Akamai(US:AKAM)2024-11-08 21:33Revenue Performance - Security and compute solutions represented almost two-thirds of total revenue during the first nine months of 2024[98] - Total revenue for the three months ended September 30, 2024, increased by 4.1% to $1,004.7 million compared to $965.5 million in the same period in 2023[112] - Security solutions revenue grew by 13.8% to $518.7 million for the three months ended September 30, 2024, driven by growth in segmentation and web application solutions[112][113] - Delivery solutions revenue decreased by 15.9% to $319.1 million for the three months ended September 30, 2024, due to economic and geopolitical headwinds impacting customer traffic[112][114] - Compute solutions revenue increased by 28.0% to $166.9 million for the three months ended September 30, 2024, driven by growth in cloud optimization solutions[112][116] - U.S. revenue increased by 5.2% to $524.6 million for the three months ended September 30, 2024, representing 52.2% of total revenue[116] - International revenue increased by 2.8% to $480.1 million for the three months ended September 30, 2024, representing 47.8% of total revenue[116] Cost and Expense Trends - Co-location costs are a significant portion of cost of revenue, with long-term leases impacting expenses[103] - Network bandwidth costs are managed through internal software development to improve efficiency[104] - Network build-out and supporting service costs have increased due to compute infrastructure expansion[105] - Payroll and related costs, including stock-based compensation, are the largest expense[106] - Cost of revenue increased by 6.7% to $408.8 million for the three months ended September 30, 2024, primarily due to higher co-location fees and depreciation of network equipment[118] - Research and development expenses increased by 13.6% to $120.3 million for the three months ended September 30, 2024, driven by higher payroll and stock-based compensation[121] - Sales and marketing expenses increased by 4.7% to $138.6 million for the three months ended September 30, 2024, due to higher payroll and stock-based compensation[124] - General and administrative expenses increased by 8.6% to $159.96 million for the three months ended September 30, 2024, primarily due to higher acquisition-related costs and increased provision for doubtful accounts[127] - Amortization of acquired intangible assets increased by 34.6% to $24.37 million for the three months ended September 30, 2024, driven by recent acquisitions[128] - Restructuring charges for the three months ended September 30, 2024, were $82.01 million, primarily due to headcount reductions and impairments of acquired intangible assets[129] - Interest and marketable securities income, net, increased by 102.1% to $23.07 million for the three months ended September 30, 2024, due to higher cash balances and interest rates[132] - Interest expense increased by 35.1% to $6.74 million for the three months ended September 30, 2024, primarily due to the issuance of $1.265 billion in convertible senior notes in August 2023[133] - Provision for income taxes decreased by 21.8% to $15.90 million for the three months ended September 30, 2024, due to lower profitability and increased global intangible low-taxed income[135] - Effective income tax rate for the three months ended September 30, 2024, was 21.5%, higher than the federal statutory rate due to non-deductible stock-based compensation[136] - The company expects cost of revenue to increase in the remainder of 2024 due to investments in network infrastructure to support compute solutions growth[119] - Sales and marketing expenses are expected to increase in 2024 due to continued investment in go-to-market efforts and personnel added from the Noname Security acquisition in June 2024[126] - The company expects amortization of acquired intangible assets to be approximately $24.1 million for the remainder of 2024 and $92.3 million for 2025[129] - Restructuring charges for the nine months ended September 30, 2024, were $83.94 million, driven by strategic resource redeployment and completed acquisitions[129] Non-GAAP Financial Metrics - Non-GAAP income from operations for the nine months ended September 30, 2024, was $869.126 million, compared to $832.852 million for the same period in 2023[151] - Non-GAAP operating margin for the nine months ended September 30, 2024, was 29.3%, slightly lower than the 29.6% margin for the same period in 2023[151] - Stock-based compensation for the nine months ended September 30, 2024, was $294.333 million, up from $236.344 million in the same period in 2023[153] - Restructuring charges for the nine months ended September 30, 2024, were $83.942 million, compared to $56.675 million in the same period in 2023[153] - Non-GAAP net income for the nine months ended September 30, 2024, was $741.657 million, up from $697.376 million in the same period in 2023[153] - Amortization of acquired intangible assets for the nine months ended September 30, 2024, was $66.467 million, compared to $49.918 million in the same period in 2023[153] - Acquisition-related costs for the nine months ended September 30, 2024, were $7.387 million, down from $12.156 million in the same period in 2023[153] - Gain from equity method investment for the nine months ended September 30, 2023, was $1.475 million, related to the liquidation of GO-NET[153] - Non-GAAP adjustments exclude items such as stock-based compensation, restructuring charges, and acquisition-related costs to provide a clearer view of core business performance[142][143][144] - GAAP net income per diluted share for the nine months ended September 30, 2024, was $2.36, compared to $2.50 for the same period in 2023[155] - Non-GAAP net income per diluted share for the nine months ended September 30, 2024, was $4.82, compared to $4.51 for the same period in 2023[155] - Adjusted EBITDA for the nine months ended September 30, 2024, was $1.25 billion, compared to $1.18 billion for the same period in 2023[158] - Adjusted EBITDA margin for the nine months ended September 30, 2024, was 42.1%, compared to 41.9% for the same period in 2023[158] Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2024, was $1.18 billion, compared to $959.2 million for the same period in 2023[165] - Cash used in investing activities for the nine months ended September 30, 2024, was $554.5 million, compared to $1.53 billion for the same period in 2023[166] - Net cash used in financing activities for the nine months ended September 30, 2024, was $538.8 million, compared to net cash provided by financing activities of $500.2 million for the same period in 2023[167] - The company had cash, cash equivalents, and marketable securities totaling $2.0 billion as of September 30, 2024[161] - Cash and cash equivalents held in accounts outside the U.S. as of September 30, 2024, were $349.6 million[164] - The company's investment policy aims to preserve principal and maintain adequate liquidity, with cash investments in high-quality credit instruments[161] - The company repurchased 4.2 million shares of common stock at a weighted average price of $99.72 per share, totaling $419.1 million during the nine months ended September 30, 2024[169] - As of September 30, 2024, $2.1 billion remained available for future share repurchases under the authorization programs[169] - The company had $3,565.0 million of convertible senior notes outstanding as of September 30, 2024[170] - The company entered into a $500.0 million, five-year revolving credit agreement in November 2022, with no outstanding borrowings as of September 30, 2024[171] - The company expects to repay $1,150.0 million convertible senior notes due in May 2025 using a portion of the net proceeds from $1,265.0 million convertible senior notes due in 2029[174] - The company's liquidity outlook indicates that current cash, cash equivalents, and marketable securities balances are sufficient to meet foreseeable cash needs for at least the next 12 months[174] Market and Operational Challenges - Traffic growth on the network is slowing, particularly in media and gaming verticals, due to customer optimization and economic challenges[99] - Prices for delivery and security services have declined due to competition and contract renewals, impacting revenue growth rates[100] - International operations revenue continues to grow, but is impacted by foreign exchange fluctuations[101] - Global macroeconomic and geopolitical conditions continue to impact customer businesses and revenue growth rates[110] - The company's exposure to foreign currency fluctuations has increased due to growth in international operations, with the strengthening U.S. dollar negatively impacting revenue[181] - A hypothetical 10% strengthening or weakening in the value of the U.S. dollar relative to foreign currencies would not result in a material impact to the company's financial statements[181] - The company's available-for-sale portfolio would decline by approximately $10.9 million if market interest rates increased by 100 basis points[178] - The company's accounts receivable credit risk exposure is limited, with no customer having an accounts receivable balance of 10% or more as of September 30, 2024[185] Acquisitions and Investments - The acquisition of Noname Security for $452.3 million is expected to add $20.0 million in revenue for 2024[109] - Gain from equity method investment for the three and nine months ended September 30, 2023, was $1.475 million, representing a 100% decrease due to the liquidation of GO-NET[139]