Company Quick10K Filing
Akamai Technologies
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 165 $12,962
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-09 Quarter: 2019-03-31
10-K 2019-02-28 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-08 Quarter: 2018-06-30
10-Q 2018-05-09 Quarter: 2018-03-31
10-K 2018-03-01 Annual: 2017-12-31
10-Q 2017-11-08 Quarter: 2017-09-30
10-Q 2017-08-08 Quarter: 2017-06-30
10-Q 2017-05-09 Quarter: 2017-03-31
10-K 2017-02-28 Annual: 2016-12-31
10-Q 2016-11-08 Quarter: 2016-09-30
10-Q 2016-08-08 Quarter: 2016-06-30
10-Q 2016-05-09 Quarter: 2016-03-31
10-K 2016-02-29 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-08-10 Quarter: 2015-06-30
10-Q 2015-05-11 Quarter: 2015-03-31
10-K 2015-03-02 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-11 Quarter: 2014-06-30
10-Q 2014-05-12 Quarter: 2014-03-31
10-K 2014-03-03 Annual: 2013-12-31
10-Q 2013-11-12 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-02-29 Annual: 2011-12-31
10-Q 2011-11-09 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-01 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-01 Annual: 2009-12-31
8-K 2020-02-11 Earnings, Exhibits
8-K 2019-10-28 Earnings, Exhibits
8-K 2019-09-27 Officers, Exhibits
8-K 2019-08-19 Regulation FD
8-K 2019-08-16 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2019-08-13 Other Events, Exhibits
8-K 2019-08-12 Other Events, Exhibits
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-06-05 Officers
8-K 2019-05-15 Officers, Shareholder Vote, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-02-21 Officers, Exhibits
8-K 2019-02-12 Earnings, Exhibits
8-K 2019-02-07 Officers
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-06-01 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-21 Enter Agreement, Off-BS Arrangement, Sale of Shares, Other Events, Exhibits
8-K 2018-05-16 Other Events, Exhibits
8-K 2018-05-15 Other Events, Exhibits
8-K 2018-05-10 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-30 Earnings, Exhibits
8-K 2018-04-09 Regulation FD
8-K 2018-04-02 Officers
8-K 2018-03-23 Officers
8-K 2018-03-08 Regulation FD, Exhibits
8-K 2018-03-06 Enter Agreement, Officers, Other Events, Exhibits
8-K 2018-02-06 Earnings, Exhibits
8-K 2018-01-31 Officers
AKAM 2019-09-30
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1.Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 akam10q9302019ex311.htm
EX-31.2 akam10q9302019ex312.htm
EX-32.1 akam10q9302019ex321.htm
EX-32.2 akam10q9302019ex322.htm

Akamai Technologies Earnings 2019-09-30

AKAM 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BR 15,509 3,881 2,753 4,362 1,230 482 642 16,727 28% 26.1 12%
AKAM 12,962 5,343 1,948 2,795 1,828 423 991 12,446 65% 12.6 8%
FICO 9,459 1,374 1,105 1,135 806 188 288 9,985 71% 34.7 14%
Z 9,228 4,826 1,548 1,762 1,235 -238 -175 8,461 70% -48.3 -5%
WEX 8,698 8,573 6,612 1,482 748 129 296 10,778 50% 36.4 2%
WU 8,548 9,043 9,013 5,467 1,116 1,209 1,859 7,330 20% 3.9 13%
NLSN 7,963 15,588 12,600 6,449 3,667 -681 653 16,064 57% 24.6 -4%
ETSY 7,896 1,022 579 701 486 111 129 7,520 69% 58.5 11%
ADS 7,263 30,740 28,348 6,686 3,185 869 2,084 3,108 48% 1.5 3%
GRUB 7,073 2,343 862 1,184 0 26 139 7,209 0% 52.0 1%

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________ 
FORM 10-Q
 ______________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
September 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to    
            

Commission file number 0-27275
______________________________________________ 
Akamai Technologies, Inc.

(Exact name of registrant as specified in its charter)
Delaware
 
04-3432319
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
145 Broadway
Cambridge, MA 02142
(617) 444-3000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
______________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock - par value $0.01 per share
AKAM
Nasdaq Global Select Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  x
The number of shares outstanding of the registrant’s common stock as of November 5, 2019: 161,601,210


Table of Contents

AKAMAI TECHNOLOGIES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
 
 
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
738,462

 
$
1,036,455

Marketable securities
831,749

 
855,650

Accounts receivable, net of reserves of $1,745 and $1,534 at September 30, 2019, and December 31, 2018, respectively
516,657

 
479,889

Prepaid expenses and other current assets
167,040

 
163,360

Total current assets
2,253,908

 
2,535,354

Marketable securities
734,116

 
209,066

Property and equipment, net
1,079,914

 
910,618

Operating lease right-of-use assets
349,155

 

Acquired intangible assets, net
166,407

 
168,348

Goodwill
1,583,479

 
1,487,404

Deferred income tax assets
39,321

 
34,913

Other assets
151,134

 
116,067

Total assets
$
6,357,434

 
$
5,461,770


3

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS, continued

(in thousands, except share data)
September 30,
2019
 
December 31,
2018
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
108,187

 
$
99,089

Accrued expenses
304,333

 
328,304

Deferred revenue
98,842

 
69,083

Convertible senior notes

 
686,552

Operating lease liabilities
86,959

 

Other current liabilities
4,202

 
27,681

Total current liabilities
602,523

 
1,210,709

Deferred revenue
4,526

 
4,557

Deferred income tax liabilities
21,797

 
19,624

Convertible senior notes
1,823,448

 
874,080

Operating lease liabilities
296,750

 

Other liabilities
106,790

 
160,940

Total liabilities
2,855,834

 
2,269,910

Commitments and contingencies (Note 8)

 

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value; 5,000,000 shares authorized; 700,000 shares designated as Series A Junior Participating Preferred Stock; no shares issued or outstanding

 

Common stock, $0.01 par value; 700,000,000 shares authorized; 165,211,770 shares issued and 161,659,502 shares outstanding at September 30, 2019, and 162,904,550 shares issued and outstanding at December 31, 2018
1,652

 
1,629

Additional paid-in capital
3,919,264

 
3,670,033

Accumulated other comprehensive loss
(56,424
)
 
(48,912
)
Treasury stock, at cost, 3,552,268 shares at September 30, 2019, and no shares at December 31, 2018
(291,788
)
 

Accumulated deficit
(71,104
)
 
(430,890
)
Total stockholders’ equity
3,501,600

 
3,191,860

Total liabilities and stockholders’ equity
$
6,357,434

 
$
5,461,770


The accompanying notes are an integral part of the consolidated financial statements.

4

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
    
 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(in thousands, except per share data)
2019
 
2018
 
2019
 
2018
Revenue
$
709,912

 
$
669,628

 
$
2,121,494

 
$
2,001,111

Costs and operating expenses:
 
 
 
 
 
 
 
Cost of revenue (exclusive of amortization of acquired intangible assets shown below)
246,938

 
239,246

 
729,874

 
709,558

Research and development
64,887

 
61,049

 
192,467

 
185,823

Sales and marketing
122,258

 
125,323

 
383,640

 
379,556

General and administrative
123,216

 
119,911

 
366,167

 
444,502

Amortization of acquired intangible assets
9,624


8,294


28,871


25,019

Restructuring (benefit) charges
(300
)
 
(732
)
 
6,879

 
14,442

Total costs and operating expenses
566,623

 
553,091

 
1,707,898

 
1,758,900

Income from operations
143,289


116,537


413,596

 
242,211

Interest income
7,908

 
9,258

 
22,953

 
19,632

Interest expense
(12,127
)
 
(14,566
)
 
(32,689
)
 
(28,620
)
Other expense, net
(752
)
 
(459
)
 
(819
)
 
(3,207
)
Income before provision for income taxes
138,318

 
110,770

 
403,041

 
230,016

Benefit (provision) for income taxes
960

 
(3,187
)
 
(42,718
)
 
(25,658
)
Loss from equity method investment
(1,388
)
 

 
(1,388
)
 

Net income
$
137,890

 
$
107,583


$
358,935


$
204,358

Net income per share:
 
 
 
 
 
 
 
Basic
$
0.85

 
$
0.65

 
$
2.20

 
$
1.21

Diluted
$
0.84

 
$
0.64

 
$
2.18

 
$
1.20

Shares used in per share calculations:
 
 
 
 
 
 
 
Basic
162,445

 
165,924

 
163,029

 
168,763

Diluted
164,558

 
167,900

 
164,788

 
170,732


The accompanying notes are an integral part of the consolidated financial statements.

5

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
For the Three Months
Ended September 30,
 
For the Nine Months
Ended September 30,
(in thousands)
2019
 
2018
 
2019
 
2018
Net income
$
137,890

 
$
107,583

 
$
358,935

 
$
204,358

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(14,095
)
 
(7,771
)
 
(10,744
)
 
(26,046
)
Change in unrealized gain (loss) on investments, net of income tax (provision) benefit of $(52), $(494), $(1,153) and $78 for the three and nine months ended September 30, 2019 and 2018, respectively
155

 
1,524

 
3,232

 
(242
)
Other comprehensive loss
(13,940
)
 
(6,247
)
 
(7,512
)
 
(26,288
)
Comprehensive income
$
123,950

 
$
101,336

 
$
351,423

 
$
178,070


The accompanying notes are an integral part of the consolidated financial statements.


6

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
For the Nine Months
Ended September 30,
(in thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
358,935

 
$
204,358

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
324,874

 
318,226

Stock-based compensation
140,262

 
138,815

Provision for deferred income taxes
24,581

 
12,906

Amortization of debt discount and issuance costs
30,761

 
27,844

Restructuring-related software charges

 
2,818

Other non-cash reconciling items, net
3,778

 
9,360

Changes in operating assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(38,144
)
 
(13,611
)
Prepaid expenses and other current assets
(11,663
)
 
(2,084
)
Accounts payable and accrued expenses
(29,441
)
 
7,921

Deferred revenue
16,714

 
23,927

Other current liabilities
(21,850
)
 
2,030

Other non-current assets and liabilities
(22,643
)
 
(10,338
)
Net cash provided by operating activities
776,164

 
722,172

Cash flows from investing activities:
 
 
 
Cash paid for acquired businesses, net of cash acquired
(121,409
)
 
(79
)
Cash paid for equity method investment
(36,008
)
 

Purchases of property and equipment
(268,766
)
 
(143,285
)
Capitalization of internal-use software development costs
(159,645
)
 
(145,122
)
Purchases of short- and long-term marketable securities
(1,373,563
)
 
(782,086
)
Proceeds from sales of short- and long-term marketable securities
547

 
16,308

Proceeds from maturities of short- and long-term marketable securities
878,779

 
378,708

Other non-current assets and liabilities
1,895

 
(2,678
)
Net cash used in investing activities
(1,078,170
)
 
(678,234
)
Cash flows from financing activities:
 
 
 
Proceeds from the issuance of convertible senior notes
1,135,629

 
1,132,185

Proceeds from the issuance of warrants
185,150

 
119,945

Purchase of note hedge related to convertible senior notes
(312,225
)
 
(261,740
)
Repayment of convertible senior notes
(690,000
)
 

Proceeds related to the issuance of common stock under stock plans
43,204

 
52,497

Employee taxes paid related to net share settlement of stock-based awards
(61,116
)
 
(52,145
)
Repurchases of common stock
(291,788
)
 
(625,925
)
Other non-current assets and liabilities
(1,558
)
 
(5,085
)
Net cash provided by financing activities
7,296

 
359,732

Effects of exchange rate changes on cash, cash equivalents and restricted cash
(2,650
)
 
(11,528
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(297,360
)
 
392,142

Cash, cash equivalents and restricted cash at beginning of period
1,036,987

 
314,429

Cash, cash equivalents and restricted cash at end of period
$
739,627

 
$
706,571



7

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

 
For the Nine Months
Ended September 30,
(in thousands)
2019
 
2018
Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes, net of refunds received of $2,746 and $17,286 for the nine months ended September 30, 2019 and 2018, respectively
$
65,896

 
$
32,485

Cash paid for operating lease liabilities
107,478

 
 
Non-cash activities:
 
 
 
Operating lease right-of-use assets obtained in exchange for operating lease liabilities
87,207

 
 
Purchases of property and equipment and capitalization of internal-use software development costs included in accounts payable and accrued expenses
64,982

 
54,414

Capitalization of stock-based compensation
27,352

 
25,676

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash:
 
 
 
Cash and cash equivalents
$
738,462

 
$
705,407

Restricted cash
1,165

 
1,164

Cash, cash equivalents and restricted cash
$
739,627

 
$
706,571


The accompanying notes are an integral part of the consolidated financial statements.

8

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 
Three Months Ended September 30, 2019
(in thousands, except share data)
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total Stockholders' Equity
Shares
 
Amount
 
Balance at July 1, 2019
163,359,091

 
$
1,649

 
$
3,760,840

 
$
(116,247
)
 
$
(42,484
)
 
$
(208,994
)
 
$
3,394,764

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes
305,367

 
3

 
(10,727
)
 
 
 
 
 
 
 
(10,724
)
Stock-based compensation
 
 
 
 
55,406

 
 
 
 
 
 
 
55,406

Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880
 
 
 
 
240,820

 
 
 
 
 
 
 
240,820

Issuance of warrants related to convertible senior notes
 
 
 
 
185,150

 
 
 
 
 
 
 
185,150

Purchase of note hedge related to convertible senior notes
 
 
 
 
(312,225
)
 
 
 
 
 
 
 
(312,225
)
Repurchases of common stock
(2,004,956
)
 
 
 
 
 
(175,541
)
 
 
 
 
 
(175,541
)
Net income
 
 
 
 
 
 
 
 
 
 
137,890

 
137,890

Foreign currency translation adjustment
 
 
 
 
 
 
 
 
(14,095
)
 
 
 
(14,095
)
Change in unrealized gain on investments, net of tax
 
 
 
 
 
 
 
 
155

 
 
 
155

Balance at September 30, 2019
161,659,502

 
$
1,652

 
$
3,919,264

 
$
(291,788
)
 
$
(56,424
)
 
$
(71,104
)
 
$
3,501,600



9

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued

 
Three Months Ended September 30, 2018
(in thousands, except share data)
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total Stockholders' Equity
Shares
 
Amount
 
Balance at July 1, 2018
169,311,093

 
$
1,718

 
$
4,303,531

 
$
(185,512
)
 
$
(41,971
)
 
$
(632,488
)
 
$
3,445,278

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes
470,224

 
4

 
(6,091
)
 
 
 
 
 
 
 
(6,087
)
Stock-based compensation
 
 
 
 
55,417

 
 
 
 
 
 
 
55,417

Repurchases of common stock
(5,894,598
)
 
 
 
 
 
(440,413
)
 
 
 
 
 
(440,413
)
Net income
 
 
 
 
 
 
 
 
 
 
107,583

 
107,583

Foreign currency translation adjustment
 
 
 
 
 
 
 
 
(7,771
)
 
 
 
(7,771
)
Change in unrealized gain on investments, net of tax
 
 
 
 
 
 
 
 
1,524

 
 
 
1,524

Balance at September 30, 2018
163,886,719

 
$
1,722

 
$
4,352,857

 
$
(625,925
)
 
$
(48,218
)
 
$
(524,905
)
 
$
3,155,531


10

Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued

 
Nine Months Ended September 30, 2019
(in thousands, except share data)
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total Stockholders' Equity
Shares
 
Amount
 
Balance at January 1, 2019
162,904,550

 
$
1,629

 
$
3,670,033

 
$

 
$
(48,912
)
 
$
(430,890
)
 
$
3,191,860

Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement
 
 
 
 
 
 
 
 
 
 
851

 
851

Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes
1,833,758

 
18

 
(59,653
)
 
 
 
 
 
 
 
(59,635
)
Issuance of common stock under employee stock purchase plan
473,462

 
5

 
27,664

 
 
 
 
 
 
 
27,669

Stock-based compensation
 
 
 
 
167,475

 
 
 
 
 
 
 
167,475

Equity component of convertible senior notes, net of deferred tax of $23,170 and issuance costs of $2,880
 
 
 
 
240,820

 
 
 
 
 
 
 
240,820

Issuance of warrants related to convertible senior notes
 
 
 
 
185,150

 
 
 
 
 
 
 
185,150

Purchase of note hedge related to convertible senior notes
 
 
 
 
(312,225
)
 
 
 
 
 
 
 
(312,225
)
Repurchases of common stock
(3,552,268
)
 
 
 
 
 
(291,788
)
 
 
 
 
 
(291,788
)
Net income
 
 
 
 
 
 
 
 
 
 
358,935

 
358,935

Foreign currency translation adjustment
 
 
 
 
 
 
 
 
(10,744
)
 
 
 
(10,744
)
Change in unrealized gain on investments, net of tax
 
 
 
 
 
 
 
 
3,232

 
 
 
3,232

Balance at September 30, 2019
161,659,502

 
$
1,652

 
$
3,919,264

 
$
(291,788
)
 
$
(56,424
)
 
$
(71,104
)
 
$
3,501,600



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Table of Contents

AKAMAI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, continued

 
Nine Months Ended September 30, 2018
(in thousands, except share data)
Common Stock
 
Additional Paid-in Capital
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Accumulated
Deficit
 
Total Stockholders' Equity
Shares
 
Amount
 
Balance at January 1, 2018
169,893,324

 
$
1,699

 
$
4,073,362

 
$

 
$
(21,930
)
 
$
(690,662
)
 
$
3,362,469

Cumulative-effect adjustment to accumulated deficit related to adoption of new accounting pronouncement
 
 
 
 
 
 
 
 
 
 
(38,601
)
 
(38,601
)
Issuance of common stock upon the exercise of stock options and vesting of restricted and deferred stock units, net of shares withheld for employee taxes
1,797,241

 
18

 
(44,619
)
 
 
 
 
 
 
 
(44,601
)
Issuance of common stock under employee stock purchase plan
543,520

 
5

 
25,763

 
 
 
 
 
 
 
25,768

Stock-based compensation
 
 
 
 
164,310

 
 
 
 
 
 
 
164,310

Equity component of convertible senior notes, net of deferred tax of $4,971 and issuance costs of $4,418
 
 
 
 
275,836

 
 
 
 
 
 
 
275,836

Issuance of warrants related to convertible senior notes
 
 
 
 
119,945

 
 
 
 
 
 
 
119,945

Purchase of note hedge related to convertible senior notes
 
 
 
 
(261,740
)
 
 
 
 
 
 
 
(261,740
)
Repurchases of common stock
(8,347,366
)
 
 
 
 
 
(625,925
)
 
 
 
 
 
(625,925
)
Net income
 
 
 
 
 
 
 
 
 
 
204,358

 
204,358

Foreign currency translation adjustment
 
 
 
 
 
 
 
 
(26,047
)
 
 
 
(26,047
)
Change in unrealized gain on investments, net of tax
 
 
 
 
 
 
 
 
(241
)
 
 
 
(241
)
Balance at September 30, 2018
163,886,719

 
$
1,722

 
$
4,352,857

 
$
(625,925
)
 
$
(48,218
)
 
$
(524,905
)
 
$
3,155,531


The accompanying notes are an integral part of the consolidated financial statements.

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Table of Contents

AKAMAI TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Business and Basis of Presentation

Akamai Technologies, Inc. (the “Company”) provides solutions for delivering, optimizing and securing content and business applications over the Internet. Its globally-distributed platform comprises more than 200,000 servers across more than 130 countries. The Company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. The Company currently operates in one industry segment: providing cloud services for delivering, optimizing and securing content and business applications over the Internet.

The accompanying interim consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the accompanying financial statements.

Certain information and footnote disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes have been condensed in, or omitted from, these interim financial statements. Accordingly, the unaudited consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on February 28, 2019.

The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results of operations that may be expected for any future periods. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair statement of the results of all interim periods reported herein.

Newly-Adopted Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance that requires companies to present assets and liabilities arising from leases on the consolidated balance sheet. The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. The Company adopted this standard on January 1, 2019 on a modified retrospective basis by applying the new standard to its lease portfolio as of January 1, 2019, while continuing to apply legacy guidance in the comparative periods.

The Company elected to use the package of practical expedients available under the transition provisions of the guidance, which allows companies to not reassess prior conclusions related to contracts containing leases, lease classification and capitalization of initial direct costs. The Company also elected not to apply the hindsight practical expedient related to its lease transactions.

Adoption of the standard required the Company to record ROU assets and lease liabilities for its operating leases related to real estate and co-location arrangements. The operating leases resulted in the recognition of ROU assets and lease liabilities of $362.2 million and $394.1 million, respectively, as of January 1, 2019. The adoption of the standard also resulted in elimination of deferred rent liabilities of $31.7 million, as of January 1, 2019, that are now recorded as a reduction of the ROU asset. The standard did not have an impact on the Company’s results of operations or cash flows.

Stranded Tax Effects Resulting from U.S. Tax Cuts and Jobs Act

In February 2018, the FASB issued guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act ("TCJA") that was enacted in 2017. This guidance was effective for the Company on January 1, 2019. The adoption of this new accounting guidance resulted in the reclassification of $0.9 million of income tax benefits resulting from the TCJA from accumulated other comprehensive loss to accumulated deficit. The adoption of this new accounting guidance did not have an impact on the Company's results of operations or cash flows.


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Table of Contents

2. Significant Accounting Policies Update

The Company's significant accounting policies are detailed in Note 2 of its annual report on Form 10-K for the year ended December 31, 2018. However, the following policies have been updated as of January 1, 2019.

Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Property and equipment generally includes purchases of items with a per-unit value greater than $1,000 and a useful life greater than one year. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets. The Company periodically reviews the estimated useful lives of property and equipment. Changes to the estimated useful lives are recorded prospectively from the date of the change. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income from operations.

The Company has implemented software and hardware initiatives to manage its global network more efficiently and, as a result, the expected average useful life of its network assets, primarily servers, increased from four years to five years, effective January 1, 2019. These changes decreased depreciation expense by $7.8 million and $24.5 million for the three and nine months ended September 30, 2019, respectively, and increased net income by $6.4 million and $20.3 million for the three and nine months ended September 30, 2019, respectively, or $0.04 and $0.12 per share, for the three and nine months ended September 30, 2019, respectively.

Operating Leases

The Company enters into operating leases for real estate assets related to office space and co-location assets related to space or racks at co-location facilities and related equipment for its servers and other networking equipment. The Company determines if an arrangement contains a lease at the inception of a contract by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration and the right to obtain the economic benefits from the use of the identified asset.

Upon commencement of a lease, the Company records an ROU asset that represents the Company’s right to use the underlying asset for the lease term and a lease liability that represents an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Lease payments are discounted at the lease commencement date using the rate implicit in the lease unless that rate is not readily determinable. As most of the Company’s leases do not provide an implicit rate, an incremental borrowing rate has been applied based on the Company's credit-adjusted risk-free rate. The incremental borrowing rate at January 1, 2019 (the date the new lease standard was adopted) was used to calculate the present value of the Company’s lease portfolio as of that date.

The Company often enters into contracts that contain both lease and non-lease components. Real estate non-lease components include real estate taxes, insurance, maintenance, parking and other operating costs. Co-location non-lease components include utilities and other operating costs. As of January 1, 2019, the Company includes both lease and non-lease components of fixed costs in its lease arrangements as a single lease component. Variable costs, such as utilities based on actual usage, are not included in the measurement of ROU assets and lease liabilities but are expensed when the event determining the amount of variable consideration to be paid occurs.

The Company’s lease terms often include renewal options and, particularly in the case of co-location arrangements, may include evergreen provisions. The Company’s ROU assets and lease liabilities generally do not include the options to extend, or terminate, unless it is reasonably certain that the Company will exercise these options. The Company has elected to exclude leases for certain networking equipment with terms of 12 months or less from its ROU assets and lease liabilities on its consolidated balance sheet.

Lease expense is recognized on a straight-line basis over the lease term.

Equity Method Investments

The Company accounts for equity investments in which it has significant influence, but not a controlling financial interest, using the equity method of accounting. Under the equity method of accounting, investments are initially recorded at cost, less impairment, and subsequently adjusted to recognize the Company’s share of earnings or losses.


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Table of Contents

In February 2019, the Company and Mitsubishi UFJ Financial Group ("MUFG") announced the establishment of a joint venture, the Global Open Network, Inc. ("GO-NET"), and their plans to offer a new blockchain-based online payment network. The Company's 20% stake in GO-NET is accounted for using the equity method. As of September 30, 2019, the Company's $36.0 million investment is included in other assets on the consolidated balance sheet. The Company recorded a loss of $1.4 million during the three months ended September 30, 2019 which reflects its share of the losses incurred by GO-NET during the period.

Recent Accounting Pronouncements

In June 2016, the FASB issued guidance that introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new "expected loss model" that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. This guidance will be effective for the Company on January 1, 2020. The Company does not expect application of this guidance to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued guidance that changes fair value measurement disclosure requirements. This guidance will be effective for the Company on January 1, 2020. The Company is evaluating the impact the update will have on its disclosures.

In August 2018, the FASB issued guidance that addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance for capitalizing costs associated with developing or obtaining internal-use software. This guidance will be effective for the Company on January 1, 2020. The Company is evaluating the potential impact of adopting this new accounting guidance on its consolidated financial statements.

3. Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of September 30, 2019 and December 31, 2018 (in thousands):

 
 
 
Gross Unrealized
 
 
 
Classification on Balance Sheet
 
Amortized Cost
 
Gains
 
Losses
 
Aggregate
Fair Value
 
Short-Term
Marketable
Securities
 
Long-Term
Marketable
Securities
As of September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
$
78,454

 
$
20

 
$
(38
)
 
$
78,436

 
$
78,436

 
$

Corporate bonds
1,286,133

 
1,491

 
(878
)
 
1,286,746

 
638,604

 
648,142

U.S. government agency obligations
186,836

 
16

 
(196
)
 
186,656

 
114,468

 
72,188

 
$
1,551,423

 
$
1,527

 
$
(1,112
)
 
$
1,551,838

 
$
831,508

 
$
720,330

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
40,000

 
$

 
$
(7
)
 
$
39,993

 
$
39,993

 
$

Commercial paper
282,996

 

 
(50
)
 
282,946

 
282,946

 

Corporate bonds
685,653

 
1

 
(4,309
)
 
681,345

 
482,088

 
199,257

U.S. government agency obligations
50,876

 

 
(404
)
 
50,472

 
50,472

 

 
$
1,059,525

 
$
1

 
$
(4,770
)
 
$
1,054,756

 
$
855,499

 
$
199,257



The Company offers certain eligible employees the ability to participate in a non-qualified deferred compensation plan. The mutual funds held by the Company that are associated with this plan are classified as restricted trading securities. These securities are not included in the available-for-sale securities table above but are included in marketable securities in the consolidated balance sheets.

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from

15

Table of Contents

accumulated other comprehensive loss to interest income in the consolidated statements of income. As of September 30, 2019, the Company held for investment corporate and government bonds with a fair value of $125.4 million, which are classified as available-for-sale marketable securities and have been in a continuous unrealized loss position for more than 12 months. The unrealized losses of $0.1 million related to these corporate and government bonds are included in accumulated other comprehensive income as of September 30, 2019. The unrealized losses are attributable to changes in interest rates. Based on the evaluation of available evidence, the Company does not believe any unrealized losses represent other than temporary impairments.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities as of September 30, 2019 and December 31, 2018 (in thousands):

 
Total Fair Value
 
Fair Value Measurements at Reporting Date Using
 
 
Level 1    
 
Level 2    
 
Level 3    
As of September 30, 2019
 
 
 
 
 
 
 
Cash Equivalents and Marketable Securities:
 
 
 
 
 
 
 
Money market funds
$
4,000

 
$
4,000

 
$

 
$

Commercial paper
78,436

 

 
78,436

 

Corporate bonds
1,286,746

 

 
1,286,746

 

U.S. government agency obligations
186,656

 

 
186,656

 

Mutual funds
14,027

 
14,027

 

 

 
$
1,569,865

 
$
18,027

 
$
1,551,838

 
$

 
 
 
 
 
 
 
 
As of December 31, 2018
 
 
 
Cash Equivalents and Marketable Securities:
 
 
 
 
 
 
 
Money market funds
$
380,260

 
$
380,260

 
$

 
$

Certificates of deposit
39,993

 
39,993

 

 

Commercial paper
282,946

 

 
282,946

 

Corporate bonds