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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: July 25, 2017
(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.)

150 Broadway
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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨




Item 2.02 Results of Operations and Financial Condition

On July 25, 2017, Akamai Technologies, Inc. ("Akamai" or the "Company") announced its financial results for the fiscal quarter ended June 30, 2017. 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 July 25, 2017




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:
July 25, 2017
 
AKAMAI TECHNOLOGIES, INC.
 
 
 
 
 
 
 
/s/ James Benson
 
 
 
James Benson
 
 
 
Chief Financial Officer






Exhibit Index

Exhibit No.
 
Description
99.1
 
Press Release dated July 25, 2017






Exhibit


FOR IMMEDIATE RELEASE

Contacts:
Rob Morton
 
Tom Barth
Media Relations
 
Investor Relations
Akamai Technologies
 
Akamai Technologies
617-444-3641
 
617-274-7130
rmorton@akamai.com
 
tbarth@akamai.com


AKAMAI REPORTS SECOND QUARTER 2017 FINANCIAL RESULTS


•
Revenue of $609 million, up 6% year-over-year and 7% when adjusted for foreign exchange*
•
Revenue excluding Internet Platform Customers(1) up 9% year-over-year and 10% when adjusted for foreign exchange*
•
GAAP EPS of $0.33 per diluted share, down 21% year-over-year and up 1% when adjusted for foreign exchange and the dilutive effect of the Soasta acquisition*
•
Non-GAAP EPS of $0.62 per diluted share, down 3% year-over-year and up 4% when adjusted for foreign exchange and the dilutive effect of the Soasta acquisition*


CAMBRIDGE, Mass. – July 25, 2017 – Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the second quarter ended June 30, 2017.

“Akamai delivered another solid quarter for revenue and earnings as we continued to diversify our portfolio and customer base,” said Dr. Tom Leighton, Chief Executive Officer. “Revenue from our Web Division customers grew 15% and now accounts for a majority of revenue.  Revenue from our security products alone grew 32% year-over-year to an annualized revenue run rate of nearly half-a-billion dollars.” 

Akamai delivered the following financial results for the second quarter ended June 30, 2017:

Revenue: Revenue was $609 million, a 6% increase over second quarter 2016 revenue of $572 million and a 7% increase when adjusted for foreign exchange.*

Customer Revenue by Division(2):

•
Web Division revenue was $315 million, up 15% year-over-year and up 16% when adjusted for foreign exchange*
•
Media Division revenue was $276 million, down 2% year-over-year and down 1% when adjusted for foreign exchange*
•
Enterprise and Carrier Division revenue was $18 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*

Revenue by Solution Category(3):

•
Performance and Security Solutions revenue was $376 million, up 15% year-over-year and up 16% when adjusted for foreign exchange*
•
Cloud Security Solutions revenue, a component of Performance and Security, was $115 million, up 32% year-over-year and up 34% when adjusted for foreign exchange*
•
Media Delivery Solutions revenue was $179 million, down 9% year-over-year and when adjusted for foreign exchange*
•
Services and Support Solutions revenue was $54 million, up 12% year-over-year and up 13% when adjusted for foreign exchange*


1

Revenue by Geography:

•
U.S. revenue was $403 million, up 2% year-over-year
•
International revenue was $206 million, up 16% year-over-year and up 19% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(1):

•
Revenue from Internet Platform Customers was $51 million, down 17% year-over-year and when adjusted for foreign exchange*
•
Revenue excluding Internet Platform Customers was $558 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $87 million, a 21% decrease from second quarter 2016. GAAP operating margin for the second quarter was 14%, down 5 percentage points from the same period last year.

Non-GAAP income from operations* was $147 million, a 6% decrease from second quarter 2016. Non-GAAP operating margin* for the second quarter was 24%, down 3 percentage points from the same period last year.

Net income: GAAP net income was $58 million, a 22% decrease from second quarter 2016. Non-GAAP net income* was $108 million, a 4% decrease from second quarter 2016.

EPS: GAAP EPS was $0.33 per diluted share, a 21% decrease from second quarter 2016 and an 18% decrease when adjusted for foreign exchange.* The year-over-year GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was an increase of 1%.

Non-GAAP EPS was $0.62 per diluted share, a 3% decrease from second quarter 2016 and flat when adjusted for foreign exchange.* The year-over-year non-GAAP EPS growth rate, when adjusted for both foreign exchange* and the dilutive impact of the Company's acquisition of Soasta, Inc.,* was an increase of 4%.

Adjusted EBITDA*: Adjusted EBITDA was $224 million, a 3% decrease from second quarter 2016. Adjusted EBITDA margin* was 37%, down 3 percentage points from second quarter of 2016.

Other second quarter 2017 results:

•
Cash from operations was $225 million, or 37% of revenue
•
Cash, cash equivalents and marketable securities as of June 30, 2017 was $1.4 billion
•
The Company spent $105 million to repurchase 2.0 million shares of its common stock at an average price of $52.06 per share
•
The Company had approximately 172 million shares of common stock outstanding as of June 30, 2017


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

(1)
Internet Platform Customers – Six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

(2)    Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. During the first quarter of 2017, the divisional categorization of certain customers was adjusted based on how those customer categorizations are currently being managed. The historical presentation of divisional revenue was revised in order to reflect the most recent categorization and to provide a comparable view for all periods presented.

(3)
Revenue by solution category – A product-focused reporting view that reflects revenue by solution purchased





2

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671 (or 1-508-637-5655 for international calls) and using passcode 45211864. 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 two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode 45211864. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
As the world’s largest and most trusted cloud delivery platform, Akamai makes it easier for its customers to provide the best and most secure digital experiences on any device, anytime, anywhere.  Akamai’s massively distributed platform is unparalleled in scale with over 200,000 servers across 130 countries, giving customers superior performance and threat protection. Akamai’s portfolio of web and mobile performance, cloud security, enterprise access, and video delivery solutions are supported by exceptional customer service and 24/7 monitoring.  To learn why the top financial institutions, e commerce leaders, media & entertainment providers, and government organizations trust Akamai please visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.













































3

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
June 30,
2017
 
December 31, 2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
352,501

 
$
324,169

Marketable securities
330,620

 
512,849

Accounts receivable, net
395,865

 
368,596

Prepaid expenses and other current assets
159,371

 
104,303

Total current assets
1,238,357

 
1,309,917

Property and equipment, net
856,039

 
801,017

Marketable securities
731,781

 
779,311

Goodwill
1,356,623

 
1,228,503

Acquired intangible assets, net
184,041

 
149,463

Deferred income tax assets
7,448

 
8,982

Other assets
114,750

 
95,953

Total assets
$
4,489,039

 
$
4,373,146

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
91,741

 
$
76,120

Accrued expenses
222,023

 
238,777

Deferred revenue
73,772

 
52,972

Other current liabilities
11,528

 
6,719

Total current liabilities
399,064

 
374,588

Deferred revenue
3,848

 
3,758

Deferred income tax liabilities
21,762

 
11,652

Convertible senior notes
651,400

 
640,087

Other liabilities
125,793

 
118,691

Total liabilities
1,201,867

 
1,148,776

Total stockholders' equity
3,287,172

 
3,224,370

Total liabilities and stockholders' equity
$
4,489,039

 
$
4,373,146




4

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
Three Months Ended

Six Months Ended
(in thousands, except per share data)
June 30, 2017
 
March 31, 2017
 
June 30, 2016

June 30, 2017

June 30, 2016
Revenue
$
608,908

 
$
609,237

 
$
572,135

 
$
1,218,145

 
$
1,139,860

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue(1) (2)
214,650

 
205,703

 
206,323

 
420,353

 
401,059

Research and development(1)
53,373

 
52,162

 
37,690

 
105,535

 
78,532

Sales and marketing(1)
119,432

 
113,566

 
103,223

 
232,998

 
205,434

General and administrative(1) (2)
123,518

 
115,009

 
107,538

 
238,527

 
209,821

Amortization of acquired intangible assets
7,753

 
7,569

 
6,711

 
15,322

 
13,427

Restructuring charges
2,971

 
—

 
470

 
2,971

 
7,288

Total costs and operating expenses
521,697

 
494,009

 
461,955

 
1,015,706

 
915,561

Income from operations
87,211

 
115,228

 
110,180

 
202,439

 
224,299

Interest income
4,281

 
4,624

 
3,393

 
8,905

 
6,713

Interest expense
(4,646
)
 
(4,597
)
 
(4,639
)
 
(9,243
)
 
(9,292
)
Other income (expense), net
563

 
(684
)
 
415

 
(121
)
 
226

Income before provision for income taxes
87,409

 
114,571

 
109,349

 
201,980

 
221,946

Provision for income taxes
29,637

 
33,641

 
35,714

 
63,278

 
73,453

Net income
$
57,772

 
$
80,930

 
$
73,635

 
$
138,702

 
$
148,493

 
 
 
 
 
 
 
 
 
 
Net income per share:

 
 
 
 
 
 
 
 
Basic
$
0.33

 
$
0.47

 
$
0.42

 
$
0.80

 
$
0.84

Diluted
$
0.33

 
$
0.46

 
$
0.42

 
$
0.80

 
$
0.84

 
 
 
 
 
 
 
 
 
 
Shares used in per share calculations:
 
 
 
 
 
 
 
 
 
Basic
172,674

 
173,158

 
175,499

 
172,916

 
175,951

Diluted
173,439

 
175,171

 
176,420

 
174,305

 
176,980



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


5

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Cash flows from operating activities(1):
 
 
 
 
 
 
 
 
 
Net income
$
57,772

 
$
80,930

 
$
73,635

 
$
138,702

 
$
148,493

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
89,206

 
86,533

 
85,114

 
175,739

 
165,783

Stock-based compensation
41,269

 
38,986

 
34,911

 
80,255

 
66,652

Provision for deferred income taxes
7,396

 
31,972

 
1,713

 
39,368

 
2,785

Amortization of debt discount and issuance costs
4,646

 
4,597

 
4,639

 
9,243

 
9,292

Other non-cash reconciling items, net
1,738

 
(129
)
 
749

 
1,609

 
3,501

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
 
Accounts receivable
12,273

 
(30,146
)
 
1,880

 
(17,873
)
 
17,786

Prepaid expenses and other current assets
(3,043
)
 
(47,065
)
 
(7,510
)
 
(50,108
)
 
(10,991
)
Accounts payable and accrued expenses
6,399

 
(23,940
)
 
44,659

 
(17,541
)
 
12,282

Deferred revenue
(470
)
 
10,876

 
1,473

 
10,406

 
12,126

Other current liabilities
2,385

 
3,516

 
95

 
5,901

 
6,971

Other non-current assets and liabilities
5,062

 
(13,512
)
 
3,011

 
(8,450
)
 
1,062

Net cash provided by operating activities
224,633

 
142,618

 
244,369

 
367,251

 
435,742

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
Cash paid for acquired businesses, net of cash acquired
(197,191
)
 
(10
)
 
—

 
(197,201
)
 
—

Purchases of property and equipment and capitalization of internal-use software development costs
(97,005
)
 
(91,181
)
 
(78,141
)
 
(188,186
)
 
(160,481
)
Purchases of short- and long-term marketable securities
(88,913
)
 
(92,306
)
 
(288,742
)
 
(181,219
)
 
(384,585
)
Proceeds from sales and maturities of short- and long-term marketable securities
88,978

 
324,138

 
227,234

 
413,116

 
352,343

Other non-current assets and liabilities
(19
)
 
(1,230
)
 
842

 
(1,249
)
 
(1,512
)
Net cash (used in) provided by investing activities
(294,150
)
 
139,411

 
(138,807
)
 
(154,739
)
 
(194,235
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from the issuance of common stock under stock plans
8,150

 
17,530

 
8,745

 
25,680

 
27,095

Employee taxes paid related to net share settlement of stock-based awards
(7,417
)
 
(33,921
)
 
(5,914
)
 
(41,338
)
 
(32,410
)
Repurchases of common stock
(105,148
)
 
(72,467
)
 
(90,985
)
 
(177,615
)
 
(199,710
)
Other non-current assets and liabilities
(1,096
)
 
—

 
—

 
(1,096
)
 
—

Net cash used in financing activities
(105,511
)
 
(88,858
)
 
(88,154
)
 
(194,369
)
 
(205,025
)
Effects of exchange rate changes on cash and cash equivalents
5,210

 
4,979

 
(3,676
)
 
10,189

 
689

Net (decrease) increase in cash and cash equivalents
(169,818
)

198,150

 
13,732

 
28,332

 
37,171

Cash and cash equivalents at beginning of period
522,319

 
324,169

 
312,912

 
324,169

 
289,473

Cash and cash equivalents at end of period
$
352,501

 
$
522,319

 
$
326,644

 
$
352,501

 
$
326,644


(1) On January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting. Under this standard, excess tax benefits are no longer classified as a reduction of cash flows from operating activities. The Company retrospectively adopted this standard and revised cash flows from operating activities by $1.5 million and $2.6 million for the three and six months ended June 30, 2016, respectively. The increase caused a corresponding decrease to cash flows from financing activities.

6

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Revenue by solution category(1):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
$
375,807

 
$
369,148

 
$
326,642

 
$
744,955

 
$
642,505

Media Delivery Solutions
178,905

 
187,396

 
197,077

 
366,301

 
403,016

Services and Support Solutions
54,196

 
52,693

 
48,416

 
106,889

 
94,339

Total revenue
$
608,908

 
$
609,237

 
$
572,135

 
$
1,218,145

 
$
1,139,860

Cloud Security Solutions revenue
$
115,135

 
$
109,758

 
$
86,980

 
$
224,893

 
$
167,640

Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
15
 %
 
17
 %
 
16
 %
 
16
 %
 
16
 %
Media Delivery Solutions
(9
)
 
(9
)
 
(9
)
 
(9
)
 
(7
)
Services and Support Solutions
12

 
15

 
18

 
13

 
17

Total revenue
6
 %
 
7
 %
 
6
 %
 
7
 %
 
7
 %
Cloud Security Solutions revenue growth rates
32
 %
 
36
 %
 
42
 %
 
34
 %
 
44
 %
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
16
 %
 
18
 %
 
16
 %
 
17
 %
 
16
 %
Media Delivery Solutions
(9
)
 
(9
)
 
(10
)
 
(9
)
 
(7
)
Services and Support Solutions
13

 
15

 
17

 
14

 
17

Total revenue
7
 %
 
8
 %
 
6
 %
 
8
 %
 
7
 %
Cloud Security Solutions revenue growth rates
34
 %
 
37
 %
 
42
 %
 
35
 %
 
44
 %

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Customer revenue by division(3):
 
 
 
 
 
 
 
 
 
Web Division
$
314,988

 
$
304,686

 
$
273,891

 
$
619,674

 
$
540,558

Media Division
276,071

 
285,401

 
281,937

 
561,472

 
567,551

Enterprise and Carrier Division
17,849

 
19,150

 
16,307

 
36,999

 
31,751

Total revenue
$
608,908

 
$
609,237

 
$
572,135

 
$
1,218,145

 
$
1,139,860

Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Web Division
15
 %
 
14
%
 
14
 %
 
15
 %
 
15
 %
Media Division
(2
)
 
—

 
(2
)
 
(1
)
 
(1
)
Enterprise and Carrier Division
9

 
24

 
24

 
17

 
28

Total revenue
6
 %
 
7
%
 
6
 %
 
7
 %
 
7
 %
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Web Division
16
 %
 
15
%
 
13
 %
 
16
 %
 
15
 %
Media Division
(1
)
 
1

 
(2
)
 
—

 
(1
)
Enterprise and Carrier Division
10

 
24

 
25

 
17

 
28

Total revenue
7
 %
 
8
%
 
6
 %
 
8
 %
 
7
 %

(1) See customer revenue by solution category definition in press release
(2) See Use of Non-GAAP Financial Measures below for a definition
(3) See customer revenue by division definition in press release

7

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Revenue by geography:
 
 
 
 
 
 
 
 
 
U.S.
$
403,085

 
$
406,565

 
$
395,085

 
$
809,650

 
$
792,368

International
205,823

 
202,672

 
177,050

 
408,495

 
347,492

Total revenue
$
608,908

 
$
609,237

 
$
572,135

 
$
1,218,145

 
$
1,139,860

Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
U.S.
2
%
 
2
%
 
(1
)%
 
2
%
 
1
%
International
16

 
19

 
25

 
18

 
24

Total revenue
6
%
 
7
%
 
6
 %
 
7
%
 
7
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
 
 
 
 
 
 
 
 
 
U.S.
2
%
 
2
%
 
(1
)%
 
2
%
 
1
%
International
19

 
21

 
24

 
20

 
25

Total revenue
7
%
 
8
%
 
6
 %
 
8
%
 
7
%

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA FOR INTERNET PLATFORM CUSTOMERS

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Revenue from Internet Platform Customers(2)
$
51,169

 
$
51,367

 
$
61,497

 
$
102,536

 
$
134,002

Revenue excluding Internet Platform Customers
557,739

 
557,870

 
510,638

 
1,115,609

 
1,005,858

Total revenue
$
608,908

 
$
609,237

 
$
572,135

 
$
1,218,145

 
$
1,139,860

Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Revenue from Internet Platform Customers
(17
)%
 
(29
)%
 
(36
)%
 
(23
)%
 
(30
)%
Revenue excluding Internet Platform Customers
9

 
13

 
15

 
11

 
15

Total revenue
6
 %
 
7
 %
 
6
 %
 
7
 %
 
7
 %
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):
 
 
 
 
 
 
 
 
 
Revenue from Internet Platform Customers
(17
)%
 
(29
)%
 
(36
)%
 
(23
)%
 
(30
)%
Revenue excluding Internet Platform Customers
10

 
13

 
15

 
12

 
15

Total revenue
7
 %
 
8
 %
 
6
 %
 
8
 %
 
7
 %

(1) See Use of Non-GAAP Financial Measures below for a definition
(2) See Internet Platform Customers definition in press release


8

AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL FINANCIAL DATA

 
Three Months Ended
 
Six Months Ended
(in thousands, except end of period statistics)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Stock-based compensation:
 
 
 
 
 
 
 
 
 
Cost of revenue
$
5,074

 
$
4,685

 
$
4,553

 
$
9,759

 
$
8,523

Research and development
9,614

 
9,029

 
6,752

 
18,643

 
13,190

Sales and marketing
13,951

 
15,157

 
13,259

 
29,108

 
25,611

General and administrative
12,630

 
10,115

 
10,347

 
22,745

 
19,328

Total stock-based compensation
$
41,269

 
$
38,986

 
$
34,911

 
$
80,255

 
$
66,652

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
Network-related depreciation
$
59,170

 
$
56,844

 
$
58,615

 
$
116,014

 
$
113,789

Other depreciation and amortization
17,727

 
18,209

 
15,717

 
35,936

 
30,888

Depreciation of property and equipment
76,897

 
75,053

 
74,332

 
151,950

 
144,677

Capitalized stock-based compensation amortization
3,972

 
3,471

 
3,628

 
7,443

 
6,885

Capitalized interest expense amortization
584

 
440

 
443

 
1,024

 
794

Amortization of acquired intangible assets
7,753

 
7,569

 
6,711

 
15,322

 
13,427

Total depreciation and amortization
$
89,206

 
$
86,533

 
$
85,114

 
$
175,739

 
$
165,783

 
 
 
 
 
 
 
 
 
 
Capital expenditures, excluding stock-based compensation and interest expense(1)(2):
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
$
64,522

 
$
56,500

 
$
50,726

 
$
121,022

 
$
100,793

Capitalized internal-use software development costs
40,957

 
37,085

 
36,288

 
78,042

 
71,460

Total capital expenditures, excluding stock-based compensation and interest expense
$
105,479

 
$
93,585

 
$
87,014

 
$
199,064

 
$
172,253

 
 
 
 
 
 
 
 
 
 
End of period statistics:
 
 
 
 
 
 
 
 
 
Number of employees
7,084

 
6,672

 
6,263

 
 
 
 

(1) Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.
(2) See Use of Non-GAAP Financial Measures below for a definition


9

AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND NET INCOME PER DILUTED SHARE

 
Three Months Ended
 
Six Months Ended
(in thousands, except per share data)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Income from operations
$
87,211

 
$
115,228

 
$
110,180

 
$
202,439

 
$
224,299

GAAP operating margin
14
%

19
%
 
19
%

17
%

20
%
Amortization of acquired intangible assets
7,753

 
7,569

 
6,711

 
15,322

 
13,427

Stock-based compensation
41,269

 
38,986

 
34,911

 
80,255

 
66,652

Amortization of capitalized stock-based compensation and capitalized interest expense
4,556

 
3,911

 
4,071

 
8,467

 
7,679

Restructuring charges
2,971

 
—

 
470

 
2,971

 
7,288

Acquisition-related costs (benefits)
3,057

 
(208
)
 
361

 
2,849

 
282

Legal matter costs
—

 
—

 
101

 
—

 
890

Operating adjustments
59,606

 
50,258

 
46,625


109,864


96,218

Non-GAAP income from operations
$
146,817

 
$
165,486

 
$
156,805


$
312,303


$
320,517

Non-GAAP operating margin
24
%
 
27
%
 
27
%

26
%

28
%
 
 
 
 
 
 
 
 
 
 
Net income
$
57,772

 
$
80,930

 
$
73,635

 
$
138,702

 
$
148,493

Operating adjustments (from above)
59,606

 
50,258

 
46,625


109,864


96,218

Amortization of debt discount and issuance costs
4,646

 
4,597

 
4,639

 
9,243

 
9,292

Income tax-effect of above non-GAAP adjustments and certain discrete tax items
(13,974
)
 
(15,467
)
 
(12,832
)
 
(29,441
)
 
(24,155
)
Non-GAAP net income
$
108,050

 
$
120,318

 
$
112,067


$
228,368


$
229,848

 

 


 
 
 
 
 
 
GAAP net income per diluted share
$
0.33

 
$
0.46

 
$
0.42

 
$
0.80

 
$
0.84

Amortization of acquired intangible assets
0.04

 
0.05

 
0.04

 
0.09

 
0.08

Stock-based compensation
0.24


0.22


0.20


0.46


0.38

Amortization of capitalized stock-based compensation and capitalized interest expense
0.03

 
0.02

 
0.02

 
0.05

 
0.04

Restructuring charges
0.02

 
—

 
—

 
0.02

 
0.04

Acquisition-related costs (benefits)
0.02

 
—

 
—

 
0.02

 
—

Legal matter costs
—

 
—

 
—

 
—

 
0.01

Amortization of debt discount and issuance costs
0.03


0.03


0.03


0.05


0.05

Income tax effect of above non-GAAP adjustments and certain discrete tax items
(0.08
)

(0.09
)

(0.07
)

(0.17
)

(0.14
)
Non-GAAP net income per diluted share
$
0.62

 
$
0.69

 
$
0.64


$
1.31


$
1.30

 
 
 
 
 
 
 
 
 
 
Shares used in diluted per share calculations
173,439

 
175,171

 
176,420

 
174,305

 
176,980



10

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

 
Three Months Ended
 
Six Months Ended
(in thousands, except per share data)
June 30, 2017
 
March 31, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
Net income
$
57,772

 
$
80,930

 
$
73,635

 
$
138,702

 
$
148,493

Interest income
(4,281
)
 
(4,624
)
 
(3,393
)
 
(8,905
)
 
(6,713
)
Provision for income taxes
29,637

 
33,641

 
35,714

 
63,278

 
73,453

Depreciation and amortization
76,897

 
75,053

 
74,332

 
151,950

 
144,677

Amortization of capitalized stock-based compensation and capitalized interest expense
4,556

 
3,911

 
4,071

 
8,467

 
7,679

Amortization of acquired intangible assets
7,753

 
7,569

 
6,711

 
15,322

 
13,427

Stock-based compensation
41,269

 
38,986

 
34,911

 
80,255

 
66,652

Restructuring charges
2,971

 
—

 
470

 
2,971

 
7,288

Acquisition-related costs (benefits)
3,057

 
(208
)
 
361

 
2,849

 
282

Legal matter costs
—

 
—

 
101

 
—

 
890

Amortization of debt discount and issuance costs
4,646

 
4,597

 
4,639

 
9,243

 
9,292

Other (income) expense, net
(563
)
 
684

 
(415
)
 
121

 
(226
)
Adjusted EBITDA
$
223,714

 
$
240,539

 
$
231,137

 
$
464,253

 
$
465,194

Adjusted EBITDA margin
37
%
 
39
%
 
40
%

38
%

41
%


11

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, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, 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 the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.

The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations 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:

•
Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai 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 from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.
•
Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees, the grant date fair value varies based on the stock price 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 from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to
peer companies.
•
Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification 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 from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions.
•
Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and estimated costs of exiting facility lease commitments. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of
its business.


12

•
Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rate of the convertible senior notes was approximately 3.2%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. All of Akamai's interest expense is comprised of these non-cash components and is excluded from management's assessment of the company's operating performance because management believes the non-cash expense is not representative of ongoing operating performance.
•
Legal matter costs – Akamai has incurred losses from the settlement of legal matters and costs with respect to its internal U.S. Foreign Corrupt Practices Act ("FCPA") investigation in addition to the disgorgement Akamai was required to pay to resolve it. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations.
•
Income tax effect of non-GAAP adjustments and certain discrete tax items – 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 releasing of valuation allowances), if any. Akamai believes that applying the non GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

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

Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.

Non-GAAP net income – GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; 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 basic weighted average or diluted common shares outstanding. Basic weighted average shares outstanding are those used in GAAP net income per share calculations. Diluted weighted average shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transaction entered into in connection with the issuance of $690 million of convertible senior notes due 2019. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the company would receive a benefit from the note hedge transaction and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance. Unless and until Akamai's weighted average stock price is greater than $89.56, the initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.

Adjusted EBITDA – GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs incurred with respect to Akamai's internal FCPA investigation; foreign exchange gains and losses; loss on early extinguishment of debt; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; 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.


13

Capital expenditures, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.

Impact of Foreign Currency Exchange Rates – Revenue and earnings from international operations have historically been an important contributor to Akamai's financial results. Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.

EPS growth rates, adjusted for the Soasta acquisition – Earnings per share adjusted for the April 6, 2017 acquisition of Soasta, Inc.


Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain 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 expected revenue growth and future profitability levels. 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 of our investments in innovation to generate solutions that are accepted in the market; 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; 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 and on such call 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.


14