Akamai(AKAM) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The company's unaudited statements show total assets of $10.54 billion, six-month revenue of $2.06 billion, and net income of $226.8 million Condensed Consolidated Balance Sheets - Total assets increased to $10.54 billion as of June 30, 2025, while total liabilities grew to $6.07 billion, driven by an increase in long-term convertible senior notes[10][11] Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $850,302 | $517,707 | | Total current assets | $2,033,827 | $2,578,097 | | Total assets | $10,536,135 | $10,368,785 | | Liabilities & Equity | | | | Total current liabilities | $880,519 | $2,091,323 | | Convertible senior notes (long-term) | $4,100,977 | $2,396,695 | | Total liabilities | $6,068,627 | $5,490,428 | | Total stockholders' equity | $4,467,508 | $4,878,357 | Condensed Consolidated Statements of Income - Q2 2025 revenue increased to $1.04 billion, but net income decreased to $103.6 million due to a higher tax provision, resulting in a diluted EPS of $0.71[12] Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $1,043,494 | $979,580 | $2,058,633 | $1,966,550 | | Income from operations | $151,461 | $147,986 | $306,044 | $314,714 | | Net income | $103,618 | $131,688 | $226,789 | $307,106 | | Diluted EPS | $0.71 | $0.86 | $1.53 | $1.97 | Condensed Consolidated Statements of Comprehensive Income - Comprehensive income for Q2 2025 rose to $151.6 million, driven by a significant positive foreign currency translation adjustment of $46.7 million[14] Condensed Consolidated Statements of Cash Flows - For the first six months of 2025, operating cash flow decreased to $710.3 million, while higher stock repurchases drove an increase in cash used in financing activities[15][17] Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $710,349 | $782,841 | | Net cash provided by (used in) investing activities | $193,980 | $(438,265) | | Net cash used in financing activities | $(593,455) | $(376,426) | | Net increase (decrease) in cash | $332,375 | $(41,156) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased to $4.47 billion by June 30, 2025, primarily due to $805.3 million in common stock repurchases[22] Notes to Unaudited Condensed Consolidated Financial Statements - In May 2025, the company issued $1.725 billion of convertible senior notes due 2033 and repaid $1.15 billion of matured notes[44][46][47] - For the first six months of 2025, Security revenue was $1.08 billion, Delivery was $639.1 million, and Cloud Computing was $336.9 million[69] - The effective income tax rate for the first half of 2025 was 30.3%, a significant increase from 13.5% in the prior year period[73] - The company repurchased 10.0 million shares for $800.0 million in the first half of 2025, with $1.18 billion remaining under the repurchase program[64][65] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses revenue growth from Security and Cloud solutions, profitability pressures, and capital management strategies Overview and Key Trends - The company's financial success depends on recurring revenue from its security and compute portfolios amid moderating network traffic growth[83] - Revenue trends show strong sales of security and cloud solutions, though some media and gaming customers are optimizing traffic due to macroeconomic headwinds[85] - Profitability is impacted by declining prices on renewals, rising co-location costs for the new compute platform, and increased payroll expenses[86] Results of Operations Revenue by Solution Category (in thousands) | Solution | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Security | $551,914 | $498,708 | 11% | | Delivery | $320,125 | $329,399 | (3)% | | Cloud computing | $171,455 | $151,473 | 13% | | Total revenue | $1,043,494 | $979,580 | 7% | - Security revenue growth was driven by API security, web application, and Guardicore segmentation solutions[92] - Delivery revenue declined due to downward pricing on renewals and customer cost optimization, partially offset by acquisitions[93] - Cost of revenue increased 6% for the first six months of 2025, driven by higher costs related to the compute platform expansion[96] - R&D expenses increased 8% for the six-month period due to higher payroll and stock compensation costs[99] Use of Non-GAAP Financial Measures - Management uses non-GAAP measures like Adjusted EBITDA to evaluate performance, excluding items such as stock-based compensation and restructuring charges[117][118] Reconciliation of GAAP to Non-GAAP Net Income (in thousands) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | GAAP Net Income | $226,789 | $307,106 | | Non-GAAP Adjustments (net of tax) | $280,663 | $191,037 | | Non-GAAP Net Income | $507,452 | $498,143 | Reconciliation of GAAP Net Income to Adjusted EBITDA (in thousands) | Metric | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | | GAAP Net Income | $226,789 | $307,106 | | Adjustments | $658,908 | $518,933 | | Adjusted EBITDA | $885,697 | $826,039 | | Adjusted EBITDA Margin | 43% | 42% | Liquidity and Capital Resources - As of June 30, 2025, the company held $1.6 billion in cash, cash equivalents, and marketable securities[129] - Net cash from operating activities decreased to $710.3 million for the first half of 2025 from $782.8 million in 2024[133] - In May 2025, the company issued $1.725 billion in convertible senior notes due 2033 and repaid $1.15 billion of matured notes[136][138] - The company repurchased 10.0 million shares for $800.0 million in the first half of 2025, with $1.2 billion remaining under its authorization[137] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign currency exchange, and customer credit - A hypothetical 100 basis point increase in interest rates would cause the fair value of the investment portfolio to decline by approximately $10.4 million[149] - The company has significant exposure to foreign currency risk, as a strengthening U.S. dollar negatively impacts reported revenue[153][214] - Credit risk is considered limited due to a large, dispersed customer base, with no single customer accounting for 10% or more of accounts receivable[157] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level[159] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[160] PART II. OTHER INFORMATION Legal Proceedings The company is involved in routine litigation matters not expected to have a material effect on its financial condition - The company does not currently expect any litigation matters to have a material effect on its business, financial condition, or cash flows[161] Risk Factors The company faces significant risks related to operations, regulations, and investments, including competition and cybersecurity threats Financial and Operational Risks - Slowing revenue growth, particularly in the delivery solutions segment due to pricing pressure and customer DIY initiatives, poses a significant risk[163][164] - The business is intensely competitive, especially in cloud computing, where failure to compete could lead to loss of market share[175][177] - Cybersecurity breaches are a major risk that could damage reputation, lead to customer loss, and result in significant costs[187][191] - The business depends on sourcing adequate transmission capacity and co-location facilities, and hardware supply chain disruptions could harm service quality[197][198] Legal and Regulatory Risks - Evolving global privacy laws like GDPR and CCPA could increase compliance costs and reduce demand for offerings[222][223][224] - Changes to laws governing internet content liability, such as Section 230, could expose the company to greater legal liability[227][228] - The company faces risks from potential patent or copyright infringement claims, which could result in substantial costs and damages[231] Investment-Related Risks - The company's stock price has been and may continue to be volatile due to variations in operating results and market fluctuations[237][240] - The company has a significant amount of debt ($4.14 billion in convertible senior notes), and an inability to meet obligations could harm the business[241] - Failure to maintain an effective system of internal controls could lead to inaccurate financial reporting and loss of investor confidence[245] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3.9 million shares in Q2 2025, with $1.18 billion remaining under its repurchase program Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 2025 | — | $— | $1,480,514,000 | | May 2025 | 3,870,468 | $77.51 | $1,180,514,000 | | June 2025 | — | $— | $1,180,514,000 | | Total | 3,870,468 | $77.51 | | - The board of directors authorized a $2.0 billion share repurchase program effective May 2024 through June 2027[249] Other Information No directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the second quarter - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[249] Exhibits This section lists exhibits filed with the Form 10-Q, including indentures, credit agreements, and certifications - Key exhibits filed include the indenture for the 0.25% Convertible Senior Notes due 2033 and amendments to the 2022 credit facility and 2013 Stock Incentive Plan[250]