Analyst Conference Summary


conference date: February 9, 2011 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2010 (fourth quarter fiscal 2010)

Forward-looking statements

Overview: Continued solid growth rate and a record quarter.

Basic data (GAAP) :

Revenue was $284.7 million, up 12% sequentially from $253.6 million, and up 19% from $238.3 million in the year-earlier quarter.

Net income was $52.5 million, up 32% sequentially from $39.7 million, and up 31% from $40.1 million year-earlier.

EPS (earnings per share) were $0.27, up 29% sequentially from $0.21 and up 29% from $0.21 year-earlier.

Comparisons: Q3 2010 AKAM summary; Q4 2009 AKAM summary


Q1 should be more seasonally normal, sequentially down in revenue. $265 to $275 million in revenue. 80 to 81% cash gross margin. Operating expenses should also decline. $0.35 to $0.37 normalized EPS. $50 million capital expenditure.

Objective for 2011 is 15% growth, with second half stronger.

Conference Highlights:

Record quarter. 2010 was the first over $1 billion revenue year. Strength continued in cloud computing, online commerce, software-as-a-service (SAAS) and media content delivery.

Normalized net income (non-GAAP) was $76.5 million, for EPS of $0.40, up 19% sequentially and 22% y/y.

EBITDA was $129.2 million. Margin 45%.

Cash and equivalents balance ended at $1.24 billion. $27 million was spent on share repurchases in the quarter. Cash from operations was $110.4 million. Capital expenditures were $50.9 million.

Renewed long term deals with 8 of 10 largest customers, including Netflix (timing, not loss of other 2 customers). But will lower Q1 revenue due to typical negotiation of lower rates, and reduced Q1 volume.

Resellers accounted for 18% of revenues. Outside U.S. generated 27% of revenue.

B-to-C vertical strong up 28% sequentially, advertising decision application leading gains.

B-to-B 13% sequential growth as applications shift to cloud.

Media & Entertainment grew 10% sequentially, 21% y/y. Volume internet acceleration business from media customers showed good growth.

High tech 4% sequential growth, 8% y/y. Application performance revenue helped.

Public sector down 1% sequentially, but up 34% y/y.

55% of revenue was from value-added services (spread over all sectors).

Cost of revenue was $86.3 million. R&D expense $13.8 million. Sales and Marketing expense $66.2 million. G&A expense $41.8 million. Amortization $4.3 million. Operating income was $72.3 million. Other income $1.6 million. Income tax provision $21.5 million.

$31.9 million deprecation and amortization. Stock based compensation expense was $18.5 million.

All convertible bonds were converted to equity by the end of the quarter.

We believe traffic can grow 100 fold, requiring Akamai's network for speedy deliver. Now looking for next goal of $5 billion in annual revenue.

Now has a relationship with Rackspace, so Akamai will be embedded in service.

With security a top concern, customers are deploying Akamai Site Shield.


New customers? 45 new customers in quarter.

Value added services? Up 30% in 2010. Over time value added will become a bigger % of business, but volume services have been scaling rapidly too. Mobile will be an expansion area for value-added.

Media and Entertainment contracts? Are signing some multi-year deals, showing more confidence (after 2008-9 lack). Some use multiple vendors, but we are typically the primary provider.

Enterprise business? Commerce grew 28% sequentially, driver by holiday shopping. Also a lot of transactions took place, which drives value-added solutions. Enterprise is less driven by the holidays.

Mobile tipping point? Lots of excitement, but most growth is ahead because bandwidth is still limited to cellular devices. Everyone needs a mobile strategy.

Capital expense plans, drivers? We hope to move from 19% of 2010 back down some in 2011, but we want to stay ahead of traffic growth. We like to have capacity too soon rather than too late.

Media unit growth versus pricing degradation? Very positive unit growth. Customers are making longer-term commitments. Pricing trends consistent over last couple years.

We don't sell the advertising decision business outside of North America. We are looking at how to drive international revenues going forward. We made a lot of international investment in 2010, hope it will pay off in 2011.

Software downloads is a legacy business, not growing in revenue. Growth is in software-as-a-service.

Taxes? In 2011 we will be a full-cash tax payer. In 2010 was used up our NOLs (net outstanding losses, used to offset taxes).

Linearity of 2011? In media space growth will be in the back-half of the year. Ads are also stronger in second half. So a back-end loaded year, more so than in the past.

Why is Q1 guidance down so much this year? Actually, this traditionally was a seasonal business for commerce and advertising. Q1 2010 was the abnormal quarter where the seasonality was hidden by the bounce back from the recession. Also, our ad business in Q4 2010 was bigger than in Q4 2009. Renewals, with lower negotiated prices, were aggregated in Q4 2010 more so than in the past.

We could see a volume surpise to the upside in 2011. That is one reason for the high planned capital expenditures.

Competition in value-added solutions? We still have customers looking for security and moving from hosted solutions to cloud-based solutions. Our products are highly-differentiated from the competition.

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Copyright 2011 William P. Meyers