Cambridge, MA |
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, 2005. Revenue for the fourth quarter 2005 was $82.7 million, a 9 percent increase over the previous quarter's revenue of $75.7 million, and a 44 percent increase over fourth quarter 2004 revenue of $57.6 million. Total revenue for 2005 was $283.1 million, a 35 percent increase over 2004 revenue of $210.0 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2005 was $25.8 million, or $0.16 per diluted share. Full-year net income for 2005 was $328.0 million, or $2.11 per diluted share, including a $258.8 million benefit from the release of a tax valuation allowance.
"2005 was the best year in the history of Akamai as we demonstrated the power of the Akamai business model by delivering strong revenue growth, high profit margins, sustained cash flow, and increasing profitability," said Paul Sagan, president and CEO of Akamai. "We benefited from broad customer adoption of our global platform and services, and we believe our demonstrated ability to innovate will continue to drive our success in the future."
The Company generated normalized net income* of $26.2 million, or $0.16 per diluted share, in the fourth quarter of 2005, a 19 percent increase over the prior quarter normalized net income of $22.0 million, or $0.14 per diluted share. Full-year normalized net income for 2005 was $79.5 million, or $0.52 per diluted share, an improvement of $37.0 million over 2004. (*See Use of Non-GAAP Financial Measures below for definitions.)
Adjusted EBITDA* for the fourth quarter of 2005 was $30.6 million, up from $27.7 million in the prior quarter, and $18.6 million in the fourth quarter of 2004. Adjusted EBITDA was $101.4 million for the full year, up from $69.1 million in 2004. Adjusted EBITDA margins improved to 36 percent in 2005, up from 33 percent in 2004. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations for the fourth quarter of 2005 was $27.7 million, a 42 percent increase over the prior quarter's cash from operations of $19.5 million, and a 78 percent increase over the fourth quarter of 2004. Full-year 2005 cash from operations was $82.8 million, up 62 percent over the prior year.
At December 31, 2005, the Company had approximately 152.9 million shares of common stock outstanding, including shares from the Company's most recent equity offering. At year-end, the Company had approximately $314 million of cash, cash equivalents and marketable securities.
The number of customers under long-term services contracts at the end of the fourth quarter increased by 80 to a record 1,910, a 4 percent increase over third quarter 2005.
"We have grown our recurring customer base by 46 percent year-over-year," Sagan said. "This is the result of momentum in important industries that increasingly rely on the Internet, including media and entertainment, online commerce, and software distribution, as well as adoption by major enterprises of our new application acceleration technology."
Sales through resellers and sales outside the United States accounted for 24 percent and 21 percent, respectively, of revenue for the fourth quarter and full-year 2005.
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. 4080712.
Akamai® is the leading global service provider for accelerating content and business processes online. More than 1,900 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.
Financial Statements Condensed Consolidated Balance Sheets (dollar amounts in thousands) (unaudited) December 31, December 31, 2005 2004 ------------- ------------- Assets Cash and cash equivalents $91,792 $35,318 Marketable securities 199,886 34,380 Restricted marketable securities 730 932 Accounts receivable, net 52,162 30,333 Prepaid expenses and other current assets 10,428 7,706 ------------- ------------- Current assets 354,998 108,669 Marketable securities 17,896 34,065 Restricted marketable securities 3,825 3,722 Property and equipment, net 44,885 25,242 Goodwill and other intangible assets, net 136,786 5,128 Other assets 4,801 5,917 Deferred tax assets, net 328,308 - ------------- ------------- Total assets $891,499 $182,743 ============= ============= Liabilities and stockholders' equity Accounts payable and accrued expenses $54,471 $42,446 Other current liabilities 7,405 4,320 ------------- ------------- Current liabilities 61,876 46,766 Other liabilities 5,409 5,294 Convertible notes 200,000 256,614 ------------- ------------- Total liabilities 267,285 308,674 Stockholders' equity (deficit) 624,214 (125,931) ------------- ------------- Total liabilities and stockholders' equity $891,499 $182,743 ============= ============= Condensed Consolidated Statements of Operations (amounts in thousands, except per share data) (unaudited) Three Months Ended Twelve Months Ended ------------------------------------- ------------------- Dec. Sept. Dec. Sept. Dec. Dec. 31, 30, 31, 30, 31, 31, 2005 2005 2004 2004 2005 2004 -------- --------- -------- --------- --------- --------- Revenues $82,657 $75,713 $57,576 $53,286 $283,115 $210,015 Costs and operating expenses: Cost of revenues (b) 16,084 15,295 11,173 11,748 55,655 46,150 Research and develop- ment 4,982 4,953 3,344 3,222 18,071 12,132 Sales and marketing 22,965 19,803 15,017 12,965 77,876 55,663 General and admin- istrative (b) 15,266 14,568 13,463 11,874 53,014 47,055 Amortization of other intangible assets 2,296 2,296 12 12 5,124 48 -------- --------- -------- --------- --------- --------- Total costs and oper- ating ex- penses 61,593 56,915 43,009 39,821 209,740 161,048 -------- --------- -------- --------- --------- --------- Operating income 21,064 18,798 14,567 13,465 73,375 48,967 Interest (income) expense, net (1,283) 567 1,319 1,533 1,067 8,055 Loss on early exting- uishment of debt - 1,370 852 634 1,370 6,768 Loss on investments, net - 27 1 79 27 69 Other (income) expense, net (205) 63 (1,183) (101) 507 (1,061) -------- --------- -------- --------- --------- --------- Income before (benefit) provision for income taxes 22,552 16,771 13,578 11,320 70,404 35,136 (Benefit) provision for income taxes (3,207) (255,489) 187 71 (257,594) 772 -------- --------- -------- --------- --------- --------- Net income $25,759 $272,260 $13,391 $11,249 $327,998 $34,364 ======== ========= ======== ========= ========= ========= Net income per share: Basic $0.17 $1.96 $0.11 $0.09 $2.41 $0.28 Diluted $0.16 $1.71 $0.10 $0.08 $2.11 $0.25 Shares used in per share calc- ulations: Basic 148,293 139,204 126,261 125,618 136,167 124,407 Diluted 170,305 160,362 147,306 147,294 156,944 146,595 (b) Includes depreciation (see supplemental tables for figures) Three Months Ended Twelve Months Ended --------------------------------------- ------------------ Dec. Sept. Dec. Sept. Dec. Dec. 31, 30, 31, 30, 31, 31, 2005 2005 2004 2004 2005 2004 --------- --------- --------- --------- --------- -------- Supp- lemental financial data (in thousands): Network- related depre- ciation $4,766 $4,361 $2,731 $3,124 $15,514 $14,030 Other depre- ciation $892 $881 $1,007 $1,024 $3,572 $4,731 Capital expen- ditures $8,105 $8,531 $7,138 $5,346 $36,160 $20,101 Net increase (decrease) in cash, cash equiv- alents, and marketable securities $227,626 $(44,213) $(11,379) $(2,329) $205,712 $(99,937) End of period statistics: Number of customers under recurring contract 1,910 1,830 1,310 1,258 Number of employees 784 766 605 598 Number of deployed servers 18,599 18,092 15,075 15,064 Condensed Consolidated Statements of Cash Flows (amounts in thousands) (unaudited) Three Months Ended Twelve Months Ended ------------------------------------- ------------------ Dec. Sept. Dec. Sept. Dec. Dec. 31, 30, 31, 30, 31, 31, 2005 2005 2004 2004 2005 2004 --------- --------- -------- -------- --------- -------- Cash flows from operating activities: Net income $25,759 $272,260 $13,391 $11,249 $327,998 $34,364 Adjustments to reconcile net income to net cash provided by operating activities: Depre- ciation and amort- ization of deferred financing costs 8,164 7,792 4,051 4,469 25,170 20,206 Equity- related compen- sation 1,582 1,383 236 249 3,849 1,292 Change in deferred tax assets, net, including release of deferred tax asset valuation allowance (3,482) (255,345) 408 - (258,669) 408 Non-cash portion of loss on early exting- uishment of debt - 481 292 178 481 2,453 Loss on invest- ments, property and equipment and foreign currency, net 143 161 (437) (72) 850 (319) Provision for doubtful accounts 127 566 191 (186) 1,147 (231) Changes in operating assets and liab- ilities: Accounts re- ceivable, net (8,663) (4,194) (1,411) (2,076) (19,455) (8,516) Prepaid expenses and other current assets 65 2,567 (1,441) 2,057 1,483 3,053 Accounts payable, accrued expenses and other current liab- ilities 2,754 (6,818) 38 281 (1,032) (130) Accrued restr- ucturing (415) (710) (352) (354) (1,816) (1,630) Deferred revenue 1,567 1,374 907 (2,016) 3,267 (329) Other non- current assets and liab- ilities 72 (18) (298) 769 (475) 616 --------- --------- -------- -------- --------- -------- Net cash provided by operating activities: 27,673 19,499 15,575 14,548 82,798 51,237 --------- --------- -------- -------- --------- -------- Cash flows from investing activities: Cash acquired through business com- bination - - - - 1,717 - Purchases of property and equipment and capital- ization of internal- use software (8,105) (8,531) (7,138) (5,346) (36,160) (20,101) Purchase of invest- ments (183,014) (6,534) (14,814) (12,325) (215,633)(187,674) Proceeds from sale of property and equipment - - - - - 9 Proceeds from sales and matur- ities of invest- ments 13,134 33,531 15,040 15,588 66,099 211,753 Decrease in restricted cash held for note re- purchases - - - - - 5,000 Decrease in restricted investments held for security deposits - 202 - 96 202 96 --------- --------- -------- -------- --------- -------- Net cash (used in) provided by investing activities (177,985) 18,668 (6,912) (1,987) (183,775) 9,083 --------- --------- -------- -------- --------- -------- Cash flows from financing activities: Payments on capital leases (420) (171) (141) (137) (818) (543) Proceeds from the issuance of 1% con- vertible senior notes, net of financing costs - - - - - 24,313 Repurchase and retirement of 5 1/2% covertible sub- ordinated notes - (56,614) (24,875) (13,115) (56,614)(169,386) Proceeds from equity offering, net of financing costs 202,068 - - - 202,068 - Proceeds from the issuance of common stock under stock option and employee stock purchase plans 6,741 1,933 3,863 1,095 14,462 13,754 --------- --------- -------- -------- --------- -------- Net cash provided by (used in) financing activities 208,389 (54,852) (21,153) (12,157) 159,098 (131,862) --------- --------- -------- -------- --------- -------- Effects of exchange rate translation on cash and cash equivalents (369) (259) 1,587 357 (1,647) 1,208 --------- --------- -------- -------- --------- -------- Net increase (decrease) in cash and cash equivalents 57,708 (16,944) (10,903) 761 56,474 (70,334) Cash and cash equivalents, beginning of period 34,084 51,028 46,221 45,460 35,318 105,652 --------- --------- -------- -------- --------- -------- Cash and cash equivalents, end of period $91,792 $34,084 $35,318 $46,221 $91,792 $35,318 ========= ========= ======== ======== ========= ========
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 operating decision-making.
Akamai defines "Adjusted EBITDA" as net income, before interest, taxes, depreciation, amortization, equity-related compensation, restructuring charges and benefits, 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. 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, 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.
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.
Reconciliation of GAAP net income to normalized net income and Adjusted EBITDA (amounts in thousands, except per share data) Three Months Ended Twelve Months Ended ------------------------------------ ------------------- Dec. Sept. Dec. Sept. Dec. Dec. 31, 30, 31, 30, 31, 31, 2005 2005 2004 2004 2005 2004 -------- --------- -------- --------- --------- -------- Net income $25,759 $272,260 $13,391 $11,249 $327,998 $34,364 Amortization of intangible assets 2,296 2,296 12 12 5,124 48 Equity-related compensation 1,582 1,383 236 249 3,849 1,292 Loss on investments, net - 27 1 79 27 69 Release of the deferred tax asset valuation allowance (3,482) (255,345) - - (258,827) - Loss on early exting- uishment of debt - 1,370 852 634 1,370 6,768 -------- --------- -------- --------- --------- -------- Total normalized net income: 26,155 21,991 14,492 12,223 79,541 42,541 Interest (income) expense, net (1,283) 567 1,319 1,533 1,067 8,055 Provision (benefit) for income taxes 275 (144) 187 71 1,233 772 Depreciation and amortization 5,658 5,242 3,738 4,148 19,086 18,761 Other (income) expense, net (205) 63 (1,183) (101) 507 (1,061) -------- --------- -------- --------- --------- -------- Total Adjusted EBITDA: $30,600 $27,719 $18,553 $17,874 $101,434 $69,068 ======== ========= ======== ========= ========= ======== Normalized net income per share: Basic $0.18 $0.16 $0.11 $0.10 $0.58 $0.34 Diluted $0.16 $0.14 $0.10 $0.09 $0.52 $0.31 Shares used in normalized per share calculations: Basic 148,293 139,204 126,261 125,618 136,167 124,407 Diluted 170,305 159,994 147,306 147,294 156,944 146,595
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. 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, 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.