Akamai Reports Fourth Quarter 2017 And Full-Year 2017 Financial Results
CAMBRIDGE, Mass., Feb. 6, 2018 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the fourth quarter and full-year ended December 31, 2017.
"We were very pleased with how well the business performed in the fourth quarter. Our Web Division customer revenue grew 17%, Security product revenue grew 32% and Media traffic on Akamai's platform grew faster than published growth rates for Internet traffic as a whole," said Dr. Tom Leighton, Akamai's Chief Executive Officer. "We believe our strong technology leadership and the momentum we've seen from the adoption of new products, coupled with continued focus on operational efficiency, position us to achieve solid top line growth as well as margin expansion in 2018."
"We were pleased to see Media traffic growth accelerate in the fourth quarter, consistent with the trend we saw in the third quarter and demonstrating continued traction from the traffic-focused initiatives we initiated in the middle of last year," said Adam Karon, Akamai's Media Division General Manager. "With this momentum exiting 2017, we are confident that we will drive Media revenue growth throughout 2018."
Akamai delivered the following results for the fourth quarter and full-year ended December 31, 2017:
Revenue: Revenue for the fourth quarter was $663 million, an 8% increase over fourth quarter 2016 revenue of $616 million and a 6% increase when adjusted for foreign exchange.* Total revenue for 2017 was $2.503 billion compared to $2.340 billion for 2016, up 7% year-over-year and when adjusted for foreign exchange.*
Customer Revenue by Division((1)):
-- Web Division revenue for the fourth quarter was $355 million, up 17%
year-over-year and up 15% when adjusted for foreign exchange.* Web
Division revenue for 2017 was $1.302 billion, up 15% year-over-year and
when adjusted for foreign exchange.*
-- Media Division revenue for the fourth quarter was $284 million, down 3%
year-over-year and down 4% when adjusted for foreign exchange.* Media
Division revenue for 2017 was $1.119 billion, down 1% year-over-year and
when adjusted for foreign exchange.*
-- Enterprise and Carrier Division revenue for the fourth quarter was $24
million, up 24% year-over-year and up 23% when adjusted for foreign
exchange.* Enterprise and Carrier Division revenue for 2017 was $81
million, up 14% year-over-year and when adjusted for foreign exchange.*
Revenue by Solution Category((2)):
-- Performance and Security Solutions revenue for the fourth quarter was
$416 million, up 13% year-over-year and up 12% when adjusted for foreign
exchange.* Performance and Security Solutions revenue for 2017 was
$1.543 billion, up 14% year-over-year and when adjusted for foreign
exchange.*
-- Cloud Security Solutions revenue, which is a component of Performance
and Security Solutions revenue, was $135 million for the fourth quarter,
up 32% year-over-year and up 31% when adjusted for foreign exchange.*
Cloud Security Solutions revenue for 2017 was $482 million, up 32%
year-over-year and when adjusted for foreign exchange.*
-- Media Delivery Solutions revenue for the fourth quarter was $190
million, down 3% year-over-year and down 4% when adjusted for foreign
exchange.* Media Delivery Solutions revenue for 2017 was $739 million,
down 6% year-over-year and when adjusted for foreign exchange.*
-- Service and Support Solutions revenue for the fourth quarter was $57
million, up 9% year-over-year and up 8% when adjusted for foreign
exchange.* Service and Support Solutions revenue for 2017 was $222
million, up 12% year-over-year and when adjusted for foreign exchange.*
Revenue by Geography:
-- U.S. revenue was $430 million for the fourth quarter, a 1% increase over
fourth quarter 2016 revenue. U.S. revenue for 2017 was $1.648 billion, a
2% increase over 2016 revenue.
-- International revenue was $234 million for the fourth quarter, a 21%
increase over fourth quarter 2016 revenue and a 17% increase when
adjusted for foreign exchange.* International revenue for 2017 was $855
million, a 19% increase over 2016 revenue and when adjusted for foreign
exchange.*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers for the fourth quarter was $50
million, down 15% year-over-year and when adjusted for foreign
exchange.* Internet Platform Customer revenue for 2017 was $203 million,
down 19% year-over-year and when adjusted for foreign exchange.*
-- Revenue excluding Internet Platform Customers for the fourth quarter was
$614 million, up 10% year-over-year and up 9% when adjusted for foreign
exchange.* Revenue excluding Internet Platform Customers for 2017 was
$2.300 billion, up 10% year-over-year and when adjusted for foreign
exchange.*
Income from operations: GAAP income from operations for the fourth quarter was $28 million, a 77% decrease from fourth quarter 2016 GAAP income from operations of $124 million. The fourth quarter of 2017 was impacted by a $52 million restructuring charge and a $16 million charge due to the release of an indemnification asset related to a 2012 acquisition. GAAP operating margin for the fourth quarter was 4%, down 16 percentage points from the same period last year. GAAP income from operations for 2017 was $316 million, a 31% decrease from the prior year's GAAP income from operations of $460 million. Full-year GAAP operating margin was 13%, down 7 percentage points from the prior year.
Non-GAAP income from operations* for the fourth quarter was $155 million, an 11% decrease from fourth quarter 2016 non-GAAP income from operations of $174 million. Non-GAAP operating margin* for the fourth quarter was 23%, down 5 percentage points from the same period last year. Non-GAAP income from operations* for 2017 was $610 million, a 7% decrease from the prior year's non-GAAP income from operations of $658 million. Full-year non-GAAP operating margin* was 24%, down 4 percentage points from the prior year.
Net Income: GAAP net income for the fourth quarter was $19 million, a 79% decrease from fourth quarter 2016 GAAP net income of $92 million. The fourth quarter of 2017 was also impacted by a $26 million provisional charge associated with U.S. tax reform, which is comprised of a $43 million deemed repatriation tax on foreign earnings, partially offset by a $17 million benefit from the re-measurement of deferred taxes as a result of the lower corporate tax rate. Full-year GAAP net income was $218 million, a 31% decrease from 2016 GAAP net income of $316 million.
Non-GAAP net income* for the fourth quarter was $118 million, a 7% decrease from fourth quarter 2016 non-GAAP net income of $126 million. Full-year non-GAAP net income* was $453 million, a 5% decrease from 2016 non-GAAP net income of $476 million.
EPS: GAAP EPS was $0.11 per diluted share, a 79% decrease from fourth quarter 2016 GAAP EPS of $0.52 and when adjusted for foreign exchange.* The $26 million provisional charge associated with U.S. tax reform impacted GAAP EPS by $0.15 during the fourth quarter of 2017. Full-year GAAP EPS was $1.26 per diluted share, a 30% decrease from 2016 GAAP EPS of $1.79 per diluted share and a 28% decrease when adjusted for foreign exchange.*
Non-GAAP EPS* was $0.69 per diluted share, a 4% decrease from fourth quarter 2016 non-GAAP EPS* of $0.72 and a 5% decrease when adjusted for foreign exchange.* Full-year non-GAAP EPS* was $2.62 per diluted share, a 3% decrease from 2016 non-GAAP EPS* of $2.70 per diluted share and a 2% decrease when adjusted for foreign exchange.*
Adjusted EBITDA: Adjusted EBITDA* for the fourth quarter was $241 million, a 3% decrease from fourth quarter 2016 Adjusted EBITDA* of $247 million. Adjusted EBITDA margin* for the fourth quarter was 36%, down 4 percentage points from the same period last year. Adjusted EBITDA* for the full-year was $931 million, a 2% decrease from the prior year's Adjusted EBITDA* of $951 million. Full-year adjusted EBITDA margin* was 37%, down 4 percentage points from the same period last year.
Restructuring charge: The Company recorded a $52 million restructuring charge in the fourth quarter of 2017. These charges primarily include workforce reductions, facility closures and capitalized software impairments from decisions to deprioritize certain investment areas that have not achieved commercial success and returns on investments initially expected, most notably in the Media Division.
Supplemental cash information: Cash flows from operating activities for the fourth quarter was $197 million, or 30% of revenue, and for the full-year was $801 million, or 32% of revenue. Cash, cash equivalents and marketable securities were $1.3 billion at December 31, 2017.
Share repurchases: The Company spent $55 million in the fourth quarter to repurchase 1.0 million shares of its common stock at an average price of $52.23 per share. For the full-year, the Company spent $361 million to repurchase 6.9 million shares of its common stock at an average price of $52.59 per share. The Company had approximately 170 million shares of common stock outstanding as of December 31, 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
(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 5649408. 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 5649408. 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) December December
31, 2017 31, 2016
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $313,382 $324,169
Marketable securities 398,554 512,849
Accounts receivable, net 459,127 368,596
Prepaid expenses and other
current assets 137,809 104,303
------- -------
Total current assets 1,308,872 1,309,917
Property and equipment, net 862,535 801,017
Marketable securities 567,592 779,311
Goodwill 1,498,688 1,228,503
Acquired intangible assets,
net 201,259 149,463
Deferred income tax assets 51,069 8,982
Other assets 112,829 95,953
------- ------
Total assets $4,602,844 $4,373,146
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $80,278 $76,120
Accrued expenses 283,743 238,777
Deferred revenue 77,705 52,972
Other current liabilities 22,178 6,719
------ -----
Total current liabilities 463,904 374,588
Deferred revenue 6,839 3,758
Deferred income tax
liabilities 15,510 11,652
Convertible senior notes 662,913 640,087
Other liabilities 142,955 118,691
------- -------
Total liabilities 1,292,121 1,148,776
--------- ---------
Total stockholders' equity 3,310,723 3,224,370
--------- ---------
Total liabilities and
stockholders' equity $4,602,844 $4,373,146
========== ==========
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Year Ended
(in thousands, except per share data) December September December December December
31, 2017 30, 2017 31, 2016 31, 2017 31, 2016
-------- -------- -------- -------- --------
Revenue $663,452 $621,399 $616,124 $2,502,996 $2,340,049
Costs and operating expenses:
Cost of revenue (1) (2) 229,937 225,468 203,475 875,758 809,001
Research and development (1) 59,673 57,226 46,755 222,434 167,628
Sales and marketing (1) 140,414 120,220 118,907 493,632 426,967
General and administrative (1) (2) 146,115 124,523 116,775 509,165 439,916
Amortization of acquired intangible assets 7,829 7,753 6,617 30,904 26,642
Restructuring charges 51,581 332 65 54,884 10,301
------ --- --- ------ ------
Total costs and operating expenses 635,549 535,522 492,594 2,186,777 1,880,455
------- ------- ------- --------- ---------
Income from operations 27,903 85,877 123,530 316,219 459,594
Interest income 4,487 4,463 4,180 17,855 14,702
Interest expense (4,850) (4,746) (4,680) (18,839) (18,638)
Other income, net 473 535 2,784 887 3,788
--- --- ----- --- -----
Income before provision for income taxes 28,013 86,129 125,814 316,122 459,446
Provision for income taxes 8,906 25,617 34,175 97,801 143,314
----- ------ ------ ------ -------
Net income $19,107 $60,512 $91,639 $218,321 $316,132
======= ======= ======= ======== ========
Net income per share:
Basic $0.11 $0.35 $0.53 $1.27 $1.81
Diluted $0.11 $0.35 $0.52 $1.26 $1.79
Shares used in per share calculations:
Basic 169,429 170,976 173,337 171,559 174,917
Diluted 170,727 171,505 175,284 172,711 176,215
(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 Year Ended
(in thousands) December 31, 2017 September 30,
2017 December 31, 2016 December 31, 2017 December 31, 2016
----------------- -------------- ----------------- ----------------- -----------------
Cash flows from operating activities:
Net income $19,107 $60,512 $91,639 $218,321 $316,132
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 99,396 97,178 84,008 372,313 334,302
Stock-based compensation 42,205 41,848 39,202 164,308 144,506
(Benefit) provision for deferred income taxes (26,171) (14,066) 21,169 (869) 7,308
Amortization of debt discount and issuance costs 4,850 4,746 4,680 18,839 18,638
Restructuring-related software charges 31,965 - - 31,965 4,587
Other non-cash reconciling items, net 6,413 2,046 2,461 10,068 5,987
Changes in operating assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts receivable (44,626) (1,326) (19,375) (63,825) 3,356
Prepaid expenses and other current assets 11,884 15,913 19,867 (22,311) 23,881
Accounts payable and accrued expenses 11,082 39,691 (36,401) 33,232 18,491
Deferred revenue 151 (9,415) (8,098) 1,142 (1,213)
Other current liabilities 12,727 (2,250) 814 16,378 5,484
Other non-current assets and liabilities 28,458 1,414 (15,744) 21,422 (9,647)
------ ----- ------- ------ ------
Net cash provided by operating activities 197,441 236,291 184,222 800,983 871,812
------- ------- ------- ------- -------
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired (171,872) - (92,503) (369,073) (95,439)
Purchases of property and equipment and capitalization of internal-use software development costs (106,852) (119,740) (75,938) (414,778) (316,289)
Purchases of short- and long-term marketable securities (77,399) (67,879) (166,253) (326,497) (781,061)
Proceeds from sales and maturities of short- and long-term marketable securities 154,390 85,263 166,044 652,769 722,577
Other non-current assets and liabilities (203) (646) 3,927 (2,098) 782
---- ---- ----- ------ ---
Net cash used in investing activities (201,936) (103,002) (164,723) (459,677) (469,430)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans 13,940 16,060 17,221 55,680 59,560
Employee taxes paid related to net share settlement of stock-based awards (10,273) (6,784) (6,985) (58,395) (45,545)
Repurchases of common stock (54,565) (129,014) (78,927) (361,194) (373,794)
Other non-current assets and liabilities - - - (1,096) -
--- --- --- ------ ---
Net cash used in financing activities (50,898) (119,738) (68,691) (365,005) (359,779)
Effects of exchange rate changes on cash and cash equivalents 623 2,100 (8,442) 12,912 (7,907)
--- ----- ------ ------ ------
Net (decrease) increase in cash and cash equivalents (54,770) 15,651 (57,634) (10,787) 34,696
Cash and cash equivalents at beginning of period 368,152 352,501 381,803 324,169 289,473
------- ------- ------- ------- -------
Cash and cash equivalents at end of period $313,382 $368,152 $324,169 $313,382 $324,169
======== ======== ======== ======== ========
(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 $2.4 million and $5.5 million for the three months and year ended December 31, 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 Year Ended
(in thousands) December September December December December
31, 2017 30, 2017 31, 2016 31, 2017 31, 2016
-------- -------- -------- -------- --------
Customer revenue by division(1):
Web Division $354,889 $327,926 $304,196 $1,302,489 $1,132,858
Media Division 284,395 273,415 292,394 1,119,282 1,136,150
Enterprise and Carrier Division 24,168 20,058 19,534 81,225 71,041
------ ------ ------ ------ ------
Total revenue $663,452 $621,399 $616,124 $2,502,996 $2,340,049
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Web Division 17% 14% 13% 15% 15%
Media Division (3)% (1) (1) (1) (2)
Enterprise and Carrier Division 24% 2 26 14 31
Total revenue 8% 6% 6% 7% 6%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Web Division 15% 14% 13% 15% 15%
Media Division (4) (1) - (1) (2)
Enterprise and Carrier Division 23 1 27 14 31
Total revenue 6% 6% 7% 7% 7%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY
Three Months Ended Year Ended
(in thousands) December September December December December
31, 2017 30, 2017 31, 2016 31, 2017 31, 2016
-------- -------- -------- -------- --------
Revenue by solution category(3):
Performance and Security Solutions $416,142 $381,461 $367,407 $1,542,558 $1,355,030
Media Delivery Solutions 189,862 182,753 196,088 738,916 787,179
Services and Support Solutions 57,448 57,185 52,629 221,522 197,840
------ ------ ------ ------- -------
Total revenue $663,452 $621,399 $616,124 $2,502,996 $2,340,049
======== ======== ======== ========== ==========
Cloud Security Solutions revenue $135,202 $121,420 $102,072 $481,515 $364,944
Revenue growth rates year-over-year:
Performance and Security Solutions 13% 11% 17% 14% 17%
Media Delivery Solutions (3) (3) (10) (6) (9)
Services and Support Solutions 9 12 14 12 16
--- --- --- ---
Total revenue 8% 6% 6% 7% 6%
=== === === === ===
Cloud Security Solutions revenue growth rates 32% 27% 41% 32% 43%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Performance and Security Solutions 12% 10% 17% 14% 17%
Media Delivery Solutions (4) (3) (10) (6) (10)
Services and Support Solutions 8 12 14 12 16
--- --- --- ---
Total revenue 6% 6% 7% 7% 7%
=== === === === ===
Cloud Security Solutions revenue growth rates(2) 31% 27% 41% 32% 44%
(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 Year Ended
(in thousands) December September December December December
31, 2017 30, 2017 31, 2016 31, 2017 31, 2016
-------- -------- -------- -------- --------
Revenue by geography:
U.S. $429,754 $408,544 $423,588 $1,647,948 $1,620,724
International 233,698 212,855 192,536 855,048 719,325
------- ------- ------- ------- -------
Total revenue $663,452 $621,399 $616,124 $2,502,996 $2,340,049
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
U.S. 1% 1% 2% 2% 1%
International 21 18 18 19 21
Total revenue 8% 6% 6% 7% 6%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
U.S. 1% 1% 2% 2% 1%
International 17 18 19 19 22
Total revenue 6% 6% 7% 7% 7%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS
Three Months Ended Year Ended
(in thousands) December September December December December
31, 2017 30, 2017 31, 2016 31, 2017 31, 2016
-------- -------- -------- -------- --------
Revenue from Internet Platform Customers(2) $49,790 $50,567 $58,468 $202,893 $250,509
Revenue excluding Internet Platform Customers 613,662 570,832 557,656 2,300,103 2,089,540
------- ------- ------- --------- ---------
Total revenue $663,452 $621,399 $616,124 $2,502,996 $2,340,049
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers (15)% (13)% (36)% (19)% (34)%
Revenue excluding Internet Platform Customers 10 9 14 10 15
Total revenue 8% 6% 6% 7% 6%
=== === === === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
Revenue from Internet Platform Customers (15)% (13)% (36)% (19)% (34)%
Revenue excluding Internet Platform Customers 9 8 15 10 15
Total revenue 6% 6% 7% 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.
SUPPLEMENTAL OPERATING EXPENSE DATA
Three Months Ended Year Ended
(in thousands) December 31, 2017 September 30, 2017 December 31, 2016 December 31, 2017 December 31, 2016
----------------- ------------------ ----------------- ----------------- -----------------
General and administrative expenses:
Payroll and related costs $50,187 $51,605 $40,981 $194,199 $163,348
Stock-based compensation 11,359 10,780 10,250 44,884 41,073
Depreciation and amortization 19,845 19,686 17,699 76,128 65,780
Facilities-related costs 21,071 20,399 19,004 80,452 72,549
Provision for doubtful accounts 805 1,499 129 3,209 1,235
Acquisition-related costs 19,995 530 538 23,373 1,028
License of patent (4,169) (4,128) (4,162) (16,421) (8,577)
Professional and other expenses 27,022 24,152 32,336 103,341 103,480
Total general and administrative expenses $146,115 $124,523 $116,775 $509,165 $439,916
======== ======== ======== ======== ========
General and administrative expenses-functional(1):
Global functions $52,818 $50,355 $51,826 $201,539 $189,485
As a percentage of revenue 8% 8% 8% 8% 8%
Infrastructure 76,666 76,267 68,444 297,465 255,855
As a percentage of revenue 12% 12% 11% 12% 11%
Other 16,631 (2,099) (3,495) 10,161 (5,424)
Total general and administrative expenses $146,115 $124,523 $116,775 $509,165 $439,916
======== ======== ======== ======== ========
As a percentage of revenue 22% 20% 19% 20% 19%
Stock-based compensation:
Cost of revenue $5,259 $5,296 $5,063 $20,314 $18,287
Research and development 10,121 10,100 8,822 38,864 29,739
Sales and marketing 15,466 15,672 15,067 60,246 55,407
General and administrative 11,359 10,780 10,250 44,884 41,073
Total stock-based compensation $42,205 $41,848 $39,202 $164,308 $144,506
======= ======= ======= ======== ========
(1) Global functions 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 includes payroll, stock-based compensation and other
employee-related costs for the Company's network and global facilities 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. The Company's network infrastructure function is responsible for network planning, sourcing, architecture
evaluation and platform security. Other includes acquisition-related costs, provision for doubtful accounts and the license of a patent.
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL FINANCIAL DATA
Three Months Ended Year Ended
(in thousands, except end of period statistics) December 31, September 30, December 31, December 31, December 31,
2017 2017 2016 2017 2016
------------- -------------- ------------- ------------- -------------
Depreciation and amortization:
Network-related depreciation $66,319 $64,369 $56,205 $246,702 $227,515
Other depreciation and amortization 19,498 19,320 17,409 74,754 64,706
------ ------ ------ ------ ------
Depreciation of property and equipment 85,817 83,689 73,614 321,456 292,221
Capitalized stock-based compensation amortization 5,029 5,046 3,323 17,518 13,752
Capitalized interest expense amortization 721 690 454 2,435 1,687
Amortization of acquired intangible assets 7,829 7,753 6,617 30,904 26,642
----- ----- ----- ------ ------
Total depreciation and amortization $99,396 $97,178 $84,008 $372,313 $334,302
======= ======= ======= ======== ========
Capital expenditures, excluding stock-based compensation and interest expense(1)(2):
Purchases of property and equipment $50,716 $62,755 $44,646 $234,493 $196,771
Capitalized internal-use software development costs 43,074 45,213 33,114 166,329 140,081
Total capital expenditures, excluding stock-based compensation and interest expense $93,790 $107,968 $77,760 $400,822 $336,852
======= ======== ======= ======== ========
End of period statistics:
Number of employees 7,650 7,438 6,490
(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 Year Ended
(in thousands, except per share data) December 31, 2017 September 30, 2017 December 31, 2016 December 31, 2017 December 31, 2016
----------------- ------------------ ----------------- ----------------- -----------------
Income from operations $27,903 $85,877 $123,530 $316,219 $459,594
GAAP operating margin 4% 14% 20% 13% 20%
Amortization of acquired intangible assets 7,829 7,753 6,617 30,904 26,642
Stock-based compensation 42,205 41,848 39,202 164,308 144,506
Amortization of capitalized stock-based compensation and capitalized interest expense 5,750 5,736 3,777 19,953 15,439
Restructuring charges 51,581 332 65 54,884 10,301
Acquisition-related costs 19,995 530 541 23,374 1,064
Legal matter costs - - - - 890
--- --- --- --- ---
Operating adjustments 127,360 56,199 50,202 293,423 198,842
Non-GAAP income from operations $155,263 $142,076 $173,732 $609,642 $658,436
======== ======== ======== ======== ========
Non-GAAP operating margin 23% 23% 28% 24% 28%
Net income $19,107 $60,512 $91,639 $218,321 $316,132
Operating adjustments (from above) 127,360 56,199 50,202 293,423 198,842
Amortization of debt discount and issuance costs 4,850 4,746 4,680 18,839 18,638
Gain loss on investments (450) - (4,807) (450) (4,807)
Income tax-effect of above non-GAAP adjustments and certain discrete tax items (33,142) (14,802) (15,567) (77,385) (52,661)
------- ------- ------- ------- -------
Non-GAAP net income 117,725 106,655 126,147 452,748 476,144
GAAP net income per diluted share $0.11 $0.35 $0.52 $1.26 $1.79
Amortization of acquired intangible assets 0.05 0.05 0.04 0.18 0.15
Stock-based compensation 0.25 0.24 0.22 0.95 0.82
Amortization of capitalized stock-based compensation and capitalized interest expense 0.03 0.03 0.02 0.12 0.09
Restructuring charges 0.30 - - 0.32 0.06
Acquisition-related costs 0.12 - - 0.14 0.01
Legal matter costs - - - - 0.01
Amortization of debt discount and issuance costs 0.03 0.03 0.03 0.11 0.11
Gain on investments - - (0.03) - (0.03)
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.19) (0.09) (0.09) (0.45) (0.30)
Non-GAAP net income per diluted share $0.69 $0.62 $0.72 $2.62 $2.70
===== ===== ===== ===== =====
Shares used in diluted per share calculations 170,727 171,505 175,284 172,711 176,215
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended Year Ended
(in thousands, except per share data) December 31, 2017 September 30, 2017 December 31, 2016 December 31, 2017 December 31, 2016
----------------- ------------------ ----------------- ----------------- -----------------
Net income $19,107 $60,512 $91,639 $218,321 $316,132
Interest income (4,487) (4,463) (4,180) (17,855) (14,702)
Provision for GAAP income taxes 8,906 25,617 34,175 97,801 143,314
Depreciation and amortization 85,817 83,689 73,614 321,456 292,221
Amortization of capitalized stock-based compensation and capitalized interest
expense 5,750 5,736 3,777 19,953 15,439
Amortization of acquired intangible assets 7,829 7,753 6,617 30,904 26,642
Stock-based compensation 42,205 41,848 39,202 164,308 144,506
Restructuring charges 51,581 332 65 54,884 10,301
Acquisition-related costs 19,995 530 541 23,374 1,064
Legal matter costs - - - - 890
Amortization of debt discount and issuance costs 4,850 4,746 4,680 18,839 18,638
Other income, net (473) (535) (2,784) (887) (3,788)
---- ---- ------ ---- ------
Adjusted EBITDA $241,080 $225,765 $247,346 $931,098 $950,657
======== ======== ======== ======== ========
Adjusted EBITDA margin 36% 36% 40% 37% 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 to GAAP EPS per diluted share from provisional charges associated with US tax reform - Provisional charges recorded in the fourth quarter of 2017, as a result of US tax reform, impacted the Company's earnings per share. To calculate the per share impact, the one-time $26 million net charge is divided by diluted weighted-average shares outstanding for the corresponding period.
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 margin improvement. 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 and manage our expenses as planned; 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.
