Analyst Conference Summary


conference date: February 8, 2012 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2011 (Q4, fourth quarter 2011)

Forward-looking statements

Overview: Strong revenue and profit growth; record results.

Basic data (GAAP) :

Revenue was $323.7 million, up 15% sequentially from $281.9 million and up 14% from $284.7 million in the year-earlier quarter.

Net income was $60.1 million, up 42% sequentially from $42.3 million and up 14% from $52.5 million year-earlier.

EPS (earnings per share) were $0.33, up 43% sequentially from $0.23 and up 22% from $0.27 year-earlier.

Comparisons: Q3 2011 AKAM summary; Q4 2010 AKAM summary


Normal sequential seasonal revenue decline with foreign exchange headwind.

Revenue in Q1 $305 to $313 million. Flat operating expenses. Higher tax rate. Normalized EPS $0.36 to $0.39. $50 million for capital expense.

Conference Highlights:

Non-GAAP, normalized net income was $83 million or $0.45 per share, up 32% sequentially and 9% from year-earlier. EBITDA was $148 million, up sequentially from $122 million and up 15% from $129 million year-earlier.

The cash purchase of Blaze was announced. Blaze Software specializes in optimizing the front end web page code delivery process. It is a small company so no material impact is expected in 2012.

Largest quarter to quarter revenue growth ever.

25% sequential increase in online retail commerce revenue; 20% increase from year-earlier. There was a significant increase in online shopping activity.

Enterprise segment grew 6% sequentially and 23% y/y.

High tech segment was up 10% sequentially and 9% y/y driven by adoption of cloud infrastructure solutions, which now make up 55% of sales in the segment.

Media and entertainment segment was up 17% sequentially and 11% y/y.

Public sector revenue was down 2% sequentially, but up 3% y/y.

Reseller revenues were 19% of total. International revenue was 28% of total.

Customers biggest problem has become security. Akamai security for the cloud is a crucial growth product. Enhanced products are rolling out in 2012. Security revenue was up 149% in 2011.

For the first time the Super Bowl was online in HD, live, using the Akamai network.

Cash and marketable securities balance ended at $1.2 billion. Cash provided by operating activities was $135.9 million. Capital expenditures were $46.6 million. $44 million depreciation and amortization. $76 million spent to buy back shares; $130 million remains in repurchase program.

Cost of revenues was $102.5 million. Research and development expense was $15.2 million. Sales and marketing cost $66.6 million. General and administrative expenses were $51.0 million. Amortization was $4.3 million and there was a $4.7 million restructuring charge. Leaving $79.3 million in operating income. Interest income was $1.9 million. There was a $0.5 million loss on investments and an other gain of $7.5 million. Income tax provision was $28.1 million.

Cotendo transaction should close in Q1.


Drivers for verticals aside from shopping? We saw strength across the board. Media volumes accelerated, software delivery was strong, and of course very strong e-commerce.

Use of cash? Our goal is strong growth and returning shareholder value. We will be opportunistic about acquisitions. We do have a roadmap of things we want to add to our portfolio. In 2011 we basically used cash flows to buy back shares.

Value added and cloud service growth drivers? We had good customer signings. VSA product tends to do well in Q4. Cloud infrastructure solutions have strong momentum.

Legal settlement was not connected to patent litigation, otherwise no comment.

We like Cotendo's capabilities and teams. Blaze already closed, so we will use their technology across our products. It is capable of optimizing pages within the browser. Blaze is a scalable solution which we can embed massively. We believe front end optimization will be important over the next couple of years.

The pricing environment has been consistent. Our goal is to drive down pricing to enable our customers to do more. Our customers saw more ability to bring media profitably online and responded in Q4.

Co-location costs? Server footprint in datacenters is the cost driver. We improve software to get more throughput from the hardware, and improve hardware as well. We have the ability to drive the cost of delivery down considerably going forward.

Japan? About 2/3 of international is Europe. Asian revenue is dominated by Japan. Growth was slow in Japan.

Bookings are strong and we are rolling many new products this year. Customers are talking to us about how to grow their online businesses.

Ericsson product? We are pleased with the partnership. We are jointly developing products but are not ready to make announcements yet.

SaaS was a growth driver in cloud solutions.

Long term model for margins is 45 to 47%, but in short term bumping around 43%.

Projected tax rate for 2012 would go down in R&D tax credit is renewed.

Contracts no longer have bursting overcharges, just per gigabyte contracts.

DSA and RME products from cloud technologies sell well to Media and Entertainment customers. There was not a significant mix shift despite volume growth.

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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 2012 William P. Meyers