Akamai Reports Third Quarter 2002 Results


Contacts:
 
Jeff Young
Media Relations
Akamai Technologies
(617) 444 - 3913
jyoung@akamai.com
--or-- J.C. Raby
Investor Relations
Akamai Technologies
(617) 444 - 2555
jraby@akamai.com


 

CAMBRIDGE, Mass. - October 16, 2002 - Akamai Technologies, Inc. (NASDAQ: AKAM), a leading provider of products and services that enable enterprises and government agencies to extend and control their e-business infrastructure, today reported financial results for the third quarter ended September 30, 2002. Revenue for the third quarter 2002 was $35.4 million.

"In the third quarter of 2002, we continued to build upon our EdgeSuite success and took proactive steps to accelerate our drive to profitability, which we believe will position the Company for long-term success," said George Conrades, chairman and CEO of Akamai. "We are pleased with the steady growth in the number of major enterprise customers validating our solutions in spite of declining IT expenditures."

This morning, Akamai implemented a 29 percent reduction in its global workforce, expecting to end the year with 550 employees, while realigning its go-to-market and service offerings to focus on its most productive enterprise opportunities. "By prioritizing our marketing and development efforts on EdgeSuite, including Edge Computing, and focusing on global enterprises, government, and only the top Web properties, we are positioning the Company squarely in the sweet spot of our technology advantage and customer opportunity," said Conrades.

Net loss, in accordance with United States generally accepted accounting principles (U.S. GAAP), for third quarter 2002 was $47.5 million, or $0.42 per share, compared to a net loss for the second quarter 2002 of $42.2 million, or $0.38 per share, and for the third quarter 2001 a net loss of $55.4 million, or $0.53 per share.

Net loss for the third quarter 2002 before interest, taxes, depreciation, amortization and other one-time and non-cash charges (EBITDA) was $6.7 million, as compared to the second quarter 2002 EBITDA loss of $8.3 million, down 60 percent from the third quarter 2001 EBITDA loss of $16.6 million. EBITDA is calculated as gross profit less research and development expenses, sales and marketing expenses, and general and administrative expenses.

Normalized net loss1 for third quarter 2002 totaled $31.5 million, or $0.28 per share, in line with First Call's consensus summary net loss of $0.28 per share. Normalized net loss is calculated as EBITDA less net interest expense, provision for income taxes and depreciation. Second quarter 2002 normalized net loss was $32.8 million, or $0.29 per share, and third quarter 2001 normalized net loss was $38.2 million, or $0.37 per share.

Third Quarter 2002 Highlights:

Customers
During the quarter, Akamai added 32 net new EdgeSuite customers, including adidas-Salomon AG, America Online, Inc., The Bombay Company, Inc., Federal Express, FOXSports.com, Rational Software, Washington Post Newsweek Interactive, and Yum! Brands, Inc. (the parent company of A&W All-American Food, KFC, Long John Silver's, Pizza Hut and Taco Bell). The third quarter also generated several key customer renewals, including Symantec Corp. and Yahoo! Resellers accounted for approximately 22 percent of third quarter revenue, which is comparable to the level of sales through channel partners in the prior two quarters.

"Revenue from EdgeSuite was 39 percent of total revenue for the quarter, up from 36 percent in the second quarter," said Conrades. "As we expand our relationships with Fortune 1,000 companies and federal government agencies, the quality of our revenue and customer base has significantly improved."

Further solidifying the Company's traction in the government sector, Akamai announced during the third quarter that it has been awarded a five-year schedule contract by the U.S. General Services Administration (GSA). As a result, Akamai's services are now included among the range of professional information technology offerings provided by the GSA to federal agencies for facilitating e-government programs.

Financials
"We exited the quarter with $142 million in cash and marketable securities, and our business plan remains fully funded," said Timothy Weller, chief financial officer of Akamai. "We have consistently maintained our solid balance sheet in a difficult economy through a shift to higher margin services, across-the-board cost reductions, and a strong record of collections from our customers with days sales outstanding at 43 days for the second consecutive quarter."

At September 30, 2002, the Company had approximately $142 million of cash, cash equivalents, and short-term and long-term marketable securities as compared to $160 million at June 30, 2002.

Capital expenditures for the quarter were $7.0 million, which included $4.4 million of one-time expenditures to move Akamai's headquarters into 8 Cambridge Center. This move is expected to produce $9 million dollars in annual lease savings.

At September 30, 2002, the Company had 116.6 million shares of common stock outstanding. At September 30, 2002, common stock outstanding and unexercised stock options and warrants totaled 134.9 million shares.


                       Akamai Technologies, Inc.
                 Condensed Consolidated Balance Sheets
                     (dollar amounts in thousands)
                              (unaudited)
                                                   Sept. 30, Dec. 31,
                                                     2002      2001
                                                  --------- ---------
                      Assets
Current assets:
Cash and cash equivalents                          $123,494   $78,774
Marketable securities                                13,416   113,906
Accounts receivable, net                             16,059    20,067
Prepaid expenses and other current assets             9,406    15,252
                                                   --------- ---------
Total current assets                                162,375   227,999
Property and equipment, net                          81,273   132,237
Goodwill and other intangible assets, net             9,641    19,351
Marketable securities                                 5,072    17,831
Other assets                                          8,023    24,060
                                                   --------- ---------
Total assets                                       $266,384  $421,478
                                                   ========= =========

  Liabilities and stockholders' (deficit) equity
Current liabilities:
Accounts payable and accrued expenses               $54,571   $68,312
Other current liabilities                            17,632    22,986
                                                   --------- ---------
Total current liabilities                            72,203    91,298
Other liabilities                                     6,992    12,946
Convertible notes                                   300,000   300,000
                                                   --------- ---------
Total liabilities                                   379,195   404,244
Stockholders' (deficit) equity                     (112,811)   17,234
                                                   --------- ---------
Total liabilities and stockholders' (deficit)
 equity                                            $266,384  $421,478
                                                   ========= =========


                       Akamai Technologies, Inc.
           Condensed Consolidated Statements of Operations
         (dollar amounts in thousands, except per share data)

---------------------------------Three Months Ended-------------------
                  Sept. 30, June 30,   March 31,  Dec. 31,  Sept. 30,
                    2002      2002       2002       2001      2001
                  --------- --------  ---------   --------  ---------

Revenue         $  35,375  $  36,322  $  37,927  $  37,110  $  42,754
Cost of service
 (before network-
 related
 depreciation)      9,580     10,946     11,242     13,977     15,869
                ---------  ---------  ---------  ---------  ---------
Gross profit       25,795     25,376     26,685     23,133     26,885
                ---------  ---------  ---------  ---------  ---------
Gross margin %       72.9%      69.9%      70.4%      62.3%      62.9%

Operating expenses:
Research and
 development        4,820      4,624      4,869      6,575      7,627
Sales and
 marketing         13,861     13,837     13,610     13,355     17,432
General and
 administrative    13,772     15,215     13,966     17,517     18,396
Amortization of
 CNN advertising    1,771      1,246      1,246      1,410      1,818
Amortization of
 goodwill and other
 intangible assets  2,231      2,231      5,237      4,034      7,440
Depreciation       20,735     20,602     20,010     19,912     19,116
Equity-related
 compensation       4,616      4,646      6,371      7,188      8,717
Restructuring
 charge             6,138        602     12,409     14,302       --
                ---------  ---------  ---------  ---------  ---------
Total operating
 expenses          67,944     63,003     77,718     84,293     80,546
                ---------  ---------  ---------  ---------  ---------
Operating loss    (42,149)   (37,627)   (51,033)   (61,160)   (53,661)

Interest
 expense, net      (3,950)    (3,733)    (3,574)    (3,336)    (2,210)
Other income         --         --         --         --        1,002
Loss on
 investments, net  (1,311)      (759)    (4,328)         8       (213)
                ---------  ---------  ---------  ---------  ---------
Loss before
 provision for
 income taxes     (47,410)   (42,119)   (58,935)   (64,488)   (55,082)
Provision for
 income taxes         123        123        123        277        277
                ---------  ---------  ---------  ---------  ---------
Net loss        $ (47,533) $ (42,242) $ (59,058) $ (64,765) $ (55,359)
                =========  =========  =========  =========  =========

Basic and diluted
 net loss
 per share      $   (0.42) $   (0.38) $   (0.54) $   (0.60) $   (0.53)
Weighted average
 common shares
 outstanding      114,251    112,253    109,693    108,357    104,166


Supplemental financial
 data (dollars and
 shares in thousands):

Normalized net
 loss  (A)      $ (31,466) $ (32,758) $ (29,467) $ (37,839) $ (38,173)
Normalized
 basic and
 diluted net
 loss per share $   (0.28) $   (0.29) $   (0.27) $   (0.35) $   (0.37)

EBITDA  (B)     $  (6,658) $  (8,300) $  (5,760) $ (14,314) $ (16,570)

Recurring free
 cash flow (C)  $ (17,563) $ (15,698) $ (12,121) $ (24,818) $ (33,523)

Network-related
 depreciation   $  11,168  $  11,687  $  11,807  $  12,098  $  10,991
Other
 depreciation   $   9,567  $   8,915  $   8,203  $   7,814  $   8,125

Capital
 expenditures   $   6,955  $   3,665  $   2,787  $   7,168  $  14,743

End of period
 statistics:
EdgeSuite customers   243        211        185        152        100
Number of customers
 under recurring
 contract             975      1,034      1,055      1,078      1,096
Number of employees   789        807        822        841      1,111
Number of servers  12,942     12,976     12,674     13,522     13,036
Common stock
 outstanding      116,642    116,397    115,723    115,099    115,281
Common stock
 outstanding and
 unexercised
 options and
 warrants         134,876    133,377    130,594    128,926    126,090

End of period
 ratios:
Annualized average
 revenue per
 employee       $   177.3  $   178.4  $   182.5  $   152.1  $   152.7
Cost of service as
 a % of revenue      27.1%      30.1%      29.6%      37.7%      37.1%
Research and
 development as
 a % of revenue      13.6%      12.7%      12.8%      17.7%      17.8%
Sales and marketing
 as a % of revenue   39.2%      38.1%      35.9%      36.0%      40.8%
General and
 administrative
 as a % of revenue   38.9%      41.9%      36.8%      47.2%      43.0%
Capital
 expenditures as
 a % of revenue      19.7%      10.1%       7.3%      19.3%      34.5%
Days sales
 outstanding of
 accounts receivable   43         43         45         49         48


(A) Normalized net loss (net loss before amortization and other
    one-time and non- cash charges) is calculated as EBITDA less net
    interest expense, provision for income taxes and depreciation. See
    Supplemental Financial Information for reconciliation to U.S. GAAP
    net loss.

(B) EBITDA (earnings before interest, taxes, depreciation,
    amortization and other one-time and non-cash charges) is
    calculated as gross profit less research and development, sales
    and marketing and general and administrative expenses. See
    Supplemental Financial Information for reconciliation to U.S. GAAP
    net loss.

(C) Recurring free cash flow is calculated as EBITDA less capital
    expenditures less net interest expense. See Supplemental Financial
    Information for reconciliation to U.S. GAAP net loss.


                      Akamai Technologies, Inc.
                  Supplemental Financial Information

Reconciliation from U.S. GAAP to Normalized net loss, EBITDA and
Recurring free cash flow

-----------------------------------Three Months Ended-----------------
                     Sept. 30, June 30,  March 31, Dec. 31, Sept. 30,
                       2002     2002       2002      2001     2001
                     --------- --------  --------- -------- ---------
Net loss in accordance
 with U.S. GAAP     $(47,533) $(42,242) $(59,058) $(64,765) $(55,359)
Adjustments to
 reconcile net loss to
 Normalized net loss,
 EBITDA and Recurring
 free cash flow:
Amortization of
 goodwill,
 intangibles
 and CNN
 advertising           4,002     3,477     6,483     5,444     9,258
Equity-related
 compensation          4,616     4,646     6,371     7,188     8,717
Restructuring
 charge                6,138       602    12,409    14,302         -
Loss on
 investments, net      1,311       759     4,328        (8)      213
Other income               -         -         -         -    (1,002)
                    --------- --------- --------- --------- ---------
(A) Normalized
 net loss            (31,466)  (32,758)  (29,467)  (37,839)  (38,173)

Interest
 expense , net         3,950     3,733     3,574     3,336     2,210
Provision for
 income taxes            123       123       123       277       277
Depreciation          20,735    20,602    20,010    19,912    19,116
                    --------- --------- --------- --------- ---------
(B) EBITDA            (6,658)   (8,300)   (5,760)  (14,314)  (16,570)

Interest
 expense, net         (3,950)   (3,733)   (3,574)   (3,336)   (2,210)
Capital
 expenditures         (6,955)   (3,665)   (2,787)   (7,168)  (14,743)
                    --------- --------- --------- --------- ---------
(C) Recurring free
    cash flow       $(17,563) $(15,698) $(12,121) $(24,818) $(33,523)
                    ========= ========= ========= ========= =========


Network
In the third quarter, Akamai continued to optimize its server network around the world, including an enhanced deployment with America Online. Akamai has 12,942 servers located in 1,105 networks in 66 countries.

Management Change
Akamai also announced today that Timothy Weller has decided to leave the Company by the end of the year. A search for his replacement is underway. "We want to thank Tim for his many contributions to Akamai's success," Conrades said. "We have been privileged to have someone with his high intellect and integrity on our team for three years, and we appreciate that he will remain with the Company through an orderly transition process to bring in a new CFO."

Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 888-689-4521 (or 1+ 706-645-9202 for international calls). A live Webcast of the call can be accessed at www.akamai.com. In addition, a replay of the call will be available for one week following the conference through the Akamai Website or by calling 800-642-1687 (or 1+ 706-645-9291 for international calls) and using conference ID No. 5764046.

About Akamai
Akamai provides products and services that enable our customers to extend and control their e-business infrastructure. Our globally distributed computing platform enables the secure delivery of networked information and applications, improving cost, quality and time to market. With a computing platform comprising more than 12,900 servers in more than 1,100 networks in 66 countries, Akamai ensures the highest levels of availability, reliability, and performance. Headquartered in Cambridge, Massachusetts, Akamai provides products and services, matched with world-class customer care, to hundreds of successful enterprises, government entities, and leading Web businesses worldwide. For more information, visit www.akamai.com.

1EBITDA and normalized net loss are not recognized measures for financial statement presentation under U.S. GAAP. Non-U.S. GAAP earnings measures do not have standardized definitions and are therefore unlikely to be comparable to similar measures presented by other reporting companies. EBITDA and normalized net loss are provided to assist readers in evaluating Akamai's operating performance before certain non-cash, non-operating and one-time expenses. Readers are encouraged to consider Akamai's U.S. GAAP results along with these non-U.S. GAAP earnings measures.

Akamai Statement Under the Private Securities Litigation Reform Act
The release contains information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. 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, general economic conditions and those specific to the Internet and related industries, unexpected increases in Akamai's use of funds, the dependence on Akamai's Internet content delivery service, outsourced e-business infrastructure services and other technology products, lack of market acceptance of our services, including EdgeSuite, a failure by us to successfully enter into any license, technology development or other technology partnership agreement within the time periods expected by us or at all, the sometimes lengthy and unpredictable amount of time required to engage a customer, failure to achieve planned savings in a timely fashion or at all, failure of our sales force to achieve productivity targets in a timely fashion or at all, loss of customers, the complexity of our services and the networks on which our services are deployed, and human error in operating the same, a failure of Akamai's network infrastructure, failure to collect amounts owed by customers, our ability to service and repay our outstanding debt, changes in regulations or laws relating to privacy or other aspects of the Internet 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, any forward-looking statements represent our estimates only as of today and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

  • Third quarter revenues, EBITDA1 loss and capital expenditures in line with guidance
  • Third quarter EBITDA loss narrows to $6.7 million, from $8.3 million in prior quarter
  • Total EdgeSuiteSM customers increased to 243
  • Company implements restructuring to accelerate profitability targets
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