Bangalore, Karnataka, India
-- Revenue grew to a record $90.8 million, up 51 percent year-over-year and 10 percent over prior quarter
-- GAAP net income was $11.5 million, or $0.07 per diluted share, including impact of compensation charges attributable to adoption of FAS 123R
-- Normalized net income* more than doubled year-over-year to $29.4 million, or $0.17 per normalized diluted share*, and increased 12 percent over prior quarter
Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and business processes online, today reported financial results for the first quarter ended March 31, 2006. Revenue for first quarter 2006 was $90.8 million, a 10 percent increase over fourth quarter 2005 revenue of $82.7 million, and a 51 percent increase over first quarter 2005 revenue of $60.1 million.
Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the first quarter of 2006 was $11.5 million, or $0.07 per diluted share. GAAP net income in the first quarter includes equity-related compensation charges of approximately $7.1 million, or $0.04 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 reflects a book tax rate of approximately 45 percent.
The Company generated normalized net income* of $29.4 million, or $0.17 per normalized diluted share*, in the first quarter of 2006, a 12 percent increase over fourth quarter 2005 normalized net income of $26.2 million, or $0.16 per diluted share, and a 105 percent improvement over 2005 first quarter normalized earnings of $14.3 million, or $0.10 per diluted share. (*See Use of Non-GAAP Financial Measures below for definitions.)
"We had a very strong quarter, delivering higher than expected revenue growth," said Paul Sagan, president and CEO of Akamai. "We benefited from strong demand for our core content delivery services as more and more enterprises continue to move critical business processes online, especially in the area of digital media and entertainment content."
Adjusted EBITDA* for the first quarter of 2006 was $33.4 million, up 9 percent from $30.6 million in the prior quarter, and up from $20.4 million in the first quarter of 2005. Adjusted EBITDA as a percentage of revenue was 37 percent, consistent with the prior quarter and up from 34 percent a year ago. (*See Use of Non-GAAP Financial Measures below for definitions.)
Cash from operations was $33.2 million in the first quarter, as compared to $27.7 million in the fourth quarter 2005 and $18.7 million in the same period last year.
At March 31, 2006, the Company had approximately 154 million shares of common stock outstanding.
Customers
The number of customers under long-term services contracts at the end of the first quarter increased by 71 to a record 1,981, a 4 percent increase over fourth quarter 2005, and a 46 percent increase year-over-year.
Sales through resellers and sales outside the United States each accounted for 23 percent of revenue for the first quarter of 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. 7504579.
About Akamai
AkamaiŽ 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.
Financial Results
Condensed Consolidated Balance Sheets
(dollar amounts in thousands)
(unaudited)
March December
31, 31,
2006 2005
--------- ---------
Assets
Cash and cash equivalents $65,022 $91,792
Marketable securities 219,593 199,886
Restricted marketable securities 330 730
Accounts receivable, net 55,798 52,162
Prepaid expenses and other current assets 13,450 10,428
--------- ---------
Current assets 354,193 354,998
Marketable securities 52,653 17,896
Restricted marketable securities 3,825 3,825
Property and equipment, net 54,939 44,885
Goodwill and other intangible assets, net 134,318 136,786
Other assets 4,729 4,801
Deferred tax assets, net 326,609 328,308
--------- ---------
Total assets $931,266 $891,499
========= =========
Liabilities and stockholders' equity
Accounts payable and accrued expenses $61,302 $54,471
Other current liabilities 10,353 7,405
--------- ---------
Current liabilities 71,655 61,876
Other liabilities 4,605 5,409
Convertible notes 200,000 200,000
--------- ---------
Total liabilities 276,260 267,285
Stockholders' equity 655,006 624,214
--------- ---------
Total liabilities and stockholders' equity $931,266 $891,499
========= =========
Condensed Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
----Three Months Ended----
March December March
31, 31, 31,
2006 2005 2005
-------- -------- --------
Revenues $90,825 $82,657 $60,096
Costs and operating expenses:
Cost of revenues (b) + 19,316 16,084 11,524
Research and development (b) 6,726 4,982 3,629
Sales and marketing (b) 26,295 22,965 16,745
General and administrative (b) + 18,543 15,266 11,839
Amortization of other intangible assets 2,296 2,296 12
-------- -------- --------
Total costs and operating expenses 73,176 61,593 43,749
-------- -------- --------
Operating income 17,649 21,064 16,347
Interest (income) expense, net (2,659) (1,283) 1,013
Gain on investments, net (257) - -
Other (income) expense, net (186) (205) 726
-------- -------- --------
Income before provision (benefit) for
income taxes 20,751 22,552 14,608
Provision (benefit) for income taxes 9,256 (3,207) 529
-------- -------- --------
Net income $11,495 $25,759 $14,079
======== ======== ========
Net income per share:
Basic $0.07 $0.17 $0.11
Diluted $0.07 $0.16 $0.10
Shares used in per share calculations:
Basic 153,819 148,293 127,051
Diluted 173,811 170,305 147,282
(b) Includes equity-related compensation (see supplemental table for
figures)
+ Includes depreciation (see supplemental table for figures)
---Three Months Ended---
March December March
31, 31, 31,
2006 2005 2005
------- -------- -------
Supplemental financial data (in
thousands):
Equity-related compensation:
Cost of revenues $273 $- $-
Research and development 1,657 538 6
Sales and marketing 2,589 226 47
General and administrative 2,568 818 174
-------- --------- -------
Total equity-related compensation $7,087 $1,582 $227
Depreciation and amortization:
Network-related depreciation $5,356 $4,766 $2,915
Capitalized equity-related compensation
amortization 6 - -
Other depreciation 1,035 892 939
-------- --------- -------
Total depreciation and amortization $6,397 $5,658 $3,854
Capital expenditures:
Purchases of property and equipment $13,556 $5,828 $7,598
Capitalized internal-use software 2,618 2,277 2,121
-------- --------- -------
Total capital expenditures $16,174 $8,105 $9,719
Net increase in cash, cash equivalents,
marketable
securities and restricted marketable
securities $27,294 $227,626 $9,604
End of period statistics:
Number of customers under recurring
contract 1,981 1,910 1,360
Number of employees 833 784 633
Number of deployed servers 19,919 18,599 16,017
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
-----Three Months Ended-----
March December March
31, 31, 31,
2006 2005 2005
-------- -------- ---------
Cash flows from operating activities:
Net income $11,495 $25,759 $14,079
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization of
deferred financing costs 8,903 8,164 4,140
Equity-related compensation 7,087 1,582 227
Change in deferred tax assets, net,
including release of deferred tax
asset valuation allowance - (3,482) 158
Utilization of tax NOL carryforward 8,764 - -
Excess tax benefits from stock-based
compensation (5,399) - -
(Gain) loss on investments, property
and equipment and foreign currency,
net (327) 143 227
Provision for doubtful accounts 318 127 413
Changes in operating assets and
liabilities:
Accounts receivable, net (3,403) (8,663) (4,761)
Prepaid expenses and other current
assets (3,113) 65 777
Accounts payable, accrued expenses
and other current liabilities 6,840 2,754 4,878
Accrued restructuring (554) (415) (352)
Deferred revenue 2,641 1,567 281
Other noncurrent assets and
liabilities (91) 72 (1,365)
--------- --------- --------
Net cash provided by operating
activities: 33,161 27,673 18,702
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment
and capitalization of internal-use
software (16,174) (8,105) (9,719)
Purchase of investments (105,005) (183,014) (10,544)
Proceeds from sales and maturities of
investments 50,766 13,134 5,203
Decrease in restricted investments
held for security deposits 400 - -
--------- --------- --------
Net cash used in investing activities (70,013) (177,985) (15,060)
--------- --------- --------
Cash flows from financing activities:
Payments on capital leases - (420) (134)
Proceeds from equity offering, net of
financing costs - 202,068 -
Proceeds from the issuance of common
stock under stock option and
employee stock purchase plans 4,643 6,741 1,643
Excess tax benefits from stock-based
compensation 5,399 - -
--------- --------- --------
Net cash provided by financing
activities 10,042 208,389 1,509
--------- --------- --------
Effects of exchange rate translation on
cash and cash equivalents 40 (369) (588)
--------- --------- --------
Net (decrease) increase in cash and
cash equivalents (26,770) 57,708 4,563
Cash and cash equivalents, beginning of
period 91,792 34,084 35,318
--------- --------- --------
Cash and cash equivalents, end of
period $65,022 $91,792 $39,881
========= ========= ========
* 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 helpful to management and investors because they provide additional insight into our operations. 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 NOL carryforward 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 NOL carryforward 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.
Reconciliation of GAAP net income to normalized net income
and Adjusted EBITDA
(amounts in thousands, except per share data)
-----Three Months Ended-----
March December March
31, 31, 31,
2006 2005 2005
-------- -------- --------
Net income $11,495 $25,759 $14,079
Amortization of intangible assets 2,296 2,296 12
Equity-related compensation 7,087 1,582 227
Amortization of capitalized equity-related
compensation 6 - -
Gain on investments, net (257) - -
Utilization of tax NOL carryforward 8,764 - -
Release of the deferred tax asset valuation
allowance - (3,482) -
-------- -------- --------
Total normalized net income: 29,391 26,155 14,318
Interest (income) expense, net (2,659) (1,283) 1,013
Provision for income taxes 492 275 529
Depreciation and amortization 6,391 5,658 3,854
Other (income) expense, net (186) (205) 726
-------- -------- --------
Total Adjusted EBITDA: $33,429 $30,600 $20,440
======== ======== ========
Normalized net income per share:
Basic $0.19 $0.18 $0.11
Diluted $0.17 $0.16 $0.10
Shares used in normalized per share
calculations:
Basic 153,819 148,293 127,051
Diluted 176,644 170,305 147,282
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 expectations as to continued profitability. 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, 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.
Anuradha Muralidharan, Akamai Technologies (I), +91 (080) 57599222 amuralidharan@akamai.com
Sandy Smith, Akamai Technologies, 617-444-2804 ssmith@akamai.com
Source: Akamai (Business Wire India)
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