Analyst Conference Summary


conference date: April 27, 2011 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2011 (first quarter 2011)

Forward-looking statements

Overview: Solid quarter, usual seasonal sequential decline, with strength over year-earlier quarter.

Basic data (GAAP) :

Revenue was $276.0 million, down 3% sequentially from $284.7 million, but up 15% from $240.0 million in the year-earlier quarter.

Net income was $50.6 million, down 4% sequentially from $52.5 million, but up 24% from $40.9 million year-earlier.

EPS (earnings per share) were $0.26, down 4% sequentially from $0.27, but up 18% from $0.22 year-earlier.

Comparisons: Q4 2010 AKAM summary; Q1 2010 AKAM summary


Q2 revenue of $270 to $280 million. 67 to 68% GAAP gross margin, 80% cash gross margin. Will increase investment and operating expense. Normalized, Non-GAAP EPS $0.34 to $0.37. $50 million capital expense in quarter.

Conference Highlights:

Normalized net income (non-GAAP) was $72.2 million, or $0.38/share, up 9% y/y (but down 6% sequentially). EBITDA was $129.2 million, up 9% y/y. Cash from operations was $88.5 million.

Revenue was just above guidance range.

Value-added solutions demand remained strong, now is 58% of business (with 42% traditional Internet acceleration services). Emphasizing cloud computing solutions.

Enterprise vertical grew revenue 31% y/y and 8% sequentially as customers moved more business to the cloud. Commerce vertical increased 25% y/y, but declined 8% sequentially due to seasonal declines.

Media and entertainment vertical grew 15% y/y but declined 4% sequentially, partly because of contract renewals at lower price points. But value-added services in this vertical grew 7% sequentially.

High-tech vertical down 3% y/y and sequentially because of lower software download volumes. 50% of vertical is now from value-added.

Public sector grew 16% y/y and 2% sequentially.

Quarter ended with $1.26 billion in cash, equivalents, and marketable securities. An additional $150 million for share repurchases were authorized to offset dilution from stock compensation plans. $46.2 million was spent for capital equipment. $48 million was used for stock repurchases.

30% of sales were outside the U.S. Revenue up 5% sequentially and 22% y/y, helped by a favorable currency impact.

18% of sales were through resellers.

80% cash gross margin. GAAP gross margin 68%, down as depreciation grew due to capital equipment investments. 47% EBITDA margin.

Cost of revenues was $89.1 million. Research and development expense was $12.6 million. Sales and Marketing expense was $53.4 million. General and Administrative expense $43.9 million, with amortization of $4.3 million. Leaving operating income of $72.7 million. Other income $1.9 million. Income taxes $24.1 million.

While traffic growth in the volume business has moderated after a strong 2010, we are confident that segment will do well in the future from continued video delivery growth.

Akamai now has joint solutions with IBM WebSphere and Ericson.


The IBM and Ericson partnerships will take a couple of years to ramp up.

U.S. growth rates? Largely due to renewals in U.S. at lower prices for y/y, for sequential it is lower ads after the big Q4.

Expenses in Q1 that fell into Q2? In million dollar range, just a matter of timing.

Pricing renewals were based on volumes, not on competition, but it is a very competitive space.

Decline in EBITDA margin guidance? In Q4 we had about 45%. In Q1 we had less cost and were at high end of revenue expectations. On April 1 we have a salary increase that will cause Q2 EBITDA margin decline.

Renewals at lower prices in Q2? We have renewals all the time, but Q1 had an unusual number of renewals.

Reasons for traffic growth moderation? It continues to grow, just not at the same blazing pace all the time. Believes still in transition from cable delivery of video to Internet delivery.

Public sector growth slowing down? Not so much a budget issue, though our growth rate slowed off a great 2010. But there will be continued investment in security for the public sector as they move to the cloud.

High tech sector did not grow so much y/y because of the large number of large releases of software in Q1 of 2010. Does not give guidance on verticals by quarter.

Full year-guidance for 15% revenue growth, are you backing? We did not give 15% guidance, it was "an outlook of a general trend of where we thought we would go." Two of three main drivers are in line for 15% growth. The other, seasonal traffic growth for Q3 and Q4, is set up, but we can't see that is for sure yet. 15% is still an objective, it is not guidance.

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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 2011 William P. Meyers