Akamai Reports Second Quarter 2019 Financial Results
CAMBRIDGE, Mass., July 30, 2019 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the second quarter ended June 30, 2019.
"Akamai delivered another quarter of strong results, with revenue and earnings exceeding our expectations. Security product revenue grew 34%, when adjusted for the impact of foreign exchange rates, to over $200 million in the quarter, and we saw continued strong OTT traffic growth on the Akamai Edge platform," said Dr. Tom Leighton, Akamai's Chief Executive Officer. "We believe we are well positioned to achieve our 30% margin goal in 2020, while continuing to invest in innovation and new products to drive future growth."
Akamai delivered the following financial results for the second quarter ended June 30, 2019:
Revenue: Revenue was $705 million, a 6% increase over second quarter 2018 revenue of $663 million and an 8% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $380 million, up 8% year-over-year and up 10%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $325 million, up 4%
year-over-year and up 6% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $205 million, up 32% year-over-year
and up 34% when adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $46 million, up 5%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $659 million, up 6%
year-over-year and up 8% when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $417 million, up 1% year-over-year
-- International revenue was $288 million, up 15% year-over-year and up 20%
when adjusted for foreign exchange*
Second quarter 2018 and 2019 items: Second quarter year-over-year growth rates for GAAP income from operations, GAAP net income and GAAP EPS in the paragraphs below were impacted by a one-time $50 million endowment to the Akamai Foundation recognized in the second quarter of 2018, which did not recur in the second quarter of 2019.
Second quarter year-over-year growth rates for GAAP and non-GAAP income from operations, net income and EPS in the paragraphs below were benefited by $9 million, or $8 million net of tax and $0.05 per share, from a change in estimated useful lives of some network assets due to software and hardware initiatives undertaken to manage Akamai's global network more efficiently. These network assets, primarily comprised of servers, are now amortized over 5 years, from 4 years, beginning on January 1, 2019.
Income from operations: GAAP income from operations was $136 million, a 138% increase from second quarter 2018. GAAP operating margin for the second quarter was 19%, up 10 percentage points from the same period last year.
Non-GAAP income from operations* was $204 million, a 20% increase from second quarter 2018. Non-GAAP operating margin* for the second quarter was 29%, up 3 percentage points from the same period last year.
Net income: GAAP net income was $114 million, a 165% increase from second quarter 2018. Non-GAAP net income* was $176 million, a 23% increase from second quarter 2018.
EPS: GAAP EPS was $0.69 per diluted share, a 176% increase from second quarter 2018 and a 185% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.07 per diluted share, a 29% increase from second quarter 2018 and a 32% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $293 million, a 12% increase from second quarter 2018. Adjusted EBITDA margin* for the second quarter was 42%, up 3 percentage points from the same period last year.
Supplemental cash information: Cash from operations for the second quarter of 2019 was $318 million, or 45% of revenue. Cash, cash equivalents and marketable securities was $1.3 billion as of June 30, 2019.
Share repurchases: Akamai spent $81 million in the second quarter of 2019 to repurchase 1.1 million shares of its common stock at an average price of $77.11 per share. The Company had 163 million shares of common stock outstanding as of June 30, 2019.
*
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
(2)
Revenue from Cloud Security Solutions - A product-focused reporting view that reflects revenue from Cloud Security Solutions separately from all other solution categories
(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 8775706. 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 8775706. The archived webcast of this event may be accessed through the Akamai website.
About Akamai
Akamai secures and delivers digital experiences for the world's largest companies. Akamai's intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone - and attacks and threats far away. Akamai's portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world's top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands) June 30, December 31,
2019 (1) 2018
---
ASSETS
Current assets:
Cash and cash equivalents $
515,896 $
1,036,455
Marketable securities 526,596 855,650
Accounts receivable, net 523,382 479,889
Prepaid expenses and other current
assets 178,920 163,360
Total current assets 1,744,794 2,535,354
Marketable securities 287,046 209,066
Property and equipment, net 1,019,407 910,618
Operating lease right-of-use
assets 359,128
Acquired intangible assets, net 176,031 168,348
Goodwill 1,586,642 1,487,404
Deferred income tax assets 19,677 34,913
Other assets 150,511 116,067
---
Total assets $
5,343,236 $
5,461,770
===
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
126,539 $
99,089
Accrued expenses 250,015 328,304
Deferred revenue 110,750 69,083
Convertible senior notes - 686,552
Operating lease liabilities 96,160
Other current liabilities 7,350 27,681
---
Total current liabilities 590,814 1,210,709
Deferred revenue 5,204 4,557
Deferred income tax liabilities 25,099 19,624
Convertible senior notes 893,191 874,080
Operating lease liabilities 299,062
Other liabilities 135,102 160,940
---
Total liabilities 1,948,472 2,269,910
---
Total stockholders' equity 3,394,764 3,191,860
---
Total liabilities and stockholders'
equity $
5,343,236 $
5,461,770
===
(1) On January 1, 2019, Akamai adopted
the new lease accounting standard
on a modified retrospective basis
by applying the new standard to its
lease portfolio as of January 1,
2019, while continuing to apply
legacy guidance in the comparative
periods. Adoption of the standard
required Akamai to record right-
of-use assets and lease
liabilities for its operating
leases related to real estate and
co-location arrangements. The
adoption of the standard also
resulted in elimination of related
accrued expenses and deferred rent
liabilities, as of January 1, 2019,
that are now included in the new
lease balances.
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,
2019 2019 2018 2019 2018
---
Revenue $
705,074 $
706,508 $
662,759 $
1,411,582 $
1,331,483
Costs and operating expenses:
Cost of revenue(1) (2) 242,193 240,743 235,487 482,936 470,312
Research and development(1) 61,439 66,141 59,709 127,580 124,774
Sales and marketing(1) 135,106 126,276 131,680 261,382 254,233
General and administrative(1) (2) 120,116 122,835 170,206 242,951 324,591
Amortization of acquired intangible assets 9,648 9,599 8,294 19,247 16,725
Restructuring charges 790 6,389 266 7,179 15,174
Total costs and operating expenses 569,292 571,983 605,642 1,141,275 1,205,809
Income from operations 135,782 134,525 57,117 270,307 125,674
Interest income 6,410 8,635 6,409 15,045 10,374
Interest expense (8,446) (12,116) (9,204) (20,562) (14,054)
Other (expense) income, net (578) 511 (2,769) (67) (2,748)
Income before provision for income taxes 133,168 131,555 51,553 264,723 119,246
Provision for income taxes 19,253 24,425 8,492 43,678 22,471
Net income $
113,915 $
107,130 $
43,061 $
221,045 $
96,775
Net income per share:
Basic $
0.70 $
0.66 $
0.25 $
1.35 $
0.57
Diluted $
0.69 $
0.65 $
0.25 $
1.34 $
0.56
Shares used in per share calculations:
Basic 163,407 163,236 170,250 163,322 170,183
Diluted 165,019 164,787 172,307 164,903 172,156
(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
Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2019 2019 2018 2019 2018
---
Cash flows from operating activities:
Net income $
113,915 $
107,130 $
43,061 $
221,045 $
96,775
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 106,065 108,205 106,298 214,270 210,393
Stock-based compensation 48,142 45,305 47,497 93,447 92,183
Provision (benefit) for deferred income taxes 15,626 8,982 (4,302) 24,608 (12,116)
Amortization of debt discount and issuance costs 8,010 11,618 8,909 19,628 13,759
Restructuring-related software charges - 2,818
Other non-cash reconciling items, net 1,301 (121) 3,636 1,180 8,015
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable 5,639 (43,766) 1,530 (38,127) (16,889)
Prepaid expenses and other current assets (10,258) (13,029) 13,505 (23,287) 8,578
Accounts payable and accrued expenses 32,577 (85,366) 4,221 (52,789) (27,091)
Deferred revenue (1,313) 29,286 4,309 27,973 29,552
Other current liabilities (9,266) (9,473) (8,046) (18,739) 5,655
Other non-current assets and liabilities 7,491 2,079 (937) 9,570 59
Net cash provided by operating activities 317,929 160,850 219,681 478,779 411,691
Cash flows from investing activities:
Cash paid for acquired businesses, net of cash acquired 55 (121,464) (121,409) (79)
Cash received (paid) for equity method investment 4,205 (40,213) (36,008)
Purchases of property and equipment and capitalization of internal-use software development costs (133,349) (142,429) (88,634) (275,778) (201,709)
Purchases of short- and long-term marketable securities (381,133) (10,625) (394,534) (391,758) (467,886)
Proceeds from sales and maturities of short- and long-term marketable securities 101,493 548,037 64,830 649,530 140,566
Other non-current assets and liabilities (698) 2,935 236 2,237 (479)
Net cash (used in) provided by investing activities (409,427) 236,241 (418,102) (173,186) (529,587)
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,
2019 2019 2018 2019 2018
---
Cash flows from financing activities:
Proceeds from the issuance of convertible senior notes - 1,132,622 1,132,622
Proceeds from the issuance of warrants - 119,945 119,945
Purchase of note hedge related to convertible senior notes - (261,740) (261,740)
Repayment of convertible senior notes - (690,000) (690,000)
Proceeds from the issuance of common stock under stock plans 8,998 19,774 11,365 28,772 34,103
Employee taxes paid related to net share settlement of stock-based awards (11,317) (38,639) (11,594) (49,956) (41,308)
Repurchases of common stock (81,375) (34,872) (165,727) (116,247) (185,512)
Other non-current assets and liabilities - (1,558) (944) (1,558) (4,844)
Net cash (used in) provided by financing activities (83,694) (745,295) 823,927 (828,989) 793,266
Effects of exchange rate changes on cash, cash equivalents and restricted cash 1,077 1,601 (12,625) 2,678 (11,460)
Net (decrease) increase in cash, cash equivalents and restricted cash (174,115) (346,603) 612,881 (520,718) 663,910
Cash, cash equivalents and restricted cash at beginning of period 690,384 1,036,987 365,458 1,036,987 314,429
Cash, cash equivalents and restricted cash at end of period $
516,269 $
690,384 $
978,339 $
516,269 $
978,339
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,
2019 2019 2018 (1) 2019 2018 (1)
---
Web Division $
380,374 $
376,275 $
351,871 $
756,649 $
705,121
Media and Carrier Division 324,700 330,233 310,888 654,933 626,362
Total revenue $
705,074 $
706,508 $
662,759 $
1,411,582 $
1,331,483
Revenue growth rates year-over-year:
Web Division 8
% 7
% 10
% 7
% 13
%
Media and Carrier Division 4 5 8 5 7
Total revenue 6
% 6
% 9
% 6
% 10
%
===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange
rates(2):
Web Division 10
% 9
% 9
% 9
% 11
%
Media and Carrier Division 6 7 7 6 6
Total revenue 8
% 8
% 8
% 8
% 8
%
===
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,
2019 2019 2018 (3) 2019
2018 (3)
---
Cloud Security Solutions $
204,811 $
190,093 $
155,250 $
394,904 $
305,326
CDN and other solutions 500,263 516,415 507,509 1,016,678 1,026,157
Total revenue $
705,074 $
706,508 $
662,759 $
1,411,582 $
1,331,483
Revenue growth rates year-over-year:
Cloud Security Solutions 32
% 27
% 33
% 29
% 34
%
CDN and other solutions (1) 4 (1) 5
Total revenue 6
% 6
% 9
% 6
% 10
%
===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Cloud Security Solutions 34
% 29
% 31
% 32
% 32
%
CDN and other solutions - 2 3 1 3
Total revenue 8
% 8
% 8
% 8
% 8
%
===
(1) As of January 1, 2019, 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. As the purchasing
patterns and required account
expertise of customers change over
time, Akamai may reassign a
customer's division from one to
another.
(2) See Use of Non-GAAP Financial
Measures below for a definition
(3) As of January 1, 2019, Akamai
updated its methodology for
allocating revenue to specific
solutions when solutions are sold
as a bundle. Revenue amounts were
reassigned from CDN and other
solutions revenue to Cloud Security
Solutions revenue as a result of
this change and historical results
were revised in order to reflect
the most recent allocation
methodologies and to provide a
comparable view for all periods
presented.
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM INTERNET PLATFORM CUSTOMERS
Three Mon
ths Ended
Six Months Ended
(in thousan
ds) June 30, March 31, June 30,
June 30,
June 30,
2019 2019 2018 2019 2018
---
Revenue fro
m Internet Platform Customers $
46,259 $
47,086 $
44,062 $
93,345 $
88,453
Revenue excluding Internet Platform Customers 658,815 659,422 618,697 1,318,237 1,243,030
Total revenue $
705,074 $
706,508 $
662,759 $
1,411,582 $
1,331,483
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers 5
% 6
% (14)
% 6
% (14)
%
Revenue excluding Internet Platform Customers 6 6 12 6 13
Total revenue 6
% 6
% 9
% 6
% 10
%
===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
Revenue from Internet Platform Customers 5
% 6
% (14)
% 6
% (14)
%
Revenue excluding Internet Platform Customers 8 8 10 8 10
Total revenue 8
% 8
% 8
% 8
% 8
%
===
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,
2019 2019 2018 2019 2018
---
U.S. $
416,859 $
418,200 $
413,129 $
835,059 $
836,468
International 288,215 288,308 249,630 576,523 495,015
Total revenue $
705,074 $
706,508 $
662,759 $
1,411,582 $
1,331,483
Revenue growth rates year-over-year:
U.S. 1
% (1)
% 3
% % 5
%
International 15 17 21 16 22
Total revenue 6
% 6
% 9
% 6
% 10
%
===
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
U.S. 1
% (1)
% 3
% % 5
%
International 20 24 18 22 16
Total revenue 8
% 8
% 8
% 8
% 8
%
===
(1) 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,
2019 2019 2018 2019 2018
---
General and administrative expenses:
Payroll and related costs $
47,705 $
49,651 $
46,874 $
97,356 $
98,768
Stock-based compensation 14,565 12,628 14,269 27,193 27,191
Depreciation and amortization 18,778 18,373 21,207 37,151 41,095
Facilities-related costs 21,042 21,023 20,529 42,065 42,324
Provision for doubtful accounts 915 800 420 1,715 941
Acquisition-related costs 524 451 500 975 1,643
Legal and stockholder matter costs - 23,091
License of patent (4,452) (4,403) (4,266) (8,855) (8,481)
Endowment of Akamai Foundation - 50,000 50,000
Professional fees and other expenses 21,039 24,312 20,673 45,351 48,019
Total general and administrative expenses $
120,116 $
122,835 $
170,206 $
242,951 $
324,591
General and administrative expenses-functional(1):
Global functions $
49,462 $
49,468 $
47,497 $
98,930 $
103,150
As a percentage of revenue 7 7 7 7 8
% % % % %
Infrastructure 72,332 72,327 76,055 144,659 154,247
As a percentage of revenue 10 10 11 10 12
% % % %
%
Other (1,678) 1,040 46,654 (638) 67,194
Total general and administrative expenses $
120,116 $
122,835 $
170,206 $
242,951 $
324,591
As a percentage of revenue 17 17 26 17 24
% % % %
%
Stock-based compensation:
Cost of revenue $
5,793 $
5,569 $
5,553 $
11,362 $
10,849
Research and development 12,044 12,057 10,926 24,101 21,435
Sales and marketing 15,740 15,051 16,749 30,791 32,708
General and administrative 14,565 12,628 14,269 27,193 27,191
Total stock-based compensation $
48,142 $
45,305 $
47,497 $
93,447 $
92,183
(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, transformation costs,
and the endowment to 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,
2019 2019 2018 2019 2018
---
Depreciation and amortization:
Network-related depreciation(1) $
29,394 $
30,168 $
37,748 $
59,562 $
75,983
Capitalized internal-use software development amortization 40,640 41,257 32,822 81,897 64,490
Other depreciation and amortization 18,333 17,948 20,837 36,281 40,335
Depreciation of property and equipment 88,367 89,373 91,407 177,740 180,808
Capitalized stock-based compensation amortization 7,271 8,095 5,846 15,366 11,415
Capitalized interest expense amortization 779 1,138 751 1,917 1,445
Amortization of acquired intangible assets 9,648 9,599 8,294 19,247 16,725
Total depreciation and amortization $
106,065 $
108,205 $
106,298 $
214,270 $
210,393
Capital expenditures, excluding stock-based compensation and interest expense(2)(3):
Purchases of property and equipment $
99,614 $
80,335 $
52,815 $
179,949 $
79,412
Capitalized internal-use software development costs 52,955 49,485 49,028 102,440 98,285
Total capital expenditures, excluding stock-based compensation and interest expense $
152,569 $
129,820 $
101,843 $
282,389 $
177,697
End of period statistics:
Number of employees 7,434 7,462 7,443
(1) As of January 1, 2019, due to the
software and hardware
initiatives undertaken to manage
global network more efficiently,
Akamai changed the estimated
useful life of its network
assets, primarily servers, from
4 years to 5 years. This
prospective change decreased
depreciation expense in the
first half of 2019, as compared
to the comparative periods
presented in 2018.
(2) 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.
(3) 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,
2019 2019 2018 2019 2018
Income from operations $
135,782 $
134,525 $
57,117 $
270,307 $
125,674
GAAP operating margin 19 19 9 19 9
% % % % %
Amortization of acquired intangible assets 9,648 9,599 8,294 19,247 16,725
Stock-based compensation 48,142 45,305 47,497 93,447 92,183
Amortization of capitalized stock-based compensation and capitalized interest expense 8,050 9,233 6,597 17,283 12,860
Restructuring charges 790 6,389 266 7,179 15,174
Acquisition-related costs 524 451 500 975 1,643
Legal and stockholder matter costs - 23,091
Endowment of Akamai Foundation - 50,000 50,000
Transformation costs 1,336 4,191 5,527
Operating adjustments 68,490 75,168 113,154 143,658 211,676
Non-GAAP income from operations $
204,272 $
209,693 $
170,271 $
413,965 $
337,350
Non-GAAP operating margin 29 30 26 29 25
% % % % %
Net income $
113,915 $
107,130 $
43,061 $
221,045 $
96,775
Operating adjustments (from above) 68,490 75,168 113,154 143,658 211,676
Amortization of debt discount and issuance costs 8,010 11,618 8,909 19,628 13,759
Loss (gain) on investments 250 (690) 2,000 (440) 2,000
Income tax-effect of above non-GAAP adjustments and certain discrete tax items (14,454) (12,304) (24,191) (26,758) (45,474)
Non-GAAP net income $
176,211 $
180,922 $
142,933 $
357,133 $
278,736
GAAP net income per diluted share $
0.69 $
0.65 $
0.25 $
1.34 $
0.56
Amortization of acquired intangible assets 0.06 0.06 0.05 0.12 0.10
Stock-based compensation 0.29 0.27 0.28 0.57 0.54
Amortization of capitalized stock-based compensation and capitalized interest expense 0.05 0.06 0.04 0.10 0.07
Restructuring charges - 0.04 0.04 0.09
Acquisition-related costs - 0.01 0.01
Legal and stockholder matter costs - 0.13
Endowment of Akamai Foundation - 0.29 0.29
Transformation costs 0.01 0.03 0.03
Amortization of debt discount and issuance costs 0.05 0.07 0.05 0.12 0.08
Loss (gain) on investments - 0.01 0.01
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.09) (0.07) (0.14) (0.16) (0.26)
Non-GAAP net income per diluted share $
1.07 $
1.10 $
0.83 $
2.17 $
1.62
Shares used in diluted per share calculations 165,019 164,787 172,307 164,903 172,156
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended
Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2019 2019 2018 2019 2018
Net income $
113,915 $
107,130 $
43,061 221,045 $
96,775
Interest income (6,410) (8,635) (6,409) (15,045) (10,374)
Provision for income taxes 19,253 24,425 8,492 43,678 22,471
Depreciation and amortization 88,367 89,373 91,407 177,740 180,808
Amortization of capitalized stock-based compensation and capitalized interest
expense 8,050 9,233 6,597 17,283 12,860
Amortization of acquired intangible assets 9,648 9,599 8,294 19,247 16,725
Stock-based compensation 48,142 45,305 47,497 93,447 92,183
Restructuring charges 790 6,389 266 7,179 15,174
Acquisition-related costs 524 451 500 975 1,643
Legal and stockholder matter costs - 23,091
Endowment of Akamai Foundation - 50,000 50,000
Transformation costs 1,336 4,191 5,527
Interest expense 8,446 12,116 9,204 20,562 14,054
Loss (gain) on investments 250 (690) 2,000 (440) 2,000
Other expense, net 328 179 769 507 748
Adjusted EBITDA $
292,639 $
299,066 $
261,678 $
591,705 $
518,158
Adjusted EBITDA margin 42 42 39 42 39
% % % % %
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, changes to fair value 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 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 and costs from professional service
providers related to a non-routine stockholder matter. 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 this amount from non-GAAP financial measures is useful to
investors as this one-time expense is not representative of its core
business operations.
-- Transformation costs - Akamai has incurred professional services fees
associated with internal transformation programs designed to improve its
operating margins and that are part of a planned program intended to
significantly change the manner in which business in conducted. Akamai
believes excluding these amounts from its non-GAAP financial measures is
useful to investors as the types of events and activities giving rise to
them occur infrequently and are not representative of Akamai's core
business operations and ongoing operating performance.
-- 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; 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; transformation costs; 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; 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; transformation costs; 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. 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 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; 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; transformation costs; foreign exchange gains and losses; 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 Rate - 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 future financial performance. 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, inability to continue to generate cash at the same level as prior years; change in stock price; 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:
Gina Sorice
Tom Barth
Media Relations
Investor Relations
Akamai Technologies
Akamai Technologies
646-320-4107
617-274-7130
gsorice@akamai.com
tbarth@akamai.com
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SOURCE Akamai Technologies, Inc.
