AKAM

Akamai Technologies, Inc. (AKAM)

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Akamai Technologies (AKAM)

Q1 2011 Earnings Call

April 27, 2011 4:30 pm ET

Executives

Natalie Temple -

Paul Sagan - Chief Executive Officer and Executive Director

J. Sherman - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Sitikantha Panigrahi

David Hilal - FBR Capital Markets & Co.

Donna Jaegers - D.A. Davidson & Co.

Mark Kelleher - Dougherty & Company LLC

Chad Bartley - Pacific Crest Securities, Inc.

Jeffrey Van Rhee - Craig-Hallum Capital Group LLC

Jennifer Swanson - Morgan Stanley

Richard Fetyko - Merriman Curhan Ford & Co.

Kerry Rice - Wedbush Securities Inc.

Edward Maguire - Credit Agricole Securities (USA) Inc.

Geo John - Goldman Sachs Group Inc.

Michael Turits - Raymond James & Associates, Inc.

Tim Klasell - Stifel, Nicolaus & Co., Inc.

Michael Olson - Piper Jaffray Companies

Unknown Analyst -

Scott Kessler - S&P Equity Research

Mark Mahaney - Citigroup Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Akamai Technologies Conference Call. My name is Jeremy, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to Ms. Natalie Temple with Investor Relations. Please proceed.

Natalie Temple

Good afternoon, and thank you for joining Akamai's investor conference call to discuss our first quarter 2011 financial results. Speaking today will be Paul Sagan, Akamai's 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 report on Form 10-Q. The forward-looking statements included in this call represent the company's view on April 27, 2011. 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 measures 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, Natalie. And thank you all for joining us today. Akamai performed very well in Q1. We posted revenue of $276 million, up 15% from the same period last year. Results included normalized net income of $72 million or $0.38 per diluted share, up 9% from Q1 of last year. With more and more applications and transactions moving to the cloud, we saw a strong demand for our value-added services in Q1, and sales of these services accounted for 58% of our total revenue in the quarter. We're also pleased to announce that our board has authorized a second $150 million expansion of our share repurchase program. Our goal with this program is to offset dilution from our equity compensation plans using a portion of our anticipated healthy cash flows.

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

J. Sherman

Thanks, Paul. And as Paul just highlighted, our business performed well in the first quarter. Our revenue came in just above our guidance range at $276 million, and that's up 15% year-over-year and down 3% sequentially. During the quarter, we saw a strong demand for our value-added services across all verticals, and as Paul mentioned, these services reached nearly 60% of our total revenue, now up four points compared to Q1 of last year. We also delivered year-over-year growth in our volume-driven solutions even with the impact of a significant number of renewals with some of our largest customers in Q1.

Revenue from our Enterprise vertical, which is our fastest-growing customer set, grew 31% year-over-year and 8% sequentially as our customers moved more of their business to the cloud. Our commerce vertical increased 25% over Q1 of last year. As expected, Commerce revenue declined 8% compared to Q4, primarily due to the seasonality of our advertising division solutions.

Revenue from our Media and Entertainment customers grew 15% year-over-year and declined 4% sequentially in the first quarter, driven by contract renewals and lower price points from some of our largest media customers. Value-added services revenue in this vertical actually grew 7% sequentially. High-tech vertical was down 3% year-over-year and down 3% on a sequential basis, driven by lower software download buys in Q1 compared to an elevated Q1 last year. We saw a continued traction among software-as-a-service customers purchasing our Application Performance Solutions, and value-added solutions now account for over 50% of the revenue in this vertical. Public sector revenue grew 16% year-over-year in Q1 and also grew 2% sequentially.

During the first quarter, sales outside North America grew to 30% of total revenue, up 3 points from the prior quarter. International revenue grew 5% sequentially and 22% year-over-year. The weaker dollar had a positive sequential impact of about $750,000, and on a year-over-year basis, the current impact was favorable by about $3 million. And excluding the impact of currency, international revenue grew 17% on a year-over-year basis. Revenue from North America grew 12% on a year-over-year basis but was down 6% sequentially, driven by seasonality in our advertising solutions, as well as the large renewals which were predominantly in the U.S., and resellers accounted for 18% of total revenue consistent with the prior quarter.

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