Akamai Reports Second Quarter 2019 Financial Results
"
Revenue: Revenue was
Revenue by Division(1):
- Web Division revenue was
$380 million , up 8% year-over-year and up 10% when adjusted for foreign exchange* - Media and Carrier Division revenue was
$325 million , up 4% year-over-year and up 6% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions(2):
- Cloud Security Solutions revenue was
$205 million , up 32% year-over-year and up 34% when adjusted for foreign exchange*
Revenue from Internet Platform Customers(3):
- Revenue from Internet Platform Customers was
$46 million , up 5% year-over-year and when adjusted for foreign exchange* - Revenue excluding Internet Platform Customers was
$659 million , up 6% year-over-year and up 8% when adjusted for foreign exchange*
Revenue by Geography:
- U.S. revenue was
$417 million , up 1% year-over-year - International revenue was
$288 million , up 15% year-over-year and up 20% when adjusted for foreign exchange*
Second quarter 2018 and 2019 items: Second quarter year-over-year growth rates for GAAP income from operations, GAAP net income and GAAP EPS in the paragraphs below were impacted by a one-time
Second quarter year-over-year growth rates for GAAP and non-GAAP income from operations, net income and EPS in the paragraphs below were benefited by
Income from operations: GAAP income from operations was
Non-GAAP income from operations* was
Net income: GAAP net income was
EPS: GAAP EPS was
Adjusted EBITDA*: Adjusted EBITDA was
Supplemental cash information: Cash from operations for the second quarter of 2019 was
Share repurchases:
* |
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
About
AKAMAI TECHNOLOGIES, INC. |
|||||
CONDENSED CONSOLIDATED BALANCE SHEETS |
|||||
(in thousands) |
June 30, 2019 (1) |
December 31, 2018 |
|||
ASSETS |
|||||
Current assets: |
|||||
Cash and cash equivalents |
$ |
515,896 |
$ |
1,036,455 |
|
Marketable securities |
526,596 |
855,650 |
|||
Accounts receivable, net |
523,382 |
479,889 |
|||
Prepaid expenses and other current assets |
178,920 |
163,360 |
|||
Total current assets |
1,744,794 |
2,535,354 |
|||
Marketable securities |
287,046 |
209,066 |
|||
Property and equipment, net |
1,019,407 |
910,618 |
|||
Operating lease right-of-use assets |
359,128 |
— |
|||
Acquired intangible assets, net |
176,031 |
168,348 |
|||
Goodwill |
1,586,642 |
1,487,404 |
|||
Deferred income tax assets |
19,677 |
34,913 |
|||
Other assets |
150,511 |
116,067 |
|||
Total assets |
$ |
5,343,236 |
$ |
5,461,770 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||
Current liabilities: |
|||||
Accounts payable |
$ |
126,539 |
$ |
99,089 |
|
Accrued expenses |
250,015 |
328,304 |
|||
Deferred revenue |
110,750 |
69,083 |
|||
Convertible senior notes |
— |
686,552 |
|||
Operating lease liabilities |
96,160 |
— |
|||
Other current liabilities |
7,350 |
27,681 |
|||
Total current liabilities |
590,814 |
1,210,709 |
|||
Deferred revenue |
5,204 |
4,557 |
|||
Deferred income tax liabilities |
25,099 |
19,624 |
|||
Convertible senior notes |
893,191 |
874,080 |
|||
Operating lease liabilities |
299,062 |
— |
|||
Other liabilities |
135,102 |
160,940 |
|||
Total liabilities |
1,948,472 |
2,269,910 |
|||
Total stockholders' equity |
3,394,764 |
3,191,860 |
|||
Total liabilities and stockholders' equity |
$ |
5,343,236 |
$ |
5,461,770 |
(1) |
On January 1, 2019, Akamai adopted the new lease accounting standard on a modified retrospective basis by applying the new standard to its lease portfolio as of January 1, 2019, while continuing to apply legacy guidance in the comparative periods. Adoption of the standard required Akamai to record right-of-use assets and lease liabilities for its operating leases related to real estate and co-location arrangements. The adoption of the standard also resulted in elimination of related accrued expenses and deferred rent liabilities, as of January 1, 2019, that are now included in the new lease balances. |
AKAMAI TECHNOLOGIES, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands, except per share data) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Revenue |
$ |
705,074 |
$ |
706,508 |
$ |
662,759 |
$ |
1,411,582 |
$ |
1,331,483 |
|||||||||
Costs and operating expenses: |
|||||||||||||||||||
Cost of revenue(1) (2) |
242,193 |
240,743 |
235,487 |
482,936 |
470,312 |
||||||||||||||
Research and development(1) |
61,439 |
66,141 |
59,709 |
127,580 |
124,774 |
||||||||||||||
Sales and marketing(1) |
135,106 |
126,276 |
131,680 |
261,382 |
254,233 |
||||||||||||||
General and administrative(1) (2) |
120,116 |
122,835 |
170,206 |
242,951 |
324,591 |
||||||||||||||
Amortization of acquired intangible assets |
9,648 |
9,599 |
8,294 |
19,247 |
16,725 |
||||||||||||||
Restructuring charges |
790 |
6,389 |
266 |
7,179 |
15,174 |
||||||||||||||
Total costs and operating expenses |
569,292 |
571,983 |
605,642 |
1,141,275 |
1,205,809 |
||||||||||||||
Income from operations |
135,782 |
134,525 |
57,117 |
270,307 |
125,674 |
||||||||||||||
Interest income |
6,410 |
8,635 |
6,409 |
15,045 |
10,374 |
||||||||||||||
Interest expense |
(8,446) |
(12,116) |
(9,204) |
(20,562) |
(14,054) |
||||||||||||||
Other (expense) income, net |
(578) |
511 |
(2,769) |
(67) |
(2,748) |
||||||||||||||
Income before provision for income taxes |
133,168 |
131,555 |
51,553 |
264,723 |
119,246 |
||||||||||||||
Provision for income taxes |
19,253 |
24,425 |
8,492 |
43,678 |
22,471 |
||||||||||||||
Net income |
$ |
113,915 |
$ |
107,130 |
$ |
43,061 |
$ |
221,045 |
$ |
96,775 |
|||||||||
Net income per share: |
|||||||||||||||||||
Basic |
$ |
0.70 |
$ |
0.66 |
$ |
0.25 |
$ |
1.35 |
$ |
0.57 |
|||||||||
Diluted |
$ |
0.69 |
$ |
0.65 |
$ |
0.25 |
$ |
1.34 |
$ |
0.56 |
|||||||||
Shares used in per share calculations: |
|||||||||||||||||||
Basic |
163,407 |
163,236 |
170,250 |
163,322 |
170,183 |
||||||||||||||
Diluted |
165,019 |
164,787 |
172,307 |
164,903 |
172,156 |
(1) |
Includes stock-based compensation (see supplemental table for figures) |
(2) |
Includes depreciation and amortization (see supplemental table for figures) |
AKAMAI TECHNOLOGIES, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Cash flows from operating activities: |
|||||||||||||||||||
Net income |
$ |
113,915 |
$ |
107,130 |
$ |
43,061 |
$ |
221,045 |
$ |
96,775 |
|||||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|||||||||||||||||||
Depreciation and amortization |
106,065 |
108,205 |
106,298 |
214,270 |
210,393 |
||||||||||||||
Stock-based compensation |
48,142 |
45,305 |
47,497 |
93,447 |
92,183 |
||||||||||||||
Provision (benefit) for deferred income taxes |
15,626 |
8,982 |
(4,302) |
24,608 |
(12,116) |
||||||||||||||
Amortization of debt discount and issuance costs |
8,010 |
11,618 |
8,909 |
19,628 |
13,759 |
||||||||||||||
Restructuring-related software charges |
— |
— |
— |
— |
2,818 |
||||||||||||||
Other non-cash reconciling items, net |
1,301 |
(121) |
3,636 |
1,180 |
8,015 |
||||||||||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
|||||||||||||||||||
Accounts receivable |
5,639 |
(43,766) |
1,530 |
(38,127) |
(16,889) |
||||||||||||||
Prepaid expenses and other current assets |
(10,258) |
(13,029) |
13,505 |
(23,287) |
8,578 |
||||||||||||||
Accounts payable and accrued expenses |
32,577 |
(85,366) |
4,221 |
(52,789) |
(27,091) |
||||||||||||||
Deferred revenue |
(1,313) |
29,286 |
4,309 |
27,973 |
29,552 |
||||||||||||||
Other current liabilities |
(9,266) |
(9,473) |
(8,046) |
(18,739) |
5,655 |
||||||||||||||
Other non-current assets and liabilities |
7,491 |
2,079 |
(937) |
9,570 |
59 |
||||||||||||||
Net cash provided by operating activities |
317,929 |
160,850 |
219,681 |
478,779 |
411,691 |
||||||||||||||
Cash flows from investing activities: |
|||||||||||||||||||
Cash paid for acquired businesses, net of cash acquired |
55 |
(121,464) |
— |
(121,409) |
(79) |
||||||||||||||
Cash received (paid) for equity method investment |
4,205 |
(40,213) |
— |
(36,008) |
— |
||||||||||||||
Purchases of property and equipment and capitalization of internal-use software development costs |
(133,349) |
(142,429) |
(88,634) |
(275,778) |
(201,709) |
||||||||||||||
Purchases of short- and long-term marketable securities |
(381,133) |
(10,625) |
(394,534) |
(391,758) |
(467,886) |
||||||||||||||
Proceeds from sales and maturities of short- and long-term marketable securities |
101,493 |
548,037 |
64,830 |
649,530 |
140,566 |
||||||||||||||
Other non-current assets and liabilities |
(698) |
2,935 |
236 |
2,237 |
(479) |
||||||||||||||
Net cash (used in) provided by investing activities |
(409,427) |
236,241 |
(418,102) |
(173,186) |
(529,587) |
AKAMAI TECHNOLOGIES, INC. |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Cash flows from financing activities: |
|||||||||||||||||||
Proceeds from the issuance of convertible senior notes |
— |
— |
1,132,622 |
— |
1,132,622 |
||||||||||||||
Proceeds from the issuance of warrants |
— |
— |
119,945 |
— |
119,945 |
||||||||||||||
Purchase of note hedge related to convertible senior notes |
— |
— |
(261,740) |
— |
(261,740) |
||||||||||||||
Repayment of convertible senior notes |
— |
(690,000) |
— |
(690,000) |
— |
||||||||||||||
Proceeds from the issuance of common stock under stock plans |
8,998 |
19,774 |
11,365 |
28,772 |
34,103 |
||||||||||||||
Employee taxes paid related to net share settlement of stock-based awards |
(11,317) |
(38,639) |
(11,594) |
(49,956) |
(41,308) |
||||||||||||||
Repurchases of common stock |
(81,375) |
(34,872) |
(165,727) |
(116,247) |
(185,512) |
||||||||||||||
Other non-current assets and liabilities |
— |
(1,558) |
(944) |
(1,558) |
(4,844) |
||||||||||||||
Net cash (used in) provided by financing activities |
(83,694) |
(745,295) |
823,927 |
(828,989) |
793,266 |
||||||||||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
1,077 |
1,601 |
(12,625) |
2,678 |
(11,460) |
||||||||||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(174,115) |
(346,603) |
612,881 |
(520,718) |
663,910 |
||||||||||||||
Cash, cash equivalents and restricted cash at beginning of period |
690,384 |
1,036,987 |
365,458 |
1,036,987 |
314,429 |
||||||||||||||
Cash, cash equivalents and restricted cash at end of period |
$ |
516,269 |
$ |
690,384 |
$ |
978,339 |
$ |
516,269 |
$ |
978,339 |
|||||||||
AKAMAI TECHNOLOGIES, INC. |
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SUPPLEMENTAL REVENUE DATA – REVENUE BY DIVISION |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 (1) |
June 30, 2019 |
June 30, 2018 (1) |
||||||||||||||
Web Division |
$ |
380,374 |
$ |
376,275 |
$ |
351,871 |
$ |
756,649 |
$ |
705,121 |
|||||||||
Media and Carrier Division |
324,700 |
330,233 |
310,888 |
654,933 |
626,362 |
||||||||||||||
Total revenue |
$ |
705,074 |
$ |
706,508 |
$ |
662,759 |
$ |
1,411,582 |
$ |
1,331,483 |
|||||||||
Revenue growth rates year-over-year: |
|||||||||||||||||||
Web Division |
8 |
% |
7 |
% |
10 |
% |
7 |
% |
13 |
% |
|||||||||
Media and Carrier Division |
4 |
5 |
8 |
5 |
7 |
||||||||||||||
Total revenue |
6 |
% |
6 |
% |
9 |
% |
6 |
% |
10 |
% |
|||||||||
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2): |
|||||||||||||||||||
Web Division |
10 |
% |
9 |
% |
9 |
% |
9 |
% |
11 |
% |
|||||||||
Media and Carrier Division |
6 |
7 |
7 |
6 |
6 |
||||||||||||||
Total revenue |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
SUPPLEMENTAL REVENUE DATA – REVENUE FROM CLOUD SECURITY SOLUTIONS |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 (3) |
June 30, 2019 |
June 30, 2018 (3) |
||||||||||||||
Cloud Security Solutions |
$ |
204,811 |
$ |
190,093 |
$ |
155,250 |
$ |
394,904 |
$ |
305,326 |
|||||||||
CDN and other solutions |
500,263 |
516,415 |
507,509 |
1,016,678 |
1,026,157 |
||||||||||||||
Total revenue |
$ |
705,074 |
$ |
706,508 |
$ |
662,759 |
$ |
1,411,582 |
$ |
1,331,483 |
|||||||||
Revenue growth rates year-over-year: |
|||||||||||||||||||
Cloud Security Solutions |
32 |
% |
27 |
% |
33 |
% |
29 |
% |
34 |
% |
|||||||||
CDN and other solutions |
(1) |
— |
4 |
(1) |
5 |
||||||||||||||
Total revenue |
6 |
% |
6 |
% |
9 |
% |
6 |
% |
10 |
% |
|||||||||
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2): |
|||||||||||||||||||
Cloud Security Solutions |
34 |
% |
29 |
% |
31 |
% |
32 |
% |
32 |
% |
|||||||||
CDN and other solutions |
— |
2 |
3 |
1 |
3 |
||||||||||||||
Total revenue |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
(1) |
As of January 1, 2019, Akamai reassigned some of its customers from the Media and Carrier Division to the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, Akamai may reassign a customer's division from one to another. |
(2) |
See Use of Non-GAAP Financial Measures below for a definition |
(3) |
As of January 1, 2019, Akamai updated its methodology for allocating revenue to specific solutions when solutions are sold as a bundle. Revenue amounts were reassigned from CDN and other solutions revenue to Cloud Security Solutions revenue as a result of this change and historical results were revised in order to reflect the most recent allocation methodologies and to provide a comparable view for all periods presented. |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, |
March 31, |
June 30, |
June 30, |
June 30, |
||||||||||||||
Revenue from Internet Platform Customers |
$ |
46,259 |
$ |
47,086 |
$ |
44,062 |
$ |
93,345 |
$ |
88,453 |
|||||||||
Revenue excluding Internet Platform Customers |
658,815 |
659,422 |
618,697 |
1,318,237 |
1,243,030 |
||||||||||||||
Total revenue |
$ |
705,074 |
$ |
706,508 |
$ |
662,759 |
$ |
1,411,582 |
$ |
1,331,483 |
|||||||||
Revenue growth rates year-over-year: |
|||||||||||||||||||
Revenue from Internet Platform Customers |
5 |
% |
6 |
% |
(14) |
% |
6 |
% |
(14) |
% |
|||||||||
Revenue excluding Internet Platform Customers |
6 |
6 |
12 |
6 |
13 |
||||||||||||||
Total revenue |
6 |
% |
6 |
% |
9 |
% |
6 |
% |
10 |
% |
|||||||||
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1): |
|||||||||||||||||||
Revenue from Internet Platform Customers |
5 |
% |
6 |
% |
(14) |
% |
6 |
% |
(14) |
% |
|||||||||
Revenue excluding Internet Platform Customers |
8 |
8 |
10 |
8 |
10 |
||||||||||||||
Total revenue |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
U.S. |
$ |
416,859 |
$ |
418,200 |
$ |
413,129 |
$ |
835,059 |
$ |
836,468 |
|||||||||
International |
288,215 |
288,308 |
249,630 |
576,523 |
495,015 |
||||||||||||||
Total revenue |
$ |
705,074 |
$ |
706,508 |
$ |
662,759 |
$ |
1,411,582 |
$ |
1,331,483 |
|||||||||
Revenue growth rates year-over-year: |
|||||||||||||||||||
U.S. |
1 |
% |
(1) |
% |
3 |
% |
— |
% |
5 |
% |
|||||||||
International |
15 |
17 |
21 |
16 |
22 |
||||||||||||||
Total revenue |
6 |
% |
6 |
% |
9 |
% |
6 |
% |
10 |
% |
|||||||||
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1): |
|||||||||||||||||||
U.S. |
1 |
% |
(1) |
% |
3 |
% |
— |
% |
5 |
% |
|||||||||
International |
20 |
24 |
18 |
22 |
16 |
||||||||||||||
Total revenue |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
8 |
% |
(1) |
See Use of Non-GAAP Financial Measures below for a definition |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
SUPPLEMENTAL OPERATING EXPENSE DATA |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
General and administrative expenses: |
|||||||||||||||||||
Payroll and related costs |
$ |
47,705 |
$ |
49,651 |
$ |
46,874 |
$ |
97,356 |
$ |
98,768 |
|||||||||
Stock-based compensation |
14,565 |
12,628 |
14,269 |
27,193 |
27,191 |
||||||||||||||
Depreciation and amortization |
18,778 |
18,373 |
21,207 |
37,151 |
41,095 |
||||||||||||||
Facilities-related costs |
21,042 |
21,023 |
20,529 |
42,065 |
42,324 |
||||||||||||||
Provision for doubtful accounts |
915 |
800 |
420 |
1,715 |
941 |
||||||||||||||
Acquisition-related costs |
524 |
451 |
500 |
975 |
1,643 |
||||||||||||||
Legal and stockholder matter costs |
— |
— |
— |
— |
23,091 |
||||||||||||||
License of patent |
(4,452) |
(4,403) |
(4,266) |
(8,855) |
(8,481) |
||||||||||||||
Endowment of Akamai Foundation |
— |
— |
50,000 |
— |
50,000 |
||||||||||||||
Professional fees and other expenses |
21,039 |
24,312 |
20,673 |
45,351 |
48,019 |
||||||||||||||
Total general and administrative expenses |
$ |
120,116 |
$ |
122,835 |
$ |
170,206 |
$ |
242,951 |
$ |
324,591 |
|||||||||
General and administrative expenses–functional(1): |
|||||||||||||||||||
Global functions |
$ |
49,462 |
$ |
49,468 |
$ |
47,497 |
$ |
98,930 |
$ |
103,150 |
|||||||||
As a percentage of revenue |
7 |
% |
7 |
% |
7 |
% |
7 |
% |
8 |
% |
|||||||||
Infrastructure |
72,332 |
72,327 |
76,055 |
144,659 |
154,247 |
||||||||||||||
As a percentage of revenue |
10 |
% |
10 |
% |
11 |
% |
10 |
% |
12 |
% |
|||||||||
Other |
(1,678) |
1,040 |
46,654 |
(638) |
67,194 |
||||||||||||||
Total general and administrative expenses |
$ |
120,116 |
$ |
122,835 |
$ |
170,206 |
$ |
242,951 |
$ |
324,591 |
|||||||||
As a percentage of revenue |
17 |
% |
17 |
% |
26 |
% |
17 |
% |
24 |
% |
|||||||||
Stock-based compensation: |
|||||||||||||||||||
Cost of revenue |
$ |
5,793 |
$ |
5,569 |
$ |
5,553 |
$ |
11,362 |
$ |
10,849 |
|||||||||
Research and development |
12,044 |
12,057 |
10,926 |
24,101 |
21,435 |
||||||||||||||
Sales and marketing |
15,740 |
15,051 |
16,749 |
30,791 |
32,708 |
||||||||||||||
General and administrative |
14,565 |
12,628 |
14,269 |
27,193 |
27,191 |
||||||||||||||
Total stock-based compensation |
$ |
48,142 |
$ |
45,305 |
$ |
47,497 |
$ |
93,447 |
$ |
92,183 |
(1) |
Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, provision for doubtful accounts, the license of a patent, legal and stockholder matter costs, transformation costs, and the endowment to the Akamai Foundation. |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
OTHER SUPPLEMENTAL DATA |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands, except end of period statistics) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Depreciation and amortization: |
|||||||||||||||||||
Network-related depreciation(1) |
$ |
29,394 |
$ |
30,168 |
$ |
37,748 |
$ |
59,562 |
$ |
75,983 |
|||||||||
Capitalized internal-use software development amortization |
40,640 |
41,257 |
32,822 |
81,897 |
64,490 |
||||||||||||||
Other depreciation and amortization |
18,333 |
17,948 |
20,837 |
36,281 |
40,335 |
||||||||||||||
Depreciation of property and equipment |
88,367 |
89,373 |
91,407 |
177,740 |
180,808 |
||||||||||||||
Capitalized stock-based compensation amortization |
7,271 |
8,095 |
5,846 |
15,366 |
11,415 |
||||||||||||||
Capitalized interest expense amortization |
779 |
1,138 |
751 |
1,917 |
1,445 |
||||||||||||||
Amortization of acquired intangible assets |
9,648 |
9,599 |
8,294 |
19,247 |
16,725 |
||||||||||||||
Total depreciation and amortization |
$ |
106,065 |
$ |
108,205 |
$ |
106,298 |
$ |
214,270 |
$ |
210,393 |
|||||||||
Capital expenditures, excluding stock-based compensation and interest expense(2)(3): |
|||||||||||||||||||
Purchases of property and equipment |
$ |
99,614 |
$ |
80,335 |
$ |
52,815 |
$ |
179,949 |
$ |
79,412 |
|||||||||
Capitalized internal-use software development costs |
52,955 |
49,485 |
49,028 |
102,440 |
98,285 |
||||||||||||||
Total capital expenditures, excluding stock-based compensation and interest expense |
$ |
152,569 |
$ |
129,820 |
$ |
101,843 |
$ |
282,389 |
$ |
177,697 |
|||||||||
End of period statistics: |
|||||||||||||||||||
Number of employees |
7,434 |
7,462 |
7,443 |
(1) |
As of January 1, 2019, due to the software and hardware initiatives undertaken to manage global network more efficiently, Akamai changed the estimated useful life of its network assets, primarily servers, from 4 years to 5 years. This prospective change decreased depreciation expense in the first half of 2019, as compared to the comparative periods presented in 2018. |
(2) |
Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end. |
(3) |
See Use of Non-GAAP Financial Measures below for a definition |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND NET INCOME PER DILUTED SHARE |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands, except per share data) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Income from operations |
$ |
135,782 |
$ |
134,525 |
$ |
57,117 |
$ |
270,307 |
$ |
125,674 |
|||||||||
GAAP operating margin |
19 |
% |
19 |
% |
9 |
% |
19 |
% |
9 |
% |
|||||||||
Amortization of acquired intangible assets |
9,648 |
9,599 |
8,294 |
19,247 |
16,725 |
||||||||||||||
Stock-based compensation |
48,142 |
45,305 |
47,497 |
93,447 |
92,183 |
||||||||||||||
Amortization of capitalized stock-based compensation and capitalized interest expense |
8,050 |
9,233 |
6,597 |
17,283 |
12,860 |
||||||||||||||
Restructuring charges |
790 |
6,389 |
266 |
7,179 |
15,174 |
||||||||||||||
Acquisition-related costs |
524 |
451 |
500 |
975 |
1,643 |
||||||||||||||
Legal and stockholder matter costs |
— |
— |
— |
— |
23,091 |
||||||||||||||
Endowment of Akamai Foundation |
— |
— |
50,000 |
— |
50,000 |
||||||||||||||
Transformation costs |
1,336 |
4,191 |
— |
5,527 |
— |
||||||||||||||
Operating adjustments |
68,490 |
75,168 |
113,154 |
143,658 |
211,676 |
||||||||||||||
Non-GAAP income from operations |
$ |
204,272 |
$ |
209,693 |
$ |
170,271 |
$ |
413,965 |
$ |
337,350 |
|||||||||
Non-GAAP operating margin |
29 |
% |
30 |
% |
26 |
% |
29 |
% |
25 |
% |
|||||||||
Net income |
$ |
113,915 |
$ |
107,130 |
$ |
43,061 |
$ |
221,045 |
$ |
96,775 |
|||||||||
Operating adjustments (from above) |
68,490 |
75,168 |
113,154 |
143,658 |
211,676 |
||||||||||||||
Amortization of debt discount and issuance costs |
8,010 |
11,618 |
8,909 |
19,628 |
13,759 |
||||||||||||||
Loss (gain) on investments |
250 |
(690) |
2,000 |
(440) |
2,000 |
||||||||||||||
Income tax-effect of above non-GAAP adjustments and certain discrete tax items |
(14,454) |
(12,304) |
(24,191) |
(26,758) |
(45,474) |
||||||||||||||
Non-GAAP net income |
$ |
176,211 |
$ |
180,922 |
$ |
142,933 |
$ |
357,133 |
$ |
278,736 |
|||||||||
GAAP net income per diluted share |
$ |
0.69 |
$ |
0.65 |
$ |
0.25 |
$ |
1.34 |
$ |
0.56 |
|||||||||
Amortization of acquired intangible assets |
0.06 |
0.06 |
0.05 |
0.12 |
0.10 |
||||||||||||||
Stock-based compensation |
0.29 |
0.27 |
0.28 |
0.57 |
0.54 |
||||||||||||||
Amortization of capitalized stock-based compensation and capitalized interest expense |
0.05 |
0.06 |
0.04 |
0.10 |
0.07 |
||||||||||||||
Restructuring charges |
— |
0.04 |
— |
0.04 |
0.09 |
||||||||||||||
Acquisition-related costs |
— |
— |
— |
0.01 |
0.01 |
||||||||||||||
Legal and stockholder matter costs |
— |
— |
— |
— |
0.13 |
||||||||||||||
Endowment of Akamai Foundation |
— |
— |
0.29 |
— |
0.29 |
||||||||||||||
Transformation costs |
0.01 |
0.03 |
— |
0.03 |
— |
||||||||||||||
Amortization of debt discount and issuance costs |
0.05 |
0.07 |
0.05 |
0.12 |
0.08 |
||||||||||||||
Loss (gain) on investments |
— |
— |
0.01 |
— |
0.01 |
||||||||||||||
Income tax effect of above non-GAAP adjustments and certain discrete tax items |
(0.09) |
(0.07) |
(0.14) |
(0.16) |
(0.26) |
||||||||||||||
Non-GAAP net income per diluted share |
$ |
1.07 |
$ |
1.10 |
$ |
0.83 |
$ |
2.17 |
$ |
1.62 |
|||||||||
Shares used in diluted per share calculations |
165,019 |
164,787 |
172,307 |
164,903 |
172,156 |
AKAMAI TECHNOLOGIES, INC. |
|||||||||||||||||||
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA |
|||||||||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||||||||
(in thousands) |
June 30, 2019 |
March 31, 2019 |
June 30, 2018 |
June 30, 2019 |
June 30, 2018 |
||||||||||||||
Net income |
$ |
113,915 |
$ |
107,130 |
$ |
43,061 |
221,045 |
$ |
96,775 |
||||||||||
Interest income |
(6,410) |
(8,635) |
(6,409) |
(15,045) |
(10,374) |
||||||||||||||
Provision for income taxes |
19,253 |
24,425 |
8,492 |
43,678 |
22,471 |
||||||||||||||
Depreciation and amortization |
88,367 |
89,373 |
91,407 |
177,740 |
180,808 |
||||||||||||||
Amortization of capitalized stock-based compensation and capitalized interest expense |
8,050 |
9,233 |
6,597 |
17,283 |
12,860 |
||||||||||||||
Amortization of acquired intangible assets |
9,648 |
9,599 |
8,294 |
19,247 |
16,725 |
||||||||||||||
Stock-based compensation |
48,142 |
45,305 |
47,497 |
93,447 |
92,183 |
||||||||||||||
Restructuring charges |
790 |
6,389 |
266 |
7,179 |
15,174 |
||||||||||||||
Acquisition-related costs |
524 |
451 |
500 |
975 |
1,643 |
||||||||||||||
Legal and stockholder matter costs |
— |
— |
— |
— |
23,091 |
||||||||||||||
Endowment of Akamai Foundation |
— |
— |
50,000 |
— |
50,000 |
||||||||||||||
Transformation costs |
1,336 |
4,191 |
— |
5,527 |
— |
||||||||||||||
Interest expense |
8,446 |
12,116 |
9,204 |
20,562 |
14,054 |
||||||||||||||
Loss (gain) on investments |
250 |
(690) |
2,000 |
(440) |
2,000 |
||||||||||||||
Other expense, net |
328 |
179 |
769 |
507 |
748 |
||||||||||||||
Adjusted EBITDA |
$ |
292,639 |
$ |
299,066 |
$ |
261,678 |
$ |
591,705 |
$ |
518,158 |
|||||||||
Adjusted EBITDA margin |
42 |
% |
42 |
% |
39 |
% |
42 |
% |
39 |
% |
|||||||||
Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in
Management believes that these non-GAAP financial measures reflect
The non-GAAP financial measures do not replace the presentation of
The non-GAAP adjustments, and
- Amortization of acquired intangible assets –
Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitionsAkamai 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 ofAkamai'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 ofAkamai'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 ofAkamai'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 reflectAkamai's core operations. - Restructuring charges –
Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments.Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business. - Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In
May 2018 ,Akamai issued$1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. InFebruary 2014 ,Akamai issued$690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded fromAkamai'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 ofAkamai's core business operations and ongoing operating performance. - Legal and stockholder matter costs –
Akamai has incurred losses related to the settlement of legal matters and costs from professional service providers related to a non-routine stockholder matter.Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative ofAkamai's core business operations. Endowment of Akamai Foundation – During the second quarter of 2018,Akamai incurred a charge to endow theAkamai Foundation .Akamai believes excluding this amount from non-GAAP financial measures is useful to investors as this one-time expense is not representative of its core business operations.- Transformation costs –
Akamai has incurred professional services fees associated with internal transformation programs designed to improve its operating margins and that are part of a planned program intended to significantly change the manner in which business in conducted.Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative ofAkamai's core business operations and ongoing operating performance. - Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any.
Akamai believes that applying the non-GAAP adjustments and their related income tax effect allowsAkamai to highlight income attributable to its core operations.
Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the
Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.
Non-GAAP net income – GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the
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
Adjusted EBITDA – GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the
Adjusted EBITDA margin – Adjusted EBITDA stated as a percentage of revenue.
Capital expenditures, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.
Impact of Foreign Currency Exchange Rate – Revenue and earnings from international operations have historically been an important contributor to
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
In addition, the statements in this press release and on such call represent
Contacts: |
||
Gina Sorice |
Tom Barth |
|
Media Relations |
Investor Relations |
|
Akamai Technologies |
Akamai Technologies |
|
646-320-4107 |
617-274-7130 |
|
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