AKAM

Akamai Technologies, Inc. (AKAM)

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Akamai Technologies Inc. (AKAM)

Q1 2009 Earnings Call

April 29, 2009 4:30 pm ET

Executives

Noelle Faris, Senior Manager, Investor Relations

Paul Sagan - President & CEO

J.D. Sherman - CFO

Analysts

Mark Mahaney - Citi

Michael Turits - Raymond James

Mark Kelleher - Brigantine Advisors

David Hilal - FBR

Mike Olson - Piper Jaffray

Tim Klasell - Thomas Weisel Partners

Katherine Egbert - Jefferies

Richard Fetyko - MCF

Donna Jaegers - D.A. Davidson

Chad Bartly - Pacific Crest

Derek Bingham - Goldman Sachs

Jeff Van Rhee - Craig-Hallum

Kerry Rice - Wedbush

Sri Anantha - Oppenheimer

Bryant Ackley - Deutsche Bank

Colby Synesael - Kaufman Brothers

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the first quarter 2009 Akamai Technologies Incorporated Earnings Call. My name is [Malalia] and I will be your operator for today’s call. (Operator Instructions). I would now like to turn the presentation over to your host for today’s call, Ms. Noelle Faris, Senior Manager, Investor Relations.

Noelle Faris

Thank you. Good afternoon and thank you for joining Akamai’s investor conference call to discuss our first quarter 2009 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 filing 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 views on April 29th, 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 generally accepted accounting principles. You can find definitions of these non-GAAP terms and reconciliation’s of these non-GAAP metrics to the most directly comparable GAAP financial measures under the news and publication portion of the Investor Relations section of our website.

Now let me turn the call over to Paul.

Paul Sagan

Thanks, Noelle, and Welcome back, and thank you all for joining us today on the call Akamai performed very well in Q1 following a seasonally strong Q4. Financial highlights for the first quarter include revenue of $210.4 million, an increase of 12% over the same period last year.

Normalized net income of $80.5 million or $0.43 per diluted share up $0.02 from Q1 of last year. And cash generation this first quarter was very strong with $90 million of cash flow from operations in Q1. This increased our balance of cash and equivalents to nearly $850 million.

With Akamai’s continued strong cash flow, we’re pleased to announce that the company’s board of directors has authorized a $100 million share buyback program. We plan to use this program over the next several quarters to roughly offset dilution from equity compensation, and we intend to fund the buyback from our cash from operations.

We think our Q1 results demonstrate the value of Akamai’s successful business model, a model that has worked well when economic trends are favorable and when the macro conditions are tough. We have a unique approach of solving the problem of Internet performance scale. The Akamai difference enables us to not only deliver value added solutions for our clients but also to deliver the best operational scale in the industry.

I’ll be back in a few minutes to share some more observations on the marketplace, but let me turn it over now to J.D. for details. J.D.?

J.D. Sherman

Thanks, Paul. As Paul just highlighted, our business performed extremely well in the first quarter. We grew revenue 12% year-over-year to $210.4 million. At the upper end of our expected range coming into the quarter. Sequentially, revenue was down about $2million driven by normal seasonality in our e-commerce vertical and in our new Advertising Decision Solutions business.

In addition, foreign exchange had a negative sequential impact of about $1 million. e-commerce continued to be our fastest growing vertical, increasing 30% over Q1 of last year but contracting 4% compared to the seasonally strong Q4. We continued to see excellent traction for our value-added solutions in the this vertical, particularly dynamic site acceleration.

Also with the acquisition of acerno, we now have a strong predictive advertising solution for e-commerce as well as other verticals. Revenue from our Advertising Decision Solutions declined about $2 million sequentially from the seasonally strong Q4 consistent with our expectations and very promising given the difficult ad spending environment.

Our Media & Entertainment vertical grew 8% year-over-year in the first quarter. As expected M&E was about flat in Q1 on a sequential basis. The High-Tech vertical was also flat on a sequential basis, as well as year-over-year. We had very strong growth in the Public Sector with revenue up 27% from Q1 of last year and 19% from last quarter.

Our International business performed extremely well in the first quarter, as our investment in international expansion continued to pay dividend. During the first quarter sales outside North America, represented 28% of total revenue, up 3 points from fourth quarter levels. International revenue grew 10% sequentially and 25% year-over-year.

The stronger dollar had a negative sequential impact of about $1 million on revenue, and on a year-over-year basis the negative currency impact was about $8 million. Excluding these currency impacts, our business outside the US grew 12% sequentially, and 43% year-over-year in Q1.

North American sales excluding acerno were down 3% after seasonally strong Q4 and grew 5% on a year-over-year basis. Resellers represented 17% of total revenue consistent with the prior quarter. With the acquisition of acerno last quarter, we now have close to 3,000 customers using Akamai’s Solutions.

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