100 9,614 7,727 28,743 20,917
Sales and marketing 15,672 13,951 14,729 44,780 40,340
General and administrative 10,780 12,630 11,495 33,525 30,823
------ ------ ------ ------ ------
Total stock-based compensation $41,848 $41,269 $38,652 $122,103 $105,304
======= ======= ======= ======== ========
Depreciation and amortization:
Network-related depreciation $64,369 $59,170 $57,521 $180,383 $171,310
Other depreciation and amortization 19,320 17,727 16,409 55,256 47,297
------ ------ ------ ------ ------
Depreciation of property and equipment 83,689 76,897 73,930 235,639 218,607
Capitalized stock-based compensation amortization 5,046 3,972 3,544 12,489 10,429
Capitalized interest expense amortization 690 584 439 1,714 1,233
Amortization of acquired intangible assets 7,753 7,753 6,598 23,075 20,025
----- ----- ----- ------ ------
Total depreciation and amortization $97,178 $89,206 $84,511 $272,917 $250,294
======= ======= ======= ======== ========
Capital expenditures, excluding stock-based compensation and interest
expense(1)(2):
Purchases of property and equipment $62,755 $64,522 $51,332 $183,777 $152,125
Capitalized internal-use software development costs 45,213 40,957 35,507 123,255 106,967
Total capital expenditures, excluding stock-based compensation and interest
expense $107,968 $105,479 $86,839 $307,032 $259,092
======== ======== ======= ======== ========
End of period statistics:
Number of employees 7,438 7,084 6,334
(1) Capital expenditures presented in
this table are reported on an
accrual basis, which differs
from the cash-basis
presentation in the statements
of cash flows. The primary
difference between the two is
the change in purchases of
property and equipment and
capitalization of internal-use
software development costs
accrued for, but not paid, at
period end.
(2) See Use of Non-GAAP Financial
Measures below for a definition
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND NET INCOME PER DILUTED SHARE
Three Months Ended Nine Months Ended
(in thousands, except per share data) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- --------
Income from operations $85,877 $87,211 $111,765 $288,316 $336,064
GAAP operating margin 14% 14% 19% 16% 19%
Amortization of acquired intangible assets 7,753 7,753 6,598 23,075 20,025
Stock-based compensation 41,848 41,269 38,652 122,103 105,304
Amortization of capitalized stock-based compensation and capitalized interest
expense 5,736 4,556 3,983 14,203 11,662
Restructuring charges 332 2,971 2,948 3,303 10,236
Acquisition-related costs 530 3,057 241 3,379 523
Legal matter costs - - - - 890
--- ---
Operating adjustments 56,199 59,606 52,422 166,063 148,640
Non-GAAP income from operations $142,076 $146,817 $164,187 $454,379 $484,704
======== ======== ======== ======== ========
Non-GAAP operating margin 23% 24% 28% 25% 28%
Net income $60,512 $57,772 $76,000 $199,214 $224,493
Operating adjustments (from above) 56,199 59,606 52,422 166,063 148,640
Amortization of debt discount and issuance costs 4,746 4,646 4,666 13,989 13,958
Income tax-effect of above non-GAAP adjustments and certain discrete tax items (14,802) (13,974) (12,939) (44,243) (37,094)
------- -------
Non-GAAP net income $106,655 $108,050 $120,149 $335,023 $349,997
======== ======== ======== ======== ========
GAAP net income per diluted share $0.35 $0.33 $0.43 $1.15 $1.27
Amortization of acquired intangible assets 0.05 0.04 0.04 0.13 0.11
Stock-based compensation 0.24 0.24 0.22 0.70 0.60
Amortization of capitalized stock-based compensation and capitalized interest
expense 0.03 0.03 0.02 0.08 0.07
Restructuring charges - 0.02 0.02 0.02 0.06
Acquisition-related costs - 0.02 - 0.02 -
Legal matter costs - - - - 0.01
Amortization of debt discount and issuance costs 0.03 0.03 0.03 0.08 0.08
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.09) (0.08) (0.07) (0.26) (0.21)
Non-GAAP net income per diluted share $0.62 $0.62 $0.68 $1.93 $1.98
===== ===== ===== ===== =====
Shares used in diluted per share calculations 171,505 173,439 175,617 173,371 176,525
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended Nine Months Ended
(in thousands, except per share data) September June 30, September September September
30, 2017 2017 30, 2016 30, 2017 30, 2016
-------- --------
Net income $60,512 $57,772 $76,000 $199,214 $224,493
Interest income (4,463) (4,281) (3,809) (13,368) (10,522)
Provision for income taxes 25,617 29,637 35,686 88,895 109,139
Depreciation and amortization 83,689 76,897 73,930 235,639 218,607
Amortization of capitalized stock-based compensation and capitalized interest expense 5,736 4,556 3,983 14,203 11,662
Amortization of acquired intangible assets 7,753 7,753 6,598 23,075 20,025
Stock-based compensation 41,848 41,269 38,652 122,103 105,304
Restructuring charges 332 2,971 2,948 3,303 10,236
Acquisition-related costs 530 3,057 241 3,379 523
Legal matter costs - - - - 890
Amortization of debt discount and issuance costs 4,746 4,646 4,666 13,989 13,958
Other income, net (535) (563) (778) (414) (1,004)
---- ---- ---- ---- ------
Adjusted EBITDA $225,765 $223,714 $238,117 $690,018 $703,311
======== ======== ======== ======== ========
Adjusted EBITDA margin 36% 37% 41% 38% 41%
Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.
Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.
The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned "Reconciliation of GAAP to Non-GAAP Financial Measures" can be found on the Investor Relations section of Akamai's website.
The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:
-- Amortization of acquired intangible assets - Akamai has incurred
amortization of intangible assets, included in its GAAP financial
statements, related to various acquisitions Akamai has made. The amount
of an acquisition's purchase price allocated to intangible assets and
term of its related amortization can vary significantly and are unique
to each acquisition; therefore, Akamai excludes amortization of acquired
intangible assets from its non-GAAP financial measures to provide
investors with a consistent basis for comparing pre- and
post-acquisition operating results.
-- Stock-based compensation and amortization of capitalized stock-based
compensation - Although stock-based compensation is an important aspect
of the compensation paid to Akamai's employees, the grant date fair
value varies based on the stock price at the time of grant, varying
valuation methodologies, subjective assumptions and the variety of award
types. This makes the comparison of Akamai's current financial results
to previous and future periods difficult to interpret; therefore, Akamai
believes it is useful to exclude stock-based compensation and
amortization of capitalized stock-based compensation from its non-GAAP
financial measures in order to highlight the performance of Akamai's
core business and to be consistent with the way many investors evaluate
its performance and compare its operating results to peer companies.
-- Acquisition-related costs - Acquisition-related costs include
transaction fees, advisory fees, due diligence costs and other direct
costs associated with strategic activities. In addition, subsequent
adjustments to Akamai's initial estimated amounts of contingent
consideration and indemnification associated with specific acquisitions
are included within acquisition-related costs. These amounts are
impacted by the timing and size of the acquisitions. Akamai excludes
acquisition-related costs from its non-GAAP financial measures to
provide a useful comparison of Akamai's operating results to prior
periods and to its peer companies because such amounts vary
significantly based on the magnitude of the acquisition transactions.
-- Restructuring charges - Akamai has incurred restructuring charges that
are included in its GAAP financial statements, primarily related to
workforce reductions and estimated costs of exiting facility lease
commitments. Akamai excludes these items from its non-GAAP financial
measures when evaluating its continuing business performance as such
items vary significantly based on the magnitude of the restructuring
action and do not reflect expected future operating expenses. In
addition, these charges do not necessarily provide meaningful insight
into the fundamentals of current or past operations of its business.
-- Amortization of debt discount and issuance costs and amortization of
capitalized interest expense - In February 2014, Akamai issued $690
million of convertible senior notes due 2019 with a coupon interest rate
of 0%. The imputed interest rate of the convertible senior notes was
approximately 3.2%. This is a result of the debt discount recorded for
the conversion feature that is required to be separately accounted for
as equity under GAAP, thereby reducing the carrying value of the
convertible debt instrument. The debt discount is amortized as interest
expense together with the issuance costs of the debt. All of Akamai's
interest expense is comprised of these non-cash components and is
excluded from management's assessment of the company's operating
performance because management believes the non-cash expense is not
representative of ongoing operating performance.
-- Legal matter costs - Akamai has incurred losses from the settlement of
legal matters and costs with respect to its internal U.S. Foreign
Corrupt Practices Act ("FCPA") investigation in addition to the
disgorgement Akamai was required to pay to resolve it. Akamai believes
excluding these amounts from its non-GAAP financial measures is useful
to investors as the types of events giving rise to them are not
representative of Akamai's core business operations.
-- Income tax effect of non-GAAP adjustments and certain discrete tax items
- The non-GAAP adjustments described above are reported on a pre-tax
basis. The income tax effect of non-GAAP adjustments is the difference
between GAAP and non-GAAP income tax expense. Non-GAAP income tax
expense is computed on non-GAAP pre-tax income (GAAP pre-tax income
adjusted for non-GAAP adjustments) and excludes certain discrete tax
items (such as recording or releasing of valuation allowances), if any.
Akamai believes that applying the non GAAP adjustments and their related
income tax effect allows Akamai to highlight income attributable to its
core operations.
Akamai's definitions of its non-GAAP financial measures are outlined below:
Non-GAAP income from operations - GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; and other non-recurring or unusual items that may arise from time to time.
Non-GAAP operating margin - Non-GAAP income from operations stated as a percentage of revenue.
Non-GAAP net income - GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.
Non-GAAP net income per share - Non-GAAP net income divided by basic weighted average or diluted common shares outstanding. Basic weighted average shares outstanding are those used in GAAP net income per share calculations. Diluted weighted average shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transaction entered into in connection with the issuance of $690 million of convertible senior notes due 2019. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the company would receive a benefit from the note hedge transaction and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance. Unless and until Akamai's weighted average stock price is greater than $89.56, the initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.
Adjusted EBITDA - GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; foreign exchange gains and losses; loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.
Adjusted EBITDA margin - Adjusted EBITDA stated as a percentage of revenue.
Capital expenditures, or capex, excluding stock-based compensation and interest expense - Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.
Impact of Foreign Currency Exchange Rates - Revenue and earnings from international operations have historically been an important contributor to Akamai's financial results. Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.
Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.
EPS growth rates, adjusted for the Soasta acquisition - Earnings per share adjusted for the April 6, 2017 acquisition of Soasta, Inc.
Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about expected revenue growth and future profitability levels. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.
In addition, the statements in this press release and on such call represent Akamai's expectations and beliefs as of the date of this press release. Akamai anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Akamai may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Akamai's expectations or beliefs as of any date subsequent to the date of this press release.
Contacts:
Jeff Young Tom Barth
Media Relations Investor Relations
Akamai Technologies Akamai Technologies
617-444-3913 617-274-7130
jyoung@akamai.com tbarth@akamai.com
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SOURCE Akamai Technologies, Inc.
