Q1 2023 Akamai Technologies Inc Earnings Call

Good day and welcome to the Akamai technologies first quarter 2023 earnings Conference call.

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I would now like to turn the conference over to Tom Barth head of Investor Relations. Please go ahead. Thank you. Good afternoon, everyone and thank you for joining Akamai is first quarter 2023 earnings call speaking today will be Tom Leighton Akamai, Chief Executive Officer, and Ed Mcgowan Akamai as Chief Financial Officer.

Please note that today's comments include forward looking statements, including statements regarding revenue and earnings guidance. These forward looking.

<unk> 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. The factors include any impact from macro economic trends the integration of any acquisitions and any impact from geopolitical developments.

Additional information concerning these factors is contained in Akamai 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 May nine 2000, and twenty-three akamai disclaims any obligation to update these statements to reflect new information future events or circumstances, except as required by law.

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 financial portion of the Investor Relations section of Akamai Dot com and with that let me turn the call over to Tom.

Thanks, Tom and thank you all for joining us today.

We used to report that despite the challenging macroeconomic environment Akamai delivered strong results in the first quarter with both revenue and earnings exceeding the high end of our guidance range.

Revenue grew to $916 million and non-GAAP operating margin expanded to 29% in Q1.

non-GAAP earnings per share was $1 40.

And what has been a good start to the year for Akamai. We've continued to invest in the key areas that we expect to drive our future growth. While also taking actions to improve margins as Ed will explain in his portion of the call. We remain focused on returning to our operating margin target of at least 30% as we work to accelerate growth.

I will now say a few words about each of our three main product areas starting with security.

For the first time and Akamai is 25 year history security represented the largest share of Akamai revenue in Q1. This marks a significant milestone for akamai since our expansion into security a decade ago.

We take pride in this achievement, we're focused on accelerating our security revenue growth rate from here, both organically and through disciplined M&A.

For example, this past week, we closed our acquisition of Neo Sac, which complements akamai has market, leading app in API security portfolio by extending our capabilities in the rapidly growing API security market.

Last year saw a record number of web app and API attacks more than double the number in 2020 one.

The rapid rise in API attacks is becoming a critical challenge for enterprises across all verticals with IDC and Gartner now projecting the API security market to exceed $1 billion by 2027.

The company, we acquired Neo Sac is a powerful SaaS security platform that Leverages AI based behavioral analytics unmatched visibility and threat hunting capabilities to discover a P is analyze their behavior identify vulnerabilities and help customers defend against attacks.

We plan to take <unk> to market immediately while our combined teams work together on product innovation with the majority of its engineers located in Tel Aviv, where we already have a significant security engineering presence, we expect <unk> will be an excellent fit with our culture and like our Garda core acquisition, we can.

Sell neo sector customers that don't use our CDN.

Speaking of Garda Court, our segmentation solution to protect against Ransomware continued to achieve strong traction with new customers in Q1, including with one of the largest banking groups in Europe and one of the largest airlines in the U K.

We're also continuing our organic investment in innovative new products to help protect major enterprises.

For example at the RSA conference two weeks ago, our new brand protector solution was named one of the 20 hottest security products by E. R. M.

Another trade publication C. S O listed both brand protector and our new Prolexic network cloud firewall among the most interesting products to see at RSA. This year.

At RSA. We also featured our new managed security service called Akamai Hunt aka.

Akamai agent list segmentation and multiple enhancements to our market, leading bot management solution.

In addition to our investments in new products, we're focused on accelerating security growth by winning new customers and expanding our relationships with existing customers.

For example, one of the biggest security threats and the news last quarter was killed nets coordinated series of Ddos attacks against some of the top medical centers in the U S.

In response, a very prominent health care institutions adopted Akamai has industry, leading solution for Ddos protection in.

In recognition of the value Akamai provides the CIO of a world famous clinic emailed us afterward, thinking akamai for enabling him to sleep well at night.

We're also making good progress on the cloud computing front last.

Last quarter, we acquired the cloud storage company on that.

Storage is a key component of cloud computing, and we expect that on that technology and considerable expertise will further enhance our enterprise grade storage solution for Akamai connected cloud.

Akamai intends to offer the worlds most distributed platform, placing compute storage databases and other cloud services closer to end users and enterprise data centers as.

As a result, we believe that akamai will be able to offer our customers better performance more points of presence and lower cost for many mission critical enterprise workloads. That's the fundamental difference in our approach compared to other providers.

We already have partners working with Akamai to run globally distributed databases with very low latency for synchronization, we have partners utilizing our cloud platform to provide customers with real time visibility into telemetry from their end users around the world.

We're working with customers in E Commerce travel hospitality software as a service media and entertainment to improve their ability to personalize experiences monetize content accelerate data processing facilitate collaboration simplify management improved performance in <unk>.

Reduced costs in some cases by large amounts.

And we're having early discussions about potentially leveraging akamai connected cloud for AI inference engines.

Each of these use cases plays to Akamai has advantage in terms of numbers of Pops global reach performance and cost.

Another advantage that we hear repeatedly from customers, including those I met with last month at D. N. A big conference is that they trust us they.

They value the years of highly reliable service that we provided in delivery and security and they trust us not to use their data to compete with them.

I will now say a few words about our delivery business, which experienced an encouraging uptick in traffic growth late in Q1.

Akamai continues to be the market leader in delivery, providing industry, leading performance and scale as we continue to support the world's top brands by delivering reliable secure and near flawless online experiences.

And we continue to see a strong synergy between our delivery business and our security and compute offerings, especially for customers in the gaming media and commerce verticals. The synergy is both on the topline as long time delivery customers by our security and compute products.

And also on the bottom line as we realize the cost benefits of using a single infrastructure can provide security and compute services as well as delivery.

We plan to pass some of the cost savings onto our customers, which is especially valuable for customers, who are paying exorbitant egress fees to the hyperscale ours to access or move their data.

The synergy of having a single cloud platform will also help us in our ongoing effort to improve profitability not only can we leverage existing infrastructure, but we can also leverage existing talent as we shift resources and focus from delivery to compute.

As Ed will explain shortly we're very focused on managing costs and deploying resources, where they generate the best long term returns as one part of this effort we plan to reduce our worldwide workforce by a little less than 3%. This quarter. This was a difficult decision, but it was necessary for us to prioritize investment.

And the areas with the greatest potential for future growth as we strive to deliver greater value for shareholders.

I'd like to take this opportunity to thank all of our employees for their hard work on behalf of our customers and shareholders.

Our developers and engineers, who build and operate the services that power and protect life online too.

Two our sales services and marketing teams, who do such a great job, helping our customers in this challenging environment.

And our back office and administrative support teams, who help make akamai be such a great place to work.

It really is a privilege for me to be able to work with such an outstanding group of people as we make life better for billions of people billions of times a day.

While this is a time of substantial macroeconomic uncertainty I believe that it is also a time of great future opportunity for Akamai as we bring new security and compute capabilities to market and as we deploy akamai connected cloud.

As you May know I continued to be a personal buyer of Akamai stock under the 10 B five one plan that I filed last year and I'm pleased to let you know that akamai repurchased four 6 million shares of Akamai stock in Q1 for a total of $349 million.

Now I'll turn the call over to Ed for more on our Q1 results and our outlook for Q2 and the full year.

Ed.

Thank you Tom today I plan to review, our Q1 results and provide some color on Q2, and our updated full year 2023 guidance, where we increased our expectations for revenue non-GAAP operating margin and <unk>.

non-GAAP EPS, while decreasing our planned capex spend for the year.

We were very pleased with our strong Q1 results in light of the continued difficult macroeconomic landscape.

Total revenue for the first quarter was $916 million up 1% year over year and 4% in constant currency.

Security revenue was $406 million and is now our largest business representing 44% of total revenue in the first quarter security revenue grew 6% year over year and 9% in constant currency.

As a reminder, last year, we had roughly $7 million of upfront license revenue in Q1, if you normalize for this one time impact the security growth rate would have been approximately 11% in constant currency.

Finally, I was also pleased to see we had a very strong bookings quarter in security specifically with our guard of course segmentation and WAF solutions.

Moving onto compute.

Revenue was $116 million growing 49% year over year as reported and 51% in constant currency on a combined basis, our security and compute product lines represented 57% of total revenue growing 13% year over year and 16% in constant currency.

Now I want to delivery revenue was $394 million, which declined 11% year over year and 9% in constant currency delivery.

Continues to provide strategic value and its customer base and generate strong cash flows.

I'm optimistic about improving traffic volumes over the past two months into a lesser extent, a slightly better pricing dynamics, we've recently seen in the market.

International revenue was $442 million up 5% year over year, and 9% in constant currency, representing 48% of total revenue in Q1.

Foreign exchange fluctuations had a positive impact on revenue of $11 million on a sequential basis, and a negative $21 million impact on a year over year basis.

non-GAAP net income was $218 million for $1.40 of earnings per diluted share up 1% year over year.

And 4% in constant currency and six cents above the high end of our guidance range.

Turning now to margins our non-GAAP operating margin in Q1 was 29%.

This was slightly above our plan, primarily due to higher than expected revenue and continued focus on operational efficiencies.

During the first quarter, we recorded a $45 million restructuring charge, primarily related to severance costs, along with facility related charges as we continue to reduce our real estate footprint.

The impact of these charges have been incorporated into our second quarter and full year 2023 guidance. In addition to these specific actions. We also continue to be very focused on cost savings initiatives. I described last quarter, which include third party cloud savings continued real estate rationalization depreciation expense.

Other operating costs associated with lower capex related to our delivery business discipline spending with vendors and tighter travel and expense policy management.

Pleased with our progress on these initiatives, which helped drive improvements to our margins in Q1 compared to our expectations coming into the year.

Moving now to cash and our use of capital.

As of March 31st our cash cash equivalents marketable securities totaled approximately $1 $1 billion during.

During the first quarter, we expect approximately $349 million to repurchase approximately $4 6 million shares.

We now have just under $850 million remaining on our previously announced buyback authorization.

In addition to being aggressive with our buyback program. We have made two acquisitions since our last earnings call that will help drive revenue growth with on that in the first quarter <unk> in the second quarter we.

We believe this demonstrates our continued balanced approach to capital allocation opportunistically buying back shares to offset dilution from employee equity programs over time, while maintaining sufficient capital to deploy with strategic M&A presents itself.

Before I provide our Q2 and full year 2023 guidance I want to touch on some housekeeping items.

Regarding our two acquisitions, while neither was material to revenue both are expected to be dilutive to non-GAAP EPS in 2023 with <unk> dilutive by two to four cents in Neo sect dilutive by four to six cents finally, as as you build out your models I'd like to remind you our annual merit based wage increases become effective.

In Q3.

From a seasonality perspective, Q4 is typically our strongest financial performance quarter in.

And the guidance I will provide assumes no change good or bad to the current macroeconomic environment.

So those factors in mind, turning to our Q2 guidance. We are now projecting revenue in the range of $923 million to $937 million.

Up 2% to 4% as reported and 3% to 4% in constant currency over Q2 2022.

At current spot rates foreign exchange fluctuations are expected to have a positive $2 million impact on Q2 revenue compared to Q1 levels and a negative $3 million impact year over year.

These revenue levels, we expect cash gross margins of approximately 73%.

Q2, non-GAAP operating expenses are projected to be $300 million to $305 million, we expect Q2 EBITDA margins of approximately 41%.

We expect non-GAAP depreciation expense to be between $116 million to $118 million.

And we expect non-GAAP operating margin of approximately 28, 5% for Q2.

Moving on to Capex, we expect to spend approximately $195 million to $202 million, excluding equity compensation and capitalized interest in the second quarter.

This represents approximately 21% to 22% of our projected total revenue.

Based on our expectations for revenue and cost we expect Q2 non-GAAP EPS in the range of $1.38 to $1.42. This EPS guidance assumes taxes of $45 million to $47 million based on an estimated quarterly non-GAAP tax rate of approximately 17 and a half to 18.

Percent. It also reflects a fully diluted share count of approximately 153 million shares.

Looking ahead to the full year, we now expect revenue of 3.740 to $3 $75 billion, which was up 3% to 5% year over year as reported and in constant currency.

At current spot rates, our guidance assumes foreign exchange fluctuations will have a positive 3 million dollar impact on revenue in 2023 on a year over year basis.

Continue to expect security revenue growth to be in the low double digits for the full year 2023, and we continue to expect to achieve approximately a half a billion dollars in revenue from compute in 2023.

We are estimating non-GAAP operating margin of approximately 28% to 29%.

And we now estimate non-GAAP earnings per diluted share of $5.69 to $5.84 or non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 17.5% to 18% and a fully diluted share count of approximately 153 million shares.

Finally, our updated full year Capex is expected to be approximately 18, 5% to 19% of total revenue.

This capex is lower than our original expectations outlined last quarter due to strong pricing negotiations, resulting in better than anticipated server pricing along with improved efficiencies integrating lienau with akamai as existing supply chain earlier than expected.

Closing, we are very pleased with the strong start to 2023, and we look forward to your questions operator.

Thank you we will now begin the question and answer session.

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Today's first question comes from Keith Weiss with Morgan Stanley . Please go ahead.

Excellent. Thank you guys for taking the question and nice quarter.

Maybe like one topline bottomline question on on the top line side of the equation.

You talk to your strong bookings performance in the quarter, particularly with Garda core is that a broader security kind of commentary and it may be part of what's kind of sustain kind of your confidence in the double digit growth throughout the year, perhaps maybe even sort of can we see some acceleration on a go forward basis based upon that bookings so wanted.

Kind of like a perspective on real time, what's going on in security and then on the better operating margins on a go forward basis could you give us some sense of where the head count reductions are coming from in that 3% head count reduction and when we think about the better.

Better margins that you guys are projecting how much of that comes from.

This recent round of headcount reductions how much is just better opex controls that you guys exhibited thus far in the year. Thank.

Great I'll take a first pass at these then turn it over to Ed and I'll get into more of the details yeah. We saw strong bookings in security across the board you know it is a challenging environment out there for sure.

Especially with commits on larger deals on the other hand, we do see a little bit of a silver lining, especially in the financial vertical which is large for us.

With everything that's gone on in the banking sector.

There is more concern than ever around security and reliability and I think the last thing a major financial institution wants to see is some kind of problem now.

Our age or some kind of half be successful and I think that helps US you know akamai is widely recognized as the best when it comes to reliability and in terms of security and so I think that is also helping us, especially vis vis the competition.

We're also pretty excited about you know neo stack a lot of very positive conversations early on with customers on top of Garda core and of course, the whole suite of security products.

In terms of margins.

The focus of the reduction enforce our on the go to market side. It was really in the management layers and so that we can actually get more feet on the street and services. We can get more people you know, helping our customers, particularly in the areas of expertise where security and compete.

And in some cases in geographies that we feel are uncapped in net we can we can you know get more leverage.

And I think probably I'll turn it over to Ed now in terms of you know how this shapes up with all the other things we're doing to improve operational efficiency.

Yeah. So we talked about taking a restructuring charge about half of that was.

Related to that the head count savings and then the other half was roughly half was related to real estate in terms of thinking about the head count savings you know our payroll is a little over $1 billion, we reduced a little less than 3%. So on an annualized basis think of that as kind of in the $40 million range give or take we'll get about three quarters of the benefit of that this year in terms of.

The real estate.

We probably saved about 25% to 30% of our current spend more to go there I expect we can reduce that probably by a similar amount.

Next year the.

Big savings to come is going to be in third party cloud, we did see a reduction this quarter, which was nice we reduced our spend as we start to optimize and start to move some things over but that's a that's a big one that's about 100 million and total spend or a little bit more and we'll start to see that benefit next year, a little bit more this year, but mostly.

Into next year and into 2025.

Teams doing a great job with vendor management, including <unk>.

Being able to engineer out certain functions that we may be using a third party for.

So I would say, it's a combination of things, but just to sort of put it in perspective that that head count savings is call. It roughly a little over a point of margin on an annualized basis that also gives you give I'm, giving you that sort of kind of run rate payroll number will give you the math necessary to.

Build your models to factor in that annual increase that we give every year in the third quarter.

Also as we talked about.

In terms of the reductions obviously, we're directing a lot of resources that were on the delivery side of the house in the compute and that in many cases is the same person changing what they're doing but also in this reduction that we're taking and you'll see that effect as well.

Got it and just to be clear the lower capex intensity. It sounds like that's more efficient sourcing not any change in the scope of build out that you guys are expecting for the cloud side of the business.

Yeah. So the way to think about that I keep this to two things one we were able to benefit pretty significantly actually with the pricing reductions in the server pricing. My understanding is that's somewhat of an industry phenomenon, but also just given our buying power.

A big chunk of that decline in Capex was related to that the other thing that I.

I find pretty exciting is we.

<unk> when we.

Sort of built the models that we'd be able to integrate with our supply chain too.

The really tight with our demand and build meaning not having to overbuild.

For demand, we've been able to knock down the time that it takes for us to deploy so the initial builds that we're building out we'd be a little bit smaller than we originally anticipated because we expected a longer lead time with our supply chain. So don't know that we've been able to shrink that down we can tighten that up a bit. So those are really the main factors a little bit of a push in terms of a cup.

Sites that were pushed into 'twenty four but those two factors were pretty significant and we're very happy that we're able to deliver that this quickly.

Excellent that's super helpful guys. Thank you.

Thank you and our next question today comes from James Fish with Piper Sandler. Please go ahead.

Okay got it thanks for the question here wanting to build off of keep a little bit. We are now now that you've rolled out your objectives for 'twenty to 'twenty three here.

How are you thinking about not just the capex intensity for this year as you're starting to see you kind of get the savings greater than you expected.

The right way to think about next year's capital spending.

And I think Tom you actually had alluded to getting to that long term 30%.

An update on the on the pipe.

<unk>.

Yeah, Let me take a first pass at this up you know this year is when we're doing the initial build out for our compute and are obviously very substantial and future years will depend on how fast we sell the capacity that we're building out now and so if we're able.

To sell that quickly then there would be more capex spend next year. If it takes us longer to fill that capacity. Then you would see capex be much less next year. So it really depends on how rapidly we get uptake on the initial build out that we're doing.

And on the 30%, where we're not issuing you know a specific timeline there.

But obviously you know, we're having I think really good success in our efficiency.

And we're taking actions to improve margins and so we'd like to get back to 30 and beyond you know and just as quickly as we can.

Subject to making the investments for future growth and I'm very optimistic about our ability to do that.

Ed was there something you'd like to add there.

No I think that covered a ton.

Great.

Follow up on the security side as well.

It sounds like you guys are pointing to this being the trough.

Growth.

About network security offerings in particular, including the Zero Trust overall portfolio not just cloud before how do you feel about your go to market or your go to market is alive for selling these types of solution. That's time to go through indirect sources that really aren't MSP, but you guys have historically done windup with thanks guys.

Yeah, I do think we should see improvement in security growth from here.

And particularly now that we're adding API security into the mix.

I think the channel is really important.

And it's something we're putting a lot of effort into it, especially on the enterprise security side.

Example of article or is all through the channel are very successful partnerships and if something will be focused on where the API security as well.

Thank you and our.

Our next question today comes from Jonathan Ho with William Blair. Please go ahead.

Yeah.

Hi, there I just wanted to understand a little bit better about maybe your confidence level around the macro environment, what you're seeing out there and you know why you're not potentially taking a more conservative stance. I think you said that you expected macro to remain consistent.

Well you know I.

I think our guidance does reflect our you know the current situation and our view, we're not assuming that the macro environment will improve.

And so I do think we are taking a reasonably conservative view going forward. We are very happy with the strong start to the year on several fronts as we talked about and would you like to say a little bit more about that.

Yeah sure I mean in terms of some of the negatives that we're seeing obviously sales cycles are a little bit longer.

We are seeing difficulty with adding new customers with the exception of Garlic War you know Tom alluded to the fact that fabric were brought up pretty good channel.

The organisation with them and we're seeing pretty good new logo acquisition. There. So that's probably the exception to that rule.

We're seeing some pricing pressure from some verticals, where we are seeing I mentioned better pricing environment for some of the higher media delivery business.

Inflation, obviously causes some challenges we've seen some bankruptcies in the retail space and a couple in the financial services nothing that's overly material and as I said, we're not anticipating things do get worse, if things do get worse potentially we'd see a little bit more of that on the on the pro side.

So we are seeing lower turnover of employees faster time to hire.

There isn't much of a surprise with rates going up and we have cash interest rates are better for us from a reinvestment perspective, the dollars slightly weaker let me as the dollar gets weaker that helps our our benefits and then also just from a vendor side just continued focus on pushing.

Pushing vendors for a better pricing and things like that so it's a mixed environment, obviously, a challenging environment I think we're navigating through it pretty well and.

We've built in what we thought we could could achieve based on what we see today.

You know.

On the silver lining side Ah.

As we get our compute offering are prepared to take on major mission critical enterprise workloads.

Traffic growth take a hit part because of the economy as a whole apart because of the war in Ukraine and now we're laughing that and so when you look at the year over year rates. Indeed, they did start improving in March and so were optimistic about that and <unk>.

To see that be more sustainable just because you have a more reasonable compare and did you want to add more color on them.

Yeah. The only thing I would add I did touch a little bit on just slightly better pricing environment, which makes sense given the the volume there's still not back to pre pandemic level better than what we saw last year also we've seen in some account some larger account some vendor consolidation and we've been a benefactor of that which makes sense you know some customers.

Will have four five C. D N. So can we get to be pretty expensive, sometimes they build up teams they have.

Technology, they used for load balancing and things like that so as they consolidate thunders and a lot of us have volume based tiered pricing. So you can take advantage of lower unit economics as you consolidate too.

One or two vendors. So that's been a positive trend for US is another reason why we've seen a little bit of an uptick in traffic.

Thank you.

Thank you and our next question comes from Frank qualify him with Raymond James. Please go ahead.

Hey, guys. This is Rob one for Frank So who do you run into in the marketplace now for compute specifically and how would you guys evaluate the outlook for that business in particular going forward and what's driving that outlook primarily.

Ah, yes, the Hyperscalers and also do it yourself and I think the outlook for US is positive you know, we're not trying to take 30 per cent market share. It. So it gets 100 200 billion dollar market, but we do think we can be very competitive for certain kinds of applications, particularly.

You know the Vert calls, where we do a lot of business you know the media vertical Entertainment. Obviously, you know video gaming Commerce, and that's because you know those customers. They know us they like us they use us for the delivery insecurity and I think we're in a position to offer them a very compelling.

Capability in terms of better performance in a lower price point.

So we'll see you know, but Ah so far I think we're we're very pleased with what we've been hearing for customers, making good progress getting are connected cloud platform built out upgrading lienau to really take on large scale mission critical enterprise workloads.

Great. Thank you.

Thank you and our next question comes from him Rudy <unk> <unk>. Please go ahead.

Hey, great. Thanks for taking my questions guys just want double click maybe on security Guard Accord 7 billion a license revenue to one last year was there any license revenue for guard. According this Q1 this year.

Yeah, no nothing material no.

[noise] yeah, Okay got it and.

Then maybe just to follow up on delivery certainly stronger revenue performance and we expected is there I guess is there anything in the quarter you talked about maybe some customers consolidating from four five vendors made the three anything in particular in the quarter that would give you hopes that delivery, maybe you could potentially turn that back.

To I Dunno say, it flat or maybe only three five per cent decline in business as opposed to a 10% decline in business as we've seen over the last few quarters.

Yeah, you know I I. It's obviously continue traffic rose I think if we get back to kind of pre pandemic levels. That's certainly going to help you know we've done a pretty good job on pricing, especially with the larger.

Customers you know in the in the old web vertical, especially commerce, we're still seeing some pricing pressure. There. So really it's a combination, but I'd say that the stronger traffic Roses is gonna be the the main thing.

We get into Q3, two two and Q3, we've got slightly excuse me <unk>.

Recall last year, we had significant renewals in our top 10.

You know we have renewals all the time, but that was an unusual year for that so you know the double digit declines I wouldn't expect that you know certainly next quarter or the quarter. After that in a few four is always the toughest quarter to call, but you know things will get should get a little bit better from a year over year compare standpoint, but in terms of getting to put a flat or even.

Plus or minus a point, you're gonna need to see a stronger traffic growth and what we're seeing now.

Got it fair enough. Thank you.

Thank you and our next question comes from I'm ready Mcdonough with Guggenheim. Please go ahead.

Great. Thanks for taking the the questions Tom maybe first for you. Another question around security go to market I know you touched on the focus on on the channel, but you did mention you were also redeploying go to market resources within the security group as well can you talk more specifically to the changes made in that organization and is there any early.

Results to point to from those changes that give you confidence that you will be able to reaccelerate <unk> and the rest of 2023.

Well, we're we're just taking the actions you know as we speak so nothing test to see directly from that yet I would say there in three areas. One is less investment and management and more in Saint feet on the street. The next would be you know more.

Focus on security and compute and getting the right expertise in front of the customer and that would be both in pre sales and also in our services and then the third is a shift in resources to some of the I would say under tapped Geography's, where we think there.

A potential for a lot of gross so I think all three are you know very helpful. And then of course channels, particularly for our enterprise security solutions, where that's I think it must be a better way of doing it you know for our established Webapp firewall, we do have a significant channels presence.

But also a significant direct presence and you know we you know expect to start seeing the benefits here towards the end of the year as we hire the the new resources in these areas.

That makes sense and then maybe just a follow up for you on <unk> I believe you you've kind of outlined an expansion of 14 court data centers by the end of the year and 50 distributed sites I. I believe you know is that still the case and and maybe just following up on on one of your comments earlier, if you talk about how much smaller the <unk>.

Q for prints are this year, if it's a magnitude of size and how comfortable you feel in terms of the lead times to add capacity, if the macro environment or or demand turns more quickly than you expect.

Yeah. When I started the last part first so in terms of the timing you know I I think we've got it down to probably 60 to 90 days. We think we can add capacity pretty quickly. We're building up you know working with our suppliers. We've had longterm relationships structuring deals with them to be able to very quickly get our hands on on equipment and building up some inventory and that sort of thing.

<unk>, so we feel pretty good about that so I think you know and also you know these sales cycles are not immediate right. So there's usually a trial period and that sort of thing you know you're starting with the conversations now so it's not like C. D N, where you can shift overnight and just move traffic you know within within a day or two so we will have a good good lead.

Times there in terms of the actual size I, just say, they're they're small I don't have a specific number to throw out we're on track to deliver all of our core sites. There's a couple of coming online two two and a bunch of coming online in Q3, no change there as far as the distributed sites, we will be building up a bunch of those I don't have an updated figure for you some of them.

<unk> pushed those are much smaller in terms of of Capex.

So that really doesn't have a major impact on capex. Each one of those sites are a relatively smaller so it's not gonna have a material impact but in terms of what we're seeing with the supply chain, we feel pretty good we've done a lot of work right that's off to the team within a fantastic job working with our suppliers to be able to really tightened things up and you can see that in the updated guy.

<unk>.

Great appreciate the color.

Alright next question today comes from <unk> with Evercore. Please go ahead.

Hi, This is lauren on for on that so just to kind of double click into buybacks and how you guys are thinking about the second half of the year after a fairly aggressive uhm first quarter that'd be great.

Yeah, our policy and strategy really hasn't changed you know and that includes there's times when we do buy back more shares in or needed to offset dilution from employee equity programs I and those are opportunistic and and <unk>.

Two one we felt there was a substantial opportunity to buy back you know more than usual allotment and of course, we have a programmatic buybacks that buys back more when the stock prices lower and buys backlash when the stock prices higher and so when the stock goes lower the programmatic or automatic by.

<unk> also increases sandwich as you know the stock price was lower through a lot of Q1. So there's really no fundamental change in strategy you know prior to this year over the last 10 years, we fought back and extra per cent a year over and above the equity program dilution all set obviously <unk>.

One was more than that you know, but so there's not a specific change in strategy that would say, we're gonna buy back what we did in Q1 every quarter. So no change in strategy.

Got it thank you.

Thank you and our next question today comes from work Murphy, if anything more.

Please go ahead.

Hi, This is Cameron tiller on for Mark Murphy, Thanks for taking the call and congrats on the corner maybe.

Maybe just an compute I think in the past you've mentioned that for no. It hasn't faced the same optimization headlines that the hyperscalers have I'm curious if anything's changed on that correct.

As in face what headwinds.

Sorry, the same optimization headwinds that the hyperscalers I've been calling out the last few quarters.

Yeah, I think little note is really in a very traditional load a note in a very different market and much more affordable.

And it really not servicing the major enterprises major enterprises at least the customers that we talk to are very worried about their rapidly growing cloud costs and that's something that you know I think we're in a position to help them with as we get our infrastructure built out and get it ready to take on mission critical.

Workloads.

Great. Thank you so much for that additional color all of them leave it there that's back to the operator.

Thank you and what is it that when we have no further questions at this time.

Okay, well. Thank you operator, and thank you everyone and closing will be presenting at several investor conferences and roadshows throughout the rest of the second order details of these can be found in the Investor Relations section Bachmeier Dot com. Thank you for joining us and all of US here at Akamai wish continued good health to you and yours have a nice evening.

Thank you. So this this gentleman is conclusive conference calls and we thank you all for your time in today's presentation. You may notice furniture arrived from have a wonderful day.