AKAM

Akamai Technologies, Inc. (AKAM)

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Akamai Technologies (AKAM)

Q4 2010 Earnings Call

February 09, 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

Sterling Auty - JP Morgan Chase & Co

Derek Bingham - Goldman Sachs Group Inc.

Mark Kelleher - Dougherty & Company LLC

Katherine Egbert - Jefferies & Company, Inc.

Chad Bartley - Pacific Crest Securities, Inc.

Saurabh Paranjape

Michael Clarke

Jennifer Swanson - Morgan Stanley

Philip Winslow - Crédit Suisse AG

Edward Maguire - Credit Agricole Securities (USA) Inc.

Neil Doshi - ThinkEquity Partners

Todd Raker - Deutsche Bank AG

Michael Turits - Raymond James & Associates

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Akamai Technologies, Inc. Earnings Conference Call. My name is Kathy, and I will be operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today's call, Ms. Natalie Temple, Investor Relations. Please proceed, ma'am.

Natalie Temple

Good afternoon, and thank you for joining Akamai's Investor Conference Call to discuss our fourth quarter and full year 2010 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 reports on Form 10-Q. The forward-looking statements included in this call represent the company's view on February 9, 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 metrics during today's call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the News & 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 Q4, posting another record quarter. We also achieved our goal, our top line goal of more than $1 billion in annual revenue, a major milestone for the company.

Financial highlights the fourth quarter included revenue of $285 million, a 19% year-over-year increase and a 12% increase over the third quarter of 2010. Fully taxed normalized net income was $77 million, or $0.40 per diluted share, that's up 22% from Q4 of last year and up 19% sequentially.

For the full year, we grew revenue, 19% year-over-year to $1,024,000,000, generated fully-taxed normalized net income of $272 million, or $1.43 per diluted share. That's an increase of 19% from 2009. We continued this strong cash flow generation. Full year, cash from operations coming in at just over $400 million.

I'll be back in a few minutes to talk more about the trends we're seeing in the marketplace. But first, let me turn the call over to J.D. to review our results in detail. J.D.?

J. Sherman

Thanks, Paul. As Paul just highlighted, our business performed very well in the fourth quarter, and we grew revenue 19% year-over-year and 12% sequentially to $284.7 million, coming in at the top end of our guidance for the quarter.

All of our key verticals saw a solid growth. As a reminder, we have begun to break out or revenue into five verticals with Commerce now split into Commerce B2C and Enterprise B2B.

We saw a healthy online holiday season in our Commerce B2C vertical, as revenue grew 28% from Q3 and 21% from Q4 of last year. Contributing to the growth in this vertical was the seasonal strength in our Advertising Decision solutions business, as well as continued traction of our Dynamic Site solutions.

Revenue from our enterprise B2B vertical grew 13% sequentially and 26% year-over-year as the applications continued to shift to the cloud, and we saw increased demand for optimization, performance and security solutions.

Media and Entertainment delivered excellent growth, driven by continued adoption of online video at higher and higher quality level. During the quarter, Media and Entertainment revenue grew by 25% on a year-over-year basis and 10% sequentially.

Revenue from our high-tech customers grew 4% sequentially and was roughly consistent with Q4 2009 levels. Underneath this, we continue to see strong penetration of our Application Performance Solutions, offsetting lower revenues for traditional software delivery. Public sector revenue grew 30% year-over-year and was down one point sequentially in Q4, continuing the solid performance we saw all year from our government business.

We also experienced very strong growth for our value-added solutions. The percentage of our business attributable to these solutions increasing to 55% in Q4 from the prior year. While the percentage of total revenue for our value-added services didn't change as much as we anticipated. The good news is that this was primarily due to a return to solid growth in our Media Delivery business.

During the fourth quarter, sales outside North America represented 27% of total revenue, down one point from the prior quarter and from Q4 of last year. International revenue grew 17% year-over-year, and 11% sequentially.

Foreign exchange had a negative impact on revenue of about $1 million on a year-over-year basis and a positive sequential impact of about $3 million. Excluding the impact of currency, international revenue grew 18% on a year-over-year basis and 6% sequentially.

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