conference date: October 28, 2009 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2009 (third quarter)
Overview: No longer in fast growth mode.
Basic data (GAAP) :
Revenue was $206.5 million, up 1% sequentially from $204.6 million, and up 5% from $197.3 million in the year-earlier quarter.
Net income was $32.7 million, down 9% sequentially from $36.0 million, and down 2% from $33.4 million year-earlier.
EPS (earnings per share) were $0.18, down 5% sequentially from $0.19, and flat from $0.18 year-earlier.
Q4 is typically the strongest quarter. Expecting $217 to $224 million in revenue. 81 to 82% cash gross margins. EBITDA margins to decline about 1 point. $0.39 to $0.41 normalized earnings per share. Capital expenditures near $30 million.
Thursday will be the 10th anniversary of the Akamai IPO. Returned to sequential revenue growth and was above expectations. Value-added solutions are making inroads. Media and Entertainment segment grew 3% sequentially. E-commerce growth remained strong.
Non-GAAP "normalized net income" was $70.8 million or $0.38 per share, $0.02 above expectations, down 6% sequentially and down 5% from year-earlier. $31.6 total depreciation and amortization. $15.4 million stock based compensation is excluded from non-GAAP numbers.
There are "promising signs of growth in high quality video online and continued strong demand for our value-added solutions."
Cash and equivalents ended at $973 million. Cash from operations was $105 million. 2 million shares were repurchased for $36.2 million. Capital expenditures were $31.2 million.
Number of customers under recurring contract increased 8% y/y to 3,031. Reseller revenue was 19% of total, and non-U.S. revenue was 28% of total.
Cost of revenues was $62.0 million. R&D $10.9 million. Sales and marketing $44.1 million. General and administrative $34.7 million. Amortization $4.1 million. Operating income was $50.7 million. Interest income $2.8 million. Income tax provision $20.1 million.
Stock based compensation expense included in GAAP numbers was $13.6 million. Depreciation and amortization non-cash cost $31.8 million.
There was a $3 million positive impact from currency sequentially, but a $2 million negative impact y/y.
208 gross new customers in quarter, and quality was very good. Over 50% purchased at least one value-added solution. Churn was above 5%, mostly from smallest customers. 3031 customers at end of quarter. Average Revenue Per Customer (ARPU) was $22,700.
GAAP gross margin 70%, down about a point. Cash gross margin was over 80%.
$95.9 million adjusted EBITDA. Margin 46%.
Cash taxes are far lower than GAAP taxes due to NOLs (Net Outstanding Losses).
Volume driven media business returned to growth in the typically slower third quarter. Seeing positive signs for customers' businesses beyond Q4. But not expecting a rapid return to business as usual. We are supporting and encouraging volume growth at key customers, as video is increasingly delivered via internet. Akamai HD network has been released and is being used by early adopters. We are well-positioned for the massive growth of HD video online. Our bet is that we are approaching the next online inflection point. We have a pixel-free ad campaign solution.
90 of top 100 internet sites are now using Akamai.
Pricing environment? We have a strategy of driving down unit costs for our customer; we always have had that. We were successful this quarter in driving up volumes, and continue to drive costs down, while improving margins.
How far are you though the price reduction process? It is an ongoing process that will not stop. It enables our customer success online. We need to enable massive scale that is profitable both for us and our customers.
HD is ramping, but currently most customers are viewing at higher bit rates, but not yet true HD.
Revenues by segment are available on the Akamai investor relations web site.
Visibility is still limited. We are a somewhat seasonal business, driven by e-commerce, which is hard to predict this year. We estimate as best we can.
Where are new customers coming from? There are still a lot of broadcasters out there that need to go to higher bit rates. Also some old customers are moving to value-added solutions or higher bit rates and volumes. Some value-added solutions are helping with businesses like financial services that are not particularly high volume or high bit rate.
Flat commerce revenue? We don't get a revenue share. They pay a platform fee that covers them all the time.
High-tech segment decline? Some seasonality and some pricing caused the decline.
Primary margin builder was not mix of products but getting more out of our network structure.
Last quarter v. this quarter on pricing? In Q2 we were talking about aggressively driving volumes up by reducing pricing. Margins were not reduced because we saw volumes rise more than we expected, so we did not take the expected hit on revenue growth or cash margins.
Is any competitor doing this high volume, low pricing today? We have a unique architecture that enables us to be the leader in high quality, low cost delivery. We have the world's most broadly distributed parallel processing delivery capability. Some competitors do this, but they don't do it as well and certainly not economically. We have a variety of intellectual property innovations that can be protected.
Acerno? We are very pleased with the Acerno business and are rolling out new technology that will drive that business effectively.
Public sector going forward? This is a lumpy sector. We are seeing y/y growth, we are not giving specific Q4 guidance on the sector.
You used to talk about pricing at a premium to competitors? Yes, we get a premium in the volume business despite our price cuts. Our dynamic site solutions are highly differentiated.
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