Akamai Reports Second Quarter 2020 Financial Results
CAMBRIDGE, Mass., July 28, 2020 /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, 2020.
"Akamai's outstanding top and bottom line results in the second quarter were powered by the strong growth of our Security and Media solutions and our continued operational excellence," said Dr. Tom Leighton, Akamai's chief executive officer. "Amidst the ongoing humanitarian crisis associated with COVID-19, we are proud to be supporting our customers - and billions of internet users - with exceptional services when they need them most."
Akamai delivered the following financial results for the second quarter ended June 30, 2020:
Revenue: Revenue was $795 million, a 13% increase over second quarter 2019 revenue of $705 million and a 14% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $404 million, up 7% year-over-year and up 8%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $390 million, up 19%
year-over-year and up 20% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $259 million, up 27% year-over-year
and up 28% when adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $51 million, up 10%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $744 million, up 13%
year-over-year and up 14% when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $444 million, up 6% year-over-year
-- International revenue was $351 million, up 22% year-over-year and up 24%
when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $190 million, a 40% increase from second quarter 2019. GAAP operating margin for the second quarter was 24%, up 5 percentage points from the same period last year.
Non-GAAP income from operations* was $258 million, a 26% increase from second quarter 2019. Non-GAAP operating margin* for the second quarter was 32%, up 3 percentage points from the same period last year.
Net income: GAAP net income was $162 million, a 42% increase from second quarter 2019. Non-GAAP net income* was $227 million, a 29% increase from second quarter 2019.
EPS: GAAP EPS was $0.98 per diluted share, a 42% increase from second quarter 2019 and a 44% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.38 per diluted share, a 29% increase from second quarter 2019 and a 30% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $355 million, a 21% increase from second quarter 2019. Adjusted EBITDA margin* for the second quarter was 45%, up 3 percentage points from the same period last year.
Supplemental cash information: Cash from operations for the second quarter of 2020 was $299 million, or 38% of revenue. Cash, cash equivalents and marketable securities was $2.4 billion as of June 30, 2020.
Share repurchases: Akamai spent $27 million in the second quarter of 2020 to repurchase 0.3 million shares of its common stock at an average price of $100.64 per share. The Company had 163 million shares of common stock outstanding as of June 30, 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
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 2481329. 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 2481329. 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,
2020 2019
ASSETS
Current assets:
Cash and cash equivalents $
572,288 $
393,745
Marketable securities 800,321 1,143,249
Accounts receivable, net 644,659 551,943
Prepaid expenses and other current
assets 175,731 142,676
Total current assets 2,192,999 2,231,613
Marketable securities 1,018,835 835,384
Property and equipment, net 1,281,392 1,152,153
Operating lease right-of-use assets 736,465 758,450
Acquired intangible assets, net 194,951 179,431
Goodwill 1,595,304 1,600,265
Deferred income tax assets 61,310 76,528
Other assets 143,542 173,062
Total assets $
7,224,798 $
7,006,886
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
153,958 $
138,946
Accrued expenses 263,646 334,861
Deferred revenue 93,648 71,223
Operating lease liabilities 138,478 139,463
Other current liabilities 7,692 8,843
Total current liabilities 657,422 693,336
Deferred revenue 4,536 4,368
Deferred income tax liabilities 29,556 29,187
Convertible senior notes 1,872,937 1,839,791
Operating lease liabilities 673,678 692,181
Other liabilities 82,374 90,065
Total liabilities 3,320,503 3,348,928
Total stockholders' equity 3,904,295 3,657,958
Total liabilities and stockholders'
equity $
7,224,798 $
7,006,886
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,
2020 2020 2019 2020 2019
Revenue $
794,715 $
764,302 $
705,074 $
1,559,017 $
1,411,582
Costs and operating expenses:
Cost of revenue(1) (2) 276,804 268,582 242,193 545,386 482,936
Research and
development(1) 64,090 71,224 61,439 135,314 127,580
Sales and marketing(1) 123,469 123,786 135,106 247,255 261,382
General and
administrative(1) (2) 129,709 127,361 120,116 257,070 242,951
Amortization of acquired
intangible assets 10,381 10,434 9,648 20,815 19,247
Restructuring (benefit)
charge (167) 10,585 790 10,418 7,179
Total costs and operating
expenses 604,286 611,972 569,292 1,216,258 1,141,275
Income from operations 190,429 152,330 135,782 342,759 270,307
Interest income 9,502 7,043 6,410 16,545 15,045
Interest expense (17,249) (17,205) (8,446) (34,454) (20,562)
Other expense, net (1,603) (4,108) (578) (5,711) (67)
Income before provision
for income taxes 181,079 138,060 133,168 319,139 264,723
Provision for income taxes (18,671) (14,292) (19,253) (32,963) (43,678)
Loss from equity method
investment (493) (622) (1,115)
Net income $
161,915 $
123,146 $
113,915 $
285,061 $
221,045
Net income per share:
Basic $
1.00 $
0.76 $
0.70 $
1.76 $
1.35
Diluted $
0.98 $
0.75 $
0.69 $
1.74 $
1.34
Shares used in per share calculations:
Basic 162,413 161,992 163,407 162,203 163,322
Diluted 164,768 163,684 165,019 164,226 164,903
(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,
2020 2020 2019 2020 2019
Cash flows from operating activities:
Net income $
161,915 $
123,146 $
113,915 $
285,061 $
221,045
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 115,580 116,208 106,065 231,788 214,270
Stock-based compensation 49,191 47,493 48,142 96,684 93,447
Provision (benefit) for deferred
income taxes 14,282 (2,888) 15,626 11,394 24,608
Amortization of debt discount and
issuance costs 15,677 15,633 8,010 31,310 19,628
Other non-cash reconciling items,
net 2,752 12,052 1,301 14,804 1,180
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (31,633) (73,913) 5,639 (105,546) (38,127)
Prepaid expenses and other current
assets 455 (10,434) (10,258) (9,979) (23,287)
Accounts payable and accrued expenses (19,944) (27,458) 32,577 (47,402) (52,789)
Deferred revenue (5,647) 26,989 (1,313) 21,342 27,973
Other current liabilities (2,043) 928 (9,266) (1,115) (18,739)
Other non-current assets and
liabilities (1,894) (4,513) 7,491 (6,407) 9,570
Net cash provided by operating
activities 298,691 223,243 317,929 521,934 478,779
Cash flows from investing activities:
Cash received (paid) for business
acquisitions, net of cash acquired - 106 55 106 (121,409)
Cash paid for asset acquisition - (36,376) (36,376)
Cash received (paid) for equity
method investment - 4,205 (36,008)
Purchases of property and equipment
and capitalization of internal-use
software development costs (120,239) (215,429) (133,349) (335,668) (275,778)
Purchases of short- and long-term
marketable securities (452,737) (389,779) (381,133) (842,516) (391,758)
Proceeds from sales and maturities of
short- and long-term marketable
securities 483,184 530,816 101,493 1,014,000 649,530
Other non-current assets and
liabilities 155 (76) (698) 79 2,237
Net cash used in investing activities (89,637) (110,738) (409,427) (200,375) (173,186)
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,
2020 2020 2019 2020 2019
Cash flows from financing activities:
Repayment of convertible senior
notes - (690,000)
Proceeds from the issuance of common
stock under stock plans 10,259 19,546 8,998 29,805 28,772
Employee taxes paid related to net
share settlement of stock-based
awards (13,095) (50,835) (11,317) (63,930) (49,956)
Repurchases of common stock (27,330) (80,550) (81,375) (107,880) (116,247)
Other non-current assets and
liabilities - (1,558)
Net cash used in financing
activities (30,166) (111,839) (83,694) (142,005) (828,989)
Effects of exchange rate changes on
cash, cash equivalents and
restricted cash 8,155 (8,983) 1,077 (828) 2,678
Net increase (decrease) in cash,
cash equivalents and restricted
cash 187,043 (8,317) (174,115) 178,726 (520,718)
Cash, cash equivalents and
restricted cash at beginning of
period 385,829 394,146 690,384 394,146 1,036,987
Cash, cash equivalents and
restricted cash at end of period $
572,872 $
385,829 $
516,269 $
572,872 $
516,269
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,
2020
2020 2019 (1) 2020 2019 (1)
Web Division $
404,342 $
405,995 $
377,558 $
810,337 $
751,760
Media and
Carrier
Division 390,373 358,307 327,516 748,680 659,822
Total revenue $
794,715 $
764,302 $
705,074 $
1,559,017 $
1,411,582
Revenue growth rates year-over-
year:
Web Division 7
% 8
% 8
% 8
% 7
%
Media and
Carrier
Division 19 8 5 13 5
Total revenue 13
% 8
% 6
% 10
% 6
%
Revenue growth rates year-over-
year, adjusted for the impact
of foreign exchange rates(2):
Web Division 8
% 10
% 10
% 9
% 9
%
Media and
Carrier
Division 20 9 6 14 7
Total revenue 14
% 9
% 8
% 11
% 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,
2020 2020 2019 2020 2019
Cloud Security
Solutions $
259,316 $
240,300 $
204,811 $
499,616 $
394,904
CDN and other
solutions 535,399 524,002 500,263 1,059,401 1,016,678
Total revenue $
794,715 $
764,302 $
705,074 $
1,559,017 $
1,411,582
Revenue growth rates year-over-
year:
Cloud Security
Solutions 27
% 26
% 32
% 27
% 29
%
CDN and other
solutions 7 1 (1) 4 (1)
Total revenue 13
% 8
% 6
% 10
% 6
%
Revenue growth rates year-over-
year, adjusted for the impact of
foreign exchange rates(2):
Cloud Security
Solutions 28
% 28
% 34
% 28
% 32
%
CDN and other
solutions 8 2 5 1
Total revenue 14
% 9
% 8
% 11
% 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
Six Months Ended
(in thousands) June 30, March 31, June 30,
June 30,
June 30,
2020 2020 2019 2020 2019
Revenue from
Internet
Platform
Customers $
50,752 $
44,702 $
46,259 $
95,454 $
93,345
Revenue
excluding
Internet
Platform
Customers 743,963 719,600 658,815 1,463,563 1,318,237
Total revenue $
794,715 $
764,302 $
705,074 $
1,559,017 $
1,411,582
Revenue growth rates year-over-
year:
Revenue from
Internet
Platform
Customers 10
% (5)
% 5
% 2
% 6
%
Revenue
excluding
Internet
Platform
Customers 13 9 6 11 6
Total revenue 13
% 8
% 6
% 10
% 6
%
Revenue growth rates year-over-
year, adjusted for the impact of
foreign exchange rates(1):
Revenue from
Internet
Platform
Customers 10
% (5)
% 5
% 2
% 6
%
Revenue
excluding
Internet
Platform
Customers 14 10 8 12 8
Total revenue 14
% 9
% 8
% 11
% 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,
2020 2020 2019 2020 2019
U.S. $
443,668 $
428,930 $
416,859 $
872,598 $
835,059
International 351,047 335,372 288,215 686,419 576,523
Total revenue $
794,715 $
764,302 $
705,074 $
1,559,017 $
1,411,582
Revenue growth rates year-over-
year:
U.S. 6
% 3
% 1
% 4
% %
International 22 16 15 19 16
Total revenue 13
% 8
% 6
% 10
% 6
%
Revenue growth rates year-over-
year, adjusted for the impact of
foreign exchange rates(1):
U.S. 6
% 3
% 1
% 4
% %
International 24 19 20 22 22
Total revenue 14
% 9
% 8
% 11
% 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,
2020 2020 2019 2020 2019
General and administrative expenses:
Payroll and related costs $
49,475 $
48,599 $
47,705 $
98,074 $
97,356
Stock-based compensation 15,377 13,957 14,565 29,334 27,193
Depreciation and
amortization 20,654 20,465 18,778 41,119 37,151
Facilities-related costs 23,898 24,672 21,042 48,570 42,065
Provision for doubtful
accounts 2,893 2,199 915 5,092 1,715
Acquisition-related costs 62 76 524 138 975
Legal settlements 275 275
License of patent - (4,452) (8,855)
Professional fees and
other expenses 17,075 17,393 21,039 34,468 45,351
Total general and
administrative expenses $
129,709 $
127,361 $
120,116 $
257,070 $
242,951
General and administrative
expenses-functional(1):
Global functions $
46,818 $
47,866 $
49,462 $
94,684 $
98,930
As a percentage of revenue 6 6 7 6 7
% % % % %
Infrastructure 79,677 77,220 72,332 156,897 144,659
As a percentage of revenue 10 10 10 10 10
% % % % %
Other 3,214 2,275 (1,678) 5,489 (638)
Total general and
administrative expenses $
129,709 $
127,361 $
120,116 $
257,070 $
242,951
As a percentage of revenue 16 17 17 16 17
% % % % %
Stock-based compensation:
Cost of revenue $
6,254 $
5,736 $
5,793 $
11,990 $
11,362
Research and development 11,549 12,065 12,044 23,614 24,101
Sales and marketing 16,011 15,735 15,740 31,746 30,791
General and administrative 15,377 13,957 14,565 29,334 27,193
Total stock-based
compensation $
49,191 $
47,493 $
48,142 $
96,684 $
93,447
(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, allowance for
doubtful accounts, the license of a
patent, legal settlements and
transformation costs.
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,
2020 2020 2019 2020 2019
Depreciation and amortization:
Network-related
depreciation $
38,806 $
36,397 $
29,394 $
75,203 $
59,562
Capitalized internal-use
software development
amortization 38,164 40,769 40,640 78,933 81,897
Other depreciation and
amortization 20,193 20,019 18,333 40,212 36,281
Depreciation of property
and equipment 97,163 97,185 88,367 194,348 177,740
Capitalized stock-based
compensation
amortization(1) 7,185 7,631 7,271 14,816 15,366
Capitalized interest
expense amortization(1) 851 958 779 1,809 1,917
Amortization of acquired
intangible assets 10,381 10,434 9,648 20,815 19,247
Total depreciation and
amortization $
115,580 $
116,208 $
106,065 $
231,788 $
214,270
Capital expenditures, excluding stock-
based compensation and interest
expense(2)(3):
Purchases of property and
equipment $
142,310 $
84,799 $
99,614 $
227,109 $
179,949
Capitalized internal-use
software development
costs 53,692 50,909 52,955 104,601 102,440
Total capital
expenditures, excluding
stock-based compensation
and interest expense $
196,002 $
135,708 $
152,569 $
331,710 $
282,389
End of period statistics:
Number of employees 7,951 7,742 7,434
(1) Amortization of capitalized stock-
based compensation and interest
expense in this table excludes
amortization of capitalized stock-
based compensation and interest
expense capitalized as part of the
implementation of cloud-computing
arrangements. However, the amounts
are included in our total
amortization of capitalized stock-
based compensation and interest
expense that is excluded from our
non-GAAP measures (see
reconciliations of GAAP to non-GAAP
measures).
(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 AND NET INCOME
Three Months Ended
Six Months Ended
(in thousands) June 30, March 31, June 30, June 30, June 30,
2020 2020 2019 2020 2019
Income from operations $
190,429 $
152,330 $
135,782 $
342,759 $
270,307
GAAP operating margin 24 20 19 22 19
% % % % %
Amortization of acquired
intangible assets 10,381 10,434 9,648 20,815 19,247
Stock-based compensation 49,191 47,493 48,142 96,684 93,447
Amortization of capitalized
stock-based compensation and
capitalized interest expense 8,038 8,589 8,050 16,627 17,283
Restructuring (benefit) charge (167) 10,585 790 10,418 7,179
Acquisition-related costs 62 76 524 138 975
Legal settlements 275 275
Transformation costs - 1,336 5,527
Operating adjustments 67,780 77,177 68,490 144,957 143,658
Non-GAAP income from
operations $
258,209 $
229,507 $
204,272 $
487,716 $
413,965
Non-GAAP operating margin 32 30 29 31 29
% % % % %
Net income $
161,915 $
123,146 $
113,915 $
285,061 $
221,045
Operating adjustments (from
above) 67,780 77,177 68,490 144,957 143,658
Amortization of debt discount
and issuance costs 15,677 15,633 8,010 31,310 19,628
Loss (gain) on investments - 250 (440)
Loss from equity method
investment 493 622 1,115
Income tax-effect of above
non-GAAP adjustments and
certain discrete tax items (19,347) (20,445) (14,454) (39,792) (26,758)
Non-GAAP net income $
226,518 $
196,133 $
176,211 $
422,651 $
357,133
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP 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,
2020 2020 2019 2020 2019
GAAP net income per diluted
share $
0.98 $
0.75 $
0.69 $
1.74 $
1.34
Adjustments to net income:
Amortization of acquired
intangible assets 0.06 0.06 0.06 0.13 0.12
Stock-based compensation 0.30 0.29 0.29 0.59 0.57
Amortization of capitalized
stock-based compensation
and capitalized interest
expense 0.05 0.05 0.05 0.10 0.10
Restructuring (benefit)
charge - 0.06 0.06 0.04
Acquisition-related costs - 0.01
Legal settlements -
Transformation costs - 0.01 0.03
Amortization of debt
discount and issuance costs 0.10 0.10 0.05 0.19 0.12
Loss (gain) on investments -
Loss from equity method
investment - 0.01
Income tax effect of above
non-GAAP adjustments and
certain discrete tax items (0.12) (0.12) (0.09) (0.24) (0.16)
Adjustment for shares(1) 0.01 0.01
Non-GAAP net income per
diluted share $
1.38 $
1.20 $
1.07 $
2.58 $
2.17
Shares used in GAAP diluted
per share calculations 164,768 163,684 165,019 164,226 164,903
Impact of benefit from note
hedge transactions(1) (653) (326)
Shares used in non-GAAP
diluted per share
calculations(1) 164,115 163,684 165,019 163,900 164,903
(1) Shares used in non-GAAP diluted
per share calculations have been
adjusted for the three and six
months ended June 30, 2020, for
the benefit of Akamai's note
hedge transactions. During the
three months ended June 30, 2020,
Akamai's average stock price was
in excess of $95.10, which is the
initial conversion price of
Akamai's convertible senior notes
due in 2025. See Use of Non-
GAAP Financial Measures below for
further definition.
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,
2020 2020 2019 2020 2019
Net income $
161,915 $
123,146 $
113,915 $
285,061 $
221,045
Interest income (9,502) (7,043) (6,410) (16,545) (15,045)
Provision for income taxes 18,671 14,292 19,253 32,963 43,678
Depreciation and
amortization 97,163 97,185 88,367 194,348 177,740
Amortization of capitalized
stock-based compensation
and capitalized interest
expense 8,038 8,589 8,050 16,627 17,283
Amortization of acquired
intangible assets 10,381 10,434 9,648 20,815 19,247
Stock-based compensation 49,191 47,493 48,142 96,684 93,447
Restructuring (benefit)
charge (167) 10,585 790 10,418 7,179
Acquisition-related costs 62 76 524 138 975
Legal settlements 275 275
Transformation costs - 1,336 5,527
Interest expense 17,249 17,205 8,446 34,454 20,562
Loss (gain) on investments - 250 (440)
Loss from equity method
investment 493 622 1,115
Other expense, net 1,603 4,108 328 5,711 507
Adjusted EBITDA $
355,372 $
326,692 $
292,639 $
682,064 $
591,705
Adjusted EBITDA margin 45 43 42 44 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 diluted 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 comparison of financial results across accounting periods and to those of our peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.
The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned "Reconciliation of GAAP to Non-GAAP Financial Measures" can be found on the Investor Relations section of Akamai's website.
The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:
-- Amortization of acquired intangible assets - Akamai has incurred
amortization of intangible assets, included in its GAAP financial
statements, related to various acquisitions Akamai has made. The amount
of an acquisition's purchase price allocated to intangible assets and
term of its related amortization can vary significantly and is unique to
each acquisition; therefore, Akamai excludes amortization of acquired
intangible assets from its non-GAAP financial measures to provide
investors with a consistent basis for comparing pre- and
post-acquisition operating results.
-- Stock-based compensation and amortization of capitalized stock-based
compensation - Although stock-based compensation is an important aspect
of the compensation paid to Akamai's employees, the grant date fair
value varies based on the stock price at the time of grant, varying
valuation methodologies, subjective assumptions and the variety of award
types. This makes the comparison of Akamai's current financial results
to previous and future periods difficult to interpret; therefore, Akamai
believes it is useful to exclude stock-based compensation and
amortization of capitalized stock-based compensation from its non-GAAP
financial measures in order to highlight the performance of Akamai's
core business and to be consistent with the way many investors evaluate
its performance and compare its operating results to peer companies.
-- Acquisition-related costs - Acquisition-related costs include
transaction fees, advisory fees, due diligence costs and other direct
costs associated with strategic activities. In addition, subsequent
adjustments to Akamai's initial estimated amounts of contingent
consideration and indemnification associated with specific acquisitions
are included within acquisition-related costs. These amounts are
impacted by the timing and size of the acquisitions. Akamai excludes
acquisition-related costs from its non-GAAP financial measures to
provide a useful comparison of Akamai's operating results to prior
periods and to its peer companies because such amounts vary
significantly based on the magnitude of the acquisition transactions and
do not reflect Akamai's core operations.
-- Restructuring charges - Akamai has incurred restructuring charges that
are included in its GAAP financial statements, primarily related to
workforce reductions and 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 diluted share - Non-GAAP net income divided by weighted average diluted common shares outstanding. 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, respectively. 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 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; changes in geo-political conditions that impact our customers' use of our solutions; 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; impact of the COVID-19 pandemic; 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.
