EX-99.1 2 exhibit991-q22016.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

FOR IMMEDIATE RELEASE

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


AKAMAI REPORTS SECOND QUARTER 2016 FINANCIAL RESULTS


•
Revenue of $572 million, up 6% year-over-year and also up 6% when adjusted for foreign exchange*
•
GAAP EPS of $0.42 per diluted share, up 14% year-over-year and up 10% when adjusted for foreign exchange*
•
Non-GAAP EPS of $0.64 per diluted share, up 12% year-over-year and up 11% when adjusted for foreign exchange*


CAMBRIDGE, Mass. – July 26, 2016 – Akamai Technologies, Inc. (NASDAQ: AKAM), the global leader in Content Delivery Network (CDN) services, today reported financial results for the second quarter ended June 30, 2016.

“The second quarter was another solid quarter for Akamai, with strong year-over-year earnings growth and cash flow generation,” said Dr. Tom Leighton, Chief Executive Officer.  “We were particularly pleased with the continued strength of our Cloud Security Solutions, which grew 42% year over year and exited the quarter at a $360 million annualized revenue run rate.”

Akamai delivered the following results for the second quarter ended June 30, 2016:

Revenue: Revenue was $572 million, a 6% increase over second quarter 2015 revenue of $541 million and also a 6% increase when adjusted for foreign exchange.*

Revenue by Solution Category:**

•
Performance and Security Solutions revenue was $327 million, up 16% year-over-year and also up 16% when adjusted for foreign exchange*
•
Cloud Security Solutions revenue, a component of Performance and Security, was $87 million, up 42% year-over-year and also up 42% when adjusted for foreign exchange*
•
Media Delivery Solutions revenue was $197 million, down 9% year-over-year and down 10% when adjusted for foreign exchange*
•
Services and Support Solutions revenue was $48 million, up 18% year-over-year and up 17% when adjusted for foreign exchange*

Revenue by Geography:

•
U.S. revenue was $395 million, down 1% year-over-year
•
International revenue was $177 million, up 25% year-over-year and up 24% when adjusted for foreign exchange*


1

Customer Revenue by Division:***

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 $288 million, down 2% year-over-year and also down 2% when adjusted for foreign exchange*
•
Web Division revenue was $271 million, up 15% year-over-year and also up 15% when adjusted for foreign exchange*
•
Enterprise and Carrier Division revenue was $12 million, up 22% year-over-year and also up 22% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $110 million, a 4% increase from second quarter 2015. GAAP operating margin for the second quarter was 19%, down a percentage point from the same period last year.

Non-GAAP income from operations* was $157 million, a 4% increase from second quarter 2015. Non-GAAP operating margin* for the second quarter was 27%, down a percentage point from the same period last year.

Net income: GAAP net income was $74 million, a 10% increase from second quarter 2015. Non-GAAP net income* was $112 million, a 10% increase from second quarter 2015.

EPS: GAAP EPS was $0.42 per diluted share, a 14% increase from second quarter 2015 and a 10% increase when adjusted for foreign exchange.* Non-GAAP EPS was $0.64 per diluted share, a 12% increase from second quarter 2015 and an 11% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA was $231 million, an 8% increase from second quarter 2015. Adjusted EBITDA margin* was 40%, consistent with the second quarter of 2015.

Other second quarter 2016 results included:
•
Cash from operations was $243 million, or 42% of revenue
•
Cash, cash equivalents and marketable securities as of June 30, 2016 was $1.6 billion
•
The Company spent $91 million to repurchase 1.7 million shares of its common stock at an average price of $52.55 per share
•
The Company had approximately 175 million shares of common stock outstanding as of June 30, 2016


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

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

***
Customer revenue by division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. Historical division revenue can be found on the Investor Relations section of Akamai.com.


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 No. 40398195. 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 by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode No. 40398195. 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.




2

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)
June 30,
2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
326,644

 
$
289,473

Marketable securities
542,062

 
460,088

Accounts receivable, net
364,401

 
380,399

Prepaid expenses and other current assets
132,477

 
123,228

Total current assets
1,365,584

 
1,253,188

Property and equipment, net
786,835

 
753,180

Marketable securities
731,232

 
774,674

Goodwill
1,150,137

 
1,150,244

Acquired intangible assets, net
142,668

 
156,095

Deferred income tax assets
2,455

 
4,700

Other assets
90,811

 
89,603

Total assets
$
4,269,722

 
$
4,181,684

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
68,249

 
$
61,982

Accrued expenses
234,013

 
216,166

Deferred revenue
67,163

 
54,154

Other current liabilities
7,117

 
138

Total current liabilities
376,542

 
332,440

Deferred revenue
3,735

 
4,163

Deferred income tax liabilities
10,248

 
12,888

Convertible senior notes
628,970

 
618,047

Other liabilities
99,754

 
93,268

Total liabilities
1,119,249

 
1,060,806

Total stockholders' equity
3,150,473

 
3,120,878

Total liabilities and stockholders' equity
$
4,269,722

 
$
4,181,684


3

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
Three Months Ended

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

March 31, 2016

June 30, 2015

June 30, 2016

June 30, 2015
Revenue
$
572,135

 
$
567,725

 
$
540,723

 
$
1,139,860

 
$
1,067,259

Costs and operating expenses:
 
 
 
 
 
 
 
 
 
Cost of revenue (1) (2)
206,323

 
194,736

 
179,910

 
401,059

 
349,204

Research and development (1)
37,690

 
40,842

 
36,693

 
78,532

 
72,521

Sales and marketing (1)
103,223

 
102,211

 
111,501

 
205,434

 
214,980

General and administrative (1) (2)
107,538

 
102,283

 
99,152

 
209,821

 
188,744

Amortization of acquired intangible assets
6,711

 
6,716

 
6,752

 
13,427

 
13,532

Restructuring charges
470

 
6,818

 
455

 
7,288

 
497

Total costs and operating expenses
461,955

 
453,606

 
434,463

 
915,561

 
839,478

Income from operations
110,180

 
114,119

 
106,260

 
224,299

 
227,781

Interest income
3,393

 
3,320

 
2,541

 
6,713

 
5,542

Interest expense
(4,639
)
 
(4,653
)
 
(4,678
)
 
(9,292
)
 
(9,254
)
Other income (expense), net
415

 
(189
)
 
(1,605
)
 
226

 
(1,906
)
Income before provision for income taxes
109,349

 
112,597

 
102,518

 
221,946

 
222,163

Provision for income taxes
35,714

 
37,739

 
35,318

 
73,453

 
77,217

Net income
$
73,635

 
$
74,858

 
$
67,200

 
$
148,493

 
$
144,946

 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.42

 
$
0.38

 
$
0.84

 
$
0.81

Diluted
$
0.42

 
$
0.42

 
$
0.37

 
$
0.84

 
$
0.80

 
 
 
 
 
 
 
 
 
 
Shares used in per share calculations:
 
 
 
 
 
 
 
 
 
Basic
175,499

 
176,403

 
178,682

 
175,951

 
178,614

Diluted
176,420

 
177,539

 
180,738

 
176,980

 
180,782



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

4

AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Cash flows from operating activities:
 
 
 
 
 
 


 
 
Net income
$
73,635

 
$
74,858

 
$
67,200

 
$
148,493

 
$
144,946

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
85,114

 
80,669

 
73,989

 
165,783

 
144,449

Stock-based compensation
34,911

 
31,741

 
32,251

 
66,652

 
61,920

Excess tax benefits from stock-based compensation
(1,497
)
 
(1,135
)
 
(9,609
)
 
(2,632
)
 
(22,737
)
Provision (benefit) for deferred income taxes
1,713

 
1,072

 
(24,580
)
 
2,785

 
(16,275
)
Amortization of debt discount and issuance costs
4,639

 
4,653

 
4,677

 
9,292

 
9,253

Other non-cash reconciling items, net
749

 
2,752

 
703

 
3,501

 
1,146

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
 
 
 
 
 
 
Accounts receivable
1,880

 
15,906

 
18,260

 
17,786

 
(14,292
)
Prepaid expenses and other current assets
(7,510
)
 
(3,481
)
 
13,839

 
(10,991
)
 
12,022

Accounts payable and accrued expenses
44,659

 
(32,377
)
 
84,376

 
12,282

 
31,673

Deferred revenue
1,473

 
10,653

 
76

 
12,126

 
7,023

Other current liabilities
95

 
6,876

 
157

 
6,971

 
199

Other non-current assets and liabilities
3,011

 
(1,949
)
 
2,684

 
1,062

 
4,425

Net cash provided by operating activities
242,872

 
190,238

 
264,023

 
433,110

 
363,752

Cash flows from investing activities:

 

 

 

 

Cash paid for acquired businesses, net of cash acquired
—

 
—

 
(106,883
)
 
—

 
(122,945
)
Purchases of property and equipment and capitalization of internal-use software development costs
(78,141
)
 
(82,340
)
 
(96,013
)
 
(160,481
)
 
(233,082
)
Purchases of short- and long-term marketable securities
(288,742
)
 
(95,843
)
 
(308,685
)
 
(384,585
)
 
(405,989
)
Proceeds from sales and maturities of short- and long-term marketable securities
227,234

 
125,109

 
222,030

 
352,343

 
529,685

Other non-current assets and liabilities
842

 
(2,354
)
 
(1,827
)
 
(1,512
)
 
(1,909
)
Net cash used in investing activities
(138,807
)
 
(55,428
)
 
(291,378
)
 
(194,235
)
 
(234,240
)
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from the issuance of common stock under stock plans
8,745

 
18,350

 
12,072

 
27,095

 
36,512

Excess tax benefits from stock-based compensation
1,497

 
1,135

 
9,609

 
2,632

 
22,737

Employee taxes paid related to net share settlement of stock-based awards
(5,914
)
 
(26,496
)
 
(8,253
)
 
(32,410
)
 
(39,354
)
Repurchases of common stock
(90,985
)
 
(108,725
)
 
(63,388
)
 
(199,710
)
 
(126,068
)
Other non-current assets and liabilities
—

 
—

 
(1,250
)
 
—

 
(1,250
)
Net cash used in financing activities
(86,657
)

(115,736
)

(51,210
)
 
(202,393
)
 
(107,423
)
Effects of exchange rate changes on cash and cash equivalents
(3,676
)
 
4,365

 
3,456

 
689

 
(3,291
)
Net increase (decrease) in cash and cash equivalents
13,732


23,439


(75,109
)

37,171


18,798

Cash and cash equivalents at beginning of period
312,912

 
289,473

 
332,557

 
289,473

 
238,650

Cash and cash equivalents at end of period
$
326,644

 
$
312,912

 
$
257,448


$
326,644


$
257,448


5

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

 
Three Months Ended
 
Six Months Ended
(in thousands, except per share data)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Income from operations
$
110,180

 
$
114,119

 
$
106,260

 
$
224,299

 
$
227,781

GAAP operating margin
19
%
 
20
%
 
20
%

20
%

21
%
Amortization of acquired intangible assets
6,711

 
6,716

 
6,752

 
13,427

 
13,532

Stock-based compensation
34,911

 
31,741

 
32,251

 
66,652

 
61,920

Amortization of capitalized stock-based compensation and capitalized interest expense
4,071

 
3,608

 
3,636

 
7,679

 
6,744

Restructuring charges
470

 
6,818

 
455

 
7,288

 
497

Acquisition-related costs (benefits)
361

 
(79
)
 
(530
)
 
282

 
(135
)
Legal matter costs
101

 
789

 
1,514

 
890

 
2,786

Operating adjustments
46,625

 
49,593

 
44,078

 
96,218

 
85,344

Non-GAAP income from operations
$
156,805

 
$
163,712

 
$
150,338


$
320,517


$
313,125

Non-GAAP operating margin
27
%
 
29
%
 
28
%

28
%

29
%
 
 
 


 


 
 
 
 
Net income
$
73,635

 
$
74,858

 
$
67,200

 
$
148,493

 
$
144,946

Operating adjustments (from above)
46,625

 
49,593

 
44,078


96,218


85,344

Amortization of debt discount and issuance costs
4,639

 
4,653

 
4,678

 
9,292

 
9,254

Loss on investments
—

 
—

 
—

 
—

 
25

Income tax-effect of above non-GAAP adjustments and certain discrete tax items
(12,832
)
 
(11,323
)
 
(13,788
)
 
(24,155
)
 
(26,225
)
Non-GAAP net income
112,067

 
117,781

 
102,168


229,848


213,344

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
74,332

 
70,345

 
63,601

 
144,677

 
124,173

Interest income
(3,393
)
 
(3,320
)
 
(2,541
)
 
(6,713
)
 
(5,542
)
Other (income) expense, net
(415
)
 
189

 
1,605

 
(226
)
 
1,881

Provision for GAAP income taxes
35,714

 
37,739

 
35,318

 
73,453

 
77,217

Income tax-effect of above non-GAAP adjustments and certain discrete tax items
12,832

 
11,323

 
13,788


24,155


26,225

Adjusted EBITDA
$
231,137

 
$
234,057

 
$
213,939


$
465,194


$
437,298

Adjusted EBITDA margin
40
%

41
%

40
%

41
%

41
%
 
 
 
 
 
 
 
 
 
 
Non-GAAP net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.64


$
0.67


$
0.57


$
1.31


$
1.19

Diluted
$
0.64


$
0.66


$
0.57


$
1.30


$
1.18

 
 
 
 
 
 
 
 
 
 
Shares used in non-GAAP per share calculations:
 
 
 
 
 
 
 
 
 
Basic
175,499

 
176,403

 
178,682

 
175,951

 
178,614

Diluted
176,420

 
177,539

 
180,738

 
176,980

 
180,782










6

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY SOLUTION CATEGORY

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Revenue by solution category(1):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
$
326,642

 
$
315,863

 
$
282,391

 
$
642,505

 
$
554,350

Media Delivery Solutions
197,077

 
205,939

 
217,151

 
403,016

 
432,016

Services and Support Solutions
48,416

 
45,923

 
41,181

 
94,339

 
80,893

Total revenue
$
572,135

 
$
567,725

 
$
540,723

 
$
1,139,860

 
$
1,067,259

Cloud Security Solutions revenue
$
86,980

 
$
80,660

 
$
61,462

 
$
167,640

 
$
116,645

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
16
 %
 
16
 %
 
14
%
 
16
 %
 
16
%
Media Delivery Solutions
(9
)%
 
(4
)
 
13

 
(7
)%
 
13

Services and Support Solutions
18
 %
 
16

 
14

 
17
 %
 
13

Total revenue
6
 %
 
8
 %
 
14
%
 
7
 %
 
15
%
Cloud Security Solutions revenue growth rates
42
 %
 
46
 %
 
41
%
 
44
 %
 
58
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Performance and Security Solutions
16
 %
 
17
 %
 
18
%
 
16
 %
 
20
%
Media Delivery Solutions
(10
)
 
(4
)
 
18

 
(7
)
 
17

Services and Support Solutions
17

 
16

 
18

 
17

 
17

Total revenue
6
 %
 
9
 %
 
18
%
 
7
 %
 
19
%
Cloud Security Solutions revenue growth rates(2)
42
 %
 
47
 %
 
45
%
 
44
 %
 
63
%

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
























7

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY DIVISION

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Customer revenue by division(1):
 
 
 
 
 
 
 
 
 
Media Division
$
288,432

 
$
291,933

 
$
294,551

 
$
580,365

 
$
588,517

Web Division
271,327

 
263,743

 
236,017

 
535,070

 
460,257

Enterprise and Carrier Division
12,376

 
12,049

 
10,155

 
24,425

 
18,485

Total revenue
$
572,135

 
$
567,725

 
$
540,723

 
$
1,139,860

 
$
1,067,259

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
Media Division
(2
)%
 
(1
)%
 
10
%
 
(1
)%
 
12
%
Web Division
15

 
18

 
18

 
16

 
18

Enterprise and Carrier Division
22

 
45

 
27

 
32

 
29

Total revenue
6
 %
 
8
 %
 
14
%
 
7
 %
 
15
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
Media Division
(2
)%
 
—
 %
 
14
%
 
(1
)%
 
16
%
Web Division
15

 
18

 
23

 
16

 
22

Enterprise and Carrier Division
22

 
44

 
28

 
32

 
30

Total revenue
6
 %
 
9
 %
 
18
%
 
7
 %
 
19
%

AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA BY GEOGRAPHY

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Revenue by geography:
 
 
 
 
 
 
 
 
 
U.S.
$
395,085

 
$
397,283

 
$
399,103

 
$
792,368

 
$
788,076

International
177,050

 
170,442

 
141,620

 
347,492

 
279,183

Total revenue
$
572,135

 
$
567,725

 
$
540,723

 
$
1,139,860

 
$
1,067,259

 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year:
 
 
 
 
 
 
 
 
 
U.S.
(1
)%
 
2
%
 
16
%
 
1
%
 
18
%
International
25

 
24

 
7

 
24

 
7

Total revenue
6
 %
 
8
%
 
14
%
 
7
%
 
15
%
 
 
 
 
 
 
 
 
 
 
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
 
 
 
 
 
 
 
 
 
U.S.
(1
)%
 
2
%
 
16
%
 
1
%
 
18
%
International
24

 
27

 
22

 
25

 
21

Total revenue
6
 %
 
9
%
 
18
%
 
7
%
 
19
%

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




8

AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL FINANCIAL DATA

 
Three Months Ended
 
Six Months Ended
(in thousands, except end of period statistics)
June 30, 2016
 
March 31, 2016
 
June 30, 2015
 
June 30, 2016
 
June 30, 2015
Stock-based compensation:
 
 
 
 
 
 
 
 
 
Cost of revenue
$
4,553

 
$
3,970

 
$
3,502

 
$
8,523

 
$
6,665

Research and development
6,752

 
6,438

 
6,009

 
13,190

 
11,375

Sales and marketing
13,259

 
12,352

 
12,847

 
25,611

 
25,830

General and administrative
10,347

 
8,981

 
9,893

 
19,328

 
18,050

Total stock-based compensation
$
34,911

 
$
31,741

 
$
32,251


$
66,652


$
61,920

 
 
 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
 
 
Network-related depreciation
$
58,615

 
$
55,174

 
$
50,145

 
$
113,789

 
$
99,133

Other depreciation and amortization
15,717

 
15,171

 
13,456

 
30,888

 
25,040

Depreciation of property and equipment
74,332

 
70,345

 
63,601


144,677


124,173

Capitalized stock-based compensation amortization
3,628

 
3,257

 
3,435

 
6,885

 
6,387

Capitalized interest expense amortization
443

 
351

 
201

 
794

 
357

Amortization of acquired intangible assets
6,711

 
6,716

 
6,752

 
13,427

 
13,532

Total depreciation and amortization
$
85,114

 
$
80,669

 
$
73,989

 
$
165,783

 
$
144,449

 
 
 
 
 
 
 
 
 
 
Capital expenditures(1)(2):
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
$
50,726

 
$
50,067

 
$
76,492

 
$
100,793

 
$
165,621

Capitalized internal-use software development costs
36,288

 
35,172

 
30,835

 
71,460

 
64,818

Capitalized stock-based compensation
6,209

 
5,203

 
4,471

 
11,412

 
8,615

Capitalized interest expense
868

 
785

 
619

 
1,653

 
1,294

Total capital expenditures
$
94,091

 
$
91,227

 
$
112,417


$
185,318


$
240,348

 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash, cash equivalents and marketable securities
$
76,706

 
$
(1,003
)
 
$
9,816

 
$
75,703

 
$
(103,329
)
 
 
 
 
 
 
 
 
 
 
End of period statistics:
 
 
 
 
 
 
 
 
 
Number of employees
6,263

 
6,119

 
5,733

 
 
 
 
Number of deployed servers
219,595

 
216,435

 
189,136

 
 
 
 

(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


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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 its business, as they exclude expenses and gains that may be infrequent, unusual in nature or not reflective of Akamai's ongoing operating results. 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 facilitate comparing financial results across accounting periods and to those of peer companies.

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.


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•
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 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 release 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.

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

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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 Akamai's foreign subsidiaries weaken, 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 financial results and evaluation of performance in comparison to prior periods. The information presented is calculated by translating current period results using the same average foreign currency exchange rates per month 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. 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.


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