Analyst Conference Summary


conference date: July 30, 2008 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2008 (2nd quarter)

Forward-looking statements

Overview: Still growing fast, but revenue at low end of prior guidance and sequential numbers not as impressive as year-earlier comparisons.

Basic data (GAAP) :

Revenue was $194 million, up 4% from $187.0 million and up 27% from $153 million year-earlier.

Net income was $34.3 million, down 7% sequentially from $36.9 million, but up 59% from $21.6 million year-earlier.

EPS (earnings per share) were $0.19, up down 5% sequentially from $0.20, but up 58% from $0.12 year earlier.


Updating (lowering range of) 2008 guidance $785 to $800 million. Earnings per share $1.63 to $1.69 normalized.

Q3 tends to be seasonally slow. Revenue expected between $193 and $198 million. $0.39 to $0.40 normalized earnings per share.

Conference Highlights:

Solid quarter with healthy earnings growth. Began to see the impact of the challenging economic environment in certain vertical markets. Media and entertainment grew in line with overall business, a rate that has moderated. Commerce was fastest growing vertical. New value-added solutions did well and contributed to higher margins.

Despite lowering range of guidance, believes Akamai well-positioned long term. As media and enterainment moves to higher quality video online and monetization, growth will continue. There are inherent difficulties with Internet performance in the cloud where we can providing solutions. Our solutions remain critical to helping our customers grow their online revenues.

The company's favored measure, normalized net income, was $76.5 million or $0.41 per share, up 38% from year-earlier. EBITDA was $92.7 million. Cash from operations was $69.8 million.

Cash and equivalents ended at $745 million, up $58.5 million. Capital expenses were $32 million, depreciation and amortization $23 million. 82% cash gross margin.

72% GAAP gross margin. GAAP numbers include book tax rate at 40%, but because of NOLs (tax loss credits) real tax rate is 2%.

Customers under long-term services contracts at the end of the quarter increased by 53 to a record 2,725. Sales through resellers accounted for 16 percent of revenues, and sales outside the United States for 26% of revenue.

North American revenue grew only 2% sequentially.

19% average revenue per customer improvement over year-earlier.

Cost of revenues was $54 million. R&D expense $9.5 million. Sales and marketing expense $41 million. General and administrative $34 million. Amortization of intangibles cost $3.5 million. Total expenses were $142 million. Leaving operating income of $52 million. Interest income was $5 million. Income tax provision $22 million.

Does not expect economic pressures on customers


Competitive environment in media and entertainment? It has always been a competitive market. There is growth, but the rate of traffic growth has dropped. Bandwidth is now constraining how much end customers can consume. We are focusing on monetization tools to compete.

Is pricing having an effect on your guidance? Pricing has been pretty competitive for quite some time. Every deal has a competitive commodity benchmark.

Margins sequentially? Margin will decline slightly mainly because of increase in capital expense and consequent depreciation.

Churning customers? We had 170 new customers, but net added 53. Churn is around 4%, but most of that is among smallest customers, while adds are enterprise-level.

Customer add quality? World wide has been very high quality. Mission-critical solutions for global enterprises are the target adds. We are doing better with adds in Asia and Europe than in the U.S.

Economic issue is in verticals we sell into that are being hurt by the economy, like automobiles. Also when there is less ad spend growth it cuts pace of new rollouts.

We anticipate no major change in cash flow; capital expenditures are done incrementally and scale nicely.

Media and entertainment rationalization of business models? Social networking network traffic is growing strongly, but some don't have the monetization to support it.

Traffic trends in commerce are very, very strong. It may be because high gas prices are driving people to shopping online. Business to business growth is also rapid.

Busting revenues? We are seeing long term contracts replacing monthly payments, so bursting is less important. It does subject Akamai to more seasonality.

International growth color? At 26% of business, is growing faster than North America. We are opening several new offices. Many countries have better broadband access than the U.S., and many more end customers. Some U.S. competitors are in international markets, and there are local competitors in some countries. We have an advantage of global scale which competitors cannot match. International investment is a sales investment; we already had the Internet infrastructure investment in place.

Gaming space? Large growth over the past 18 months. As we see more devices connected it will continue to grow.

Olympics? We will be helping with the Olympics, including with NBC, but at our scale we don't see any individual event having a significant impact on our revenues.

Can you quantify value-added revenues? About 30% in the past, but is growing; it is a major strategic thrust for us. Dynamic sites and application performance are both doing well; we are only updating numbers once a year.

GAAP gross margins? Like cash, will decline less than 1%.

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Copyright 2008 William P. Meyers