AKAM

Akamai Technologies, Inc. (AKAM)

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Akamai Technologies Inc (AKAM)

Q4 2008 Earnings Call

February 04, 2009 4:30 pm ET

Executives

Paul Sagan – Chief Executive Officer

J. Donald Sherman – Chief Financial Officer

Analysts

Mark Kelleher – Canaccord Adams

Garrett Bekker – Bank of America

Michael Turtis – Raymond James

Todd Raker – Deutsche Bank

Mark Mahaney – Citi

David Hilal – FBR

Katherine Egbert – Jefferies

Jeff Van Rhee – Craig-Hallum

Tim Klasell – Thomas Weisel Partners

Rob Sanderson – Broadpoint AmTech

Richard Fetyko – MCF

Donna Jaegers – Davidson.

Chad Bartley – Pacific Crest

Scott Kessler – Standard & Poor's Equity Research

Steven Freitas – BMO Capital Markets

Derek Bingham – Goldman Sachs

Presentation

Operator

Good day ladies and gentlemen, and welcome to the Fourth Quarter 2008 Akamai Technologies Incorporated Earnings Conference Call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions)

I would now like to turn the call over to Natalie Temple, Senior Analyst for Investor Relations. You may proceed.

Natalie Temple

Good afternoon and thank you for joining Akamai's investor conference call to discuss our fourth quarter and full year 2008 financial results. Speaking today will be Paul Sagan, Akamai's President and Chief Executive Officer, and J.D. Sherman, Akamai's Chief Financial Officer.

Today's presentation contains estimates and other statements that are forward-looking under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.

Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's view on February 4, 2009. Akamai disclaims any obligation to update these statements to reflect future events or circumstances.

During this call, we will be referring to some non-GAAP financial measures that we believe are helpful to better understand our financial results and operations. These non-GAAP measures are not prepared in accordance with the Generally Accepted Accounting Principles. You can find definitions of these non-GAAP terms and reconciliations of these non-GAAP metrics to the most directly comparable GAAP financial measures under the news and publications portion of the Investor Relations section of our website.

Now let me turn the call over to Paul.

Paul Sagan

Usually Noelle Faris, our Senior Manager of IR will be with us, but we are pleased to report that she is home with a healthy baby, a boy born just over a week ago. So, we wish Noelle and her entire family the best. She will be back soon. So, thanks Natalie and welcome to the Akamai IR Team. And thank all you for joining us on the call today. Now down to business.

Akamai performed very well in Q4 capping another record year of significant revenue and earnings growth. Financial highlights for the fourth quarter includes, record revenue of $212.6 million, a 16% year-over-year increase and an 8% increase over the third quarter of 2008. Normalized net income of $82.2 million, or $0.44 per diluted share, that’s an 8% increase year-over-year and up 11% from Q3.

For the full year we grew revenue 24% year-over-year to $791 million. We generated normalized net income of $308.5 million or $1.66 per diluted share in 2008, that’s a 26% increase over 2007 and we generated $343 million of cash flow from operations, 43% of revenue during the year a testament to the strength of our business model.

Even if the external environment became more challenging, we were able to grow revenue and earnings throughout the year, at the same time we continued to make strategic investments that we believe will enhance our product portfolio and increase our ability to make the Internet work better for our customers. I’ll be back in a few minutes to share some observations on the marketplace, but first let me turn the call over JD to review the results in detail. J.D?

J. Donald Sherman

Thanks, Paul. As Paul just highlighted, our business performed extremely well in the fourth quarter and we were very pleased with the results. We grew revenues 16% year-over-year and 8% sequentially to $212.6 million, exceeding our expectation range coming into the quarter with solid performance across the board, but particularly within our eCommerce sector and in our newer value-added solutions, eCommerce continued to be our fastest growing vertical growing 12% from Q3 and 23% over a very strong Q4 of 2007.

These results were driven in part by stronger than anticipated holiday season online, as well as increased penetration of our dynamic site solutions and application performance solutions.

As expected, we did see a slowdown in M&E growth in the last quarter, continuing the trend we saw immediate throughout the year. The high tech vertical grew 6% year-over-year. Similar to M&E, our high tech customers tend to be heavily weighted towards large volume deals with more significant volume based discounts.

Revenue from our Acerno acquisition which we closed at the beginning of November, was nearly $7 million over the 2 months showing strength in a difficult advertising market and a great a great start to what we think will be a very strategic acquisition. During the fourth quarter, sales outside North America represented 25% of total revenue, down a point from the third quarter levels.

Our international business performed very well growing 5% sequentially and 25% year-over-year. The stronger dollar had a negative sequential impact on our revenue was up $5.5 million. Excluding this impact, our business outside the U.S. grew 16% sequentially and 38% year-over-year in Q4.

North American sales excluding Acerno grew 4% sequentially and 9% on a year-over-year basis and resellers represented 17% of total revenue consistent with the prior quarter. Excluding Acerno, we added 15 net new customers in Q4 bringing our total customer count to 2858. Our growth adds brand new customers to Akamai were over a 160, consistent with the run rate of prior quarters.

Once again, no customer accounted for 10% or more of our revenue in Q4. Churn was just under 4% for the fourth quarter consistent with the last few quarters. Excluding the impact of Acerno, our consolidated ARPU or average revenue per customer was $24,000 in the quarter, that’s up 2% in Q3 and 4% from last year.

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