阿卡邁科技 (AKAM) 2004 Q1 法說會逐字稿

My name is Tina and I will be the conference facilitator today.

At this time, I'd like to welcome everyone to Akamai's first quarter earnings conference call.

[OPERATOR INSTRUCTIONS].

At this time, I would like to turn the call over to Sandy Smith, Director of Investors Relations at Akamai Technologies.

Mr. Smith, you may begin.

Thank you.

Good afternoon, everyone and thank you for joining Akamai's investor conference call to discuss our first quarter 2004 financial results.

Speaking today will be George Conrades, Chairman and Chief Executive Officer and Bob Cobuzzi, our Chief Financial Officer.

Paul Sagan, our President will also be available during the question and answer portion that follows management's prepared remarks.

This conference call will discuss information about Akamai's future expectations, plans and prospects that constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including but not limited to unexpected network or service interruptions that cause loss of revenues, increased expenses or diversion of resources, failure to increase our revenue, retain our significant customers, or keep our expenses consistent with revenues, general economic conditions as well as those specific to the Internet and related industries.

Failure to maintain the prices we charge for our services and other factors that are discussed in our annual report on Form 10-K, our quarterly report on Form 10-Q and our documents periodically filed with the SEC.

In addition, any forward-looking statement represents our estimate only as of today and should not be relied upon as representing our estimates of any subsequent date.

While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our estimates change and therefore, you should not rely on these forward-looking statements as representing our estimates as of any date subsequent to today.

During this call, we will be referring to non-GAAP financial measures that we believe are helpful to an understanding of our financial results and operations.

These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

Under the news and publications portions of the Investor Relations section of our Web site, we define these non-GAAP terms and reconcile our non-GAAP with the most comparable directly GAAP measures.

Now, let me turn the call over to George.

Thank you, Sandy.

Good afternoon, everyone.

Thank you all for joining us.

The first quarter of 2004 was the best quarter in Akamai's history.

We had record revenue of $48.4 m, record adjusted EBITDA of $14.8 m and for the first time ever we generated net income on a GAAP basis $2.9 m or 2 cents a share.

We're building on our momentum from last year and we delivered on our guidance of profitability in the first quarter of 2004.

Our first quarter revenue of 48.4 m is a 7% increase over the fourth quarter of 2003 and a 32% increase over the first quarter of last year, our fifth consecutive quarter of revenue growth.

Our net income of $2.9 m or 2 cents a share for quarter one is an improvement of $5 m or 4 cents a share over last quarter.

And it's an improvement of $11.6 m or 9 cents a share over the first quarter of last year.

On a normalized basis, we generated 4 cents of earnings.

The number of customers under long-term service contracts increased by 4% to 1172.

Some of our new customers this quarter include Crabtree and Evelyn, DHL international, Indianapolis Motor Speedway, Major League Baseball, which moved to our platform this quarter, the National Center for Missing and Exploited Children, Portugal telecom multi-media, the United Nations development program, the University of Pennsylvania, XM Satellite Radio and Zone Labs.

And we're specially pleased to announce today that two of the Web's most recognized brands Amazon and eBay are using our content delivery services.

In addition, we can announce today that Google is also an Akamai customer.

We are pleased that we've been able to prove our value to Google, a very exciting company.

As Bob takes you through our financial result in details, I'll be back to share some thoughts with you about the next quarter and the rest of the quarter.

Thank you George.

As George mentioned the first quarter of 2004 was another record-breaking quarter for Akamai, in both revenue and earnings.

We achieved our highest ever-quarterly revenue in 48.4 m and our net income of 2 cents a share is our first of quarterly GAAP profit.

Now I'll take you through our Q1 results in detail covering the following areas, revenue and customers, cost of revenue in margins, operating expenses and adjusted EBITDA and finally, I'll review our balance sheet highlights and our improved capital structure.

First quarter revenue was 7% greater than the fourth quarter of 2003 and a 32% increase over the same period of last year.

The first quarter of '04 also marks the fifth consecutive quarter of revenue growth for Akamai.

In the first quarter, we added 46 net new customers bringing the total number of customers under long-term contract with us to 1172.

That's a 4% increase over the last quarter and an 18% increase over Q1 of '03, in our fifth consecutive quarter of net customer growth consistent with our progress over the past year.

Churn was down slightly from the prior quarter and we continue to focus on reducing churn long-term with a quarterly target of low single digits.

ARPU, our average revenue per customer in the first quarter was 13.800 per month up slightly for the first quarter and up 15% over the same period last year.

International sales were 19% of revenue in the first quarter, up from 17% in the previous quarter with growth coming from both Asia and Europe.

Resellers were 27% of revenue in Q1.

Microsoft revenue of 5.4 m, 11% of total revenue, was above their contractual minimums but down as compared to Q4 of '03 because of lower traffic levels in the quarter.

No other customer represented over 10% of revenue.

Our cost of revenue on a GAAP basis declined to 12.2 m this past quarter from 13.1 m in the fourth quarter and from 17.9 m in the first quarter of last year.

Gross margins for the quarter increased to 75% as compared to 71% in the fourth quarter and 51% in the first quarter of last year.

The improvement in our GAAP gross margins is largely due to our declining depreciation costs, which should level out in the second half of this year.

Cash cost of revenue, which excludes depreciation and equity related compensation increased slightly on higher traffic to 7.7 m in the first quarter from 7.3 m in the fourth quarter and 6.9 in the last quarter -- in the first quarter of last year.

Cash gross margins of 84% were flat with the fourth quarter and up from 81% in the first quarter of last year.

Our guidance for cash gross margins remains at 83% for the year and we believe GAAP gross margins will continue to increase or expand as depreciation declines.

Now some comments on operating expenses and adjusted EBITDA.

Cash operating expenses are 25.9 m up from 23.7 m in the fourth quarter and 23.4 m in the first quarter of last year. 2/3rd of the quarterly increase came from first quarter marketing and sales kickoff costs.

First quarter reset of FICA payroll and a one-time separation payment to a senior officer.

In addition, we paid higher commissions on increased revenue and made some important R&D investments in computing.

We will continue to make target investments in engineering and marketing throughout the year.

But given the non-recurring nature of some of our first quarter expenses, our overall expenses will remain flat on an absolute basis and in a decline as percentage of revenue throughout the year.

Adjusted EBITDA defined as earnings before interest, taxes depreciation, amortization, equity related compensation, restructuring charges and benefits, loss and early extinguishment of debt and certain gains and losses on equity investments was 14.8m in the first quarter of 2004.

That's a 4% increase over the previous quarter's 14.2m and almost 2.5 times the adjusted EBITDA level of 6.3m in Q1 of 2003.

Adjusted EBITDA margin for the first quarter was 31% of revenue, flat with the prior quarter and up from 17% in the first quarter of last year.

That's inline with the guidance we've given on the last call and remain that it will be in excess of 30% throughout 2004.

In Q1, total depreciation and amortization declined to 6m from 8.1m in the fourth quarter.

Down considerably from 15.2m in the first quarter of last year.

Our total depreciation and amortization expense includes 1.6m for amortization of internally developed software costs, 2.9 m for depreciation of network related assets, and 1.5m for other G&A depreciation.

As we indicated on our last call, we expect depreciation expense to continue to trend down, to approximately 4m per quarter by the second half of 2004.

Net interest expense declined to 3.2m in the first quarter, down from 4.2m in the fourth quarter and 4.2m in the first quarter of last year.

As for our interest expense going forward, I'll comment on this further when I review the repurchases of nearly 200m of our 5.5% bonds.

The big news, of course, is that on a GAAP basis we generated net income in the quarter for the first time in the company's history.

Net income was 2.9m or 2 cents a share on a GAAP basis, which includes a 2 m charge associated with a buy-back of our bonds.

First is a loss of 2 cents a share in the first quarter and a loss of 8.6m or 7 cents a share in the first quarter of last year.

That's an overall improvement of net income of 5 m or 4 cents per share over the first quarter -- fourth quarter and it's up 11.6m or 9 cents per share over the first quarter of 2003.

On a normalized basis, we generated net income of 5.5m or 4 cents a share, up from 1.5m or 1 cent a share in the fourth quarter and up significantly over our normalized net loss of 13.3m or 11 cent a share in the fourth quarter of last year.

A reconciliation of both adjusted EBITDA and normalized net income to our GAAP net income can be found on our Web site.

Our weighted average shares outstanding using our basic per share calculation was 122.1m in the first quarter of 2004, up from 120.2m in the fourth quarter.

Our share count as of March 31, 2004, was 122.8m shares and our fully diluted share count, which includes outstanding warrants and stock options was 133.8m shares.

It's important to remember that none of our bonds are included in our fully diluted share count.

Now to review some of our balance sheet highlights.

I'll start by going over our very successful debt restructuring.

You'll recall we raised 200 m of 1% convertible bonds in December and January.

As we announced yesterday, we have repurchased a total of 193m of our 5.5% bonds, which were due in 2007.

That leaves us with 107m of the 5.5% notes still outstanding plus 200m of 1% debt outstanding.

As a result, we have reduced our annual interest expense to 7.9m, that's an annual savings of 8.6m effective this month.

In addition, we have pushed out the maturity on 2/3 of our debt by at least 3 years to 2010.

Our cash balance at the end of the first quarter was 177m, which includes cash, cash equivalent and marketable securities before the repurchase of bonds in the month of April.

We generated 8.6m of cash from operations in the first quarter, which compares to 7m in the fourth quarter of 2003.

Cash from operations ever 8.6m is even more significant when you consider that we made a semiannual interest payment of 8.3m that we didn't have in the prior quarter.

Day Sales Outstanding or DSOs dropped to 43 days in the first quarter down from 47 days in the fourth quarter and exceeding our target of 45 days.

Capital expenditures in the first quarter were 3m, up from 2.7m in the fourth quarter.

We continue to expect capital expenditures to remain at less than 10% of revenue for the year.

At the end of the first quarter of 2004, we had 14,434 servers in site, 1,044 networks in 69 countries throughout the world.

And now, let me turn the call back over to George.

Thank you, Bob.

Well, that was a great quarter.

And our results make us even more excited about the prospects for our business.

It's really terrific to see the payoff for our customers, and for our shareholders after five years of commitment to our vision of building a better Internet, the business Internet.

Our revenue is growing, net income and earnings per share are growing, and cash from operations is growing.

And that leads me to a discussion of our expectations.

And in doing so, I want to explain a little bit more about how we arrive at our guidance

For the full year, we are increasing our revenue guidance to at least 25% over last year, that's up from our previous guidance much a growth rate of at least 20% over last year.

And we are increasing our full year guidance for GAAP, EPS to at least 25 cents a share up from our previous guidance of at least 20 cents a share.

Our normalized earnings will be slightly higher than GAAP earnings, throughout the remainder of the year, due to debt restructuring charges and equity related compensation charges.

For the second quarter we expect revenue to be in the range of 49 to 51m and I'll comment more on how we derive our guidance in a moment.

We are expecting GAAP earnings of 3 to 4 cents a share in the second quarter reflecting charges related to the repurchase of our 5.5% notes.

Normalized EPS should be 6 to 7 cents per share for the quarter.

Now to help you develop your models, we will thought it would be useful to walk through some of the factors we take into consideration when we derive our quarterly guidance.

Especially since we have delivered slightly ahead of our revenue guidance in the past two quarters.

We are a recurring revenue business, which means that the vast majority of the revenue we expect each quarter comes from our existing base of customers before a given quarter begins, less some estimate for churn.

So we have a pretty good idea going into each quarter of what's going to happen with one exception.

While we experience the most deviation from expectation is from greater than expected demand in the given quarter by a single customer or groups of customers as has happened in the past few quarters resulting in higher than projected revenue.

Generally, this is because of increasing utilization of the Internet by our customers, leading enterprises and government agencies, who are increasingly using the Internet to do their work.

They are in demand nature of their applications and they are in demand capability of our platform.

For example, we see software download surge unexpectedly in response to updates that have to be distributed quickly and our top line benefits.

This was the case in the first quarter.

Another example, the incredible growth of on-line commerce particularly, in retail, travel and leisure, which we saw in the fourth quarter of the last year and is continuing.

Here, performance really matters and Akamai's on-demand services improved browse-to-buy conversion rates and reduced costly Web site abandonment.

For example, one of our customers who is doing more than a billion dollars a year in on-line sales improved the conversion rate of site visitors to buyers by more than $30 m a year in new sales by using our on demand services platform.

Because of Akamai, our commerce customers are now able to achieve more sales per second for lower cost.

We also see exciting new opportunities in the growth of exclusive pay-per-view and subscription events including Major League Baseball now delivered by Akamai.

There's also the rapid takeoff of Internet music sales like Apples iTune delivered by Akamai.

These examples of Internet usage while exciting, are not easy to predict quarter to quarter as customers constantly take advantage of our on-demand platform free to concentrate on driving profitable revenue growth without having to worry about capacity planning, fixed asset deployment and performance issues.

So we give you our best estimates and then we work very hard with our customers to meet or exceed expectations.

Now for those of you interested in understanding more about what we do for our customers and how they benefit from our on demand services, I invite you to take a look at the customer testimonial section of our Web site.

We're alined with leading enterprises that are successfully using the Internet for mission critical business applications.

And as you can see from our results and our increased guidance, we're very positive about our ability to capture the burgeoning opportunities presented by these companies, permanent economy companies to leverage the global Internet.

Now we'll be happy to take your questions.

Paul Sagan, our President is here with me as is Bob Cobuzzi.

Operator, let's go to the first question.

[OPERATOR INSTRUCTIONS].

Your first question comes from the line of Henry Naah with Lehman Brothers.

Hi, guys.

Question for George, if I may here.

George, I wonder if you could talk a little bit about the competitive landscape and some of the wins you guys saw in the quarter and who you guys are up against.

Yeah.

The competitive landscape is predominantly one that is caused by customers who are using traditional methods to overcome the Internet's bottlenecks and congestion.

So our challenge is to convince them of the additional advantages of our on demand service platform.

The ability you know for their freedom to innovate where they can experiment with new applications versus business cases, improving their time to market, capital savings, you know, where average and low utilization to peak, where to provision.

They don't need to provision nearly as much so we eliminate the capacity planning problem and the capital problem.

All those issues have to be understood to see the benefits of our platform.

And then in the case of the online commerce, for example, we do case studies with the customers to demonstrate that even though they think that their platform is good enough for their commerce, if you use Akamai and improved conversion rates by just a few basis points, you can make dramatic differences and improvements in additional revenue and component margins.

It's really true, more customers per second at less cost.

So that's really the biggest hurdle we will overcome.

If they are really point solutions, being glued together by customers versus out sourcing to our on-demand platform.

That's number 1.

There are some points service competitors out there, but we see them in -- we don't see them actually in the majority of our customer situations and as you can tell by our performance, we obviously are not being hampered by them.

Great.

And I guess in line with the revised upward guidance here, I wonder if you would talk a little bit about the sales funnel and what the pipeline looks like.

Well, I think we've demonstrated that we've had consecutive quarters of net bookings, positive net bookings.

And we continue to do that.

You can't do that without an ever-increasing pipeline.

And I think that's a reflection of Internet adoption in general by our customers, increasing their increasing willingness to convert their applications to the Internet.

It's also a reflection of users out there, you know, broadband is now in four out of 10 homes and that is increasing.

So as we will see the Internet adoption increase by both users and our customers, and it becomes increasingly important to them, then our platform which offers predictability, scalability, security at less cost is going to be on their agenda and that's why our pipeline continues to grow.

OK, great.

One question for Bob.

Bob, I was wondering if you could give us some sort of sense of revenues in the quarter, how much were revenues that were predictable in terms of the recurring nature of revenues and how much were more from the greater than expected demand that you guys saw and the customers saw.

Yes.

I think it's fair to say, Henry, what we've seen this quarter is that if you look at the overall revenue generated, about 99% is, you know, recurring revenue in nature.

And again, about 70% tends to be under commitment.

The other 30% tends to be as we may defer on-demand and are burdening in nature.

So, that percentage did not change.

Great.

Thanks, guys.

Your next question comes from the line of Rob Vendlis (ph) with Wonderly Securities.

Thank you.

Well, outstanding results.

One quick follow-on to the gentleman from Lehman Brothers.

Would you characterize the competition that you see most routinely just as competing about internal development teams of prospective and existing customers?

Robert, it's Paul.

It's not so much teams but it's really just the way they are used to do in business.

We are actually pitted against after them.

You said that they are doing applications and evolved to the Internet and are comfortable doing it a certain way and it takes time to educate them about an outsourced alternative.

But we have seen modest improvements this year in the sales cycle.

Our reps now have an average tenure and we have a terrific a sort of both case studies and customers.

You have heard us mention three great additional brands today that let us go to prospects and demonstrate to them the value of working with us and what we've talked about before and continue to see is strong vertical adoption of our service.

And when you can get one leader in a category you often get more.

And we have seen that in technology, government, automotive, financial services, media and entertainment, high tech, retail and travel.

And we continue to pursue the goal of taking those references and getting additional accounts in individual key verticals.

Amazon and eBay are not lousy customers to have on your list I would say.

They are great customers.

Shifting gears just a little bit, one last question.

I was wondering if you guys would give a little color on the ongoing developments of the EdgeComputing platform and once you answer that question, I'll get off.

Sure.

Well, we continue with our development work with IBM.

We have WebSphere as you know deployed and we're working with them now more closely on the applications and solutions that will run outside the firewall on the distributed Akamai WebSphere platform.

We continue to develop the dot net capability, in Microsoft dot net capability and we plan to have that in beta in the second half of this year.

We're working with certain ISVs to put software on the platform to make it easier for our customers to consume.

You may have noticed we just announced scene 7, which is a leading provider of dynamic visual media software.

There is some significant advantages to our customers of being able to just check the box and start to deploy utilize scene 7 capability.

It's just one example.

And we're working with a number of application areas, on-line marketing events, search, ad serving, all of these are under -- all of these EdgeComputing under pins these kinds of applications.

So we're continuing to invest in it.

And as the marketplace begins to respond to the on-demand computing initiative by just about every leading player in the industry, we're right there enabling them to take that outside the firewall and around the world.

Do you think demand is going to be great inform this year you might actually have to roll something out beyond the current code level of Java or do you think what you have in the marketplace right now is sufficient to satisfy the current demand?

Well, I'm not exact him sure what you mean by that in terms of Java.

We can enable Java applications today as long as they are J2EE compliant.

I mean that's done.

Now, we continue to enhance the robustness of the platform and as I said, we're going to have dot net.

So I think we've got plenty to offer.

I think it's really a marketplace adoption right now.

Great.

Congratulations again on the quarter.

Thank you.

Your next question comes from the line of Maria Kussmaul with America's Growth Capital.

Well, thank you and let me add my congratulations as well.

We're very excited about this quarter.

Yes, you should be.

It's a real milestone.

Yeah.

I wanted to sort of begin by affirming some guidance that I believe, Bob gave with respect to discretionary expenses likely to be flat, some front ending of sales and marketing programs in the quarter.

And if that's the case, you know, given the economic activity that I think most would agree is improving both here and perhaps elsewhere around the globe, given the kind of e-commerce activity that you're seeing, why wouldn't we anticipate continued aggressive sales and marketing investment given the capacity you have in the network and it would seem the timeliness of your investments.

Maria, it's Paul let me take the front half of that.

We do the annual sales kickoff, which involves bringing almost the entire company together.

So, that's one extraordinary expense.

It wasn't meant to suggest that we just do all of our marketing Q1, but there's one large expense annually that always hits us around aligning the staff to go forward in the market in the year.

Maria, this is Bob Cobuzzi.

Just to see if we can't be a little more clear.

The first quarter expenses were up a little over $2 m.

What we have indicated, about 2/3 of that is around certain we can call it one time but certain of them were unique to Q1 which is some of the marketing and sales kickoff, things of that nature additional payroll taxes just because of resetting the FICA taxes.

As you look at what we indicated beyond this is that we will not -- you know, you could take that 2/3 which represented about a million and a half and go back to a normalized period.

What we're saying is we are going to basically be reinvesting that in terms of trying to continue to add marketing programs and also adding more engineers and such to continue to develop and get us even further ahead of the competition.

Is there a metric you might provide with respect to your target in terms of Akamai direct feed on the street, say, now versus year-end 2004 as well as indirect feed on the street through expansion of you were reseller base?

Well, actually what we've seen in the last year and continue to see is increasing productivity out of our existing reps which is why we've kept constant at about 80 reps and increasing productivity out of our channels which has been our strategy for a long time and you're beginning to see that this year as well.

So, we think that there's a lot more growth out of the existing seasoned staff and out of the channels increasingly productive and getting more so.

It's not a question of just needing more bodies.

So I see where you're headed with this.

We are investing in marketing and we are investing also in our channels to, you know, to leverage our presence in the marketplace, all the while the direct force is ever more productive.

I think we have the right balance.

I really do for right now.

It's proving out.

And then one more follow-up if I may.

On ARPU it sounds like that was about flat with the last quarter in the mix between recurring and bursting revenue was about the same.

Given an expectation that we might see existing customers trying more of the EdgeComputing and higher value services, you know, versus newer customers perhaps coming in on more of basic plans, what should we expect should happen to ARPU over the course of the year?

First let me -- I'm not sure that in the front part of the call it was really clear.

ARPU was up in the quarter to $13,800 per month.

So there was actually another increase and that's up 15% over the same quarter one year ago.

You know, we're very optimistic about where EdgeComputing will go.

But people may put their small toe in before they jump all the way in.

So I think over the next few quarters it's very difficult to estimate what those sales might do to ARPU and again those are a small number of early customers against an installed base of 1100 and so there have to be a lot of them to move the needle either direction.

There's a balance between the new customers that we get at lower ARPU, if you will, and the ones that are growing with us.

Can we assume that that balance will at least be tipped such that ARPU is likely to remain where it is or move up?

Or do you think there's some risk it will come down?

We've said I think every quarter for a year there's always a chance that it could move sideways to even down a little, not because of EdgeComputing coming on, but because that we've been averaging 50 or more new customers every quarter.

And they tend to come on small or over time they are clearly as a percentage less weight against the installed base but we're still aggressively trying to get additional logos if you will under contract and so that always mitigates against increasing in same-store sales from the existing customers.

OK.

Thank you.

Congrats again.

Thanks Maria.

Your next question comes from the line of Vic Grover with Needham & Company.

Hey guys, good quarter.

Thanks Vic.

A lot of the big picture stuff has been asked.

Bob, can you give us the revenues by segment in terms of service license and then any related parties?

And then also bad debt expense?

We don't, as you will know, break down revenues.

I mean I think we'll tell you 99% of our revenue is recurring revenue in nature.

We did not break it down by verticals.

At this point, the only major customer was Microsoft, which was 11% of revenue this past quarter.

Bad debts is just not a significant part of our, you know, expense.

It really isn't.

We've had very -- we're doing and managing that very effectively.

In related parties, there's no related parties in terms of revenues.

So again--

OK, well, thanks a lot.

Great quarter is all I have to say.

Thanks.

Your next question comes from the line of Doug Campbell with Spirit Capital.

Thanks.

I've got two or three questions on marketing-related and customer matters.

I think on a net basis it shoals you added about 46 customers during the fourth quarter -- during the first quarter.

How does that compare with 70 in the fourth quarter?

Is this simply part of the normal pattern of variation?

I think if you look back, though, Doug, if you look back over the last five quarters we've averaged 50 per quarter.

So we were pretty much right in line.

The fourth quarter was extremely good from a new contract basis, but we saw Q1 as right in line with what we had seen for the last year of continuing improvement in the business and a good environment.

OK.

Well keying off an earlier question about investing in marketing and so on, would you expect that in all things sort of being equal, would you expect that number to increase with continued seasoning of the marketing force and whatever additions and efforts you will be making?

I'm not sure, Doug, what you mean by -- what will increase.

The net new customer adds per quarter, which has been running an average of 50.

Well, we don't offer that as guidance, but we do make the comments we just made, which is you can look at our roughly 50 per quarter average and I think for the purposes of this discussion, that's a good target.

OK.

And when are you having your -- your annual sales gathering has occurred already?

Oh, yeah.

That's the first couple weeks of January.

Your former head of sales is no longer with the company.

Are there any sort of adjustments that have been made that would be meaningful in the marketplace of your services or products?

Yeah.

Absolutely.

The person who is not with the company headed up global sales, services and marketing, but we have a person who heads up global sales and services and his name is Bob Hughes.

He's been with us for four or five years.

And Bob is an experienced leader.

I think the troops respect him.

And he's been doing a great job all along with this sales force.

So we're very confident of Bob's leadership.

Thanks very much.

Good luck.

You bet.

Your next question comes from the line of Marc Griffin with Financial Equity Group.

Hi, guys.

It's Marc.

Hello, Marc.

Question here.

I know you said the beginning e-bay relationship that was content, correct?

We said that Amazon and e-bay use our content delivery services, correct.

And then did I hear Google?

Is that what I heard well.

You will did.

Google is a customer.

And are they content as well or more Edge Computing.

We don't comment on what we do with Google as part of our relationship with them.

And that was signed this quarter as well?

That's a new customer.

New customer as well.

And I wasn't sure when you were talking about the EdgeComputing and the new dot net, there's a beta version of that?

Is that what you're saying.

I'm saying we're working on the development of having dot net be in our network.

Dot net capability be in our network.

We are working closely with Microsoft as we do this.

And that will be available for customer beta testing capabilities in the second half of this year.

OK.

And just one more question here.

The IBM relationship did you touch on that at all?

We commented that we continue to work closely with them.

They are one of our top resellers and they are a very important technology partner with WebSphere in the network.

And now we're working with their solutions group on how we leverage both WebSphere and our platform.

In other words, where is the beef for the customer?

Well, it's in the application.

Or if it's a case of multiple components, it's in the solution that causes something good to happen for the customer and we're working with them now on supporting their solutions and application initiatives.

Are you guys creating any particular product that's specifically for you, or is it oral all linked to WebSphere and their product?

Is there something that you're creating together with IBM, a new product?

I wouldn't think of it that way so much as I would think that you are correct.

Most of these solutions are linked to WebSphere, but there is the opportunity to put third party software into our platform so that it links to an IBM solution set or someone else's customer's solution ever more effectively.

For example scene 7, which is used by retailers for dynamic imaging.

You know, an unlimited image variations.

It's pretty exciting soft wear, but that's very helpful for merchandising a product.

And so the opportunity to have that ready to go in our network, just facilitates a customer's adoption of a solution.

And if IBM brings it to them, terrific.

Sounds good, guys.

Thanks.

Your next question comes from the line of Phil Zucci with Zebra Fund.

Could you give us a flavor -- I understand you're not going to break out the specific numbers but give us a flavor of how much of the revenues are coming from this software application, the content management as opposed to just what people typically refer to as bandwidth reselling kind of thing.

Well we don't do dumb bandwidth reselling.

I'm not sure I can find a better, you know, better way better word to ask it.

We talked last year about having evolved from our original Free Flow services to more than half of our business and then well more than half of our business to being edge Suite and advanced services beyond that.

And the point when we made that transition from the traditional content delivery to edge Suite and advanced services, we just said this is our business and we're not going to break it out separately any more.

So I think that should stand.

We passed, you know, crossed that river last year and really haven't looked back.

And have been pushing advanced services in the market which is why you see us continue to get more customers and incredible brands using our platform because we're not bringing them some secondary replacement as you might have described it.

We're really bringing them great technology of value.

OK.

Thank you very much.

Great job.

Your next question comes from the line of George Appliard (ph) with Appliard Investment (ph).

Yes, good afternoon.

Thank you for taking my call.

Congratulations on a very solid quarter.

May I ask you just as a general consensus, as your feeling, take us one year back and to what is happening right now?

Are you much more clearer on what you think will be happening in the next year?

Because I believe last year at this time, you know, things were not as certain.

Just a general feeling of anything that the Akamai brand is being perceived and the necessity of it is become more and more necessary for the companies out there?

Or do you feel you are already beginning to hit some kind of wall with, you know, the second coming of this quote-unquote Internet boom.

I'll hold on for your answer.

We absolutely don't think we're hitting any wall.

That's for sure.

In fact I think we're only at the beginning of all of this.

This is not the Internet bubble redoes.

It's growing in every capacity, led by real companies with real business models.

In fact, they are building now their new applications around Internet based business models that work.

And what we offer them is the increased confidence to move these mission-critical applications onto the Internet to gain advantage of the Internet's inherent characteristics.

And I think that what we're going to see is a lot of activity over the next two or three years.

And we're going to see who the winners and losers are of businesses using the Internet and they will be judged in part by how well they recognize the fast growing potential of the Internet to grow their revenue and save on costs.

Akamai makes that possible for them.

The fundamental Internet does not.

It is not predictable, scalable and secure.

We make it predictable, scalable and secure, and we do it at less cost.

Less total cost of ownership.

And even more importantly now, with the kind of applications that customers are developing, we do it on-demand.

And on-demand is really an important point.

Because fixed asset deployment is no longer the inhibitor.

And as I mentioned earlier, companies have the freedom to innovate.

They can experiment with new marketing campaigns, deploy it quickly.

It improves their time to market, if they get definite capital savings over fixed asset infrastructure and the eliminate the issues with capacity planning.

So I think that with the growing adoption of the Internet by both our customers, the businesses, their willingness to commit applications to the Internet, the growing adoption by end users, you know, broadband now increasing in the home and the focused capabilities that Akamai brings, I think we really understand what businesses need and we've got great roadmaps, you know, in terms of additional capability that we're always working on.

I think we're in the sweet spot of this.

And I don't think at this time it's a bubble.

I don't think it's going away.

I think the Internet is growing traction as a viable business tool, just like the computer did 40 years ago.

And I think it's real.

I see.

One quick follow-up.

Two part on that follow-up.

Number one, do you see your services being marketed more and more outside of the United States, meaning going to places as far as let's say China, Japan and customers out there?

And the other follow-up, is it your shall we say way of showing to the owners of your company that is the shareholders and investors, the fact that you have not been, you know, the insiders have not been selling the stock on this quote-unquote second run up of this again Internet moment, the fact that you guys very strongly believe in the company and you only feel this is, as you just said, this is just the beginning?

So I'll thank you very much for making my call and I'll now listen to your answers.

Well, we definitely consider this a great investment.

There's no question about it.

And the insiders hold significant shares of stock from myself right on down to every employee.

And everybody's situation is different.

But the general idea here is this is a grade investment and we're not interested in selling our stock.

I'll tell you that.

In terms of international sales, as we commented, they are growing.

They are now 27% of our -- I'm sorry, 19% of our revenues and growing and resellers was 27%.

They are 19% of our revenues in growing.

We have operations in Europe with offices in Munich and Paris and London.

We have operations in Asia with offices in Japan and Australia and Singapore.

And we certainly work with resellers who actually reach all over the world, Telefonica in both Europe and Latin America and others that reach into the other Asian countries.

So international is definitely important to us, although I must say that our major concentration has been in the United States.

And I think, in terms of the magnitude of our revenues will continue to be US based for sometime.

Great.

Again, congratulations on a wonderful quarter and we'll look forward to more good news in the next one.

All right.

Thank you so much everybody.

I think that was the last question.

We just wish you well.

Thank you so much.

Bye, bye.