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AKAM Akamai

Filed: 4 May 21, 4:14pm
Exhibit 99.1
FOR IMMEDIATE RELEASE

Contacts:
Gina SoriceTom Barth
Media RelationsInvestor Relations
Akamai TechnologiesAkamai Technologies
646-320-4107617-274-7130
gsorice@akamai.comtbarth@akamai.com


AKAMAI REPORTS FIRST QUARTER 2021 FINANCIAL RESULTS

First quarter revenue of $843 million, up 10% year-over-year and up 8% when adjusted for foreign exchange*

Security Technology Group revenue of $310 million, up 29% year-over-year and up 27% when adjusted for foreign exchange*

Edge Technology Group revenue of $532 million, up 2% year-over-year and flat when adjusted for foreign exchange*

GAAP EPS of $0.94, up 25% year-over-year, and non-GAAP EPS* of $1.38, up 15% year-over-year


CAMBRIDGE, Mass. May 4, 2021 – Akamai (NASDAQ: AKAM), the world’s most trusted solution for protecting and delivering digital experiences, today reported financial results for the first quarter ended March 31, 2021.

“We are pleased with our excellent start in 2021, with revenue, margins and earnings all exceeding expectations,” said Dr. Tom Leighton, Chief Executive Officer. “We continued to capitalize on the substantial opportunities for our business, as demonstrated by the very strong growth of our security and edge applications solutions and strong traffic growth on the Akamai Intelligent Edge Platform.”

Akamai delivered the following financial results for the first quarter ended March 31, 2021:

Revenue: Revenue was $843 million, a 10% increase over first quarter 2020 revenue of $764 million and an 8% increase when adjusted for foreign exchange.*

Revenue by Product Group:

Security Technology Group revenue was $310 million, up 29% year-over-year and up 27% when adjusted for foreign exchange*
Edge Technology Group revenue was $532 million, up 2% year-over-year and flat when adjusted for foreign exchange*

Revenue by Geography:

U.S. revenue was $463 million, up 8% year-over-year
International revenue was $380 million, up 13% year-over-year and up 8% when adjusted for foreign exchange*

Income from operations: GAAP income from operations was $182 million, a 20% increase from first quarter 2020. GAAP operating margin for the first quarter was 22%, up 2 percentage points from the same period last year.

Non-GAAP income from operations* was $264 million, a 15% increase from first quarter 2020. Non-GAAP operating margin* for the first quarter was 31%, up 1 percentage point from the same period last year.

Net income: GAAP net income was $156 million, a 26% increase from first quarter 2020. Non-GAAP net income* was $228 million, a 16% increase from first quarter 2020.

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EPS: GAAP EPS was $0.94 per diluted share, a 25% increase from first quarter 2020 and an 18% increase when adjusted for foreign exchange.* Non-GAAP EPS was $1.38 per diluted share, a 15% increase from first quarter 2020 and an 11% increase when adjusted for foreign exchange.*

Adjusted EBITDA*: Adjusted EBITDA* was $375 million, a 15% increase from first quarter 2020. Adjusted EBITDA margin* for the first quarter was 45%, up 2 percentage points from the same period last year.

Supplemental cash information: Cash from operations for the first quarter of 2021 was $250 million, or 30% of revenue. Cash, cash equivalents and marketable securities was $2.5 billion as of March 31, 2021.

Share repurchases: Akamai spent $58 million in the first quarter of 2021 to repurchase 0.6 million shares of its common stock at an average price of $98.39 per share. The Company had 163 million shares of common stock outstanding as of March 31, 2021.


*    See Use of Non-GAAP Financial Measures below for definitions


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Quarterly Conference Call
Akamai will host a conference call today at 4:30 p.m. ET that can be accessed through 1-844-578-9671 (or 1-508-637-5655 for international calls) and using passcode 6557299. 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 two weeks following the conference by calling 1-855-859-2056 (or 1-404-537-3406 for international calls) and using passcode 6557299. The archived webcast of this event may be accessed through the Akamai website.

About Akamai
Akamai secures and delivers digital experiences for the world’s largest companies. Akamai’s intelligent edge platform surrounds everything, from the enterprise to the cloud, so customers and their businesses can be fast, smart and secure. Top brands globally rely on Akamai to help them realize competitive advantage through agile solutions that extend the power of their multi-cloud architectures. Akamai keeps decisions, apps and experiences closer to users than anyone – and attacks and threats far away. Akamai’s portfolio of edge security, web and mobile performance, enterprise access and video delivery solutions is supported by unmatched customer service, analytics and 24/7/365 monitoring. To learn why the world’s top brands trust Akamai, visit www.akamai.com, blogs.akamai.com, or @Akamai on Twitter.
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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)March 31,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$456,799 $352,917 
Marketable securities831,260 745,156 
Accounts receivable, net666,536 660,052 
Prepaid expenses and other current assets206,807 171,406 
Total current assets2,161,402 1,929,531 
Marketable securities1,165,573 1,398,802 
Property and equipment, net1,511,393 1,478,272 
Operating lease right-of-use assets825,944 793,945 
Acquired intangible assets, net227,436 234,724 
Goodwill1,682,093 1,674,371 
Deferred income tax assets103,433 106,918 
Other assets140,646 147,567 
Total assets$7,817,920 $7,764,130 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$119,462 $118,546 
Accrued expenses309,894 380,468 
Deferred revenue102,525 76,600 
Operating lease liabilities156,656 154,801 
Other current liabilities26,594 27,755 
Total current liabilities715,131 758,170 
Deferred revenue4,076 5,262 
Deferred income tax liabilities35,115 37,458 
Convertible senior notes1,923,829 1,906,707 
Operating lease liabilities733,544 715,404 
Other liabilities84,862 89,833 
Total liabilities3,496,557 3,512,834 
Total stockholders' equity4,321,363 4,251,296 
Total liabilities and stockholders' equity$7,817,920 $7,764,130 


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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended
(in thousands, except per share data)March 31,
2021
December 31,
2020
March 31,
2020
Revenue$842,708 $846,287 $764,302 
Costs and operating expenses:
Cost of revenue(1) (2)
306,687 303,847 268,582 
Research and development(1)
82,045 67,228 71,224 
Sales and marketing(1)
116,354 140,401 123,786 
General and administrative(1) (2)
136,715 162,453 127,361 
Amortization of acquired intangible assets11,427 10,894 10,434 
Restructuring charge7,116 26,847 10,585 
Total costs and operating expenses660,344 711,670 611,972 
Income from operations182,364 134,617 152,330 
Interest income4,578 6,270 7,043 
Interest expense(17,834)(17,342)(17,205)
Other (expense) income, net(817)5,415 (4,108)
Income before provision for income taxes168,291 128,960 138,060 
Provision for income taxes(11,898)(4,158)(14,292)
Loss from equity method investment(698)(11,432)(622)
Net income$155,695 $113,370 $123,146 
Net income per share:
Basic$0.95 $0.70 $0.76 
Diluted$0.94 $0.68 $0.75 
Shares used in per share calculations:
Basic163,061 162,798 161,992 
Diluted165,688 165,879 163,684 

(1)    Includes stock-based compensation (see supplemental table for figures)
(2)     Includes depreciation and amortization (see supplemental table for figures)

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AKAMAI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
Cash flows from operating activities:
Net income$155,695 $113,370 $123,146 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization131,471 127,708 116,208 
Stock-based compensation54,305 50,510 47,493 
Provision (benefit) for deferred income taxes1,764 (11,273)(2,888)
Amortization of debt discount and issuance costs16,257 15,766 15,633 
Other non-cash reconciling items, net1,226 6,743 12,052 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(15,580)(4,942)(73,913)
Prepaid expenses and other current assets(35,388)(4,015)(10,434)
Accounts payable and accrued expenses(72,986)(10,607)(27,458)
Deferred revenue25,439 (16,121)26,989 
Other current liabilities(716)19,739 928 
Other non-current assets and liabilities(11,694)4,215 (4,513)
Net cash provided by operating activities249,793 291,093 223,243 
Cash flows from investing activities:
Cash (paid) received for business acquisitions, net of cash acquired(15,638)(128,105)106 
Cash paid for asset acquisition— — (36,376)
Purchases of property and equipment and capitalization of internal-use software development costs(164,719)(167,445)(215,429)
Purchases of short- and long-term marketable securities(90,279)(629,323)(389,779)
Proceeds from sales and maturities of short- and long-term marketable securities234,149 296,838 530,816 
Other non-current assets and liabilities179 10,101 (76)
Net cash used in investing activities(36,308)(617,934)(110,738)
Cash flows from financing activities:
Proceeds from the issuance of common stock under stock plans21,410 13,963 19,546 
Employee taxes paid related to net share settlement of stock-based awards(63,946)(12,529)(50,835)
Repurchases of common stock(58,241)(72,510)(80,550)
Net cash used in financing activities(100,777)(71,076)(111,839)
Effects of exchange rate changes on cash, cash equivalents and restricted cash(7,151)7,400 (8,983)
Net increase (decrease) in cash, cash equivalents and restricted cash105,557 (390,517)(8,317)
Cash, cash equivalents and restricted cash at beginning of period353,466 743,983 394,146 
Cash, cash equivalents and restricted cash at end of period$459,023 $353,466 $385,829 

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AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY PRODUCT GROUP (1)

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
Security Technology Group$310,219 $296,137 $240,300 
Edge Technology Group532,489 550,150 524,002 
Total revenue$842,708 $846,287 $764,302 
Revenue growth rates year-over-year:
Security Technology Group29 %24 %26 %
Edge Technology Group
Total revenue10 %10 %%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Security Technology Group27 %23 %28 %
Edge Technology Group— 
Total revenue%%%


AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY GEOGRAPHY

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
U.S.$463,180 $467,456 $428,930 
International379,528 378,831 335,372 
Total revenue$842,708 $846,287 $764,302 
Revenue growth rates year-over-year:
U.S.%%%
International13 16 16 
Total revenue10 %10 %%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
U.S.%%%
International13 19 
Total revenue%%%

(1) Effective March 1, 2021, Akamai reorganized into two groups: the Security Technology Group and the Edge Technology Group, which both utilize the Akamai Intelligent Edge Platform and its global sales organization. These groups are aligned with their product offerings. Revenue from the Security Technology Group was previously reported as revenue from Cloud Security Solutions, and revenue from the Edge Technology Group was previously reported as revenue from CDN and all other solutions.
(2) See Use of Non-GAAP Financial Measures below for a definition
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AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE FROM INTERNET PLATFORM CUSTOMERS (1)

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
Revenue from Internet Platform Customers$59,191 $57,677 $44,702 
Revenue excluding Internet Platform Customers783,517 788,610 719,600 
Total revenue$842,708 $846,287 $764,302 
Revenue growth rates year-over-year:
Revenue from Internet Platform Customers32 %11 %(5)%
Revenue excluding Internet Platform Customers
Total revenue10 %10 %%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Revenue from Internet Platform Customers32 %11 %(5)%
Revenue excluding Internet Platform Customers10 
Total revenue%%%


AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL REVENUE DATA – REVENUE BY DIVISION (3)

Three Months Ended
(in thousands)March 31,
2021
December 31, 2020 (4)
March 31, 2020 (4)
Web Division$427,046 $434,068 $402,750 
Media and Carrier Division415,662 412,219 361,552 
Total revenue$842,708 $846,287 $764,302 
Revenue growth rates year-over-year:
Web Division%%%
Media and Carrier Division15 15 
Total revenue10 %10 %%
Revenue growth rates year-over-year, adjusted for the impact of foreign exchange rates(2):
Web Division%%10 %
Media and Carrier Division13 14 
Total revenue%%%

(1) Revenue from large Internet platform companies: Amazon, Apple, Facebook, Google, Microsoft and Netflix
(2) See Use of Non-GAAP Financial Measures below for a definition
(3) Prior to March 1, 2021, Akamai managed its business by division, which was a customer-focused reporting view that reflected revenue from customers that were managed by the division. Although Akamai no longer manages its business by division, the prior divisional view of revenue is provided for informational purposes.
(4) As of January 1, 2021, Akamai reassigned some of its customers between the Media and Carrier Division and the Web Division and revised historical results in order to reflect the most recent categorization and to provide a comparable view for all periods presented. As the purchasing patterns and required account expertise of customers change over time, Akamai may reassign a customer's division from one to another.
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AKAMAI TECHNOLOGIES, INC.
SUPPLEMENTAL OPERATING EXPENSE DATA

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
General and administrative expenses:
Payroll and related costs$56,450 $51,759 $48,599 
Stock-based compensation16,362 14,834 13,957 
Depreciation and amortization20,909 21,189 20,465 
Facilities-related costs24,347 25,136 24,672 
(Benefit) provision for doubtful accounts(260)(584)2,199 
Acquisition-related costs64 4,390 76 
Endowment of Akamai Foundation— 20,000 — 
Professional fees and other expenses18,843 25,729 17,393 
Total general and administrative expenses$136,715 $162,453 $127,361 
General and administrative expenses–functional(1):
Global functions$55,799 $51,476 $47,866 
As a percentage of revenue%%%
Infrastructure81,109 87,172 77,220 
As a percentage of revenue10 %10 %10 %
Other(193)23,805 2,275 
Total general and administrative expenses$136,715 $162,453 $127,361 
As a percentage of revenue16 %19 %17 %
Stock-based compensation:
Cost of revenue$7,096 $6,455 $5,736 
Research and development18,369 12,519 12,065 
Sales and marketing12,478 16,702 15,735 
General and administrative16,362 14,834 13,957 
Total stock-based compensation$54,305 $50,510 $47,493 

(1) Global functions expense includes payroll, stock-based compensation and other employee-related costs for administrative functions, including finance, purchasing, order entry, human resources, legal, information technology and executive personnel, as well as third-party professional service fees. Infrastructure expense includes payroll, stock-based compensation and other employee-related costs for our network infrastructure functions, as well as facility rent expense, depreciation and amortization of facility and IT-related assets, software and software-related costs, business insurance and taxes. Our network infrastructure function is responsible for network planning, sourcing, architecture evaluation and platform security. Other expense includes acquisition-related costs, provision for doubtful accounts, the license of a patent, legal settlements and the endowments of the Akamai Foundation.



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AKAMAI TECHNOLOGIES, INC.
OTHER SUPPLEMENTAL DATA

Three Months Ended
(in thousands, except end of period statistics)March 31,
2021
December 31,
2020
March 31,
2020
Depreciation and amortization:
Network-related depreciation$51,896 $48,824 $36,397 
Capitalized internal-use software development amortization39,223 38,682 40,769 
Other depreciation and amortization20,365 20,662 20,019 
Depreciation of property and equipment111,484 108,168 97,185 
Capitalized stock-based compensation amortization(1)
7,693 7,737 7,631 
Capitalized interest expense amortization(1)
867 909 958 
Amortization of acquired intangible assets11,427 10,894 10,434 
Total depreciation and amortization$131,471 $127,708 $116,208 
Capital expenditures, excluding stock-based compensation and interest expense(2)(3):
Purchases of property and equipment$94,998 $138,140 $84,799 
Capitalized internal-use software development costs55,065 56,634 50,909 
Total capital expenditures, excluding stock-based compensation and interest expense$150,063 $194,774 $135,708 
End of period statistics:
Number of employees8,300 8,368 7,742 

(1) Amortization of capitalized stock-based compensation and interest expense in this table excludes amortization of capitalized stock-based compensation and interest expense capitalized as part of the implementation of cloud-computing arrangements. However, the amounts are included in our total amortization of capitalized stock-based compensation and interest expense that is excluded from our non-GAAP measures (see reconciliations of GAAP to non-GAAP measures).
(2) Capital expenditures presented in this table are reported on an accrual basis, which differs from the cash-basis presentation in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end.
(3) See Use of Non-GAAP Financial Measures below for a definition
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AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP INCOME FROM OPERATIONS AND NET INCOME

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
Income from operations$182,364 $134,617 $152,330 
GAAP operating margin22 %16 %20 %
Amortization of acquired intangible assets11,427 10,894 10,434 
Stock-based compensation54,305 50,510 47,493 
Amortization of capitalized stock-based compensation and capitalized interest expense8,598 8,662 8,589 
Restructuring charge7,116 26,847 10,585 
Acquisition-related costs64 4,390 76 
Endowment of Akamai Foundation— 20,000 — 
Operating adjustments81,510 121,303 77,177 
Non-GAAP income from operations$263,874 $255,920 $229,507 
Non-GAAP operating margin31 %30 %30 %
Net income$155,695 $113,370 $123,146 
Operating adjustments (from above)81,510 121,303 77,177 
Amortization of debt discount and issuance costs16,257 15,766 15,633 
Gain on investments— (7,228)— 
Loss from equity method investment698 11,432 622 
Income tax-effect of above non-GAAP adjustments and certain discrete tax items(26,346)(34,799)(20,445)
Non-GAAP net income$227,814 $219,844 $196,133 

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AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP TO NON-GAAP NET INCOME PER DILUTED SHARE

Three Months Ended
(in thousands, except per share data)March 31,
2021
December 31,
2020
March 31,
2020
GAAP net income per diluted share$0.94 $0.68 $0.75 
Adjustments to net income:
Amortization of acquired intangible assets0.07 0.07 0.06 
Stock-based compensation0.33 0.30 0.29 
Amortization of capitalized stock-based compensation and capitalized interest expense0.05 0.05 0.05 
Restructuring charge0.04 0.16 0.06 
Acquisition-related costs— 0.03 — 
Endowment of Akamai Foundation— 0.12 — 
Amortization of debt discount and issuance costs0.10 0.10 0.10 
Gain on investments— (0.04)— 
Loss from equity method investment— 0.07 — 
Income tax effect of above non-GAAP adjustments and certain discrete tax items(0.16)(0.21)(0.12)
Adjustment for shares(1)
0.01 — — 
Non-GAAP net income per diluted share$1.38 $1.33 $1.20 
Shares used in GAAP per diluted share calculations165,688 165,879 163,684 
Impact of benefit from note hedge transactions(1)
(954)(1,105)— 
Shares used in non-GAAP per diluted share calculations(1)
164,734 164,774 163,684 

(1) Shares used in non-GAAP per diluted share calculations have been adjusted for the three months ended March 31, 2021 and December 31, 2020 for the benefit of Akamai's note hedge transactions. During the three months ended March 31, 2021 and December 31, 2020, Akamai's average stock price was in excess of $95.10, which is the initial conversion price of Akamai's convertible senior notes due in 2025. See Use of Non-GAAP Financial Measures below for further definition.

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AKAMAI TECHNOLOGIES, INC.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA

Three Months Ended
(in thousands)March 31,
2021
December 31,
2020
March 31,
2020
Net income$155,695 $113,370 $123,146 
Interest income(4,578)(6,270)(7,043)
Provision for income taxes11,898 4,158 14,292 
Depreciation and amortization111,484 108,168 97,185 
Amortization of capitalized stock-based compensation and capitalized interest expense8,598 8,662 8,589 
Amortization of acquired intangible assets11,427 10,894 10,434 
Stock-based compensation54,305 50,510 47,493 
Restructuring charge7,116 26,847 10,585 
Acquisition-related costs64 4,390 76 
Endowment of Akamai Foundation— 20,000 — 
Interest expense17,834 17,342 17,205 
Gain on investments— (7,228)— 
Loss from equity method investment698 11,432 622 
Other expense, net817 1,813 4,108 
Adjusted EBITDA$375,358 $364,088 $326,692 
Adjusted EBITDA margin45 %43 %43 %

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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 provides additional financial metrics that are not prepared in accordance with GAAP (non-GAAP). Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes, to measure executive compensation and to evaluate Akamai's financial performance. These non-GAAP financial measures are non-GAAP income from operations, non-GAAP operating margin, non-GAAP net income, non-GAAP net income per diluted share, Adjusted EBITDA, Adjusted EBITDA margin, capital expenditures and impact of foreign currency exchange rates, as discussed below.

Management believes that these non-GAAP financial measures reflect Akamai's ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparison of financial results across accounting periods and to those of our peer companies. Management also believes that these non-GAAP financial measures enable investors to evaluate Akamai's operating results and future prospects in the same manner as management. These non-GAAP financial measures may exclude expenses and gains that may be unusual in nature, infrequent or not reflective of Akamai's ongoing operating results.

The non-GAAP financial measures do not replace the presentation of Akamai's GAAP financial results and should only be used as a supplement to, not as a substitute for, Akamai's financial results presented in accordance with GAAP. Akamai has provided a reconciliation of each non-GAAP financial measure used in its financial reporting and investor presentations to the most directly comparable GAAP financial measure. This reconciliation captioned “Reconciliation of GAAP to Non-GAAP Financial Measures” can be found on the Investor Relations section of Akamai's website.

The non-GAAP adjustments, and Akamai's basis for excluding them from non-GAAP financial measures, are outlined below:

Amortization of acquired intangible assets – Akamai has incurred amortization of intangible assets, included in its GAAP financial statements, related to various acquisitions Akamai has made. The amount of an acquisition's purchase price allocated to intangible assets and term of its related amortization can vary significantly and is unique to each acquisition; therefore, Akamai excludes amortization of acquired intangible assets from its non-GAAP financial measures to provide investors with a consistent basis for comparing pre- and post-acquisition operating results.

Stock-based compensation and amortization of capitalized stock-based compensation – Although stock-based compensation is an important aspect of the compensation paid to Akamai's employees, the grant date fair value varies based on the stock price at the time of grant, varying valuation methodologies, subjective assumptions and the variety of award types. This makes the comparison of Akamai's current financial results to previous and future periods difficult to interpret; therefore, Akamai believes it is useful to exclude stock-based compensation and amortization of capitalized stock-based compensation from its non-GAAP financial measures in order to highlight the performance of Akamai's core business and to be consistent with the way many investors evaluate its performance and compare its operating results to peer companies.

Acquisition-related costs – Acquisition-related costs include transaction fees, advisory fees, due diligence costs and other direct costs associated with strategic activities. In addition, subsequent adjustments to Akamai's initial estimated amounts of contingent consideration and indemnification associated with specific acquisitions are included within acquisition-related costs. These amounts are impacted by the timing and size of the acquisitions. Akamai excludes acquisition-related costs from its non-GAAP financial measures to provide a useful comparison of Akamai's operating results to prior periods and to its peer companies because such amounts vary significantly based on the magnitude of the acquisition transactions and do not reflect Akamai's core operations.

Restructuring charges – Akamai has incurred restructuring charges that are included in its GAAP financial statements, primarily related to workforce reductions and charges associated with exiting facility lease commitments. Akamai excludes these items from its non-GAAP financial measures when evaluating its continuing business performance as such items vary significantly based on the magnitude of the restructuring action and do not reflect expected future operating expenses. In addition, these charges do not necessarily provide meaningful insight into the fundamentals of current or past operations of its business.

Amortization of debt discount and issuance costs and amortization of capitalized interest expense – In August 2019, Akamai issued $1,150 million of convertible senior notes due 2027 with a coupon interest rate of 0.375%. In May 2018, Akamai issued $1,150 million of convertible senior notes due 2025 with a coupon interest rate of 0.125%. The imputed
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interest rates of these convertible senior notes were 3.10% and 4.26%, respectively. This is a result of the debt discounts recorded for the conversion features that are required to be separately accounted for as equity under GAAP, thereby reducing the carrying value of the convertible debt instruments. The debt discounts are amortized as interest expense together with the issuance costs of the debt. The interest expense excluded from Akamai's non-GAAP results is comprised of these non-cash components and is excluded from management's assessment of the company's operating performance because management believes the non-cash expense is not representative of ongoing operating performance.

Gains and losses on investments – Akamai has recorded gains and losses from the disposition, changes to fair value and impairment of certain investments. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to these gains and losses are not representative of Akamai's core business operations and ongoing operating performance.

Legal settlements – Akamai has incurred losses related to the settlement of legal matters. Akamai believes excluding these amounts from its non-GAAP financial measures is useful to investors as the types of events giving rise to them are not representative of Akamai's core business operations.

Endowment of Akamai Foundation – Akamai has incurred expenses to endow the Akamai Foundation, a private corporate foundation dedicated to encouraging the next generation of technology innovators by supporting math and science education. Akamai's first endowment was in 2018 to enable a permanent endowment for the Akamai Foundation to allow it to expand its reach. In the fourth quarter of 2020 Akamai supplemented the endowment to enable specific initiatives to increase diversity in the technology industry. Akamai believes excluding these amounts from non-GAAP financial measures is useful to investors as these infrequent and nearly one-time expenses are not representative of its core business operations.

Income and losses from equity method investment – Akamai records income or losses on its share of earnings and losses from its equity method investment. Akamai excludes such income and losses because it does not direct control over the operations of the investment and the related income and losses are not representative of its core business operations.

Income tax effect of non-GAAP adjustments and certain discrete tax items – The non-GAAP adjustments described above are reported on a pre-tax basis. The income tax effect of non-GAAP adjustments is the difference between GAAP and non-GAAP income tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-tax income (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludes certain discrete tax items (such as recording or releasing of valuation allowances), if any. Akamai believes that applying the non-GAAP adjustments and their related income tax effect allows Akamai to highlight income attributable to its core operations.

Akamai's definitions of its non-GAAP financial measures are outlined below:

Non-GAAP income from operations GAAP income from operations adjusted for the following items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; amortization of capitalized interest expense; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs incurred related to endowments to the Akamai Foundation; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP operating margin – Non-GAAP income from operations stated as a percentage of revenue.

Non-GAAP net income GAAP net income adjusted for the following tax-affected items: amortization of acquired intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs incurred related to endowments to the Akamai Foundation; amortization of debt discount and issuance costs; amortization of capitalized interest expense; certain gains and losses on investments; income and losses from equity method investment; and other non-recurring or unusual items that may arise from time to time.

Non-GAAP net income per diluted share – Non-GAAP net income divided by weighted average diluted common shares outstanding. Diluted weighted average shares outstanding are adjusted in non-GAAP per share calculations for the shares that would be delivered to Akamai pursuant to the note hedge transactions entered into in connection with the issuances of $1,150 million of convertible senior notes due 2027 and 2025, respectively. Under GAAP, shares delivered under hedge transactions are not considered offsetting shares in the fully-diluted share calculation until they are delivered. However, the company would receive a benefit from the note hedge transactions and would not allow the dilution to occur, so management believes that adjusting for this benefit provides a meaningful view of operating performance. With respect to the convertible senior notes due in each of 2027 and 2025, unless Akamai's weighted average stock price is greater than $116.18 and $95.10, respectively, the
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initial conversion price, there will be no difference between GAAP and non-GAAP diluted weighted average common shares
outstanding.

Adjusted EBITDA – GAAP net income excluding the following items: interest income; income taxes; depreciation and amortization of tangible and intangible assets; stock-based compensation; amortization of capitalized stock-based compensation; acquisition-related costs; restructuring charges; gains and losses on legal settlements; costs incurred related to endowments to the Akamai Foundation; foreign exchange gains and losses; interest expense; amortization of capitalized interest expense; certain gains and losses on investments; income and losses on equity method investment; and other non-recurring or unusual items that may arise from time to time.

Adjusted EBITDA margin – Adjusted EBITDA stated as a percentage of revenue.

Capital expenditures, or capex, excluding stock-based compensation and interest expense – Purchases of property and equipment and capitalization of internal-use software development costs presented on an accrual basis, which differs from the cash-basis presentation included in the statements of cash flows. The primary difference between the two is the change in purchases of property and equipment and capitalization of internal-use software development costs accrued for, but not paid, at period end versus prior periods.

Impact of foreign currency exchange rate – Revenue and earnings from international operations have historically been an
important contributor to Akamai's financial results. Consequently, Akamai's financial results have been impacted, and management expects they will continue to be impacted, by fluctuations in foreign currency exchange rates. For example, when the local currencies of our foreign subsidiaries weaken, our consolidated results stated in U.S. dollars are negatively impacted.

Because exchange rates are a meaningful factor in understanding period-to-period comparisons, management believes the presentation of the impact of foreign currency exchange rates on revenue and earnings enhances the understanding of our financial results and evaluation of performance in comparison to prior periods. The dollar impact of changes in foreign currency exchange rates presented is calculated by translating current period results using monthly average foreign currency exchange rates from the comparative period and comparing them to the reported amount. The percentage change at constant currency presented is calculated by comparing the prior period amounts as reported and the current period amounts translated using the same monthly average foreign currency exchange rates from the comparative period.


Akamai Statement Under the Private Securities Litigation Reform Act
This release and/or our quarterly earnings conference call scheduled for later today contain 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 about expected future financial performance. 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, inability to continue to generate cash at the same level as prior years; failure to realize the expected benefits from our announced reorganization; failure of our investments in innovation to generate solutions that are accepted in the market; inability to increase our revenue at the same rate as in the past and keep our expenses from increasing at a greater rate than our revenues; impact of the COVID-19 pandemic; delay in developing or failure to develop new service offerings or functionalities, and if developed, lack of market acceptance of such service offerings and functionalities or failure of such solutions to operate as expected, 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 and on such call 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.
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