AKAMAI REPORTS THIRD QUARTER 2023 FINANCIAL RESULTS
Third quarter revenue of $965 million, up 9% year-over-year and when adjusted for foreign exchange*
Security and compute revenue represented 61% of total revenue in the third quarter and combined grew 20% year-over-year and 19% when adjusted for foreign exchange*
GAAP diluted EPS of $1.04, up 33% year-over-year and up 31% when adjusted for foreign exchange*, and
non-GAAP diluted EPS* of $1.63, up 29% year-over-year and up 28% when adjusted for foreign exchange*
Guidance increased for full-year revenue and non-GAAP diluted EPS*
CAMBRIDGE, Mass. – November 7, 2023 – Akamai Technologies, Inc. (NASDAQ: AKAM), the cloud company that powers and protects life online, today reported financial results for the third quarter ended September 30, 2023.
"We are very pleased with our excellent third quarter performance on both revenue and profitability,” said Dr. Tom Leighton, Akamai’s Chief Executive Officer. “Security and cloud computing revenue growth accelerated and together now account for 61% of our total revenue. In addition, our cost savings initiatives helped improve margins while we continue to invest in key growth areas."
Akamai delivered the following results for the third quarter ended September 30, 2023:
Revenue: Revenue was $965 million, a 9% increase over third quarter 2022 revenue of $882 million and a 9% increase when adjusted for foreign exchange.*
Revenue by solution:
•Security revenue was $456 million, up 20% year-over-year and up 19% when adjusted for foreign exchange*
•Delivery revenue was $379 million, down 4% year-over-year and when adjusted for foreign exchange*
•Compute revenue was $130 million, up 19% year-over-year and when adjusted for foreign exchange*
Revenue by geography:
•U.S. revenue was $499 million, up 8% year-over-year
•International revenue was $467 million, up 11% year-over-year and up 9% when adjusted for foreign exchange*
Income from operations: GAAP income from operations was $176 million, a 10% increase from third quarter 2022. GAAP operating margin for the third quarter was 18%, flat from the same period last year.
Non-GAAP income from operations* was $296 million, a 22% increase from third quarter 2022. Non-GAAP operating margin* for the third quarter was 31%, up 3 percentage points from the same period last year.
Net income: GAAP net income was $161 million, a 30% increase from third quarter 2022. Non-GAAP net income* was $251 million, a 26% increase from third quarter 2022.
1
EPS: GAAP net income per diluted share was $1.04, a 33% increase from third quarter 2022 and a 31% increase when adjusted for foreign exchange.* Non-GAAP net income per diluted share* was $1.63, a 29% increase from third quarter 2022 and a 28% increase when adjusted for foreign exchange.*
Adjusted EBITDA*: Adjusted EBITDA* was $418 million, a 13% increase from third quarter 2022.
Supplemental cash information: Cash from operations for the third quarter of 2023 was $359 million, or 37% of revenue. Cash, cash equivalents and marketable securities was $2.1 billion as of September 30, 2023.
Share repurchases: The Company spent $113 million in the third quarter of 2023 to repurchase 1.1 million shares of its common stock at an average price of $101.54 per share. The Company had 151 million shares of common stock outstanding as of September 30, 2023.
Financial guidance: The Company reports the following financial guidance for the fourth quarter and full-year 2023:
Three Months Ended December 31, 2023
Year Ended December 31, 2023
Low End
High End
Low End
High End
Revenue (in millions)
$
985
$
1,005
$
3,802
$
3,822
Non-GAAP operating margin*
29
%
29
%
29
%
29
%
Non-GAAP net income per diluted share*
$
1.57
$
1.62
$
6.08
$
6.13
Non-GAAP tax rate*
17
%
17
%
17
%
17
%
Shares used in non-GAAP per diluted share calculations* (in millions)
155
155
155
155
Capex as a percentage of revenue*
15
%
15
%
19
%
19
%
This guidance includes the impact of the following items:
•incremental revenue of $17 million to $20 million and $21 million to $24 million for the fourth quarter and full-year, respectively, from customer contracts acquired from StackPath LLC and Lumen Technologies, Inc;
•incremental cost of revenue of $13 million to $14 million and $18 million to $19 million for the fourth quarter and full-year, respectively, for transition service agreements related to the acquired customer contracts; and
•negative impact to revenue of $8 million for the fourth quarter as compared to the third quarter and negative impact of $18 million for the full-year related to foreign currency exchange rate fluctuations.
This guidance is provided on a non-GAAP basis and cannot be reconciled to the closest GAAP measures without unreasonable effort because of the unpredictability of the amounts and timing of events affecting the items we exclude from non-GAAP measures. For example, stock-based compensation is unpredictable for Akamai’s performance-based awards, which can fluctuate significantly based on current expectations of the future achievement of performance-based targets. Amortization of intangible assets, acquisition-related costs and restructuring costs are all impacted by the timing and size of potential future actions, which are difficult to predict. In addition, from time to time, Akamai excludes certain items that occur infrequently, which are also inherently difficult to predict and estimate. It is also difficult to predict the tax effect of the items we exclude and to estimate certain discrete tax items, such as the resolution of tax audits or changes to tax laws. As such, the costs that are being excluded from non-GAAP guidance are difficult to predict and a reconciliation or a range of results could lead to disclosure that would be imprecise or potentially misleading. Material changes to any one of the exclusions could have a significant effect on our guidance and future GAAP results.
* See Use of Non-GAAP Financial Measures below for definitions
2
Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-833-634-5020 (or 1-412-902-4238 for international calls) and using passcode Akamai Technologies Call. A live webcast of the call may be accessed at www.akamai.com in the Investor Relations section. In addition, a replay of the call will be available for two weeks following the conference by calling 1-877-344-7529 (or 1-412-317-0088 for international calls) and using passcode 5384917. The archived webcast of this event may be accessed through the Akamai website.
About Akamai
Akamai powers and protects life online. Leading companies worldwide choose Akamai to build, deliver, and secure their digital experiences – helping billions of people live, work, and play every day. Akamai Connected Cloud, a massively distributed edge and cloud platform, puts apps and experiences closer to users and keeps threats farther away. Learn more about Akamai’s cloud computing, security, and content delivery solutions at akamai.com and akamai.com/blog, or follow Akamai Technologies on X, formerly known as Twitter, and LinkedIn.
3
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
459,907
$
542,337
Marketable securities
479,355
562,979
Accounts receivable, net
713,382
679,206
Prepaid expenses and other current assets
214,737
185,040
Total current assets
1,867,381
1,969,562
Marketable securities
1,208,797
320,531
Property and equipment, net
1,786,355
1,540,182
Operating lease right-of-use assets
883,686
813,372
Acquired intangible assets, net
465,203
441,716
Goodwill
2,843,020
2,763,838
Deferred income tax assets
405,251
337,677
Other assets
122,395
116,522
Total assets
$
9,582,088
$
8,303,400
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
144,466
$
145,420
Accrued expenses
329,354
367,017
Deferred revenue
124,394
105,109
Operating lease liabilities
205,090
196,094
Other current liabilities
7,187
5,228
Total current liabilities
810,491
818,868
Deferred revenue
26,991
22,117
Deferred income tax liabilities
20,935
18,400
Convertible senior notes
3,536,342
2,285,258
Operating lease liabilities
760,653
693,265
Other liabilities
102,472
105,305
Total liabilities
5,257,884
3,943,213
Total stockholders' equity
4,324,204
4,360,187
Total liabilities and stockholders' equity
$
9,582,088
$
8,303,400
4
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
Nine Months Ended
(in thousands, except per share data)
September 30, 2023
June 30, 2023
September 30,
2022 (3)
September 30, 2023
September 30,
2022 (3)
Revenue
$
965,484
$
935,721
$
881,896
$
2,816,903
$
2,688,875
Costs and operating expenses:
Cost of revenue (1) (2)
383,075
373,275
346,450
1,117,666
1,025,851
Research and development (1)
105,942
99,041
94,047
296,846
286,052
Sales and marketing (1)
132,309
136,554
123,935
397,970
373,319
General and administrative (1) (2)
147,326
151,811
139,425
445,276
433,906
Amortization of acquired intangible assets
18,108
15,898
17,374
49,918
47,990
Restructuring charge
2,595
9,357
227
56,675
12,958
Total costs and operating expenses
789,355
785,936
721,458
2,364,351
2,180,076
Income from operations
176,129
149,785
160,438
452,552
508,799
Interest and marketable securities income (loss), net
11,412
4,509
782
21,213
(1,760)
Interest expense
(4,987)
(3,157)
(2,785)
(10,825)
(8,412)
Other expense, net
(3,161)
(1,130)
(275)
(6,654)
(9,024)
Income before provision for income taxes
179,393
150,007
158,160
456,286
489,603
Provision for income taxes
(20,326)
(21,191)
(34,466)
(71,297)
(87,058)
Gain (loss) from equity method investment
1,475
—
—
1,475
(7,635)
Net income
$
160,542
$
128,816
$
123,694
$
386,464
$
394,910
Net income per share:
Basic
$
1.06
$
0.85
$
0.78
$
2.53
$
2.47
Diluted
$
1.04
$
0.84
$
0.78
$
2.50
$
2.45
Shares used in per share calculations:
Basic
151,359
152,064
158,715
153,020
159,749
Diluted
154,976
153,454
159,068
154,855
161,472
(1) Includes stock-based compensation (see supplemental table for figures)
(2) Includes depreciation and amortization (see supplemental table for figures)
(3) Provision for income taxes, net income and basic and diluted net income per share for the three and nine months ended September 30, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
5
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30,
2022 (1)
September 30, 2023
September 30,
2022 (1)
Cash flows from operating activities:
Net income
$
160,542
$
128,816
$
123,694
$
386,464
$
394,910
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
148,560
139,125
150,985
423,142
444,184
Stock-based compensation
87,017
87,444
50,702
236,344
158,811
Benefit for deferred income taxes
(10,172)
(4,516)
(6,623)
(9,763)
(82,603)
Amortization of debt issuance costs
1,404
1,098
1,086
3,600
3,296
(Gain) loss on investments
(110)
(27)
—
(311)
15,895
Other non-cash reconciling items, net
6,548
17,052
2,451
45,202
25,094
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
(23,484)
2,473
30,796
(46,262)
26,849
Prepaid expenses and other current assets
1,994
7,912
(4,739)
(16,103)
(42,871)
Accounts payable and accrued expenses
23,615
13,478
(4,752)
(60,170)
(64,727)
Deferred revenue
(12,905)
602
(2,675)
24,146
23,503
Other current liabilities
(13,855)
(9,689)
2,093
2,290
(3,808)
Other non-current assets and liabilities
(9,718)
(17,457)
26,278
(29,333)
34,645
Net cash provided by operating activities
359,436
366,311
369,296
959,246
933,178
Cash flows from investing activities:
Cash received (paid) for business acquisitions, net of cash acquired
155
(86,256)
8
(106,171)
(872,091)
Cash paid for asset acquisition
(36,348)
—
—
(36,348)
—
Cash received from equity method investment
1,475
—
—
1,475
—
Purchases of property and equipment and capitalization of internal-use software development costs
(197,619)
(176,289)
(97,988)
(596,153)
(347,514)
Purchases of short- and long-term marketable securities
(1,435,016)
(630)
—
(1,569,837)
—
Proceeds from sales, maturities and redemptions of short- and long-term marketable securities
491,330
15,319
2,248
783,535
695,955
Other, net
11,860
(498)
203
(8,906)
(4,003)
Net cash used in investing activities
(1,164,163)
(248,354)
(95,529)
(1,532,405)
(527,653)
(1) Net income and benefit for deferred income taxes for the three and nine months ended September 30, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
6
AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Cash flows from financing activities:
Proceeds from borrowings under revolving credit facility
—
90,000
—
90,000
—
Repayment of borrowings under revolving credit facility
(20,000)
(70,000)
(75,000)
(90,000)
—
Proceeds from the issuance of convertible senior notes, net of issuance costs
1,247,388
—
—
1,247,388
—
Proceeds from the issuance of warrants related to convertible senior notes
90,195
—
—
90,195
—
Purchase of note hedge related to convertible senior notes
(236,555)
—
—
(236,555)
—
Proceeds from the issuance of common stock under stock plans
18,222
10,074
16,844
49,553
45,989
Employee taxes paid related to net share settlement of stock-based awards
(11,304)
(9,712)
(8,514)
(50,910)
(71,656)
Repurchases of common stock
(113,197)
(137,358)
(162,627)
(599,155)
(430,269)
Other, net
(104)
(204)
(177)
(360)
(281)
Net cash provided by (used in) financing activities
974,645
(117,200)
(229,474)
500,156
(456,217)
Effects of exchange rate changes on cash, cash equivalents and restricted cash
(7,019)
(3,007)
(11,977)
(7,729)
(27,237)
Net increase (decrease) in cash, cash equivalents and restricted cash
162,899
(2,250)
32,316
(80,732)
(77,929)
Cash, cash equivalents and restricted cash at beginning of period
299,391
301,641
427,506
543,022
537,751
Cash, cash equivalents and restricted cash at end of period
$
462,290
$
299,391
$
459,822
$
462,290
$
459,822
7
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY SOLUTION
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Security
$
455,792
$
432,946
$
379,509
$
1,294,290
$
1,141,740
Delivery
379,304
379,698
393,248
1,153,386
1,254,074
Compute
130,388
123,077
109,139
369,227
293,061
Total revenue
$
965,484
$
935,721
$
881,896
$
2,816,903
$
2,688,875
Revenue growth rates year-over-year:
Security
20
%
14
%
13
%
13
%
18
%
Delivery
(4)
(9)
(15)
(8)
(11)
Compute
19
16
72
26
60
Total revenue
9
%
4
%
3
%
5
%
5
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates (1):
Security
19
%
14
%
19
%
14
%
22
%
Delivery
(4)
(8)
(11)
(7)
(8)
Compute
19
17
77
27
64
Total revenue
9
%
4
%
7
%
6
%
9
%
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
U.S.
$
498,536
$
480,062
$
461,087
$
1,452,431
$
1,419,248
International
466,948
455,659
420,809
1,364,472
1,269,627
Total revenue
$
965,484
$
935,721
$
881,896
$
2,816,903
$
2,688,875
Revenue growth rates year-over-year:
U.S.
8
%
1
%
3
%
2
%
4
%
International
11
7
2
7
6
Total revenue
9
%
4
%
3
%
5
%
5
%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates (1):
U.S.
8
%
1
%
3
%
2
%
4
%
International
9
8
12
9
14
Total revenue
9
%
4
%
7
%
6
%
9
%
(1) See Use of Non-GAAP Financial Measures below for a definition
8
AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
General and administrative expenses:
Payroll and related costs
$
55,030
$
51,817
$
53,712
$
164,537
$
160,003
Stock-based compensation
25,125
26,124
13,392
68,414
46,716
Depreciation and amortization
16,197
16,231
18,682
49,149
56,783
Facilities-related costs
21,805
22,883
26,093
68,677
79,492
(Benefit) provision for doubtful accounts
(1,500)
1,991
1,179
408
2,996
Acquisition-related costs
1,716
1,271
2,890
7,690
16,304
Software and related service costs
13,516
13,526
12,368
40,913
36,875
Other expenses
15,437
17,968
11,109
45,488
34,737
Total general and administrative expenses
$
147,326
$
151,811
$
139,425
$
445,276
$
433,906
General and administrative expenses–functional (1):
Global functions
$
61,187
$
62,058
$
49,553
$
180,195
$
156,129
As a percentage of revenue
6
%
7
%
6
%
6
%
6
%
Infrastructure
85,923
86,491
85,803
256,983
258,449
As a percentage of revenue
9
%
9
%
10
%
9
%
10
%
Other
216
3,262
4,069
8,098
19,328
Total general and administrative expenses
$
147,326
$
151,811
$
139,425
$
445,276
$
433,906
As a percentage of revenue
15
%
16
%
16
%
16
%
16
%
Stock-based compensation:
Cost of revenue
$
11,236
$
11,339
$
7,237
$
31,904
$
20,604
Research and development
33,366
32,258
18,698
87,468
56,338
Sales and marketing
17,290
17,723
11,375
48,558
35,153
General and administrative
25,125
26,124
13,392
68,414
46,716
Total stock-based compensation
$
87,017
$
87,444
$
50,702
$
236,344
$
158,811
(1) Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility- and IT-related assets, software and related service costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs and (benefit) provision for doubtful accounts.
9
AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA
Three Months Ended
Nine Months Ended
(in thousands, except end of period statistics)
September 30, 2023
June 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Depreciation and amortization:
Network-related depreciation
$
60,887
$
55,212
$
65,984
$
168,275
$
194,094
Capitalized internal-use software development amortization
Capital expenditures, excluding stock-based compensation and interest expense (2) (3):
Purchases of property and equipment
$
86,382
$
134,847
$
62,063
$
378,759
$
182,031
Capitalized internal-use software development costs
65,895
64,112
48,665
196,271
148,938
Total capital expenditures, excluding stock-based compensation and interest expense
$
152,277
$
198,959
$
110,728
$
575,030
$
330,969
Capex as a percentage of revenue (3)
16
%
21
%
13
%
20
%
12
%
End of period statistics:
Number of employees
10,111
10,100
9,631
(1) Amortization of capitalized stock-based compensation and interest expense in this table excludes amortization of capitalized stock-based compensation and interest expense capitalized as part of the implementation of cloud-computing arrangements and contract fulfillment costs. However, the amounts are included in our total amortization of capitalized stock-based compensation and interest expense that is excluded from our non-GAAP measures (see reconciliations of GAAP to non-GAAP measures).
(2) Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end versus prior periods.
(3) See Use of Non-GAAP Financial Measures below for a definition
10
-AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS, NET INCOME AND TAX RATE
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30,
2022 (1)
September 30, 2023
September 30,
2022 (1)
Income from operations
$
176,129
$
149,785
$
160,438
$
452,552
$
508,799
GAAP operating margin
18
%
16
%
18
%
16
%
19
%
Amortization of acquired intangible assets
18,108
15,898
17,374
49,918
47,990
Stock-based compensation
87,017
87,444
50,702
236,344
158,811
Amortization of capitalized stock-based compensation and capitalized interest expense
9,077
8,217
7,967
25,207
23,982
Restructuring charge
2,595
9,357
227
56,675
12,958
Acquisition-related costs
3,048
2,340
5,896
12,156
22,610
Operating adjustments
119,845
123,256
82,166
380,300
266,351
Non-GAAP income from operations
$
295,974
$
273,041
$
242,604
$
832,852
$
775,150
Non-GAAP operating margin
31
%
29
%
28
%
30
%
29
%
Net income
$
160,542
$
128,816
$
123,694
$
386,464
$
394,910
Operating adjustments (from above)
119,845
123,256
82,166
380,300
266,351
Amortization of debt issuance costs
1,404
1,098
1,086
3,600
3,296
(Gain) loss on investments
(110)
(27)
—
(311)
8,260
(Gain) loss from equity method investment
(1,475)
—
—
(1,475)
7,635
Income tax effect of above non-GAAP adjustments and certain discrete tax items
(29,135)
(25,152)
(6,922)
(71,202)
(39,189)
Non-GAAP net income
$
251,071
$
227,991
$
200,024
$
697,376
$
641,263
GAAP tax rate
11
%
14
%
22
%
16
%
18
%
Income tax effect of non-GAAP adjustments and certain discrete tax items
5
3
(5)
1
(2)
Non-GAAP tax rate
16
%
17
%
17
%
17
%
16
%
(1) Net income, income tax effect of above non-GAAP adjustments and certain discrete tax items and GAAP tax rate for the three and nine months ended September 30, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
11
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE
Three Months Ended
Nine Months Ended
(in thousands, except per share data)
September 30, 2023
June 30, 2023
September 30,
2022 (1)
September 30, 2023
September 30,
2022 (1)
GAAP net income per diluted share
$
1.04
$
0.84
$
0.78
$
2.50
$
2.45
Adjustments to net income:
Amortization of acquired intangible assets
0.12
0.10
0.11
0.32
0.30
Stock-based compensation
0.56
0.57
0.32
1.53
0.98
Amortization of capitalized stock-based compensation and capitalized interest expense
0.06
0.05
0.05
0.16
0.15
Restructuring charge
0.02
0.06
—
0.37
0.08
Acquisition-related costs
0.02
0.02
0.04
0.08
0.14
Amortization of debt issuance costs
0.01
0.01
0.01
0.02
0.02
(Gain) loss on investments
—
—
—
—
0.05
(Gain) loss from equity method investment
(0.01)
—
—
(0.01)
0.05
Income tax effect of above non-GAAP adjustments and certain discrete tax items
(0.19)
(0.16)
(0.04)
(0.46)
(0.24)
Adjustment for shares (2)
0.01
—
—
0.01
0.03
Non-GAAP net income per diluted share
$
1.63
$
1.49
$
1.26
$
4.51
$
4.00
Shares used in GAAP per diluted share calculations
154,976
153,454
159,068
154,855
161,472
Impact of benefit from note hedge transactions (2)
(544)
—
—
(181)
(960)
Shares used in non-GAAP per diluted share calculations (2)
154,432
153,454
159,068
154,674
160,512
(1) GAAP net income per diluted share and per share adjustment for income tax effect of above non-GAAP adjustments and certain discrete tax items for the three and nine months ended September 30, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
(2) Shares used in non-GAAP per diluted share calculations have been adjusted for the three and nine months ended September 30, 2023 and for the nine months ended September 30, 2022 for the benefit of Akamai's note hedge transactions. During those periods, Akamai's average stock price was in excess of $95.10, which is the initial conversion price of Akamai's convertible senior notes due in 2025. See Use of Non-GAAP Financial Measures below for further definition.
12
AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
Three Months Ended
Nine Months Ended
(in thousands)
September 30, 2023
June 30, 2023
September 30,
2022 (1)
September 30, 2023
September 30,
2022 (1)
Net income
$
160,542
$
128,816
$
123,694
$
386,464
$
394,910
Net income margin
17
%
14
%
14
%
14
%
15
%
Interest and marketable securities (income) loss, net
(11,412)
(4,509)
(782)
(21,213)
1,760
Provision for income taxes
20,326
21,191
34,466
71,297
87,058
Depreciation and amortization
121,626
115,208
125,851
348,721
372,854
Amortization of capitalized stock-based compensation and capitalized interest expense
9,077
8,217
7,967
25,207
23,982
Amortization of acquired intangible assets
18,108
15,898
17,374
49,918
47,990
Stock-based compensation
87,017
87,444
50,702
236,344
158,811
Restructuring charge
2,595
9,357
227
56,675
12,958
Acquisition-related costs
3,048
2,340
5,896
12,156
22,610
Interest expense
4,987
3,157
2,785
10,825
8,412
(Gain) loss on investments
(110)
(27)
—
(311)
8,260
(Gain) loss from equity method investment
(1,475)
—
—
(1,475)
7,635
Other expense, net
3,271
1,157
275
6,965
764
Adjusted EBITDA
$
417,600
$
388,249
$
368,455
$
1,181,573
$
1,148,004
Adjusted EBITDA margin
43
%
41
%
42
%
42
%
43
%
(1) Net income, net income margin and provision for income taxes for the three and nine months ended September 30, 2022 have been revised to reflect the correction of an error of provision for income taxes related to an intercompany sale of intellectual property that occurred in 2022.
13
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 provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP financial measures). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin, non-GAAP tax rate, capital expenditures and impact of foreign currency exchange rates, as discussed below.
Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparison of financial results across accounting periods and to those of our peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.
The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial measures and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned “Reconciliation of GAAP to Non-GAAP Financial Measures” can be found on the Investor Relations section of Akamai's website.
The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:
•Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and is unique to each acquisition; therefore, Akamai excludes amortization of acquired intangible assets from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.
•Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai's current financial results to previous and future periods difficult to interpret; therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to peer companies.
•Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities, as well as certain additional compensation costs payable to employees acquired from the Linode acquisition if employed for a certain period of time. The additional compensation cost was initiated by and determined by the seller, and is in addition to normal levels of compensation, including retention programs, offered by Akamai. Acquisition-related costs are impacted by the timing and size of the acquisitions, and Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of operating results to prior periods and to peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions and do not reflect Akamai's core operations.
•Restructuring charge – Akamai has incurred restructuring charges from programs that have significantly changed either the scope of the business undertaken by the Company or the manner in which that business is conducted. These charges include severance and related expenses for workforce reductions, impairments of long-lived assets that will no longer be used in operations (including right-of-use assets, other facility-related property and equipment and internal-use software) and termination fees for any contracts cancelled as part of these programs. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.
14
•Amortization of debt issuance costs and amortization of capitalized interest expense – Akamai has convertible senior notes outstanding that mature in 2029, 2027 and 2025. The issuance costs of the convertible senior notes are amortized to interest expense and are excluded from Akamai's non-GAAP results because management believes the non-cash amortization expense is not representative of ongoing operating performance.
•Gains and losses on investments – Akamai has recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to these gains and losses are not representative of Akamai's core business operations and ongoing operating performance.
•Income and losses from equity method investment – Akamai records income or losses on its share of earnings and losses from its equity method investment, and any gains from returns of investments or impairments. Akamai excludes such income and losses because it does not have direct control over the operations of the investment and the related income and losses are not representative of its core business operations.
•Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.
Akamai's definitions of its non-GAAP financial measures are outlined below:
Non-GAAP income from operations – GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; and other non-recurring or unusual items that may arise from time to time.
Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.
Non-GAAP net income – GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; amortization of debt issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investment; and other non-recurring or unusual items that may arise from time to time.
Non-GAAP tax rate – GAAP tax rate excluding the tax effect of non-GAAP adjustments and certain discrete tax items.
Non-GAAP net income per diluted share, or EPS – Non-GAAP net income divided by weighted average diluted common shares outstanding. Diluted weighted average common shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transactions entered into in connection with the issuances of $1,265 million of convertible senior notes due 2029 and the issuances of $1,150 million of convertible senior notes due 2027 and 2025, respectively. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the Company would receive a benefit from the note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance. With respect to the convertible senior notes due in each of 2029, 2027 and 2025, unless Akamai's weighted average stock price is greater than $126.31, $116.18 and $95.10, respectively, the initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares outstanding.
Adjusted EBITDA – GAAP net income excluding the following items: interest and marketable securities income and losses; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses on equity method investment; and other non-recurring or unusual items that may arise from time to time.
Adjusted EBITDA margin – Adjusted EBITDA stated as a percentage of revenue.
15
Capital expenditures, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end versus prior periods.
Capex as a percentage of revenue – Capital expenditures, or capex, excluding stock-based compensation and interest expense, stated as a percentage of revenue.
Impact of foreign currency exchange rate – Revenue and earnings from international operations have historically been important contributors to Akamai's financial results. Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.
Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.
Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain statements that are not statements of historical fact and constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about expected future financial performance, expectations, plans and prospects of Akamai. 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, inability to continue to generate cash at the same level as prior years; failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; effects of competition, including pricing pressure and changing business models; impact of macroeconomic trends, including economic uncertainty, turmoil in the financial services industry, the effects of inflation, rising and fluctuating interest rates, foreign currency exchange rate fluctuations, securities market volatility and monetary supply fluctuations; conditions and uncertainties in the geopolitical environment, including sanctions and disruptions resulting from the ongoing war in Ukraine; continuing supply chain and logistics costs, constraints, changes or disruptions; defects or disruptions in our products or IT systems, including cyber-attacks, data breaches or malware; failure to realize the expected benefits of any of our acquisitions or reorganizations; changes to economic, political and regulatory conditions in the United States and internationally; our ability to attract and retain key personnel; impact of the COVID-19 pandemic; 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 or failure of such solutions to operate as expected, and other factors that are discussed in our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents filed with the SEC.
In addition, the statements in this press release and on our quarterly earnings conference call 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.
