Analyst Conference Summary


conference date: April 28, 2010 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2010 (first quarter)

Forward-looking statements

Overview: Revenues up in a normally seasonally down quarter, and margins at record levels.

Basic data (GAAP) :

Revenue was $240.0 million, up 1% sequentially from $238.3 million, and up 14% from $210.4 million in the year-earlier quarter.

Net income was $40.9 million, up 2% sequentially from $40.1 million, and up 10% from $37.1 million year-earlier.

EPS (earnings per share) were $0.22, up 5% sequentially from $0.21, and up 10% from $0.20 year-earlier.


Q2 revenue $236 to $246 million, up 15% to 20% y/y growth. Cash gross margin 82% GAAP gross 71%. Operating expense and capital expense to grow to support expansion. Normalized earnings of $0.32 to $0.34.

Conference Highlights:

Revenue was a record, above upper end of expected range, as was EBITDA margin. Demand was strong in all verticals. E-commerce was fastest growing vertical at 19% growth y/y. Traffic growth accelerated in the quarter, particularly in media and entertainment.

Fully taxed normalized net income (non-GAAP) was $66.0, or $0.35 per share, up 14% y/y and up 5% sequentially. CEO Paul Sagan said that constituted a "strong start to the year." EBITDA was $118.1 million, or 49% of revenue. Cash from operations was $87.8 million or 37% of revenue.

The cash and securities balance ended at $1.09 billion. Cash buy backs of up to $150 million to offset dilution were authorized. In Q1 $21.9 million of stock was repurchased. Depreciation and amortization was $33.0 million. Capital expenses were $35.1 million. Net increase in cash in the quarter was $34.9 million.

18% of revenues were through resellers. 72% of revenue was from the United States, 28% was international. 54% of revenue in quarter was from value-added solutions.

Cloud based solutions continued to gain traction. Signings of new customers and existing customers adding new applications was high. New customer value added solutions revenue up 40% y/y. 77% of customer base bought at least one value-added product.

Media and Entertainment grew 5% sequentially and 10% y/y.

High Tech vertical was flat sequentially but up 15% y/y. Application downloads and Software as a Service (SaaS) showed traction.

Public sector up 11% sequentially and 21% y.y.

Cost of revenues was $67.5 million. Research and development expense $13.2 million. Sales and marketing $49.7 million. General and administrative $39.6 million. Amortization of intangible assets $4.1 million. Leaving operating income fo $66.1 million. Other income was $2.7 million. Income tax provision (GAAP) was $27.8 million.

Cash taxes are still lower than GAAP taxes, but NOLs (net offsetting losses) are running out, so expect 6% cash tax rate during the year.

Stock based compensation was $21 million.

Number of deployed servers hit 65,563.

90 employees were added in the quarter.

Believes still in very early days of positive developments like Internet video distribution and cloud computing. Masters (golf) Tournament week set a record for Akamai content delivery.


Media and entertainment HD upside vs. single events? Increasing amount of HD, especially for live events. Believes HD will be a big driver over the next few years, on good customer interest.

No longer doing churn and customer count numbers. Churn was very low. DSA and APS revenues in commerce sector up 40% y/y.

International was a tough comparison, with economies outside the U.S. not recovering as fast, but value-added solutions selling well. Believes long run international will grow faster than U.S.

Capital expense going to high end of 13 to 16% range? We just see so much growth opportunity by geography and by vertical we think it is prudent to stay ahead and not dissappoint customers. But these are quarter by quarter decisions to expand capacity.

Margins in media business? In technology prices go down every year, which allows us to pass on benefits to customers and gets them to expand their volumes. Our margins were all strong this quarter. Our pricing last year was well timed, it unlocked demand, now they are turning to us for quality, scale, reliability and security.

Increased expenses in quarter were largely for new employees concentrated in R&D and in sales, plus expanding the HD network.

Advertising solutions? Of course it went down sequentially in Q1, but year-over-year was the fastest growing solution.

$1 billion in annual revenue by end of 2010 is a lofty goal, but we are already looking for the next $1 billion in revenue.

Masters event contribution to revenue? No single media event is significant to our revenues.

In 2011 we will be through our NOLs and be a full cash tax payer.

Competition? Believes competitors take the wrong approaches, which is why our customers value our distributed acceleration solution.

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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 2010 William P. Meyers