Analyst Conference Summary


conference date: February 6, 2008 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2007 (4th quarter)

Forward-looking statements

Overview: A great quarter. Generating loads of cash.

Basic data:

Revenues of $183.2 million were up 14% sequentially from $161.2 million and 46% from $125.7 million year-earlier.

Net income was $35.9 million, up 48% sequentially from $24.3 million, and up 74% from year-earlier $20.6 million.

EPS was $0.20, up 54% sequentially from $0.13 and up 67% from $0.12 year-earlier.


Raising 2008 revenue guidance to $800 to $825 million. Normalized net income to grow in line with revenues. Normalized EPS of $1.65 to $1.70. Margin trends downward, but at a slower rate in the past. EBITDA margins, however, are expected to expand.

Q1 revenue of $186 to $190 million after seasonally strong Q4. Some expenses will have usual seasonal expenses. Normalized EPS $0.38 to $0.39.

Conference Highlights:

Non-GAAP "Normalized net income" increased 22% sequentially to $75.9 million from $62.4 million. Normalized EPS was $0.41.

"We believe the value of Akamai's differentiated services is stronger than ever." Fantastic quarter in a record year. Commerce vertical was strong above expectations. Media and Entertainment also did better than expected.

Adjusted EBITDA was $86.9 million, up 21% sequentially from $71.9 million and up 64% from $53.0 million year-earlier. Cash from operations was $71 million. The company ended the quarter with $633.5 million in cash and equivalents. Capital expenditures were $15.9 million.

Customers with long-term service contracts increased by 29 in the quarter to 2,645.

Sales through resellers were 16% of revenue. Sales outside the U.S. were 23% of revenue.

Cost of revenues was $49.4 million. R&D expense was $10.5 million. Sales and marketing expense was $36.4 million. General and administrative $33.1 million. Amortization $2.8 million. Operating income was $51.0 million. Interest income was $6.8 million. $22 million provision for income taxes.

No customer accounted for 10% or more of our revenue.

Average Revenue Per Customer ("R-Pu") grew 12% sequentially to $23,000; up 22% from year-earlier. Average customer spends over $275,000 per year with Akamai. Over 100 $1 million or more customers.

73% GAAP gross profit margin, flat sequentially.

We pay cash taxes at an annual rate of about 2%, but run GAAP numbers run around 40%. We have quite a way to go before running out of our NOLs.

Capital expenses will be front-end loaded in 2008, as in past years.

Our outlook is optimistic despite economic uncertainty. We have extended our leadership over the competition.

New P to P business has a $40 million run rate.


Up adjusted gross margin up sequentially, reason? Scale benefits us and helps gross margin. Depreciation as a percent of revenue was down. Expect gross margin to trend down next year.

Driver to upside of guidance? Strong growth across many verticals. Entertainment content was a big driver. We expect to see even more content growth going forward.

Application acceleration? It is a new business at a $40 million run rate. Contracts are often multi-year deals.

Writers' strike impact? We can't see any impact.

We have no plans to become an ad server. We help our customers accelerate their ads.

Any moderation of traffic? No, it was strong and growing in all verticals.

Is HD the next driver, following video? Are you seeing that yet? We don't think high definition video is going to have significant impact for a couple of years. For HD you need something like fiber to the home, so growth will be limited at first. Don't see a need to redesign network or special capital expenditure acceleration.

Is churn a problem? We have churn only with very smallest customers. We are focusing on adding large, high-value customers rather than lots of small customers.

International growth? U.S. has led Internet growth. We are continuing to invest for international growth. We deliver a lot of traffic internationally for our U.S. customers, so we are already deployed in 70 countries and can add customers in those countries.

Capital expenditure? We said we would spend $100 million in 2007, and we spent $100.5 million. We front load it each year, so we will do about $35 million in Q1. We refresh servers regularly because you get more throughput per rack space.

Competition with appliances in data center? We don't compete with those boxes because our service works on the network layer, not within the WAN or data center.

Pricing trends in quarter? Consistent with past. There is plenty of competition, but we don't need to compete on price.

Games vertical? We saw a number of gaming companies have strong online usage.

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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 2008 William P. Meyers