Akamai Reports Fourth Quarter 2018 and Full-year 2018 Financial Results

Record revenue of $713 million, up 8% year-over-year and up 10% when adjusted for foreign exchange*
Cloud Security Solutions revenue grew 36%, now over $750 million annualized run rate
GAAP EPS of $0.57, up 256% year-over-year, and non-GAAP EPS* of $1.07, up 51% year-over-year
Company also announces Ed McGowan to succeed Jim Benson as Chief Financial Officer in planned transition

Cambridge, MA |

Akamai Technologies, Inc. (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the fourth quarter and full-year ended December 31, 2018.

"We were very pleased with our strong finish to the year. Both revenue and earnings exceeded our expectations due to the very rapid growth of our cloud security business, robust seasonal traffic and our continued focus on operational excellence," said Dr. Tom Leighton, CEO of Akamai. “As a result, we achieved our fifth consecutive quarter of non-GAAP operating margin improvement, and 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."

Akamai delivered the following results for the fourth quarter and full-year ended December 31, 2018:

Revenue: Revenue for the fourth quarter was $713 million, an 8% increase over fourth quarter 2017 revenue of $658 million and a 10% increase when adjusted for foreign exchange.* Total revenue for 2018 was $2.714 billion compared to $2.489 billion for 2017, up 9% year-over-year and when adjusted for foreign exchange.*

Revenue by Division(1):

  • Web Division revenue for the fourth quarter was $385 million, up 9% year-over-year and up 10% when adjusted for foreign exchange.* Web Division revenue for 2018 was $1.446 billion, up 11% year-over-year and up 10% when adjusted for foreign exchange.*
  • Media and Carrier Division revenue for the fourth quarter was $328 million, up 8% year-over-year and up 9% when adjusted for foreign exchange.* Media and Carrier Division revenue for 2018 was $1.268 billion, up 7% year-over-year and when adjusted for foreign exchange.*

Revenue from Cloud Security Solutions(2):

  • Cloud Security Solutions revenue for the fourth quarter was $185 million, up 36% year-over-year and up 38% when adjusted for foreign exchange.* Cloud Security Solutions revenue for 2018 was $658 million, up 35% year-over-year and when adjusted for foreign exchange.*

Revenue from Internet Platform Customers(3):

  • Revenue from Internet Platform Customers for the fourth quarter was $43 million, down 14% year-over-year and when adjusted for foreign exchange.* Internet Platform Customers revenue for 2018 was $175 million, down 14% year-over-year and when adjusted for foreign exchange.*
  • Revenue excluding Internet Platform Customers for the fourth quarter was $670 million, up 10% year-over-year and up 11% when adjusted for foreign exchange.* Revenue excluding Internet Platform Customers for 2018 was $2.540 billion, up 11% year-over-year and when adjusted for foreign exchange.*

Revenue by Geography:

  • U.S. revenue for the fourth quarter was $434 million, up 2% year-over-year. U.S. revenue for 2018 was $1.683 billion, up 3% year-over-year.
  • International revenue for the fourth quarter was $279 million, up 20% year-over-year and up 23% when adjusted for foreign exchange.* International revenue for 2018 was $1.031 billion, up 21% year-over-year and up 20% when adjusted for foreign exchange.*

Fourth quarter 2017 items: Fourth quarter year-over-year growth rates for GAAP income from operations, GAAP net income and GAAP EPS in the paragraphs below were impacted by two items recognized in the fourth quarter of 2017: a $52 million restructuring charge and a $16 million charge due to the release of an indemnification asset related to a 2012 acquisition.

Income from operations: GAAP income from operations for the fourth quarter was $120 million, a 275% increase from fourth quarter 2017 income from operations of $32 million. GAAP operating margin for the fourth quarter was 17%, up 12 percentage points from the same period last year. GAAP income from operations for 2018 was $362 million, a 15% increase from the prior year's GAAP income from operations of $314 million. Full-year GAAP operating margin was 13%, consistent year-over-year.

Non-GAAP income from operations* for the fourth quarter was $201 million, a 26% increase from fourth quarter 2017 non-GAAP income from operations of $159 million. Non-GAAP operating margin* for the fourth quarter was 28% up 4 percentage points from the same period last year. Non-GAAP income from operations* for 2018 was $720 million, an 18% increase from the prior year's non-GAAP income from operations of $608 million. Full year non-GAAP operating margin* was 27%, up 3 percentage points year-over-year.

Net income: GAAP net income for the fourth quarter was $94 million, a 242% increase from fourth quarter 2017 GAAP net income of $28 million. GAAP net income for 2018 was $298 million, a 34% increase from the prior year's GAAP net income of $223 million.

Non-GAAP net income* for the fourth quarter was $176 million, a 46% increase from fourth quarter 2017 non-GAAP net income of $121 million. Non-GAAP net income* for 2018 was $612 million, a 36% increase from the prior year's non-GAAP net income of $452 million.

EPS: GAAP EPS for the fourth quarter was $0.57 per diluted share, a 256% increase from fourth quarter 2017 GAAP EPS of $0.16 and a 273% increase when adjusted for foreign exchange.* GAAP EPS for 2018 was $1.76 per diluted share, a 36% increase from prior year's GAAP EPS of $1.29 per diluted share and a 36% increase when adjusted for foreign exchange.*

Non-GAAP EPS* for the fourth quarter was $1.07 per diluted share, a 51% increase from fourth quarter 2017 non-GAAP EPS of $0.71 and a 52% increase when adjusted for foreign exchange.* Non-GAAP EPS* for 2018 was $3.62 per diluted share, a 38% increase from prior year's non-GAAP EPS of $2.62 per diluted share and a 37% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA* for the fourth quarter was $301 million, a 23% increase from fourth quarter 2017 Adjusted EBITDA of $245 million. Adjusted EBITDA margin* for the fourth quarter was 42%, up 5 percentage points from the same period last year. Adjusted EBITDA* for 2018 was $1.092 billion, an 18% increase from the prior year's Adjusted EBITDA of $929 million. Adjusted EBITDA margin* was 40%, up 3 percentage points from the same period last year.

Supplemental cash information: Cash from operations for the quarter was $286 million, or 40% of revenue. Cash from operations for 2018 was $1.008 billion, or 37% of revenue. Cash, cash equivalents and marketable securities was $2.1 billion as of December 31, 2018.

Share repurchases: The Company spent $124 million in the fourth quarter to repurchase 1.9 million shares of its common stock at an average price of $67.05 per share. For the full-year, the Company spent $750 million to repurchase 10.2 million shares of its common stock at an average price of $73.54 per share. The Company had 163 million shares of common stock outstanding as of December 31, 2018.

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 the Company recognizes revenue from some customers changed, primarily impacting the timing of recognizing revenue from 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 resulting from 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

Leadership Transition

Akamai also announced today a planned transition in leadership within the Company's finance organization. Ed McGowan, Senior Vice President of Finance, will succeed Jim Benson as Executive Vice President and Chief Financial Officer, effective March 1, 2019. After nine years at Akamai (and seven as Chief Financial Officer), Benson has decided to retire from Akamai to pursue his next set of challenges. He will serve as an Executive Advisor through an extended transition period. McGowan is an 18-year Akamai veteran who began his career at the Company in Finance and Sales Operations and then held executive roles in Corporate Development and Global Media and Carrier Sales.

"I am delighted to announce Ed’s promotion to Executive Vice President and Chief Financial Officer at Akamai," said Leighton. "Ed is an accomplished finance executive with broad knowledge of our business, our customers and the industry. Having worked closely with Ed for many years, I look forward to benefiting from his experience and insights as we continue to deliver profitable growth for our shareholders."

“And on behalf of our Board of Directors and Akamai’s entire team, I want to thank Jim for his leadership, strategic advice and immeasurable contributions over nearly a decade at the Company,” added Leighton. “During his seven year tenure as Chief Financial Officer, he played a key role as Akamai more than doubled revenue to $2.7 billion and built a world class finance organization that has helped us drive strong earnings growth for shareholders. Jim has been a great business partner to me and our Board over the last nine years and his contributions to Akamai will be remembered for years to come.”

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 3242748. 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 3242748. The archived webcast of this event may be accessed through the Akamai website.

About Akamai

Akamai secures and delivers digital experiences for the world’s largest companies. Akamai’s intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart, and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone - and attacks and threats far away. Akamai’s portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world’s top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.