Akamai Reports Third Quarter 2007 Financial Results
-- Revenue grew to $161.2 million, up 45 percent year-over-year
and up 6 percent from the second quarter 2007
-- GAAP net income was $24.3 million, or $0.13 per diluted share,
up 73 percent year-over-year and up 12 percent over the second
quarter 2007
-- Normalized net income* was $62.4 million, or $0.34 per diluted
share, up 49 percent year-over-year and up 13 percent over the
second quarter 2007
CAMBRIDGE, Mass.--(BUSINESS WIRE)--Oct. 24, 2007--Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and applications online, today reported financial results for the third quarter ended September 30, 2007. Revenue for the third quarter 2007 was $161.2 million, a six percent increase over second quarter 2007 revenue of $152.7 million, and a 45 percent increase over third quarter 2006 revenue of $111.5 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2007 was $24.3 million, or $0.13 per diluted share.
The Company generated normalized net income* of $62.4 million, or $0.34 per normalized diluted share*, in the third quarter of 2007, a 13 percent increase over second quarter 2007 normalized net income of $55.4 million, or $0.30 per diluted share, and a 49 percent improvement over 2006 third quarter normalized earnings of $41.8 million, or $0.24 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
"We were very pleased with our third quarter results and the demand we saw for our services, especially as we experienced increased momentum during September," said Paul Sagan, president and CEO of Akamai. "We saw strong growth across all of our core markets, as we continued to support our broad customer base with innovative solutions to help them realize the potential of their online businesses."
Adjusted EBITDA* for the third quarter of 2007 was $71.9 million, up from $65.6 million in the second quarter 2007, and $46.8 million in the third quarter of 2006. Adjusted EBITDA margin for the third quarter was 45 percent, a three point improvement over the third quarter of last year. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations was $77.4 million in the third quarter. On a year-to-date basis, cash from operations was $171.0 million, an increase of 56 percent over the same period last year. At the end of the third quarter, the Company had approximately $566 million in cash, cash equivalents and marketable securities.
The Company had approximately 165.7 million shares of common stock outstanding as of September 30, 2007.
Customers
The number of customers under long-term services contracts at the end of the third quarter increased by 61 to a record 2,616, a 22 percent increase year-over-year.
Sales through resellers and sales outside the United States accounted for 18 percent and 23 percent, respectively, of revenue for the third quarter 2007.
Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-888-689-4521 (or 1-706-645-9202 for international calls). 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 one week following the conference through the Akamai Website or by calling 1-800-642-1687 (or 1-706-645-9291 for international calls) and using conference ID No. 18946845.
About Akamai
Akamai(R) is the leading global service provider for accelerating content and applications online. Thousands of organizations have formed trusted relationships with Akamai, improving their revenue and reducing costs by maximizing the performance of their online businesses. Leveraging the Akamai EdgePlatform, these organizations gain business advantage today, and have the foundation for the emerging Web solutions of tomorrow. Akamai is "The Trusted Choice for Online Business." For more information, visit www.akamai.com.
Financial Statements
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
(unaudited)
September December
30, 2007 31, 2006
---------- ----------
Assets
Cash and cash equivalents $ 152,804 $ 80,595
Marketable securities 283,546 188,141
Restricted marketable securities 511 1,105
Accounts receivable, net 108,205 86,232
Prepaid expenses and other current assets 25,604 18,600
---------- ----------
Current assets 570,670 374,673
Marketable securities 125,973 161,511
Restricted marketable securities 3,102 3,102
Property and equipment, net 134,185 86,623
Goodwill and other intangible assets, net 458,243 298,263
Other assets 4,697 4,256
Deferred tax assets, net 277,750 319,504
---------- ----------
Total assets $1,574,620 $1,247,932
========== ==========
Liabilities and stockholders' equity
Accounts payable and accrued expenses $ 82,572 $ 80,713
Other current liabilities 11,911 8,551
---------- ----------
Current liabilities 94,483 89,264
Other liabilities 8,485 3,975
Convertible notes 199,855 200,000
---------- ----------
Total liabilities 302,823 293,239
Stockholders' equity 1,271,797 954,693
---------- ----------
Total liabilities and stockholders' equity $1,574,620 $1,247,932
========== ==========
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended
September June 30, September June 30,
30, 30,
2007 2007 2006 2006
--------- --------- --------- ---------
Revenues $161,240 $152,654 $111,495 $100,649
Costs and operating expenses:
Cost of revenues (a) (b) 43,811 39,759 24,984 21,195
Research and development
(a) 11,408 11,663 8,862 8,373
Sales and marketing (a) 36,671 37,739 29,416 29,720
General and administrative
(a) (b) 30,744 29,779 24,529 21,870
Amortization of other
intangible assets 2,835 2,932 1,943 2,198
Restructuring benefit - (178) - -
--------- --------- --------- ---------
Total costs and
operating expenses 125,469 121,694 89,734 83,356
--------- --------- --------- ---------
Operating income 35,771 30,960 21,761 17,293
Interest income, net (5,913) (5,243) (3,970) (3,336)
Loss on early extinguishment
of debt 2 - - -
Gain on investments, net (1) - - (2)
Other (income) expense, net (1,273) 572 448 (475)
--------- --------- --------- ---------
Income before provision for
income taxes 42,956 35,631 25,283 21,106
Provision for income taxes 18,692 13,985 11,264 9,842
--------- --------- --------- ---------
Net income $ 24,264 $ 21,646 $ 14,019 $ 11,264
========= ========= ========= =========
Net income per share:
Basic $ 0.15 $ 0.13 $ 0.09 $ 0.07
Diluted $ 0.13 $ 0.12 $ 0.08 $ 0.07
Shares used in per share
calculations:
Basic 165,474 164,798 155,739 154,702
Diluted 185,106 185,601 177,063 175,612
Nine Months Ended
SeptemberSeptember
30, 30,
2007 2006
------------------
Revenues $453,168 $302,969
Costs and operating expenses:
Cost of revenues (a) (b) 118,050 65,495
Research and development (a) 33,675 23,961
Sales and marketing (a) 111,159 85,431
General and administrative (a) (b) 88,001 64,942
Amortization of other intangible assets 8,579 6,437
Restructuring benefit (178) -
------------------
Total costs and operating expenses 359,286 246,266
------------------
Operating income 93,882 56,703
Interest income, net (15,888) (9,964)
Loss on early extinguishment of debt 3 -
Gain on investments, net (1) (259)
Other (income) expense, net (497) (213)
------------------
Income before provision for income taxes 110,265 67,139
Provision for income taxes 45,176 30,361
------------------
Net income $ 65,089 $ 36,778
==================
Net income per share:
Basic $ 0.40 $ 0.24
Diluted $ 0.36 $ 0.22
Shares used in per share calculations:
Basic 163,947 154,753
Diluted 185,212 177,290
(a) Includes stock-related compensation (see supplemental table for
figures)
(b) Includes depreciation (see supplemental table for figures)
Three Months Ended
September June September June
30, 30, 30, 30,
2007 2007 2006 2006
--------- ------- ---------- -------
Supplemental financial data (in
thousands):
Stock-related compensation:
Cost of revenues $ 896 $ 847 $ 517 $ 533
Research and development 4,095 3,944 3,037 3,332
Sales and marketing 6,810 6,471 4,781 5,040
General and administrative 5,108 5,946 6,179 4,270
--------- ------- ---------- -------
Total stock-related
compensation $16,909 $17,208 $14,514 $13,175
Depreciation and amortization:
Network-related depreciation $13,591 $12,277 $ 7,144 $ 6,178
Capitalized stock-related
compensation amortization 537 401 129 27
Other depreciation 2,279 1,967 1,306 1,164
Amortization of other intangible
assets 2,835 2,932 1,943 2,198
--------- ------- ---------- -------
Total depreciation and
amortization $19,242 $17,577 $10,522 $ 9,567
Capital expenditures:
Purchases of property and
equipment $18,345 $25,579 $13,519 $10,733
Capitalized internal-use software 4,981 4,113 2,932 3,494
Capitalized stock-related
compensation 1,551 1,427 1,058 1,242
--------- ------- ---------- -------
Total capital expenditures $24,877 $31,119 $17,509 $15,469
Net increase in cash, cash
equivalents, marketable
securities and restricted
marketable securities $62,010 $23,895 $48,600 $26,059
End of period statistics:
Number of customers under
recurring contract 2,616 2,555 2,144 2,060
Number of employees 1,287 1,261 917 871
Number of deployed servers 28,301 27,322 21,864 20,836
Nine Months Ended
September September
30, 30,
2007 2006
--------- ---------
Supplemental financial data (in thousands):
Stock-related compensation:
Cost of revenues $ 2,482 $ 1,323
Research and development 12,015 8,026
Sales and marketing 20,108 12,410
General and administrative 16,342 13,017
--------- ---------
Total stock-related compensation $ 50,947 $ 34,776
Depreciation and amortization:
Network-related depreciation $ 36,046 $ 18,678
Capitalized stock-related compensation
amortization 1,126 162
Other depreciation 5,917 3,505
Amortization of other intangible assets 8,579 6,437
--------- ---------
Total depreciation and amortization $ 51,668 $ 28,782
Capital expenditures:
Purchases of property and equipment $ 71,466 $ 37,808
Capitalized internal-use software 13,095 9,044
Capitalized stock-related compensation 4,362 2,822
--------- ---------
Total capital expenditures $ 88,923 $ 49,674
Net increase in cash, cash equivalents,
marketable securities and restricted marketable
securities $131,482 $101,953
End of period statistics:
Number of customers under recurring contract
Number of employees
Number of deployed servers
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended
September June 30, September June 30,
30, 30,
2007 2007 2006 2006
---------- ---------- --------- ---------
Cash flows from operating
activities:
Net income $ 24,264 $ 21,646 $ 14,019 $ 11,264
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization of
intangible assets and
deferred financing
costs 19,452 17,788 10,732 9,778
Stock-related
compensation 16,909 17,208 14,514 13,175
Utilization of tax
NOLs/credits and
changes in deferred tax
assets, net 16,540 13,437 11,154 9,178
Excess tax benefits from
stock-based
compensation (1,100) (3,009) (8,735) (5,467)
(Gain) loss on sale of
investments, property
and equipment and
foreign currency, net (678) (41) 64 (295)
Provision for doubtful
accounts 944 594 (164) 279
Non-cash portion of
loss on early
extinguishment of debt 2 - - -
Non-cash portion of
restructuring benefit - (178) - -
Changes in operating
assets and
liabilities, net of
acquisitions:
Accounts receivable,
net (9,054) (12,156) (3,257) (7,338)
Prepaid expenses and
other current assets (2,192) (307) (495) (1,205)
Accounts payable,
accrued expenses and
other current
liabilities 10,975 (15,797) 12,097 (418)
Accrued restructuring (1,049) (818) (458) (494)
Deferred revenue 859 (1,003) (937) (602)
Other noncurrent
assets and
liabilities 1,479 (35) (44) (109)
---------- ---------- --------- ---------
Net cash provided by
operating activities: 77,351 37,329 48,490 27,746
---------- ---------- --------- ---------
Cash flows from investing
activities:
Business acquisitions,
net of cash acquired - 2,440 - -
Purchases of property
and equipment and
capitalization of
internal-use software
costs (23,326) (29,692) (16,451) (14,227)
Proceeds from sales and
maturities of
investments 93,335 104,414 65,501 68,966
Purchase of investments (102,716) (152,831) (87,778) (86,924)
Proceeds from sale of
property and equipment 9 - - -
Decrease in restricted
investments held for
security deposits 723 - - -
---------- ---------- --------- ---------
Net cash used in
investing activities (31,975) (75,669) (38,728) (32,185)
---------- ---------- --------- ---------
Cash flows from financing
activities:
Proceeds from the
issuance of common
stock under stock
option and employee
stock purchase plans 4,835 11,059 7,186 6,822
Excess tax benefits
from stock-based
compensation 1,100 3,009 8,735 5,467
Payments on capital
leases - (23) - -
---------- ---------- --------- ---------
Net cash provided by
financing activities 5,935 14,045 15,921 12,289
---------- ---------- --------- ---------
Effects of exchange rate
translation on cash and
cash equivalents 1,331 212 (62) 630
---------- ---------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents 52,642 (24,083) 25,621 8,480
Cash and cash
equivalents, beginning
of period 100,162 124,245 73,502 65,022
---------- ---------- --------- ---------
Cash and cash
equivalents, end of
period $ 152,804 $ 100,162 $ 99,123 $ 73,502
========== ========== ========= =========
Nine Months Ended
September September
30, 30,
2007 2006
---------- ----------
Cash flows from operating activities:
Net income $ 65,089 $ 36,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of intangible
assets and deferred financing costs 52,299 29,413
Stock-related compensation 50,947 34,776
Utilization of tax NOLs/credits and changes
in deferred tax assets, net 41,678 29,096
Excess tax benefits from stock-based
compensation (11,585) (19,601)
(Gain) loss on sale of investments, property
and equipment and foreign currency, net (1,167) (557)
Provision for doubtful accounts 2,053 433
Non-cash portion of loss on early
extinguishment of debt 3 -
Non-cash portion of restructuring benefit (178) -
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable, net (20,551) (13,998)
Prepaid expenses and other current assets (7,625) (4,814)
Accounts payable, accrued expenses and
other current liabilities (4,128) 18,518
Accrued restructuring (2,545) (1,506)
Deferred revenue 3,973 1,102
Other noncurrent assets and liabilities 2,695 (243)
---------- ----------
Net cash provided by operating activities: 170,958 109,397
---------- ----------
Cash flows from investing activities:
Business acquisitions, net of cash acquired 7,875 -
Purchases of property and equipment and
capitalization of internal-use software
costs (84,561) (46,852)
Proceeds from sales and maturities of
investments 249,418 185,233
Purchase of investments (308,826) (279,707)
Proceeds from sale of property and equipment 9 -
Decrease in restricted investments held for
security deposits 723 400
---------- ----------
Net cash used in investing activities (135,362) (140,926)
---------- ----------
Cash flows from financing activities:
Proceeds from the issuance of common stock
under stock option and employee stock
purchase plans 22,586 18,651
Excess tax benefits from stock-based
compensation 11,585 19,601
Payments on capital leases (23) -
---------- ----------
Net cash provided by financing activities 34,148 38,252
---------- ----------
Effects of exchange rate translation on cash
and cash equivalents 2,465 608
---------- ----------
Net increase (decrease) in cash and cash
equivalents 72,209 7,331
Cash and cash equivalents, beginning of period 80,595 91,792
---------- ----------
Cash and cash equivalents, end of period $ 152,804 $ 99,123
========== ==========
*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 has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Recent legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. We believe that the inclusion of these non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our past performance and future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. These measures are also used by management in its financial and operational decision-making. There are limitations associated with reliance on these non-GAAP financial metrics because they are specific to our operations and financial performance, which makes comparisons with other companies' financial results more challenging. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining a better understanding of our operating performance as evaluated by management.
Akamai defines "Adjusted EBITDA" as net income, before interest, taxes, depreciation and amortization of tangible and intangible assets, stock-related compensation expense, amortization of capitalized stock-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, foreign exchange gains and losses, loss on early extinguishment of debt, utilization of tax NOLs/credits and release of the deferred tax asset valuation allowance. Akamai considers Adjusted EBITDA to be an important indicator of the Company's operational strength and performance of its business and a good measure of the Company's historical operating trend.
Adjusted EBITDA eliminates items that are either not part of the Company's core operations, such as investment gains and losses, foreign exchange gains and losses, early debt extinguishment and net interest expense, or do not require a cash outlay, such as stock-related compensation. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the Company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historic cost incurred to build out the Company's deployed network, and may not be indicative of current or future capital expenditures.
Akamai defines "Adjusted EBITDA margin" as a percentage of Adjusted EBITDA over revenue. Akamai considers Adjusted EBITDA margin to be an indicator of the Company's operating trend and performance of its business in relation to its revenue growth.
Akamai defines "capital expenditures" or "capex" as purchases of property and equipment and capitalization of internal-use software development costs. Capital expenditures or capex are disclosed in Akamai's condensed consolidated Statement of Cash Flows in the company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Akamai defines "normalized net income" as net income before amortization of intangible assets, stock-related compensation expense, amortization of capitalized stock-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, loss on early extinguishment of debt, utilization of tax NOLs/credits and release of the deferred tax asset valuation allowance. Akamai considers normalized net income to be another important indicator of the overall performance of the Company because it eliminates the effects of events that are either not part of the Company's core operations or are non-cash.
Akamai defines "normalized diluted shares" as diluted common shares outstanding used in GAAP net income per share calculation, excluding the effect of FAS 123R under the treasury stock method. Akamai considers normalized diluted shares to be another important indicator of overall performance of the Company because it eliminates the effect of a non-cash item.
Adjusted EBITDA and normalized net income should be considered in addition to, not as a substitute for, the Company's operating income and net income, as well as other measures of financial performance reported in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the Company is presenting the most directly comparable GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable GAAP measures.
Reconciliation of GAAP net income to normalized net income
and Adjusted EBITDA
(amounts in thousands, except per share data)
Three Months Ended
September June 30, September June 30,
30, 30,
2007 2007 2006 2006
--------- --------- --------- ---------
Net income $ 24,264 $ 21,646 $ 14,019 $ 11,264
Amortization of intangible
assets 2,835 2,932 1,943 2,198
Stock-related compensation 16,909 17,208 14,514 13,175
Amortization of capitalized
stock-related compensation 537 401 129 27
Gain on investments, net (1) - - (2)
Utilization of tax
NOLs/credits 17,833 13,437 11,154 9,178
Loss on early extinguishment
of debt 2 - - -
Restructuring benefit - (178) - -
--------- --------- --------- ---------
Total normalized net income: 62,379 55,446 41,759 35,840
Interest income, net (5,913) (5,243) (3,970) (3,336)
Provision for income taxes 859 548 110 664
Depreciation and amortization 15,870 14,244 8,450 7,342
Other (income) expense, net (1,273) 572 448 (475)
--------- --------- --------- ---------
Total Adjusted EBITDA: $ 71,922 $ 65,567 $ 46,797 $ 40,035
========= ========= ========= =========
Normalized net income per
share:
Basic $ 0.38 $ 0.34 $ 0.27 $ 0.23
Diluted $ 0.34 $ 0.30 $ 0.24 $ 0.20
Shares used in normalized per
share calculations:
Basic 165,474 164,798 155,739 154,702
Diluted 186,767 187,432 179,563 178,358
Nine Months Ended
September September
30, 30,
2007 2006
--------- ---------
Net income $ 65,089 $ 36,778
Amortization of intangible assets 8,579 6,437
Stock-related compensation 50,947 34,776
Amortization of capitalized stock-related
compensation 1,126 162
Gain on investments, net (1) (259)
Utilization of tax NOLs/credits 42,971 29,096
Loss on early extinguishment of debt 3 -
Restructuring benefit (178) -
--------- ---------
Total normalized net income: 168,536 106,990
Interest income, net (15,888) (9,964)
Provision for income taxes 2,205 1,265
Depreciation and amortization 41,963 22,183
Other (income) expense, net (497) (213)
--------- ---------
Total Adjusted EBITDA: $196,319 $120,261
========= =========
Normalized net income per share:
Basic $ 1.03 $ 0.69
Diluted $ 0.91 $ 0.61
Shares used in normalized per share calculations:
Basic 163,947 154,753
Diluted 187,010 178,700
Akamai Statement Under the Private Securities Litigation Reform Act
This release contains 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 concerning the expected growth and development of our business and expectations with respect to revenue. 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, failure to maintain the prices we charge for our services, loss of significant customers, failure to increase our revenue and keep our expenses consistent with revenues, the effects of any attempts to intentionally disrupt our services or network by unauthorized users or others, failure to have available sufficient transmission capacity, a failure of Akamai's services or network infrastructure, inability to realize the benefits of our net operating loss carryforward, 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, 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 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.
CONTACT: Akamai Technologies
Jeff Young, 617-444-3913
Media Relations
jyoung@akamai.com
or
Akamai Technologies
Sandy Smith, 617-444-2804
Investor Relations
ssmith@akamai.com
SOURCE: Akamai Technologies, Inc.