PR Newswire | Oct 27, 2020 04:02PM EDT

10/27 15:01 CDT

Akamai Reports Third Quarter 2020 Financial ResultsThird quarter revenue of $793 million, up 12% year-over-year and up 11% when adjusted for foreign exchange*Cloud Security Solutions revenue grew 23% year-over-year and when adjusted for foreign exchange*GAAP EPS of $0.95, up 13% year-over-year, and non-GAAP EPS* of $1.31, up 19% year-over-year CAMBRIDGE, Mass., Oct. 27, 2020

CAMBRIDGE, Mass., Oct. 27, 2020 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the third quarter ended September 30, 2020.

"Our excellent third quarter results were driven by the continued strong performance of our security products and sustained high traffic levels on the Akamai Edge platform," said Dr. Tom Leighton, Akamai's chief executive officer. "We're proud of how Akamai continued to deliver fast, intelligent and secure online experiences for billions of users around the world as we support our customers during these unprecedented times."

Akamai delivered the following financial results for the third quarter ended September 30, 2020:

Revenue:Revenue was $793 million, a 12% increase over third quarter 2019 revenue of $710 million and an 11% increase when adjusted for foreign exchange.*

Revenue by Division(1):

* Web Division revenue was $418 million, up 8% year-over-year and up 7% when adjusted for foreign exchange* * Media and Carrier Division revenue was $375 million, up 16% year-over-year and when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

* Cloud Security Solutions revenue was $266 million, up 23% year-over-year and when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

* Revenue from Internet Platform Customers was $51 million, up 15% year-over-year and when adjusted for foreign exchange* * Revenue excluding Internet Platform Customers was $742 million, up 11% year-over-year and when adjusted for foreign exchange*

Revenue by Geography:

* U.S. revenue was $437 million, up 6% year-over-year * International revenue was $355 million, up 20% year-over-year and up 18% when adjusted for foreign exchange*

Income from operations:GAAP income from operations was $181 million, a 26% increase from third quarter 2019. GAAP operating margin for the third quarter was 23%, up 3 percentage points from the same period last year.

Non-GAAP income from operations* was $251 million, a 20% increase from third quarter 2019. Non-GAAP operating margin* for the third quarter was 32%, up 3 percentage points from the same period last year.

Net income:GAAP net income was $159 million, a 15% increase from third quarter 2019. Non-GAAP net income* was $216 million, a 19% increase from third quarter 2019.

EPS:GAAP EPS was $0.95 per diluted share, a 13% increase from third quarter 2019 and a 12% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.31 per diluted share, a 19% increase from third quarter 2019 and an 18% increase when adjusted for foreign exchange.*

Adjusted EBITDA*:Adjusted EBITDA was $351 million, a 17% increase from third quarter 2019. Adjusted EBITDA margin* for the third quarter was 44%, up 2 percentage points from the same period last year.

Supplemental cash information:Cash from operations for the third quarter of 2020 was $402 million, or 51% of revenue. Cash, cash equivalents and marketable securities was $2.6 billion as of September 30, 2020.

Share repurchases:Akamai spent $13 million in the third quarter of 2020 to repurchase 0.1 million shares of its common stock at an average price of $109.99 per share. The Company had 163 million shares of common stock outstanding as of September 30, 2020.

* 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

Revenue from Cloud Security Solutions - A product-focused reporting view(2) that reflects revenue from Cloud Security Solutions separately from all other solution categories

(3) Revenue from Internet Platform Customers - Revenue from large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix

Quarterly Conference CallAkamai 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 9551978. 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 9551978. The archived webcast of this event may be accessed through the Akamai website.

About AkamaiAkamai 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.

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



(in thousands) September 30,December 31, 2020 2019

ASSETS

Current assets:

Cash and cash equivalents $742,521 $393,745

Marketable securities 701,515 1,143,249

Accounts receivable, net 630,406 551,943

Prepaid expenses and other current assets 168,779 142,676

Total current assets 2,243,221 2,231,613

Marketable securities 1,110,058 835,384

Property and equipment, net 1,383,480 1,152,153

Operating lease right-of-use assets 745,089 758,450

Acquired intangible assets, net 184,478 179,431

Goodwill 1,598,919 1,600,265

Deferred income tax assets 97,801 76,528

Other assets 151,347 173,062

Total assets $7,514,393 $7,006,886

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $114,850 $138,946

Accrued expenses 369,815 334,861

Deferred revenue 88,942 71,223

Operating lease liabilities 136,292 139,463

Other current liabilities 7,225 8,843

Total current liabilities 717,124 693,336

Deferred revenue 3,954 4,368

Deferred income tax liabilities 31,946 29,187

Convertible senior notes 1,889,743 1,839,791

Operating lease liabilities 682,623 692,181

Other liabilities 81,386 90,065

Total liabilities 3,406,776 3,348,928

Total stockholders' equity 4,107,617 3,657,958

Total liabilities and stockholders' equity$7,514,393 $7,006,886

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands, except per share data) 2020 2020 2019 2020 2019

Revenue $ 792,845 $794,715$ 709,912 $2,351,862 $2,121,494

Costs and operating expenses:

Cost of revenue^(1) (2) 283,439 276,804 246,938 828,825 729,874

Research and development^(1) 66,773 64,090 64,887 202,087 192,467

Sales and marketing^(1) 122,749 123,469 122,258 370,004 383,640

General and administrative^(1) (2) 128,365 129,709 123,216 385,435 366,167

Amortization of acquired intangible 10,340 10,381 9,624 31,155 28,871 assets

Restructuring charge (benefit) 21 (167) (300) 10,439 6,879

Total costs and operating expenses 611,687 604,286 566,623 1,827,945 1,707,898

Income from operations 181,158 190,429 143,289 523,917 413,596

Interest income 6,307 9,502 7,908 22,852 22,953

Interest expense (17,324) (17,249) (12,127) (51,778) (32,689)

Other expense, net (2,158) (1,603) (752) (7,869) (819)

Income before provision for income 167,983 181,079 138,318 487,122 403,041 taxes

(Provision) benefit for income taxes (8,801) (18,671) 960 (41,764) (42,718)

Loss from equity method investment (559) (493) (1,388) (1,674) (1,388)

Net income $ 158,623 $161,915$ 137,890 $443,684 $358,935



Net income per share:

Basic $ 0.97 $1.00 $ 0.85 $2.73 $2.20

Diluted $ 0.95 $0.98 $ 0.84 $2.69 $2.18



Shares used in per share calculations:

Basic 162,757 162,413 162,445 162,387 163,029

Diluted 166,519 164,768 164,558 164,990 164,788

(1) Includes stock-based compensation (see supplemental table for figures)

(2) Includes depreciation and amortization (see supplemental table for figures)

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Cash flows from operating activities:

Net income $158,623 $161,915$137,890 $443,684 $358,935

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and 118,893 115,580 110,604 350,681 324,874 amortization

Stock-based 50,217 49,191 46,815 146,901 140,262 compensation

(Benefit) provision for (33,942) 14,282 (27) (22,548) 24,581 deferred income taxes

Amortization of debt discount 15,747 15,677 11,133 47,057 30,761 and issuance costs

Other non-cash reconciling 1,480 2,752 2,598 16,284 3,778 items, net

Changes in operating assets and liabilities, net of effects of acquisitions:

Accounts 20,107 (31,633) (17) (85,439) (38,144) receivable

Prepaid expenses and (11,401) 455 11,624 (21,380) (11,663) other current assets

Accounts payable and 97,220 (19,944) 23,348 49,818 (29,441) accrued expenses

Deferred (6,539) (5,647) (11,259) 14,803 16,714 revenue

Other current (523) (2,043) (3,111) (1,638) (21,850) liabilities

Other non-current (7,909) (1,894) (32,213) (14,316) (22,643) assets and liabilities

Net cash provided by 401,973 298,691 297,385 923,907 776,164 operating activities

Cash flows from investing activities:

Cash received (paid) for business - - - 106 (121,409) acquisitions, net of cash acquired

Cash paid for asset - - - (36,376) - acquisition

Cash paid for equity method - - - - (36,008) investment

Purchases of property and equipment and capitalization (228,759) (120,239)(152,633) (564,427) (428,411) of internal-use software development costs

Purchases of short- and long-term (311,010) (452,737)(981,805) (1,153,526) (1,373,563) marketable securities

Proceeds from sales and maturities of short- and 317,163 483,184 229,796 1,331,163 879,326 long-term marketable securities

Other non-current (2,059) 155 (342) (1,980) 1,895 assets and liabilities

Net cash used in investing (224,665) (89,637) (904,984) (425,040) (1,078,170) activities

AKAMAI TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Cash flows from financing activities:

Proceeds from the issuance of- - 1,135,629 - 1,135,629 convertible senior notes

Proceeds from the issuance of- - 185,150 - 185,150 warrants

Purchase of note hedge related to - - (312,225) - (312,225) convertible senior notes

Repayment of convertible - - - - (690,000) senior notes

Proceeds from the issuance of common stock 16,007 10,259 14,432 45,812 43,204 under stock plans

Employee taxes paid related to net share (13,369) (13,095) (11,160) (77,299) (61,116) settlement of stock-based awards

Repurchases of (13,198) (27,330) (175,541) (121,078) (291,788) common stock

Other non-current - - - - (1,558) assets and liabilities

Net cash (used in) provided by(10,560) (30,166) 836,285 (152,565) 7,296 financing activities

Effects of exchange rate changes on 4,363 8,155 (5,328) 3,535 (2,650) cash, cash equivalents and restricted cash

Net increase (decrease) in cash, cash 171,111 187,043 223,358 349,837 (297,360) equivalents and restricted cash

Cash, cash equivalents and restricted cash572,872 385,829 516,269 394,146 1,036,987 at beginning of period

Cash, cash equivalents and restricted cash$743,983 $572,872$739,627 $743,983 $739,627 at end of period



AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Web Division $418,064 $404,342 $387,662 $1,228,401 $1,139,422

Media and Carrier 374,781 390,373 322,250 1,123,461 982,072 Division

Total revenue $792,845 $794,715 $709,912 $2,351,862 $2,121,494

Revenue growth rates year-over-year:

Web Division 8 %7 %9 %8 %8 %

Media and Carrier 16 19 2 14 4 Division

Total revenue 12 %13 %6 %11 %6 %

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates^ (2):

Web Division 7 %8 %10 %8 %10 %

Media and Carrier 16 20 3 15 5 Division

Total revenue 11 %14 %7 %11 %8 %

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Cloud Security $265,869 $259,316 $215,916 $765,485 $610,820 Solutions

CDN and other 526,976 535,399 493,996 1,586,377 1,510,674 solutions

Total revenue $792,845 $794,715 $709,912 $2,351,862 $2,121,494

Revenue growth rates year-over-year:

Cloud Security 23 %27 %28 %25 %29 %Solutions

CDN and other 7 7 (1) 5 (1) solutions

Total revenue 12 %13 %6 %11 %6 %

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates^ (2):

Cloud Security 23 %28 %29 %26 %31 %Solutions

CDN and other 6 8 (1) 5 - solutions

Total revenue 11 %14 %7 %11 %8 %

As of January 1, 2020, Akamai reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical(1) results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, Akamai may reassign a customer's division from one to another.

(2) See Use of Non-GAAP Financial Measures below for a definition

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA - REVENUE FROM INTERNET PLATFORM CUSTOMERS



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Revenue from Internet $50,618 $50,752 $44,156 $146,072 $137,501 Platform Customers

Revenue excluding Internet 742,227 743,963 665,756 2,205,790 1,983,993 Platform Customers

Total revenue $792,845 $794,715 $709,912 $2,351,862 $2,121,494

Revenue growth rates year-over-year:

Revenue from Internet 15 %10 %2 %6 %5 %Platform Customers

Revenue excluding Internet 11 13 6 11 6 Platform Customers

Total revenue 12 %13 %6 %11 %6 %

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates^ (1):

Revenue from Internet 15 %10 %2 %6 %5 %Platform Customers

Revenue excluding Internet 11 14 7 12 8 Platform Customers

Total revenue 11 %14 %7 %11 %8 %

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

U.S. $437,381 $443,668 $413,116 $1,309,979 $1,248,175

International 355,464 351,047 296,796 1,041,883 873,319

Total revenue $792,845 $794,715 $709,912 $2,351,862 $2,121,494

Revenue growth rates year-over-year:

U.S. 6 %6 %- %5 %- %

International 20 22 15 19 16

Total revenue 12 %13 %6 %11 %6 %

Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates^ (1):

U.S. 6 %6 %- %5 %- %

International 18 24 18 21 20

Total revenue 11 %14 %7 %11 %8 %

(1) See Use of Non-GAAP Financial Measures below for a definition

AKAMAI TECHNOLOGIES, INC.

SUPPLEMENTAL OPERATING EXPENSE DATA



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

General and administrative expenses:

Payroll and related$50,159 $49,475 $47,892 $148,233 $145,248 costs

Stock-based 14,302 15,377 12,825 43,636 40,018 compensation

Depreciation and 20,554 20,654 19,269 61,673 56,420 amortization

Facilities-related 25,099 23,898 21,413 73,669 63,478 costs

(Benefit) provision for doubtful (1,627) 2,893 623 3,465 2,338 accounts

Acquisition-related1,051 62 219 1,189 1,194 costs

Legal settlements - 275 - 275 -

License of patent - - - - (8,855)

Professional fees 18,827 17,075 20,975 53,295 66,326 and other expenses

Total general and administrative $128,365 $129,709 $123,216 $385,435 $366,167 expenses



General and administrative expenses-functional ^(1):

Global functions $47,559 $46,818 $47,731 $142,243 $146,661

As a percentage of 6 %6 %7 %6 %7 %revenue

Infrastructure 81,365 79,677 74,643 238,262 219,302

As a percentage of 10 %10 %11 %10 %10 %revenue

Other (559) 3,214 842 4,930 204

Total general and administrative $128,365 $129,709 $123,216 $385,435 $366,167 expenses

As a percentage of 16 %16 %17 %16 %17 %revenue



Stock-based compensation:

Cost of revenue $6,384 $6,254 $5,555 $18,374 $16,917

Research and 12,722 11,549 12,842 36,336 36,943 development

Sales and marketing16,809 16,011 15,593 48,555 46,384

General and 14,302 15,377 12,825 43,636 40,018 administrative

Total stock-based $50,217 $49,191 $46,815 $146,901 $140,262 compensation

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(1) infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related 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, allowance for doubtful accounts, the license of a patent, legal settlements and transformation costs.

AKAMAI TECHNOLOGIES, INC.

OTHER SUPPLEMENTAL DATA



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands, except end of period statistics) 2020 2020 2019 2020 2019

Depreciation and amortization:

Network-related depreciation $42,991 $38,806 $31,840 $118,194 $91,402

Capitalized internal-use software development 37,572 38,164 41,842 116,505 123,739 amortization

Other depreciation and amortization 20,081 20,193 18,843 60,293 55,124

Depreciation of property and equipment 100,644 97,163 92,525 294,992 270,265

Capitalized stock-based compensation 7,078 7,185 7,500 21,894 22,866 amortization^(1)

Capitalized interest expense amortization^(1) 831 851 955 2,640 2,872

Amortization of acquired intangible assets 10,340 10,381 9,624 31,155 28,871

Total depreciation and amortization $118,893 $115,580$110,604 $350,681 $324,874



Capital expenditures, excluding stock-based compensation and interest expense^(2)(3):

Purchases of property and equipment $144,155 $142,310$104,345 $371,264 $284,294

Capitalized internal-use software development 55,885 53,692 49,754 160,486 152,194 costs

Total capital expenditures, excluding $200,040 $196,002$154,099 $531,750 $436,488 stock-based compensation and interest expense



End of period statistics:

Number of employees 8,155 7,951 7,579

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(1) cloud-computing arrangements. 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).

Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of(2) 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.

(3) See Use of Non-GAAP Financial Measures below for a definition

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS AND NET INCOME



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Income from $181,158 $190,429 $143,289 $523,917 $413,596 operations

GAAP operating 23 %24 %20 %22 %19 %margin

Amortization of acquired intangible 10,340 10,381 9,624 31,155 28,871 assets

Stock-based 50,217 49,191 46,815 146,901 140,262 compensation

Amortization of capitalized stock-based 7,913 8,038 8,455 24,540 25,738 compensation and capitalized interest expense

Restructuring charge21 (167) (300) 10,439 6,879 (benefit)

Acquisition-related 1,051 62 219 1,189 1,194 costs

Legal settlements - 275 - 275 -

Transformation costs- - - - 5,527

Operating 69,542 67,780 64,813 214,499 208,471 adjustments

Non-GAAP income from$250,700 $258,209 $208,102 $738,416 $622,067 operations

Non-GAAP operating 32 %32 %29 %31 %29 %margin



Net income $158,623 $161,915 $137,890 $443,684 $358,935

Operating adjustments (from 69,542 67,780 64,813 214,499 208,471 above)

Amortization of debt discount and 15,747 15,677 11,133 47,057 30,761 issuance costs

Gain on investments - - - - (440)

Loss from equity 559 493 1,388 1,674 1,388 method investment

Income tax-effect of above non-GAAP adjustments and (28,689) (19,347) (34,631) (68,481) (61,389) certain discrete tax items

Non-GAAP net income $215,782 $226,518 $180,593 $638,433 $537,726

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE



Three Months Ended Nine Months Ended

September 30,June 30,September 30,September 30,September 30,(in thousands, except per share data) 2020 2020 2019 2020 2019

GAAP net income per diluted share $0.95 $0.98 $0.84 $2.69 $2.18

Adjustments to net income:

Amortization of acquired intangible 0.06 0.06 0.06 0.19 0.18 assets

Stock-based compensation 0.30 0.30 0.28 0.89 0.85

Amortization of capitalized stock-based compensation and 0.05 0.05 0.05 0.15 0.16 capitalized interest expense

Restructuring charge (benefit) - - - 0.06 0.04

Acquisition-related costs 0.01 - - 0.01 0.01

Legal settlements - - - - -

Transformation costs - - - - 0.03

Amortization of debt discount and 0.09 0.10 0.07 0.29 0.19 issuance costs

Gain on investments - - - - -

Loss from equity method investment - - 0.01 0.01 0.01

Income tax effect of above non-GAAP adjustments and certain discrete tax (0.17) (0.12) (0.21) (0.42) (0.37) items

Adjustment for shares^(1) 0.02 0.01 - 0.02 -

Non-GAAP net income per diluted share$1.31 $1.38 $1.10 $3.89 $3.26



Shares used in GAAP diluted per share166,519 164,768164,558 164,990 164,788 calculations

Impact of benefit from note hedge (1,732) (653) - (795) - transactions^(1)

Shares used in non-GAAP diluted per 164,787 164,115164,558 164,195 164,788 share calculations^(1)

Shares used in non-GAAP diluted per share calculations have been adjusted for the three and nine months ended September 30, 2020, for the benefit of(1) Akamai's note hedge transactions. During the three months ended September 30, 2020, 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.

AKAMAI TECHNOLOGIES, INC.

RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA



Three Months Ended Nine Months Ended

September 30,June 30, September 30,September 30,September 30,(in thousands) 2020 2020 2019 2020 2019

Net income $158,623 $161,915 $137,890 $443,684 $358,935

Interest income (6,307) (9,502) (7,908) (22,852) (22,953)

Provision (benefit)8,801 18,671 (960) 41,764 42,718 for income taxes

Depreciation and 100,644 97,163 92,525 294,992 270,265 amortization

Amortization of capitalized stock-based 7,913 8,038 8,455 24,540 25,738 compensation and capitalized interest expense

Amortization of acquired intangible10,340 10,381 9,624 31,155 28,871 assets

Stock-based 50,217 49,191 46,815 146,901 140,262 compensation

Restructuring 21 (167) (300) 10,439 6,879 charge (benefit)

Acquisition-related1,051 62 219 1,189 1,194 costs

Legal settlements - 275 - 275 -

Transformation - - - - 5,527 costs

Interest expense 17,324 17,249 12,127 51,778 32,689

Gain on investments- - - - (440)

Loss from equity 559 493 1,388 1,674 1,388 method investment

Other expense, net 2,158 1,603 752 7,869 1,259

Adjusted EBITDA $351,344 $355,372 $300,627 $1,033,408 $892,332

Adjusted EBITDA 44 %45 %42 %44 %42 %margin

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). 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, 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 results 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. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions and do not reflect Akamai's core operations. * Restructuring charges - Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and charges associated with exiting facility lease commitments. 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. * Amortization of debt discount and issuance costs and amortization of capitalized interest expense - In August 2019, Akamai issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. In February 2014, Akamai issued $690 million of convertible senior notes due 2019 with a coupon interest rate of 0%. The imputed interest rates of these convertible senior notes were 3.10%, 4.26% and 3.20%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of the company's operating performance because management believes the non-cash 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 them are not representative of Akamai's core business operations and ongoing operating performance. * Legal settlements - Akamai has incurred losses related to the settlement of legal matters. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations. * Transformation costs - Akamai has incurred professional services fees associated with internal transformation programs designed to improve its operating margins and that are part of a planned program intended to significantly change the manner in which business in conducted. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events and activities giving rise to them occur infrequently and 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 of its equity method investment. Akamai excludes such income and losses because it lacks 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; gains and losses on legal settlements; transformation costs; 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; gains and losses on legal settlements; transformation costs; amortization of debt discount and 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 net income per diluted share- Non-GAAP net income divided by weighted average diluted common shares outstanding. Diluted weighted average 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 $1,150 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 2027 and 2025, unless Akamai's weighted average stock price is greater than $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 income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; transformation costs; 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.

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.

Impact of Foreign Currency Exchange Rate - Revenue and earnings from international operations have historically been an important contributor 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 ActThis release and/or our quarterly earnings conference call scheduled for later today contain 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 about expected future financial performance. 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; changes in geo-political conditions that impact our customers' use of our solutions; 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; 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 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 and on such 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.

Contacts:Gina SoriceMedia Relations Akamai Technologies 646-320-4107 gsorice@akamai.com

Tom BarthInvestor RelationsAkamai Technologies617-274-7130tbarth@akamai.com

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SOURCE Akamai Technologies, Inc.