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Akamai Reports Record Revenue and Profits for Third Quarter 2005
Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and business processes online, today reported financial results for the third quarter ended September 30, 2005. Revenue for the third quarter 2005 was $75.7 million, a 17 percent increase over second quarter 2005 revenue of $64.6 million, and a 42 percent increase over third quarter 2004 revenue of $53.3 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2005 was $272.3 million, or $1.71 per diluted share. The Company's GAAP net income included a benefit of $255.3 million, or approximately $1.59 per diluted share, primarily related to the recognition of the Company's net operating loss carryforward as a result of the release of a tax valuation allowance. The Company previously had discussed its expectation that the tax valuation allowance would be released in the second half of 2005. The Company has concluded, pursuant to Statement of Financial Accounting Standards No. 109, that the valuation allowance should be released primarily as a result of achieving sustained profitability.
Normalized net income* was $22.0 million, or $0.14 per diluted share, in the third quarter of 2005, a 29 percent increase over second quarter 2005 normalized net income of $17.1 million, or $0.12 per diluted share, and an 80 percent improvement over 2004 third quarter normalized earnings of $12.2 million, or $0.09 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
Adjusted EBITDA* for the third quarter of 2005 of $27.7 million represented an increase of 55 percent year-over-year, and 22 percent over the prior quarter. Adjusted EBITDA as a percentage of revenue was 37 percent, up from 34 percent a year ago, and 35 percent in the prior quarter. (*See Use of Non-GAAP Financial Measures below for definitions.)
"We're very pleased with our third quarter results," said Paul Sagan, president and CEO of Akamai. "Many of our enterprise customers have continued to increase their use of the Internet and Akamai brings improved Internet performance and reliability to their critical business processes."
Cash from operations was $19.5 million in the third quarter, as compared to second quarter 2005 cash from operations of $16.9 million. During the quarter, the Company redeemed the remaining $56.6 million of its outstanding 5.5% convertible debt. On a year-to-date basis, cash from operations was $55.1 million, as compared to $35.7 million in the first nine months of 2004.
At September 30, 2005, the Company had approximately 139.7 million shares of common stock outstanding.
The number of customers under long-term services contracts at the end of the third quarter increased by 94 to a record 1,830, a 5 percent increase over second quarter 2005, and a 45 percent increase year-over-year.
"Strong growth in our customer base reflects increasing trust in Akamai to accelerate the on-line delivery of mission critical content and Web-based applications by businesses and government agencies," Sagan said.
Sales through resellers and sales outside the United States accounted for 24 percent and 20 percent, respectively, of revenue for the third quarter of 2005.
Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-888-689-4521 (or 1-706-645-9202 for international calls). 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 through the Akamai Website or by calling 1-800-642-1687 (or 1-706-645-9291 for international calls) and using conference ID No. 9875106.
Akamai® is the leading global service provider for accelerating content and business processes online. More than 1,800 organizations have formed trusted relationships with Akamai, improving their revenue and reducing costs by maximizing the performance of their online businesses. Leveraging the Akamai EdgePlatform, these organizations gain business advantage today, and have the foundation for the emerging Web solutions of tomorrow. Akamai is "The Trusted Choice for Online Business." For more information, visit www.akamai.com.
* Includes depreciation (see supplemental tables for figures)
* 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 has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Recent legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors.
Akamai defines "Adjusted EBITDA" as net income, before interest, taxes, depreciation and amortization of tangible and intangible assets, equity-related compensation, certain gains and losses on equity investments, foreign exchange gains and losses, release of the deferred tax asset valuation allowance and loss on early extinguishment of debt.
Adjusted EBITDA eliminates items that are either not part of the Company's core operations, such as investment gains and losses, foreign exchange gains and losses, early debt extinguishment and net interest expense, or do not require a cash outlay, such as equity-related compensation and impairment of intangible assets. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the Company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historic cost incurred to build out the Company's deployed network, and may not be indicative of current or future capital expenditures. Because Adjusted EBITDA eliminates these items, Akamai considers this financial measure to be an important indicator of the Company's operational strength and performance of its business and a good measure of the Company's historical operating trend.
Akamai defines "Adjusted EBITDA margin" as a percentage of adjusted EBITDA over revenue. Akamai considers Adjusted EBITDA margin to be an indicator of the Company's operating trend and performance of its business in relation to its revenue growth.
Akamai defines "capital expenditures" or "capex" as purchases of property and equipment and capitalization of internal-use software development costs. Capital expenditures or capex are disclosed in Akamai's condensed consolidated statement of cash flows in the Company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
Akamai defines "normalized net income" as net income before amortization of intangible assets, equity-related compensation, certain gains and losses on equity investments, release of the deferred tax asset valuation allowance and loss on early extinguishment of debt. Akamai considers normalized net income to be another important indicator of the overall performance of the Company because it eliminates the effects of events that are either not part of the Company's core operations or are non-cash.
Adjusted EBITDA and normalized net income should be considered in addition to, not as a substitute for, the Company's operating income and net income, as well as other measures of financial performance reported in accordance with GAAP.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the Company is presenting the most directly comparable GAAP financial measure and reconciling the non-GAAP financial metrics to the comparable GAAP 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, including statements concerning the expected growth and development of our business and expectations as to continued profitability. 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, unexpected increases in Akamai's use of funds, loss of significant customers, failure to increase our revenue and keep our expenses consistent with revenues, failure to realize our expectations with respect to the acquisition of Speedera, the effects of any attempts to intentionally disrupt our services or network by unauthorized users or others, failure to have available sufficient transmission capacity, a failure of Akamai's services or network infrastructure, failure to maintain the prices we charge for our services, inability to service and repay our outstanding debt 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 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.