Original Source: FD (FAIR DISCLOSURE) WIRE
. Noelle Faris, Akamai Technologies Inc., Senior Manager, Investor
Relations . Paul Sagan, Akamai Technologies Inc., President, CEO . J.D. Sherman, Akamai Technologies Inc., CFO . Mark Kelleher, Canaccord Adams, Analyst . Michael Turits, Raymond James & Associates, Analyst . Mark Mahaney, Citigroup, Analyst . Thomas Watts, Cowen & Co., Analyst . Rob Sanderson, American Technology Research, Analyst
. Tim Klasell, Thomas Weisel Partners, Analyst . Colby Synesael, Merriman Curhan Ford & Co., Analyst . Rod Ratliff, Stanford Group Co., Analyst . Srinivas Anantha, Oppenheimer & Co., Analyst . Garrett Becker, Merrill Lynch, Analyst . Kirk Materne, Banc of America Securities, Analyst . Derek Bingham, Goldman Sachs, Analyst
AKAM reported 2Q08 revenue of $194m. 2Q08 GAAP net income was $34.3m or $0.19 per diluted share. 2008 revenue guidance is $785-800m. 3Q08 revenue guidance is $193-198m. 2008 normalized EPS guidance is $1.63-1.69. 3Q08 normalized diluted EPS guidance is $0.39-0.40.
A. Key Data From Call 1. 2Q08 revenue = $194m. 2. 2Q08 GAAP net income = $34.3m. 3. 2Q08 normalized net income = $76.5m. 4. 2Q08 GAAP diluted EPS = $0.19. 5. 2Q08 normalized diluted EPS = $0.41.
6. 2Q08 GAAP GM = 72%. 7. 2Q08 GAAP OpEx = $88m. 8. 2Q08 CapEx (excluding equity compensation) = roughly $30m. 9. 2Q08 DSO = 58.
10. 2Q08-end cash, cash equivalents, and marketable securities =
$745m. 11. 2008 revenue guidance = $785-800m. 12. 3Q08 revenue guidance = $193-198m. 13. 2008 normalized EPS guidance = $1.63-1.69.
14. 3Q08 normalized diluted EPS guidance = $0.39-0.40.
S1. Opening Comments (P.S.) 1. 2Q08 Highlights: 1. Record revenue, $194m, 27% increase over 2Q07 and 4% increase over 1Q08. 2. Normalized net income, $76.5m or $0.41 per diluted share, 38%
increase over 2Q07 and consistent with strong 1Q08 results.
3. Continues to experience solid growth in many of newer service
areas like: 1. Application Acceleration for Business-to-business Services. 2. Dynamic Site Solutions for e-commerce.
S2. 2Q08 Financial Review (D.S.) 1. Revenue: 1. Grew revenue 27% YoverY and 4% sequentially to $194m at low-end of expectation range coming into the qtr. 2. Media and entertainment vertical grew roughly in line with overall business and remained an important contributor to 2Q08 results. 1. Media growth has moderated from the pace seen for several years during the period of rapid broadband adoption. 3. Growth in commerce vertical continued to be very strong.
1. Fastest growing vertical with more than 50% increase YoverY.
4. Continued to make progress with newer value-added solutions
like: 1. Application Performance Services. 2. Dynamic Site Solutions. 3. Stream OS. 1. These higher margin areas contributed to the improvement in probability in 2Q08 as demonstrated in GM and EBITDA results. 5. International sales represented 26% of total revenue, up one point from 1Q08 level. 1. International business performed well growing 8% sequentially and 45% YoverY.
2. Revenue in North America, where Co. saw largest impact from
economic factors and media trends, grew 2% sequentially and 22% YoverY. 6. Resellers represented 16% of total revenue, consistent with 1Q08. 1. No customer accounted for 10% or more of 2Q08 revenue. 7. Consolidated ARPU (Avg. revenue per customer) was up 19% YoverY to $23,700 in 2Q08. 1. This is the result of Co.'s focus on building deeper and broader relationships with enterprise-class customers by selling new, more advanced solutions into customer base. 2. Added 53 net new customers in 2Q08, bringing total customer count to 2,725. 3. Gross adds, brand-new customers to AKAM increased to about 170 this qtr. 4. Churn was just over 4%, primarily due to churn from smaller customers. 1. ARPU of new customer adds continued to be well above the avg. revenue of churn customers. 2. GM: 1. Cash GM was 82%, up from 81% in 1Q08 and down about a point from 2Q07. 1. As expected, GM stabilized with growth in sales of Dynamic Site Solutions and Application Performance Services, which have higher GM than Media Delivery deals. 2. GAAP GM, which includes depreciation and stock-based
compensation, was 72%, consistent with 1Q08 and down about two
points from 2Q07. 3. Expenses: 1. GAAP OpEx was $88m.
1. GAAP numbers include depreciation, amortization of intangible assets, and stock-based compensation charges. 2. Excluding these non-cash charges, 2Q08 OpEx was $65.9m, up $900,000 from 1Q08.
2. Adjusted EBITDA was $92.7m, up 6% from 1Q08 and up 41% from
2Q07. 1. Adjusted EBITDA margin of 48% was up five points vs. 2Q07 and up one point from 1Q08. 3. Total D&A was $23.4m, up from $22.6m in 1Q08. 1. These charges include: 1. $17.7m of network-related depreciation. 2. $2.2m of G&A depreciation. 3. $3.5m of amortization of intangible assets. 4. Net interest income was $4.8m, down $2.6m from 1Q08 as interest rates declined, despite growing cash balance. 4. Earnings: 1. GAAP net income was $34.3m or $0.19 per diluted share. 1. GAAP net income includes non-cash charges for stock-compensation related to FAS-123R and book tax charges at an effective annual rate of approx. 40%. 2. Because of significant deferred tax assets, Co. is paying cash taxes at an annualized rate of about 2%. 2. Stock-based compensation expense was $18m or $0.10 per diluted share on pre-tax bases.
3. Additional non-cash items in GAAP net income for 2Q08 include:
1. $3.5m from amortization of intangible assets. 2. $20.7m non-cash tax charge. 4. Excluding these non-cash items, normalized net income for 2Q08 was $76.5m, 38% higher than normalized net income for 2Q07 and up $900,000 from strong 1Q08. 1. In 2Q08, earned $0.41 per diluted share on a normalized basis, 37% increase YoverY and consistent with 1Q08. 5. Normalized weighted avg. diluted share count was 189m shares. 5. Balance Sheet: 1. Cash from operations, $70m. 1. YTD, generated $158m of cash from operations or 41% of revenue, up 78% vs. last year. 2. At 2Q08-end, had $745m in cash, cash equivalents, and marketable securities on the balance sheet. 1. This balance includes $280m of AAA rated federally insured student loan auction rate securities. 3. CapEx, excluding equity compensation, was roughly $30m. 4. DSO was 58 days, down one day from 1Q08. 6. 2008 Guidance: 1. In media space, while clients continues to develop higher quality video initiatives, not expecting this trend to impact 2H08 significantly enough to offset the pressure from general economic environment.
1. Based on the trends, expects to come in for 2008 at low-end
of earlier revenue guidance or slightly below. 2. Updating guidance to revenue between $785-800m or 23-26% growth. 3. Expects cash GM will trend downward by 1-2 points for 2008, slightly better than previous guidance. 1. 2008 adjusted EBITDA margins should expand by roughly two points vs. 2007. 4. With lower than anticipated interest rates impacting interest income, and slower topline growth, Co. is likely to be at low-end of earnings guidance or slightly below. 1. Updating earnings guidance to $1.63-1.69 of normalized EPS. 2. This will translate into YoverY normalized net income growth of …