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Akamai Reports First Quarter 2009 Financial Results, Announces Share Repurchase

April 30, 2009 1:16 pm by Dean Morel

Akamai Technologies, Inc. (NasdaqGS: AKAM)

After Hours: 21.08 Up 1.02 (5.08%)

  • Revenue of $210.4 million, up 12 percent year-over-year [and a one percent decrease under fourth quarter 2008 revenue of $212.6 million]
  • GAAP net income of $37.1 million, or $0.20 per diluted share
  • Normalized net income* of $80.5 million, or $0.43 per diluted share, up 7 percent year-over-year
  • Akamai Board of Directors authorizes $100 million share repurchase program
  • Cash from operations $90.5M

Net GAAP income was $37.1 million, or $0.20 per diluted share, a slight increase from 2008 first quarter GAAP net income of $36.9 million, or $0.20 per diluted share, and a 9 percent decrease from fourth quarter 2008 GAAP net income of $40.5 million, or $0.22 per diluted share.

The Company generated normalized net income* of $80.5 million, or $0.43 per diluted share, in the first quarter of 2009, a 7 percent improvement over 2008 first quarter normalized net income of $75.6 million, or $0.41 per diluted share, and down slightly from the fourth quarter 2008 normalized net income of $82.2 million, or $0.44 per diluted share. 

“We are pleased with our strong start to the year,” said Paul Sagan, president and CEO of Akamai. “The Company’s first quarter results demonstrate the power of Akamai’s business model, which is based on providing differentiated, value-added solutions to our clients worldwide. Further, our scale provides us with tremendous operating advantages that are clear in our bottom line results.”

The Company also announced that its Board of Directors has authorized a $100 million share repurchase program to be funded by cash from operations. The Company plans to use this program over the next several quarters to roughly offset dilution created by ongoing equity compensation programs.

via Akamai Reports First Quarter 2009 Financial Results, Announces Share Repurchase Program.

The Fusion View

The results were excellent, with eps beating both analysts consensus and the high estimate. Revenue also beat the consensus of $208.5M, though fell short of the high estimate of $212M. Read Akamai earning preview for more details.

While I wait for Seeking Alpha to publish the conference call transcript [Update: Transcript now available] I’ve decided to dig deeper into the announced  share repurchase program. To their credit Akamai announced the repurchase was to offset their equity compensation. Grappling with the real cost of options is often difficult for investors, but these share repurchases make it a lot easier. Jim Gillies from TMF wrote this great post on the topic of employee options and GAAP vs non-GAAP.

 AKAM Dilution 2008 2007 2006 2005 2004 2003
Issued 169,371,675 166,212,638 160,298,922 152,992,092 126,771,799 122,154,517
Outstanding 166,212,638 166,212,638 160,298,922 152,992,092 126,771,799 121,875,286
Repurchase 0 0 0 0 0 0
Acquisitions (stock)   3,550,000 2,700,000 12,300,000    
Note   Netli,
Red Swoosh
Nine Systems Speedera    
Stock Offering       12,000,000    
Dilution  0 2,363,716 4,606,830 1,920,293 4,896,513  
Stock based comp expenese ($M) $57.9 66.6 49.6      

 

Average annual dilution 2.76 Million. The above table is my first pass/quick look so errors may exist. With AKAM at $21 the $100M will buy 4.76M shares or around 1.7 years worth of dilution. Which is almost exactly the same as the current stock based compensation, i.e. the average of the last three years options multiplied by 1.7 is $100M.

For Akamai it appears the annual options expense is a very good proxy for the actual cost to the business and shareholders. Just in case that is not 100% clear to anyone, employee options are a real cost and the current stock based compensation is a fairly accurate proxy for that cost. As Jim Gillies said, ignore the GAAP and non-GAAP and look at cash flows. I congratulate Akamai for honestly stating that the share purchase is simply to offset dilution. I also like that they publish their cash flow with each quarter’s announcement.

I will continue to update this post with more details later today. (Sorry RSS readers, but if you’re interested in AKAM, I’m sure checking for an update isn’t to onerous.) 

Here is the conference call for those who prefer to listen http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=75943&eventID=2149894

and simplistically part of why I invest in Akamai

Web Traffic

Update: WOW! Seeking Alpha pump those transcripts out fast. Here is the Q1 2009 Akamai Conference Call Transcript.
SNIPS

  • e-commerce continued to be our fastest growing vertical
  • with the acquisition of acerno, [November 2008 for $90.7 million in cash] we now have a strong predictive advertising solution for e-commerce as well as other verticals
  • Media & Entertainment vertical grew 8%
  • High-Tech vertical was also flat on a sequential basis, as well as year-over-yea
  • During the first quarter sales outside North America, represented 28% of total revenue, up 3 points from fourth quarter levels. International revenue grew 10% sequentially and 25% year-over-year
  •  total customer count is now 2,950 [gross up 160 for quarter, with churn of 5%. Net 92 of which Acerno was 74]
  • performed extremely well on cost and gross margins… cash gross margins in the range of 81% to 82% for the seventh straight quarter [GAAP GMs 71%, same as Q4, down 1 point YoY]
  • over 40% of our revenue, now comes from Value Added Solutions
  • Adjusted EBITDA for the first quarter was $100.3 million. That’s up 15% from the same period last year and consistent with Q4 level, and our adjusted EBITDA margin of 48% was up one point from the same period last year

END SNIPS

Outlook

  • No full year outlook provided
  • Q2 revenue $207 to $213 million
  • normalized earnings per share of $0.40 to $0.42
  • diluted share count will grow by about 2 to 2.5 million shares sequentially, due to the timing of equity compensation program

Other comments from Q&A

  • At 5% churn was slightly higher than usual, but it was mainly is small customers with ARPU of $3,000 while Akamai’s average  customer ARPU is $23,600, which was down slightly this quarter due to Acerno customers. 
  • 3/4s of customers buying valued added, looking to increase as it is the main growth driver. 
  • Bandwidth usage increases are offset by pricing declines. Traffic growth moderating.
  • see network indepedence as advantage,“we’re not saddled by owning a network that we’re trying to figure out how to make use of, because we’re sitting inside a thousand different partners.”

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