Akamai Technologies (AKAM)
Q3 2011 Earnings Call
October 26, 2011 4:30 pm ET
Natalie Temple -
Paul L. Sagan - Chief Executive Officer and Executive Director
J. D. Sherman - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Rodney W. Ratliff - SunTrust Robinson Humphrey, Inc., Research Division
Donna Jaegers - D.A. Davidson & Co., Research Division
Mark S. Mahaney - Citigroup Inc, Research Division
Tim Klasell - Stifel, Nicolaus & Co., Inc., Research Division
Michael J. Olson - Piper Jaffray Companies, Research Division
Edward Maguire - Credit Agricole Securities (USA) Inc., Research Division
Chad Bartley - Pacific Crest Securities, Inc., Research Division
Sameet Sinha - B. Riley & Co., LLC, Research Division
Daniel Morrison - Crédit Suisse AG, Research Division
Michael Turits - Raymond James & Associates, Inc., Research Division
Richard Fetyko - Janney Montgomery Scott LLC, Research Division
Scott H. Kessler - S&P Equity Research
Mark Kelleher - Dougherty & Company LLC, Research Division
Jeffrey Van Rhee - Craig-Hallum Capital Group LLC, Research Division
Ben Z. Rose - Battle Road Research Ltd.
Aaron Schwartz - Jefferies & Company, Inc., Research Division
Rob Sanderson - American Technology Research
Jennifer A. Swanson - Morgan Stanley, Research Division
Previous Statements by AKAM
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Good day, ladies and gentlemen, and welcome to the Akamai Technologies Earnings Conference Call. My name is Derek, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorder for replay purposes. I would now like to turn the conference over to Ms. Natalie Temple, Investor Relations. You may proceed.
Good afternoon, and thank you for joining Akamai's investor conference call to discuss our third quarter 2011 financial results. Speaking today will be Paul Sagan, Akamai's President and Chief Executive Officer; and J.D. Sherman, Akamai's Chief Financial Officer.
Before we get started, please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance. These forward-looking statements are subject to risks and uncertainties, and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.
Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's view on October 26, 2011. Akamai disclaims any obligation to update these statements to reflect future events or circumstances.
As a reminder, we will be referring to some non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the News & Events portion of the Investor Relations section of our website.
Now let me turn the call over to Paul.
Paul L. Sagan
Thanks, Natalie, and thank you, all, for joining us today. Akamai performed very well in Q3, with revenue of $282 million, up 11% from the same period last year. We generated fully taxed normalized net income of $63 million or $0.34 per diluted share, consistent with Q3 of last year.
Cash flow generation continue to be very strong, allowing us to accelerate our share repurchases in the third quarter under our expanded buyback program. We generated $160 million in cash from operations in the quarter, with $317 million year-to-date.
I'll be back in a few minutes to talk about some of the highlights from our recent worldwide customer conference in Boston, including advancements to the Akamai platform that we announced during the event.
But first, let me turn the call over to J.D. for details on Q3. J.D.?
J. D. Sherman
Thanks, Paul. I'm glad you straightened out it's the A-K-A-M-A-Y conference call rather than the A-K-A-M-I conference call.
Paul L. Sagan
I'm glad I'm in the right place.
J. D. Sherman
As Paul just highlighted, our revenue came in at the high end of our guidance range at $281.9 million. That's up 11% year-over-year, and up $5 million sequentially. During Q3, we saw a continued solid growth for our value-added solutions. Enterprise was our fastest growing vertical, grew 30% year-over-year and 3% sequentially, as our customer shifted more content and applications to the cloud.
Our commerce vertical increased 23% over Q3 of last year and increased 5% sequentially. These results were driven by continued demand for our Dynamic Site Acceleration solutions, or DSA, as well as solid early traction for our security portfolio. We had almost 100 DSAs signings in the quarter across all of our verticals, and that's just shy of the record signings we saw in Q2. In addition, we had over 30 customers adopted our security solutions in Q3. In less than a year of general availability, we already have over 125 customers leveraging our security solutions in the cloud.
Revenue from our media and entertainment customers grew 5% year-over-year, and grew 1% sequentially in the third quarter. We continue to see consistent traffic growth, but we still have yet to see year-over-year traffic growth begin to accelerate again.
The high tech vertical was up 3% year-over-year and flat on a sequential basis. Software-as-a-Service customers continue to drive growth with their adoption of our application performance solutions, offsetting continued pressure on the software downloads revenue.
Public sector revenue grew 5% year-over-year and declined 1 point sequentially. During the third quarter, sales outside North America were 29% of total revenue. That's down 1 point from the prior quarter. International revenue grew 15% year-over-year and declined 1 point sequentially in Q3.
Foreign exchange had a slight negative sequential impact. And on a year-over-year basis, the currency impact was favorable by about $6.5 million, about $1 million less of a benefit than we anticipated at the time of our last earnings call.