- 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, 2006. Revenue for third quarter 2006 was $111.5 million, an 11 percent increase over second quarter 2006 revenue of $100.6 million, and a 47 percent increase over third quarter 2005 revenue of $75.7 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the third quarter of 2006 was $14.0 million, or $0.08 per diluted share. GAAP net income in the third quarter included equity-related compensation charges of approximately $14.6 million, or $0.08 per diluted share, on a pre-tax basis, reflecting the Company's adoption of Financial Accounting Standard 123R on January 1, 2006. GAAP net income also reflected a book tax rate of approximately 45 percent.
The Company generated normalized net income* of $41.8 million, or $0.24 per normalized diluted share*, in the third quarter of 2006, a 17 percent increase over second quarter 2006 normalized net income of $35.8 million, or $0.20 per diluted share, a 90 percent improvement over 2005 third quarter normalized earnings of $22.0 million, or $0.14 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
"We had another exceptionally strong quarter," said Paul Sagan, president and CEO of Akamai. "We continued to experience healthy demand across our customer base, building on the momentum we achieved during the first half of the year. Key sectors, including media and entertainment, high technology, commerce, and public sector all posted solid results."
Adjusted EBITDA* for the third quarter of 2006 was $46.8 million, up 17 percent from $40.0 million in the prior quarter, and up from $27.7 million in the third quarter of 2005. Adjusted EBITDA as a percentage of revenue was 42 percent, up from 40 percent in the prior quarter, and up from 37 percent a year ago. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations was $48.5 million in the third quarter, as compared to $27.7 million in the second quarter 2006, and $19.5 million in the same period last year. Cash, cash equivalents and marketable securities totaled $416 million at the end of the period, up from $367 million at the end of the second quarter of 2006.
The number of customers under long-term services contracts at the end of the third quarter increased by 84 to a record 2,144. Sales through resellers and sales outside the United States accounted for 20 percent and 22 percent, respectively, of revenue for the third quarter of 2006.
At September 30, 2006, the Company had approximately 156.2 million shares of common stock outstanding.
For purposes of year-over-year comparison of the Company's GAAP results, net income for the three-month period that ended September 30, 2005, included a non-cash, non-recurring 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.
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. 7890805.
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 non-GAAP financial metrics we have included are useful to management and investors because they provide additional insight into our operations as well as help us assess and monitor developments in our business. Set forth below are definitions of the non-GAAP terms we use and explanations of some of the benefits provided by those metrics.
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, certain gains and losses on equity investments, foreign exchange gains and losses, utilization of tax NOLs/credits and release of the deferred tax asset valuation allowance.
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 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, depreciation of capitalized equity-related compensation, certain gains and losses on equity investments, 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 share" 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 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 our ability to help our customers create profitable online business models. 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 or server capacity, a failure of Akamai's services or network infrastructure, failure to maintain the prices we charge for our services and other factors that are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, and subsequent 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.