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: February 6, 2008

(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):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02

Results of Operations and Financial Condition

On February 6, 2008, Akamai Technologies, Inc. announced its financial results for the fiscal year ended December 31, 2007. 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

(d) Exhibits

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

 

99.1		Press Release dated February 6, 2008.

 

2

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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: February 6, 2008		AKAMAI TECHNOLOGIES, INC.
		/s/ J. Donald Sherman
		J. Donald Sherman
		Chief Financial Officer

 

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Exhibit Index

 

99.1		Press Release dated February 6, 2008

 

4

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

 

Contacts:
Jeff Young Media Relations Akamai Technologies 617-444-3913 jyoung@akamai.com		—or—		Sandy Smith Investor Relations Akamai Technologies 617-444-2804 ssmith@akamai.com

AKAMAI REPORTS FOURTH QUARTER 2007 AND

FULL-YEAR 2007 FINANCIAL RESULTS

 

•

Fourth quarter revenue grew to $183.2 million, up 14 percent from the prior quarter and 46 percent year-over-year, and annual revenue increased 48 percent year-over-year to $636.4 million

 

•

Fourth quarter GAAP net income increased 48 percent quarter-over-quarter to $35.9 million, or $0.20 per diluted share, and full-year GAAP net income increased 76 percent year-over-year to $101.0 million, or $0.56 per diluted share

 

•

Fourth quarter normalized net income* increased 22 percent quarter-over-quarter to $75.9 million, or $0.41 per diluted share, and full-year normalized net income* increased 58 percent year-over-year to $244.4 million, or $1.32 per diluted share

CAMBRIDGE, Mass. – February 6, 2008 – Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and applications online, today reported financial results for the fourth quarter and full-year ended December 31, 2007. Revenue for the fourth quarter 2007 was $183.2 million, a 14 percent increase over third quarter revenue of $161.2 million, and a 46 percent increase over fourth quarter 2006 revenue of $125.7 million. Total revenue for 2007 was $636.4 million, a 48 percent increase over 2006 revenue of $428.7 million.

“2007 was another year of impressive growth and significant accomplishments for Akamai,” said Paul Sagan, president and CEO of Akamai. “The relationships we’ve built with customers across our target industries drove annual revenue growth of nearly 50 percent. As we begin our tenth year as a company, we believe the value of Akamai’s differentiated services is stronger than ever – a testament to the dedication of our employees and the commitment of our customers to building great businesses on the Internet.”

Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2007 was $35.9 million, or $0.20 per diluted share. Full-year GAAP net income for 2007 was $101.0 million, or $0.56 per diluted share.

 

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The Company generated normalized net income* of $75.9 million, or $0.41 per diluted share, in the fourth quarter of 2007, a 22 percent increase over prior quarter normalized net income of $62.4 million, or $0.34 per diluted share. Full-year normalized net income grew 58 percent year-over-year to $244.4 million, or $1.32 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)

Adjusted EBITDA* for the fourth quarter of 2007 was $86.9 million, up from $71.9 million in the prior quarter, and $53.0 million in the fourth quarter of 2006. Adjusted EBITDA margin for the fourth quarter was 47 percent, a 5-point improvement over the fourth quarter of last year. For the full year, adjusted EBITDA was $283.2 million, up from $173.3 million in 2006. Full-year adjusted EBITDA margin improved to 44 percent, up from 40 percent in 2006. (*See Use of Non-GAAP Financial Measures below for definitions.)

Full-year cash from operations was $235.4 million, or 37 percent of revenue, up 78 percent over the prior year. At year-end, the Company had approximately $633.5 million of cash, cash equivalents and marketable securities.

The Company had approximately 166.5 million shares of common stock outstanding as of December 31, 2007.

The number of customers under long-term service contracts at the end of the fourth quarter increased by 29 to a record 2,645, a 13 percent increase year-over-year.

Sales through resellers and sales outside the United States accounted for 16 percent and 23 percent, respectively, of revenue for the fourth 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. 30455196.

About Akamai

Akamai^® is the leading global service provider for accelerating content and business processes 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.

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Financial Statements

Condensed Consolidated Balance Sheets

(dollar amounts in thousands)

(unaudited)

 

		Dec. 31, 2007			Dec. 31, 2006
Assets
Cash and cash equivalents		$	145,078		$	80,595
Marketable securities			400,580			188,141
Restricted marketable securities			511			1,105
Accounts receivable, net			118,944			86,232
Prepaid expenses and other current assets			47,080			18,600
Current assets			712,193			374,673
Marketable securities			84,237			161,511
Restricted marketable securities			3,102			3,102
Property and equipment, net			134,546			86,623
Goodwill and other intangible assets, net			449,137			298,263
Other assets			4,520			4,256
Deferred tax assets, net			285,463			319,504
Total assets		$	1,673,198		$	1,247,932
Liabilities and stockholders’ equity
Accounts payable and accrued expenses		$	74,773		$	80,713
Other current liabilities			13,602			8,551
Current liabilities			88,375			89,264
Other liabilities			9,265			3,975
Convertible notes			199,855			200,000
Total liabilities			297,495			293,239
Stockholders’ equity			1,375,703			954,693
Total liabilities and stockholders’ equity		$	1,673,198		$	1,247,932

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Condensed Consolidated Statements of Operations

(amounts in thousands, except per share data)

(unaudited)

 

		Three Months Ended																Twelve Months Ended
		December 31, 2007				September 30, 2007				December 31, 2006				September 30, 2006				December 31, 2007				December 31, 2006
Revenues		$	183,238			$	161,240			$	125,703			$	111,495			$	636,406			$	428,672
Costs and operating expenses:
Cost of revenues * †			49,394				43,811				28,605				24,984				167,444				94,100
Research and development *			10,466				11,408				9,141				8,862				44,141				33,102
Sales and marketing *			36,397				36,671				34,258				29,416				147,556				119,689
General and administrative * †			33,100				30,744				25,249				24,529				121,101				90,191
Amortization of other intangible assets			2,835				2,835				2,047				1,943				11,414				8,484
Restructuring benefit			—				—				—				—				(178	)			—
Total costs and operating expenses			132,192				125,469				99,300				89,734				491,478				345,566
Operating income			51,046				35,771				26,403				21,761				144,928				83,106
Interest income, net			(6,841	)			(5,913	)			(4,567	)			(3,970	)			(22,729	)			(14,532	)
Loss on early extinguishment of debt			—				2				—				—				3				—
Gain on investments, net			(23	)			(1	)			(2	)			—				(24	)			(261	)
Other (income) expense, net			(30	)			(1,273	)			(357	)			448				(527	)			(570	)
Income before provision for income taxes			57,940				42,956				31,329				25,283				168,205				98,469
Provision for income taxes			22,062				18,692				10,706				11,264				67,238				41,068
Net income		$	35,878			$	24,264			$	20,623			$	14,019			$	100,967			$	57,401
Net income per share:
Basic		$	0.22			$	0.15			$	0.13			$	0.09			$	0.62			$	0.37
Diluted		$	0.20			$	0.13			$	0.12			$	0.08			$	0.56			$	0.34
Shares used in per share calculations:
Basic			164,768				165,474				157,206				155,739				162,959				155,366
Diluted			185,294				185,106				179,064				177,063				185,094				176,767

 

*	Includes stock-related compensation (see supplemental table for figures)

†	Includes depreciation (see supplemental table for figures)

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		Three Months Ended												Twelve Months Ended
		Dec. 31, 2007			Sept. 30, 2007			Dec. 31, 2006			Sept. 30, 2006			Dec. 31, 2007			Dec. 31, 2006
Supplemental financial data (in thousands):
Stock-related compensation:
Cost of revenues		$	867		$	896		$	637		$	517		$	3,349		$	1,960
Research and development			3,643			4,095			3,409			3,037			15,658			11,435
Sales and marketing			6,144			6,810			5,993			4,781			26,252			18,403
General and administrative			4,954			5,108			4,753			6,179			21,296			17,770
Total stock-related compensation		$	15,608		$	16,909		$	14,792		$	14,514		$	66,555		$	49,568
Depreciation and amortization:
Network-related depreciation		$	14,249		$	13,591		$	8,132		$	7,144		$	50,295		$	26,810
Capitalized stock-related compensation amortization			703			537			136			129			1,829			298
Other depreciation and amortization			2,439			2,279			1,487			1,306			8,356			4,992
Amortization of other intangible assets			2,835			2,835			2,047			1,943			11,414			8,484
Total depreciation and amortization		$	20,226		$	19,242		$	11,802		$	10,522		$	71,894		$	40,584
Capital expenditures:
Purchases of property and equipment		$	9,954		$	18,345		$	18,944		$	13,519		$	81,420		$	56,752
Capitalized internal-use software			5,962			4,981			3,532			2,932			19,057			12,576
Capitalized stock-related compensation			1,991			1,551			1,471			1,058			6,353			4,293
Total capital expenditures		$	17,907		$	24,877		$	23,947		$	17,509		$	106,830		$	73,621
Net increase in cash, cash equivalents, marketable securities and restricted marketable securities		$	67,572		$	62,010		$	18,372		$	48,600		$	199,054		$	120,325
End of period statistics:
Number of customers under recurring contract			2,645			2,616			2,347			2,144
Number of employees			1,324			1,287			1,058			917
Number of deployed servers			30,293			28,301			22,109			21,864

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Condensed Consolidated Statements of Cash Flows

(amounts in thousands)

(unaudited)

 

		Three Months Ended																Twelve Months Ended
		Dec. 31, 2007				Sept. 30, 2007				Dec. 31, 2006				Sept. 30, 2006				Dec. 31, 2007				Dec. 31, 2006
Cash flows from operating activities:
Net income		$	35,878			$	24,264			$	20,623			$	14,019			$	100,967			$	57,401
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions:
Depreciation and amortization of intangible assets and deferred financing costs			20,436				19,452				12,013				10,732				72,735				41,426
Stock-related compensation			15,608				16,909				14,792				14,514				66,555				49,568
Utilization of tax NOLs/credits and changes in deferred tax assets, net			22,794				16,540				9,414				11,154				64,472				38,510
Excess tax benefits from stock-related compensation			(2,551	)			(2,338	)			(12,910	)			(8,735	)			(20,862	)			(32,511	)
(Gain) loss on investments, property and equipment and foreign currency, net			(375	)			(678	)			(438	)			64				(1,542	)			(996	)
Provision for doubtful accounts			848				944				397				(164	)			2,901				830
Non-cash portion of loss on early extinguishment of debt			—				2				—				—				3				—
Non-cash portion of restructuring benefit			—				—				—				—				(178	)			—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net			(11,386	)			(9,054	)			(14,022	)			(3,257	)			(31,937	)			(28,020	)
Prepaid expenses and other current assets			(3,584	)			(2,192	)			(3,249	)			(495	)			(11,209	)			(8,062	)
Accounts payable, accrued expenses and other current liabilities			(8,837	)			10,975				(3,137	)			12,097				(12,965	)			15,382
Accrued restructuring			(177	)			(1,049	)			(464	)			(458	)			(2,722	)			(1,970	)
Deferred revenue			1,324				859				(759	)			(937	)			5,297				343
Other noncurrent assets and liabilities			1,179				1,479				310				(44	)			3,874				66
Net cash provided by operating activities			71,157				76,113				22,570				48,490				235,389				131,967
Cash flows from investing activities:
Business acquisitions, net of cash acquired			—				—				(5,127	)			—				7,875				(5,127	)
Purchases of property and equipment and capitalization of internal-use software costs			(15,916	)			(23,326	)			(22,476	)			(16,451	)			(100,477	)			(69,328	)
Proceeds from sales and maturities of investments			166,353				93,335				79,075				65,501				415,771				264,308
Purchase of investments			(241,788	)			(102,716	)			(116,164	)			(87,778	)			(550,614	)			(395,871	)
Proceeds from sale of property and equipment			6				9				—				—				15				—
Decrease in restricted investments held for security deposits			—				723				—				—				723				400
Net cash used in investing activities			(91,345	)			(31,975	)			(64,692	)			(38,728	)			(226,707	)			(205,618	)
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock option and employee stock purchase plans			9,035				4,835				9,267				7,186				31,621				27,918
Excess tax benefits from stock-related compensation			2,551				2,338				12,910				8,735				20,862				32,511
Payments on capital leases			—				—				—				—				(23	)			—
Net cash provided by financing activities			11,586				7,173				22,177				15,921				52,460				60,429
Effects of exchange rate translation on cash and cash equivalents			876				1,331				1,417				(62	)			3,341				2,025
Net (decrease) increase in cash and cash equivalents			(7,726	)			52,642				(18,528	)			25,621				64,483				(11,197	)
Cash and cash equivalents, beginning of period			152,804				100,162				99,123				73,502				80,595				91,792
Cash and cash equivalents, end of period		$	145,078			$	152,804			$	80,595			$	99,123			$	145,078			$	80,595

 

*	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). Legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why

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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, income 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 Adjusted EBITDA as a percentage of revenues. Akamai considers Adjusted EBITDA margin to be an indicator of the Company’s operating trends and performance of its business in relation to its revenue growth.

Akamai defines “capital expenditures” or “capex” as purchases of property and equipment, capitalization of internal-use software development costs and capitalization of stock-related compensation. 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 “diluted shares used in normalized net income per share calculation” 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 net income to be another important indicator of overall performance of the Company because it eliminates the effect of a non-cash item.

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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																Twelve Months Ended
		Dec. 31, 2007				Sept. 30, 2007				Dec. 31, 2006				Sept. 30, 2006				Dec. 31, 2007				Dec. 31, 2006
Net income		$	35,878			$	24,264			$	20,623			$	14,019			$	100,967			$	57,401
Amortization of intangible assets			2,835				2,835				2,047				1,943				11,414				8,484
Stock-related compensation			15,608				16,909				14,792				14,514				66,555				49,568
Amortization of capitalized stock-related compensation			703				537				136				129				1,829				298
Gain on investments, net			(23	)			(1	)			(2	)			—				(24	)			(261	)
Utilization of tax NOLs/credits			20,898				17,833				9,924				11,154				63,869				39,020
Loss on early extinguishment of debt			—				2				—				—				3				—
Restructuring benefit			—				—				—				—				(178	)			—
Total normalized net income:			75,899				62,379				47,520				41,759				244,435				154,510
Interest income, net			(6,841	)			(5,913	)			(4,567	)			(3,970	)			(22,729	)			(14,532	)
Provision for income taxes			1,164				859				782				110				3,369				2,048
Depreciation and amortization			16,688				15,870				9,619				8,450				58,651				31,802
Other (income) expense, net			(30	)			(1,273	)			(357	)			448				(527	)			(570	)
Total Adjusted EBITDA:		$	86,880			$	71,922			$	52,997			$	46,797			$	283,199			$	173,258
Normalized net income per share:
Basic		$	0.46			$	0.38			$	0.30			$	0.27			$	1.50			$	0.99
Diluted		$	0.41			$	0.34			$	0.27			$	0.24			$	1.32			$	0.88
Shares used in normalized per share calculations:
Basic			164,768				165,474				157,206				155,739				162,959				155,366
Diluted			186,674				186,767				181,332				179,563				186,709				179,470

# # #

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, unexpected increases in Akamai’s use of funds, loss of significant customers, failure to increase our revenue and keep our expenses consistent with

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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, unexpected expenses associated with the integration of Nine Systems, 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.