Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the third quarter ended September 30, 2018.
“We are very pleased with our excellent results in the third quarter, which includes 37% year-over-year growth in our security business and tremendous growth in our earnings,” said Dr. Tom Leighton, Chief Executive Officer. “We are also pleased to report our fourth consecutive quarter of non-GAAP operating margin improvement. 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."
Revenue: Revenue was $670 million, a 7% increase over third quarter 2017 revenue of $624 million and an 8% increase when adjusted for foreign exchange.*
Revenue by Division(1):
- Web Division revenue was $357 million, up 8% year-over-year and up 9% when adjusted for foreign exchange*
- Media and Carrier Division revenue was $313 million, up 6% year-over-year and up 7% when adjusted for foreign exchange*
Revenue from Cloud Security Solutions(2):
- Cloud Security Solutions revenue was $169 million, up 37% year-over-year and up 39% when adjusted for foreign exchange*
Revenue from Internet Platform Customers(3):
- Revenue from Internet Platform Customers was $43 million, down 15% year-over-year and when adjusted for foreign exchange*
- Revenue excluding Internet Platform Customers was $627 million, up 9% year-over-year and up 10% when adjusted for foreign exchange*
Revenue by Geography:
- U.S. revenue was $413 million, consistent year-over-year
- International revenue was $257 million, up 21% year-over-year and up 24% when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $117 million, a 28% increase from third quarter 2017. GAAP operating margin for the third quarter was 17%, up 2 percentage points from the same period last year.
Non-GAAP income from operations* was $181 million, a 23% increase from third quarter 2017. Non-GAAP operating margin* for the third quarter was 27%, up 3 percentage points from the same period last year.
Net income: GAAP net income was $108 million, a 68% increase from third quarter 2017. Non-GAAP net income* was $158 million, a 43% increase from third quarter 2017.
EPS: GAAP EPS was $0.64 per diluted share, a 73% increase from third quarter 2017 and a 75% increase when adjusted for foreign exchange.* Non-GAAP EPS was $0.94 per diluted share, a 47% increase from third quarter 2017 and a 48% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA was $273 million, an 18% increase from third quarter 2017. Adjusted EBITDA margin* was 41%, an increase of 4 percentage points as compared to the third quarter of 2017.
Other third quarter 2018 results:
- Cash from operations was $310 million, or 46% of revenue
- Cash, cash equivalents and marketable securities was $2.1 billion as of September 30, 2018
- The Company spent $440 million to repurchase 5.9 million shares of its common stock at an average price of $74.71 per share
- The Company had approximately 164 million shares of common stock outstanding as of September 30, 2018
Share Repurchase Program: The Company also announces today that its Board of Directors has authorized a new $1.1 billion share repurchase program, effective from November 1, 2018 through December 31, 2021, which is in addition to $124 million remaining on its prior authorization. The Company's goal for the new program is to continue to return to shareholders a significant percentage of Akamai's free cash flow while preserving its flexibility for other strategic opportunities.
The timing and amount of any shares repurchased will be determined by the Company's management based upon the evaluation of market conditions and other factors. Repurchases will be executed in the open market subject to Rule 10b-18, and may also be made under a Rule 10b5-1 plan, which would permit the Company to repurchase shares when the Company might otherwise be precluded from doing so under insider trading laws. Other structured repurchase programs may be considered from time to time. The Company may choose to suspend, expand or discontinue the repurchase program at any time.
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 revenue is recognized changed for some of Akamai's customers and primarily impacts the revenue timing of 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 as a result of 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.
* See Use of Non-GAAP Financial Measures below for definitions
(1) Revenue by Division – A customer-focused reporting view that reflects revenue from customers that are managed by the division. As of January 1, 2018, Akamai now reports its revenue in two divisions compared to the three divisions reported in 2017; the Media Division and Enterprise and Carrier Division were combined to form the new Media and Carrier Division. In addition, as the purchasing patterns and required account expertise of customers changes over time, Akamai may reassign a customer's division from one to another. In 2018 Akamai reassigned some of its customers from the Media and Carrier Division to the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented.
(2) Revenue from Cloud Security Solutions – A product-focused reporting view that illustrates revenue from Cloud Security Solutions separately from all other solution categories. During 2018, Akamai updated its methodology for allocating revenue to specific solutions when solutions are sold as a bundle. During 2018, Akamai reassigned amounts from CDN and other solutions revenue to Cloud Security Solutions revenue and revised historical results in order to reflect the most recent allocation methodologies and to provide a comparable view for all periods presented.
(3) Revenue from Internet Platform Customers – Revenue from six customers that are large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix
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 8889239. 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 8889239. The archived webcast of this event may be accessed through the Akamai website.
Akamai powers and protects life online. The most innovative companies worldwide choose Akamai to secure and deliver their digital experiences - helping billions of people live, work, and play every day. With the world's largest and most trusted edge platform, Akamai keeps apps, code, and experiences closer to users - and threats farther away. Learn more about Akamai's security, content delivery, and edge compute products and services at www.akamai.com, blogs.akamai.com, or follow Akamai Technologies on Twitter and LinkedIn.