AccessMyLibrary provides FREE access to millions of articles from top publications available through your library.
OPERATOR: Good day, ladies and gentlemen. And welcome to the 2008 Akamai Technologies, Inc. earnings conference call. (Operator Instructions). I will now turn the call over to Natalie Temple, Senior Analyst for Investor Relations. You may proceed.
NATALIE TEMPLE, SENIOR ANALYST & IR, AKAMAI TECHNOLOGIES INC.: Good afternoon, and thank you for joining Akamai's investor conference call to discuss our fourth quarter and full-year 2008 financial results. Speaking today will be Paul Sagan, Akamai's President and Chief Executive Officer and J.D. Sherman, Akamai's Chief Financial Officer. Today's presentation contains estimates and other statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the Company's view on February 4, 2009. Akamai disclaims any obligation to update these statements to reflect future events or circumstances.
During this call, we will be referring to some non-GAAP financial measures that we believe are helpful to better understand our financial results and operations. These non-GAAP measures are not prepared in accordance with the generally accepted accounting principles. You can find definitions of these non-GAAP terms and reconciliations of these non-GAAP metrics to the most directly comparable GAAP financial measures under the News and Publications portion of the Investor Relations section of our web site. Now, let me turn the call over to Paul.
PAUL SAGAN, PRESIDENT & CEO, AKAMAI TECHNOLOGIES INC.: Usually, Noelle Faris, our Senior Manager of IR, would be with us. But we're pleased to report that she is home with a healthy baby. A boy, born just over a week ago, so we wish Noelle and her entire family the best. She'll be back soon. So thanks, Natalie, and welcome to the Akamai IR team. And thank all of you for joining us on the call today. Now, down to business.
Akamai performed very well in Q4, . Capping another record year of significant revenue and earnings growth. Financial highlights for the fourth quarter include -- record revenue of $212.6 million, a 16% year-over-year increase and an 8% increase over the third quarter of 2008. Normalized net income of $82.2 million or $0.44 per diluted share. That's an 8% increase year-over-year and up 11% from Q3.
For the full-year, we grew revenue 24% year-over-year to $791 million. We generated normalized net income of $308.5 million or $1.66 per diluted share in 2008. That's a 26% increase over 2007. We generated $343 million of cash flow from operations, 43% of revenue during the year, a testament to the strength of our business model.
Even as the external environment became more challenging, we were able to grow revenue and earnings throughout the year. At the same time, we continued to make strategic investments that we believe will enhance our product portfolio and increase our ability to make the Internet work better for our customers. I will be back in a few minutes to share some observations on the marketplace, but first, let me turn turn the call over to J.D. to review the results in
J.D. SHERMAN, CFO, AKAMAI TECHNOLOGIES INC.: Thanks, Paul. As Paul just highlighted, our business performed extremely well in the fourth quarter, and we were very pleased with the results. We grew revenue 16% year-over-year and 8% sequentially to $212.6 million. Exceeding our expectation range coming into the quarter with solid performance across the board but particularly within our e-commerce sector and in our newer value-added solutions. E-commerce continued to be our fastest growing vertical growing 12% from Q3 and 23% over a very strong Q4 of 2007. These results were driven in part by stronger than anticipated holiday season online, as well as increased penetration of our Dynamic Site Solutions and Application Performance Solutions.
Our median entertainment vertical grew 9% year-over-year in the fourth quarter. As expected, we did see a slowdown in M&E growth in the last quarter, continuing the trend we saw in media throughout the year. The high tech vertical grew 6% year-over-year. Similar to M&E, our high tech customers tend to be heavily weighted toward large volume deals with more significant volume-based discounts. Revenue from our Acerno acquisition, which we closed in the beginning of November, was nearly $7 million over the two months. Showing strength in a difficult advertising market and a great start for what we think will be a very strategic acquisition.
During the fourth quarter, sales outside North America represented 25% of total revenue, down 1 point from third quarter levels. Our international business performed very well, growing 5% sequentially and 25% year-over-year. The stronger dollar had a negative sequential impact on our revenue of about $5.5 million. Excluding this impact, our business outside the US grew 16% sequentially and 38% year-over-year in Q4. North American sales, excluding Acerno, grew 4% sequentially and 9% on a year-over-year basis. And resellers represented 17% of total revenue consistent with the prior quarter.
Excluding Acerno, we added 50 net new customers in Q4 bringing our total customer count to 2,858. Our gross adds, brand new customers to Akamai were over 160, consistent with the run rate of prior quarters. Once again, no customer accounted for 10% or more of our revenue in Q4. Churn was just under 4% for the fourth quarter, consistent with the last few quarters. Excluding the impact of Acerno our consolidated ARPU, or average revenue per customer was $24,000 in the quarter. That is up 2% from Q3 and 4% from last year.
Our cash gross margins for the quarter were 81%. Consistent with Q3 and down about 0.5 point from the same period last year with most of the year-over-year decline due to the addition of Acerno revenue which has gross margins of around 60%. This margin performance is a result of the success we have had in reducing our costs, as well as the continued growth of our higher margin, value-added solutions helping to offset customer price decline.
Our GAAP gross margin, which includes both depreciation and stock-based compensation, was down 71% for the quarter. Roughly consistent with Q3 and down 2 points from Q4 of last year, driven mostly by increased depreciation. GAAP operating expenses were $97 million in the fourth quarter. These GAAP numbers include depreciation, amortization of intangible assets, stock-based compensation, and a $2.5 million charge related to our recent restructuring. Excluding these charges, our operating expenses for the quarter were $72.3 million. Up $3 million from the prior quarter.
Adjusted EBITDA for the fourth quarter was $100.3 million, a milestone for the Company, as that is the first quarter we have generated over $100 million of EBITDA. That's up 15% from the same period last year and up 11% from the prior quarter. Our adjusted EBITDA margin of 47% was roughly consistent with the same period last year and up 1 point from the third quarter.
For the fourth quarter, total depreciation and amortization was $27.5 million. These charges include $20.2 million of network-related depreciation, $3.6 million of G&A depreciation, and $3.7 million of amortization of intangible assets. Net interest income for the fourth quarter was $4.9 million. Roughly equivalent to third quarter levels, but down $2 million from Q4 of last year, despite a higher cash balance due to the lower interest rates on our investments in this environment.
Moving on to earnings. GAAP net income for the quarter was $40.5 million or $0.22 of earnings per diluted share. As a reminder, our GAAP net income include -- non-cash charges for stock-based compensation and book tax charges at an effective annual rate of approximately 38%. However, because of our significant deferred tax assets, we are paying cash taxes at an annualized rate of only about 2%.
During the fourth quarter, our stock-based compensation expense, including amortization of capitalized equity compensation was $16.7 million. A breakdown of our stock-based compensation charges by operating department is available in the Supplemental Metrics sheet posted in the Investor Relations section of our website. Additional items in GAAP net income for the quarter included $3.7 million from amortization of intangible assets and $18.3 million of non-cash tax charges, $2.5 million related to our recent restructuring, and a $400,000 non-cash loss on investments. Excluding these items, our normalized net income for the fourth quarter was $82.2 million. 8% higher than our normalized net income for the same period in 2007, and up 11% from Q3.
In the fourth quarter, we earned $0.44 per diluted share on a normalized basis. That's up $0.04 or 10% from the prior quarter and a 7% increase year-over-year. Our normalized, weighted average diluted share count for the fourth quarter was 186.5 million shares.
Now, let me review some balance sheet items. Cash generation continued to be very strong. Cash from operations for the fourth quarter was $92 million, and for the full-year, we generated $343 million of cash from …