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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report: July 30, 2019
(Date of earliest event reported)

AKAMAI TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
0-27275
 
04-3432319
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)

150 Broadway
Cambridge, Massachusetts 02142
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (617) 444-3000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
AKAM
Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨




Item 2.02 Results of Operations and Financial Condition

On July 30, 2019, Akamai Technologies, Inc. announced its financial results for the fiscal quarter ended June 30, 2019. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information provided under this Form 8-K (including Exhibit 99.1) shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in such a filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:

Exhibit No.
 
Description
99.1
 







SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated:
July 30, 2019
 
AKAMAI TECHNOLOGIES, INC.
 
 
 
 
 
 
 
/s/ Edward McGowan
 
 
 
Edward McGowan
 
 
 
Chief Financial Officer




Exhibit
Exhibit 99.1

FOR IMMEDIATE RELEASE

Contacts:
Gina Sorice
 
Tom Barth
Media Relations
 
Investor Relations
Akamai Technologies
 
Akamai Technologies
646-320-4107
 
617-274-7130
gsorice@akamai.com
 
tbarth@akamai.com


AKAMAI REPORTS SECOND QUARTER 2019 FINANCIAL RESULTS

Second quarter revenue of $705 million, up 6% year-over-year and up 8% when adjusted for foreign exchange*

Cloud Security Solutions revenue grew 32% year-over-year and 34% when adjusted for foreign exchange*

GAAP EPS of $0.69, up 176% year-over-year, and non-GAAP EPS* of $1.07, up 29% year-over-year


CAMBRIDGE, Mass. – July 30, 2019 – Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the second quarter ended June 30, 2019.

“Akamai delivered another quarter of strong results, with revenue and earnings exceeding our expectations. Security product revenue grew 34%, when adjusted for the impact of foreign exchange rates, to over $200 million in the quarter, and we saw continued strong OTT traffic growth on the Akamai Edge platform," said Dr. Tom Leighton, Akamai's Chief Executive Officer. “We believe we are well positioned to achieve our 30% margin goal in 2020, while continuing to invest in innovation and new products to drive future growth.”

Akamai delivered the following financial results for the second quarter ended June 30, 2019:

Revenue: Revenue was $705 million, a 6% increase over second quarter 2018 revenue of $663 million and an 8% increase when adjusted for foreign exchange.*

Revenue by Division(1):

•
Web Division revenue was $380 million, up 8% year-over-year and up 10% when adjusted for foreign exchange*
•
Media and Carrier Division revenue was $325 million, up 4% year-over-year and up 6% when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

•
Cloud Security Solutions revenue was $205 million, up 32% year-over-year and up 34% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

•
Revenue from Internet Platform Customers was $46 million, up 5% year-over-year and when adjusted for foreign exchange*
•
Revenue excluding Internet Platform Customers was $659 million, up 6% year-over-year and up 8% when adjusted for foreign exchange*

Revenue by Geography:

•
U.S. revenue was $417 million, up 1% year-over-year
•
International revenue was $288 million, up 15% year-over-year and up 20% when adjusted for foreign exchange*


1

Second quarter 2018 and 2019 items: Second quarter year-over-year growth rates for GAAP income from operations, GAAP net income and GAAP EPS in the paragraphs below were impacted by a one-time $50 million endowment to the Akamai Foundation recognized in the second quarter of 2018, which did not recur in the second quarter of 2019.

Second quarter year-over-year growth rates for GAAP and non-GAAP income from operations, net income and EPS in the paragraphs below were benefited by $9 million, or $8 million net of tax and $0.05 per share, from a change in estimated useful lives of some network assets due to software and hardware initiatives undertaken to manage Akamai's global network more efficiently. These network assets, primarily comprised of servers, are now amortized over 5 years, from 4 years, beginning on January 1, 2019.

Income from operations: GAAP income from operations was $136 million, a 138% increase from second quarter 2018. GAAP operating margin for the second quarter was 19%, up 10 percentage points from the same period last year.

Non-GAAP income from operations* was $204 million, a 20% increase from second quarter 2018. Non-GAAP operating margin* for the second quarter was 29%, up 3 percentage points from the same period last year.

Net income: GAAP net income was $114 million, a 165% increase from second quarter 2018. Non-GAAP net income* was $176 million, a 23% increase from second quarter 2018.

EPS: GAAP EPS was $0.69 per diluted share, a 176% increase from second quarter 2018 and a 185% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.07 per diluted share, a 29% increase from second quarter 2018 and a 32% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $293 million, a 12% increase from second quarter 2018. Adjusted EBITDA margin* for the second quarter was 42%, up 3 percentage points from the same period last year.

Supplemental cash information: Cash from operations for the second quarter of 2019 was $318 million, or 45% of revenue. Cash, cash equivalents and marketable securities was $1.3 billion as of June 30, 2019.

Share repurchases: Akamai spent $81 million in the second quarter of 2019 to repurchase 1.1 million shares of its common stock at an average price of $77.11 per share. The Company had 163 million shares of common stock outstanding as of June 30, 2019.


*
See Use of Non-GAAP Financial Measures below for definitions

(1)    Revenue by Division – A customer-focused reporting view that reflects revenue from customers that are managed by the division

(2)
Revenue from Cloud Security Solutions – A product-focused reporting view that reflects revenue from Cloud Security Solutions separately from all other solution categories

(3)
Revenue from Internet Platform Customers – Revenue from six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix




2

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671(or 1-508-637-5655 for international calls) and using passcode 8775706. A live webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode 8775706. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
Akamai secures and delivers digital experiences for the world’s largest companies. Akamai’s intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone – and attacks and threats far away. Akamai’s portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world’s top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.

3

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.


4

AKAMAI TECHNOLOGIES, INC.
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)


5

AKAMAI TECHNOLOGIES, INC.
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
)

6

AKAMAI TECHNOLOGIES, INC.
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



7

AKAMAI TECHNOLOGIES, INC.
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.


8

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30,
2019
 
March 31,
2019
 
June 30,
2018
 
June 30,
2019
 
June 30,
2018
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


9

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.



10

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


11

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



12

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
%


13

Use of Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.

The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned “Reconciliation of GAAP to Non-GAAP Financial Measures” can be found on the Investor Relations section of Akamai's website.

The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:

•
Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and are unique to each acquisition; therefore, Akamai excludes amortization of acquired intangible assets from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.

•
Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai's current financial results to previous and future periods difficult to interpret; therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to peer companies.

•
Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions and do not reflect Akamai's core operations.

•
Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.

•
Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed

14

interest rates of these convertible senior notes were 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of the company's operating performance because management believes the non-cash expense is not representative of ongoing operating performance.

•
Gains and losses on investments – Akamai has recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations and ongoing operating performance.

•
Legal and stockholder matter costs – Akamai has incurred losses related to the settlement of legal matters and costs from professional service providers related to a non-routine stockholder matter. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations.

•
Endowment of Akamai Foundation – During the second quarter of 2018, Akamai incurred a charge to endow the Akamai Foundation. Akamai believes excluding this amount from non-GAAP financial measures is useful to investors as this one-time expense is not representative of its core business operations.

•
Transformation costs – Akamai has incurred professional services fees associated with internal transformation programs designed to improve its operating margins and that are part of a planned program intended to significantly change the manner in which business in conducted. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of Akamai's core business operations and ongoing operating performance.

•
Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

Akamai's definitions of its non-GAAP financial measures are outlined below:

Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; transformation costs; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.

Non-GAAP net income – GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; transformation costs; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP net income per share – Non-GAAP net income divided by basic weighted average or diluted common shares outstanding. Basic weighted average shares outstanding are those used in GAAP net income per share calculations. Diluted weighted average shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transaction entered into in connection with the issuance of $1,150 million of convertible senior notes due 2025. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the company would receive a benefit from the note hedge transaction and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a

15

meaningful view of operating performance. With respect to the convertible senior notes due 2025, unless and until Akamai's weighted average stock price is greater than $95.10, the initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.

Adjusted EBITDA – GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; transformation costs; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; and other non-recurring or unusual items that may arise from time to time.

Adjusted EBITDA margin – Adjusted EBITDA stated as a percentage of revenue.

Capital expenditures, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.

Impact of Foreign Currency Exchange Rate – Revenue and earnings from international operations have historically been an important contributor to Akamai's financial results. Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.


Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about expected future financial performance. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, inability to continue to generate cash at the same level as prior years; change in stock price; failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.

In addition, the statements in this press release and on such call represent Akamai's expectations and beliefs as of the date of this press release. Akamai anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Akamai may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Akamai's expectations or beliefs as of any date subsequent to the date of this press release.


16