Akamai Technologies, Inc. (AKAM)

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Akamai Technologies (AKAM)

Q3 2009 Earnings Call

October 28, 2009 4:30 pm ET


Noelle Faris – Investor Relations

Paul Sagan – President and Chief Executive Officer

J.D. Sherman – Chief Financial Officer


Analyst for Mark Mahaney - Citigroup

Michael Turits - Raymond James

Mark Kelleher - Brigantine Advisors

Richard Fetyko - Merriman Curhan Ford

Colby A. Synesael - Kaufman Bros.

Srinivas Anantha - Oppenheimer

Derek Bingham - Goldman Sachs

Analyst for Todd Raker - Deutsche Bank

Jeff Van Rhee - Craig-Hallum

Scott Kessler - Standard & Poor's Equity

Chad Bartley - Pacific Crest

Kerry Rice - Wedbush Morgan Securities

Analyst for Tim Klasell - Thomas Weisel

Analyst for David Hilal - Friedman, Billings, Ramsey & Co.



Good day, ladies and gentlemen, and welcome to the Q3 2009 Akamai Technologies Incorporated earnings conference call. My name is Caitlyn and I will be your operator for today. (Operator instructions) I would now like to turn the conference over to your host for today’s call, Ms. Noelle Faris, Senior Manager of Investor Relations. Please proceed.

Noelle Faris

Good afternoon and thank you for joining Akamai’s investor conference call to discuss our third 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 report on Form 10-Q. The forward-looking statements included in this call represent the company’s views on October 28, 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 reconciliations 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 thank you all for joining us today for what is our 40th quarterly earnings call. Tomorrow is the 10th anniversary of our IPO. Akamai performed very well in the third quarter with solid revenue growth and operating results. Financial highlights for the third quarter include revenue of $206.5 million, an increase of 5% over the same period last year. Normalized net income of $70.8 million, or $0.38 per diluted share, down $0.02 from Q3 of last year and very strong cash generation in the third quarter with over $100 million of cash flow from operations.

We think these strong results show the early renewed traction in driving profitable volume growth with [inaudible] in the media industry. At the same time, we saw continued penetration of our value-added solutions into our existing customer base and with new customers to Akamai.

I’ll be back in a few minutes to talk more about trends in the business but first let me turn the call over to J.D. to review our third quarter results in detail. J.D.

J.D. Sherman

Thanks, Paul. As Paul just highlighted, our business performed well in the third quarter as we saw a return to sequential revenue growth. Our Q3 revenue was $206.5 million, up 1% from Q2 and up 5% from Q3 of last year. This performance exceeded our expectations due to stronger than expected volume growth in the media space as well as continued solid performance in e-commerce.

Revenue from our media and entertainment vertical grew 3% sequentially as we saw an up-tick in volumes growth during the quarter. On a year-over-year basis, media and entertainment revenue was down 8%.

Growth within our e-commerce vertical remains strong, growing 22% on a year-over-year basis and remaining roughly flat sequentially in what tends to be a slower seasonal quarter for online commerce.

Our high tech vertical was up 7% on a year-over-year basis but down 7% sequentially. And public sector performed very well, growing 24% from Q3 of last year and 23% from Q2. As we pointed out, public sector revenue tends to be uneven, given the timing of and custom nature of some of our government business. During the third quarter, sales outside North America represented 28% of total revenue, consistent with last quarter. International revenue grew 16% year over year and grew 2% sequentially.

With the dollar weakening, we saw a favorable $3 million sequential impact from currency which was about $1 million more favorable than our expectation at the beginning of the quarter. However, we still had a slight negative impact of about $2 million on a year-over-year basis.

North American sales were consistent with Q2 and grew 1% on a year-over-year basis, and resellers represented 19% of total revenue, up 1 point from the prior quarter.

Our new contract signings in the quarter were very encouraging, particularly with our newer value-added solution, continuing the trend we began to see in late Q2. We added 208 gross new customers in the quarter, the highest number we’ve seen in quite a while. We were particularly pleased with the quality of the signings, with over 50% of our new customers purchasing at least one value-added solution and over 75% of the dollar value coming from value-added solutions.

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