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Form 8-K AKAMAI TECHNOLOGIES INC For: Oct 25

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October 25, 2016 4:13 PM EDT


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 25, 2016
(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))




Item 2.02 Results of Operations and Financial Condition

On October 25, 2016, Akamai Technologies, Inc. ("Akamai" or the "Company") announced its financial results for the fiscal quarter ended September 30, 2016. 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 25, 2016




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 25, 2016
 
AKAMAI TECHNOLOGIES, INC.
 
 
 
 
 
 
 
/s/ James Benson
 
 
 
James Benson
 
 
 
Chief Financial Officer





Exhibit Index

Exhibit No.
 
Description
99.1
 
Press Release dated October 25, 2016






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
 


AKAMAI REPORTS THIRD QUARTER 2016 FINANCIAL RESULTS


•
Revenue of $584 million, up 6% year-over-year and up 5% when adjusted for foreign exchange*
•
Revenue excluding Internet Platform Customers(1) up 15% year-over-year and up 15% when adjusted for foreign exchange*
•
GAAP EPS of $0.43 per diluted share, down 12% year-over-year and down 15% when adjusted for foreign exchange*
•
Non-GAAP EPS of $0.68 per diluted share, up 10% year-over-year and up 7% when adjusted for foreign exchange*


CAMBRIDGE, Mass. – October 25, 2016 – Akamai Technologies, Inc. (NASDAQ: AKAM), the global leader in Content Delivery Network (CDN) services, today reported financial results for the third quarter ended September 30, 2016.

“Akamai’s strong third quarter revenue and earnings performance was primarily driven by accelerated growth in both our Cloud Security and Web Performance Solutions,” said Dr. Tom Leighton, Chief Executive Officer.  “As the cyber-attacks from last week demonstrate, enterprises need solutions capable of defending against massive botnets that are exploiting millions of online devices. This is an area where Akamai’s unique architecture and ongoing investments in global scale and security innovation continue to make a critical difference.”

Akamai delivered the following financial results for the third quarter ended September 30, 2016:

Revenue: Revenue was $584 million, a 6% increase over third quarter 2015 revenue of $551 million and a 5% increase when adjusted for foreign exchange.*

Revenue by Solution Category(2):

•
Performance and Security Solutions revenue was $345 million, up 19% year-over-year and also up 19% when adjusted for foreign exchange*
•
Cloud Security Solutions revenue, a component of Performance and Security, was $95 million, up 46% year-over-year and also up 46% when adjusted for foreign exchange*
•
Media Delivery Solutions revenue was $188 million, down 14% year-over-year and down 15% when adjusted for foreign exchange*
•
Services and Support Solutions revenue was $51 million, up 17% year-over-year and up 16% when adjusted for foreign exchange*

Revenue by Geography:

•
U.S. revenue was $404 million, up 1% year-over-year
•
International revenue was $180 million, up 20% year-over-year and up 17% when adjusted for foreign exchange*


1

Customer Revenue by Division(3):

Effective in the second quarter of 2016, the Company is now managing the business in a new division structure. Revenue from customers in the Company's three major divisions is reported below.

•
Media Division revenue was $284 million, down 4% year-over-year and down 5% when adjusted for foreign exchange*
•
Web Division revenue was $285 million, up 17% year-over-year and up 16% when adjusted for foreign exchange*
•
Enterprise and Carrier Division revenue was $15 million, up 43% year-over-year and also up 43% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(1):

•
Revenue from Internet Platform Customers was $58 million, down 39% year-over-year and down 40% when adjusted for foreign exchange.*
•
Revenue excluding Internet Platform Customers was $526 million, up 15% year-over-year and also up 15% when adjusted for foreign exchange.*

Income from operations: GAAP income from operations was $112 million, a 3% decrease from third quarter 2015. GAAP operating margin for the third quarter was 19%, down 2 percentage points from the same period last year.

Non-GAAP income from operations* was $164 million, a 4% increase from third quarter 2015. Non-GAAP operating margin* for the third quarter was 28%, down a percentage point from the same period last year.

Net income: GAAP net income was $76 million, a 14% decrease from third quarter 2015. Non-GAAP net income* was $120 million, a 7% increase from third quarter 2015.

EPS: GAAP EPS was $0.43 per diluted share, a 12% decrease from third quarter 2015 and a 15% decrease when adjusted for foreign exchange.* Non-GAAP EPS was $0.68 per diluted share, a 10% increase from third quarter 2015 and a 7% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $238 million, a 7% increase from third quarter 2015. Adjusted EBITDA margin* was 41%, up a percentage point from the third quarter of 2015.

Other third quarter 2016 results included:
•
Cash from operations was $251 million, or 43% of revenue
•
Cash, cash equivalents and marketable securities as of September 30, 2016 was $1.7 billion
•
The Company spent $95 million to repurchase 1.8 million shares of its common stock at an average price of $53.33 per share
•
The Company had approximately 174 million shares of common stock outstanding as of September 30, 2016


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

(3)
Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division.





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 86580404. 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 No. 86580404. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
As the global leader in Content Delivery Network (CDN) services, Akamai makes the Internet fast, reliable and secure for its customers. The company’s advanced web performance, mobile performance, cloud security and media delivery solutions are revolutionizing how businesses optimize consumer, enterprise and entertainment experiences for any device, anywhere. To learn how Akamai solutions and its team of Internet experts are helping businesses move faster forward, please visit www.akamai.com or blogs.akamai.com, and follow @Akamai on Twitter.




3

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
September 30,
2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
381,803

 
$
289,473

Marketable securities
529,416

 
460,088

Accounts receivable, net
357,997

 
380,399

Prepaid expenses and other current assets
117,748

 
123,228

Total current assets
1,386,964

 
1,253,188

Property and equipment, net
797,923

 
753,180

Marketable securities
767,691

 
774,674

Goodwill
1,151,216

 
1,150,244

Acquired intangible assets, net
138,870

 
156,095

Deferred income tax assets
21,156

 
4,700

Other assets
89,815

 
89,603

Total assets
$
4,353,635

 
$
4,181,684

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
74,328

 
$
61,982

Accrued expenses
291,101

 
216,166

Deferred revenue
61,292

 
54,154

Other current liabilities
4,815

 
138

Total current liabilities
431,536

 
332,440

Deferred revenue
4,134

 
4,163

Deferred income tax liabilities
8,963

 
12,888

Convertible senior notes
634,504

 
618,047

Other liabilities
105,567

 
93,268

Total liabilities
1,184,704

 
1,060,806

Total stockholders' equity
3,168,931

 
3,120,878

Total liabilities and stockholders' equity
$
4,353,635

 
$
4,181,684


4

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
Three Months Ended

Nine Months Ended
(in thousands, except per share data)
September 30, 2016

June 30, 2016

September 30, 2015

September 30, 2016

September 30, 2015
Revenue
$
584,065

 
$
572,135

 
$
551,030

 
$
1,723,925

 
$
1,618,289

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (1) (2)
204,467

 
206,323

 
183,204

 
605,526

 
532,408

Research and development (1)
42,341

 
37,690

 
38,396

 
120,873

 
110,917

Sales and marketing (1)
102,626

 
103,223

 
107,426

 
308,060

 
322,406

General and administrative (1) (2)
113,320

 
107,538

 
99,543

 
323,141

 
288,287

Amortization of acquired intangible assets
6,598

 
6,711

 
6,752

 
20,025

 
20,284

Restructuring charges
2,948

 
470

 
20

 
10,236

 
517

Total costs and operating expenses
472,300

 
461,955

 
435,341

 
1,387,861

 
1,274,819

Income from operations
111,765

 
110,180

 
115,689

 
336,064

 
343,470

Interest income
3,809

 
3,393

 
2,723

 
10,522

 
8,265

Interest expense
(4,666
)
 
(4,639
)
 
(4,630
)
 
(13,958
)
 
(13,884
)
Other income (expense), net
778

 
415

 
204

 
1,004

 
(1,702
)
Income before provision for income taxes
111,686

 
109,349

 
113,986

 
333,632

 
336,149

Provision for income taxes
35,686

 
35,714

 
25,946

 
109,139

 
103,163

Net income
$
76,000

 
$
73,635

 
$
88,040

 
$
224,493

 
$
232,986

 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.44

 
$
0.42

 
$
0.49

 
$
1.28

 
$
1.30

Diluted
$
0.43

 
$
0.42

 
$
0.49

 
$
1.27

 
$
1.29

 
 
 
 
 
 
 
 
 
 
Shares used in per share calculations:
 
 
 
 
 
 
 
 
 
Basic
174,429

 
175,499

 
178,547

 
175,444

 
178,591

Diluted
175,617

 
176,420

 
180,364

 
176,525

 
180,642



(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
 
Nine Months Ended
(in thousands)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Cash flows from operating activities:
 
 
 
 
 
 


 
 
Net income
$
76,000

 
$
73,635

 
$
88,040

 
$
224,493

 
$
232,986

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
84,511

 
85,114

 
74,785

 
250,294

 
219,234

Stock-based compensation
38,652

 
34,911

 
31,046

 
105,304

 
92,966

Excess tax benefits from stock-based compensation
(448
)
 
(1,497
)
 
(2,114
)
 
(3,080
)
 
(24,851
)
(Benefit) provision for deferred income taxes
(16,646
)
 
1,713

 
(1,666
)
 
(13,861
)
 
(17,941
)
Amortization of debt discount and issuance costs
4,666

 
4,639

 
4,630

 
13,958

 
13,884

Other non-cash reconciling items, net
4,866

 
749

 
2,126

 
8,367

 
3,271

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
 
Accounts receivable
4,691

 
1,880

 
(26,415
)
 
22,477

 
(40,707
)
Prepaid expenses and other current assets
15,005

 
(7,510
)
 
4,097

 
4,014

 
16,119

Accounts payable and accrued expenses
42,610

 
44,659

 
(5,575
)
 
54,892

 
26,098

Deferred revenue
(5,241
)
 
1,473

 
(115
)
 
6,885

 
6,908

Other current liabilities
(2,301
)
 
95

 
(53
)
 
4,670

 
146

Other non-current assets and liabilities
5,035

 
3,011

 
13,822

 
6,097

 
18,247

Net cash provided by operating activities
251,400

 
242,872

 
182,608

 
684,510

 
546,360

Cash flows from investing activities:

 

 

 

 

Cash paid for acquired businesses, net of cash acquired
(2,936
)
 
—

 
500

 
(2,936
)
 
(122,445
)
Purchases of property and equipment and capitalization of internal-use software development costs
(79,870
)
 
(78,141
)
 
(133,064
)
 
(240,351
)
 
(366,146
)
Purchases of short- and long-term marketable securities
(230,223
)
 
(288,742
)
 
(178,200
)
 
(614,808
)
 
(584,189
)
Proceeds from sales and maturities of short- and long-term marketable securities
204,190

 
227,234

 
197,440

 
556,533

 
727,125

Other non-current assets and liabilities
(1,633
)
 
842

 
(1,128
)
 
(3,145
)
 
(3,037
)
Net cash used in investing activities
(110,472
)
 
(138,807
)
 
(114,452
)
 
(304,707
)
 
(348,692
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from the issuance of common stock under stock plans
15,244

 
8,745

 
17,776

 
42,339

 
54,288

Excess tax benefits from stock-based compensation
448

 
1,497

 
2,114

 
3,080

 
24,851

Employee taxes paid related to net share settlement of stock-based awards
(6,150
)
 
(5,914
)
 
(7,817
)
 
(38,560
)
 
(47,171
)
Repurchases of common stock
(95,157
)
 
(90,985
)
 
(76,358
)
 
(294,867
)
 
(202,426
)
Other non-current assets and liabilities
—

 
—

 
(800
)
 
—

 
(2,050
)
Net cash used in financing activities
(85,615
)

(86,657
)

(65,085
)
 
(288,008
)
 
(172,508
)
Effects of exchange rate changes on cash and cash equivalents
(154
)
 
(3,676
)
 
(4,048
)
 
535

 
(7,339
)
Net increase (decrease) in cash and cash equivalents
55,159


13,732


(977
)

92,330


17,821

Cash and cash equivalents at beginning of period
326,644

 
312,912

 
257,448

 
289,473

 
238,650

Cash and cash equivalents at end of period
$
381,803

 
$
326,644

 
$
256,471


$
381,803


$
256,471


6

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

 
Three Months Ended
 
Nine Months Ended
(in thousands, except per share data)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Income from operations
$
111,765

 
$
110,180

 
$
115,689

 
$
336,064

 
$
343,470

GAAP operating margin
19
%
 
19
%
 
21
%

19
%

21
%
Amortization of acquired intangible assets
6,598

 
6,711

 
6,752

 
20,025

 
20,284

Stock-based compensation
38,652

 
34,911

 
31,046

 
105,304

 
92,966

Amortization of capitalized stock-based compensation and capitalized interest expense
3,983

 
4,071

 
3,152

 
11,662

 
9,896

Restructuring charges
2,948

 
470

 
20

 
10,236

 
517

Acquisition-related costs
241

 
361

 
258

 
523

 
124

Legal matter costs
—

 
101

 
430

 
890

 
3,215

Operating adjustments
52,422

 
46,625

 
41,658

 
148,640

 
127,002

Non-GAAP income from operations
$
164,187

 
$
156,805

 
$
157,347


$
484,704


$
470,472

Non-GAAP operating margin
28
%
 
27
%
 
29
%

28
%

29
%
 
 
 


 


 
 
 
 
Net income
$
76,000

 
$
73,635

 
$
88,040

 
$
224,493

 
$
232,986

Operating adjustments (from above)
52,422

 
46,625

 
41,658


148,640


127,002

Amortization of debt discount and issuance costs
4,666

 
4,639

 
4,630

 
13,958

 
13,884

Loss on investments
—

 
—

 
—

 
—

 
25

Income tax-effect of above non-GAAP adjustments and certain discrete tax items
(12,939
)
 
(12,832
)
 
(22,453
)
 
(37,094
)
 
(48,678
)
Non-GAAP net income
120,149

 
112,067

 
111,875


349,997


325,219

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
73,930

 
74,332

 
64,881

 
218,607

 
189,054

Interest income
(3,809
)
 
(3,393
)
 
(2,723
)
 
(10,522
)
 
(8,265
)
Other (income) expense, net
(778
)
 
(415
)
 
(204
)
 
(1,004
)
 
1,677

Provision for GAAP income taxes
35,686

 
35,714

 
25,946

 
109,139

 
103,163

Income tax-effect of above non-GAAP adjustments and certain discrete tax items
12,939

 
12,832

 
22,453


37,094


48,678

Adjusted EBITDA
$
238,117

 
$
231,137

 
$
222,228


$
703,311


$
659,526

Adjusted EBITDA margin
41
%

40
%

40
%

41
%

41
%
 
 
 
 
 
 
 
 
 
 
Non-GAAP net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.69


$
0.64


$
0.63


$
1.99


$
1.82

Diluted
$
0.68


$
0.64


$
0.62


$
1.98


$
1.80

 
 
 
 
 
 
 
 
 
 
Shares used in non-GAAP per share calculations:
 
 
 
 
 
 
 
 
 
Basic
174,429

 
175,499

 
178,547

 
175,444

 
178,591

Diluted
175,617

 
176,420

 
180,364

 
176,525

 
180,642










7

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY
 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue by solution category(1):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
$
345,118

 
$
326,642

 
$
289,046

 
$
987,623

 
$
843,396

Media Delivery Solutions
188,075

 
197,077

 
218,537

 
591,091

 
650,553

Services and Support Solutions
50,872

 
48,416

 
43,447

 
145,211

 
124,340

Total revenue
$
584,065

 
$
572,135

 
$
551,030

 
$
1,723,925

 
$
1,618,289

Cloud Security Solutions revenue
$
95,232

 
$
86,980

 
$
65,212

 
$
262,872

 
$
181,857

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 

 
 
Performance and Security Solutions
19
 %
 
16
 %
 
14
%
 
17
 %
 
15
%
Media Delivery Solutions
(14
)
 
(9
)
 
6

 
(9
)
 
10

Services and Support Solutions
17

 
18

 
19

 
17

 
15

Total revenue
6
 %
 
6
 %
 
11
%
 
7
 %
 
13
%
Cloud Security Solutions revenue growth rates
46
 %
 
42
 %
 
40
%
 
45
 %
 
51
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
19
 %
 
16
 %
 
18
%
 
17
 %
 
19
%
Media Delivery Solutions
(15
)
 
(10
)
 
10

 
(9
)
 
15

Services and Support Solutions
16

 
17

 
24

 
17

 
19

Total revenue
5
 %
 
6
 %
 
15
%
 
7
 %
 
17
%
Cloud Security Solutions revenue growth rates(2)
46
 %
 
42
 %
 
45
%
 
45
 %
 
56
%

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY

 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue by geography:
 
 
 
 
 
 
 
 
 
U.S.
$
404,065

 
$
395,085

 
$
400,581

 
$
1,196,433

 
$
1,188,657

International
180,000

 
177,050

 
150,449

 
527,492

 
429,632

Total revenue
$
584,065

 
$
572,135

 
$
551,030

 
$
1,723,925

 
$
1,618,289

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
U.S.
1
%
 
(1
)%
 
10
%
 
1
%
 
15
%
International
20

 
25

 
12

 
23

 
9

Total revenue
6
%
 
6
 %
 
11
%
 
7
%
 
13
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
U.S.
1
%
 
(1
)%
 
10
%
 
1
%
 
15
%
International
17

 
24

 
27

 
23

 
23

Total revenue
5
%
 
6
 %
 
15
%
 
7
%
 
17
%

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

8

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION

 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Customer revenue by division(1):
 
 
 
 
 
 
 
 
 
Media Division
$
284,107

 
$
288,432

 
$
296,848

 
$
864,472

 
$
885,365

Web Division
284,629

 
271,327

 
243,430

 
819,699

 
703,687

Enterprise and Carrier Division
15,329

 
12,376

 
10,752

 
39,754

 
29,237

Total revenue
$
584,065

 
$
572,135

 
$
551,030

 
$
1,723,925

 
$
1,618,289

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Media Division
(4
)%
 
(2
)%
 
5
%
 
(2
)%
 
10
%
Web Division
17

 
15

 
17

 
16

 
18

Enterprise and Carrier Division
43

 
22

 
40

 
36

 
33

Total revenue
6
 %
 
6
 %
 
11
%
 
7
 %
 
13
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Media Division
(5
)%
 
(2
)%
 
9
%
 
(2
)%
 
13
%
Web Division
16

 
15

 
22

 
16

 
22

Enterprise and Carrier Division
43

 
22

 
41

 
36

 
34

Total revenue
5
 %
 
6
 %
 
15
%
 
7
 %
 
17
%

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

 
Three Months Ended
 
Nine Months Ended
(in thousands)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Revenue from Internet Platform Customers(3)
$
58,012

 
$
61,497

 
$
95,264

 
$
192,014

 
$
287,612

Revenue excluding Internet Platform Customers
526,053

 
510,638

 
455,766

 
1,531,911

 
1,330,677

Total revenue
$
584,065

 
$
572,135

 
$
551,030

 
$
1,723,925

 
$
1,618,289

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Revenue from Internet Platform Customers
(39
)%
 
(36
)%
 
—
%
 
(33
)%
 
14
%
Revenue excluding Internet Platform Customers
15

 
15

 
13

 
15

 
13

Total revenue
6
 %
 
6
 %
 
11
%
 
7
 %
 
13
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Revenue from Internet Platform Customers
(40
)%
 
(36
)%
 
1
%
 
(33
)%
 
15
%
Revenue excluding Internet Platform Customers
15

 
15

 
18

 
15

 
18

Total revenue
5
 %
 
6
 %
 
15
%
 
7
 %
 
17
%

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


9

AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL FINANCIAL DATA

 
Three Months Ended
 
Nine Months Ended
(in thousands, except end of period statistics)
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Stock-based compensation:
 
 
 
 
 
 
 
 
 
Cost of revenue
$
4,701

 
$
4,553

 
$
3,579

 
$
13,224

 
$
10,244

Research and development
7,727

 
6,752

 
5,982

 
20,917

 
17,357

Sales and marketing
14,729

 
13,259

 
13,465

 
40,340

 
39,295

General and administrative
11,495

 
10,347

 
8,020

 
30,823

 
26,070

Total stock-based compensation
$
38,652

 
$
34,911

 
$
31,046


$
105,304


$
92,966

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
Network-related depreciation
$
57,521

 
$
58,615

 
$
50,937

 
$
171,310

 
$
150,070

Other depreciation and amortization
16,409

 
15,717

 
13,944

 
47,297

 
38,984

Depreciation of property and equipment
73,930

 
74,332

 
64,881


218,607


189,054

Capitalized stock-based compensation amortization
3,544

 
3,628

 
2,916

 
10,429

 
9,303

Capitalized interest expense amortization
439

 
443

 
236

 
1,233

 
593

Amortization of acquired intangible assets
6,598

 
6,711

 
6,752

 
20,025

 
20,284

Total depreciation and amortization
$
84,511

 
$
85,114

 
$
74,785

 
$
250,294

 
$
219,234

 
 
 
 
 
 
 
 
 
 
Capital expenditures(1)(2):
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
$
51,332

 
$
50,726

 
$
65,429

 
$
152,125

 
$
231,050

Capitalized internal-use software development costs
35,507

 
36,288

 
33,401

 
106,967

 
98,219

Capitalized stock-based compensation
5,662

 
6,209

 
4,518

 
17,074

 
13,133

Capitalized interest expense
887

 
868

 
760

 
2,540

 
2,054

Total capital expenditures
$
93,388

 
$
94,091

 
$
104,108


$
278,706


$
344,456

 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and marketable securities
$
78,972

 
$
76,706

 
$
(20,082
)
 
$
154,675

 
$
(123,411
)
 
 
 
 
 
 
 
 
 
 
End of period statistics:
 
 
 
 
 
 
 
 
 
Number of employees
6,334

 
6,263

 
5,943

 
 
 
 
Number of deployed servers
222,906

 
219,595

 
199,962

 
 
 
 

(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


10

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 also 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.


11

•
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.

•
Loss on investments and legal matter costs – Akamai has incurred losses from the impairment of certain investments and the settlement of legal matters. Akamai has also incurred 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 occur infrequently and 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; 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; 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.


12

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

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

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.


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 potential areas for future investment. 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, 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.


13

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