Akamai Reports Third Quarter 2002 Results
line with guidance -- Third quarter EBITDA loss narrows to $6.7 million, from $8.3
million in prior quarter -- Total EdgeSuite(SM) customers increased to 243 -- Company implements restructuring to accelerate profitability
targetsAkamai Technologies, Inc. (NASDAQ: AKAM), a leading provider of products and services that enable enterprises and government agencies to extend and control their e-business infrastructure, today reported financial results for the third quarter ended September 30, 2002. Revenue for the third quarter 2002 was $35.4 million.
"In the third quarter of 2002, we continued to build upon our EdgeSuite success and took proactive steps to accelerate our drive to profitability, which we believe will position the Company for long-term success," said George Conrades, chairman and CEO of Akamai. "We are pleased with the steady growth in the number of major enterprise customers validating our solutions in spite of declining IT expenditures."
This morning, Akamai implemented a 29 percent reduction in its global workforce, expecting to end the year with 550 employees, while realigning its go-to-market and service offerings to focus on its most productive enterprise opportunities. "By prioritizing our marketing and development efforts on EdgeSuite, including Edge Computing, and focusing on global enterprises, government, and only the top Web properties, we are positioning the Company squarely in the sweet spot of our technology advantage and customer opportunity," said Conrades.
Net loss, in accordance with United States generally accepted accounting principles (U.S. GAAP), for third quarter 2002 was $47.5 million, or $0.42 per share, compared to a net loss for the second quarter 2002 of $42.2 million, or $0.38 per share, and for the third quarter 2001 a net loss of $55.4 million, or $0.53 per share.
Net loss for the third quarter 2002 before interest, taxes, depreciation, amortization and other one-time and non-cash charges (EBITDA) was $6.7 million, as compared to the second quarter 2002 EBITDA loss of $8.3 million, down 60 percent from the third quarter 2001 EBITDA loss of $16.6 million. EBITDA is calculated as gross profit less research and development expenses, sales and marketing expenses, and general and administrative expenses.
Normalized net loss(1) for third quarter 2002 totaled $31.5 million, or $0.28 per share, in line with First Call's consensus summary net loss of $0.28 per share. Normalized net loss is calculated as EBITDA less net interest expense, provision for income taxes and depreciation. Second quarter 2002 normalized net loss was $32.8 million, or $0.29 per share, and third quarter 2001 normalized net loss was $38.2 million, or $0.37 per share.
Third Quarter 2002 Highlights:
Customers
During the quarter, Akamai added 32 net new EdgeSuite customers, including
adidas-Salomon AG, America Online, Inc., The Bombay Company, Inc., Federal
Express, FOXSports.com, Rational Software, Washington Post Newsweek Interactive,
and Yum! Brands, Inc. (the parent company of A&W All-American Food, KFC, Long
John Silver's, Pizza Hut and Taco Bell). The third quarter also generated
several key customer renewals, including Symantec Corp. and Yahoo! Resellers
accounted for approximately 22 percent of third quarter revenue, which is
comparable to the level of sales through channel partners in the prior two
quarters.
"Revenue from EdgeSuite was 39 percent of total revenue for the quarter, up from 36 percent in the second quarter," said Conrades. "As we expand our relationships with Fortune 1,000 companies and federal government agencies, the quality of our revenue and customer base has significantly improved."
Further solidifying the Company's traction in the government sector, Akamai announced during the third quarter that it has been awarded a five-year schedule contract by the U.S. General Services Administration (GSA). As a result, Akamai's services are now included among the range of professional information technology offerings provided by the GSA to federal agencies for facilitating e-government programs.
Financials"We exited the quarter with $142 million in cash and marketable securities, and our business plan remains fully funded," said Timothy Weller, chief financial officer of Akamai. "We have consistently maintained our solid balance sheet in a difficult economy through a shift to higher margin services, across-the-board cost reductions, and a strong record of collections from our customers with days sales outstanding at 43 days for the second consecutive quarter."
At September 30, 2002, the Company had approximately $142 million of cash, cash equivalents, and short-term and long-term marketable securities as compared to $160 million at June 30, 2002.
Capital expenditures for the quarter were $7.0 million, which included $4.4 million of one-time expenditures to move Akamai's headquarters into 8 Cambridge Center. This move is expected to produce $9 million dollars in annual lease savings.
At September 30, 2002, the Company had 116.6 million shares of common stock outstanding. At September 30, 2002, common stock outstanding and unexercised stock options and warrants totaled 134.9 million shares.
NetworkIn the third quarter, Akamai continued to optimize its server network around the world, including an enhanced deployment with America Online. Akamai has 12,942 servers located in 1,105 networks in 66 countries.
Management ChangeAkamai also announced today that Timothy Weller has decided to leave the Company by the end of the year. A search for his replacement is underway. "We want to thank Tim for his many contributions to Akamai's success," Conrades said. "We have been privileged to have someone with his high intellect and integrity on our team for three years, and we appreciate that he will remain with the Company through an orderly transition process to bring in a new CFO."
Quarterly Conference CallAkamai will host a conference call today at 4:30 p.m. ET that can be accessed through 888-689-4521 (or 1+ 706-645-9202 for international calls). A live Webcast of the call can be accessed at www.akamai.com. In addition, a replay of the call will be available for one week following the conference through the Akamai Website or by calling 800-642-1687 (or 1+ 706-645-9291 for international calls) and using conference ID No. 5764046.
About AkamaiAkamai provides products and services that enable our customers to extend and control their e-business infrastructure. Our globally distributed computing platform enables the secure delivery of networked information and applications, improving cost, quality and time to market. With a computing platform comprising more than 12,900 servers in more than 1,100 networks in 66 countires, Akamai ensures the highest levels of availability, reliability, and performance. Headquartered in Cambridge, Massachusetts, Akamai provides products and services, matched with world-class customer care, to hundreds of successful enterprises, government entitites, and leading Web businesses worldwide. For more information, visit www.akamai.com.
(1)EBITDA and normalized net loss are not recognized measures for financial statement presentation under U.S. GAAP. Non-U.S. GAAP earnings measures do not have standardized definitions and are therefore unlikely to be comparable to similar measures presented by other reporting companies. EBITDA and normalized net loss are provided to assist readers in evaluating Akamai's operating performance before certain non-cash, non-operating and one-time expenses. Readers are encouraged to consider Akamai's U.S. GAAP results along with these non-U.S. GAAP earnings measures.
Akamai Statement Under the Private Securities Litigation Reform Act
The 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. 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, general economic conditions and those specific to the Internet and related industries, unexpected increases in Akamai's use of funds, the dependence on Akamai's Internet content delivery service, outsourced e-business infrastructure services and other technology products, lack of market acceptance of our services, including EdgeSuite, a failure by us to successfully enter into any license, technology development or other technology partnership agreement within the time periods expected by us or at all, the sometimes lengthy and unpredictable amount of time required to engage a customer, failure to achieve planned savings in a timely fashion or at all, failure of our sales force to achieve productivity targets in a timely fashion or at all, loss of customers, the complexity of our services and the networks on which our services are deployed, and human error in operating the same, a failure of Akamai's network infrastructure, failure to collect amounts owed by customers, our ability to service and repay our outstanding debt, changes in regulations or laws relating to privacy or other aspects of the Internet 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, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.
Akamai Technologies, Inc.
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
(unaudited)
Sept. 30, Dec. 31,
2002 2001
--------- ---------
Assets
Current assets:
Cash and cash equivalents $123,494 $78,774
Marketable securities 13,416 113,906
Accounts receivable, net 16,059 20,067
Prepaid expenses and other current assets 9,406 15,252
--------- ---------
Total current assets 162,375 227,999
Property and equipment, net 81,273 132,237
Goodwill and other intangible assets, net 9,641 19,351
Marketable securities 5,072 17,831
Other assets 8,023 24,060
--------- ---------
Total assets $266,384 $421,478
========= =========
Liabilities and stockholders' (deficit) equity
Current liabilities:
Accounts payable and accrued expenses $54,571 $68,312
Other current liabilities 17,632 22,986
--------- ---------
Total current liabilities 72,203 91,298
Other liabilities 6,992 12,946
Convertible notes 300,000 300,000
--------- ---------
Total liabilities 379,195 404,244
Stockholders' (deficit) equity (112,811) 17,234
--------- ---------
Total liabilities and stockholders' (deficit)
equity $266,384 $421,478
========= =========
Akamai Technologies, Inc.
Condensed Consolidated Statements of Operations
(dollar amounts in thousands, except per share data)
---------------------------------Three Months Ended-------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
--------- -------- --------- -------- ---------
Revenue $ 35,375 $ 36,322 $ 37,927 $ 37,110 $ 42,754
Cost of service
(before network-
related
depreciation) 9,580 10,946 11,242 13,977 15,869
--------- --------- --------- --------- ---------
Gross profit 25,795 25,376 26,685 23,133 26,885
--------- --------- --------- --------- ---------
Gross margin % 72.9% 69.9% 70.4% 62.3% 62.9%
Operating expenses:
Research and
development 4,820 4,624 4,869 6,575 7,627
Sales and
marketing 13,861 13,837 13,610 13,355 17,432
General and
administrative 13,772 15,215 13,966 17,517 18,396
Amortization of
CNN advertising 1,771 1,246 1,246 1,410 1,818
Amortization of
goodwill and other
intangible assets 2,231 2,231 5,237 4,034 7,440
Depreciation 20,735 20,602 20,010 19,912 19,116
Equity-related
compensation 4,616 4,646 6,371 7,188 8,717
Restructuring
charge 6,138 602 12,409 14,302 --
--------- --------- --------- --------- ---------
Total operating
expenses 67,944 63,003 77,718 84,293 80,546
--------- --------- --------- --------- ---------
Operating loss (42,149) (37,627) (51,033) (61,160) (53,661)
Interest
expense, net (3,950) (3,733) (3,574) (3,336) (2,210)
Other income -- -- -- -- 1,002
Loss on
investments, net (1,311) (759) (4,328) 8 (213)
--------- --------- --------- --------- ---------
Loss before
provision for
income taxes (47,410) (42,119) (58,935) (64,488) (55,082)
Provision for
income taxes 123 123 123 277 277
--------- --------- --------- --------- ---------
Net loss $ (47,533) $ (42,242) $ (59,058) $ (64,765) $ (55,359)
========= ========= ========= ========= =========
Basic and diluted
net loss
per share $ (0.42) $ (0.38) $ (0.54) $ (0.60) $ (0.53)
Weighted average
common shares
outstanding 114,251 112,253 109,693 108,357 104,166
Supplemental financial
data (dollars and
shares in thousands):
Normalized net
loss (A) $ (31,466) $ (32,758) $ (29,467) $ (37,839) $ (38,173)
Normalized
basic and
diluted net
loss per share $ (0.28) $ (0.29) $ (0.27) $ (0.35) $ (0.37)
EBITDA (B) $ (6,658) $ (8,300) $ (5,760) $ (14,314) $ (16,570)
Recurring free
cash flow (C) $ (17,563) $ (15,698) $ (12,121) $ (24,818) $ (33,523)
Network-related
depreciation $ 11,168 $ 11,687 $ 11,807 $ 12,098 $ 10,991
Other
depreciation $ 9,567 $ 8,915 $ 8,203 $ 7,814 $ 8,125
Capital
expenditures $ 6,955 $ 3,665 $ 2,787 $ 7,168 $ 14,743
End of period
statistics:
EdgeSuite customers 243 211 185 152 100
Number of customers
under recurring
contract 975 1,034 1,055 1,078 1,096
Number of employees 789 807 822 841 1,111
Number of servers 12,942 12,976 12,674 13,522 13,036
Common stock
outstanding 116,642 116,397 115,723 115,099 115,281
Common stock
outstanding and
unexercised
options and
warrants 134,876 133,377 130,594 128,926 126,090
End of period
ratios:
Annualized average
revenue per
employee $ 177.3 $ 178.4 $ 182.5 $ 152.1 $ 152.7
Cost of service as
a % of revenue 27.1% 30.1% 29.6% 37.7% 37.1%
Research and
development as
a % of revenue 13.6% 12.7% 12.8% 17.7% 17.8%
Sales and marketing
as a % of revenue 39.2% 38.1% 35.9% 36.0% 40.8%
General and
administrative
as a % of revenue 38.9% 41.9% 36.8% 47.2% 43.0%
Capital
expenditures as
a % of revenue 19.7% 10.1% 7.3% 19.3% 34.5%
Days sales
outstanding of
accounts receivable 43 43 45 49 48
(A) Normalized net loss (net loss before amortization and other
one-time and non- cash charges) is calculated as EBITDA less net
interest expense, provision for income taxes and depreciation. See
Supplemental Financial Information for reconciliation to U.S. GAAP
net loss.
(B) EBITDA (earnings before interest, taxes, depreciation,
amortization and other one-time and non-cash charges) is
calculated as gross profit less research and development, sales
and marketing and general and administrative expenses. See
Supplemental Financial Information for reconciliation to U.S. GAAP
net loss.
(C) Recurring free cash flow is calculated as EBITDA less capital
expenditures less net interest expense. See Supplemental Financial
Information for reconciliation to U.S. GAAP net loss.
Akamai Technologies, Inc.
Supplemental Financial Information
Reconciliation from U.S. GAAP to Normalized net loss, EBITDA and
Recurring free cash flow
-----------------------------------Three Months Ended-----------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
2002 2002 2002 2001 2001
--------- -------- --------- -------- ---------
Net loss in accordance
with U.S. GAAP $(47,533) $(42,242) $(59,058) $(64,765) $(55,359)
Adjustments to
reconcile net loss to
Normalized net loss,
EBITDA and Recurring
free cash flow:
Amortization of
goodwill,
intangibles
and CNN
advertising 4,002 3,477 6,483 5,444 9,258
Equity-related
compensation 4,616 4,646 6,371 7,188 8,717
Restructuring
charge 6,138 602 12,409 14,302 -
Loss on
investments, net 1,311 759 4,328 (8) 213
Other income - - - - (1,002)
--------- --------- --------- --------- ---------
(A) Normalized
net loss (31,466) (32,758) (29,467) (37,839) (38,173)
Interest
expense , net 3,950 3,733 3,574 3,336 2,210
Provision for
income taxes 123 123 123 277 277
Depreciation 20,735 20,602 20,010 19,912 19,116
--------- --------- --------- --------- ---------
(B) EBITDA (6,658) (8,300) (5,760) (14,314) (16,570)
Interest
expense, net (3,950) (3,733) (3,574) (3,336) (2,210)
Capital
expenditures (6,955) (3,665) (2,787) (7,168) (14,743)
--------- --------- --------- --------- ---------
(C) Recurring free
cash flow $(17,563) $(15,698) $(12,121) $(24,818) $(33,523)
========= ========= ========= ========= =========
CONTACT: Akamai Technologies
Jeff Young, 617/444-3913
Media Relations
jyoung@akamai.com
or
Akamai Technologies
J.C. Raby, 617/444-2555
Investor Relations
jraby@akamai.com
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