Analyst Conference Summary


conference date: July 24, 2013 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2013 (Q2, second quarter)

Forward-looking statements

Overview: Strong revenue growth continues.

Basic data (GAAP) :

Revenue was $378.1 million, up 3% sequentially from $368.0 million and up 14% from 331.3 million in the year-earlier quarter.

Net income was $61.9 million, down 13% sequentially from $71.5 million, but up 40% from $44.2 million year-earlier.

EPS (earnings per share) were $0.34, down 13% sequentially from $0.39, but up 42% from $0.24 year-earlier.


Q3 2013 revenue $380 to $392 million. Foreign exchange expected to have a negative $1 million impact sequentially. The range can be due to timing of a major software traffic event. 66 to 67% GAAP gross margin. Cash op ex up $8 to 10 million sequentially. Non-GAAP EPS $0.44 to $0.47, at 182 million shares, fully diluted.

Conference Highlights:

Adjusted for the ADS divestiture, revenue was up 18% y/y. Akamai had strong growth in all its product lines in the quarter. Revenue was at the high end of the guidance range. GAAP EPS down sequentially due to effect of R&D tax credit on Q1.

Non-GAAP numbers: net income $84 million, EPS $0.46. Adjusted EBITDA was $166 million, or 44%. There was a change in depreciation methodology that negatively impacted results.

GAAP gross margin was 67%, flat sequentially and up 7 points y/y, and better than guidance due to some expenses moving from Q2 to Q3. Some hiring also shifted to Q3.

Media delivery revenue was $179 million, down 1% sequentially from $181 million, but up 14% y/y. One large media customer migrated all its video off Akamai, resulting in the sequential decrease.

Performance and security revenue was $168, up 7% sequentially from $157 million, and up 19% y/y.

Service and support revenue was $31 million, up 14% sequentially from $27 million. 41%

29% of revenue was from outside North America, up 21% y/y, but flat sequentially. North American revenue was up 4% sequentially. 20% of revenue was from resellers.

Cash and securities balance over $1.1 billion. $42 million spent on share repurchases. Cash from operations was $130 million, for a 76% cash gross margin. Capital expense was $72 million.

Cost of revenue was $124.7 million. R&D expense $20.6 million. Sales and marketing $67.8 million. General and administrative is $61.4 million. Amortization $5.7 million. Restructuring $0.4 million. Leaving operating income of $97.5 million. Interest income was $1.5 million. Income tax provision $37.4 million.

Believes large cash balance allows for necessary investments in a rapidly changing business. Akamai is making investments that should result in growth in 2014 and beyond.

Download times have been shown to be critical to e-commerce sites. Monitoring real performance with Ion and Alta allow benefits of acceleration to be seen by customers. Kona Site Defender has also shown capabilities unavailable elsewhere. 45 customers purchased Kona during Q2.


Security revenue within segment? Will break out the solutions within the segment annually, but not by quarter. Security solutions is the fastest growing part. Run rate around $20 million annually at end of 2012.

Cisco acquisition in security space? No impact to our thoughts, we have a unique solution. We intercept the attack traffic close to its source, not at the target.

IP accelerator solution was once source of upside in the quarter. It helps route videos and phone calls that are one-to-one route problems.

Number of security customers now? About 650. RPU (revenue per customer) continues to improve as more take Kona.

There was nothing particularly noteworthy to call out in the public sector segment.

Bandwidth and co-location pricing? As usual, the cost continues to come down, consistent with past decreases. We are becoming a more efficient user of co-location.

In security, new customer income vs. further penetration to prior customers? In general we have been making investments in the sales force, but it takes 4 to 5 quarters to get sales reps productive. We made some traction with large accounts, and across the customer base. We signed 3 of the top 5 Dutch banks in the quarter.

There is no particular meaning to our not having made any acquisitions so far this year. We are looking for opportunities in adjacencies. We are active shoppers but disciplined buyers.

Mobile effects? Mobile is rapidly becoming a majority of transactions. A lot of our R&D is focused on mobile. We tend to bundle mobile optimization as part of our overall solutions.

Media pricing environment? That is a competitive environment, so pricing has to be aggressive.

Carrier relationships? We announced Korea Telecom this quarter. AT&T has signed up several customers with us. We are hard at work with other major carriers "and I hope later this year you will see other major announcements."

Cause of strength in Asia-Pacific? It is not every single market there, but generally Asia has been strong, but growing off a small base.

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Copyright 2013 William P. Meyers