Akamai Reports First Quarter 2020 Financial Results
CAMBRIDGE, Mass., April 28, 2020 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the first quarter ended March 31, 2020.
"During these unprecedented times, I am very proud of how Akamai employees continue to support our customers, our communities, and each other, and my heart goes out to those most deeply impacted by the COVID-19 crisis," said Dr. Tom Leighton, CEO of Akamai. "We achieved excellent results in the first quarter driven by continued strength in our security solutions and stronger than expected traffic growth. Akamai's Intelligent Edge Platform is uniquely positioned to help the Internet scale quickly and is a lifeline for organizations and people around the globe during this challenging time."
Akamai delivered the following financial results for the first quarter ended March 31, 2020:
Revenue: Revenue was $764 million, an 8% increase over first quarter 2019 revenue of $707 million and a 9% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $406 million, up 8% year-over-year and up 10%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $358 million, up 8%
year-over-year and up 9% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $240 million, up 26% year-over-year
and up 28% when adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $45 million, down 5%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $720 million, up 9%
year-over-year and up 10% when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $429 million, up 3% year-over-year
-- International revenue was $335 million, up 16% year-over-year and up 19%
when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $152 million, a 13% increase from first quarter 2019. GAAP operating margin for the first quarter was 20%, up 1 percentage point from the same period last year.
Non-GAAP income from operations* was $230 million, a 9% increase from first quarter 2019. Non-GAAP operating margin* for the first quarter was 30%, consistent with the same period last year.
Net income: GAAP net income was $123 million, a 15% increase from first quarter 2019. Non-GAAP net income* was $196 million, an 8% increase from first quarter 2019.
EPS: GAAP EPS was $0.75 per diluted share, a 15% increase from first quarter 2019 and a 19% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.20 per diluted share, a 9% increase from first quarter 2019 and an 11% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $327 million, a 9% increase from first quarter 2019. Adjusted EBITDA margin* for the first quarter was 43%, up 1 percentage point from the same period last year.
Supplemental cash information: Cash from operations for the first quarter of 2020 was $223 million, or 29% of revenue. Cash, cash equivalents and marketable securities was $2.2 billion as of March 31, 2020.
Share repurchases: Akamai spent $81 million in the first quarter of 2020 to repurchase 0.9 million shares of its common stock at an average price of $92.45 per share. The Company had 162 million shares of common stock outstanding as of March 31, 2020.
* 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 9227959. 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 9227959. 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) March 31, December 31,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $
384,103 $
393,745
Marketable securities 865,168 1,143,249
Accounts receivable, net 613,809 551,943
Prepaid expenses and other current
assets 151,504 142,676
Total current assets 2,014,584 2,231,613
Marketable securities 961,150 835,384
Property and equipment, net 1,180,550 1,152,153
Operating lease right-of-use
assets 738,176 758,450
Acquired intangible assets, net 205,486 179,431
Goodwill 1,594,197 1,600,265
Deferred income tax assets 80,037 76,528
Other assets 173,776 173,062
Total assets $
6,947,956 $
7,006,886
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
114,100 $
138,946
Accrued expenses 265,442 334,861
Deferred revenue 99,101 71,223
Operating lease liabilities 141,876 139,463
Other current liabilities 9,728 8,843
Total current liabilities 630,247 693,336
Deferred revenue 4,182 4,368
Deferred income tax liabilities 29,049 29,187
Convertible senior notes 1,856,287 1,839,791
Operating lease liabilities 673,029 692,181
Other liabilities 82,944 90,065
Total liabilities 3,275,738 3,348,928
Total stockholders' equity 3,672,218 3,657,958
Total liabilities and stockholders'
equity $
6,947,956 $
7,006,886
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
(in thousands, except per
share data) March 31, December 31, March 31,
2020 2019 2019
Revenue $
764,302 $
772,123 $
706,508
Costs and operating expenses:
Cost of revenue(1) (2) 268,582 257,750 240,743
Research and
development(1) 71,224 68,898 66,141
Sales and marketing(1) 123,786 140,243 126,276
General and
administrative(1) (2) 127,361 149,926 122,835
Amortization of acquired
intangible assets 10,434 9,710 9,599
Restructuring charge 10,585 10,274 6,389
Total costs and operating
expenses 611,972 636,801 571,983
Income from operations 152,330 135,322 134,525
Interest income 7,043 11,402 8,635
Interest expense (17,205) (16,675) (12,116)
Other (expense) income,
net (4,108) (609) 511
Income before provision
for income taxes 138,060 129,440 131,555
Provision for income
taxes (14,292) (10,632) (24,425)
(Loss) income from equity
method investment (622) 292
Net income $
123,146 $
119,100 $
107,130
Net income per share:
Basic $
0.76 $
0.74 $
0.66
Diluted $
0.75 $
0.73 $
0.65
Shares used in per share calculations:
Basic 161,992 161,737 163,236
Diluted 163,684 163,930 164,787
(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
(in thousands) March 31, December 31, March 31,
2020 2019 2019
Cash flows from operating activities:
Net income $
123,146 $
119,100 $
107,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 116,208 115,800 108,205
Stock-based compensation 47,493 46,878 45,305
(Benefit) provision for deferred income taxes (2,888) (23,648) 8,982
Amortization of debt discount and issuance costs 15,633 15,096 11,618
Other non-cash reconciling items, net 12,052 4,750 (121)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (73,913) (26,327) (43,766)
Prepaid expenses and other current assets (10,434) 23,352 (13,029)
Accounts payable and accrued expenses (27,458) 38,210 (85,366)
Deferred revenue 26,989 (30,261) 29,286
Other current liabilities 928 4,620 (9,473)
Other non-current assets and liabilities (4,513) (5,430) 2,079
Net cash provided by operating activities 223,243 282,140 160,850
Cash flows from investing activities:
Cash received (paid) for business acquisitions, net of cash acquired 106 (43,920) (121,464)
Cash paid for asset acquisition (36,376)
Cash paid for equity method investment - (40,213)
Purchases of property and equipment and capitalization of internal-use software development costs (215,429) (133,666) (142,429)
Purchases of short- and long-term marketable securities (389,779) (616,585) (10,625)
Proceeds from sales and maturities of short- and long-term marketable securities 530,816 205,903 548,037
Other non-current assets and liabilities (76) (1,496) 2,935
Net cash (used in) provided by investing activities (110,738) (589,764) 236,241
Cash flows from financing activities:
Repayment of convertible senior notes - (690,000)
Proceeds from the issuance of common stock under stock plans 19,546 13,908 19,774
Employee taxes paid related to net share settlement of stock-based awards (50,835) (14,150) (38,639)
Repurchases of common stock (80,550) (42,731) (34,872)
Other non-current assets and liabilities - (1,558)
Net cash used in financing activities (111,839) (42,973) (745,295)
Effects of exchange rate changes on cash, cash equivalents and restricted cash (8,983) 5,116 1,601
Net decrease in cash, cash equivalents and restricted cash (8,317) (345,481) (346,603)
Cash, cash equivalents and restricted cash at beginning of period 394,146 739,627 1,036,987
Cash, cash equivalents and restricted cash at end of period $
385,829 $
394,146 $
690,384
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020
2019 (1) 2019 (1)
Web Division $
405,995 $
416,830 $
374,202
Media and Carrier Division 358,307 355,293 332,306
Total revenue $
764,302 $
772,123 $
706,508
Revenue growth rates year-over-year:
Web Division 8
% 9
% 7
%
Media and Carrier Division 8 8 5
Total revenue 8
% 8
% 6
%
Revenue growth rates year-over-year, adjusted for the impact of
foreign exchange rates(2):
Web Division 10
% 9
% 9
%
Media and Carrier Division 9 8 7
Total revenue 9
% 9
% 8
%
===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020 2019 2019
Cloud Security Solutions $
240,300 $
237,913 $
190,093
CDN and other solutions 524,002 534,210 516,415
Total revenue $
764,302 $
772,123 $
706,508
Revenue growth rates year-over-year:
Cloud Security Solutions 26
% 29
% 27
%
CDN and other solutions 1 1
Total revenue 8
% 8
% 6
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange
rates(2):
Cloud Security Solutions 28
% 29
% 29
%
CDN and other solutions 2 1 2
Total revenue 9
% 9
% 8
%
===
(1) As of January 1, 2020, Akamai
reassigned some of its customers
between the Media and Carrier
Division and 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.
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM INTERNET PLATFORM CUSTOMERS
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020 2019 2019
Revenue from Internet Platform Customers $
44,702 $
51,927 $
47,086
Revenue excluding Internet Platform Customers 719,600 720,196 659,422
Total revenue $
764,302 $
772,123 $
706,508
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers (5)
% 20
% 6
%
Revenue excluding Internet Platform Customers 9 7 6
Total revenue 8
% 8
% 6
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
Revenue from Internet Platform Customers (5)
% 20
% 6
%
Revenue excluding Internet Platform Customers 10 8 8
Total revenue 9
% 9
% 8
%
===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020 2019 2019
U.S. $
428,930 $
446,036 $
418,200
International 335,372 326,087 288,308
Total revenue $
764,302 $
772,123 $
706,508
Revenue growth rates year-over-
year:
U.S. 3
% 3
% (1)
%
International 16 17 17
Total revenue 8
% 8
% 6
%
Revenue growth rates year-over-
year, adjusted for the impact of
foreign exchange rates(1):
U.S. 3
% 3
% (1)
%
International 19 18 24
Total revenue 9
% 9
% 8
%
===
(1) 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,
2020 2019 2019
General and administrative expenses:
Payroll and related costs $
48,599 $
48,984 $
49,651
Stock-based compensation 13,957 12,808 12,628
Depreciation and amortization 20,465 22,167 18,373
Facilities-related costs 24,672 27,196 21,023
Provision for doubtful accounts 2,199 (414) 800
Acquisition-related costs 76 726 451
Legal settlements - 10,000
License of patent - (4,403)
Professional fees and other expenses 17,393 28,459 24,312
Total general and administrative expenses $
127,361 $
149,926 $
122,835
General and administrative expenses-functional(1):
Global functions $
47,866 $
51,416 $
49,468
As a percentage of revenue 6 7 7
% % %
Infrastructure 77,220 88,198 72,327
As a percentage of revenue 10 11 10
% % %
Other 2,275 10,312 1,040
Total general and administrative expenses $
127,361 $
149,926 $
122,835
As a percentage of revenue 17 19 17
% % %
Stock-based compensation:
Cost of revenue $
5,736 $
5,562 $
5,569
Research and development 12,065 12,742 12,057
Sales and marketing 15,735 15,766 15,051
General and administrative 13,957 12,808 12,628
Total stock-based compensation $
47,493 $
46,878 $
45,305
(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 settlements and
transformation costs.
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA
Three Months Ended
(in thousands, except end of period statistics) March 31, December 31, March 31,
2020 2019 2019
Depreciation and amortization:
Network-related depreciation $
36,397 $
34,186 $
30,168
Capitalized internal-use software development amortization 40,769 41,501 41,257
Other depreciation and amortization 20,019 21,703 17,948
Depreciation of property and equipment 97,185 97,390 89,373
Capitalized stock-based compensation amortization 7,631 7,747 8,095
Capitalized interest expense amortization 958 953 1,138
Amortization of acquired intangible assets 10,434 9,710 9,599
Total depreciation and amortization $
116,208 $
115,800 $
108,205
Capital expenditures, excluding stock-based compensation and interest expense(1)(2):
Purchases of property and equipment $
84,799 $
122,560 $
80,335
Capitalized internal-use software development costs 50,909 50,497 49,485
Total capital expenditures, excluding stock-based compensation and interest expense $
135,708 $
173,057 $
129,820
End of period statistics:
Number of employees 7,742 7,724 7,462
(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 GAAP TO
NON-GAAP NET INCOME PER DILUTED SHARE
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020 2019 2019
Income from operations $
152,330 $
135,322 $
134,525
GAAP operating margin 20 18 19
%
% %
Amortization of acquired intangible assets 10,434 9,710 9,599
Stock-based compensation 47,493 46,878 45,305
Amortization of capitalized stock-based compensation and capitalized interest expense 8,589 8,700 9,233
Restructuring charge 10,585 10,274 6,389
Acquisition-related costs 76 726 451
Legal settlements - 10,000
Transformation costs - 4,191
Operating adjustments 77,177 86,288 75,168
Non-GAAP income from operations $
229,507 $
221,610 $
209,693
Non-GAAP operating margin 30 29 30
%
% %
Net income $
123,146 $
119,100 $
107,130
Operating adjustments (from above) 77,177 86,288 75,168
Amortization of debt discount and issuance costs 15,633 15,096 11,618
Loss (gain) on investments - 500 (690)
Loss (income) from equity method investment 622 (292)
Income tax-effect of above non-GAAP adjustments and certain discrete tax items (20,445) (19,099) (12,304)
Non-GAAP net income $
196,133 $
201,593 $
180,922
GAAP net income per diluted share $
0.75 $
0.73 $
0.65
Amortization of acquired intangible assets 0.06 0.06 0.06
Stock-based compensation 0.29 0.29 0.27
Amortization of capitalized stock-based compensation and 0.05 0.05 0.06
capitalized interest expense
Restructuring charge 0.06 0.06 0.04
Acquisition-related costs -
Legal settlements - 0.06
Transformation costs - 0.03
Amortization of debt discount and issuance costs 0.10 0.09 0.07
Loss (gain) on investments -
Loss (income) from equity method investment -
Income tax effect of above non-GAAP adjustments and certain discrete tax items (0.12) (0.12) (0.07)
Non-GAAP net income per diluted share $
1.20 $
1.23 $
1.10
Shares used in diluted per share calculations 163,684 163,930 164,787
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended
(in thousands) March 31, December 31, March 31,
2020 2019 2019
Net income $
123,146 $
119,100 $
107,130
Interest income (7,043) (11,402) (8,635)
Provision for income taxes 14,292 10,632 24,425
Depreciation and amortization 97,185 97,390 89,373
Amortization of capitalized stock-based compensation and capitalized 8,589 8,700 9,233
interest expense
Amortization of acquired intangible assets 10,434 9,710 9,599
Stock-based compensation 47,493 46,878 45,305
Restructuring charge 10,585 10,274 6,389
Acquisition-related costs 76 726 451
Legal settlements - 10,000
Transformation costs - 4,191
Interest expense 17,205 16,675 12,116
Loss (gain) on investments - 500 (690)
Loss (income) from equity method investment 622 (292)
Other expense, net 4,108 109 179
Adjusted EBITDA $
326,692 $
319,000 $
299,066
Adjusted EBITDA margin 43 41 42
%
% %
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 charges associated with 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 August 2019, Akamai issued $1,150
million of convertible senior notes due 2027 with a coupon interest rate
of 0.375%. 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 3.10%, 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 settlements - Akamai has incurred losses related to the settlement
of legal matters. 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.
-- 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 and losses from equity method investment - Akamai records income
or losses on its share of earnings and losses of its equity method
investment. Akamai excludes such income and losses because it lacks
control over the operations of the investment and the related income and
losses are 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; gains and losses on legal settlements; 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; transformation costs; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investment; 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 transactions entered into in connection with the issuances of $1,150 million of convertible senior notes due 2027 and 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 transactions 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 in each of 2027 and 2025, unless and until Akamai's weighted average stock price is greater than $116.18 and $95.10, respectively, 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; transformation costs; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses on equity method investment; 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 versus prior periods.
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
Media Relations
Akamai Technologies
646-320-4107
gsorice@akamai.com
Tom Barth
Investor Relations
Akamai Technologies
617-274-7130
tbarth@akamai.com
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SOURCE Akamai Technologies, Inc.
