CAMBRIDGE, Mass., Feb.15, 2022– Akamai Technologies,Inc. (NASDAQ:AKAM), the world's mosttrusted solution to power and protect digital experiences, todayannounced it has entered into a definitive agreement to acquire Linode, one ofthe easiest-to-use and most trusted infrastructure-as-a-service (IaaS) platformproviders.
Modern digital experiences, including virtualenvironments like the metaverse, are created through the convergence of media,entertainment, technology, ecommerce, financial services, and online games.Akamai has been a key partner to the world’s leaders in these industries fordecades by powering and protecting applications in today’s multi-cloud,multi-platform world. Together with Linode, which has made it simple,affordable and accessible for developers to consume cloud computing, Akamaiwill become the world’s most distributed compute platform, from cloud to edge.
“The opportunity to combine Linode’sdeveloper-friendly cloud computing capabilities with Akamai’s market-leadingedge platform and security services is transformational for Akamai,” said Dr.Tom Leighton, chief executive officer and co-founder, Akamai Technologies.“Akamai has been a pioneer in the edge computing business for over 20 years,and today we are excited to begin a new chapter in our evolution by creating aunique cloud platform to build, run and secure applications from the cloud tothe edge. This a big win for developers who will now be able to build the nextgeneration of applications on a platform that delivers unprecedented scale,reach, performance, reliability and security.”
Christopher Aker, founder and chief executiveofficer, Linode, added, “We started Linode 19 years ago to make the power ofthe cloud easier and more accessible. Along the way, we built a cloud computingplatform trusted by developers and businesses around the world. Today, thosecustomers face new challenges as cloud services become all-encompassing,including compute, storage, security and delivery from core to edge. Solvingthose challenges requires tremendous integration and scale which Akamai andLinode plan to bring together under one roof. This marks an exciting newchapter for Linode and a major step forward for our current and futurecustomers.”
Under terms of theagreement, Akamai has agreed to acquire all of the outstanding equity of LinodeLimited Liability Company for approximately $900 million, after customary purchaseprice adjustments. As a result of structuring the transaction as an assetpurchase, Akamai expects to achieve cash income tax savings over the next 15years that have an estimated net present value of approximately $120 million. The transaction is expected toclose in the first quarter of 2022 and is subject to customary closingconditions.
Forfiscal year 2022, the acquisition of Linode is anticipatedto add approximately $100million in revenue and be slightly accretive to non-GAAP EPS by approximately$0.05 to $0.06. Akamai will provide additional details on Linode, along with Q4and year end 2021 financial results and full year guidance on its earnings calltoday, February 15, 2022, at 4:30 p.m. ET.
Advisors on theTransaction
PJT Partners served as financial advisorand WilmerHale served as legal counsel to Akamai. DH Capital served as financial advisor andLatham & Watkins served as legal counsel to Linode.
Conference call scheduled today, Tuesday, February 15 at4:30 p.m. ET
Akamai will discuss the acquisition of Linodeduring its Q4 and year end 2021 financial results conference call today,February 15, 2022, at 4:30 p.m. Eastern time. The call may includeforward-looking financial guidance from management. The call can be accessedthrough (844) 578-9671 (or (508) 637-5655 for international calls) usingconference ID number 7579719. A live webcast of the call and the accompanying slides may be accessed inthe Investor Relations section of www.akamai.com. In addition, areplay of the call will be available for two weeks following the conferencethrough the Akamai website or by calling (855) 859-2056 (or (404) 537-3406 forinternational calls) and using conference ID number 7579719.
Use of Non-GAAPFinancial Measures
Inaddition to providing financial measurements based on generally acceptedaccounting principles in the United States of America (GAAP), Akamai providesadditional financial metrics that are not prepared in accordance with GAAP(non-GAAP). Management uses non-GAAP financial measures, in addition to GAAPfinancial measures, to understand and compare operating results acrossaccounting periods, for financial and operational decision making, for planningand forecasting purposes, to measure executive compensation and to evaluateAkamai's financial performance. The non-GAAP financial measure used in thisrelease is non-GAAP net income per diluted share.
Managementbelieves that this non-GAAP financial measure reflects Akamai's ongoingbusiness in a manner that allows for meaningful comparisons and analysis oftrends in the business, as it facilitates comparing financial results acrossaccounting periods and to those of our peer companies. Management also believesthat this non-GAAP financial measure enables investors to evaluate Akamai'soperating results and future prospects in the same manner as management. Thenon-GAAP net income per diluted share metric excludes expenses and gains thatmay be unusual in nature, infrequent or not reflective of Akamai's ongoingoperating results.
Thisnon-GAAP financial measure does not replace the presentation of Akamai's GAAPfinancial results and should only be used as a supplement to, not as asubstitute for, Akamai's financial results presented in accordance with GAAP.For historical non-GAAP measures, Akamai has provided a reconciliation of eachnon-GAAP financial measure used in its financial reporting and investor presentationsto the most directly comparable GAAP financial measure. These reconciliationscan be found under the caption “Reconciliation of GAAP to Non-GAAP FinancialMeasures” on the Investor Relations section of Akamai's website.
Akamaiprovides forward-looking statements in the form of guidance and otherexpressions of expectations about future performance. These forward-lookingstatements are provided on a non-GAAP basis and cannot be reconciled to theclosest GAAP measure without unreasonable effort because of theunpredictability of the amounts and timing of events affecting the items weexclude from non-GAAP measures. For example, stock-based compensation isunpredictable for Akamai’s performance-based awards, which can fluctuatesignificantly based on current expectations of future achievement ofperformance-based targets. Amortization of intangible assets,acquisition-related costs and restructuring costs are all impacted by thetiming and size of potential future actions, which are difficult to predict. Inaddition, from time to time, Akamai excludes certain items that occurinfrequently, which are also inherently difficult to predict and estimate. Itis also difficult to predict the tax effect of the items we exclude and toestimate certain discrete tax items, like the resolution of tax audits orchanges to tax laws. As such, the costs that are being excluded from non-GAAPprojections are difficult to predict and a reconciliation or a range of resultscould lead to disclosure that would be imprecise or potentially misleading.Material changes to any one of the exclusions could have a significant effecton our guidance and future GAAP results.
Akamai’sdefinition of the non-GAAP measure used in this press release is outlinedbelow:
Non-GAAP net incomeper diluted share – Non-GAAP net income divided by weighted average dilutedcommon shares outstanding. Diluted weighted average shares outstanding areadjusted in non-GAAP per share calculations for the shares that would bedelivered to Akamai pursuant to the note hedge transactions entered into inconnection with the issuances of $1,150 million of convertible senior notes due2027 and 2025, respectively. Under GAAP, shares delivered under hedgetransactions are not considered offsetting shares in the fully-diluted sharecalculation until they are delivered. However, the company would receive abenefit from the note hedge transactions and would not allow the dilution tooccur, so management believes that adjusting for this benefit provides ameaningful view of operating performance. With respect to the convertiblesenior notes due in each of 2027 and 2025, unless Akamai's weighted averagestock price is greater than $116.18 and $95.10, respectively, the initialconversion price, there will be no difference between GAAP and non-GAAP dilutedweighted average common shares outstanding.
Non-GAAP net income– GAAP net income adjusted for the following tax-affected items: amortizationof acquired intangible assets; stock-based compensation; amortization ofcapitalized stock-based compensation; acquisition-related costs; restructuringcharges; gains and losses on legal settlements; costs incurred related toendowments to the Akamai Foundation; amortization of debt discount and issuancecosts; amortization of capitalized interest expense; certain gains and losseson investments; income and losses from equity method investment; and othernon-recurring or unusual items that may arise from time to time.
Thenon-GAAP adjustments, and Akamai's basis for excluding them from non-GAAPfinancial measures, are outlined below:
• Amortization ofacquired intangible assets – Akamai has incurred amortization of intangibleassets, included in its GAAP financial statements, related to variousacquisitions Akamai has made. The amount of an acquisition's purchase priceallocated to intangible assets and term of its related amortization can varysignificantly and is unique to each acquisition; therefore, Akamai excludesamortization of acquired intangible assets from its non-GAAP financial measuresto provide investors with a consistent basis for comparing pre- andpost-acquisition operating results.
• Stock-basedcompensation and amortization of capitalized stock-based compensation –Although stock-based compensation is an important aspect of the compensationpaid to Akamai's employees, the grant date fair value varies based on the stockprice at the time of grant, varying valuation methodologies, subjectiveassumptions and the variety of award types. This makes the comparison of Akamai'scurrent financial results to previous and future periods difficult tointerpret; therefore, Akamai believes it is useful to exclude stock-basedcompensation and amortization of capitalized stock-based compensation from itsnon-GAAP financial measures in order to highlight the performance of Akamai'score business and to be consistent with the way many investors evaluate itsperformance 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 withstrategic activities. In addition, subsequent adjustments to Akamai's initialestimated amounts of contingent consideration and indemnification associatedwith specific acquisitions are included within acquisition related costs. Theseamounts are impacted by the timing and size of the acquisitions. Akamaiexcludes acquisition-related costs from its non-GAAP financial measures toprovide a useful comparison of Akamai's operating results to prior periods andto its peer companies because such amounts vary significantly based on themagnitude of the acquisition transactions and do not reflect Akamai's coreoperations.
• Restructuringcharges – Akamai has incurred restructuring charges from programs that havesignificantly changed either the scope of the business undertaken by theCompany or the manner in which that business is conducted. These chargesinclude severance and related expenses for workforce reductions, impairments oflong-lived assets that will no longer be used in operations (includingright-of-use assets, other facility-related property and equipment andinternal-use software) and termination fees for any contracts canceled as partof these programs. Akamai excludes these items from its non-GAAP financialmeasures when evaluating its continuing business performance as such items varysignificantly based on the magnitude of the restructuring action and do notreflect expected future operating expenses. In addition, these charges do notnecessarily provide meaningful insight into the fundamentals of current or pastoperations of its business.
• Amortization ofdebt discount and issuance costs and amortization of capitalized interestexpense – In August 2019, Akamai issued $1,150 million of convertible seniornotes due 2027 with a coupon interest rate of 0.375%. In May 2018, Akamaiissued $1,150 million of convertible senior notes due 2025 with a couponinterest rate of 0.125%. The imputed interest rates of these convertible seniornotes were 3.10% and 4.26%, respectively. This is a result of the debtdiscounts recorded for the conversion features that are required to beseparately accounted for as equity under GAAP, thereby reducing the carryingvalue of the convertible debt instruments. The debt discounts are amortized asinterest expense together with the issuance costs of the debt. The interestexpense excluded from Akamai's non-GAAP results is comprised of these non-cashcomponents and is excluded from management's assessment of the company'soperating performance because management believes the non-cash expense is notrepresentative of ongoing operating performance.
• Gains and losseson investments – Akamai has recorded gains and losses from the disposition,changes to fair value and impairment of certain investments. Akamai believesexcluding these amounts from its non-GAAP financial measures is useful toinvestors as the types of events giving rise to these gains and losses are notrepresentative of Akamai's core business operations and ongoing operatingperformance
• Legal settlements– Akamai has incurred losses related to the settlement of legal matters. Akamaibelieves excluding these amounts from its non-GAAP financial measures is usefulto investors as the types of events giving rise to them are not representativeof Akamai's core business operations.
• Endowment ofAkamai Foundation – Akamai has incurred expenses to endow the AkamaiFoundation, a private corporate foundation dedicated to encouraging the next generationof technology innovators by supporting math and science education. Akamai'sfirst endowment was in 2018 to enable a permanent endowment for the AkamaiFoundation to allow it to expand its reach. In the fourth quarter of 2020Akamai supplemented the endowment to enable specific initiatives to increasediversity in the technology industry. Akamai believes excluding these amountsfrom non-GAAP financial measures is useful to investors as these infrequent andnearly one-time expenses are not representative of its core businessoperations.
• Income and lossesfrom equity method investment – Akamai records income or losses on its share ofearnings and losses from its equity method investment. Akamai excludes suchincome and losses because it does not direct control over the operations of theinvestment and the related income and losses are not representative of its corebusiness operations.
• Income tax effectof non-GAAP adjustments and certain discrete tax items – The non-GAAPadjustments described above are reported on a pre-tax basis. The income taxeffect of non-GAAP adjustments is the difference between GAAP and nonGAAPincome tax expense. Non-GAAP income tax expense is computed on non-GAAP pre-taxincome (GAAP pre-tax income adjusted for non-GAAP adjustments) and excludescertain discrete tax items (such as recording or releasing of valuationallowances), if any. Akamai believes that applying the non-GAAP adjustments andtheir related income tax effect allows Akamai to highlight income attributableto its core operations.
AkamaiStatement Under the Private Securities Litigation Reform Act
This release and/or our earnings conference callscheduled for later today contain information about future expectations, plansand prospects of Akamai's management that constitute forward-looking statementsfor purposes of the safe harbor provisions under The Private SecuritiesLitigation Reform Act of 1995, including statements about expected futurefinancial performance and the benefits of the planned acquisition of Linode.Actual results may differ materially from those indicated by these forward-lookingstatements as a result of various important factors including, but not limitedto, the inability to continue to generate cash at the same level as prioryears; the ability to complete the Linode transaction in a timely manner or atall; uncertainties as to whether the anticipated benefits from the Linodetransaction will be realized; uncertainties as to whether Linode’s businesswill be successfully integrated with Akamai’s business, including whetherLinode’s technology will interoperate as expected with existing Akamaitechnology; the effect of the announcement of the proposed transaction onLinode’s ability to maintain relationships with its key customers, vendors andemployees; the failure of our investments in innovation to generate solutionsthat are accepted in the market; the inability to increase our revenue at thesame rate as in the past and keep our expenses from increasing at a greaterrate than our revenues; the impact of the ongoing COVID-19 pandemic; defects ordisruptions in our products or IT systems; the failure of the integration ofany of our acquisitions; the delay in developing or failure to develop newservice offerings or functionalities, and if developed, the lack of marketacceptance of such service offerings and functionalities or failure of suchsolutions to operate as expected, and other factors that are discussed in theCompany's Annual Report on Form 10-K, quarterly reports on Form 10-Q, and otherdocuments periodically filed with the SEC.
In addition, thestatements in this press release and on such investor call represent Akamai'sexpectations and beliefs as of the date of this press release. Akamaianticipates that subsequent events and developments may cause theseexpectations and beliefs to change. However, while Akamai may elect to updatethese forward-looking statements at some point in the future, it specificallydisclaims any obligation to do so. These forward-looking statements should notbe relied upon as representing Akamai's expectations or beliefs as of any date subsequentto the date of this press release.
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