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Akamai Technologies, Inc.$77.69($1.45)(1.83%)

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 Akamai Reports Fourth Quarter 2018 And Full-Year 2018 Financial Results
   Tuesday, February 12, 2019 4:03:00 PM ET

CAMBRIDGE, Mass., Feb. 12, 2019 /PRNewswire/ -- Akamai Technologies, Inc. (NASDAQ: AKAM), the world's largest and most trusted cloud delivery platform, today reported financial results for the fourth quarter and full-year ended December 31, 2018.

(PRNewsfoto/Akamai Technologies, Inc.)

"We were very pleased with our strong finish to the year. Both revenue and earnings exceeded our expectations due to the very rapid growth of our cloud security business, robust seasonal traffic and our continued focus on operational excellence," said Dr. Tom Leighton, CEO of Akamai. "As a result, we achieved our fifth consecutive quarter of non-GAAP operating margin improvement, and we are well on our way to achieving our 30% margin goal in 2020, while continuing to invest in innovation and new products to drive future growth."



Akamai delivered the following results for the fourth quarter and full-year ended December 31, 2018:

Revenue: Revenue for the fourth quarter was $713 million, an 8% increase over fourth quarter 2017 revenue of $658 million and a 10% increase when adjusted for foreign exchange.* Total revenue for 2018 was $2.714 billion compared to $2.489 billion for 2017, up 9% year-over-year and when adjusted for foreign exchange.*

Revenue by Division(1):

  • Web Division revenue for the fourth quarter was $385 million, up 9% year-over-year and up 10% when adjusted for foreign exchange.* Web Division revenue for 2018 was $1.446 billion, up 11% year-over-year and up 10% when adjusted for foreign exchange.*
  • Media and Carrier Division revenue for the fourth quarter was $328 million, up 8% year-over-year and up 9% when adjusted for foreign exchange.* Media and Carrier Division revenue for 2018 was $1.268 billion, up 7% year-over-year and when adjusted for foreign exchange.*

Revenue from Cloud Security Solutions(2):

  • Cloud Security Solutions revenue for the fourth quarter was $185 million, up 36% year-over-year and up 38% when adjusted for foreign exchange.* Cloud Security Solutions revenue for 2018 was $658 million, up 35% year-over-year and when adjusted for foreign exchange.*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers for the fourth quarter was $43 million, down 14% year-over-year and when adjusted for foreign exchange.* Internet Platform Customers revenue for 2018 was $175 million, down 14%  year-over-year and when adjusted for foreign exchange.*
  • Revenue excluding Internet Platform Customers for the fourth quarter was $670 million, up 10% year-over-year and up 11% when adjusted for foreign exchange.* Revenue excluding Internet Platform Customers for 2018 was $2.540 billion, up 11% year-over-year and when adjusted for foreign exchange.*

Revenue by Geography:

  • U.S. revenue for the fourth quarter was $434 million, up 2% year-over-year. U.S. revenue for 2018 was $1.683 billion, up 3% year-over-year.
  • International revenue for the fourth quarter was $279 million, up 20% year-over-year and up 23% when adjusted for foreign exchange.* International revenue for 2018 was $1.031 billion, up 21% year-over-year and up 20% when adjusted for foreign exchange.*

Fourth quarter 2017 items: Fourth quarter year-over-year growth rates for GAAP income from operations, GAAP net income and GAAP EPS in the paragraphs below were impacted by two items recognized in the fourth quarter of 2017: a $52 million restructuring charge and a $16 million charge due to the release of an indemnification asset related to a 2012 acquisition.

Income from operations: GAAP income from operations for the fourth quarter was $120 million, a 275% increase from fourth quarter 2017 income from operations of $32 million. GAAP operating margin for the fourth quarter was 17%, up 12 percentage points from the same period last year. GAAP income from operations for 2018 was $362 million, a 15% increase from the prior year's GAAP income from operations of $314 million. Full-year GAAP operating margin was 13%, consistent year-over-year.

Non-GAAP income from operations* for the fourth quarter was $201 million, a 26% increase from fourth quarter 2017 non-GAAP income from operations of $159 million. Non-GAAP operating margin* for the fourth quarter was 28% up 4 percentage points from the same period last year. Non-GAAP income from operations* for 2018 was $720 million, an 18% increase from the prior year's non-GAAP income from operations of $608 million. Full year non-GAAP operating margin* was 27%, up 3 percentage points year-over-year.

Net income: GAAP net income for the fourth quarter was $94 million, a 242% increase from fourth quarter 2017 GAAP net income of $28 million. GAAP net income for 2018 was $298 million, a 34% increase from the prior year's GAAP net income of $223 million.

Non-GAAP net income* for the fourth quarter was $176 million, a 46% increase from fourth quarter 2017 non-GAAP net income of $121 million. Non-GAAP net income* for 2018 was $612 million, a 36% increase from the prior year's non-GAAP net income of $452 million.

EPS: GAAP EPS for the fourth quarter was $0.57 per diluted share, a 256% increase from fourth quarter 2017 GAAP EPS of $0.16 and a 273% increase when adjusted for foreign exchange.* GAAP EPS for 2018 was $1.76 per diluted share, a 36% increase from prior year's GAAP EPS of $1.29 per diluted share and a 36% increase when adjusted for foreign exchange.*

Non-GAAP EPS* for the fourth quarter was $1.07 per diluted share, a 51% increase from fourth quarter 2017 non-GAAP EPS of $0.71 and a 52% increase when adjusted for foreign exchange.* Non-GAAP EPS* for 2018 was $3.62 per diluted share, a 38% increase from prior year's non-GAAP EPS of $2.62 per diluted share and a 37% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA* for the fourth quarter was $301 million, a 23% increase from fourth quarter 2017 Adjusted EBITDA of $245 million. Adjusted EBITDA margin* for the fourth quarter was 42%, up 5 percentage points from the same period last year. Adjusted EBITDA* for 2018 was $1.092 billion, an 18% increase from the prior year's Adjusted EBITDA of $929 million. Adjusted EBITDA margin* was 40%, up 3 percentage points from the same period last year.

Supplemental cash information: Cash from operations for the quarter was $286 million, or 40% of revenue. Cash from operations for 2018 was $1.008 billion, or 37% of revenue. Cash, cash equivalents and marketable securities was $2.1 billion as of December 31, 2018.

Share repurchases: The Company spent $124 million in the fourth quarter to repurchase 1.9 million shares of its common stock at an average price of $67.05 per share. For the full-year, the Company spent $750 million to repurchase 10.2 million shares of its common stock at an average price of $73.54 per share. The Company had 163 million shares of common stock outstanding as of December 31, 2018.

Adoption of new revenue recognition standard: Prior period results have been revised for the adoption of the new revenue recognition standard.  Under this standard, the way the Company recognizes revenue from some customers changed, primarily impacting the timing of recognizing revenue from a small number of licensed software customers.  The way Akamai recognizes revenue for its core Web and Media products is substantially unchanged.  Akamai will also begin capitalizing certain commission and incentive payments.  The revisions resulting from the new standard did not have a material impact on Akamai's annual revenue or results of operations, but did cause quarter-to-quarter fluctuations.  For more information, see the posted revisions to the consolidated statements of income and other key disaggregated revenue amounts in the Investor Relations section of Akamai's website at www.akamai.com .







Leadership Transition
Akamai also announced today a planned transition in leadership within the Company's finance organization. Ed McGowan, Senior Vice President of Finance, will succeed Jim Benson as Executive Vice President and Chief Financial Officer, effective March 1, 2019.  After nine years at Akamai (and seven as Chief Financial Officer), Benson has decided to retire from Akamai to pursue his next set of challenges.  He will serve as an Executive Advisor through an extended transition period.  McGowan is an 18-year Akamai veteran who began his career at the Company in Finance and Sales Operations and then held executive roles in Corporate Development and Global Media and Carrier Sales.

"I am delighted to announce Ed's promotion to Executive Vice President and Chief Financial Officer at Akamai," said Leighton. "Ed is an accomplished finance executive with broad knowledge of our business, our customers and the industry. Having worked closely with Ed for many years, I look forward to benefiting from his experience and insights as we continue to deliver profitable growth for our shareholders."

"And on behalf of our Board of Directors and Akamai's entire team, I want to thank Jim for his leadership, strategic advice and immeasurable contributions over nearly a decade at the Company," added Leighton. "During his seven year tenure as Chief Financial Officer, he played a key role as Akamai more than doubled revenue to $2.7 billion and built a world class finance organization that has helped us drive strong earnings growth for shareholders.  Jim has been a great business partner to me and our Board over the last nine years and his contributions to Akamai will be remembered for years to come."

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 3242748. 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 3242748. 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.

 






























































































 

 





































































































































































































































 

 

































































































































































































































 

 























































































































































 

 



















































































































































































 

 




















































































































































































 

 


























































































































































































































































 

 






































































































































































 

 






















































































































































































 

 



















































































































































 

 































































































































































 

Use of Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.

The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned "Reconciliation of GAAP to Non-GAAP Financial Measures" can be found on the Investor Relations section of Akamai's website.

The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:

  • Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and are unique to each acquisition; therefore, Akamai excludes amortization of acquired intangible assets from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.

  • Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai's current financial results to previous and future periods difficult to interpret; therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to peer companies.

  • Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions 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 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.

  • Amortization of debt discount and issuance costs and amortization of capitalized interest expense – 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 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 and stockholder matter costs – Akamai has incurred losses related to the settlement of legal matters, costs from professional service providers related to a non-routine stockholder matter and costs with respect to its internal U.S. Foreign Corrupt Practices Act ("FCPA") investigation. 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.

  • Endowment of Akamai Foundation – During the second quarter of 2018, Akamai incurred a charge to endow the Akamai Foundation. Akamai believes excluding these amounts from non-GAAP financial measures is useful to investors as this one-time expense is not representative of its 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 tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. Akamai believes that applying the non GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

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

Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; 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; benefit from adoption of software development activities; gains and other activity related to divestiture of a business; gains and losses on legal settlements; costs from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; transformation costs; 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 $1,150 million of convertible senior notes due 2025 and $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. With respect to the convertible senior notes due 2025, unless and until Akamai's weighted average stock price is greater than $95.10, the intial conversion price, and with respect to the convertible senior notes due 2019, 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 from professional service providers related to a non-routine stockholder matter; costs incurred related to the establishment of an endowment to the Akamai Foundation; costs incurred with respect to Akamai's internal FCPA investigation; transformation costs; foreign exchange gains and losses; loss on early extinguishment of debt; interest expense; 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.

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

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

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

Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements about expected revenue growth and margin improvement. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue and manage our expenses as planned; 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; competitive factors; financial impact of completed and potential future acquisitions; 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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SOURCE Akamai Technologies, Inc.



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