Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and business processes online, today reported financial results for the fourth quarter and full-year ended December 31, 2006. Revenue for the fourth quarter 2006 was $125.7 million, a 13 percent increase over the previous quarter's revenue of $111.5 million, and a 52 percent increase over fourth quarter 2005 revenue of $82.7 million. Total revenue for 2006 was $428.7 million, a 51 percent increase over 2005 revenue of $283.1 million.
Akamai's fourth quarter consolidated financial results include 18 days of activity from Nine Systems Corporation following the closing of Akamai's acquisition of Nine Systems on December 13, 2006. Nine Systems contributed approximately $800,000 of revenue during the fourth quarter of 2006.
"Akamai's strong growth in the fourth quarter was fueled by increased demand for our services across our customer base, especially in the digital media and online commerce markets," said Paul Sagan, president and CEO of Akamai. "With these fourth quarter results, we reached a run rate of more than half a billion dollars on the top line, a milestone on the way to our billion dollar goal, while we continued to expand profitability."
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2006 was $20.6 million, or $0.12 per diluted share. Full-year GAAP net income for 2006 was $57.4 million, or $0.34 per diluted share.
For purposes of year-over-year comparison of the Company's GAAP results, net income for 2005 included a non-cash, non-recurring benefit of $258.8 million, or approximately $1.65 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 generated normalized net income* of $47.5 million, or $0.27 per diluted share, in the fourth quarter of 2006, a 14 percent increase over prior quarter normalized net income of $41.8 million, or $0.24 per diluted share. Full-year normalized net income grew 94 percent year-over-year to $154.5 million, or $0.88 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
Adjusted EBITDA* for the fourth quarter of 2006 was $53.0 million, up from $46.8 million in the prior quarter, and $30.6 million in the fourth quarter of 2005. Adjusted EBITDA margin for the fourth quarter was 42 percent, a 5 point improvement over the fourth quarter of last year. For the full year, adjusted EBITDA was $173.3 million, up from $101.4 million in 2005. Full year Adjusted EBITDA margin improved to 40 percent, up from 36 percent in 2005. (*See Use of Non-GAAP Financial Measures below for definitions.)
Full-year cash from operations was $132.0 million, or 31 percent of revenue, up 59 percent over the prior year. At year-end, the Company had approximately $434 million of cash, cash equivalents and marketable securities.
The Company had approximately 160.1 million shares of common stock outstanding as of December 31, 2006.
Akamai added 78 net new customers under long-term services contracts during the fourth quarter of 2006, in addition to 125 recurring revenue customers from the Nine Systems acquisition, bringing Akamai's total year-end number of customers under long-term services contracts to 2,347.
Sales through resellers and sales outside the United States accounted for 20 percent and 22 percent, respectively, of revenue for full-year 2006.
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. 5848965.
Akamai® is the leading global service provider for accelerating content and business processes online. Thousands of 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.
*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. We believe that the inclusion of these non-GAAP financial measures in this press release helps investors to gain a meaningful understanding of our future prospects, consistent with how management measures and forecasts our performance, especially when comparing such results to previous periods or forecasts. Our management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods and to the performance of our competitors. This measure is also used by management in their financial and operational decision-making. There are limitations associated with reliance on these non-GAAP financial metrics because they are specific to our operations and financial performance, which makes comparisons with other companies' financial results more challenging. By providing both GAAP and non-GAAP financial measures, we believe that investors are able to compare our GAAP results to those of other companies while also gaining a better understanding of our operating performance as evaluated by management.
Akamai defines "Adjusted EBITDA" as net income, before interest, taxes, depreciation and amortization of tangible and intangible assets, equity-related compensation, depreciation of capitalized equity-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, foreign exchange gains and losses, loss on early extinguishment of debt, utilization of tax NOLs/credits and release of the deferred tax asset valuation allowance. Akamai considers Adjusted EBITDA 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.
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.
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, restructuring charges and benefits, certain gains and losses on equity investments, loss on early extinguishment of debt, utilization of tax NOLs/credits and release of the deferred tax asset valuation allowance. 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.
Akamai defines "normalized diluted shares" as diluted common shares outstanding used in GAAP net income per share calculation, excluding the effect of FAS 123R under the treasury stock method. Akamai considers normalized diluted shares to be another important indicator of overall performance of the Company because it eliminates the effect of a non-cash item.
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 measures and reconciling the non-GAAP financial metrics to the comparable GAAP measures.
Akamai Statement Under the Private Securities Litigation Reform Act
This 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 with respect to revenue. 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, 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 realize the benefits of our net operating loss carryforward, 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, unexpected expenses associated with the integration of Nine Systems, 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.