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Table of Contents

 
 
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:   February 8, 2006
(Date of earliest event reported)
AKAMAI TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Charter)
         
Delaware   0-27275   04-3432319
         
(State or Other Jurisdiction
of Incorporation)
  (Commission File Number)   (IRS Employer Identification No.)
8 Cambridge Center, 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))
 
 

 


TABLE OF CONTENTS

Item 2.02. Results of Operations and Financial Condition
Item 9.01. Financial Statements and Exhibits
SIGNATURE
EXHIBIT INDEX
EX-99.1 Press release dated February 8, 2006


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Item 2.02. Results of Operations and Financial Condition
     On February 8, 2006, Akamai Technologies, Inc. announced its financial results for the fiscal year ended December 31, 2005. 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 in 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
  (c)   Exhibits
 
      The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:
 
      99.1    Press Release dated February 8, 2006.

 


Table of Contents

SIGNATURE
     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.
         
  AKAMAI TECHNOLOGIES, INC.
 
 
Date: February 8, 2006 By:   /s/ Robert Cobuzzi    
    Robert Cobuzzi, Chief Financial Officer   
       

 


Table of Contents

         
EXHIBIT INDEX
     
Exhibit No.
  Description
 
   
99.1
  Press release dated February 8, 2006

 

exv99w1
 

Exhibit 99.1
         
Contacts:
       
Jeff Young
      Sandy Smith
Media Relations
      Investor Relations
Akamai Technologies
  —or—   Akamai Technologies
617-444-3913
      617-444-2804
jyoung@akamai.com
      ssmith@akamai.com
AKAMAI REPORTS FOURTH QUARTER 2005 AND
FULL-YEAR 2005 FINANCIAL RESULTS
  w    Revenue grew 9 percent quarter-over-quarter to $82.7 million, and annual revenue increased 35 percent year-over-year to $283.1 million
 
  w    GAAP net income was $25.8 million in the fourth quarter, or $0.16 per diluted share
 
  w    Full-year GAAP net income grew to $328.0 million, or $2.11 per diluted share, including a benefit from the release of a tax valuation allowance of $258.8 million
 
  w    Normalized net income* increased 19 percent quarter-over-quarter to $26.2 million, or $0.16 per diluted share, in the fourth quarter, and full-year normalized net income* increased 87 percent year-over-year to $79.5 million, or $0.52 per diluted share
CAMBRIDGE, Mass. February 8, 2006 – Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and business processes online, today reported financial results for the fourth quarter and full-year ended December 31, 2005. Revenue for the fourth quarter 2005 was $82.7 million, a 9 percent increase over the previous quarter’s revenue of $75.7 million, and a 44 percent increase over fourth quarter 2004 revenue of $57.6 million. Total revenue for 2005 was $283.1 million, a 35 percent increase over 2004 revenue of $210.0 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2005 was $25.8 million, or $0.16 per diluted share. Full-year net income for 2005 was $328.0 million, or $2.11 per diluted share, including a $258.8 million benefit from the release of a tax valuation allowance.
“2005 was the best year in the history of Akamai as we demonstrated the power of the Akamai business model by delivering strong revenue growth, high profit margins, sustained cash flow, and increasing profitability,” said Paul Sagan, president and CEO of Akamai. “We benefited from broad customer adoption of our global platform and services, and we believe our demonstrated ability to innovate will continue to drive our success in the future.”
- more -

 


 

The Company generated normalized net income* of $26.2 million, or $0.16 per diluted share, in the fourth quarter of 2005, a 19 percent increase over the prior quarter normalized net income of $22.0 million, or $0.14 per diluted share. Full-year normalized net income for 2005 was $79.5 million, or $0.52 per diluted share, an improvement of $37.0 million over 2004. (*See Use of Non-GAAP Financial Measures below for definitions.)
Adjusted EBITDA* for the fourth quarter of 2005 was $30.6 million, up from $27.7 million in the prior quarter, and $18.6 million in the fourth quarter of 2004. Adjusted EBITDA was $101.4 million for the full year, up from $69.1 million in 2004. Adjusted EBITDA margins improved to 36 percent in 2005, up from 33 percent in 2004. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations for the fourth quarter of 2005 was $27.7 million, a 42 percent increase over the prior quarter’s cash from operations of $19.5 million, and a 78 percent increase over the fourth quarter of 2004. Full-year 2005 cash from operations was $82.8 million, up 62 percent over the prior year.
At December 31, 2005, the Company had approximately 152.9 million shares of common stock outstanding, including shares from the Company’s most recent equity offering. At year-end, the Company had approximately $314 million of cash, cash equivalents and marketable securities.
Customers
The number of customers under long-term services contracts at the end of the fourth quarter increased by 80 to a record 1,910, a 4 percent increase over third quarter 2005.
“We have grown our recurring customer base by 46 percent year-over-year,” Sagan said. “This is the result of momentum in important industries that increasingly rely on the Internet, including media and entertainment, online commerce, and software distribution, as well as adoption by major enterprises of our new application acceleration technology.”
Sales through resellers and sales outside the United States accounted for 24 percent and 21 percent, respectively, of revenue for the fourth quarter and full-year 2005.
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. 4080712.
About Akamai
Akamai® is the leading global service provider for accelerating content and business processes online. More than 1,900 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)
                 
    December 31,     December 31,  
    2005     2004  
Assets
               
Cash and cash equivalents
  $ 91,792     $ 35,318  
Marketable securities
    199,886       34,380  
Restricted marketable securities
    730       932  
Accounts receivable, net
    52,162       30,333  
Prepaid expenses and other current assets
    10,428       7,706  
 
           
Current assets
    354,998       108,669  
Marketable securities
    17,896       34,065  
Restricted marketable securities
    3,825       3,722  
Property and equipment, net
    44,885       25,242  
Goodwill and other intangible assets, net
    136,786       5,128  
Other assets
    4,801       5,917  
Deferred tax assets, net
    328,308        
 
           
Total assets
  $ 891,499     $ 182,743  
 
           
 
               
Liabilities and stockholders’ equity
               
Accounts payable and accrued expenses
  $ 54,471     $ 42,446  
Other current liabilities
    7,405       4,320  
 
           
Current liabilities
    61,876       46,766  
Other liabilities
    5,409       5,294  
Convertible notes
    200,000       256,614  
 
           
Total liabilities
    267,285       308,674  
Stockholders’ equity (deficit)
    624,214       (125,931 )
 
           
Total liabilities and stockholders’ equity
  $ 891,499     $ 182,743  
 
           

 


 

Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
                                                 
    Three Months Ended     Twelve Months Ended  
    December 31,     September 30,     December 31,     September 30,     December 31,     December 31,  
    2005     2005     2004     2004     2005     2004  
Revenues
  $ 82,657     $ 75,713     $ 57,576     $ 53,286     $ 283,115     $ 210,015  
 
                                               
Costs and operating expenses:
                                               
Cost of revenues *
    16,084       15,295       11,173       11,748       55,655       46,150  
Research and development
    4,982       4,953       3,344       3,222       18,071       12,132  
Sales and marketing
    22,965       19,803       15,017       12,965       77,876       55,663  
General and administrative *
    15,266       14,568       13,463       11,874       53,014       47,055  
Amortization of other intangible assets
    2,296       2,296       12       12       5,124       48  
 
                                   
Total costs and operating expenses
    61,593       56,915       43,009       39,821       209,740       161,048  
 
                                   
Operating income
    21,064       18,798       14,567       13,465       73,375       48,967  
 
                                               
Interest (income) expense, net
    (1,283 )     567       1,319       1,533       1,067       8,055  
Loss on early extinguishment of debt
          1,370       852       634       1,370       6,768  
Loss on investments, net
          27       1       79       27       69  
Other (income) expense, net
    (205 )     63       (1,183 )     (101 )     507       (1,061 )
 
                                   
Income before (benefit) provision for income taxes
    22,552       16,771       13,578       11,320       70,404       35,136  
(Benefit) provision for income taxes
    (3,207 )     (255,489 )     187       71       (257,594 )     772  
 
                                   
Net income
  $ 25,759     $ 272,260     $ 13,391     $ 11,249     $ 327,998     $ 34,364  
 
                                   
 
                                               
Net income per share:
                                               
Basic
  $ 0.17     $ 1.96     $ 0.11     $ 0.09     $ 2.41     $ 0.28  
Diluted
  $ 0.16     $ 1.71     $ 0.10     $ 0.08     $ 2.11     $ 0.25  
 
                                               
Shares used in per share calculations:
                                               
Basic
    148,293       139,204       126,261       125,618       136,167       124,407  
Diluted
    170,305       160,362       147,306       147,294       156,944       146,595  
* Includes depreciation (see supplemental tables for figures)
                                                 
    Three Months Ended     Twelve Months Ended  
    December 31,     September 30,     December 31,     September 30,     December 31,     December 31,  
    2005     2005     2004     2004     2005     2004  
Supplemental financial data (in thousands):
                                               
Network-related depreciation
  $ 4,766     $ 4,361     $ 2,731     $ 3,124     $ 15,514     $ 14,030  
Other depreciation
  $ 892     $ 881     $ 1,007     $ 1,024     $ 3,572     $ 4,731  
 
                                               
Capital expenditures
  $ 8,105     $ 8,531     $ 7,138     $ 5,346     $ 36,160     $ 20,101  
 
                                               
Net increase (decrease) in cash, cash equivalents, and marketable securities
  $ 227,626     $ (44,213 )   $ (11,379 )   $ (2,329 )   $ 205,712     $ (99,937 )
 
                                               
End of period statistics:
                                               
Number of customers under recurring contract
    1,910       1,830       1,310       1,258                  
Number of employees
    784       766       605       598                  
Number of deployed servers
    18,599       18,092       15,075       15,064                  

 


 

Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
                                                 
    Three Months Ended     Twelve Months Ended  
    December 31,     September 30,     December 31,     September 30,     December 31,     December 31,  
    2005     2005     2004     2004     2005     2004  
Cash flows from operating activities:
                                               
Net income
  $ 25,759     $ 272,260     $ 13,391     $ 11,249     $ 327,998     $ 34,364  
Adjustments to reconcile net income to net cash provided by operating activities:
                                               
Depreciation and amortization of deferred financing costs
    8,164       7,792       4,051       4,469       25,170       20,206  
Equity-related compensation
    1,582       1,383       236       249       3,849       1,292  
Change in deferred tax assets, net, including release of deferred tax asset valuation allowance
    (3,482 )     (255,345 )     408             (258,669 )     408  
Non-cash portion of loss on early extinguishment of debt
          481       292       178       481       2,453  
Loss on investments, property and equipment and foreign currency, net
    143       161       (437 )     (72 )     850       (319 )
Provision for doubtful accounts
    127       566       191       (186 )     1,147       (231 )
Changes in operating assets and liabilities:
                                               
Accounts receivable, net
    (8,663 )     (4,194 )     (1,411 )     (2,076 )     (19,455 )     (8,516 )
Prepaid expenses and other current assets
    65       2,567       (1,441 )     2,057       1,483       3,053  
Accounts payable, accrued expenses and other current liabilities
    2,754       (6,818 )     38       281       (1,032 )     (130 )
Accrued restructuring
    (415 )     (710 )     (352 )     (354 )     (1,816 )     (1,630 )
Deferred revenue
    1,567       1,374       907       (2,016 )     3,267       (329 )
Other noncurrent assets and liabilities
    72       (18 )     (298 )     769       (475 )     616  
 
                                   
Net cash provided by operating activities:
    27,673       19,499       15,575       14,548       82,798       51,237  
 
                                   
 
                                               
Cash flows from investing activities:
                                               
Cash acquired through business combination
                            1,717        
Purchases of property and equipment and capitalization of internal-use software
    (8,105 )     (8,531 )     (7,138 )     (5,346 )     (36,160 )     (20,101 )
Purchase of investments
    (183,014 )     (6,534 )     (14,814 )     (12,325 )     (215,633 )     (187,674 )
Proceeds from sale of property and equipment
                                  9  
Proceeds from sales and maturities of investments
    13,134       33,531       15,040       15,588       66,099       211,753  
Decrease in restricted cash held for note repurchases
                                  5,000  
Decrease in restricted investments held for security deposits
          202             96       202       96  
 
                                   
Net cash (used in) provided by investing activities
    (177,985 )     18,668       (6,912 )     (1,987 )     (183,775 )     9,083  
 
                                   
 
                                               
Cash flows from financing activities:
                                               
Payments on capital leases
    (420 )     (171 )     (141 )     (137 )     (818 )     (543 )
Proceeds from the issuance of 1% convertible senior notes, net of financing costs
                                  24,313  
Repurchase and retirement of 5 1/2% covertible subordinated notes
          (56,614 )     (24,875 )     (13,115 )     (56,614 )     (169,386 )
Proceeds from equity offering, net of financing costs
    202,068                         202,068        
Proceeds from the issuance of common stock under stock option and employee stock purchase plans
    6,741       1,933       3,863       1,095       14,462       13,754  
 
                                   
Net cash provided by (used in) financing activities
    208,389       (54,852 )     (21,153 )     (12,157 )     159,098       (131,862 )
 
                                   
 
                                               
Effects of exchange rate translation on cash and cash equivalents
    (369 )     (259 )     1,587       357       (1,647 )     1,208  
 
                                   
 
                                               
Net increase (decrease) in cash and cash equivalents
    57,708       (16,944 )     (10,903 )     761       56,474       (70,334 )
Cash and cash equivalents, beginning of period
    34,084       51,028       46,221       45,460       35,318       105,652  
 
                                   
Cash and cash equivalents, end of period
  $ 91,792     $ 34,084     $ 35,318     $ 46,221     $ 91,792     $ 35,318  
 
                                   
*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 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. This measure is also used by management in their financial and operating decision-making.
Akamai defines “Adjusted EBITDA” as net income, before interest, taxes, depreciation, amortization, equity-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, foreign exchange gains and losses, release of the deferred tax asset valuation allowance and loss on early extinguishment of debt. 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 equity-related compensation and impairment of intangible assets. 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, equity-related compensation, certain gains and losses on equity investments, release of the deferred tax asset valuation allowance and loss on early extinguishment of debt. 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.
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 measure 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     Twelve Months Ended  
    December 31,     September 30,     December 31,     September 30,     December 31,     December 31,  
    2005     2005     2004     2004     2005     2004  
Net income
  $ 25,759     $ 272,260     $ 13,391     $ 11,249     $ 327,998     $ 34,364  
 
                                               
Amortization of intangible assets
    2,296       2,296       12       12       5,124       48  
Equity-related compensation
    1,582       1,383       236       249       3,849       1,292  
Loss on investments, net
          27       1       79       27       69  
Release of the deferred tax asset valuation allowance
    (3,482 )     (255,345 )                 (258,827 )      
Loss on early extinguishment of debt
          1,370       852       634       1,370       6,768  
 
                                   
 
                                               
Total normalized net income:
    26,155       21,991       14,492       12,223       79,541       42,541  
 
                                               
Interest (income) expense, net
    (1,283 )     567       1,319       1,533       1,067       8,055  
Provision (benefit) for income taxes
    275       (144 )     187       71       1,233       772  
Depreciation and amortization
    5,658       5,242       3,738       4,148       19,086       18,761  
Other (income) expense, net
    (205 )     63       (1,183 )     (101 )     507       (1,061 )
 
                                   
 
                                               
Total Adjusted EBITDA:
  $ 30,600     $ 27,719     $ 18,553     $ 17,874     $ 101,434     $ 69,068  
 
                                   
 
                                               
Normalized net income per share:
                                               
Basic
  $ 0.18     $ 0.16     $ 0.11     $ 0.10     $ 0.58     $ 0.34  
Diluted
  $ 0.16     $ 0.14     $ 0.10     $ 0.09     $ 0.52     $ 0.31  
 
                                               
Shares used in normalized per share calculations:
                                               
Basic
    148,293       139,204       126,261       125,618       136,167       124,407  
Diluted
    170,305       159,994       147,306       147,294       156,944       146,595  
# # #
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, including statements concerning the expected growth and development of our business. 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, unexpected increases in Akamai’s use of funds, 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, failure to maintain the prices we charge for our services, 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.