Akamai Reports First Quarter 2018 Financial Results
Akamai Reports First Quarter 2018 Financial Results
Record first quarter revenue of $669 million, up 11% year-over-year
Cloud Security Solutions revenue grew 36%, now at $600 million annualized run rate
GAAP EPS of $0.31 and non-GAAP EPS of $0.79
CAMBRIDGE, Mass., April 30, 2018 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the first quarter ended March 31, 2018.
"We are very pleased with the results of our first quarter performance, which featured continued outstanding growth in our security business, substantial improvement in our media business, margin expansion and accelerated revenue growth overall," said Dr. Tom Leighton, Chief Executive Officer.
Akamai delivered the following financial results for the first quarter ended March 31, 2018.
Revenue: Revenue was $669 million, an 11% increase over first quarter 2017 revenue of $600 million and a 9% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $353 million, up 16% year-over-year and up 13%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $316 million, up 6%
year-over-year and up 4% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $149 million, up 36% year-over-year
and up 32% when adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $44 million, down 14%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $624 million, up 14%
year-over-year and up 11% when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $423 million, up 6% year-over-year
-- International revenue was $245 million, up 22% year-over-year and up 14%
when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $69 million, a 35% decrease from first quarter 2017. GAAP operating margin for the first quarter was 10%, down 8 percentage points from the same period last year. The first quarter of 2018 was impacted by a $15 million restructuring charge and $23 million for legal settlements and non-recurring professional advisory fees associated with a non-routine stockholder matter.
Non-GAAP income from operations* was $167 million, a 5% increase from fourth quarter 2017 and a 7% increase from first quarter 2017. Non-GAAP operating margin* for the first quarter was 25%, up 1 percentage point from the fourth quarter of 2017 due to operational efficiency improvements, but down 1 percentage point from the same period last year due to two acquisitions that were completed subsequent to the first quarter of 2017.
Net income: GAAP net income was $54 million, a 28% decrease from first quarter 2017. Non-GAAP net income* was $136 million, a 19% increase from first quarter 2017.
EPS: GAAP EPS was $0.31 per diluted share, a 28% decrease from first quarter 2017 and a 33% decrease when adjusted for foreign exchange.* Non-GAAP EPS was $0.79 per diluted share, a 22% increase from first quarter 2017 and a 17% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $256 million, an 11% increase from first quarter 2017. Adjusted EBITDA margin* was 38%, flat compared to the first quarter of 2017.
Other first quarter 2018 results:
-- Cash from operations was $192 million, or 29% of revenue
-- Cash, cash equivalents and marketable securities was $1.3 billion as of
March 31, 2018
-- The Company spent $20 million to repurchase 0.3 million shares of its
common stock at an average price of $67.38 per share
-- The Company had approximately 171 million shares of common stock
outstanding as of March 31, 2018
Adoption of new revenue recognition standard: Prior period results have been revised for the adoption of the new revenue recognition standard. Under this standard, the way revenue is recognized changed for some of Akamai's customers and primarily impacts the revenue timing of a small number of licensed software customers. The way Akamai recognizes revenue for its core Web and Media products is substantially unchanged. Akamai will also begin capitalizing certain commission and incentive payments. The revisions as a result of the new standard did not have a material impact on Akamai's annual revenue or results of operations, but did cause quarter-to-quarter fluctuations. For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com.
* See Use of Non-GAAP Financial Measures below for definitions
(1) Revenue by Division - A customer-
focused reporting view that
reflects revenue from customers
that are managed by the division.
As of January 1, 2018, Akamai now
reports its revenue in two
divisions compared to the three
divisions reported in 2017; the
Media Division and Enterprise and
Carrier Division were combined to
form the new Media and Carrier
Division. In addition, as the
purchasing patterns and required
account expertise of customers
changes over time, Akamai may
reassign a customer's division from
one to another. In 2018 Akamai
reassigned some of its customers
from the Media and Carrier Division
to the Web Division and revised
historical results in order to
reflect the most recent
categorization and to provide a
comparable view for all periods
presented.
(2) Revenue from Cloud Security
Solutions - A product-focused
reporting view that illustrates
revenue from Cloud Security
Solutions separately from all other
solution categories. During 2018,
Akamai updated its methodology for
allocating revenue to specific
solutions when solutions are sold
as a bundle. During 2018, Akamai
reassigned amounts from CDN and
other solutions revenue to Cloud
Security Solutions revenue and
revised historical results in order
to reflect the most recent
allocation methodologies and to
provide a comparable view for all
periods presented.
(3) Revenue from Internet Platform
Customers - Revenue from six
customers that are large Internet
platform companies: Amazon, Apple,
Facebook, Google, Microsoft and
Netflix.
Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671 (or 1-508-637-5655 for international calls) and using passcode 4695086. 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 4695086. 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) March 31, December 31,
2018 2017 (1)
---- -------
ASSETS
Current assets:
Cash and cash equivalents $363,703 $313,382
Marketable securities 447,850 398,554
Accounts receivable, net 484,617 461,457
Prepaid expenses and other
current assets 163,556 172,853
Total current assets 1,459,726 1,346,246
Property and equipment, net 845,118 862,535
Marketable securities 512,270 567,592
Goodwill 1,498,906 1,498,688
Acquired intangible assets,
net 193,228 201,259
Deferred income tax assets 44,490 36,231
Other assets 133,166 136,365
------- -------
Total assets $4,686,904 $4,648,916
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $81,239 $80,278
Accrued expenses 253,075 283,743
Deferred revenue 95,490 70,495
Convertible senior notes 668,745 -
Other current liabilities 32,046 22,178
------ ------
Total current liabilities 1,130,595 456,694
Deferred revenue 7,049 6,062
Deferred income tax
liabilities 17,675 17,823
Convertible senior notes - 662,913
Other liabilities 145,328 142,955
------- -------
Total liabilities 1,300,647 1,286,447
--------- ---------
Total stockholders' equity 3,386,257 3,362,469
--------- ---------
Total liabilities and
stockholders' equity $4,686,904 $4,648,916
========== ==========
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. Akamai will
also begin capitalizing costs associated
with obtaining customer contracts,
specifically commission and incentive
payments. For more information, see the
posted revisions to the consolidated
statements of income and other key
disaggregated revenue amounts in the
Investor Relations section of Akamai's
website at www.akamai.com.
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(in thousands, except per share data) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
---- ------- -------
Revenue $668,724 $658,470 $600,293
Costs and operating expenses:
Cost of revenue(2) (3) 234,825 229,940 205,727
Research and development(2) 65,065 59,673 52,162
Sales and marketing(2) 122,553 131,223 114,492
General and administrative(2) (3) 154,385 146,115 115,009
Amortization of acquired intangible assets 8,431 7,829 7,569
Restructuring charges 14,908 51,581 -
------ ------ ---
Total costs and operating expenses 600,167 626,361 494,959
------- ------- -------
Income from operations 68,557 32,109 105,334
Interest income 3,965 4,487 4,624
Interest expense (4,850) (4,850) (4,597)
Other income (expense), net 21 473 (684)
--- --- ----
Income before provision for income taxes 67,693 32,219 104,677
Provision for income taxes 13,979 4,699 30,094
------ ----- ------
Net income $53,714 $27,520 $74,583
======= ======= =======
Net income per share:
Basic $0.32 $0.16 $0.43
Diluted $0.31 $0.16 $0.43
Shares used in per share calculations:
Basic 170,116 169,429 173,158
Diluted 172,004 170,727 175,171
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. Akamai will
also begin capitalizing costs associated
with obtaining customer contracts,
specifically commission and incentive
payments. For more information, see the
posted revisions to the consolidated
statements of income and other key
disaggregated revenue amounts in the
Investor Relations section of Akamai's
website at www.akamai.com.
(2) Includes stock-based compensation (see
supplemental table for figures)
(3) Includes depreciation and amortization (see
supplemental table for figures)
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
---- ------- -------
Cash flows from operating activities:
Net income $53,714 $27,520 $74,583
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 104,095 99,396 86,533
Stock-based compensation 44,686 42,205 38,986
(Benefit) provision for deferred income taxes (7,814) (30,378) 28,425
Amortization of debt discount and issuance costs 4,850 4,850 4,597
Restructuring-related software charges 2,818 31,965 -
Other non-cash reconciling items, net 4,379 6,413 (129)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (18,419) (40,631) (19,876)
Prepaid expenses and other current assets (4,927) 7,612 (47,172)
Accounts payable and accrued expenses (31,312) 11,082 (23,940)
Deferred revenue 25,243 1,410 10,043
Other current liabilities 13,701 12,727 3,516
Other non-current assets and liabilities 996 23,270 (12,948)
--- ------ -------
Net cash provided by operating activities 192,010 197,441 142,618
------- ------- -------
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired (79) (171,872) (10)
Purchases of property and equipment and capitalization of internal-use software development costs (113,075) (106,852) (91,181)
Purchases of short- and long-term marketable securities (73,352) (77,399) (92,306)
Proceeds from sales and maturities of short- and long-term marketable securities 75,736 154,390 324,138
Other non-current assets and liabilities (715) (420) (335)
---- ---- ----
Net cash used in (provided by) investing activities (111,485) (202,153) 140,306
-------- -------- -------
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans 22,738 13,940 17,530
Employee taxes paid related to net share settlement of stock-based awards (29,714) (10,273) (33,921)
Repurchases of common stock (19,785) (54,565) (72,467)
Other non-current assets and liabilities (3,900) - -
------ --- ---
Net cash used in financing activities (30,661) (50,898) (88,858)
------- ------- -------
Effects of exchange rate changes on cash, cash equivalents and restricted cash 1,165 631 5,019
----- --- -----
Net increase (decrease) in cash, cash equivalents and restricted cash 51,029 (54,979) 199,085
Cash, cash equivalents and restricted cash at beginning of period 314,429 369,408 324,626
------- ------- -------
Cash, cash equivalents and restricted cash at end of period $365,458 $314,429 $523,711
======== ======== ========
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. Akamai will
also begin capitalizing costs associated
with obtaining customer contracts,
specifically commission and incentive
payments. For more information, see the
posted revisions to the consolidated
statements of income and other key
disaggregated revenue amounts in the
Investor Relations section of Akamai's
website at www.akamai.com.
On January 1, 2018, Akamai also adopted
Accounting Standards Update No. 2016-18,
Statement of Cash Flows. Under this
standard, restricted cash is included with
cash and cash equivalents when reconciling
the beginning-of-period and end-of-
period cash on the statement of cash
flows. Akamai retrospectively adopted this
standard and revised cash flows from
investing activities by ($0.2) million and
$0.8 million for the three months ended
December 31, 2017 and March 31, 2017,
respectively, with a corresponding
revision to total cash, cash equivalents
and restricted cash.
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
---- ------- -------
Web Division $352,837 $354,821 $303,488
Media and Carrier Division 315,887 303,649 296,805
Total revenue $668,724 $658,470 $600,293
======== ======== ========
Revenue growth rates year-over-year:
Web Division 16% 16% 13%
Media and Carrier Division 6 - (2)
Total revenue 11% 8% 5%
=== === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Web Division 13% 15% 14%
Media and Carrier Division 4 (1) (1)
Total revenue 9% 7% 6%
=== === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
---- ------- -------
Cloud Security Solutions $149,205 $135,842 $110,006
CDN and other solutions 519,519 522,628 490,287
Total revenue $668,724 $658,470 $600,293
======== ======== ========
Revenue growth rates year-over-year:
Cloud Security Solutions 36% 34% 34%
CDN and other solutions 6 3 -
Total revenue 11% 8% 5%
=== === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Cloud Security Solutions 32% 33% 36%
CDN and other solutions 3 2 1
Total revenue 9% 7% 6%
=== === ===
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. For more
information, see the posted revisions to
the consolidated statements of income and
other key disaggregated revenue amounts in
the Investor Relations section of Akamai's
website at www.akamai.com.
(2) See Use of Non-GAAP Financial Measures
below for a definition
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM INTERNET PLATFORM CUSTOMERS
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017(1) 2017(1)
---- ------ ------
Revenue from Internet Platform Customers $44,391 $49,992 $51,391
Revenue excluding Internet Platform Customers 624,333 608,478 548,902
------- ------- -------
Total revenue $668,724 $658,470 $600,293
======== ======== ========
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers (14)% (14)% (29)%
Revenue excluding Internet Platform Customers 14 10 10
Total revenue 11% 8% 5%
=== === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Revenue from Internet Platform Customers (14)% (14)% (29)%
Revenue excluding Internet Platform Customers 11 9 11
Total revenue 9% 7% 6%
=== === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
---- ------- -------
U.S. $423,339 $425,744 $398,870
International 245,385 232,726 201,423
------- ------- -------
Total revenue $668,724 $658,470 $600,293
======== ======== ========
Revenue growth rates year-over-year:
U.S. 6% 2% - %
International 22 22 19
Total revenue 11% 8% 5%
=== === ===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
U.S. 6% 2% - %
International 14 18 21
--- --- ---
Total revenue 9% 7% 6%
=== === ===
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. For more
information, see the posted revisions to
the consolidated statements of income and
other key disaggregated revenue amounts in
the Investor Relations section of Akamai's
website at www.akamai.com.
(2) See Use of Non-GAAP Financial Measures
below for a definition
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA
Three Months Ended
(in thousands) March 31, December 31, March 31,
2018 2017 2017
---- ---- ----
General and administrative expenses:
Payroll and related costs $51,894 $50,187 $44,891
Stock-based compensation 12,922 11,359 10,115
Depreciation and amortization 19,888 19,845 18,528
Facilities-related costs 21,795 21,071 18,798
Provision for doubtful accounts 521 805 153
Acquisition-related costs 1,143 19,995 (209)
Legal and stockholder matter costs 23,091 - -
License of patent (4,215) (4,169) (4,035)
Professional and other expenses 27,346 27,022 26,768
------ ------ ------
Total general and administrative expenses $154,385 $146,115 $115,009
======== ======== ========
General and administrative expenses-functional(1):
Global functions $55,653 $52,818 $48,727
As a percentage of revenue 8% 8% 8%
Infrastructure 78,192 76,666 70,373
As a percentage of revenue 12% 12% 12%
Other 20,540 16,631 (4,091)
Total general and administrative expenses $154,385 $146,115 $115,009
======== ======== ========
As a percentage of revenue 23% 22% 19%
Stock-based compensation:
Cost of revenue $5,296 $5,259 $4,685
Research and development 10,509 10,121 9,029
Sales and marketing 15,959 15,466 15,157
General and administrative 12,922 11,359 10,115
------ ------ ------
Total stock-based compensation $44,686 $42,205 $38,986
======= ======= =======
(1) Global functions expense includes
payroll, stock-based compensation
and other employee-related costs
for administrative functions,
including finance, purchasing,
order entry, human resources,
legal, information technology and
executive personnel, as well as
third-party professional service
fees. Infrastructure expense
includes payroll, stock-based
compensation and other employee-
related costs for our network
infrastructure functions, as well
as facility rent expense,
depreciation and amortization of
facility and IT-related assets,
software and software-related
costs, business insurance and
taxes. Our network infrastructure
function is responsible for
network planning, sourcing,
architecture evaluation and
platform security. Other expenses
includes acquisition-related
costs, provision for doubtful
accounts, the license of a patent
and legal and stockholder matter
costs.
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA
Three Months Ended
(in thousands, except end of period statistics) March 31, December 31, March 31,
2018 2017 2017
---- ---- ----
Depreciation and amortization:
Network-related depreciation $38,235 $37,223 $35,255
Capitalized internal-use software development amortization 31,668 29,096 21,589
Other depreciation and amortization 19,498 19,498 18,209
------ ------ ------
Depreciation of property and equipment 89,401 85,817 75,053
Capitalized stock-based compensation amortization 5,569 5,029 3,471
Capitalized interest expense amortization 694 721 440
Amortization of acquired intangible assets 8,431 7,829 7,569
----- ----- -----
Total depreciation and amortization $104,095 $99,396 $86,533
======== ======= =======
Capital expenditures, excluding stock-based compensation and interest expense(1)(2):
Purchases of property and equipment $26,597 $50,716 $56,500
Capitalized internal-use software development costs 49,257 43,074 37,085
Total capital expenditures, excluding stock-based compensation and interest expense $75,854 $93,790 $93,585
======= ======= =======
End of period statistics:
Number of employees 7,454 7,650 6,672
(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
(in thousands, except per share data) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
Income from operations $68,557 $32,109 $105,334
GAAP operating margin 10% 5% 18%
Amortization of acquired intangible assets 8,431 7,829 7,569
Stock-based compensation 44,686 42,205 38,986
Amortization of capitalized stock-based compensation and capitalized interest expense 6,263 5,750 3,911
Restructuring charges 14,908 51,581 -
Acquisition-related costs 1,143 19,995 (208)
Legal and stockholder matter costs 23,091 - -
------ --- ---
Operating adjustments 98,522 127,360 50,258
Non-GAAP income from operations $167,079 $159,469 $155,592
======== ======== ========
Non-GAAP operating margin 25% 24% 26%
Net income $53,714 $27,520 $74,583
Operating adjustments (from above) 98,522 127,360 50,258
Amortization of debt discount and issuance costs 4,850 4,850 4,597
Gain on investments - (450) -
Income tax-effect of above non-GAAP adjustments and certain discrete tax items (21,283) (38,574) (15,467)
Non-GAAP net income $135,803 $120,706 $113,971
======== ======== ========
GAAP net income per diluted share $0.31 $0.16 $0.43
Amortization of acquired intangible assets 0.05 0.05 0.04
Stock-based compensation 0.25 0.25 0.22
Amortization of capitalized stock-based compensation and capitalized interest expense 0.04 0.03 0.02
Restructuring charges 0.09 0.30 -
Acquisition-related costs 0.01 0.12 -
Legal and stockholder matter costs 0.13 - -
Amortization of debt discount and issuance costs 0.03 0.03 0.03
Gain on investments - - -
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.12) (0.23) (0.09)
Non-GAAP net income per diluted share $0.79 $0.71 $0.65
===== ===== =====
Shares used in diluted per share calculations 172,004 170,727 175,171
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. Akamai will
also begin capitalizing costs associated
with obtaining customer contracts,
specifically commission and incentive
payments. For more information, see the
posted revisions to the consolidated
statements of income and other key
disaggregated revenue amounts in the
Investor Relations section of Akamai's
website at www.akamai.com.
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended
(in thousands, except per share data) March 31, December 31, March 31,
2018 2017 (1) 2017 (1)
Net income $53,714 $27,520 $74,583
Interest income (3,965) (4,487) (4,624)
Provision for income taxes 13,979 4,699 30,094
Depreciation and amortization 89,401 85,817 75,053
Amortization of capitalized stock-based compensation and capitalized interest expense 6,263 5,750 3,911
Amortization of acquired intangible assets 8,431 7,829 7,569
Stock-based compensation 44,686 42,205 38,986
Restructuring charges 14,908 51,581 -
Acquisition-related costs 1,143 19,995 (208)
Legal and stockholder matter costs 23,091 - -
Amortization of debt discount and issuance costs 4,850 4,850 4,597
Gain on investments - (450) -
Other (income) expense, net (21) (23) 684
--- --- ---
Adjusted EBITDA $256,480 $245,286 $230,645
======== ======== ========
Adjusted EBITDA margin 38% 37% 38%
(1) Prior period information has been restated
for the adoption of Accounting Standards
Update No. 2014-09, Revenue from Contracts
with Customers, which Akamai adopted
retrospectively on January 1, 2018. Under
this standard, the way revenue is
recognized changed for some of Akamai's
contracts with customers. Akamai will
also begin capitalizing costs associated
with obtaining customer contracts,
specifically commission and incentive
payments. For more information, see the
posted revisions to the consolidated
statements of income and other key
disaggregated revenue amounts in the
Investor Relations section of Akamai's
website at www.akamai.com.
Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.
Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.
The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned "Reconciliation of GAAP to Non-GAAP Financial Measures" can be found on the Investor Relations section of Akamai's website.
The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:
-- Amortization of acquired intangible assets - Akamai has incurred
amortization of intangible assets, included in its GAAP financial
statements, related to various acquisitions Akamai has made. The amount
of an acquisition's purchase price allocated to intangible assets and
term of its related amortization can vary significantly and is unique to
each acquisition; therefore, Akamai excludes amortization of acquired
intangible assets from its non-GAAP financial measures to provide
investors with a consistent basis for comparing pre- and
post-acquisition operating results.
-- Stock-based compensation and amortization of capitalized stock-based
compensation - Although stock-based compensation is an important aspect
of the compensation paid to Akamai's employees, the grant date fair
value varies based on the stock price at the time of grant, varying
valuation methodologies, subjective assumptions and the variety of award
types. This makes the comparison of Akamai's current financial results
to previous and future periods difficult to interpret; therefore, Akamai
believes it is useful to exclude stock-based compensation and
amortization of capitalized stock-based compensation from its non-GAAP
financial measures in order to highlight the performance of Akamai's
core business and to be consistent with the way many investors evaluate
its performance and compare its operating results to peer companies.
-- Acquisition-related costs - Acquisition-related costs include
transaction fees, advisory fees, due diligence costs and other direct
costs associated with strategic activities. In addition, subsequent
adjustments to Akamai's initial estimated amounts of contingent
consideration and indemnification associated with specific acquisitions
are included within acquisition-related costs. These amounts are
impacted by the timing and size of the acquisitions. Akamai excludes
acquisition-related costs from its non-GAAP financial measures to
provide a useful comparison of Akamai's operating results to prior
periods and to its peer companies because such amounts vary
significantly based on the magnitude of the acquisition transactions and
do not reflect Akamai's core operations.
-- Restructuring charges - Akamai has incurred restructuring charges that
are included in its GAAP financial statements, primarily related to
workforce reductions and estimated costs of exiting facility lease
commitments. Akamai excludes these items from its non-GAAP financial
measures when evaluating its continuing business performance as such
items vary significantly based on the magnitude of the restructuring
action and do not reflect expected future operating expenses. In
addition, these charges do not necessarily provide meaningful insight
into the fundamentals of current or past operations of its business.
-- Amortization of debt discount and issuance costs and amortization of
capitalized interest expense - In 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 and stockholder matter costs -Akamai has incurred losses related
to the settlement of legal matters, costs from professional service
providers related to a non-routine stockholder matter and costs with
respect to its internal U.S. Foreign Corrupt Practices Act ("FCPA")
investigation. Akamai believes excluding these amounts from its non-GAAP
financial measures is useful to investors as the types of events giving
rise to them are not representative of Akamai's core business
operations.
-- Income tax effect of non-GAAP adjustments and certain discrete tax items
- The non-GAAP adjustments described above are reported on a pre-tax
basis. The income tax effect of non-GAAP adjustments is the difference
between GAAP and non-GAAP income tax expense. Non-GAAP income tax
expense is computed on non-GAAP pre-tax income (GAAP pre-tax income
adjusted for non-GAAP adjustments) and excludes certain discrete tax
items (such as recording or releasing of valuation allowances), if any.
Akamai believes that applying the non GAAP adjustments and their related
income tax effect allows Akamai to highlight income attributable to its
core operations.
Akamai's definitions of its non-GAAP financial measures are outlined below:
Non-GAAP income from operations - GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred with respect to Akamai's internal FCPA investigation; and other non-recurring or unusual items that may arise from time to time.
Non-GAAP operating margin - Non-GAAP income from operations stated as a percentage of revenue.
Non-GAAP net income - GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred 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 from professional service providers related to a non-routine stockholder matter; 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.
Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about expected revenue growth and future profitability levels. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.
In addition, the statements in this press release and on such call represent Akamai's expectations and beliefs as of the date of this press release. Akamai anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Akamai may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Akamai's expectations or beliefs as of any date subsequent to the date of this press release.
Contacts:
Chris Nicholson Tom Barth
Media Relations Investor Relations
Akamai Technologies Akamai Technologies
617-444-2987 617-274-7130
cnichols@akamai.com tbarth@akamai.com
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SOURCE Akamai Technologies, Inc.
