Analyst Conference Summary


conference date: July 25, 2007 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2007 (2nd quarter)

Forward-looking statements

Overview: Continued rapid revenue and profit growth. But expects less rapid growth in Q3.

Basic data:

Revenues were $152.7 million, up 10% sequentially from $139.3 million and up 52% year-over-year from $100.6 million.

Net income was $21.6 million, up 13% sequentially and up 92% year-over-year.

EPS was $0.12.

Cash and marketable securities ended at $504 million.


Tracking to high end of revenue guidance for year. Now expect full 2007 revenues at $615 to $625 million. Normalized EPS of $1.26 to $1.30. Capital expenditures of about $100 million. Margins will decline 4% from 2006 driven by cash for cap ex and by depreciation. But adjusted EBITDA margins to increase by 4 to 5% due to scaling of business.

Expect less revenue growth in Q3 and a stronger Q4 as we return to normal seasonality.

Q3 revenue $157 to $163 million. $0.32 to $0.33 normalized EPS.

Conference Highlights:

"Normalized" net income was $55.4 million, up 9% sequentially and 55% above year earlier.

Demand grew in all sectors. Good progress in integrating acquisitions. Recently added to S&P 500.

Media and Entertainment was fastest growing segment with eCommerce and Software Distribution following close behind. Customers want Akamai to drive revenues up and costs down.

Adjusted EDITDA was $65.6 million, up from Q1 $58.8 million and $40 million in Q2 2006. Cash from operations was $37.3 million. Capital expenditures $29.7 million.

Long-term customers increased by 74 to 2,555.

Non-U.S. sales were 23% of revenue. Resellers provided 20% of revenue.

Average Revenue Per Customer (ARPoo) grew to $20,000, up 5% sequentially.

74% gross margin, down 1% from Q1.

$89.1 million operating expenses, up from $77.6 million prior quarter. $60.7 million in op ex was cash. $17.6 million depreciation and amortization.

$5.2 million net interest income.

Book Tax rate 39%, but expect cash tax rate to be 2%.

$17.2 million stock-based compensation expense.

Capital investments were concentrated in our network as our customer demands for capacity continued to grow. This most mostly servers and storage.

Application Performance Services is an important point of future growth.


Top line growth is not matched by margins. Why? Pretty pleased with our margin performance. Cash gross margin was flat sequentially. Large volume deals do require more aggressive pricing.

Application Performance Services metrics? More in the fall, but now is new and a small percentage.

Has your competitive position changed? Have had competitors for length of business. Still real competitor is customers doing it themselves. Our advantage is scale and reliability. We are able to increase customers' profitability.

Net new customers declined? We don't target a specific number. We have raised the minimum size of customers.

Capital expense level? Can do better than current 16 to 17%. But don't want to be caught short on ability to handle customers.

Software download color? Whole industry has shifted to online downloads. Gaming is moving to downloads.

Strong verticals? Nothing unusual across all verticals.

Capital expense investment types? The servers and storage can deal with any type of content. The software is what determines capabilities. We use low cost commodity hardware.

Application Acceleration outside firewall? That is exactly what we are seeing.

Contract lengths? Most go full length, trend to 18 to 19 months. Evenly distributed, so in any quarter some portion of customer base up for renewal, should not be very seasonal.

Growth opportunities going forward? Still lots of opportunities. Majority of business, like video and ads, is still not online. Sees at least 10 years of migration to Internet. Always see organic growth of current customers plus adoption of new applications by them.

Does not give ARP guidance. We don't manage business to this, we report it to give an idea of customer size.

International revenues? More international than US opportunities. Seeing media and entertainment gain traction internationally.

GAAP gross margin cause? Fundamentally due to capital expenditures and resulting depreciation, plus large deals in media space with lower margins.

Long run video market? Going to be a big market. But Internet is still focussed on short attention span video. Sporting events are one exception. Our network is well situated to handle this type of business.

Customer churn? No real change. Don't lose many customers; when we do it is usually because they end a project. Churn was under 4% of customers, and tend to be smallest customers.

Wireless positioning? We deliver a lot of video to wireless devices. Wireless requires very low latency, which we provide for several of the large carriers.

One analyst claimed the numbers were decelerating and Q4 is below Street projections. Management disagreed.

Generate money from ads? We don't collect any data on end customers. We work for our customers.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers