AKAM

Akamai Technologies, Inc. (AKAM)

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Akamai Technologies, Inc. (AKAM)

Q1 2010 Earnings Call Transcript

April 28, 2010 4:30 pm ET

Executives

Noelle Faris – IR

Paul Sagan – President and CEO

J.D. Sherman – CFO

Analysts

Lauren Ye – JPMorgan

Mark Mahaney – Citigroup

Tim Klasell – Thomas Weisel

Michael Turits – Raymond James

Mark Kelleher – Brigantine Advisors

Brian Thackray – Deutsche Bank

Kerry Rice – Wedbush Morgan Securities

Katherine Egbert – Jefferies & Co.

Sri Anantha – Oppenheimer & Co.

Sameet Sinha – JMP Securities

Mike Olson – Piper Jaffray

Donna Jaegers – D.A. Davidson & Co.

Derek Bingham – Goldman Sachs

Jeff Van Rhee – Craig-Hallum

Mark Clark [ph] – FBR

Presentation

Operator

Good day, ladies and gentlemen and welcome to first quarter 2010 Akamai Technologies Inc. earnings conference call. My name is Alisha, and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Noelle Faris, Director of Investor Relations.

Noelle Faris

Good afternoon and thank you for joining Akamai's investor conference call to discuss our first quarter 2010 financial results. Speaking today will be Paul Sagan, Akamai's President and Chief Executive Officer; and J.D. Sherman, Akamai's Chief Financial Officer.

Before we get started, please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance. 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 April 28, 2010. Akamai disclaims any obligation to update these statements to reflect future events or circumstances.

As a reminder, we will be referring to some non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the news and events portion of the Investor Relations section of our website. Now, let me turn the call over to Paul.

Paul Sagan

Thanks, Noelle. And thank you all for joining us today. Akamai performed extremely well in Q1. Top line growth accelerated year-over-year as we posted record revenue of $240 million, up 14% from the same period last year. Gross margins improved year-over-year and we achieved our highest adjusted EBITDA margins ever. While generating fully taxed normalized net income of $66 million, or $0.35 per diluted share, up 14% from Q1 of last year. These results came from strong demand for our services in all verticals.

Our cash flow generation was also strong with $88 million of cash from operations in the quarter. And so we are pleased to announce that our board has authorized a $150 million extension of the share buyback program we started a year ago.

I'll be back in a few minutes to talk about some of the key trends we are seeing in the market, but first let me turn the call over to J.D. for details on Q1. J.D?

J.D. Sherman

Thanks, Paul. As Paul just highlighted, our business performed extremely well in the first quarter. We grew revenue $2 million sequentially and 14% year-over-year to $240, coming in above the upper end of our expected range for the quarter. During the quarter we saw an acceleration in traffic growth, particularly in media and entertainment, as well as continued solid growth in our value-added solutions. We are particularly pleased with the sequential growth of our business coming off of very strong fourth quarter.

E-commerce continued to be our fastest growing vertical, increasing 19% over Q1 of last year, but declining 5% compared to Q4 due to normal seasonality, primarily in our advertising decision solutions. Excluding advertising decision solutions, E-commerce actually grew modestly from Q4, with growth coming from both dynamic side and application performance solutions. These cloud based solutions continued to gain traction in the marketplace.

Signings in the quarter, both from new customers and from existing customers, who are upgrading and adding additional applications were very strong. In fact the dollar value of new customers’ signings for our value-added solutions was up nearly 40% from Q1 of last year. And overall, 54% of our revenue in the quarter came from value-added solutions, up from 41% in Q1 of 2009 with 77% of our total customer base using at least one value-added solution.

Our media and entertainment vertical grew revenue 5% sequentially and 10% year-over-year in the first quarter, driven by accelerating volume growth and exceeding our expectations. We are beginning to see media companies offering higher quality video online, and as a result performance, reliability and scale are becoming increasingly important for them leading to key wins for Akamai.

The high tech vertical was up 15% year-over-year and flat on the sequential basis, driven by increased software download volumes in Q1. We also saw increased traction among Software as a Service or SaaS providers with our APS solutions. We now have over 100 SaaS providers leveraging Akamai’s platform to drive their businesses.

Public sector revenue was up 21% from Q1 of last year and 11% from last quarter continuing the solid performance we have seen for the past several quarters from government contracts. During the first quarter, sales outside North America represented 28% of total revenue consistent with the prior quarter. International revenue grew 1% sequentially and 16% year-over-year. The stronger dollar had a negative sequential impact on our revenue of about $2.5 million, and on a year-over-year basis the currency impact was favorable by about $5 million.

Revenue from North America grew 13% on a year-over-year basis and was up 1% sequentially. Resellers represented 18% of total revenue, down a point from the prior quarter.

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