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Form 8-K - Q3 2013


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: October 23, 2013
(Date of earliest event reported)

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

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

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))




Item 2.02 Results of Operations and Financial Condition

On October 23, 2013, Akamai Technologies, Inc. ("Akamai" or the "Company") announced its financial results for the fiscal quarter ended September 30, 2013. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

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

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

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

Exhibit No.
 
Description
99.1
 
Press Release dated October 23, 2013




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:
October 23, 2013
 
AKAMAI TECHNOLOGIES, INC.
 
 
 
 
 
 
 
/s/ James Benson
 
 
 
James Benson
 
 
 
Chief Financial Officer





Exhibit Index

Exhibit No.
 
Description
99.1
 
Press Release dated October 23, 2013






Exhibit 99.1 - Q3 2013
Exhibit 99.1

FOR IMMEDIATE RELEASE

Contacts:
Jeff Young
 
Tom Barth
Media Relations
 
Investor Relations
Akamai Technologies
 
Akamai Technologies
617-444-3913
 
617-274-7130
jyoung@akamai.com
 
tbarth@akamai.com

AKAMAI REPORTS THIRD QUARTER 2013
FINANCIAL RESULTS

•
Third quarter revenue of $396 million, up 15% year-over-year, or up 18% year-over-year adjusted for ADS divestiture
•
Third quarter GAAP net income of $80 million, up 65% year-over-year, or $0.44 per diluted share, up 63% year-over-year (includes $8 million, or $0.04 per diluted share, depreciation benefit and $17 million, or $0.09 per diluted share, tax benefit)
•
Third quarter non-GAAP net income* of $90 million, up 31% year-over-year, or $0.50 per diluted share, up 32% year-over-year (includes $8 million, or $0.04 per diluted share, depreciation benefit and $5 million, or $0.03 per diluted share, tax benefit)
•
Board of Directors authorizes new $750 million share repurchase program


CAMBRIDGE, Mass. – October 23, 2013 – Akamai Technologies, Inc. (NASDAQ: AKAM), the leading provider of cloud services for delivering, optimizing and securing online content and business applications, today reported financial results for the third quarter ended September 30, 2013. Revenue for the third quarter of 2013 was $396 million, a 15% increase over third quarter 2012 revenue of $345 million, or up 18% adjusted for the Advertising Decision Solutions (ADS) divestiture.

Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2013 was $80 million, or $0.44 per diluted share, a 29% increase from the prior quarter's GAAP net income of $62 million, or $0.34 per diluted share, and a 65% increase over third quarter 2012 GAAP net income of $48 million, or $0.27 per diluted share.

The Company generated non-GAAP net income* of $90 million, or $0.50 per diluted share, in the third quarter of 2013, a 7% increase from the prior quarter's non-GAAP net income of $84 million, or $0.46 per diluted share, and a 31% increase over third quarter 2012 non-GAAP net income of $69 million, or $0.38 per diluted share.

GAAP and non-GAAP net income results for the third quarter of 2013 include an $8 million, or $0.04 per diluted share, benefit from the previously-announced change in depreciation methodology effective on January 1, 2013. In addition, GAAP and non-GAAP net income results for the third quarter of 2013 include a tax benefit associated with the Company’s retroactive adoption of a tax deduction related to its software development activities. The tax benefit due to this deduction was $17 million, or $0.09 per diluted share, included in GAAP net income, and $5 million, or $0.03 per diluted share included in non-GAAP net income.

“Akamai’s strong third quarter and year-to-date financial performance highlights our ability to deliver innovative solutions to leading enterprises globally,” said Tom Leighton, CEO of Akamai. “We intend to continue to invest in the business, while also effectively managing the cost and efficiency of our network, to help our customers capitalize on the opportunities enabled by the hyperconnected world.”

Adjusted EBITDA* for the third quarter of 2013 was $173 million, an increase from the prior quarter's Adjusted EBITDA of $166 million, and up from $157 million in the third quarter of 2012. Adjusted EBITDA margin* for the third quarter of 2013 was 44%, consistent with the prior quarter and down a point from the same period last year.

Cash from operations for the third quarter of 2013 was $158 million, or 40% of revenue. At the end of the third quarter of 2013, the Company had $1.2 billion of cash, cash equivalents and marketable securities.

Sales through resellers and sales outside the United States accounted for 21% and 28%, respectively, of revenue for the third quarter of 2013.

1

Share Repurchase Program
The Company also announced today that its Board of Directors has authorized a new $750 million share repurchase program, effective from October 16, 2013 through December 31, 2016. The Company's goal for this program is to offset the dilution created by its employee equity compensation programs and provide the flexibility to increase capital distributions to its shareholders as business and market conditions warrant.
 
The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Repurchases will be executed in the open market subject to Rule 10b-18, and may also be made under a Rule 10b5-1 plan, which would permit the Company to repurchase shares when the Company might otherwise be precluded from doing so under insider trading laws. Other structured repurchase programs may be considered from time to time. The Company may choose to suspend, expand or discontinue the repurchase program at any time.

During the third quarter of 2013, under the share repurchase program replaced by the one announced today, the Company spent approximately $30 million to repurchase 0.7 million shares of its common stock, at an average price of $45.32 per share. During the first three quarters of 2013, the Company spent approximately $112 million to repurchase 2.8 million shares of its common stock, at an average price of $39.65 per share.

The Company had approximately 179 million shares of common stock outstanding as of September 30, 2013.


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

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-877-415-3184 (or 1-857-244-7327 for international calls) and using passcode No. 51318276. 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 1-888-286-8010 (or 1-617-801-6888 for international calls) and using passcode No. 10768137.

About Akamai
Akamai® is the leading provider of cloud services for delivering, optimizing and securing online content and business applications.  At the core of the Company's solutions is the Akamai Intelligent Platform™ providing extensive reach, coupled with unmatched reliability, security, visibility and expertise.  Akamai removes the complexities of connecting the increasingly mobile world, supporting 24/7 consumer demand, and enabling enterprises to securely leverage the cloud.  To learn more about how Akamai is accelerating the pace of innovation in a hyperconnected world, please visit www.akamai.com or blogs.akamai.com, and follow @Akamai on Twitter.


2

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
September 30, 2013
 
December 31, 2012
ASSETS
 
 
 
Cash and cash equivalents
$
235,015

 
$
201,989

Marketable securities
331,300

 
235,592

Accounts receivable, net
256,453

 
218,777

Prepaid expenses and other current assets
67,452

 
51,604

Deferred income tax assets
20,422

 
20,422

Current assets
910,642

 
728,384

Property and equipment, net
424,605

 
345,091

Marketable securities
620,204

 
657,659

Goodwill and acquired intangible assets, net
831,074

 
808,255

Deferred income tax assets
20,672

 
21,427

Other assets
77,928

 
39,811

Total assets
$
2,885,125

 
$
2,600,627

LIABILITIES AND STOCKHOLERS' EQUITY
 
 
 
Accounts payable and accrued expenses
$
220,600

 
$
176,378

Other current liabilities
64,824

 
26,566

Current liabilities
285,424

 
202,944

Other liabilities
56,571

 
51,929

Total liabilities
341,995

 
254,873

Stockholders' equity
2,543,130

 
2,345,754

Total liabilities and stockholders' equity
$
2,885,125

 
$
2,600,627


3

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended

Nine Months Ended
(in thousands, except per share data)
September 30, 2013

June 30, 2013

September 30, 2012

September 30, 2013

September 30, 2012
Revenue
$
395,790

 
$
378,106

 
$
345,321

 
$
1,141,942

 
$
996,075

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (1) (2)
132,039

 
124,705

 
134,221

 
377,136

 
390,406

Research and development (1)
24,857

 
20,597

 
19,351

 
67,359

 
54,373

Sales and marketing (1)
67,811

 
67,825

 
55,206

 
198,326

 
160,681

General and administrative (1) (2)
66,634

 
61,351

 
51,003

 
183,365

 
156,241

Amortization of acquired intangible assets
4,859

 
5,734

 
5,381

 
16,653

 
15,611

Restructuring charges
69

 
391

 
—

 
891

 
14

Total costs and operating expenses
296,269

 
280,603

 
265,162

 
843,730

 
777,326

Income from operations
99,521

 
97,503

 
80,159

 
298,212

 
218,749

Interest income, net
1,458

 
1,477

 
1,593

 
4,543

 
4,865

Other (expense) income, net
(305
)
 
341

 
(241
)
 
(96
)
 
449

Income before provision for income taxes
100,674

 
99,321

 
81,511

 
302,659

 
224,063

Provision for income taxes
20,918

 
37,426

 
33,280

 
89,521

 
88,366

Net income
$
79,756

 
$
61,895

 
$
48,231

 
$
213,138

 
$
135,697

 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.45

 
$
0.35

 
$
0.27

 
$
1.20

 
$
0.76

Diluted
$
0.44

 
$
0.34

 
$
0.27

 
$
1.17

 
$
0.75

 
 
 
 
 
 
 
 
 
 
Shares used in per share calculations:
 
 
 
 
 
 
 
 
 
Basic
178,235

 
177,891

 
177,455

 
178,008

 
178,040

Diluted
181,922

 
181,388

 
181,053

 
181,623

 
181,738


(1) Includes stock-based compensation (see supplemental table for figures)
(2) Includes depreciation and amortization (see supplemental table for figures)

4

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2013
 
June 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Cash flows from operating activities:
 
 
 
 
 
 


 
 
Net income
$
79,756

 
$
61,895

 
$
48,231

 
$
213,138

 
$
135,697

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
47,954

 
44,126

 
53,457

 
134,455

 
149,203

Stock-based compensation
24,479

 
24,801

 
22,635

 
72,211

 
69,180

Provision for doubtful accounts
(310
)
 
879

 
(345
)
 
889

 
(61
)
Excess tax benefits from stock-based compensation
(8,530
)
 
(5,503
)
 
(2,540
)
 
(18,152
)
 
(17,589
)
Provision for deferred income taxes
—

 
—

 
826

 
—

 
826

(Gain) loss on disposal of property and equipment
(324
)
 
380

 
142

 
(15
)
 
(62
)
Gain and other activity related to divestiture of a business
1,093

 
(1,093
)
 
—

 
(1,188
)
 
—

Changes in operating assets and liabilities, net of effects of acquisitions and divestitures:
 
 
 
 
 
 
 
 
 
Accounts receivable
(16,118
)
 
(6,848
)
 
(27,974
)
 
(51,321
)
 
(21,587
)
Prepaid expenses and other current assets
7,190

 
(4,969
)
 
2,125

 
(11,739
)
 
9,790

Accounts payable and accrued expenses
20,035

 
28,223

 
39,810

 
43,730

 
49,149

Deferred revenue
4,379

 
(1,613
)
 
1,401

 
10,991

 
5,542

Other current liabilities
255

 
(112
)
 
(28
)
 
32

 
(2,897
)
Other non-current assets and liabilities
(1,722
)
 
689

 
(897
)
 
(3,328
)
 
(104
)
Net cash provided by operating activities
158,137

 
140,855

 
136,843

 
389,703

 
377,087

Cash flows from investing activities:

 

 

 

 

Cash (paid) received for acquired businesses, net of cash acquired
(27,500
)
 
80

 
(14,392
)
 
(27,420
)
 
(306,030
)
Purchases of property and equipment and capitalization of internal-use software costs
(60,638
)
 
(76,311
)
 
(60,626
)
 
(195,265
)
 
(158,817
)
Purchases of short- and long-term marketable securities
(93,681
)
 
(164,525
)
 
(137,809
)
 
(403,556
)
 
(554,303
)
Proceeds from sales and maturities of short- and long-term marketable securities
57,509

 
165,513

 
98,567

 
344,702

 
350,152

Proceeds from the sale of property and equipment
335

 
166

 
—

 
761

 
12

Other non-current assets and liabilities
(2,959
)
 
(361
)
 
(29
)
 
(3,320
)
 
979

Net cash used in investing activities
(126,934
)
 
(75,438
)
 
(114,289
)
 
(284,098
)
 
(668,007
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from the issuance of common stock under stock plans
26,157

 
17,897

 
11,080

 
54,418

 
33,760

Excess tax benefits from stock-based compensation
8,530

 
5,503

 
2,540

 
18,152

 
17,589

Employee taxes paid related to net share settlement of stock-based awards
(7,434
)
 
(3,810
)
 
(2,370
)
 
(28,559
)
 
(26,566
)
Repurchases of common stock
(29,626
)
 
(42,504
)
 
(36,523
)
 
(112,408
)
 
(111,649
)
Net cash used in financing activities
(2,373
)
 
(22,914
)
 
(25,273
)
 
(68,397
)
 
(86,866
)
Effects of exchange rate changes on cash and cash equivalents
1,319

 
(2,912
)
 
2,373

 
(4,182
)
 
1,239

Net increase (decrease) in cash and cash equivalents
30,149

 
39,591

 
(346
)
 
33,026

 
(376,547
)
Cash and cash equivalents at beginning of period
204,866

 
165,275

 
182,996

 
201,989

 
559,197

Cash and cash equivalents at end of period
$
235,015

 
$
204,866

 
$
182,650

 
$
235,015

 
$
182,650


Note: Revisions have been made to all prior periods presented to reclassify immaterial amounts among operating, investing and financing cash flow categories.

5

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME AND ADJUSTED EBITDA

 
Three Months Ended
 
Nine Months Ended
(in thousands, except per share data)
September 30, 2013
 
June 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Net income
$
79,756

 
$
61,895

 
$
48,231

 
$
213,138

 
$
135,697

Amortization of acquired intangible assets
4,859

 
5,734

 
5,381

 
16,653

 
15,611

Stock-based compensation
24,479

 
24,801

 
22,635

 
72,211

 
69,180

Amortization of capitalized stock-based compensation
2,224

 
1,978

 
2,025

 
6,103

 
5,719

Acquisition related costs
219

 
31

 
279

 
587

 
5,107

Restructuring charges
69

 
391

 
—

 
891

 
14

Gain and other activity related to divestiture of a business
1,093

 
(1,093
)
 
—

 
(1,188
)
 
—

Income tax-effect of above non-GAAP adjustments
(22,439
)
 
(9,726
)
 
(9,674
)
 
(40,891
)
 
(30,007
)
Non-GAAP net income
90,260

 
84,011

 
68,877

 
267,504

 
201,321

 
 
 
 
 
 
 


 
 
Interest income, net
(1,458
)
 
(1,477
)
 
(1,593
)
 
(4,543
)
 
(4,865
)
Provision for GAAP income taxes
20,918

 
37,426

 
33,280

 
89,521

 
88,366

Income tax-effect of above non-GAAP adjustments
22,439

 
9,726

 
9,674

 
40,891

 
30,007

Depreciation and amortization
40,871

 
36,414

 
46,051

 
111,699

 
127,873

Other expense (income), net
305

 
(341
)
 
241

 
96

 
(449
)
Adjusted EBITDA
$
173,335

 
$
165,759

 
$
156,530

 
$
505,168

 
$
442,253

 

 

 

 

 

Adjusted EBITDA margin
44
%
 
44
%
 
45
%
 
44
%
 
44
%
 
 
 
 
 
 
 
 
 
 
Non-GAAP net income per share:

 

 

 

 

Basic
$
0.51

 
$
0.47

 
$
0.39

 
$
1.50

 
$
1.13

Diluted
$
0.50

 
$
0.46

 
$
0.38

 
$
1.47

 
$
1.11

 
 
 
 
 
 
 
 
 
 
Shares used in non-GAAP per share calculations:
 
 
 
 
 
 
 
 
 
Basic
178,235

 
177,891

 
177,455

 
178,008

 
178,040

Diluted
181,922

 
181,388

 
181,053

 
181,623

 
181,738


RECONCILIATION OF REVENUE TO REVENUE ADJUSTED FOR ADS DIVESTITURE

 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2013
 
June 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Revenue
$
395,790

 
$
378,106

 
$
345,321

 
$
1,141,942

 
$
996,075

Less: ADS revenue
—

 
—

 
(10,045
)
 
(2,747
)
 
(30,621
)
Revenue, adjusted for ADS divestiture
$
395,790

 
$
378,106

 
$
335,276

 
$
1,139,195

 
$
965,454



6

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL FINANCIAL DATA

 
Three Months Ended
 
Nine Months Ended
(in thousands, except end of period statistics)
September 30, 2013
 
June 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
Stock-based compensation:
 
 
 
 
 
 
 
 
 
Cost of revenue
$
2,885

 
$
2,718

 
$
2,834

 
$
8,230

 
$
8,604

Research and development
4,583

 
3,867

 
4,427

 
12,819

 
13,258

Sales and marketing
10,048

 
9,799

 
8,746

 
29,278

 
25,671

General and administrative
6,963

 
8,417

 
6,628

 
21,884

 
21,647

Total stock-based compensation
$
24,479

 
$
24,801

 
$
22,635

 
$
72,211

 
$
69,180

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
Network-related depreciation
$
33,909

 
$
30,299

 
$
41,022

 
$
93,128

 
$
113,616

Other depreciation and amortization
6,962

 
6,115

 
5,029

 
18,571

 
14,257

Depreciation of property and equipment
40,871

 
36,414

 
46,051

 
111,699

 
127,873

Capitalized stock-based compensation amortization
2,224

 
1,978

 
2,025

 
6,103

 
5,719

Amortization of acquired intangible assets
4,859

 
5,734

 
5,381

 
16,653

 
15,611

Total depreciation and amortization
$
47,954

 
$
44,126

 
$
53,457

 
$
134,455

 
$
149,203

 
 
 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
$
40,594

 
$
58,182

 
$
46,967

 
$
140,094

 
$
118,896

Capitalized internal-use software
20,044

 
18,129

 
13,659

 
55,171

 
39,921

Capital expenditures, excluding stock-based compensation
60,638

 
76,311

 
60,626

 
195,265

 
158,817

Capitalized stock-based compensation
3,069

 
3,245

 
2,561

 
9,252

 
6,694

Total capital expenditures*
$
63,707

 
$
79,556

 
$
63,187

 
$
204,517

 
$
165,511

 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and marketable securities
$
68,107

 
$
35,978

 
$
39,889

 
$
91,279

 
$
(171,621
)
 
 
 
 
 
 
 
 
 
 
End of period statistics:
 
 
 
 
 
 
 
 
 
Number of employees
3,769

 
3,453

 
2,884

 
 
 
 
Number of deployed servers
141,353

 
137,788

 
119,370

 
 
 
 

* See Use of Non-GAAP Financial Measures below for a definition

7

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

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

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

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

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Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions the Company has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and are unique to each acquisition. Therefore, Akamai excludes amortization of acquired intangible assets to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.
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Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation to Akamai’s employees and executives, the expense varies with changes in the stock price and market conditions at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai’s current financial results to previous and future periods difficult to interpret. Therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation in order to better understand the performance of Akamai’s core business performance and to be consistent with the way the investors evaluate its performance and comparison of its operating results to peer companies.
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Restructuring charges – Akamai has incurred restructuring charges, included in its GAAP financial statements, primarily due to workforce reductions and estimated costs of exiting facility lease commitments. Akamai excludes these items when evaluating its continuing business performance as such items are not consistently recurring, do not reflect expected future operating expense, nor provide meaningful insight into the current and past operations of its business.
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Acquisition related costs – Acquisition related costs include transaction fees, due diligence costs and other one-time direct costs associated with strategic activities. In addition, subsequent adjustments to the Company's initial estimated amount of contingent consideration associated with specific acquisitions are included within acquisition related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition related costs and benefits to provide a useful comparison of the Company's operating results to prior periods and to its peer companies because such amounts vary significantly based on magnitude of its acquisition transactions.
•
Gain and other activity related to divestiture of a business – Akamai recognized a gain and other activity associated with the divestiture of its Advertising Decision Solutions business. Akamai excludes gains and other activity related to divestiture of a business because sales of this nature occur infrequently and are not considered part of the Company's core business operations.
•
Income tax-effect of non-GAAP adjustments – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or release of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows the Company to more properly reflect the income attributable to its core operations.  


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

Non-GAAP net income – GAAP net income adjusted for the following tax-effected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition related costs; certain gains and losses on investments; gains and other activity related to divestiture of a business; loss on early extinguishment of debt; gains and losses on legal settlements and other non-recurring or unusual items that may arise from time to time.

Non-GAAP net income per share – Non-GAAP net income divided by the basic weighted average or diluted common shares outstanding used in GAAP net income per share calculations.

Adjusted EBITDA – GAAP net income excluding the following items: interest; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; restructuring charges; acquisition related costs; certain gains and losses on investments; gains, losses and other activity related to divestiture of a business; foreign exchange gains and losses; loss on early extinguishment of debt; gains and losses on legal settlements and other non-recurring or unusual items that may arise from time to time.

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

Revenue, adjusted for ADS divestiture – Revenue excluding the impact of Akamai's Advertising Decision Solutions (ADS) divestiture.

Capital expenditures – Purchases of property and equipment, capitalization of internal-use software development costs and capitalization of stock-based compensation.

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 about future business plans and opportunities. 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, effects of increased competition including potential failure to maintain the prices we charge for our services and loss of significant customers; failure of the markets we address or plan to address to develop as we expect or at all; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; a failure of Akamai's services or network infrastructure; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.

In addition, the statements in this press release 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.



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