Akamai Reports Third Quarter 2020 Financial Results
CAMBRIDGE, Mass., Oct. 27, 2020 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the third quarter ended September 30, 2020.
"Our excellent third quarter results were driven by the continued strong performance of our security products and sustained high traffic levels on the Akamai Edge platform," said Dr. Tom Leighton, Akamai's chief executive officer. "We're proud of how Akamai continued to deliver fast, intelligent and secure online experiences for billions of users around the world as we support our customers during these unprecedented times."
Akamai delivered the following financial results for the third quarter ended September 30, 2020:
Revenue: Revenue was $793 million, a 12% increase over third quarter 2019 revenue of $710 million and an 11% increase when adjusted for foreign exchange.*
Revenue by Division((1)):
-- Web Division revenue was $418 million, up 8% year-over-year and up 7%
when adjusted for foreign exchange*
-- Media and Carrier Division revenue was $375 million, up 16%
year-over-year and when adjusted for foreign exchange*
Revenue from Cloud Security Solutions((2)):
-- Cloud Security Solutions revenue was $266 million, up 23% year-over-year
and when adjusted for foreign exchange*
Revenue from Internet Platform Customers((3)):
-- Revenue from Internet Platform Customers was $51 million, up 15%
year-over-year and when adjusted for foreign exchange*
-- Revenue excluding Internet Platform Customers was $742 million, up 11%
year-over-year and when adjusted for foreign exchange*
Revenue by Geography:
-- U.S. revenue was $437 million, up 6% year-over-year
-- International revenue was $355 million, up 20% year-over-year and up 18%
when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $181 million, a 26% increase from third quarter 2019. GAAP operating margin for the third quarter was 23%, up 3 percentage points from the same period last year.
Non-GAAP income from operations* was $251 million, a 20% increase from third quarter 2019. Non-GAAP operating margin* for the third quarter was 32%, up 3 percentage points from the same period last year.
Net income: GAAP net income was $159 million, a 15% increase from third quarter 2019. Non-GAAP net income* was $216 million, a 19% increase from third quarter 2019.
EPS: GAAP EPS was $0.95 per diluted share, a 13% increase from third quarter 2019 and a 12% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.31 per diluted share, a 19% increase from third quarter 2019 and an 18% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $351 million, a 17% increase from third quarter 2019. Adjusted EBITDA margin* for the third quarter was 44%, up 2 percentage points from the same period last year.
Supplemental cash information: Cash from operations for the third quarter of 2020 was $402 million, or 51% of revenue. Cash, cash equivalents and marketable securities was $2.6 billion as of September 30, 2020.
Share repurchases: Akamai spent $13 million in the third quarter of 2020 to repurchase 0.1 million shares of its common stock at an average price of $109.99 per share. The Company had 163 million shares of common stock outstanding as of September 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 9551978. 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 9551978. 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) September 30, December 31,
2020 2019
---
ASSETS
Current assets:
Cash and cash equivalents $
742,521 $
393,745
Marketable securities 701,515 1,143,249
Accounts receivable, net 630,406 551,943
Prepaid expenses and other current
assets 168,779 142,676
Total current assets 2,243,221 2,231,613
Marketable securities 1,110,058 835,384
Property and equipment, net 1,383,480 1,152,153
Operating lease right-of-use
assets 745,089 758,450
Acquired intangible assets, net 184,478 179,431
Goodwill 1,598,919 1,600,265
Deferred income tax assets 97,801 76,528
Other assets 151,347 173,062
Total assets $
7,514,393 $
7,006,886
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $
114,850 $
138,946
Accrued expenses 369,815 334,861
Deferred revenue 88,942 71,223
Operating lease liabilities 136,292 139,463
Other current liabilities 7,225 8,843
Total current liabilities 717,124 693,336
Deferred revenue 3,954 4,368
Deferred income tax liabilities 31,946 29,187
Convertible senior notes 1,889,743 1,839,791
Operating lease liabilities 682,623 692,181
Other liabilities 81,386 90,065
Total liabilities 3,406,776 3,348,928
Total stockholders' equity 4,107,617 3,657,958
Total liabilities and stockholders'
equity $
7,514,393 $
7,006,886
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Nine Months Ended
---
(in thousands, except per share data) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Revenue $
792,845 $
794,715 $
709,912 $
2,351,862 $
2,121,494
Costs and operating expenses:
Cost of revenue(1) (2) 283,439 276,804 246,938 828,825 729,874
Research and development(1) 66,773 64,090 64,887 202,087 192,467
Sales and marketing(1) 122,749 123,469 122,258 370,004 383,640
General and administrative(1) (2) 128,365 129,709 123,216 385,435 366,167
Amortization of acquired intangible assets 10,340 10,381 9,624 31,155 28,871
Restructuring charge (benefit) 21 (167) (300) 10,439 6,879
Total costs and operating expenses 611,687 604,286 566,623 1,827,945 1,707,898
Income from operations 181,158 190,429 143,289 523,917 413,596
Interest income 6,307 9,502 7,908 22,852 22,953
Interest expense (17,324) (17,249) (12,127) (51,778) (32,689)
Other expense, net (2,158) (1,603) (752) (7,869) (819)
Income before provision for income taxes 167,983 181,079 138,318 487,122 403,041
(Provision) benefit for income taxes (8,801) (18,671) 960 (41,764) (42,718)
Loss from equity method investment (559) (493) (1,388) (1,674) (1,388)
Net income $
158,623 $
161,915 $
137,890 $
443,684 $
358,935
Net income per share:
Basic $
0.97 $
1.00 $
0.85 $
2.73 $
2.20
Diluted $
0.95 $
0.98 $
0.84 $
2.69 $
2.18
Shares used in per share calculations:
Basic 162,757 162,413 162,445 162,387 163,029
Diluted 166,519 164,768 164,558 164,990 164,788
(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
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Cash flows from operating activities:
Net income $
158,623 $
161,915 $
137,890 $
443,684 $
358,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 118,893 115,580 110,604 350,681 324,874
Stock-based compensation 50,217 49,191 46,815 146,901 140,262
(Benefit) provision for deferred
income taxes (33,942) 14,282 (27) (22,548) 24,581
Amortization of debt discount and
issuance costs 15,747 15,677 11,133 47,057 30,761
Other non-cash reconciling items,
net 1,480 2,752 2,598 16,284 3,778
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable 20,107 (31,633) (17) (85,439) (38,144)
Prepaid expenses and other current
assets (11,401) 455 11,624 (21,380) (11,663)
Accounts payable and accrued
expenses 97,220 (19,944) 23,348 49,818 (29,441)
Deferred revenue (6,539) (5,647) (11,259) 14,803 16,714
Other current liabilities (523) (2,043) (3,111) (1,638) (21,850)
Other non-current assets and
liabilities (7,909) (1,894) (32,213) (14,316) (22,643)
Net cash provided by operating
activities 401,973 298,691 297,385 923,907 776,164
Cash flows from investing activities:
Cash received (paid) for business
acquisitions, net of cash acquired - 106 (121,409)
Cash paid for asset acquisition - (36,376)
Cash paid for equity method
investment - (36,008)
Purchases of property and equipment
and capitalization of internal-use
software development costs (228,759) (120,239) (152,633) (564,427) (428,411)
Purchases of short- and long-term
marketable securities (311,010) (452,737) (981,805) (1,153,526) (1,373,563)
Proceeds from sales and maturities
of short- and long-term
marketable securities 317,163 483,184 229,796 1,331,163 879,326
Other non-current assets and
liabilities (2,059) 155 (342) (1,980) 1,895
Net cash used in investing
activities (224,665) (89,637) (904,984) (425,040) (1,078,170)
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Three Months Ended
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
Cash flows from financing activities:
Proceeds from the issuance of
convertible senior notes - 1,135,629 1,135,629
Proceeds from the issuance of
warrants - 185,150 185,150
Purchase of note hedge related to
convertible senior notes - (312,225) (312,225)
Repayment of convertible senior
notes - (690,000)
Proceeds from the issuance of common
stock under stock plans 16,007 10,259 14,432 45,812 43,204
Employee taxes paid related to net
share settlement of stock-based
awards (13,369) (13,095) (11,160) (77,299) (61,116)
Repurchases of common stock (13,198) (27,330) (175,541) (121,078) (291,788)
Other non-current assets and
liabilities - (1,558)
Net cash (used in) provided by
financing activities (10,560) (30,166) 836,285 (152,565) 7,296
Effects of exchange rate changes on
cash, cash equivalents and
restricted cash 4,363 8,155 (5,328) 3,535 (2,650)
Net increase (decrease) in cash,
cash equivalents and restricted
cash 171,111 187,043 223,358 349,837 (297,360)
Cash, cash equivalents and
restricted cash at beginning of
period 572,872 385,829 516,269 394,146 1,036,987
Cash, cash equivalents and
restricted cash at end of period $
743,983 $
572,872 $
739,627 $
743,983 $
739,627
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION
Three Months Ended
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Web Division $
418,064 $
404,342 $
387,662 $
1,228,401 $
1,139,422
Media and Carrier
Division 374,781 390,373 322,250 1,123,461 982,072
Total revenue $
792,845 $
794,715 $
709,912 $
2,351,862 $
2,121,494
Revenue growth rates year-over-year:
Web Division 8
% 7
% 9
% 8
% 8
%
Media and Carrier
Division 16 19 2 14 4
Total revenue 12
% 13
% 6
% 11
% 6
%
Revenue growth rates year-over-year,
adjusted for the impact of foreign
exchange rates(2):
Web Division 7
% 8
% 10
% 8
% 10
%
Media and Carrier
Division 16 20 3 15 5
Total revenue 11
% 14
% 7
% 11
% 8
%
===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS
Three Months Ended
Nine Months Ended
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Cloud Security
Solutions $
265,869 $
259,316 $
215,916 $
765,485 $
610,820
CDN and other
solutions 526,976 535,399 493,996 1,586,377 1,510,674
Total revenue $
792,845 $
794,715 $
709,912 $
2,351,862 $
2,121,494
Revenue growth rates year-over-
year:
Cloud Security
Solutions 23
% 27
% 28
% 25
% 29
%
CDN and other
solutions 7 7 (1) 5 (1)
Total revenue 12
% 13
% 6
% 11
% 6
%
===
Revenue growth rates year-over-
year, adjusted for the impact of
foreign exchange rates(2):
Cloud Security
Solutions 23
% 28
% 29
% 26
% 31
%
CDN and other
solutions 6 8 (1) 5
Total revenue 11
% 14
% 7
% 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
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Revenue from Internet
Platform Customers $
50,618 $
50,752 $
44,156 $
146,072 $
137,501
Revenue excluding
Internet Platform
Customers 742,227 743,963 665,756 2,205,790 1,983,993
Total revenue $
792,845 $
794,715 $
709,912 $
2,351,862 $
2,121,494
Revenue growth rates year-over-year:
Revenue from Internet
Platform Customers 15
% 10
% 2
% 6
% 5
%
Revenue excluding
Internet Platform
Customers 11 13 6 11 6
Total revenue 12
% 13
% 6
% 11
% 6
%
Revenue growth rates year-over-year,
adjusted for the impact of foreign
exchange rates(1):
Revenue from Internet
Platform Customers 15
% 10
% 2
% 6
% 5
%
Revenue excluding
Internet Platform
Customers 11 14 7 12 8
Total revenue 11
% 14
% 7
% 11
% 8
%
===
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY
Three Months Ended
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
U.S. $
437,381 $
443,668 $
413,116 $
1,309,979 $
1,248,175
International 355,464 351,047 296,796 1,041,883 873,319
Total revenue $
792,845 $
794,715 $
709,912 $
2,351,862 $
2,121,494
Revenue growth rates year-over-year:
U.S. 6
% 6
% % 5
% %
International 20 22 15 19 16
Total revenue 12
% 13
% 6
% 11
% 6
%
Revenue growth rates year-over-year,
adjusted for the impact of foreign
exchange rates(1):
U.S. 6
% 6
% % 5
% %
International 18 24 18 21 20
Total revenue 11
% 14
% 7
% 11
% 8
%
===
(1) See Use of Non-GAAP
Financial Measures below
for a definition
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA
Three Months Ended
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
General and administrative expenses:
Payroll and related costs $
50,159 $
49,475 $
47,892 $
148,233 $
145,248
Stock-based compensation 14,302 15,377 12,825 43,636 40,018
Depreciation and
amortization 20,554 20,654 19,269 61,673 56,420
Facilities-related costs 25,099 23,898 21,413 73,669 63,478
(Benefit) provision for
doubtful accounts (1,627) 2,893 623 3,465 2,338
Acquisition-related costs 1,051 62 219 1,189 1,194
Legal settlements - 275 275
License of patent - (8,855)
Professional fees and
other expenses 18,827 17,075 20,975 53,295 66,326
Total general and
administrative expenses $
128,365 $
129,709 $
123,216 $
385,435 $
366,167
General and administrative
expenses-functional(1):
Global functions $
47,559 $
46,818 $
47,731 $
142,243 $
146,661
As a percentage of revenue 6 6 7 6 7
% % % % %
Infrastructure 81,365 79,677 74,643 238,262 219,302
As a percentage of revenue 10 10 11 10 10
% % %
% %
Other (559) 3,214 842 4,930 204
Total general and
administrative expenses $
128,365 $
129,709 $
123,216 $
385,435 $
366,167
As a percentage of revenue 16 16 17 16 17
% % %
% %
Stock-based compensation:
Cost of revenue $
6,384 $
6,254 $
5,555 $
18,374 $
16,917
Research and development 12,722 11,549 12,842 36,336 36,943
Sales and marketing 16,809 16,011 15,593 48,555 46,384
General and administrative 14,302 15,377 12,825 43,636 40,018
Total stock-based
compensation $
50,217 $
49,191 $
46,815 $
146,901 $
140,262
(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
Nine Months Ended
---
(in thousands, except end of period statistics) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Depreciation and amortization:
Network-related depreciation $
42,991 $
38,806 $
31,840 $
118,194 $
91,402
Capitalized internal-use software development amortization 37,572 38,164 41,842 116,505 123,739
Other depreciation and amortization 20,081 20,193 18,843 60,293 55,124
Depreciation of property and equipment 100,644 97,163 92,525 294,992 270,265
Capitalized stock-based compensation amortization(1) 7,078 7,185 7,500 21,894 22,866
Capitalized interest expense amortization(1) 831 851 955 2,640 2,872
Amortization of acquired intangible assets 10,340 10,381 9,624 31,155 28,871
Total depreciation and amortization $
118,893 $
115,580 $
110,604 $
350,681 $
324,874
Capital expenditures, excluding stock-based compensation and interest expense(2)(3):
Purchases of property and equipment $
144,155 $
142,310 $
104,345 $
371,264 $
284,294
Capitalized internal-use software development costs 55,885 53,692 49,754 160,486 152,194
Total capital expenditures, excluding stock-based compensation and interest expense $
200,040 $
196,002 $
154,099 $
531,750 $
436,488
End of period statistics:
Number of employees 8,155 7,951 7,579
(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
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Income from operations $
181,158 $
190,429 $
143,289 $
523,917 $
413,596
GAAP operating margin 23 24 20 22 19
% % % %
%
Amortization of acquired
intangible assets 10,340 10,381 9,624 31,155 28,871
Stock-based compensation 50,217 49,191 46,815 146,901 140,262
Amortization of capitalized
stock-based compensation and
capitalized interest expense 7,913 8,038 8,455 24,540 25,738
Restructuring charge (benefit) 21 (167) (300) 10,439 6,879
Acquisition-related costs 1,051 62 219 1,189 1,194
Legal settlements - 275 275
Transformation costs - 5,527
Operating adjustments 69,542 67,780 64,813 214,499 208,471
Non-GAAP income from
operations $
250,700 $
258,209 $
208,102 $
738,416 $
622,067
Non-GAAP operating margin 32 32 29 31 29
% % % %
%
Net income $
158,623 $
161,915 $
137,890 $
443,684 $
358,935
Operating adjustments (from
above) 69,542 67,780 64,813 214,499 208,471
Amortization of debt discount
and issuance costs 15,747 15,677 11,133 47,057 30,761
Gain on investments - (440)
Loss from equity method
investment 559 493 1,388 1,674 1,388
Income tax-effect of above
non-GAAP adjustments and
certain discrete tax items (28,689) (19,347) (34,631) (68,481) (61,389)
Non-GAAP net income $
215,782 $
226,518 $
180,593 $
638,433 $
537,726
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE
Three Months Ended
Nine Months Ended
---
(in thousands, except per share data) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
GAAP net income per diluted share $
0.95 $
0.98 $
0.84 $
2.69 $
2.18
Adjustments to net income:
Amortization of acquired intangible assets 0.06 0.06 0.06 0.19 0.18
Stock-based compensation 0.30 0.30 0.28 0.89 0.85
Amortization of capitalized stock-based compensation and
capitalized interest expense 0.05 0.05 0.05 0.15 0.16
Restructuring charge (benefit) - 0.06 0.04
Acquisition-related costs 0.01 0.01 0.01
Legal settlements -
Transformation costs - 0.03
Amortization of debt discount and issuance costs 0.09 0.10 0.07 0.29 0.19
Gain on investments -
Loss from equity method investment - 0.01 0.01 0.01
Income tax effect of above non-GAAP adjustments and certain
discrete tax items (0.17) (0.12) (0.21) (0.42) (0.37)
Adjustment for shares(1) 0.02 0.01 0.02
Non-GAAP net income per diluted share $
1.31 $
1.38 $
1.10 $
3.89 $
3.26
Shares used in GAAP diluted per share calculations 166,519 164,768 164,558 164,990 164,788
Impact of benefit from note hedge transactions(1) (1,732) (653) (795)
Shares used in non-GAAP diluted per share calculations(1) 164,787 164,115 164,558 164,195 164,788
(1) Shares used in non-GAAP diluted
per share calculations have
been adjusted for the three and
nine months ended September 30,
2020, for the benefit of
Akamai's note hedge
transactions. During the three
months ended September 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
Nine Months Ended
---
(in thousands) September 30, June 30, September 30, September 30, September 30,
2020 2020 2019 2020 2019
---
Net income $
158,623 $
161,915 $
137,890 $
443,684 $
358,935
Interest income (6,307) (9,502) (7,908) (22,852) (22,953)
Provision (benefit) for
income taxes 8,801 18,671 (960) 41,764 42,718
Depreciation and
amortization 100,644 97,163 92,525 294,992 270,265
Amortization of capitalized
stock-based compensation
and capitalized interest
expense 7,913 8,038 8,455 24,540 25,738
Amortization of acquired
intangible assets 10,340 10,381 9,624 31,155 28,871
Stock-based compensation 50,217 49,191 46,815 146,901 140,262
Restructuring charge
(benefit) 21 (167) (300) 10,439 6,879
Acquisition-related costs 1,051 62 219 1,189 1,194
Legal settlements - 275 275
Transformation costs - 5,527
Interest expense 17,324 17,249 12,127 51,778 32,689
Gain on investments - (440)
Loss from equity method
investment 559 493 1,388 1,674 1,388
Other expense, net 2,158 1,603 752 7,869 1,259
Adjusted EBITDA $
351,344 $
355,372 $
300,627 $
1,033,408 $
892,332
Adjusted EBITDA margin 44 45 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.
