Akamai Reports Second Quarter 2007 Financial Results
-- Revenue grew to $152.7 million, up 52 percent year-over-year
and up 10 percent from the first quarter 2007
-- GAAP net income was $21.6 million, or $0.12 per diluted share,
up 92 percent year-over-year and up 13 percent over the first
quarter 2007
-- Normalized net income* increased 55 percent year-over-year to
$55.4 million, or $0.30 per diluted share, and increased 9
percent over the first quarter 2007
CAMBRIDGE, Mass.--(BUSINESS WIRE)--July 25, 2007--Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and applications online, today reported financial results for the second quarter ended June 30, 2007. Revenue for the second quarter 2007 was $152.7 million, a ten percent increase over first quarter 2007 revenue of $139.3 million, and a 52 percent increase over second quarter 2006 revenue of $100.6 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the second quarter of 2007 was $21.6 million, or $0.12 per diluted share.
The Company generated normalized net income* of $55.4 million, or $0.30 per normalized diluted share*, in the second quarter of 2007, a 9 percent increase over first quarter 2007 normalized net income of $50.7 million, or $0.28 per diluted share, and a 55 percent improvement over 2006 second quarter normalized earnings of $35.8 million, or $0.20 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
"Demand for our core content delivery and application acceleration services grew in all sectors of our business," said Paul Sagan, president and CEO of Akamai. "With our record performance in the second quarter, we are excited about the potential we see to expand our business going forward."
Adjusted EBITDA* for the second quarter of 2007 was $65.6 million, up from $58.8 million in the first quarter 2007, and $40.0 million in the second quarter of 2006. Adjusted EBITDA margin for the second quarter was 43 percent, a three point improvement over the second quarter of last year. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations was $37.3 million in the second quarter. On a year-to-date basis, cash from operations was $93.6 million, an increase of 54 percent over the same period last year. At the end of the second quarter, the Company had approximately $504 million in cash, cash equivalents and marketable securities.
The Company had approximately 165.2 million shares of common stock outstanding as of June 30, 2007.
Customers
The number of customers under long-term services contracts at the end of the second quarter increased by 74 to a record 2,555, a 24 percent increase year-over-year.
Sales through resellers and sales outside the United States accounted for 20 percent and 23 percent, respectively, of revenue for the second 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. 4839771.
About Akamai
Akamai(R) is the leading global service provider for accelerating content and applications 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.
Financial Statements
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
(unaudited)
June 30, 2007 December 31, 2006
---------------- -----------------
Assets
Cash and cash equivalents $ 100,162 $ 80,595
Marketable securities 255,088 188,141
Restricted marketable securities 1,233 1,105
Accounts receivable, net 99,157 86,232
Prepaid expenses and other current
assets 23,986 18,600
---------------- -----------------
Current assets 479,626 374,673
Marketable securities 144,341 161,511
Restricted marketable securities 3,102 3,102
Property and equipment, net 125,777 86,623
Goodwill and other intangible
assets, net 468,077 298,263
Other assets 4,918 4,256
Deferred tax assets, net 294,134 319,504
---------------- -----------------
Total assets $ 1,519,975 $ 1,247,932
================ =================
Liabilities and stockholders'
equity
Accounts payable and accrued
expenses $ 71,933 $ 80,713
Other current liabilities 10,994 8,551
---------------- -----------------
Current liabilities 82,927 89,264
Other liabilities 6,787 3,975
Convertible notes 199,960 200,000
---------------- -----------------
Total liabilities 289,674 293,239
Stockholders' equity 1,230,301 954,693
---------------- -----------------
Total liabilities and
stockholders' equity $ 1,519,975 $ 1,247,932
================ =================
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, March 31,June 30, March 31,June 30, June 30,
2007 2007 2006 2006 2007 2006
------------------------------------------------------
Revenues $152,654 $139,274 $100,649 $ 90,825 $291,928 $191,474
Costs and
operating
expenses:
Cost of
revenues (a)
(b) 39,759 34,480 21,195 19,316 74,239 40,511
Research and
development
(a) 11,663 10,604 8,373 6,726 22,267 15,099
Sales and
marketing (a) 37,739 36,749 29,720 26,295 74,488 56,015
General and
administrative
(a) (b) 29,779 27,478 21,870 18,543 57,257 40,413
Amortization of
other
intangible
assets 2,932 2,812 2,198 2,296 5,744 4,494
Restructuring
benefit (178) - - - (178) -
------------------------------------------------------
Total costs
and operating
expenses 121,694 112,123 83,356 73,176 233,817 156,532
------------------------------------------------------
Operating income 30,960 27,151 17,293 17,649 58,111 34,942
Interest income,
net (5,243) (4,732) (3,336) (2,658) (9,975) (5,994)
Loss on early
extinguishment
of debt - 1 - - 1 -
Gain on
investments,
net - - (2) (257) - (259)
Other expense
(income), net 572 204 (475) (186) 776 (661)
------------------------------------------------------
Income before
provision for
income taxes 35,631 31,678 21,106 20,750 67,309 41,856
Provision for
income taxes 13,985 12,499 9,842 9,255 26,484 19,097
------------------------------------------------------
Net income $ 21,646 $ 19,179 $ 11,264 $ 11,495 $ 40,825 $ 22,759
======================================================
Net income per
share:
Basic $ 0.13 $ 0.12 $ 0.07 $ 0.07 $ 0.25 $ 0.15
Diluted 0.12 0.11 $ 0.07 $ 0.07 $ 0.23 $ 0.14
Shares used in
per share
calculations:
Basic 164,798 161,569 154,702 153,819 163,184 154,260
Diluted 185,601 183,157 175,612 173,811 184,648 175,001
(a) Includes stock-related compensation (see supplemental table for
figures)
(b) Includes depreciation (see supplemental table for figures)
Three Months Ended Six Months Ended
June March June March June June
30, 31, 30, 31, 30, 30,
2007 2007 2006 2006 2007 2006
------- ------- ------- ------- ------- -------
Supplemental
financial data (in
thousands):
Stock-related
compensation:
Cost of revenues $ 847 $ 739 $ 533 $ 273 $ 1,586 $ 806
Research and
development 3,944 3,976 3,332 1,657 7,920 4,989
Sales and marketing 6,471 6,827 5,040 2,589 13,298 7,629
General and
administrative 5,946 5,288 4,270 2,568 11,234 6,838
------- ------- ------- ------- ------- -------
Total stock-related
compensation $17,208 $16,830 $13,175 $ 7,087 $34,038 $20,262
Depreciation and
amortization:
Network-related
depreciation $12,277 $10,178 $ 6,178 $ 5,356 $22,455 $11,534
Capitalized stock-
related compensation
amortization 401 188 27 6 589 33
Other depreciation 1,967 1,671 1,164 1,035 3,638 2,199
Amortization of other
intangible assets 2,932 2,812 2,198 2,296 5,744 4,494
------- ------- ------- ------- ------- -------
Total depreciation
and amortization $17,577 $14,849 $ 9,567 $ 8,693 $32,426 $18,260
Capital expenditures:
Purchases of property
and equipment $25,579 $27,542 $10,733 $13,556 $53,121 $24,289
Capitalized internal-
use software 4,113 4,001 3,494 2,618 8,114 6,112
Capitalized stock-
related compensation 1,427 1,384 1,242 522 2,811 1,764
------- ------- ------- ------- ------- -------
Total capital
expenditures $31,119 $32,927 $15,469 $16,696 $64,046 $32,165
Net increase in cash,
cash equivalents,
marketable
securities and
restricted
marketable
securities $23,895 $45,577 $26,059 $27,294 $69,472 $53,353
End of period
statistics:
Number of customers
under recurring
contract 2,555 2,481 2,060 1,981
Number of employees 1,261 1,213 871 833
Number of deployed
servers 27,322 25,093 20,836 19,919
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
Three Months Ended
June 30, March 31, June 30, March 31,
2007 2007 2006 2006
---------- --------- --------- ----------
Cash flows from operating
activities:
Net income $ 21,646 $ 19,179 $ 11,264 $ 11,495
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 17,788 15,059 9,778 8,903
Stock-related
compensation 17,208 16,830 13,175 7,087
Non-cash portion of
loss on early
extinguishment of
debt - 1 - -
Non-cash portion of
restructuring benefit (178) - - -
Utilization of tax
NOLs/credits and
changes in deferred
tax assets, net 13,437 11,701 9,178 8,764
Excess tax benefits
from stock-related
compensation (3,009) (7,476) (5,467) (5,399)
Gain on investments,
property and
equipment and foreign
currency, net (41) (448) (294) (327)
Provision for doubtful
accounts 594 515 279 318
Changes in operating
assets and
liabilities:
Accounts
receivable, net (12,156) 659 (7,338) (3,403)
Prepaid expenses
and other current
assets (307) (5,126) (1,206) (3,113)
Accounts payable,
accrued expenses
and other current
liabilities (15,797) 694 (419) 6,840
Accrued
restructuring (818) (678) (494) (554)
Deferred revenue (1,003) 4,117 (602) 2,641
Other noncurrent
assets and
liabilities (35) 1,251 (108) (91)
---------- --------- --------- ----------
Net cash provided by
operating activities 37,329 56,278 27,746 33,161
---------- --------- --------- ----------
Cash flows from investing
activities:
Business acquisitions,
net of cash acquired 2,440 5,435 - -
Purchases of property
and equipment and
capitalization of
internal-use software
costs (29,692) (31,543) (14,227) (16,174)
Purchase of
investments (152,831) (53,279) (86,923) (105,005)
Proceeds from sales
and maturities of
investments 104,414 51,669 68,965 50,766
Decrease in restricted
investments held for
security deposits - - - 400
---------- --------- --------- ----------
Net cash used in
investing activities (75,669) (27,718) (32,185) (70,013)
---------- --------- --------- ----------
Cash flows from financing
activities:
Payments on capital
leases (23) - - -
Proceeds from the
issuance of common
stock under stock
option
and employee stock
purchase plans 11,059 6,692 6,822 4,643
Excess tax benefits
from stock-related
compensation 3,009 7,476 5,467 5,399
---------- --------- --------- ----------
Net cash provided by
financing activities 14,045 14,168 12,289 10,042
---------- --------- --------- ----------
Effects of exchange rate
translation on cash and
cash equivalents 212 922 630 40
---------- --------- --------- ----------
Net (decrease) increase
in cash and cash
equivalents (24,083) 43,650 8,480 (26,770)
Cash and cash
equivalents, beginning
of period 124,245 80,595 65,022 91,792
---------- --------- --------- ----------
Cash and cash
equivalents, end of
period $ 100,162 $124,245 $ 73,502 $ 65,022
========== ========= ========= ==========
Six Months Ended
June 30, June 30,
2007 2006
---------- ----------
Cash flows from operating activities:
Net income $ 40,825 $ 22,759
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 32,847 18,681
Stock-related compensation 34,038 20,262
Non-cash portion of loss on early
extinguishment of debt 1 -
Non-cash portion of restructuring benefit (178) -
Utilization of tax NOLs/credits and changes
in deferred tax assets, net 25,138 17,942
Excess tax benefits from stock-related
compensation (10,485) (10,866)
Gain on investments, property and equipment
and foreign currency, net (489) (621)
Provision for doubtful accounts 1,109 597
Changes in operating assets and liabilities:
Accounts receivable, net (11,497) (10,741)
Prepaid expenses and other current assets (5,433) (4,319)
Accounts payable, accrued expenses and
other current liabilities (15,103) 6,421
Accrued restructuring (1,496) (1,048)
Deferred revenue 3,114 2,039
Other noncurrent assets and liabilities 1,216 (199)
---------- ----------
Net cash provided by operating activities 93,607 60,907
---------- ----------
Cash flows from investing activities:
Business acquisitions, net of cash acquired 7,875 -
Purchases of property and equipment and
capitalization of internal-use software
costs (61,235) (30,401)
Purchase of investments (206,110) (191,928)
Proceeds from sales and maturities of
investments 156,083 119,731
Decrease in restricted investments held for
security deposits - 400
---------- ----------
Net cash used in investing activities (103,387) (102,198)
---------- ----------
Cash flows from financing activities:
Payments on capital leases (23) -
Proceeds from the issuance of common stock
under stock option -
and employee stock purchase plans 17,751 11,465
Excess tax benefits from stock-related
compensation 10,485 10,866
---------- ----------
Net cash provided by financing activities 28,213 22,331
---------- ----------
Effects of exchange rate translation on cash
and cash equivalents 1,134 670
---------- ----------
Net (decrease) increase in cash and cash
equivalents 19,567 (18,290)
Cash and cash equivalents, beginning of period 80,595 91,792
---------- ----------
Cash and cash equivalents, end of period $ 100,162 $ 73,502
========== ==========
*Use of Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Recent legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors. We believe that the inclusion of these non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. This measure is also used by management in their financial and 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, taxes, depreciation and amortization of tangible and intangible assets, stock-related compensation, depreciation 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 and impairment of intangible assets. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the Company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historic cost incurred to build out the Company's deployed network, and may not be indicative of current or future capital expenditures.
Akamai defines "Adjusted EBITDA margin" as a percentage of Adjusted EBITDA over revenue. Akamai considers Adjusted EBITDA margin to be an indicator of the Company's operating trend and performance of its business in relation to its revenue growth.
Akamai defines "capital expenditures" or "capex" as purchases of property and equipment and capitalization of internal-use software development costs. Capital expenditures or capex are disclosed in Akamai's condensed consolidated Statement of Cash Flows in the company's most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Akamai defines "normalized net income" as net income before amortization of intangible assets, 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 "normalized diluted shares" 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 diluted shares to be another important indicator of overall performance of the Company because it eliminates the effect of a non-cash item.
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 Six Months Ended
June 30, March 31,June 30, March 31, June 30, June 30,
2007 2007 2006 2006 2007 2006
------------------------------------ ------------------
Net income $ 21,646 $ 19,179 $ 11,264 $ 11,495 $ 40,825 $ 22,759
Amortization of
intangible
assets 2,932 2,812 2,198 2,296 5,744 4,494
Stock-related
compensation 17,208 16,830 13,175 7,087 34,038 20,262
Amortization of
capitalized
stock-related
compensation 401 188 27 6 589 33
Gain on
investments,
net - - (2) (257) - (259)
Utilization of
tax
NOLs/credits 13,437 11,701 9,178 8,764 25,138 17,942
Loss on early
extinguishment
of debt - 1 - - 1 -
Restructuring
benefit (178) - - - (178) -
------------------------------------ ------------------
Total
normalized net
income: 55,446 50,711 35,840 29,391 106,157 65,231
Interest
income, net (5,243) (4,732) (3,336) (2,658) (9,975) (5,994)
Provision for
income taxes 548 798 664 491 1,346 1,155
Depreciation
and
amortization 14,244 11,849 7,342 6,391 26,093 13,733
Other expense
(income), net 572 204 (475) (186) 776 (661)
------------------------------------ ------------------
Total Adjusted
EBITDA: $ 65,567 $ 58,830 $ 40,035 $ 33,429 $124,397 $ 73,464
==================================== ==================
Normalized net
income per
share:
Basic $ 0.34 $ 0.31 $ 0.23 $ 0.19 $ 0.65 $ 0.42
Diluted $ 0.30 $ 0.28 $ 0.20 $ 0.17 $ 0.58 $ 0.37
Shares used in
normalized per
share
calculations:
Basic 164,798 161,569 154,702 153,819 163,184 154,260
Diluted 187,432 185,179 178,358 176,644 186,320 177,817
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, unexpected increases in Akamai's use of funds, loss of significant customers, failure to increase our revenue and keep our expenses consistent with revenues, the effects of any attempts to intentionally disrupt our services or network by unauthorized users or others, failure to have available sufficient transmission capacity, a failure of Akamai's services or network infrastructure, failure to maintain the prices we charge for our services, inability to realize the benefits of our net operating loss carryforward, delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities, unexpected expenses associated with the acquisitions and integrations of Nine Systems, Netli and Red Swoosh, 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.
CONTACT: Akamai Technologies
Jeff Young, 617-444-3913
Media Relations
jyoung@akamai.com
or
Sandy Smith, 617-444-2804
Investor Relations
ssmith@akamai.com
SOURCE: Akamai Technologies, Inc.