Analyst Conference Summary


conference date: April 25, 2012 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2012 (Q1, first quarter)

Forward-looking statements

Overview: Continued revenue growth nevertheless disappoints some investors.

Basic data (GAAP) :

Revenue was $319.4 million, down 1% sequentially from $323.7 million, but up 16% from $276.0 million in the year-earlier quarter.

Net income was $43.2 million, down 28% sequentially from $60.1 million, also down 15% from $50.6 million from year-earlier.

EPS (earnings per share) were $0.24, down 27% sequentially from $0.33 and also down 8% from $0.26 year-earlier.

Comparisons: Q4 2011 AKAM summary; Q1 2011 AKAM summary


Q2 revenues $322 to $330 million, which includes a full quarter of Cotendo revenue. Margins decreasing one to two points, and operating expenses up $11 million sequentially due to acquisitions and expansion. Normalized EPS $0.36 to $0.38. Full year capital expense near 16% of revenue.

Conference Highlights:

Non-GAAP, normalized net income was $75 million or $0.41/share, up 4% y/y, but down 10% sequentially. EBITDA $143 million, up 10% y/y. Stock-based compensation costs excluded were $20.9 million.

Results reflected ramp of cloud infrastructure solutions and content deliver traffic growth. Exceeded (management) expectations in almost every area (WPM: high end of prior revenue guidance was $313 million). Recent acquisitions will be roughly earnings neutral in the next four quarters, but will generate significant growth long-term.

Paul Sagan, CEO, will be leaving the company by the end of 2013; a transition plan is in place.

Cotendo accounted for less than $2 million in revenue in the quarter.

Cash balance was $979 million. Cash from operations $93 million. $8 million was spent on share repurchases. Another $150 million was authorized for repurchases. $291.6 million cash was used for acquisitions. $43 million was used for capital expenditures.

Revenue through resellers was 21% of total. International revenue was 28% of total.

Media and entertainment segment revenue was up 14% y/y, but down 2% sequentially. Sports events show that online viewing is tied to online social application use.

Commerce segment revenue up 21% y/y, but down 7% sequentially due to seasonality.

Enterprise revenue up 17% y/y, down 3% sequentially. Demand is increasing for optimization and security solutions.

High-tech vertical grew 15% y/y and was up 3% sequentially due to timing of several large software download releases. SAAS (software as a service) migration to cloud continued.

Public service revenue grew 9% y/y and 7% sequentially.

Across verticals cloud infrastructure revenue made up 57% of total revenue.

All geographies showed growth except Japan.

Gross margin was better than guidance. Acquisition related expenses added to operating expense.

Kona Site Defender was deployed in February and has good early market traction.

Cost of revenues was $102.6 million. R&D expense $17.5 million. Sales and marketing $67.3 million. General and administrative expense $55.7 million. Amortization of intangibles $4.8 million. Leaving GAAP operating income of $71.6 million. Interest income $1.6 million. Other expense $0.4 million. Income tax provision $29.6 million.


Why not more acceleration in media volume? It depends on how much content moves online. It did accelerate during winter, and we expect it to increase long term.

International situation? We are seeing good trends for us, but that does not say anything about the global or region economies. We see opportunities in Asia and pockets of strength in Europe.

Riverbed? Go to market opportunity is in private to public cloud migration. We will share revenue with them, so we are supporting their channel. It looks good, but is too early to quantify. Not a material opportunity this year.

Will Windows 8 be a high tech sector opportunity? Overall shift is due to SAAS model, would not want to speculate on a specific software download.

Any content, any device model of Akamai has been attractive for customers.

It typically takes about a year after an acquisition to run through the costs and start seeing the revenue and profit benefits. We will upsell Cotendo customers to our average.

How long before lower margins predicted for Q2 get back to long term model? We will get back to our long term model after acquisitions are absorbed. It will take several quarters because it depends on upselling our other products to their current customers.

Security initiative competition? Thinks this an expanding wallet. It has become a boardroom risk question. We provide security in depth for clouds. It is a new opportunity and a new conversation.

Juniper, Citrix, AT&T contracts of Cotendo? We are exploring those.

Bandwidth and collocation costs? Bandwidth costs continue to go down, but are offset by traffic growth. Collocation costs depend on specific networks, but no substantive change lately.

No significant change in media and entertainment delivery competition; carriers not really set up to do it.

Cloud infrastructure solutions are not on a volume basis. We will be introducting more thoughtout this year, so the revenue mix will increase over time.

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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