Analyst Conference Summary

conference date: October 27, 2010 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2010 (third quarter)

Forward-looking statements

Overview: Strong quarter.

Basic data (GAAP) :

Revenue was $253.6 million, up 3% sequentially from $245.3 million and up 21% from $206.5 million in the year-earlier quarter.

Net income was $39.7 million, up 4% sequentially from $38.1 million and up 21% from $32.7 million year-earlier.

EPS (earnings per share) were $0.21, up 5% sequentially from $0.20 and up 17% from $0.18 year-earlier.

Comparisons: Q2 2010 summary; Q3 2009 summary

Guidance:

Q4 tends to be the strongest quarter. $272 to $285 million in revenue expected. Gross margins stable to slightly down. Will continue to invest in staff and network capacity. $0.35 to $0.38 fully taxed normalized EPS.

$1.11 to 1.24 billion revenue for the full year 2010.

Believes Street consensus of 15% y/y revenue growth is 2011 is probably conservative.

Conference Highlights:

Revenue accelerated for the fourth consecutive quarter, coming in just above the expected range. Investing in staying ahead of the growth of the network.

Media and entertainment was the fastest growing segment at 6% sequentially and 26% y/y.

24% y/y e-commerce revenue growth.

13% y/y high-tech customer revenue; includes application acceleration.

Value added solutions are now bought by 78% of customers.

28% y/y public sector revenue.

Akamai's non-GAAP measure "fully taxed normalized net income" was $64.2 million or $0.34 per share, up 23% y/y. EBITDA was $114.1 million, up 19% y/y. Cash from operations was $118 million.

Cash and equivalents ended at $1.2 billion. $22.7 million of stock was repurchased in the quarter. Leaving 182.4 million shares outstanding, but 191.3 million weighted-diluted. Will call 2003 convertible bonds in Q4, which will convert $59 million to equity and will make Akamai formally debt free by the end of the year.

Reseller sales accounted for 18% of revenue. International (ex-U.S.) sales were 28% of revenue.

Cost of revenues was $77.8 million. R&D expense $14.2 million. Sales and marketing $55.6 million. General and administrative 442.7 million. Amortization of intangibles $4.1 million. Leaving operating income of $59.0 million. Other income $1.4 million. Income tax provision $20.6 million.

GAAP gross margin 69%, down 2% sequentially, down 1% from year-earlier.

Continues to invest in business, raising operating expenses.

$36.5 million total depreciation expense in the quarter.

$115 million in capital expenditures for full 2010.

400 employees will be added in full 2010.

Top online retailers depend on Akamai. Many enterprise mission-critical applications won't work on the regular Internet, require Akamai acceleration. New firewall offering is critical to web application businesses. Edge tokenization electronic security service released in q3, reducing sensitive credit card information exposed online. Mobile optimization service and pixel-free ad solution are now in use.

Q&A:

Value added services from Limelight and AT&T, competition? No changes we've noticed in the areas you mentioned. We have embraced being in a competitive market. We are the innovator with the most complete portfolio with a network that really works for customers.

Capital expense levels in 2011? Over time we should be below the current level and back to our model range. But if traffic keeps accelerating, we will keep investing.

Security solutions in commerce vertical? There is more at stake, more bad guys. We can protect from denial-of-service attacks. We can filter traffic. Edge tokenization is new, and could apply to all our customers who deal with credit cards. We think our services are what our customers need today.

High tech sector softness? It may be seasonal, it was also down in Q3 2009. A lot of it is software downloads, which can be seasonal. Software as a Service (SAS) is growing year-over-year.

Media and Entertainment effects on margins? It has lower margins, is volume oriented, so when volume grows, with our aggressive prices for our largest customers. But the margins are still high, and the growth is worthwhile. No change in pricing environment in quarter.

Public sector revenue color? Some of our newest services are for this sector. It is mostly U.S. government agency work. There is a need for state-level performance enhancement, but they have been so cash-strapped the last two years they have not made the investments.

Lower tier competition? Our biggest competitor is do-it-yourself. After that managed service providers. We don't provide hosting, ISP services, other low margin services. Our goal is to have premium high-performance services.

Public sector pricing, any changes? Pricing has been very consistent. Obviously we follow the same federal rules as all vendors in that space.

Enterprise datacenter investments from us are both in engineering new solutions and support for our customers. We expect to keep investing in this area.

Large receivable from last quarter collected this quarter? Yes.

On capital expenditure, we would rather buy too soon than too late.

Value added services top products by revenue? Dynamic site accelerator #1. Application performance solutions is the fastest growing product.

Churn is still at normal levels.

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