Akamai Technologies, Inc. (AKAM)

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Akamai Technologies Inc. (AKAM)

Q4 2009 Earnings Call

February 3, 2010 4:30 p.m. ET


Noelle Faris - SM, IR

Paul Sagan - President and CEO

J.D. Sherman - CFO


Mark Kelleher - Brigantine Advisors

Michael Turits - Raymond James

Phil Winslow -Credit Suisse

Derek Bingham - Goldman Sachs

David Hilal - FBR Capital Markets

Mark Mahaney - Citigroup

Kerry Rice - Wedbush

Sri Anantha - Oppenheimer

Rob Sanderson - ABR Investments

Todd Raker - Deutsche Bank

Colby Synesael - Kaufman Brothers

Richard Fetyko - Merriman & Company

Lauren Ye - JPMorgan

Chad Bartley - Pacific Crest

Scott Kessler - Standard & Poor's

Sameet Sinha - JMP Securities



Good day, ladies and gentlemen and welcome to the Akamai Technologies Inc Fourth Quarter 2009 Earnings Conference Call. My name is Jasmine and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Noelle Faris, Senior Manager of Investor Relations. Please proceed.

Noelle Faris

Thank you. Good afternoon and thank you for joining Akamai's investor conference call to discuss our fourth quarter and full year financial results. Speaking today will be Paul Sagan, Akamai's President 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 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 February 3, 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 invest 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. We are pleased to report record quarterly results, highlighted by the largest revenue quarter in Akamai's history and a return to double-digit top line growth.

Financial highlights for Q4 2009 include revenue of $238.3 million, a year-over-year increase of 12% and a 15% increase over the third quarter of 2009. Normalized net income of $85.4 million for $0.46 per diluted share, that's up 21% from Q3 and up $0.2 from Q4 of 2008.

An extremely strong cash generation, with over $124 million of cash flow from operations in the quarter and nearly $425 million for the year. For the full year, we grew revenue to $860 million, a year-over-year jump of 9% and we generated normalized net income of $312 million, or $1.67 per diluted share in 2009, up a penny from 2008.

I'll be back in a few minutes to talk about the year ahead, but first let me turn the call over to J.D. to review our results in detail, J.D.

J.D. Sherman

Thanks, Paul. As Paul just highlighted, our business performed extremely well in the fourth quarter. We grew revenue 12% year-over-year and 15% sequentially to $238.3 million in the fourth quarter, exceeding our updated guidance. E-commerce continued to be our fastest growing vertical, up 23% from Q3, driven in part by a very strong holiday season, but also continued traction with our value-added services.

On a year-over-year basis, e-commerce increased 21%. Revenue from our media and entertainment vertical grew 10% sequentially, as we saw continued healthy volume growth during the quarter. On a year-over-year basis, the media and entertainment vertical returned to growth with revenue up 4% from Q4 of 2008.

The high tech vertical also performed well in the quarter, growing 18% sequentially and 13% on a year-over-year basis, as we saw volume increases in software downloads, as well as traction with our application performance solutions into this vertical.

And public sector continue to generate solid growth jumping 31%, from Q4 of 2008 and up 1% sequentially.

During the fourth quarter, sales outside North America represented 28% of total revenue, roughly consistent with the prior quarter and up 3% from the prior year. International revenue grew 26% year-over-year and grew 14% sequentially.

After providing a headwind through the first three quarters of the year, foreign exchange had a positive impact on Q4, on both the sequential and year-over-year basis. Excluding this impact, our business outside the U.S. grew 10% sequentially and 15% year-over-year in Q4 on a constant currency basis.

North American sales grew 16% sequentially and 7% on a year-over-year basis. Resellers represented 19% of total revenue, consistent with the previous quarter.

Our new contracts signings in the quarter were again very strong at over 200 in Q4, continuing to trend we've seen over the last few quarters. And after a slight improvement in Q3, we also saw customer churn return to more normal levels of about 4% and as a result we added 91 net new customers in the quarter. Our consolidated ARPU or average per revenue per customer was $25,600 for the quarter, up 13% from Q3 and up 5% year-over-year.

We are pleased to see the continued strong new customer signings, as well as a return to a more typical churn level. We believe the consolidated customer metrics is no longer is helpful as the measure of the health of our business. When we look at our business today, we have a much broader and more diverse set of products and customer base than even a few years ago.

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