Akamai Reports Third Quarter 2020 Financial Results

CAMBRIDGE, Mass., Oct. 27, 2020 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the third quarter ended September 30, 2020.

Akamai Technologies, Inc. logo (PRNewsfoto/Akamai Technologies, Inc.)

"Our excellent third quarter results were driven by the continued strong performance of our security products and sustained high traffic levels on the Akamai Edge platform," said Dr. Tom Leighton, Akamai's chief executive officer. "We're proud of how Akamai continued to deliver fast, intelligent and secure online experiences for billions of users around the world as we support our customers during these unprecedented times."

Akamai delivered the following financial results for the third quarter ended September 30, 2020:

Revenue: Revenue was $793 million, a 12% increase over third quarter 2019 revenue of $710 million and an 11% increase when adjusted for foreign exchange.*

Revenue by Division(1):

  • Web Division revenue was $418 million, up 8% year-over-year and up 7% when adjusted for foreign exchange*
  • Media and Carrier Division revenue was $375 million, up 16% year-over-year and when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

  • Cloud Security Solutions revenue was $266 million, up 23% year-over-year and when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers was $51 million, up 15% year-over-year and when adjusted for foreign exchange*
  • Revenue excluding Internet Platform Customers was $742 million, up 11% year-over-year and when adjusted for foreign exchange*

Revenue by Geography:

  • U.S. revenue was $437 million, up 6% year-over-year
  • International revenue was $355 million, up 20% year-over-year and up 18% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $181 million, a 26% increase from third quarter 2019. GAAP operating margin for the third quarter was 23%, up 3 percentage points from the same period last year.

Non-GAAP income from operations* was $251 million, a 20% increase from third quarter 2019. Non-GAAP operating margin* for the third quarter was 32%, up 3 percentage points from the same period last year.

Net income: GAAP net income was $159 million, a 15% increase from third quarter 2019. Non-GAAP net income* was $216 million, a 19% increase from third quarter 2019.

EPS: GAAP EPS was $0.95 per diluted share, a 13% increase from third quarter 2019 and a 12% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.31 per diluted share, a 19% increase from third quarter 2019 and an 18% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $351 million, a 17% increase from third quarter 2019. Adjusted EBITDA margin* for the third quarter was 44%, up 2 percentage points from the same period last year.

Supplemental cash information: Cash from operations for the third quarter of 2020 was $402 million, or 51% of revenue. Cash, cash equivalents and marketable securities was $2.6 billion as of September 30, 2020.

Share repurchases: Akamai spent $13 million in the third quarter of 2020 to repurchase 0.1 million shares of its common stock at an average price of $109.99 per share. The Company had 163 million shares of common stock outstanding as of September 30, 2020.

*

See Use of Non-GAAP Financial Measures below for definitions



(1)

Revenue by Division – A customer-focused reporting view that reflects revenue from customers that are managed by the division



(2)

Revenue from Cloud Security Solutions – A product-focused reporting view that reflects revenue from Cloud Security Solutions separately from all other solution categories



(3)

Revenue from Internet Platform Customers – Revenue from large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

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 9551978. 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 9551978. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
Akamai secures and delivers digital experiences for the world's largest companies. Akamai's intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone – and attacks and threats far away. Akamai's portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world's top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


(in thousands)

September 30,
2020


December 31,
2019

ASSETS




Current assets:




Cash and cash equivalents

$

742,521



$

393,745


Marketable securities

701,515



1,143,249


Accounts receivable, net

630,406



551,943


Prepaid expenses and other current assets

168,779



142,676


Total current assets

2,243,221



2,231,613


Marketable securities

1,110,058



835,384


Property and equipment, net

1,383,480



1,152,153


Operating lease right-of-use assets

745,089



758,450


Acquired intangible assets, net

184,478



179,431


Goodwill

1,598,919



1,600,265


Deferred income tax assets

97,801



76,528


Other assets

151,347



173,062


Total assets

$

7,514,393



$

7,006,886


LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Accounts payable

$

114,850



$

138,946


Accrued expenses

369,815



334,861


Deferred revenue

88,942



71,223


Operating lease liabilities

136,292



139,463


Other current liabilities

7,225



8,843


Total current liabilities

717,124



693,336


Deferred revenue

3,954



4,368


Deferred income tax liabilities

31,946



29,187


Convertible senior notes

1,889,743



1,839,791


Operating lease liabilities

682,623



692,181


Other liabilities

81,386



90,065


Total liabilities

3,406,776



3,348,928


Total stockholders' equity

4,107,617



3,657,958


Total liabilities and stockholders' equity

$

7,514,393



$

7,006,886


 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Revenue

$

792,845



$

794,715



$

709,912



$

2,351,862



$

2,121,494


Costs and operating expenses:










Cost of revenue(1) (2)

283,439



276,804



246,938



828,825



729,874


Research and development(1)

66,773



64,090



64,887



202,087



192,467


Sales and marketing(1)

122,749



123,469



122,258



370,004



383,640


General and administrative(1) (2)

128,365



129,709



123,216



385,435



366,167


Amortization of acquired intangible assets

10,340



10,381



9,624



31,155



28,871


Restructuring charge (benefit)

21



(167)



(300)



10,439



6,879


Total costs and operating expenses

611,687



604,286



566,623



1,827,945



1,707,898


Income from operations

181,158



190,429



143,289



523,917



413,596


Interest income

6,307



9,502



7,908



22,852



22,953


Interest expense

(17,324)



(17,249)



(12,127)



(51,778)



(32,689)


Other expense, net

(2,158)



(1,603)



(752)



(7,869)



(819)


Income before provision for income taxes

167,983



181,079



138,318



487,122



403,041


(Provision) benefit for income taxes

(8,801)



(18,671)



960



(41,764)



(42,718)


Loss from equity method investment

(559)



(493)



(1,388)



(1,674)



(1,388)


Net income

$

158,623



$

161,915



$

137,890



$

443,684



$

358,935












Net income per share:










Basic

$

0.97



$

1.00



$

0.85



$

2.73



$

2.20


Diluted

$

0.95



$

0.98



$

0.84



$

2.69



$

2.18












Shares used in per share calculations:










Basic

162,757



162,413



162,445



162,387



163,029


Diluted

166,519



164,768



164,558



164,990



164,788




(1)

Includes stock-based compensation (see supplemental table for figures)

(2)

Includes depreciation and amortization (see supplemental table for figures)

 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Cash flows from operating activities:










Net income

$

158,623



$

161,915



$

137,890



$

443,684



$

358,935


Adjustments to reconcile net income to net cash provided by operating activities:










Depreciation and amortization

118,893



115,580



110,604



350,681



324,874


Stock-based compensation

50,217



49,191



46,815



146,901



140,262


(Benefit) provision for deferred income taxes

(33,942)



14,282



(27)



(22,548)



24,581


Amortization of debt discount and issuance costs

15,747



15,677



11,133



47,057



30,761


Other non-cash reconciling items, net

1,480



2,752



2,598



16,284



3,778


Changes in operating assets and liabilities, net of effects of acquisitions:










Accounts receivable

20,107



(31,633)



(17)



(85,439)



(38,144)


Prepaid expenses and other current assets

(11,401)



455



11,624



(21,380)



(11,663)


Accounts payable and accrued expenses

97,220



(19,944)



23,348



49,818



(29,441)


Deferred revenue

(6,539)



(5,647)



(11,259)



14,803



16,714


Other current liabilities

(523)



(2,043)



(3,111)



(1,638)



(21,850)


Other non-current assets and liabilities

(7,909)



(1,894)



(32,213)



(14,316)



(22,643)


Net cash provided by operating activities

401,973



298,691



297,385



923,907



776,164


Cash flows from investing activities:










Cash received (paid) for business acquisitions, net of cash acquired







106



(121,409)


Cash paid for asset acquisition







(36,376)




Cash paid for equity method investment









(36,008)


Purchases of property and equipment and capitalization of internal-use software development costs

(228,759)



(120,239)



(152,633)



(564,427)



(428,411)


Purchases of short- and long-term marketable securities

(311,010)



(452,737)



(981,805)



(1,153,526)



(1,373,563)


Proceeds from sales and maturities of short- and long-term marketable securities

317,163



483,184



229,796



1,331,163



879,326


Other non-current assets and liabilities

(2,059)



155



(342)



(1,980)



1,895


Net cash used in investing activities

(224,665)



(89,637)



(904,984)



(425,040)



(1,078,170)


 

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Cash flows from financing activities:










Proceeds from the issuance of convertible senior notes





1,135,629





1,135,629


Proceeds from the issuance of warrants





185,150





185,150


Purchase of note hedge related to convertible senior notes





(312,225)





(312,225)


Repayment of convertible senior notes









(690,000)


Proceeds from the issuance of common stock under stock plans

16,007



10,259



14,432



45,812



43,204


Employee taxes paid related to net share settlement of stock-based awards

(13,369)



(13,095)



(11,160)



(77,299)



(61,116)


Repurchases of common stock

(13,198)



(27,330)



(175,541)



(121,078)



(291,788)


Other non-current assets and liabilities









(1,558)


Net cash (used in) provided by financing activities

(10,560)



(30,166)



836,285



(152,565)



7,296


Effects of exchange rate changes on cash, cash equivalents and restricted cash

4,363



8,155



(5,328)



3,535



(2,650)


Net increase (decrease) in cash, cash equivalents and restricted cash

171,111



187,043



223,358



349,837



(297,360)


Cash, cash equivalents and restricted cash at beginning of period

572,872



385,829



516,269



394,146



1,036,987


Cash, cash equivalents and restricted cash at end of period

$

743,983



$

572,872



$

739,627



$

743,983



$

739,627






















 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA – REVENUE BY DIVISION



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Web Division

$

418,064



$

404,342



$

387,662



$

1,228,401



$

1,139,422


Media and Carrier Division

374,781



390,373



322,250



1,123,461



982,072


Total revenue

$

792,845



$

794,715



$

709,912



$

2,351,862



$

2,121,494


Revenue growth rates year-over-year:










Web Division

8

%


7

%


9

%


8

%


8

%

Media and Carrier Division

16



19



2



14



4


Total revenue

12

%


13

%


6

%


11

%


6

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):










Web Division

7

%


8

%


10

%


8

%


10

%

Media and Carrier Division

16



20



3



15



5


Total revenue

11

%


14

%


7

%


11

%


8

%

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA – REVENUE FROM CLOUD SECURITY SOLUTIONS



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Cloud Security Solutions

$

265,869



$

259,316



$

215,916



$

765,485



$

610,820


CDN and other solutions

526,976



535,399



493,996



1,586,377



1,510,674


Total revenue

$

792,845



$

794,715



$

709,912



$

2,351,862



$

2,121,494


Revenue growth rates year-over-year:










Cloud Security Solutions

23

%


27

%


28

%


25

%


29

%

CDN and other solutions

7



7



(1)



5



(1)


Total revenue

12

%


13

%


6

%


11

%


6

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):










Cloud Security Solutions

23

%


28

%


29

%


26

%


31

%

CDN and other solutions

6



8



(1)



5




Total revenue

11

%


14

%


7

%


11

%


8

%



(1)

As of January 1, 2020, Akamai reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, Akamai may reassign a customer's division from one to another.

(2)

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

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Revenue from Internet Platform Customers

$

50,618



$

50,752



$

44,156



$

146,072



$

137,501


Revenue excluding Internet Platform Customers

742,227



743,963



665,756



2,205,790



1,983,993


Total revenue

$

792,845



$

794,715



$

709,912



$

2,351,862



$

2,121,494


Revenue growth rates year-over-year:










Revenue from Internet Platform Customers

15

%


10

%


2

%


6

%


5

%

Revenue excluding Internet Platform Customers

11



13



6



11



6


Total revenue

12

%


13

%


6

%


11

%


6

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):










Revenue from Internet Platform Customers

15

%


10

%


2

%


6

%


5

%

Revenue excluding Internet Platform Customers

11



14



7



12



8


Total revenue

11

%


14

%


7

%


11

%


8

%

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

U.S.

$

437,381



$

443,668



$

413,116



$

1,309,979



$

1,248,175


International

355,464



351,047



296,796



1,041,883



873,319


Total revenue

$

792,845



$

794,715



$

709,912



$

2,351,862



$

2,121,494


Revenue growth rates year-over-year:










U.S.

6

%


6

%


%


5

%


%

International

20



22



15



19



16


Total revenue

12

%


13

%


6

%


11

%


6

%

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(1):










U.S.

6

%


6

%


%


5

%


%

International

18



24



18



21



20


Total revenue

11

%


14

%


7

%


11

%


8

%



(1)

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

 

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL OPERATING EXPENSE DATA



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

General and administrative expenses:










Payroll and related costs

$

50,159



$

49,475



$

47,892



$

148,233



$

145,248


Stock-based compensation

14,302



15,377



12,825



43,636



40,018


Depreciation and amortization

20,554



20,654



19,269



61,673



56,420


Facilities-related costs

25,099



23,898



21,413



73,669



63,478


(Benefit) provision for doubtful accounts

(1,627)



2,893



623



3,465



2,338


Acquisition-related costs

1,051



62



219



1,189



1,194


Legal settlements



275





275




License of patent









(8,855)


Professional fees and other expenses

18,827



17,075



20,975



53,295



66,326


Total general and administrative expenses

$

128,365



$

129,709



$

123,216



$

385,435



$

366,167












General and administrative expenses–functional(1):










Global functions

$

47,559



$

46,818



$

47,731



$

142,243



$

146,661


As a percentage of revenue

6

%


6

%


7

%


6

%


7

%

Infrastructure

81,365



79,677



74,643



238,262



219,302


As a percentage of revenue

10

%


10

%


11

%


10

%


10

%

Other

(559)



3,214



842



4,930



204


Total general and administrative expenses

$

128,365



$

129,709



$

123,216



$

385,435



$

366,167


As a percentage of revenue

16

%


16

%


17

%


16

%


17

%











Stock-based compensation:










Cost of revenue

$

6,384



$

6,254



$

5,555



$

18,374



$

16,917


Research and development

12,722



11,549



12,842



36,336



36,943


Sales and marketing

16,809



16,011



15,593



48,555



46,384


General and administrative

14,302



15,377



12,825



43,636



40,018


Total stock-based compensation

$

50,217



$

49,191



$

46,815



$

146,901



$

140,262




(1)

Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, allowance for doubtful accounts, the license of a patent, legal settlements and transformation costs.

 

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL DATA



Three Months Ended


Nine Months Ended

(in thousands, except end of period statistics)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Depreciation and amortization:










Network-related depreciation

$

42,991



$

38,806



$

31,840



$

118,194



$

91,402


Capitalized internal-use software development amortization

37,572



38,164



41,842



116,505



123,739


Other depreciation and amortization

20,081



20,193



18,843



60,293



55,124


Depreciation of property and equipment

100,644



97,163



92,525



294,992



270,265


Capitalized stock-based compensation amortization(1)

7,078



7,185



7,500



21,894



22,866


Capitalized interest expense amortization(1)

831



851



955



2,640



2,872


Amortization of acquired intangible assets

10,340



10,381



9,624



31,155



28,871


Total depreciation and amortization

$

118,893



$

115,580



$

110,604



$

350,681



$

324,874












Capital expenditures, excluding stock-based compensation and interest expense(2)(3):










Purchases of property and equipment

$

144,155



$

142,310



$

104,345



$

371,264



$

284,294


Capitalized internal-use software development costs

55,885



53,692



49,754



160,486



152,194


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

$

200,040



$

196,002



$

154,099



$

531,750



$

436,488












End of period statistics:










Number of employees

8,155



7,951



7,579








(1)

Amortization of capitalized stock-based compensation and interest expense in this table excludes amortization of capitalized stock-based compensation and interest expense capitalized as part of the implementation of cloud-computing arrangements. However, the amounts are included in our total amortization of capitalized stock-based compensation and interest expense that is excluded from our non-GAAP measures (see reconciliations of GAAP to non-GAAP measures).

(2)

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.

(3)

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

 

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS AND NET INCOME



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Income from operations

$

181,158



$

190,429



$

143,289



$

523,917



$

413,596


GAAP operating margin

23

%


24

%


20

%


22

%


19

%

Amortization of acquired intangible assets

10,340



10,381



9,624



31,155



28,871


Stock-based compensation

50,217



49,191



46,815



146,901



140,262


Amortization of capitalized stock-based compensation and capitalized interest expense

7,913



8,038



8,455



24,540



25,738


Restructuring charge (benefit)

21



(167)



(300)



10,439



6,879


Acquisition-related costs

1,051



62



219



1,189



1,194


Legal settlements



275





275




Transformation costs









5,527


Operating adjustments

69,542



67,780



64,813



214,499



208,471


Non-GAAP income from operations

$

250,700



$

258,209



$

208,102



$

738,416



$

622,067


Non-GAAP operating margin

32

%


32

%


29

%


31

%


29

%











Net income

$

158,623



$

161,915



$

137,890



$

443,684



$

358,935


Operating adjustments (from above)

69,542



67,780



64,813



214,499



208,471


Amortization of debt discount and issuance costs

15,747



15,677



11,133



47,057



30,761


Gain on investments









(440)


Loss from equity method investment

559



493



1,388



1,674



1,388


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

(28,689)



(19,347)



(34,631)



(68,481)



(61,389)


Non-GAAP net income

$

215,782



$

226,518



$

180,593



$

638,433



$

537,726


 

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE



Three Months Ended


Nine Months Ended

(in thousands, except per share data)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

GAAP net income per diluted share

$

0.95



$

0.98



$

0.84



$

2.69



$

2.18


Adjustments to net income:










Amortization of acquired intangible assets

0.06



0.06



0.06



0.19



0.18


Stock-based compensation

0.30



0.30



0.28



0.89



0.85


Amortization of capitalized stock-based compensation and capitalized interest expense

0.05



0.05



0.05



0.15



0.16


Restructuring charge (benefit)







0.06



0.04


Acquisition-related costs

0.01







0.01



0.01


Legal settlements










Transformation costs









0.03


Amortization of debt discount and issuance costs

0.09



0.10



0.07



0.29



0.19


Gain on investments










Loss from equity method investment





0.01



0.01



0.01


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

(0.17)



(0.12)



(0.21)



(0.42)



(0.37)


Adjustment for shares(1)

0.02



0.01





0.02




Non-GAAP net income per diluted share

$

1.31



$

1.38



$

1.10



$

3.89



$

3.26












Shares used in GAAP diluted per share calculations

166,519



164,768



164,558



164,990



164,788


Impact of benefit from note hedge transactions(1)

(1,732)



(653)





(795)




Shares used in non-GAAP diluted per share calculations(1)

164,787



164,115



164,558



164,195



164,788




(1)

Shares used in non-GAAP diluted per share calculations have been adjusted for the three and nine months ended September 30, 2020, for the benefit of Akamai's note hedge transactions. During the three months ended September 30, 2020, Akamai's average stock price was in excess of $95.10, which is the initial conversion price of Akamai's convertible senior notes due in 2025. See Use of Non-GAAP Financial Measures below for further definition.

 

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA



Three Months Ended


Nine Months Ended

(in thousands)

September 30,

2020


June 30,

2020


September 30,

2019


September 30,

2020


September 30,

2019

Net income

$

158,623



$

161,915



$

137,890



$

443,684



$

358,935


Interest income

(6,307)



(9,502)



(7,908)



(22,852)



(22,953)


Provision (benefit) for income taxes

8,801



18,671



(960)



41,764



42,718


Depreciation and amortization

100,644



97,163



92,525



294,992



270,265


Amortization of capitalized stock-based compensation and capitalized interest expense

7,913



8,038



8,455



24,540



25,738


Amortization of acquired intangible assets

10,340



10,381



9,624



31,155



28,871


Stock-based compensation

50,217



49,191



46,815



146,901



140,262


Restructuring charge (benefit)

21



(167)



(300)



10,439



6,879


Acquisition-related costs

1,051



62



219



1,189



1,194


Legal settlements



275





275




Transformation costs









5,527


Interest expense

17,324



17,249



12,127



51,778



32,689


Gain on investments









(440)


Loss from equity method investment

559



493



1,388



1,674



1,388


Other expense, net

2,158



1,603



752



7,869



1,259


Adjusted EBITDA

$

351,344



$

355,372



$

300,627



$

1,033,408



$

892,332


Adjusted EBITDA margin

44

%


45

%


42

%


44

%


42

%

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 diluted 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 comparison of financial results across accounting periods and to those of our 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 is 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 and do not reflect Akamai's core operations.
  • Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and charges associated with 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.
  • Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In August 2019, Akamai issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results 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.
  • Gains and losses on investments – Akamai has recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. 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 and ongoing operating performance.
  • Legal settlements – Akamai has incurred losses related to the settlement of legal matters. 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.
  • Transformation costs – Akamai has incurred professional services fees associated with internal transformation programs designed to improve its operating margins and that are part of a planned program intended to significantly change the manner in which business in conducted. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and are not representative of Akamai's core business operations and ongoing operating performance.
  • Income and losses from equity method investment – Akamai records income or losses on its share of earnings and losses of its equity method investment. Akamai excludes such income and losses because it lacks control over the operations of the investment and the related income and losses are not representative of its 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 losses on legal settlements; transformation costs; 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 losses on legal settlements; transformation costs; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investment; and other non-recurring or unusual items that may arise from time to time. 

Non-GAAP net income per diluted share – Non-GAAP net income divided by weighted average diluted common shares outstanding. 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 transactions entered into in connection with the issuances of $1,150 million of convertible senior notes due 2027 and 2025, respectively. 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 transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance. With respect to the convertible senior notes due in each of 2027 and 2025, unless Akamai's weighted average stock price is greater than $116.18 and $95.10, respectively, 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; gains and losses on legal settlements; transformation costs; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses on equity method investment; 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.

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 versus prior periods.

Impact of Foreign Currency Exchange Rate – 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 expected future financial performance. 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 continue to generate cash at the same level as prior years; changes in geo-political conditions that impact our customers' use of our solutions; 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; impact of the COVID-19 pandemic; 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.

Contacts:
Gina Sorice
Media Relations
Akamai Technologies
646-320-4107
gsorice@akamai.com  

Tom Barth
Investor Relations
Akamai Technologies
617-274-7130
tbarth@akamai.com

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SOURCE Akamai Technologies, Inc.

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