Akamai Reports Fourth Quarter 2004 and Full-Year 2004 Financial Result

    Business Editors/High-Tech Writers

    CAMBRIDGE, Mass.--(BUSINESS WIRE)--Feb. 17, 2005--Akamai Technologies, Inc. (NASDAQ: AKAM)

    - Record fourth quarter revenue of $57.6 million, up 8 percent
    quarter-over-quarter; and annual revenue of $210.0 million, up
    30 percent year-over-year

    - Fourth quarter GAAP net income of $13.4 million, or $0.10 per
    diluted share, an increase of 19 percent quarter-over-quarter

    - Full-year GAAP net income of $34.4 million, or $0.25 per diluted
    share, an increase of $63.6 million year-over-year

    Akamai Technologies, Inc. (NASDAQ: AKAM), the leading global service provider for accelerating content and business processes online, today reported financial results for the fourth quarter and full-year ended December 31, 2004. Revenue for the fourth quarter 2004 was $57.6 million, an 8 percent increase over the previous quarter's revenue of $53.3 million, and a 27 percent increase over fourth quarter 2003 revenue of $45.2 million. Total revenue for 2004 was $210.0 million, a 30 percent increase over 2003 revenue of $161.3 million.
    Net income in accordance with United States Generally Accepted Accounting Principles, or GAAP, for the fourth quarter of 2004 was $13.4 million, or $0.10 per diluted share, a 19 percent increase over previous quarter net income of $11.2 million, or $0.08 per diluted share, and a $15.5 million improvement over the 2003 fourth quarter net loss of $2.1 million, or a loss of $0.02 per share. Full-year net income for 2004 was $34.4 million, or $0.25 per diluted share, a significant improvement over the 2003 net loss of $29.3 million, or a loss of $0.25 per share.
    "These quarterly and full-year financial results were the most successful in the company's six-year history," said George Conrades, chairman and CEO of Akamai. "In 2004, we demonstrated the power of the Akamai business model by delivering strong revenue growth, high profit margins, sustainable cash flow, and increasing profitability. The market opportunity for our on-demand platform, our growing customer base, and our demonstrated ability to innovate will continue to drive our success."
    The Company generated normalized net income(a) of $14.5 million, or $0.10 per diluted share, in the fourth quarter of 2004, a 19 percent increase over the prior quarter normalized net income of $12.2 million, or $0.09 per diluted share. Full year normalized net income for 2004 was $42.5 million, or $0.31 per diluted share, an improvement of $67.8 million over 2003.

    ((a)See Use of Non-GAAP Financial Measures below for definitions.)

    As a result of a December 2004 accounting pronouncement (EITF 04-08) regarding the inclusion of contingent convertible debt for calculation of diluted earnings per share, the Company's GAAP and normalized diluted earnings per share results for the fourth quarter and 2004 include 12.9 million shares that underlie the Company's outstanding 1% Senior Convertible Notes.
    Adjusted EBITDA(a) for the fourth quarter of 2004 was $18.6 million, up from $17.9 million in the prior quarter, and $14.1 million in the fourth quarter of 2003. Adjusted EBITDA was $69.1 million for the full year up from $39.9 million in 2003. Adjusted EBITDA margins improved to 33 percent in 2004 from 25 percent in 2003.
    ((a) See Use of Non-GAAP Financial Measures below for
    definitions.)
    Cash from operations increased 7 percent to $15.6 million in the fourth quarter as compared to third quarter cash from operations of $14.5 million, and was more than double fourth quarter 2003 cash from operations of $7.7 million. Also during the quarter, the Company further reduced long-term debt by retiring $24.9 million in principal amount of its 5 1/2% Convertible Subordinated Notes due in 2007 (the "5 1/2% Notes"). As a result of the repurchase of a portion of its outstanding 5 1/2% Notes throughout 2004, the Company has decreased annual net interest expense by almost $9 million year-over-year.
    At December 31, 2004, the Company had approximately 126.8 million shares of common stock outstanding, and had approximately $108.4 million of cash, cash equivalents and marketable securities.

    Customers

    Total customers under long-term services contracts increased by 16 percent year-over-year to 1,310. New customers in the fourth quarter included CondeNet, Inc., European Space Agency, Golden Village, Marks & Spencer, Maven Networks, Northern Tool & Equipment Co., SKF International, and Spirent Communications, among others.
    Sales through resellers and sales outside the United States accounted for 28 percent and 20 percent, respectively, of revenue for the fourth quarter of 2004.

    Quarterly Conference Call

    Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-888-689-4521 (or 1-706-645-9202 for international calls). A live Webcast of the call may be accessed at www.akamai.com in the Investor section. In addition, a replay of the call will be available for one week following the conference through the Akamai Website or by calling 1-800-642-1687 (or 1-706-645-9291 for international calls) and using conference ID No. 3348508.

    About Akamai

    Akamai(R) is the leading global service provider for accelerating content and business processes online. More than 1,300 organizations have formed trusted relationships with Akamai, improving their revenue and reducing costs by maximizing the performance of their online businesses. Leveraging the Akamai EdgePlatform, these organizations gain business advantage today, and have the foundation for the emerging Web solutions of tomorrow. Akamai is "The Trusted Choice for Online Business." For more information, visit www.akamai.com.

    Financial Statements

Condensed Consolidated Balance Sheets (dollar amounts in thousands) (unaudited)

December December 31, 31, 2004 2003 --------- --------- Assets Cash and cash equivalents $35,790 $160,074 Restricted cash - 5,000 Marketable securities 33,908 4,184 Restricted marketable securities 932 726 Accounts receivable, net 30,333 20,727 Prepaid expenses and other current assets 7,706 11,705 --------- --------- Current assets 108,669 202,416 Marketable securities 34,065 34,449 Restricted marketable securities 3,722 3,922 Property and equipment, net 25,242 23,878 Goodwill and other intangible assets, net 5,128 5,176 Other assets 5,917 9,100 --------- --------- Total assets $182,743 $278,941 ========= =========

Liabilities and stockholders' deficit Accounts payable and accrued expenses $42,446 $42,231 Other current liabilities 4,319 20,429 --------- --------- Current liabilities 46,765 62,660 Other liabilities 5,294 5,635 Convertible notes 256,614 386,000 --------- --------- Total liabilities 308,673 454,295 Stockholders' deficit (125,930) (175,354) --------- --------- Total liabilities and stockholders' deficit $182,743 $278,941 ========= =========

Condensed Consolidated Statements of Operations (amounts in thousands, except per share data) (unaudited)

-----------Three Months Ended-------- December September December September 31, 30, 31, 30, 2004 2004 2003 2003 -------- --------- -------- ---------

Revenues $57,576 $53,286 $45,169 $41,767

Costs and operating expenses: Cost of revenue (a) 11,173 11,748 13,055 14,207 Research and development 3,344 3,222 2,909 3,595 Sales and marketing 15,017 12,965 12,658 11,787 General and administrative (a) 13,463 11,874 12,111 13,318 Amortization of other intangible assets 12 12 12 12 Restructuring charges (benefit) - - - - -------- --------- -------- --------- Total costs and operating expenses 43,009 39,821 40,745 42,919 -------- --------- -------- --------- Operating income (loss) 14,567 13,465 4,424 (1,152)

Interest expense, net 1,319 1,533 4,183 4,343 Loss on early extinguishment of debt 852 634 2,097 - Loss (gain) on investments, net 1 79 - (1,637) Other (income) expense, net (1,183) (101) (128) (31) -------- --------- -------- --------- Income (loss) before provision for income taxes 13,578 11,320 (1,728) (3,827) Provision for income taxes 187 71 351 82 -------- --------- -------- --------- Net income (loss ) $13,391 $11,249 $(2,079) $(3,909) ======== ========= ======== =========

Net income (loss) per share: Basic $0.11 $0.09 $(0.02) $(0.03) Diluted $0.10 $0.08 $(0.02) $(0.03)

Shares used in per share calculations: Basic 126,261 125,618 120,198 118,596 Diluted 147,306 147,294 120,198 118,596

-Twelve Months Ended- December December 31, 31, 2004 2003 --------- ---------

Revenues $210,015 $161,259

Costs and operating expenses: Cost of revenue (a) 46,150 60,844 Research and development 12,132 12,971 Sales and marketing 55,663 47,583 General and administrative (a) 47,055 57,259 Amortization of other intangible assets 48 2,234 Restructuring charges (benefit) - (8,521) --------- --------- Total costs and operating expenses 161,048 172,370 --------- --------- Operating income (loss) 48,967 (11,111)

Interest expense, net 8,055 17,022 Loss on early extinguishment of debt 6,768 2,097 Loss (gain) on investments, net 69 (1,622) Other (income) expense, net (1,061) 44 --------- --------- Income (loss) before provision for income taxes 35,136 (28,652) Provision for income taxes 772 629 --------- --------- Net income (loss ) $34,364 $(29,281) ========= =========

Net income (loss) per share: Basic $0.28 $(0.25) Diluted $0.25 $(0.25)

Shares used in per share calculations: Basic 124,407 118,075 Diluted 146,595 118,075

(a) Includes depreciation (see supplemental tables for figures)

---------Three Months Ended------------ December September December September 31, 30, 31, 30, 2004 2004 2003 2003 --------- --------- --------- ---------

Supplemental financial data (in thousands): Network-related depreciation $2,731 $3,124 $5,736 $7,418 Other depreciation $1,007 $1,024 $2,389 $3,339

Capital expenditures $7,138 $5,346 $2,712 $2,110

Net (decrease) increase in cash, cash equivalents, restricted cash and marketable securities $(11,379) $(2,329) $109,390 $2,620

End of period statistics: Number of customers under recurring contract 1,310 1,258 1,126 1,151 Number of employees 605 598 535 529 Number of deployed servers 15,075 15,064 14,733 14,488

-Twelve Months Ended- December December 31, 31, 2004 2003 --------- --------

Supplemental financial data (in thousands): Network-related depreciation $14,030 $33,055 Other depreciation $4,731 $14,460

Capital expenditures $20,101 $8,881

Net (decrease) increase in cash, cash equivalents, restricted cash and marketable securities $(99,938) $83,185

End of period statistics: Number of customers under recurring contract Number of employees Number of deployed servers

Condensed Consolidated Statements of Cash Flows (amounts in thousands) (unaudited)

------------Three Months Ended----------- December September December September 31, 30, 31, 30, 2004 2004 2003 2003 --------- ---------- --------- ---------- Cash flows from operating activities: Net income (loss) $13,391 $11,249 $(2,079) $(3,909) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of deferred financing costs 4,051 4,469 8,332 11,298 Equity-related compensation 236 249 1,518 2,056 Interest income on notes receivable for stock - - (8) (7) Deferred taxes - - 351 - Non-cash portion of loss on early extinguishment of debt 292 178 1,207 - Non-cash portion of restructuring charges - - - - Gain on investments, property and equipment and foreign currency, net (437) (72) (610) (1,918) Provision for doubtful accounts 191 (186) 577 340 Changes in operating assets and liabilities: Accounts receivable, net (1,411) (2,076) 4,679 (3,589) Prepaid expenses and other current assets (1,441) 2,057 (6,204) 1,528 Accounts payable, accrued expenses and other current liabilities 38 281 2,924 (3,551) Accrued restructuring (352) (354) (1,789) (1,961) Deferred revenue 907 (2,016) 140 501 Other noncurrent assets and liabilities 110 769 (1,301) 307 --------- ---------- --------- ---------- Net cash provided by (used in) operating activities: 15,575 14,548 7,737 1,095 --------- ---------- --------- ----------

Cash flows from investing activities: Purchases of property and equipment and capitalization of internal-use software (7,138) (5,346) (2,712) (2,110) Purchase of investments (7,664) (11,225) (28,249) (10,071) Proceeds from sale of property and equipment - - - 28 Proceeds from sales and maturities of investments 8,640 15,588 - 1,882 Decrease in restricted cash held for note repurchases - - - - Decrease in restricted investments held for security deposits - 96 - - --------- ---------- --------- ---------- Net cash (used in) provided by investing activities (6,162) (887) (30,961) (10,271) --------- ---------- --------- ----------

Cash flows from financing activities: Payments on capital leases (141) (137) (137) (142) Proceeds from note receivable for stock - - 531 1,770 Proceeds from the issuance of 1% convertible senior notes, net of financing costs - - 169,800 - Repurchase and retirement of 5 1/2% covertible subordinated notes (24,875) (13,115) (74,000) - Proceeds from the issuance of common stock under stock option and employee stock purchase plans 3,863 1,095 6,689 161 Increase in restricted cash held for bond redemption activities - - (5,000) - --------- ---------- --------- ---------- Net cash (used in) provided by financing activities (21,153) (12,157) 97,883 1,789 --------- ---------- --------- ----------

Effects of exchange rate translation on cash and cash equivalents 1,587 357 1,519 564 --------- ---------- --------- ----------

Net (decrease) increase in cash and cash equivalents (10,153) 1,861 76,178 (6,823) Cash and cash equivalents, beginning of period 45,943 44,082 83,896 90,719 --------- ---------- --------- ---------- Cash and cash equivalents, end of period $35,790 $45,943 $160,074 $83,896 ========= ========== ========= ==========

--Twelve Months Ended-- December December 31, 31, 2004 2003 --------- --------- Cash flows from operating activities: Net income (loss) $34,364 $(29,281) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization of deferred financing costs 20,206 51,166 Equity-related compensation 1,292 9,813 Interest income on notes receivable for stock - (81) Deferred taxes - 351 Non-cash portion of loss on early extinguishment of debt 2,453 1,207 Non-cash portion of restructuring charges - 144 Gain on investments, property and equipment and foreign currency, net (319) (2,679) Provision for doubtful accounts (231) 761 Changes in operating assets and liabilities: - Accounts receivable, net (8,516) (2,800) Prepaid expenses and other current assets 3,053 (2,740) Accounts payable, accrued expenses and other current liabilities (130) (12,230) Accrued restructuring (1,630) (32,337) Deferred revenue (329) 604 Other noncurrent assets and liabilities 1,024 101 --------- --------- Net cash provided by (used in) operating activities: 51,237 (18,001) --------- --------- Cash flows from investing activities: Purchases of property and equipment and capitalization of internal-use software (20,101) (8,881) Purchase of investments (69,224) (38,320) Proceeds from sale of property and equipment 9 114 Proceeds from sales and maturities of investments 39,353 10,639 Decrease in restricted cash held for note repurchases 5,000 - Decrease in restricted investments held for security deposits 96 - --------- --------- Net cash (used in) provided by investing activities (44,867) (36,448) --------- --------- Cash flows from financing activities: Payments on capital leases (543) (1,438) Proceeds from note receivable for stock - 2,301 Proceeds from the issuance of 1% convertible senior notes, - net of financing costs 24,313 169,800 Repurchase and retirement of 5 1/2% covertible subordinated notes (169,386) (74,000) Proceeds from the issuance of common stock under stock option and - employee stock purchase plans 13,753 8,585 Increase in restricted cash held for bond redemption activities - (5,000) --------- --------- Net cash (used in) provided by financing activities (131,863) 100,248 --------- --------- Effects of exchange rate translation on cash and cash equivalents 1,209 3,013 --------- ---------

Net (decrease) increase in cash and cash equivalents (124,284) 48,812 Cash and cash equivalents, beginning of period 160,074 111,262 --------- --------- Cash and cash equivalents, end of period $35,790 $160,074 ========= =========

    (a) Use of Non-GAAP Financial Measures

    In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Akamai has historically provided additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Recent legislative and regulatory changes discourage the use of and emphasis on non-GAAP financial metrics and require companies to explain why non-GAAP financial metrics are relevant to management and investors.
    Akamai defines "Adjusted EBITDA" as net income (loss), before interest, taxes, depreciation, amortization, equity-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, foreign exchange gains and losses, and loss on early extinguishment of debt. Akamai considers Adjusted EBITDA to be an important indicator of the company's operational strength and performance of its business and a good measure of the company's historical operating trend.
    Adjusted EBITDA eliminates items that are either not part of the company's core operations, such as investment gains and losses, foreign exchange gains and losses, early debt extinguishment, net interest expense and restructuring activities, or do not require a cash outlay, such as equity-related compensation and impairment of intangible assets. Adjusted EBITDA also excludes depreciation and amortization expense, which is based on the company's estimate of the useful life of tangible and intangible assets. These estimates could vary from actual performance of the asset, are based on historic cost incurred to build out the company's deployed network, and may not be indicative of current or future capital expenditures.
    Akamai defines "Adjusted EBITDA margin" as a percentage of adjusted EBITDA over revenue. Akamai considers Adjusted EBITDA margin to be an indicator of the company's operating trend and performance of its business in relation to its revenue growth.
    Akamai defines "capital expenditures" or "capex" as purchases of property and equipment and capitalization of internal-use software development costs. Capital expenditures or capex are disclosed in Akamai's condensed consolidated statement of cash flows in the company's most recent annual report on Form 10-K filed with the Securities and Exchange Commission.
    Akamai defines "normalized net income (loss)" as net income (loss) before amortization of intangible assets, equity-related compensation, restructuring charges and benefits, certain gains and losses on equity investments, and loss on early extinguishment of debt. Akamai considers normalized net income (loss) to be another important indicator of the overall performance of the company because it eliminates the effects of events that are either not part of the company's core operations or are non-cash.
    Adjusted EBITDA and normalized net income (loss) should be considered in addition to, not as a substitute for, the company's operating income (loss) and net income (loss), as well as other measures of financial performance reported in accordance with GAAP.

    Reconciliation of Non-GAAP Financial Measures

    In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the company is presenting the most directly comparable GAAP financial measure and reconciling the non-GAAP financial metrics to the comparable GAAP measures.

Reconciliation of GAAP net income (loss) to normalized net income (loss) and Adjusted EBITDA (amounts in thousands, except per share data)

---------Three Months Ended--------- December September December September 31 30, 31, 30, 2004 2004 2003 2003 -------- --------- -------- --------- Net income (loss) $13,391 $11,249 $(2,079) $(3,909)

Amortization of intangible assets 12 12 12 12 Equity-related compensation 236 249 1,518 2,056 Restructuring charges (benefit) - - - - Loss (gain) on investments, net 1 79 - (1,637) Loss on early extinguishment of debt 852 634 2,097 - -------- --------- -------- ---------

Total normalized net income (loss): 14,492 12,223 1,548 (3,478)

Interest expense, net 1,319 1,533 4,183 4,343 Provision for income taxes 187 71 351 82 Depreciation and amortization 3,738 4,148 8,125 10,757 Other (income) expense, net (1,183) (101) (128) (31) -------- --------- -------- ---------

Total Adjusted EBITDA: $18,553 $17,874 $14,079 $11,673 ======== ========= ======== =========

Normalized net income (loss) per share: Basic $0.11 $0.10 $0.01 $(0.03) Diluted $0.10 $0.09 $0.01 $(0.03)

Shares used in per share calculations: Basic 126,261 125,618 120,198 118,596 Diluted 147,306 147,294 120,198 118,596

---Twelve Months Ended--- December December 31, 31, 2004 2003 -------- ---------

Net income (loss) $34,364 $(29,281)

Amortization of intangible assets 48 2,234 Equity-related compensation 1,292 9,813 Restructuring charges (benefit) - (8,521) Loss (gain) on investments, net 69 (1,622) Loss on early extinguishment of debt 6,768 2,097 -------- ---------

Total normalized net income (loss): 42,541 (25,280)

Interest expense, net 8,055 17,022 Provision for income taxes 772 629 Depreciation and amortization 18,761 47,515 Other (income) expense, net (1,061) 44 -------- ---------

Total Adjusted EBITDA: $69,068 $39,930 ======== =========

Normalized net income (loss) per share: Basic $0.34 $(0.21) Diluted $0.31 $(0.21)

Shares used in per share calculations: Basic 124,407 118,075 Diluted 146,595 118,075

    Akamai Statement Under the Private Securities Litigation Reform Act

    The release contains information about future expectations, plans and prospects of Akamai's management that constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995, including statements concerning the expected growth and development of our business. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including, but not limited to, unexpected increases in Akamai's use of funds, loss of significant customers, failure to increase our revenue and keep our expenses consistent with revenues, the effects of any attempts to intentionally disrupt our services or network by unauthorized users or others, failure to have available sufficient transmission capacity, a failure of Akamai's services or network infrastructure, failure to maintain the prices we charge for our services , inability to service and repay our outstanding debt and other factors that are discussed in the Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and other documents periodically filed with the SEC.
    In addition, the statements in this press release represent Akamai's expectations and beliefs as of the date of this press release. Akamai anticipates that subsequent events and developments may cause these expectations and beliefs to change. However, while Akamai may elect to update these forward-looking statements at some point in the future, it specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing Akamai's expectations or beliefs as of any date subsequent to the date of this press release.

--30--DC/bo*

CONTACT: Akamai Technologies Media Relations Jeff Young, 617-444-3913 jyoung@akamai.com Investor Relations Sandy Smith, 617-444-2804 ssmith@akamai.com

KEYWORD: MASSACHUSETTS INDUSTRY KEYWORD: HARDWARE SOFTWARE NETWORKING EARNINGS CONFERENCE CALLS SOURCE: Akamai Technologies, Inc.

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