PR Newswire | Jul 28, 2020 04:02PM EDT

07/28 15:01 CDT

Akamai Reports Second Quarter 2020 Financial ResultsSecond quarter revenue of $795 million, up 13% year-over-year and up 14% when adjusted for foreign exchange*Cloud Security Solutions revenue grew 27% year-over-year and 28% when adjusted for foreign exchange*GAAP EPS of $0.98, up 42% year-over-year, and non-GAAP EPS* of $1.38, up 29% year-over-year CAMBRIDGE, Mass., July 28, 2020

CAMBRIDGE, Mass., July 28, 2020 /PRNewswire/ -- Akamai (NASDAQ: AKAM), the intelligent edge platform for securing and delivering digital experiences, today reported financial results for the second quarter ended June 30, 2020.

"Akamai's outstanding top and bottom line results in the second quarter were powered by the strong growth of our Security and Media solutions and our continued operational excellence," said Dr. Tom Leighton, Akamai's chief executive officer. "Amidst the ongoing humanitarian crisis associated with COVID-19, we are proud to be supporting our customers - and billions of internet users - with exceptional services when they need them most."

Akamai delivered the following financial results for the second quarter ended June 30, 2020:

Revenue:Revenue was $795 million, a 13% increase over second quarter 2019 revenue of $705 million and a 14% increase when adjusted for foreign exchange.*

Revenue by Division(1):

* Web Division revenue was $404 million, up 7% year-over-year and up 8% when adjusted for foreign exchange* * Media and Carrier Division revenue was $390 million, up 19% year-over-year and up 20% when adjusted for foreign exchange*

Revenue from Cloud Security Solutions(2):

* Cloud Security Solutions revenue was $259 million, up 27% year-over-year and up 28% when adjusted for foreign exchange*

Revenue from Internet Platform Customers(3):

* Revenue from Internet Platform Customers was $51 million, up 10% year-over-year and when adjusted for foreign exchange* * Revenue excluding Internet Platform Customers was $744 million, up 13% year-over-year and up 14% when adjusted for foreign exchange*

Revenue by Geography:

* U.S. revenue was $444 million, up 6% year-over-year * International revenue was $351 million, up 22% year-over-year and up 24% when adjusted for foreign exchange*

Income from operations:GAAP income from operations was $190 million, a 40% increase from second quarter 2019. GAAP operating margin for the second quarter was 24%, up 5 percentage points from the same period last year.

Non-GAAP income from operations* was $258 million, a 26% increase from second quarter 2019. Non-GAAP operating margin* for the second quarter was 32%, up 3 percentage points from the same period last year.

Net income:GAAP net income was $162 million, a 42% increase from second quarter 2019. Non-GAAP net income* was $227 million, a 29% increase from second quarter 2019.

EPS:GAAP EPS was $0.98 per diluted share, a 42% increase from second quarter 2019 and a 44% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.38 per diluted share, a 29% increase from second quarter 2019 and a 30% increase when adjusted for foreign exchange.*

Adjusted EBITDA*:Adjusted EBITDA was $355 million, a 21% increase from second quarter 2019. Adjusted EBITDA margin* for the second quarter was 45%, up 3 percentage points from the same period last year.

Supplemental cash information:Cash from operations for the second quarter of 2020 was $299 million, or 38% of revenue. Cash, cash equivalents and marketable securities was $2.4 billion as of June 30, 2020.

Share repurchases:Akamai spent $27 million in the second quarter of 2020 to repurchase 0.3 million shares of its common stock at an average price of $100.64 per share. The Company had 163 million shares of common stock outstanding as of June 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

Revenue from Internet Platform Customers - Revenue from large Internet (3)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 2481329. 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 2481329. 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



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

ASSETS

Current assets:

Cash and cash equivalents $572,288 $393,745

Marketable securities 800,321 1,143,249

Accounts receivable, net 644,659 551,943

Prepaid expenses and other current assets 175,731 142,676

Total current assets 2,192,999 2,231,613

Marketable securities 1,018,835 835,384

Property and equipment, net 1,281,392 1,152,153

Operating lease right-of-use assets 736,465 758,450

Acquired intangible assets, net 194,951 179,431

Goodwill 1,595,304 1,600,265

Deferred income tax assets 61,310 76,528

Other assets 143,542 173,062

Total assets $7,224,798$7,006,886

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $153,958 $138,946

Accrued expenses 263,646 334,861

Deferred revenue 93,648 71,223

Operating lease liabilities 138,478 139,463

Other current liabilities 7,692 8,843

Total current liabilities 657,422 693,336

Deferred revenue 4,536 4,368

Deferred income tax liabilities 29,556 29,187

Convertible senior notes 1,872,937 1,839,791

Operating lease liabilities 673,678 692,181

Other liabilities 82,374 90,065

Total liabilities 3,320,503 3,348,928

Total stockholders' equity 3,904,295 3,657,958

Total liabilities and stockholders' equity$7,224,798$7,006,886

AKAMAI TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME



Three Months Ended Six Months Ended

(in thousands,June 30, March 31, June 30, June 30, June 30, except per share data) 2020 2020 2019 2020 2019

Revenue $794,715$764,302$705,074$1,559,017$1,411,582

Costs and operating expenses:

Cost of revenue^(1) 276,804 268,582 242,193 545,386 482,936 (2)

Research and development^ 64,090 71,224 61,439 135,314 127,580 (1)

Sales and 123,469 123,786 135,106 247,255 261,382 marketing^(1)

General and administrative129,709 127,361 120,116 257,070 242,951 ^(1) (2)

Amortization of acquired 10,381 10,434 9,648 20,815 19,247 intangible assets

Restructuring (benefit) (167) 10,585 790 10,418 7,179 charge

Total costs and operating 604,286 611,972 569,292 1,216,258 1,141,275 expenses

Income from 190,429 152,330 135,782 342,759 270,307 operations

Interest 9,502 7,043 6,410 16,545 15,045 income

Interest (17,249) (17,205) (8,446) (34,454) (20,562) expense

Other expense,(1,603) (4,108) (578) (5,711) (67) net

Income before provision for 181,079 138,060 133,168 319,139 264,723 income taxes

Provision for (18,671) (14,292) (19,253) (32,963) (43,678) income taxes

Loss from equity method (493) (622) - (1,115) - investment

Net income $161,915$123,146$113,915$285,061 $221,045



Net income per share:

Basic $1.00 $0.76 $0.70 $1.76 $1.35

Diluted $0.98 $0.75 $0.69 $1.74 $1.34



Shares used in per share calculations:

Basic 162,413 161,992 163,407 162,203 163,322

Diluted 164,768 163,684 165,019 164,226 164,903



(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 Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Cash flows from operating activities:

Net income $161,915$123,146$113,915$285,061$221,045

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

Depreciation and 115,580 116,208 106,065 231,788 214,270 amortization

Stock-based 49,191 47,493 48,142 96,684 93,447 compensation

Provision (benefit) for 14,282 (2,888) 15,626 11,394 24,608 deferred income taxes

Amortization of debt discount and 15,677 15,633 8,010 31,310 19,628 issuance costs

Other non-cash reconciling items,2,752 12,052 1,301 14,804 1,180 net

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

Accounts (31,633) (73,913) 5,639 (105,546)(38,127) receivable

Prepaid expenses and other current 455 (10,434) (10,258) (9,979) (23,287) assets

Accounts payable and accrued (19,944) (27,458) 32,577 (47,402) (52,789) expenses

Deferred revenue (5,647) 26,989 (1,313) 21,342 27,973

Other current (2,043) 928 (9,266) (1,115) (18,739) liabilities

Other non-current assets and (1,894) (4,513) 7,491 (6,407) 9,570 liabilities

Net cash provided by operating 298,691 223,243 317,929 521,934 478,779 activities

Cash flows from investing activities:

Cash received (paid) for business - 106 55 106 (121,409)acquisitions, net of cash acquired

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

Cash received (paid) for equity - - 4,205 - (36,008) method investment

Purchases of property and equipment and capitalization of (120,239)(215,429)(133,349)(335,668)(275,778)internal-use software development costs

Purchases of short- and long-term (452,737)(389,779)(381,133)(842,516)(391,758)marketable securities

Proceeds from sales and maturities of short- and 483,184 530,816 101,493 1,014,000649,530 long-term marketable securities

Other non-current assets and 155 (76) (698) 79 2,237 liabilities

Net cash used in investing (89,637) (110,738)(409,427)(200,375)(173,186)activities

AKAMAI TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Cash flows from financing activities:

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

Proceeds from the issuance of common10,259 19,546 8,998 29,805 28,772 stock under stock plans

Employee taxes paid related to net share (13,095) (50,835) (11,317) (63,930) (49,956) settlement of stock-based awards

Repurchases of (27,330) (80,550) (81,375) (107,880)(116,247)common stock

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

Net cash used in financing (30,166) (111,839)(83,694) (142,005)(828,989)activities

Effects of exchange rate changes on cash, 8,155 (8,983) 1,077 (828) 2,678 cash equivalents and restricted cash

Net increase (decrease) in cash, cash 187,043 (8,317) (174,115)178,726 (520,718)equivalents and restricted cash

Cash, cash equivalents and restricted cash at385,829 394,146 690,384 394,146 1,036,987beginning of period

Cash, cash equivalents and $572,872$385,829$516,269$572,872$516,269restricted cash at end of period



AKAMAI TECHNOLOGIES, INC. SUPPLEMENTAL REVENUE DATA - REVENUE BY DIVISION



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019^ (1) 2020 2019^ (1)

Web Division $404,342 $405,995 $377,558 $810,337 $751,760

Media and Carrier 390,373 358,307 327,516 748,680 659,822 Division

Total revenue $794,715 $764,302 $705,074 $1,559,017 $1,411,582

Revenue growth rates year-over-year:

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

Media and Carrier 19 8 5 13 5 Division

Total revenue 13 %8 %6 %10 %6 %

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

Web Division 8 %10 %10 %9 %9 %

Media and Carrier 20 9 6 14 7 Division

Total revenue 14 %9 %8 %11 %8 %

AKAMAI TECHNOLOGIES, INC. SUPPLEMENTAL REVENUE DATA - REVENUE FROM CLOUD SECURITY SOLUTIONS



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Cloud Security $259,316 $240,300 $204,811 $499,616 $394,904 Solutions

CDN and other 535,399 524,002 500,263 1,059,401 1,016,678 solutions

Total revenue $794,715 $764,302 $705,074 $1,559,017 $1,411,582



Revenue growth rates year-over-year:

Cloud Security 27 %26 %32 %27 %29 %Solutions

CDN and other 7 1 (1) 4 (1) solutions

Total revenue 13 %8 %6 %10 %6 %

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

Cloud Security 28 %28 %34 %28 %32 %Solutions

CDN and other 8 2 - 5 1 solutions

Total revenue 14 %9 %8 %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 (1)historical 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 Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Revenue from Internet $50,752 $44,702 $46,259 $95,454 $93,345 Platform Customers

Revenue excluding Internet 743,963 719,600 658,815 1,463,563 1,318,237 Platform Customers

Total revenue $794,715 $764,302 $705,074 $1,559,017 $1,411,582

Revenue growth rates year-over-year:

Revenue from Internet 10 %(5) %5 %2 %6 %Platform Customers

Revenue excluding Internet 13 9 6 11 6 Platform Customers

Total revenue 13 %8 %6 %10 %6 %

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

Revenue from Internet 10 %(5) %5 %2 %6 %Platform Customers

Revenue excluding Internet 14 10 8 12 8 Platform Customers

Total revenue 14 %9 %8 %11 %8 %

AKAMAI TECHNOLOGIES, INC. SUPPLEMENTAL REVENUE DATA - REVENUE BY GEOGRAPHY



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

U.S. $443,668 $428,930 $416,859 $872,598 $835,059

International 351,047 335,372 288,215 686,419 576,523

Total revenue $794,715 $764,302 $705,074 $1,559,017 $1,411,582

Revenue growth rates year-over-year:

U.S. 6 %3 %1 %4 %- %

International 22 16 15 19 16

Total revenue 13 %8 %6 %10 %6 %

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

U.S. 6 %3 %1 %4 %- %

International 24 19 20 22 22

Total revenue 14 %9 %8 %11 %8 %



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

AKAMAI TECHNOLOGIES, INC. SUPPLEMENTAL OPERATING EXPENSE DATA



Three Months Ended Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

General and administrative expenses:

Payroll and related$49,475 $48,599 $47,705 $98,074 $97,356 costs

Stock-based 15,377 13,957 14,565 29,334 27,193 compensation

Depreciation and 20,654 20,465 18,778 41,119 37,151 amortization

Facilities-related 23,898 24,672 21,042 48,570 42,065 costs

Provision for 2,893 2,199 915 5,092 1,715 doubtful accounts

Acquisition-related62 76 524 138 975 costs

Legal settlements 275 - - 275 -

License of patent - - (4,452) - (8,855)

Professional fees 17,075 17,393 21,039 34,468 45,351 and other expenses

Total general and administrative $129,709 $127,361 $120,116 $257,070 $242,951 expenses



General and administrative expenses-functional ^(1):

Global functions $46,818 $47,866 $49,462 $94,684 $98,930

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

Infrastructure 79,677 77,220 72,332 156,897 144,659

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

Other 3,214 2,275 (1,678) 5,489 (638)

Total general and administrative $129,709 $127,361 $120,116 $257,070 $242,951 expenses

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



Stock-based compensation:

Cost of revenue $6,254 $5,736 $5,793 $11,990 $11,362

Research and 11,549 12,065 12,044 23,614 24,101 development

Sales and marketing16,011 15,735 15,740 31,746 30,791

General and 15,377 13,957 14,565 29,334 27,193 administrative

Total stock-based $49,191 $47,493 $48,142 $96,684 $93,447 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 Six Months Ended

(in thousands, June 30, March 31, June 30, June 30, June 30, except end of period statistics)2020 2020 2019 2020 2019

Depreciation and amortization:

Network-related $38,806 $36,397 $29,394 $75,203 $59,562 depreciation

Capitalized internal-use software 38,164 40,769 40,640 78,933 81,897 development amortization

Other depreciation20,193 20,019 18,333 40,212 36,281 and amortization

Depreciation of property and 97,163 97,185 88,367 194,348 177,740 equipment

Capitalized stock-based 7,185 7,631 7,271 14,816 15,366 compensation amortization^(1)

Capitalized interest expense 851 958 779 1,809 1,917 amortization^(1)

Amortization of acquired 10,381 10,434 9,648 20,815 19,247 intangible assets

Total depreciation$115,580$116,208$106,065$231,788$214,270and amortization



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

Purchases of property and $142,310$84,799 $99,614 $227,109$179,949equipment

Capitalized internal-use 53,692 50,909 52,955 104,601 102,440 software development costs

Total capital expenditures, excluding $196,002$135,708$152,569$331,710$282,389stock-based compensation and interest expense



End of period statistics:

Number of 7,951 7,742 7,434 employees



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 (1)implementation of 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 (2)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.

(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 Six Months Ended

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Income from $190,429 $152,330 $135,782 $342,759 $270,307 operations

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

Amortization of acquired intangible10,381 10,434 9,648 20,815 19,247 assets

Stock-based 49,191 47,493 48,142 96,684 93,447 compensation

Amortization of capitalized stock-based 8,038 8,589 8,050 16,627 17,283 compensation and capitalized interest expense

Restructuring (167) 10,585 790 10,418 7,179 (benefit) charge

Acquisition-related62 76 524 138 975 costs

Legal settlements 275 - - 275 -

Transformation - - 1,336 - 5,527 costs

Operating 67,780 77,177 68,490 144,957 143,658 adjustments

Non-GAAP income $258,209 $229,507 $204,272 $487,716 $413,965 from operations

Non-GAAP operating 32 %30 %29 %31 %29 %margin



Net income $161,915 $123,146 $113,915 $285,061 $221,045

Operating adjustments (from 67,780 77,177 68,490 144,957 143,658 above)

Amortization of debt discount and 15,677 15,633 8,010 31,310 19,628 issuance costs

Loss (gain) on - - 250 - (440) investments

Loss from equity 493 622 - 1,115 - method investment

Income tax-effect of above non-GAAP adjustments and (19,347) (20,445) (14,454) (39,792) (26,758) certain discrete tax items

Non-GAAP net income$226,518 $196,133 $176,211 $422,651 $357,133

AKAMAI TECHNOLOGIES, INC. RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE



Three Months Ended Six Months Ended

(in thousands, except per June 30,March 31,June 30,June 30,June 30,share data) 2020 2020 2019 2020 2019

GAAP net income per diluted$0.98 $0.75 $0.69 $1.74 $1.34 share

Adjustments to net income:

Amortization of acquired 0.06 0.06 0.06 0.13 0.12 intangible assets

Stock-based compensation 0.30 0.29 0.29 0.59 0.57

Amortization of capitalized stock-based compensation 0.05 0.05 0.05 0.10 0.10 and capitalized interest expense

Restructuring (benefit) - 0.06 - 0.06 0.04 charge

Acquisition-related costs - - - - 0.01

Legal settlements - - - - -

Transformation costs - - 0.01 - 0.03

Amortization of debt 0.10 0.10 0.05 0.19 0.12 discount and issuance costs

Loss (gain) on investments - - - - -

Loss from equity method - - - 0.01 - investment

Income tax effect of above non-GAAP adjustments and (0.12) (0.12) (0.09) (0.24) (0.16) certain discrete tax items

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

Non-GAAP net income per $1.38 $1.20 $1.07 $2.58 $2.17 diluted share



Shares used in GAAP diluted164,768163,684 165,019164,226164,903per share calculations

Impact of benefit from note(653) - - (326) - hedge transactions^(1)

Shares used in non-GAAP diluted per share 164,115163,684 165,019163,900164,903calculations^(1)



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

June 30, March 31, June 30, June 30, June 30, (in thousands) 2020 2020 2019 2020 2019

Net income $161,915 $123,146 $113,915 $285,061 $221,045

Interest income (9,502) (7,043) (6,410) (16,545) (15,045)

Provision for 18,671 14,292 19,253 32,963 43,678 income taxes

Depreciation and 97,163 97,185 88,367 194,348 177,740 amortization

Amortization of capitalized stock-based 8,038 8,589 8,050 16,627 17,283 compensation and capitalized interest expense

Amortization of acquired intangible10,381 10,434 9,648 20,815 19,247 assets

Stock-based 49,191 47,493 48,142 96,684 93,447 compensation

Restructuring (167) 10,585 790 10,418 7,179 (benefit) charge

Acquisition-related62 76 524 138 975 costs

Legal settlements 275 - - 275 -

Transformation - - 1,336 - 5,527 costs

Interest expense 17,249 17,205 8,446 34,454 20,562

Loss (gain) on - - 250 - (440) investments

Loss from equity 493 622 - 1,115 - method investment

Other expense, net 1,603 4,108 328 5,711 507

Adjusted EBITDA $355,372 $326,692 $292,639 $682,064 $591,705

Adjusted EBITDA 45 %43 %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 RelationsAkamai Technologies646-320-4107gsorice@akamai.com

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

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SOURCE Akamai Technologies, Inc.