Akamai Reports Second Quarter 2018 Financial Results
CAMBRIDGE, Mass., July 31, 2018 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the second quarter ended June 30, 2018.
"We are very pleased with our second quarter performance, highlighted by outstanding growth in our security portfolio, further improvement in our Media and Carrier Division, overall margin expansion and very strong non-GAAP earnings growth of 34% year-over-year," said Dr. Tom Leighton, Chief Executive Officer.
Revenue: Revenue was $663 million, a 9% increase over second quarter 2017 revenue of $606 million and an 8% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $351 million, up 11% year-over-year and up 9%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $312 million, up 8%
year-over-year and up 7% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $155 million, up 33% year-over-year
and up 31% 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 $619 million, up 12%
year-over-year and up 10% when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $413 million, up 3% year-over-year
-- International revenue was $250 million, up 21% year-over-year and up 18%
when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $57 million, a 33% decrease from second quarter 2017. GAAP operating margin for the second quarter was 9%, down 5 percentage points from the same period last year. The second quarter of 2018 was impacted by a one-time $50 million endowment to the Akamai Foundation.
Non-GAAP income from operations* was $170 million, a 17% increase from second quarter 2017. Non-GAAP operating margin* for the second quarter was 26%, up 2 percentage points from the same period last year.
Net income: GAAP net income was $43 million, a 24% decrease from second quarter 2017, which was also impacted by the Akamai Foundation endowment. Non-GAAP net income* was $143 million, a 34% increase from second quarter 2017.
EPS: GAAP EPS was $0.25 per diluted share, a 24% decrease from second quarter 2017 and a 33% decrease when adjusted for foreign exchange.* Non-GAAP EPS was $0.83 per diluted share, a 34% increase from second quarter 2017 and a 32% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $262 million, an 18% increase from second quarter 2017. Adjusted EBITDA margin* was 39%, an increase of 2 percentage points as compared to the second quarter of 2017.
Other second quarter 2018 results:
-- Cash from operations was $220 million, or 33% of revenue
-- Cash, cash equivalents and marketable securities was $2.3 billion as of
June 30, 2018
-- The Company spent $166 million to repurchase 2.2 million shares of its
common stock at an average price of $76.76 per share
-- The Company had approximately 169 million shares of common stock
outstanding as of June 30, 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 7877618. 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 7877618. The archived webcast of this event may be accessed through the Akamai website.
About Akamai
As the world's largest and most trusted cloud delivery platform, Akamai makes it easier for its customers to provide the best and most secure digital experiences on any device, anytime, anywhere. Akamai's massively distributed platform is unparalleled in scale with over 200,000 servers across 130 countries, giving customers superior performance and threat protection. Akamai's portfolio of web and mobile performance, cloud security, enterprise access, and video delivery solutions are supported by exceptional customer service and 24/7 monitoring. To learn why the top financial institutions, e-commerce leaders, media & entertainment providers, and government organizations trust Akamai please visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) June 30, December 31,
2018 2017 (1)
---- -------
ASSETS
Current assets:
Cash and cash equivalents $977,488 $313,382
Marketable securities 879,483 398,554
Accounts receivable, net 479,865 461,457
Prepaid expenses and other current assets 147,324 172,853
-------
Total current assets 2,484,160 1,346,246
Property and equipment, net 852,950 862,535
Marketable securities 411,746 567,592
Goodwill 1,494,311 1,498,688
Acquired intangible assets, net 184,934 201,259
Deferred income tax assets 44,230 36,231
Other assets 132,373 136,365
------- -------
Total assets $5,604,704 $4,648,916
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $84,167 $80,278
Accrued expenses 253,241 283,743
Deferred revenue 100,314 70,495
Convertible senior notes 674,629 -
Other current liabilities 23,977 22,178
------ ------
Total current liabilities 1,136,328 456,694
Deferred revenue 6,075 6,062
Deferred income tax liabilities 18,236 17,823
Convertible senior notes 855,378 662,913
Other liabilities 143,409 142,955
------- -------
Total liabilities 2,159,426 1,286,447
--------- ---------
Total stockholders' equity 3,445,278 3,362,469
--------- ---------
Total liabilities and stockholders' equity $5,604,704 $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
certain 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 Six Months Ended
(in thousands, except per share data) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ---- ------- ---- -------
Revenue $662,759 $668,724 $605,832 $1,331,483 $1,206,125
Costs and operating expenses:
Cost of revenue(2) (3) 235,487 234,825 214,680 470,312 420,407
Research and development(2) 59,709 65,065 53,373 124,774 105,535
Sales and marketing(2) 131,680 122,553 117,944 254,233 232,436
General and administrative(2) (3) 170,206 154,385 123,518 324,591 238,527
Amortization of acquired intangible assets 8,294 8,431 7,753 16,725 15,322
Restructuring charges 266 14,908 2,971 15,174 2,971
--- ------ ----- ------ -----
Total costs and operating expenses 605,642 600,167 520,239 1,205,809 1,015,198
------- ------- ------- --------- ---------
Income from operations 57,117 68,557 85,593 125,674 190,927
Interest income 6,409 3,965 4,281 10,374 8,905
Interest expense (9,204) (4,850) (4,646) (14,054) (9,243)
Other (expense) income, net (2,769) 21 563 (2,748) (121)
------ --- --- ------ ----
Income before provision for income taxes 51,553 67,693 85,791 119,246 190,468
Provision for income taxes 8,492 13,979 29,039 22,471 59,133
----- ------ ------ ------ ------
Net income $43,061 $53,714 $56,752 $96,775 $131,335
======= ======= ======= ======= ========
Net income per share:
Basic $0.25 $0.32 $0.33 $0.57 $0.76
Diluted $0.25 $0.31 $0.33 $0.56 $0.75
Shares used in per share calculations:
Basic 170,250 170,116 172,674 170,183 172,916
Diluted 172,307 172,004 173,439 172,156 174,305
(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
certain 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 Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
---- ---- ---- ---- ----
Cash flows from operating activities:
Net income $43,061 $53,714 $56,752 $96,775 $131,335
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 106,298 104,095 89,206 210,393 175,739
Stock-based compensation 47,497 44,686 41,269 92,183 80,255
(Benefit) provision for deferred income (4,302) (7,814) 6,798 (12,116) 35,223
taxes
Amortization of debt discount and issuance 8,909 4,850 4,646 13,759 9,243
costs
Restructuring-related software charges - 2,818 - 2,818 -
Other non-cash reconciling items, net 3,636 4,379 1,738 8,015 1,609
Changes in operating assets and liabilities,
net of effects of acquisitions:
Accounts receivable 1,530 (18,419) 15,611 (16,889) (4,265)
Prepaid expenses and other current 13,505 (4,927) (4,052) 8,578 (51,224)
assets
Accounts payable and accrued expenses 4,221 (31,312) 6,399 (27,091) (17,541)
Deferred revenue 4,309 25,243 (232) 29,552 9,811
Other current liabilities (8,046) 13,701 2,385 5,655 5,901
Other non-current assets and liabilities (937) 996 4,113 59 (8,835)
---- --- ----- --- ------
Net cash provided by operating 219,681 192,010 224,633 411,691 367,251
activities
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash - (79) (197,191) (79) (197,201)
acquired
Purchases of property and equipment and (88,634) (113,075) (97,005) (201,709) (188,186)
capitalization of internal-use software
development costs
Purchases of short- and long-term marketable (394,534) (73,352) (88,913) (467,886) (181,219)
securities
Proceeds from sales and maturities of short- 64,830 75,736 88,978 140,566 413,116
and long-term marketable securities
Other non-current assets and liabilities 236 (715) (808) (479) (1,143)
--- ---- ---- ---- ------
Net cash used in investing activities (418,102) (111,485) (294,939) (529,587) (154,633)
-------- -------- -------- -------- --------
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Three Months Ended Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017(1) 2018 2017(1)
---- ---- ------ ---- ------
Cash flows from financing activities:
Proceeds from the issuance of convertible 1,132,622 - - 1,132,622 -
senior notes
Proceeds from the issuance of warrants 119,945 - - 119,945 -
Purchase of note hedge related to convertible (261,740) - - (261,740) -
senior notes
Proceeds from the issuance of common stock 11,365 22,738 8,150 34,103 25,680
under stock plans
Employee taxes paid related to net share (11,594) (29,714) (7,417) (41,308) (41,338)
settlement of stock-based awards
Repurchases of common stock (165,727) (19,785) (105,148) (185,512) (177,615)
Other non-current assets and liabilities (944) (3,900) (1,096) (4,844) (1,096)
---- ------ ------ ------ ------
Net cash provided by (used in) 823,927 (30,661) (105,511) 793,266 (194,369)
financing activities
Effects of exchange rate changes on cash, cash (12,625) 1,165 5,233 (11,460) 10,252
equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents 612,881 51,029 (170,584) 663,910 28,501
and restricted cash
Cash, cash equivalents and restricted cash at 365,458 314,429 523,711 314,429 324,626
beginning of period
Cash, cash equivalents and restricted cash at end $978,339 $365,458 $353,127 $978,339 $353,127
of period
(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 certain 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 ($0.8) million and
$0.1 million for the three and six months
ended June 30, 2017, respectively, with a
corresponding revision to the net increase
(decrease) in cash, cash equivalents and
restricted cash.
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION
Three Months Ended Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ---- ------- ---- -------
Web Division $351,084 $352,837 $317,408 $703,921 $620,896
Media and Carrier Division 311,675 315,887 288,424 627,562 585,229
Total revenue $662,759 $668,724 $605,832 $1,331,483 $1,206,125
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Web Division 11% 16% 15% 13% 14%
Media and Carrier Division 8 6 (3) 7 (2)
Total revenue 9% 11% 6% 10% 6%
=== === === === ===
Revenue growth rates year-over-year,
adjusted for the impact of foreign exchange
rates(2):
Web Division 9% 13% 16% 11% 15%
Media and Carrier Division 7 4 (2) 5 (2)
Total revenue 8% 9% 7% 8% 6%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS
Three Months Ended Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ---- ------- ---- -------
Cloud Security Solutions $155,250 $149,205 $116,776 $304,455 $226,782
CDN and other solutions 507,509 519,519 489,056 1,027,028 979,343
Total revenue $662,759 $668,724 $605,832 $1,331,483 $1,206,125
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Cloud Security Solutions 33% 36% 33% 34% 34%
CDN and other solutions 4 6 1 5 1
Total revenue 9% 11% 6% 10% 6%
=== === === === ===
Revenue growth rates year-over-year,
adjusted for the impact of foreign exchange
rates(2):
Cloud Security Solutions 31% 32% 34% 32% 35%
CDN and other solutions 3 3 2 3 1
Total revenue 8% 9% 7% 8% 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 Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ---- ------- ---- -------
Revenue from Internet Platform Customers $44,062 $44,391 $51,166 $88,453 $102,557
Revenue excluding Internet Platform Customers 618,697 624,333 554,666 1,243,030 1,103,568
------- ------- ------- --------- ---------
Total revenue $662,759 $668,724 $605,832 $1,331,483 $1,206,125
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers (14)% (14)% (17)% (14)% (23)%
Revenue excluding Internet Platform Customers 12 14 8 13 9
Total revenue 9% 11% 6% 10% 6%
=== === === === ===
Revenue growth rates year-over-year,
adjusted for the impact of foreign exchange
rates(2):
Revenue from Internet Platform Customers (14)% (14)% (17)% (14)% (23)%
Revenue excluding Internet Platform Customers 10 11 9 10 10
Total revenue 8% 9% 7% 8% 6%
=== === === === ===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY
Three Months Ended Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ---- ------- ---- -------
U.S. $413,129 $423,339 $400,236 $836,468 $799,106
International 249,630 245,385 205,596 495,015 407,019
------- ------- ------- ------- -------
Total revenue $662,759 $668,724 $605,832 $1,331,483 $1,206,125
======== ======== ======== ========== ==========
Revenue growth rates year-over-year:
U.S. 3% 6% 2% 5% 1%
International 21 22 15 22 17
--- --- --- ---
Total revenue 9% 11% 6% 10% 6%
=== === === === ===
Revenue growth rates year-over-year,
adjusted for the impact of foreign exchange
rates(2):
U.S. 3% 6% 2% 5% 1%
International 18 14 18 16 19
--- --- --- --- ---
Total revenue 8% 9% 7% 8% 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 Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
---- ---- ---- ---- ----
General and administrative expenses:
Payroll and related costs $46,874 $51,894 $47,516 $98,768 $92,407
Stock-based compensation 14,269 12,922 12,630 27,191 22,745
Depreciation and amortization 21,207 19,888 18,069 41,095 36,597
Facilities-related costs 20,529 21,795 20,184 42,324 38,982
Provision for doubtful accounts 420 521 752 941 905
Acquisition-related costs 500 1,143 3,057 1,643 2,848
Legal and stockholder matter costs - 23,091 - 23,091 -
License of patent (4,266) (4,215) (4,089) (8,481) (8,124)
Endowment of Akamai Foundation 50,000 - - 50,000 -
Professional and other expenses 20,673 27,346 25,399 48,019 52,167
------ ------ ------ ------ ------
Total general and administrative expenses $170,206 $154,385 $123,518 $324,591 $238,527
======== ======== ======== ======== ========
General and administrative expenses-functional(1):
Global functions $47,497 $55,653 $49,639 $103,150 $98,366
As a percentage of revenue 7% 8% 8% 8% 8%
Infrastructure 76,055 78,192 74,159 154,247 144,532
As a percentage of revenue 11% 12% 12% 12% 12%
Other 46,654 20,540 (280) 67,194 (4,371)
Total general and administrative expenses $170,206 $154,385 $123,518 $324,591 $238,527
======== ======== ======== ======== ========
As a percentage of revenue 26% 23% 20% 24% 20%
Stock-based compensation:
Cost of revenue $5,553 $5,296 $5,074 $10,849 $9,759
Research and development 10,926 10,509 9,614 21,435 18,643
Sales and marketing 16,749 15,959 13,951 32,708 29,108
General and administrative 14,269 12,922 12,630 27,191 22,745
------ ------ ------ ------ ------
Total stock-based compensation $47,497 $44,686 $41,269 $92,183 $80,255
======= ======= ======= ======= =======
(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 expense
includes acquisition-related
costs, provision for doubtful
accounts, the license of a patent,
legal and stockholder matter costs
and the endowment of the Akamai
Foundation.
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA
Three Months Ended Six Months Ended
(in thousands, except end of period statistics) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
---- ---- ---- ---- ----
Depreciation and amortization:
Network-related depreciation $37,748 $38,235 $35,404 $75,983 $70,659
Capitalized internal-use software development 32,822 31,668 23,766 64,490 45,355
amortization
Other depreciation and amortization 20,837 19,498 17,727 40,335 35,936
------ ------ ------ ------ ------
Depreciation of property and equipment 91,407 89,401 76,897 180,808 151,950
Capitalized stock-based compensation 5,846 5,569 3,972 11,415 7,443
amortization
Capitalized interest expense amortization 751 694 584 1,445 1,024
Amortization of acquired intangible assets 8,294 8,431 7,753 16,725 15,322
----- ----- ----- ------ ------
Total depreciation and amortization $106,298 $104,095 $89,206 $210,393 $175,739
======== ======== ======= ======== ========
Capital expenditures, excluding stock-based
compensation and interest expense(1)(2):
Purchases of property and equipment $52,815 $26,597 $64,522 $79,412 $121,022
Capitalized internal-use software development 49,028 49,257 40,957 98,285 78,042
costs
Total capital expenditures, excluding stock- $101,843 $75,854 $105,479 $177,697 $199,064
based compensation and interest expense
End of period statistics:
Number of employees 7,443 7,454 7,084
(1) Capital expenditures presented in
this table are reported on an
accrual basis, which differs
from the cash-basis
presentation in the statements
of cash flows. The primary
difference between the two is
the change in purchases of
property and equipment and
capitalization of internal-use
software development costs
accrued for, but not paid, at
period end.
(2) See Use of Non-GAAP Financial
Measures below for a definition
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND NET INCOME
PER DILUTED SHARE
Three Months Ended Six Months Ended
(in thousands, except per share data) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
Income from operations $57,117 $68,557 $85,593 $125,674 $190,927
GAAP operating margin 9% 10% 14% 9% 16%
Amortization of acquired intangible assets 8,294 8,431 7,753 16,725 15,322
Stock-based compensation 47,497 44,686 41,269 92,183 80,255
Amortization of capitalized stock-based 6,597 6,263 4,556 12,860 8,467
compensation and capitalized interest expense
Restructuring charges 266 14,908 2,971 15,174 2,971
Acquisition-related costs 500 1,143 3,057 1,643 2,849
Legal and stockholder matter costs - 23,091 - 23,091 -
Endowment of Akamai Foundation 50,000 - - 50,000 -
------ --- --- ------ ---
Operating adjustments 113,154 98,522 59,606 211,676 109,864
------- ------ ------- -------
Non-GAAP income from operations $170,271 $167,079 $145,199 $337,350 $300,791
======== ======== ======== ======== ========
Non-GAAP operating margin 26% 25% 24% 25% 25%
Net income $43,061 $53,714 $56,752 $96,775 $131,335
Operating adjustments (from above) 113,154 98,522 59,606 211,676 109,864
Amortization of debt discount and issuance costs 8,909 4,850 4,646 13,759 9,243
Loss on investments 2,000 - - 2,000 -
Income tax-effect of above non-GAAP (24,191) (21,283) (13,974) (45,474) (29,441)
adjustments and certain discrete tax items
Non-GAAP net income $142,933 $135,803 $107,030 $278,736 $221,001
======== ======== ======== ======== ========
GAAP net income per diluted share $0.25 $0.31 $0.33 $0.56 $0.75
Amortization of acquired intangible assets 0.05 0.05 0.04 0.10 0.09
Stock-based compensation 0.28 0.25 0.24 0.54 0.46
Amortization of capitalized stock-based 0.04 0.04 0.03 0.07 0.05
compensation and capitalized interest expense
Restructuring charges - 0.09 0.02 0.09 0.02
Acquisition-related costs - 0.01 0.02 0.01 0.02
Legal and stockholder matter costs - 0.13 - 0.13 -
Endowment of Akamai Foundation 0.29 - - 0.29 -
Amortization of debt discount and issuance costs 0.05 0.03 0.03 0.08 0.05
Loss on investments 0.01 - - 0.01 -
Income tax effect of above non-GAAP (0.14) (0.12) (0.08) (0.26) (0.17)
adjustments and certain discrete tax items
Non-GAAP net income per diluted share $0.83 $0.79 $0.62 $1.62 $1.27
===== ===== ===== ===== =====
Shares used in diluted per share calculations 172,307 172,004 173,439 172,156 174,305
(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
certain 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 Six Months Ended
(in thousands, except per share data) June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 (1) 2018 2017 (1)
---- ------- ---- -------
Net income $43,061 $53,714 $56,752 $96,775 $131,335
Interest income (6,409) (3,965) (4,281) (10,374) (8,905)
Provision for income taxes 8,492 13,979 29,039 22,471 59,133
Depreciation and amortization 91,407 89,401 76,897 180,808 151,950
Amortization of capitalized stock-based 6,597 6,263 4,556 12,860 8,467
compensation and capitalized interest expense
Amortization of acquired intangible assets 8,294 8,431 7,753 16,725 15,322
Stock-based compensation 47,497 44,686 41,269 92,183 80,255
Restructuring charges 266 14,908 2,971 15,174 2,971
Acquisition-related costs 500 1,143 3,057 1,643 2,849
Legal and stockholder matter costs - 23,091 - 23,091 -
Endowment of Akamai Foundation 50,000 - - 50,000 -
Interest expense 9,204 4,850 4,646 14,054 9,243
Loss on investments 2,000 - - 2,000 -
Other expense (income), net 769 (21) (563) 748 121
--- --- ---- --- ---
Adjusted EBITDA $261,678 $256,480 $222,096 $518,158 $452,741
======== ======== ======== ======== ========
Adjusted EBITDA margin 39% 38% 37% 39% 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
certain 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 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 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 May 2018, Akamai issued $1,150 million
of convertible senior notes due 2025 with a coupon interest rate of
0.125%. In February 2014, Akamai issued $690 million of convertible
senior notes due 2019 with a coupon interest rate of 0%. The imputed
interest rates of these convertible senior notes were 4.26% and 3.20%,
respectively. This is a result of the debt discounts recorded for the
conversion features that are required to be separately accounted for as
equity under GAAP, thereby reducing the carrying value of the
convertible debt instruments. The debt discounts are amortized as
interest expense together with the issuance costs of the debt. The
interest expense excluded from Akamai's non-GAAP results 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.
-- Gains and losses on investments - Akamai has recorded gains and losses
from the disposition and impairment of certain investments. Akamai
believes excluding these amounts from its non-GAAP financial measures is
useful to investors as the types of events giving rise to them occur
infrequently and are not representative of Akamai's core business
operations and 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.
-- Endowment of Akamai Foundation - During the second quarter of 2018,
Akamai incurred a charge to endow the Akamai Foundation. Akamai believes
excluding these amounts from non-GAAP financial measures is useful to
investors as this one-time expense is not representative of its 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 related to the establishment of an endowment to the Akamai Foundation; 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 related to the establishment of an endowment to the Akamai Foundation; 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 $1,150 million of convertible senior notes due 2025 and $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. With respect to the convertible senior notes due 2025, unless and until Akamai's weighted average stock price is greater than $95.10, the intial conversion price, and with respect to the convertible senior notes due 2019, 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 related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; foreign exchange gains and losses; loss on early extinguishment of debt; interest expense; 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.
