Q3 2023 Akamai Technologies Inc Earnings Call

Speaker 1: Thank you for holding everyone. The conference will begin in just some minutes. Please continue to hold. Still?

Thank you for holding everyone. The conference we'll begin in just some please continue to hold.

[music].

Speaker 2: Good afternoon, and welcome to the Akamai Technology 3rd Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Good afternoon, and welcome to the Akamai technologies third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pricing. That's our key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Speaker 2: After today's presentation, there will be an opportunity to ask questions.

Speaker 2: To ask a question you may press star then one on your touch tone sound.

To ask a question you May Press Star then one on your Touchtone phone.

Speaker 2: To withdraw from the question queue, please press star then to. Please note this event is being recorded. I would now like to turn the conference over to Tom Barth, Head of Investor Relations.

Withdraw it from the question queue. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Tom Barth head of Investor Relations. Please go ahead.

Speaker 3: Thank you, operator. Good afternoon, everyone. And thank you for joining Occamized Third Quarter, 2023 Earnings Call. Speaking today will be Tom Layton, Occamized Chief Executive Officer, and Ed McGowan, Occamized Chief Financial Officer.

Thank you operator, good afternoon, everyone and thank you for joining Akamai third quarter 2000, and twenty-three earnings call speaking today will be Tom Leighton Akamai, Chief Executive Officer, and Ed Mcgowan Akamai Chief Financial Officer. Please note that today's comments include forward looking statements, including statements regarding revenue and.

Speaker 3: Please note that today's comments include forward-looking statements, including statements regarding revenue and earnings guidance.

Earnings guidance.

Speaker 3: These forward-looking statements are subject to risk and uncertainties, and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements.

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. The factors include any impact from macroeconomic trends the integration of any acquisitions and any impact from geopolitical developments.

Speaker 3: The factors include any impact from macroeconomic trends, the integration of any acquisitions, and any impact from geopolitical development.

Speaker 3: Additional information concerning these factors is contained in the optimized filings with the SEC, including our annual report on Form 10K and quarterly reports on Form 10Q.

Additional information concerning these factors is contained in the Akamai filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q.

Speaker 3: The forward-looking statements included in this call represent the company's view on November 7, 2023.

The forward looking statements included in this call represent the company's view on November seven 2023.

Speaker 3: Akamai disclaims any obligation to update these statements to reflect new information, future events, or circumstances, except as required by law.

Akamai disclaims any obligation to update these statements to reflect new information future events or circumstances, except as required by law.

Speaker 3: As a reminder, we will be referring to some non- GAAP financial metrics during today's call. A detailed reconciliation of GAP and non-GAP metrics can be found under the financial portion of the Investor Relations section of Akmai.com. And with that, I'll turn the call over to Tom.

As a reminder, we'll 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 I'll turn the call over to Tom.

Speaker 4: Thanks Tom, and thank you all for joining us today. I'm pleased to report that Akamai delivered excellent results in the third quarter with revenue, operating margin, and earnings all exceeding the high end of our guidance range.

Thanks, Tom and thank you all for joining US today I'm pleased to report that Akamai delivered excellent results in the third quarter with revenue operating margin and earnings all exceeding the high end of our guidance range.

Speaker 4: revenue brewed to $965 million in Q3, up 9% year over year. Non-GAP operating margin was 31%. And non-GAP earnings per share was a dollar and 63 cents, up 29% year over year.

Revenue grew to $965 million in Q3 up 9% year over year non-GAAP operating margin was 31%.

non-GAAP earnings per share was a dollar at 63 cents up 29% year over year.

Speaker 4: Ed will cover the key factors that drove our bottom line performance in his portion of the call. I'll now say a few words about each of our three main product areas, starting with security, our largest source of revenue.

Ed will cover the key factors that drove our bottom line performance in his portion of the call.

I'll now say a few words about each of our three main product areas, starting with security our largest source of revenue.

Speaker 4: Security revenue grew 20% year over year in Q3.

Security revenue grew 20% year over year in Q3 the.

Speaker 4: The acceleration and security growth was driven in part by a specially strong demand for our market leading guard-acor segmentation solution. As enterprises confront the ever present threats from malware and especially ransomware.

The acceleration in security growth was driven in part by especially strong demand for our market leading guard of course segmentation solution as enterprises confront the ever present threat from malware and especially ransomware.

Speaker 4: C-SOs and corporate boards everywhere have seen the recent headlines about devastating ransomware attacks, including at two casino hotels in Las Vegas, a major manufacturer of cleaning products in the US, and had a multinational provider of systems for smart building.

Seafarers and corporate boards everywhere have seen the recent headlines about devastating ransomware attacks, including at two casino hotels in Las Vegas, a major manufacturer of cleaning products in the U S and had a multinational provider of systems for smart buildings.

Speaker 4: One of them reportedly paid $15 million to get ransomware out of their system.

One of them reportedly paid $15 million to get ransomware out of their systems.

Speaker 4: Another is reportedly spending $25 million to deal with the after effect.

Another is reportedly spending $25 million to deal with the after effects.

Speaker 4: And a third has reported more than $100 million in losses from the

The third has reported more than $100 million in losses from the attack.

Speaker 4: Customers who purchased our segmentation solution last quarter include a major global services provider, one of the world's most recognized entertainment brands, and a leading bank in Switzerland that renewed their segmentation protection with a significant upgrade.

Customers, who purchased our segmentation solution last quarter include a major global services provider one of the world's most recognized entertainment brands and a leading bank in Switzerland that renewed their segmentation protection with a significant upgrade.

Speaker 4: We also saw strong demand for our market leading web app firewall solutions in Q3, where we continue to win against competitors who are challenged to provide the levels of reliability and performance required by major enterprise.

We also saw strong demand for our market, leading web App firewall solutions in Q3, where we continue to win against competitors, who are challenged to provide the levels of reliability and performance required by major enterprises.

Speaker 4: Customers who switched to Okamai, including a nationwide retail chain in the US, and a leading global manufacturer based in India, also told us that our competitors simply can't provide the level of support and professional services that they need and have come to depend on from Okamai.

Customers, who switched to akamai, including a nationwide retail chain in the U S and a leading global manufacturer based in India also told us that our competitors simply can't provide the level of support and professional services that they need and have come to depend on from Akamai.

Speaker 4: Customers also value being able to purchase an entire suite of integrated security products from Akamai, a provider who they trust to keep them safe against a wide variety of attacks.

Customers also value being able to purchase an entire suite of integrated security products from Akamai, a provider, who they trust to keep them safe against a wide variety of attacks for.

Speaker 4: For example, we're seeing very strong interest in our new API security solution that we announced last quarter. This new product is in its very early days, but we've already integrated it with our market-leading web app firewall solution to make it even easier for customers to implement.

For example, we're seeing very strong interest in our new API security solution that we announced last quarter. This new product is in its very early days, but we've already integrated it with our market, leading web app firewall solution to make it even easier for customers to implement.

Speaker 4: At the Black Hat Security Conference last quarter, Akamai API Security was named one of the 20 hottest new cybersecurity tools by CRN, a major trade publication for channel reseller.

At the Black Hat Security conference last quarter Akamai API security was named one of the 20 hottest new cyber security tools by C. R. N a major trade publication for channel resellers.

Speaker 4: And as with Guardacore, you don't need to be a CDN customer to benefit from this new solution.

And as with Garda core you don't need to be a CDN customer to benefit from this new solution.

Speaker 4: Turning now to cloud computing, I'm pleased to say that we're on track with our product development, infrastructure deployment, and conversations with customers about use cases well suited for the Akamai Connected Cloud.

Turning now to cloud computing I'm pleased to say that we're on track with our product development infrastructure deployment and conversations with customers about use cases, well suited for the akamai connected cloud.

Speaker 4: Since our last call, we've gone live with seven more core compute regions in Amsterdam, Jakarta, Los Angeles, Miami, Milan, Osaka, and Sao Paolo.

Since our last call we've gone live with seven more core compute regions at Amsterdam, Jakarta, Los Angeles, Miami, Milan, Osaka and Sao Paolo.

Speaker 4: In addition to the six that we opened earlier this year, and the 11 that we acquired from the node, this brings our total to 24 core compute regions to serve Akamai Connected Cloud customers.

In addition to the six that we opened earlier this year and the 11 that we acquired from the node. This brings our total to 24 core compute regions to serve akamai connected cloud customers.

Speaker 4: Of course, there are other cloud companies with a few dozen data.

Of course, there are other cloud companies with a few dozen data centers, but akamai is unique in having these data centers interconnected to the world's most distributed edge platform.

Speaker 4: But Akamai is unique in having these data centers interconnected to the world's most distributed edge platform with more than 4100 points of presence across 750 cities and 130 countries.

With more than 4100 points of presence across 750 cities and 130 countries.

Speaker 4: As one trade pub, Block and Files, recently wrote, Akamai is focusing on a future where scale becomes more about the size of the network versus the size of its data centers, more effectively powering modern applications.

As one trade pub blocking files recently wrote.

Akamai is focusing on a future where scale becomes more about the size of the network versus the size of its data centers more effectively powering modern applications.

Speaker 4: We agree. Akamai's massively distributed edge network, 25 years in the making, and managed by Akamai's team of experts around the world, is a key differentiator in our strategy.

We agree.

Akamai has massively distributed edge network 25 years in the making and managed by Akamai team of experts around the world is a key differentiator in our strategy.

Speaker 4: We believe that next-generation applications will need next-generation cloud infrastructure, and we intend to chart the course for the next decade of cloud computing, when more of the compute will be done closer to the end user, and where we believe our platform will have an important edge over more centralized models.

We believe that next generation applications will need next generation cloud infrastructure and we intend to chart. The course for the next decade of cloud computing when more of the compute will be done closer to the end user and where we believe our platform will have an important edge over more centralized models.

Speaker 4: As IDC put it in July , Akamai brings the simplicity, affordability, and accessibility of its cloud computing services to larger commercial customers on an architecture built for the next decade, not the last.

As I D C put it in July Akamai brings the simplicity affordability and accessibility of its cloud computing services to larger commercial customers on an architecture built for the next decade not the last.

Speaker 4: The Akamai Connected Cloud will put containers and VMs closer to end users and bring enterprise workloads to locations around the world that are otherwise difficult for organizations to reach.

The akamai connected cloud will put containers and Vms closer to end users and bring enterprise workloads to locations around the world that are otherwise difficult for organizations to reach.

Speaker 4: Customers are responding to Akamai's unique offering. And we've already gained cloud computing business across multiple verticals in every major geography, including a European streaming media company, a digital advertising company in Japan, a large financial institution in Indonesia, an e-commerce platform in Korea, major carriers in EMEA in Central America, and a television network in South America.

Customers are responding to Akamai is unique offering and we've already gained cloud computing business across multiple verticals in every major geography, including a European streaming media company, a digital advertising company in Japan, a large financial institution in Indonesia and E Commerce.

Platform in Korea.

Major carriers in EMEA in Central America, and a television network in South America.

Speaker 4: In addition to direct sales, we're seeing good traction in our cloud computing partner ecosystem, where we're acquiring new customers by selling with cloud service providers and managed service providers.

In addition to direct sales, we're seeing good traction in our cloud computing partner ecosystem, where we're acquiring new customers by selling with cloud service providers and managed service providers. We've also partnered successfully with independent software vendors and SaaS and Paas providers.

Speaker 4: We've also partnered successfully with independent software vendors and SaaS and PaaS providers. In fact, we recently signed one of the world's best-known SaaS providers in our second-largest cloud computing deal since we acquired Lenovo.

We recently signed one of the world's best known SaaS providers, and our second largest cloud computing deal since we acquired Lenovo.

Speaker 4: Turning now to content delivery, I'm pleased to report that we saw an acceleration of traffic growth in Q3. In addition, we acquired enterprise customer contracts from StackPath and Lumen Technologies following their decisions to exit the CDN market.

Turning now to content delivery I'm pleased to report that we saw an acceleration of traffic growth. In Q3. In addition, we acquired enterprise customer contracts from stack path and lumen technologies following their decisions to exit the CDN market.

Speaker 4: As Ed will talk about shortly, the financial terms of the acquisitions were very attractive for Akamai shareholders.

As Ed will talk about shortly the financial terms of the acquisitions were very attractive for Akamai shareholders. In addition to the delivery business that we acquired were planning to introduce these customers to our full portfolio of security and cloud computing solutions to help them power and protect their businesses online.

Speaker 4: In addition to the delivery business that we acquired, we're planning to introduce these customers to our full portfolio of security and cloud computing solutions to help them power and protect their businesses online.

Speaker 4: In summary, we are very pleased by our performance in Q3. Our expanded security portfolio is deepening our relationships with customers.

In summary, we are very pleased by our performance in Q3, our expanded security portfolio is deepening our relationships with customers are cloud computing plans are executing on schedule and we continued to invest in akamai future growth, while also enhancing our profitability.

Speaker 4: Our cloud computing plans are executing on schedule, and we continue to invest in Akamai's future growth while also enhancing our profitability.

Speaker 4: Now I'll turn the call over to Ed for more on our Q3 results and our outlook for Q4 in the full year. Ed.

Now I'll turn the call over to Ed for more on our Q3 results and our outlook for Q4 and the full year.

Ed.

Speaker 5: Thank you, Tom. As Tom mentioned, Akamai delivered a strong and very profitable quarter in Q3.

Thank you Tom.

Tom mentioned Akamai delivered a strong and very profitable quarter in Q3.

Speaker 5: In my remarks today, I'll cover our Q3 results and then provide some perspective on Q4, share some details on our recent customer contract acquisitions and close with our increased full year 2023 guide.

In my remarks today I'll cover our Q3 results and then provide some perspective on Q4 share some details on our recent customer contract acquisitions and close with our increased full year 2023 guidance.

Speaker 5: First, let's discuss revenue. Total revenue for the third quarter was $965 million, up 9% year-over-year as reported, and in constant currency.

First let's discuss revenue total revenue for the third quarter was $965 million up 9% year over year as reported and in constant currency.

Speaker 5: And the third quarter security revenue was $456 million, growing 20% year-over-year as reported in 19% in constant currency.

The third quarter security revenue was $456 million growing 20% year over year as reported 19% in constant currency.

Speaker 5: Security revenue growth was primarily driven by continued strength in our segmentation product, which is now over a hundred million dollars on an annualized run rate basis and up 97% year over year.

Security revenue growth was primarily driven by continued strength in our segmentation product, which is now over $100 million on an annualized run rate basis, and up 97% year over year.

Speaker 5: I'll note that during the quarter, we had approximately $6 million of one-time segmentation license revenue.

Note that during the quarter, we had approximately $6 million one time segmentation license revenue adjusting.

Speaker 5: Adjusting for that one-time license revenue, total security growth for the third quarter would have been 18% year-over-year as reported and 17% in constant currency. And segmentation revenue growth would have been approximately 62% year-over-year and 60% in constant currency.

Adjusting for the onetime license revenue total security growth for the third quarter would have been 18% year over year as reported and 17% in constant currency and segmentation revenue growth would have been approximately 62% year over year and 60% in constant currency.

Speaker 5: In addition to strength and segmentation, we also spent a very strong growth in our flagship web application firewall or WAF product family. This growth was primarily driven by stronger than expected adoption of new security bundles offered to new and existing customers that we introduced this year.

In addition to strength in segmentation. We also saw very strong growth in our flagship web application firewall or WAF products family. This growth was primarily driven by stronger than expected adoption of new security bundles offered to new and existing customers that we introduced this year.

Speaker 5: The new security bundles include additional security entitlements such as more security policies, additional security configurations, and more advanced rate control policies. Many existing customers are seeing greater value in these new bundles, and as a result, are spending more with us.

The new security bundles include additional security entitlements, such as more security policies additional security configurations, and more advanced rig control policies. Many existing customers are seeing greater value. When these new bundles and as a result, we're spending more with us.

Moving to compute.

Speaker 5: Revenue was $130 million, growing 19% year over year, as reported, and in cost and currency.

Revenue was $130 million growing 19% year over year as reported and in constant currency on.

Speaker 5: On a combined basis, our security and compute business product lines represented 61% of total revenue, growing 20% year over year and 19% in constant currency.

On a combined basis, our security and compute business product lines represented 61% of total revenue growing 20% year over year and 19% in constant currency.

Speaker 5: Shifting to delivery, revenue was $379 million, declining 4% year-to-year as reported and in constant currency.

Shifting to delivery revenue was $379 million declining 4% year over year as reported and in constant currency.

Speaker 5: It's worth noting that delivery was aided by approximately $4 million in revenue from the selected CDN customer contracts we acquired from StackPay.

It's worth noting that delivery was aided by approximately $4 million of revenue from the selected CDN customer contracts, we acquired from stockpile.

Speaker 5: International revenue was $467 million, up 11% in year-to-year, and up 9% in constant currency.

International revenue was $467 million up 11% year over year and up 9% in constant currency.

Speaker 5: Our exchange fluctuations having negative impact on revenue of $3 million on a sequential basis, and a positive $7 million benefit on a year-over-year basis.

Foreign exchange fluctuations had a negative impact on revenue of $3 million on a sequential basis and a positive $7 million benefit on a year over year basis.

Speaker 5: Moving now to company profitability, non-GAAP net income was $251 million or $1.63 of earnings per diluted share, up 29% year-over-year and up 28% in constant currency.

Moving now to company profitability non-GAAP net income was $251 million or $1.63 of earnings per diluted share up 29% year over year and up 28% in constant currency.

Speaker 5: These especially strong EPS results exceeded the high end of our guidance range by 11 cents.

These are especially strong EPS results exceeded the high end of our guidance range by <unk> 11 cents.

Speaker 5: who are driven primarily by higher revenues and continued progress on the cost savings initiatives we outlined over the last few quarters.

Driven primarily by higher revenues and continued progress on our cost savings initiatives, we outlined over the last few quarters. As an example, we continue to reduce our third party cloud spend by migrating internal workloads to our connected cloud platform in Q3, our third party cloud spend declined 26% year over year.

Speaker 5: As an example, we continue to reduce our third-party cloud spend by migrating internal workloads to our connected cloud platform.

Speaker 5: In Q3, our third-party cloud spend declined 26% year-over-year.

Year.

Moving to margins.

Speaker 5: Our cash gross margin was 73%. Included in our Q3 cost of goods sold was approximately $5 million of transition services agreement or TSA costs paid to StatPath. With customer contract acquisitions, TSA payments are used to cover the seller's customer-related network and support costs during the migration period. I'll provide further detail on expected TSA costs going forward in the guidance section in a few moments.

Our cash gross margin was 73% <unk>.

Included in our Q3 cost of goods sold was approximately $5 million of transition services agreement or TSA cost paid to stack up.

With customer contract acquisitions, TSA payments are used to cover the seller's customer related network and support costs. During the migration period I will provide further detail on expected TSA costs going forward in the guidance section in a few moments.

Speaker 5: Adjusted EBITDA margin was 43%. And our non-gap operating margin is 31%. Two points ahead of our guidance, driven by our revenue outperformance and continued focus on driving down costs across the business.

Adjusted EBITA margin was 43% and our non-GAAP operating margin was 31% two points ahead of our guidance driven by our revenue outperformance and continued focus on driving down costs across the businesses.

Speaker 5: Moving now to cash in our use of capital. As of September 30th, our cash, cash equivalents and marketable securities totaled approximately $2.1 billion, which includes the proceeds from the convertible debt raise we did during the quarter. As a reminder, in August , we issued $1.265 billion of senior, unsecured, convertible debt that will mature on February 15th, 2029.

Moving now to cash and our use of capital as of September 30th our cash cash equivalence and marketable securities totaled approximately $2 $1 billion, which includes the proceeds from the convertible debt raise we did during the quarter. As a reminder, in August we issued 126 $5 billion of senior unsecured convertible debt.

That will mature on February 15 to 2029.

Speaker 5: The notes will bear interest at a rate of 1.125 per year, payable semi-annually. Finally, the net proceeds of approximately $1 billion from this offering have been invested in highly liquid marketable securities. These securities yield approximately 5.25% on a weighted average basis with maturities close to May 2025, as we intend to use these proceeds to pay off approximately $1.15 billion of convertible notes that mature in May 2025.

The notes will bear interest at a rate of 1.125 per year payable semi annually.

Finally, the net proceeds of approximately $1 billion from this offering have been invested in highly liquid marketable securities. The securities yield approximately 5.25% on a weighted average basis with maturities close to May 2025, as we intend to use these proceeds to pay off approximately $1.15 billion of <unk>.

Vertical notes that mature in May 2025.

Speaker 5: For the third quarter, we spent roughly $113 million to repurchase approximately 1.1 million shares. We now have roughly $600 million remaining on our previously announced share by-back authorization.

For the third quarter, we spent roughly $113 million to repurchase approximately $1 1 million shares. We now have roughly $600 million remaining on our previously announced share buyback authorization.

Speaker 5: Our approach to capital allocation remains the same, to opportunistically buy back shares to offset dilution from employee equity programs over time, while maintaining sufficient capital to deploy when strategic M&A presents itself.

Our approach to capital allocation remains the same to Opportunistically buy back shares to offset dilution from employee equity programs over time, while maintaining sufficient capital to deploy with strategic M&A presents itself.

Speaker 5: Before I cover Q4 guidance, I want to provide a quick reminder about our typical fourth quarter dynamics and add some color to our two recent transactions with Stackpath and Lumen.

Before I cover Q4 guidance I wanted to provide a quick reminder, on our typical fourth quarter dynamics and add some color to our two recent transactions with stacked at the moment.

Speaker 5: As in prior years, seasonality plays a significant role in determining our financial performance for the fourth quarter. Typically, we see higher than normal traffic from large media customers, and they pick up in seasonal online retail activity for our e-commerce customers. Both of these traffic patterns are difficult to predict.

As in prior years seasonality plays a significant role in determining our financial performance for the fourth quarter typically we see higher than normal traffic from large media customers and a pickup in seasonal online retail activity for our E. Commerce customers. Both of these traffic patterns are difficult to predict.

Speaker 5: Q4 also tends to have higher operating expenses than in Q3, driven by higher sales commissions due to accelerator payments for sales reps who overachieve their annual quota.

Q4 also tends to have higher operating expenses than in Q3, driven by higher sales commissions.

Due to accelerated payments for sales reps, who overachieve their annual quotas.

Speaker 5: As it relates to the transactions with StackPath and Lumens, first, both transactions were acquisitions of selected CDN customer contracts, including over 200 net new customers to Akamai. We did not acquire any other assets or liabilities of either company. Second,

It relates to the transactions with stack path and Lumens burst both transactions were acquisitions of selected CDM customer contracts, including over 200, net new customers to Akamai, we did not acquire any other assets or liabilities of either company second.

Speaker 5: We expect the two transactions combined will add approximately 17 to $20 million of revenue in Q4.

We expect the two transactions combined will add approximately $17 million to $20 million of revenue in Q4.

Speaker 5: Third, we expect to record approximately $13 to $14 million in Stackpath and Lumen TSA costs in Q4. These costs will be recorded in our cost of goods sold, and will have a negative impact of approximately one percentage point on gross margin, adjusted EBITDA margin, and non-GAAP operating margin.

Third we expect to record approximately $13 million to $14 million of Stat Pak and loom in TSA costs. In Q4. These costs will be recorded in our cost of goods sold and we will have a negative impact of approximately one percentage point on gross margin adjusted EBITA margin non-GAAP operating margin.

Speaker 5: Combined the stack path of movement TSAs will negatively impact our Q4 EPS by approximately 6-7%.

Combined the staff Pathet lumen TSA will negatively impact our Q4 EPS by approximately six to seven and we do not expect to incur any material TSA costs in 2024 and finally.

Speaker 5: We do not expect to incur any material TSA costs in 2024. And finally, our expectations for these customer acquisitions remain the same as we disclosed previously for the full year 2024. As a reminder, we expect the customer contracts acquired from StatPath to add approximately $20 million of revenue in 2024 and to be accretive to non-MGAP earnings per share by 3 to 5 cents.

Expectations for these customer acquisitions remain the same as we disclosed previously for the full year 2024. As a reminder, we expect the customer contracts acquired from stockpile to add approximately $20 million of revenue in 2024 and to be accretive to non-GAAP earnings per share by three to five weeks.

Speaker 5: And we expect the customer contracts acquired from Lumen to add approximately $40 to $50 million of revenue in 2024 and to be $0.08 to $0.12 accretive to non-GAAP EPS.

We expect the customer contracts acquired from lumen to add approximately $40 million to $50 million of revenue in 2024 and to be eight to 12 cents accretive to non-GAAP EPS.

With all that in mind.

Speaker 5: We are now projecting fourth quarter revenue in the range of $985 million to $1.005 billion or up 6 to 8% as reported and in constant currency over Q4 2022.

We are now projecting fourth quarter revenue in the range of 985 million to $1.005 billion were up 6% to 8% as reported and in constant currency over Q4 2022.

Speaker 5: The current spot rates foreign exchange fluctuations are expected to have a negative $8 million impact on Q4 revenue compared to Q3 levels and a positive $2 million impact year-over-year.

The current spot rates foreign exchange fluctuations are expected to have a negative $8 million impact on Q4 revenue compared to Q3 levels and the positive to millions of dollar impact year over year.

Speaker 5: Taking into account the impact of the stack path and Lumen TSAs, for the fourth quarter, we expect cash gross margins of approximately 72%.

Taking into account the impact of the stack that lumen T S. As for the fourth quarter, we expect cash gross margins of approximately 72%.

Speaker 5: Q4 non-gap operating expenses are projected to be 305 to $311 million. We expect Q4 adjusted EBITDA margin of approximately 41%. We expect non-gap depreciation expense to be between $123 to $125 million. And we expect a non-gap operating margin of approximately 29% for Q4.

Q4, non-GAAP operating expenses are projected to be $305 million to $311 million. We expect Q4, adjusted EBITDA margin of approximately 41%.

Expect non-GAAP depreciation expense to be between $123 million to $125 million and we expect a non-GAAP operating margin of approximately 29% for Q4.

Speaker 5: Moving on to CAPEX, we expect to spend approximately $143 to $153 million excluding equity compensation and capitalized interest in the fourth quarter. This represents approximately 15% of our projected total revenue for the fourth quarter. Additionally, our CAPEX guidance includes the integration requirements to support the traffic for both CDN customer contract acquisition.

Moving on to Capex, we expect to spend approximately $143 million to $153 million, excluding equity compensation and capitalized interest in the fourth quarter. This represents approximately 15% of our projected total revenue for the fourth quarter. Additionally, our capex guidance includes the integration requirements to support the traffic for both CDN customer call.

Tract acquisitions base.

Speaker 5: Based on our expectations for revenue and costs, we expect Q4 non-gap EPS to be $1.57 to $1.62. The CPS guidance assumes taxes of $50 to $52 million based on an estimated quarterly non-gap tax rate of approximately 17%.

Based on our expectations for revenue and cost, we expect Q4, non-GAAP EPS to be $1.57 to $1.62. This EPS guidance assumes taxes of $50 million to $52 million based on an estimated quarterly non-GAAP tax rate of approximately 17%.

Speaker 5: It also reflects a fully diluted share count of approximately 155 million shares.

It also reflects a fully diluted share count of approximately 155 million shares.

Speaker 5: Looking ahead to the full year, we have increased revenue to a range of $3.802 to $3.822 billion, which is up 5% to 6% year-over-year as reported, and 6% in constant currency. At current spot rates, our guidance assumes foreign exchange will have a negative $18 million impact on revenue in 2023 on a year-over-year basis.

Looking ahead to the full year, we have increased revenue to a range of 3.802 to $3.8 billion to $2 billion, which is up 5% to 6% year over year as reported and 6% in constant currency.

The current spot rates, our guidance assumes foreign exchange will have a negative $18 million impact on revenue in 2023 on a year over year basis.

Speaker 5: We are raising our security revenue growth expectations to approximately 15% for the full year 2023. And we continue to expect to achieve approximately half a billion dollars in revenue from compute in 2020.

We are raising our security revenue growth expectations to approximately 15% for the full year 2023, and we continue to expect to achieve approximately half a billion dollars in revenue for compute in 2023.

Speaker 5: In despite a year of significant investment, the estimated non-gap operating margin of approximately 29%. With all that in mind, we have raised our estimated non-gap earnings-per-duted share to a range of $6.8 to $6.13.

And despite a year of significant investment you're estimating non-GAAP operating margin of approximately 29%.

With all that in mind, we have raised our estimated non-GAAP earnings per diluted share to a range of $6 eight to $6.13 and non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 17% the fully diluted share count of approximately 155 million shares finally, our full year capex is expected to be 19%.

Speaker 5: Our non-gap earnings guidance is based on a non-gap effective tax rate of approximately 17%. A fully diluted share count of approximately 155 million shares. Finally, our full-year capex is expected to be 19% of total revenue. In closing, we are very pleased with how the business is performing in 2023 as we continue to invest for revenue growth and improve our profitability. With that, we now look forward to your questions.

<unk> revenue in closing we are very pleased with how the business is performing in 2023, as we continue to invest for revenue growth and improve our profitability.

With that we now look forward to your questions operator.

Speaker 2: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. The first question is from James Fish of Piper Sandler. Please go ahead.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone Com. If you are using a speakerphone. Please pick up your handset before pressing the keys.

Withdraw from the question queue. Please press Star then two.

Our first question is from James Fish of Piper Sandler. Please go ahead.

Speaker 6: Hey guys, really nice quarter there. You know, on...

Hey, guys.

Really nice quarter there.

All right.

Speaker 6: understanding you're selling GuardiCorps into the installed base primarily, but what are you seeing with selling outside of the installed base with security and compute and specifically within security? Is there a way to think about that drag along effect or how the GuardiCorps enterprise sales team are really dragging along the rest of the security or even compute portfolios into any net new customer wins? Really the crux of the question is how's the sales process going outside of the CDN installed base?

Understanding you're selling garden corn to be installed base, primarily but what are you seeing whats going outside of that installed base with security and computing specifically within security is there a way to think about that drag along effect or how the garden core enterprise sales team are really dragging along the rest of the security or even compute portfolio.

New customer wins really the crux of the question is how is the sales process going outside of the CDN installed base.

Speaker 5: Yeah, hey, take your misses that I'll start. Tom, you can jump in if there's anything you want to add.

Hey, Jim This is Ed I'll start.

Tom you can jump in if there's anything you want to add.

Speaker 5: So actually, it's interesting, you started off by saying GuardaCore is mostly to the install base. Actually, we've done a really nice job of selling to new customers. One of the things that came over as part of the GuardaCore acquisition is a pretty robust channel, and pretty much every deal is done through the channel. As a matter of fact, I think we could do a better job of selling as the install base and probably come up with some new incentives to incentivize the sales force to do that. So there's a ton of room in the install base because most of the growth in GuardaCore has come from outside the install base.

Actually its interesting you started off by saying Garda quarters, mostly to the installed base actually we've done a really nice job of selling to new customers. One of the things that came over as part of the guard a core acquisition is a pretty robust channel and pretty much every deal is done through the channel.

Matter of fact, I think we can do a better job of selling into the install base and probably come up with some new incentives to incentivize the sales force to do that so there's a ton of room in the installed base because most of the growth in card of course coming from outside the installed base.

Speaker 4: Yeah, and I would just add to that that there is good drag along with GuardaCore and for example enterprise application access. You know, one's considered north south, the other east west, both are really important in terms of, you know, keeping malware out and identifying when it gets in and really blocking the spread. So it's it's good that way.

Yeah, and I would just add to that that there is good drag along with Garda core and for example, enterprise application access you know ones considered north south the other east West both are really important in terms of you know keeping malware out and identifying when it gets in and really blocking the spread.

So it's a it's good that way too.

Speaker 6: Helpful guys, I'm just going to follow up column. You had actually started to allude to it a little bit, but as we think about those loom in and exact path contracts, I guess how much wall chaired do you have an aggregate of these new customers, or what's the overall opportunity for those specific customers beyond just that CDN revenue that you bought? Thanks, guys.

Helpful guys and just a follow up.

Tom you had actually started to allude to it a little bit, but as we think about those movement in backpack contracts I guess, how much wallet share do you have an aggregate of these new customers or what the overall opportunity for those specific customers beyond just that CDN revenue that you bought thanks guys.

Speaker 4: Yeah, well, I think so there's the CDN revenue, which is what transfers, but we're gonna be looking to sell our security in compute solutions into those 200 plus new customers. And I think there's some good opportunity.

Yeah, well, obviously theres, the CDN revenue, which is what transfers.

But we're gonna be looking to sell our security and compute solutions into those you know 200, plus new customers and I think there's some good opportunity there.

Speaker 2: The next question is from Fatima Boulani of Citi. Please go ahead. Good afternoon.

The next question is from the <unk> of Citi. Please go ahead.

Good afternoon. Thank you for taking my question, Tom maybe I'll start with you I want to have a broader conversation with regards to some of these contracts that you've been acquiring is setting up to be a little bit of a pattern. So look you've been doing delivery for the better part of two decades here. So I wanted to get your kind.

Speaker 7: Tom, maybe I'll start with you. I want to have a broader conversation with regards to some of these contracts that you've been acquiring.

Speaker 7: setting up to be a little bit of a pattern. So look, you've been doing delivery for the better part of two decades here. So I wanted to get your kind of longitudinal perspective on what you're seeing in the marketplace and the market backdrop, that sort of pointing more and more towards consolidation in the delivery sphere. And then ultimately, I wanted to get your perspective on how you think this is gonna impact some of the pricing dynamics and ultimately your pricing power in the delivery space. And then I have a follow-up for Ed if I may.

Longitudinal perspective on what Youre seeing in the marketplace and the market backdrop that sort of pointing more and more towards consolidation and the delivery sphere and then ultimately I wanted to get your perspective on how you think this is going to impact some of the pricing dynamics and ultimately your pricing power in the delivery space and then I have a follow up for Ed funding.

Speaker 4: Yeah, I wouldn't call it a pattern. It's been a long time. You know, really since we've acquired, you know, a competitor or a competitor contract.

Yeah, I wouldn't I wouldn't call. It a pattern it's been a long time, you know really since we've acquired.

Acquired.

A competitor or a competitor contracts. This is a situation where you know two of the many C. D ends out there.

Speaker 4: This is a situation where, you know, two of the many CDNs out there decided to discontinue their operations, and they wanted...now, they're still remaining as companies, obviously, and they wanted to have their customers have the best possible experience as they exited the CDN space.

Aided to discontinue their operations and they want it now there's still remaining as companies, obviously and they wanted to have their customers have the best possible experience as they exited the CDN space and so they approached Akamai you know what is the leader by far in CDN and.

Speaker 4: And so they approached Akamai, you know, as the leader, you know, by far in CDN and, you know, made very compelling, you know, financial terms for the transaction. So it makes a lot of sense for our shareholders that we take on these customers. And also it's a good opportunity, as we mentioned, to sell them.

You know me.

<unk> very compelling.

Financial terms for the transaction. So it makes a lot of sense for our shareholders that.

We take on these customers and also it's a good opportunity as we mentioned to sell them security and compute so really good for shareholders. It's not something that we're actively doing trying to go by.

Speaker 4: security and compute. So really good for shareholders. It's not something that we're actively doing trying to go, you know, by other CDMs, but

By other C D EMS, but.

Speaker 4: every once in a while, there is an opportunity that is compelling for shareholders. I don't see any fundamental change in the marketplace. You know, the hyperscalers and a dozen, two dozen other companies are selling delivery services. So I don't think there'll be any fundamental change there or change with pricing.

Every once in a while there is an opportunity that is compelling for shareholders I don't see any fundamental change in the marketplace.

You know that the hyperscale or as in you know a dozen two dozen other companies are selling delivery services. So I don't think there'll be any any fundamental change there or change with pricing separately from this of course, you know that we talked about Akamai as you know being.

Speaker 4: Separately from this, of course, you know that we talked about Akamai as, you know, being, you know, more conservative with pricing, as we talked about, we're not taking some of the spiky traffic if the pricing doesn't make sense.

A more conservative with pricing as we talked about we're not taking some of the spiky traffic if the pricing doesn't make sense.

Speaker 4: because we've been focusing more on the capital deployment into our compute offering, which we see enormous potential future growth for.

And because we've been focusing more on the capital deployment into our compute offering, which we see enormous potential future growth for.

Speaker 7: Perfect, thank you. Ed, I was hoping I could parse out some of your prepared remarks with respect to the third-party cloud spend that you're effectively insourcing. I believe a couple of quarters ago you may have ballparked that figure at about $100 million, so please correct me if that recollection is correct. And also, just wanted to get a sense of how far down the path you are in this insourcing of third-party cloud spend on your connected cloud platform. Thank you.

Perfect. Thank you Ed.

I was hoping I can parse out some of your prepared remarks with respect to the third party cloud spend that you're effectively in sourcing I believe a couple of quarters ago. You may have on ballpark that figure at about 100 million. So and please correct me if that rough recollection is correct and also just wanted to get a sense of how far.

In the past you are in this in sourcing of third party cloud spend on your connected cloud platform. Thank you.

Speaker 5: Yes, sure. That's a great recollection. Fatemeh, you're correct. That's about $100 million, actually north of $100 million. So we are still in the earlier innings of the journey. However, we've made a lot of progress, and the team is doing a great job. So we expect to see that the savings continue to ramp. I'm very happy to say that we're slightly ahead of where we expected to be, and we have a lot of confidence that we'll be able to drive the type of savings that we expect to throughout next year.

Yes, sure that's a great recollection pardon me to correct that.

About 100 billion ratio north of $100 million. So we are.

In the earlier innings of the journey. However, we've made a lot of progress and the team is doing a great job. So that we expect to see that the savings continue to ramp I'm very happy to say that we're slightly ahead of where we expect it to be and we have a lot of confidence that we'll be able to drive the type of savings that we expect to throughout next year.

Thank you Dana.

Speaker 2: The next question is from Madeline Brooks of Bank of America. Please go ahead.

The next question is from Madeline Brooks of Bank of America. Please go ahead.

Speaker 8: Hey, team, thanks for taking my question. Just wanted to dive into security a bit and see, you know, are the trends differing between international and domestic in terms of what products are doing better versus not? And then one follow-up question after that. Thanks.

Hey team. Thanks for taking my question just wanted to dive into security at that N E. R. The trend difference between international and domestic in terms of what products are getting better versus not and then one follow up question after that thanks.

Speaker 4: I don't think there's a fundamental difference, you know, the attacks are global in nature and the same attacks we'd see here domestically we see in pretty much all the major geos.

I don't think there's a fundamental difference.

Tax are global in nature, and the same attacks, we'd see here domestically, we see in pretty much all the major geos.

Speaker 4: You do see a little bit more attacks where there's hot spots, wars taking place, or political tensions.

And yes.

You do see a little bit more attacks, where you know there's hotspots or war is taking place or political tensions there'll.

Speaker 4: They'll be more attacks, but the nature of the attacks is similar. You got denial of service attacks, you got ransomware, you know, you've got application layer attacks. More recently, API, you know, attacks, so, and that happens everywhere, you know, because there's no reason it should be in one geography versus another.

There'll be more tax, but the nature of the attacks is similar you got denial of service attacks you got ransomware.

You know you've got application layer attacks more recently API.

And you know attack, so and that happens everywhere.

Because there's no reason it should be in one geography versus another.

Yeah.

Speaker 8: I'd thank so much and then for the connected cloud and just the compute segment as well, you guys talked about a lot of really nice international deals that also just wanted to get a pole sun, what's happening domestically and appetite for the products here.

Got it thanks, so much and then for the D M connected.

Connected cloud and just the compute segment as volume that talked about a lot of really nice international deals, but also just wanted to get a pulse on what's happening domestically and an appetite for the products here.

Speaker 4: Again, I think that is universal as well. We'll have special advantages in locations where, you know, the hyperscalers aren't. But that kind of compute capability can be accessed by customers anywhere.

I again, I think that is universal as well will have special advantages in locations, where you know the hyperscale or art.

But that kind of kick compute capability can be accessed by customers anywhere.

Speaker 4: big US companies care a lot about being able to give really good performance for their users all around the world. So again, I think that's, there's not a fundamental difference between the US or other regions. We have gotten off to a really good start and I would say APJ, but it's across the board. We're deep in conversations with major enterprises across all the major GOs.

No Big U S companies care, a lot about being able to get really good performance for their users all around the world.

So again I think that's there's not a fundamental difference between the U S or other regions.

We have gotten off to a really good start and I would say a P J, but it's across the board what deepened.

Deep in conversations with major enterprises across all the major geos.

Got it thanks, so much that's it for me congrats.

Thank you.

Speaker 2: The next question is from Ray McDonough of Guggenheim Security. Please go ahead.

The next question is from Ray Mcdonough of Guggenheim Securities. Please go ahead.

Speaker 9: Thanks. Thanks for taking the questions. And Ed, I appreciate the color on the additional bundles of security and the additional services you added to those bundles. And in our conversations, we did pick up a decent price uplift when those services are added. So can you help us understand what sort of pricing uplift, if any, there might be there and what the penetration rate is in your install base currently of those services and what the opportunity is going forward?

Thanks, Thanks for taking the questions and Ed I appreciate the color on the additional bundle bundles of security and the additional services you added to those bundles and in our conversations we did pick up a decent price up with when those services are added. So can you help us understand what sort of pricing uplift if any there might be there and what the penetration.

Asian rate is in your installed base currently of the services and what the opportunity is going forward.

Speaker 5: Yeah, so I'll start and then Tom if there's anything you want to add. So this is a pretty targeted program that we identified customers in selected verticals, you know, primarily in commerce, manufacturing, healthcare, pharma, financial services, you know, what we traditionally call sort of our legacy web customers.

Yes, so I'll start and then Tom if there's anything you want to add.

So this is a pretty targeted program that we identified customers in selected selected verticals, primarily in commerce manufacturing health care pharma.

Financial services.

What we traditionally call sort of our legacy web customers.

Speaker 5: And we've, as we had talked about, included a lot more services and functionality into the bundles. And upon renewal, we're able to upsell.

And we've.

Sure.

As we have talked about included a lot more.

Services and functionality into the bundles.

Upon renewal, we're able to upsell them about.

Speaker 5: This is probably two to three thousand customers that fit into this sort of targeted group. We're probably about halfway through in terms of the customers that come up for renewal. If you remember our customer average customer contract lines about 18 months. So this probably runs about 18 months to two years kind of a program, but we're very happy with what we're seeing with the average uplifting and the average sale price.

This is probably two to 3000 customers that fit into this sort of targeted group, we're probably about halfway through in terms of.

The customers that come up for renewal if you remember our customer our average customer contract length of about 18 months. So it's probably runs about 18 months to two years kind of a program, but we're very happy with what we're seeing with the the average uplift them.

Sale price.

Okay.

Speaker 9: Great, and then maybe if I could just on on compute, now that the majority of those core data centers are online.

Great and then maybe if I could just on on compute now, but the majority of those core data centers are online can you talk about how much of the contracted space you filled out and what sort of utilization you are hoping to achieve as you enter 2020 for I know youre not going to provide any sort of guidance here, but any sort of guidepost in terms of the actual capacity that would be.

Speaker 9: You talk about how much of the contracted space you filled out and what sort of utilization you're hoping to achieve as you enter 2024. I know you're not going to provide any sort of guidance here, but any sort of guideposts in terms of the actual capacity that will be online in 2024?

Online in 'twenty, four and what the compute pipeline looks like heading into next year to fill that.

Speaker 9: what the compute pipeline looks like heading into next year uh... to fill that capacity it would be helpful just understand kinda capital needs that business as we think about twenty four

<unk> capacity it would be helpful. Just to understand kind of the capital needs of that business as we think about 'twenty four.

Speaker 4: Yeah, in terms of the capital, we've pretty much now done the major build-out. And of course, we're big consumers of that ourselves as we move our own applications, you know, in-house to Akamai Connected Cloud. And we've also got plenty of room to take on major enterprise business.

Yeah in terms of the capital we pretty much now done the major build out and of course, we're big consumers of that ourselves as we move our own applications in house to Akamai connected cloud.

And we've also got plenty of room to take on major enterprise business.

Speaker 4: So, I don't think you'll see a lot of CapEx associated with the big core data centers until we start generating, you know, a lot more revenue.

So I don't think you'll see a lot of capex associated with the big core data centers until we start generating you know a lot more revenue from them and then we would we would build up further they'll probably be another couple that we do what you will see is a relatively smaller amount of capex as we do build out into our <unk>.

Speaker 4: And then we would build up further. There probably be another couple that we do. What you will see is a relatively smaller amount of capex as we do build out into our existing edge pop.

<unk> edge parts.

Speaker 4: And our goal is to start equipping them with compute so that you can run containers, VMs, Kubernetes, and many more cities around the world. And so that, and more cities than you can do that with, for example, the hyperscalers. And so that'll be taking place over the course of the next year. But it's not a large amount of CAPEX. So much smaller than what you saw this year.

And our goal is to start equipping them with compute so that you can run containers Vms kubernetes in many more cities around the world and so that and more cities than you can do that with for example, the hyperscale and so that'll be taking place.

Over the course of the next year, but it's not a large amount of capex. So much smaller than what you saw this year and then going from there.

Speaker 4: And then going from there, it will depend on how fast the revenue grows. So it'll be a good news story if we're back next year saying that, okay, great, we filled that up and now we're going to be building out some more. So it's a much better situation than we were in this year where there was a lot of build out getting ready and no revenue yet.

Will depend on how fast the revenue growth so it'll be a good news story. If we're we're back next year, saying that okay, great. We fill that up and now we're going to be building out some more.

So it's a much better situation than we were this year, where there was a lot of build out getting ready and and no revenue yet.

Great I appreciate the color.

Speaker 2: The next question is from Frank Lawson from Raymond James, please go ahead.

The next question is from Frank Louthan.

Raymond James Please go ahead.

Speaker 3: Great, thank you. Can you give us some color on sort of the nature of the compute deals that you're getting now, versus maybe six to 12 months ago? And then what have you learned by putting some of your own enterprise level workloads on the compute platform that you've maybe been able to utilize as you sell to customers and how has that process benefited the product?

Great. Thank you can you give us some color on sort of the nature of the compute deals that youre getting now versus maybe six to 12 months ago and then what did you learn by putting some of your own enterprise level workloads on the compute platform that you've maybe been able to utilize.

As you sell to customers and how is that process benefited.

The product.

Speaker 4: Yeah, good question. I would say you start going back six plus months ago, there really wasn't a lot of compute deals at that time because the Lenovo infrastructure really wasn't ready for it. There was some early experimentation.

Yeah. Good good question I would say you start going back six months ago, where there really wasn't a lot of compute deals at that time, because the lenovo infrastructure really wasn't ready for it there was some early experimentation now we're in a position where we really can take on a mission critical applications from Big enterprises.

Speaker 4: Now we're in a position where we really can take on mission critical applications from big enterprises. We're starting to do that. Some are starting to grow very nicely. You know, in terms of the learnings, we've learned a lot. I would say on the good news side, we're saving a lot of money. And we're gonna help our customers save a lot of money.

We're starting to do that some are starting to grow very nicely in terms of the learnings. We've learned a lot I would say on the good news side, we're saving a lot of money and we're going to help our customers save a lot of money.

Speaker 4: We're also seeing really good performance, you know, and better in many cases than we can get with the hyperscalers. You know, and as we go forward, we'll get—we, of course, have better scalability in terms of faster scalability, and for Akamai, that's really important.

We're also seeing really good performance.

And better in many cases, then we can get with the hyper scaler, you know and as we go forward, we'll get we of course have better scalability in terms of faster scalability and for Akamai. That's really important because we have a lot of customers that have flash crowds peak of bands and so forth hard to predict how big they'll be and with our deployed platform.

Speaker 4: because we have a lot of customers that have flash crowds, peak events and so forth, hard to predict how big they'll be and with our deployed platform, we're really good at that of course, with security and with delivery. And now we're applying those capabilities to compute so that we can spin up more compute instances in a faster, a faster more responsive way. So we're very happy consumers of our own cloud. Now on the other side, we've learned that it's, it's not just flip a switch.

Really good at that of course with security and with delivery and now we're applying those capabilities to compute.

So that we can spin up more compute instances you know when a faster faster more responsive way. So we're very happy consumers of our own cloud now on the other side, we've learned that it's not just flip a switch.

Speaker 4: And you know, that you just don't flip a switch and suddenly you're off the hyperscaler and you're on to Occamine. Of course, that's true when you move from any cloud environment into another one, it does take some effort to do it, but it is well, well worth it. And we're so a great reference that we can now help our customers and our partners. You know, we're working with many partners in cloud so that they can take, you know, their customers and you know, get them on to Occamine Connected Cloud.

And you know that you just don't flip a switch and suddenly you're off the hyperscale or in your onto Akamai and of course, that's true when you move from any cloud environment into another one it does take some effort to do it but it is well well worth it.

And we're so a great reference and we can now help our customers and our partners are you know.

We're working with many partners in cloud so that they can take you know their customers and get them on to Akamai connected cloud.

Alright, great. Thank you.

Yeah.

Speaker 2: The next question is from Tim Haran of Oppenheimer. Please go ahead.

Yeah.

The next question is from Tim Horan of Oppenheimer. Please go ahead.

Speaker 10: Thanks guys. Staying on that point, can you maybe just talk about the backlog and customer interest at this point? Just any update, it sounds like it's going well. Also, where are you with kind of all the value-added services and tools? And I just, maybe just a complete cloud portfolio at this point. And then lastly...

Staying on that point can you, maybe just talk about the backlog and customer interest at this point just any update it sounds like it's going well.

So where are you kind of all the value added services and tools and I, just maybe just a complete cloud portfolio at this point and then lastly.

Speaker 10: Could you just remind us what the margins of this business will look like longer term? And I guess, you know, we do get asked a lot like, why can you sell this cheaper than the cloud providers? I guess at the end of the day. And will that impact your margin?

Could you just remind us what the margins of this business will look like longer term and I guess, we do get asked a lot like why can you sell this cheaper than the cloud providers I guess at the end of the day and will that impact your margins. Thank you.

Speaker 4: Okay, a lot of components there. I'll start with some of them and then probably Ed will fill in with some. Yeah, we're in a lot of really good conversations, as you can imagine, because, you know, the world's major media companies, gaming companies, commerce companies, all use Akamai. They have for many, many years. They trust us.

Okay, a lot of components, there I'll start with some of them and then probably add I'll fill in with some yeah. We're in a lot of really good conversations as you could imagine because you know the world's major media companies gaming companies Commerce companies all use akamai. They have for many many years They trust us for scale reliability performance They trust us with secure.

Speaker 4: for scale, reliability, performance. They trust us with security. They trust us not to compete with.

They trust us not to compete with them and as they see that we're building in terms of compute are you know they like the idea of getting better performance more distributed compute capabilities and some of those folks really like the idea of a much lower price point.

Speaker 4: And as I see what we're building in terms of compute.

Speaker 4: You know, they like the idea of getting better performance, more distributed compute capabilities.

Speaker 4: And some of those folks really like the idea of a much lower price point.

Speaker 4: And as an extra benefit, especially if you're in media or commerce.

Is that an extra benefit, especially if you're in meteor commerce, it's getting to be a bigger problem that they are cutting such giant checks to their leading competitor in sharing.

All of the Crown jewels of their data with our leading competitor so they're taking the akamai solution with with great interest I would say.

Speaker 4: So they're taking the Akamai solution with great interest, I would say.

Speaker 4: Now in terms of being cheaper, you know, Akamai has been for a long time, the world's most distributed platform. We run one of the world's largest

Now in terms of being cheaper Akamai as has been for a long time the worlds most distributed platform we.

One of the world's largest backbones.

Speaker 4: Uh, you know, we have worked for many, many years to be incredibly efficient.

You know we have worked for many many years to be incredibly efficient.

In terms of moving data around and doing the delivery and that gives us a real advantage of being able to do this now for compute.

In a very cost effective way now that said I am sure that the hyperscale or pay a little bit less for their hardware than we do probably not a lot less maybe a little less but when it comes to everything else I think akamai is in an excellent position and what we're seeing in the marketplace is that you know they'll get their best offer from a height.

Speaker 4: for their hardware than we do. Probably not a lot less, maybe a little less, but when it comes to everything else.

Speaker 4: I think Akamai is in an excellent position and what we're seeing, you know, in the marketplace is that, you know, they'll get their best offer from the hyperscalers and we can be a lot lower than that and be very profitable at doing that.

Scalar has a week would be a lot lower than that and be very profitable at doing it.

Speaker 4: Uh, you know, and the good news, you know, I think for Akamai is that here you've got a

And the good news I think for Akamai is they here you've got a hunter.

Speaker 4: hundred plus billion dollar market growing at 20% a year.

100, plus billion dollar market growing at 20% a year and we're a tiny guy there compared to the hyper scalar. So we can operate at a level that is.

Speaker 4: And, you know, we're a tiny guy there compared to the hyperscalers. So we can operate at a level that is.

Speaker 4: you know, not threatening to them in any way. They got to worry about each other, and there's plenty of room for us to, you know, take on a lot of revenue at lower price points and very good margins, you know, for Akamai. Now, in terms of the marketplace, that's an area, obviously, where the hyperscalers are way ahead. You know, some of those folks, every application ever made is available in the marketplace.

Not threatening to them in any way they got to worry about each other and there's plenty of room for us to.

Take on a lot of revenue at lower price points and very good margins.

For Akamai now in terms of the marketplace. That's an area obviously with a hyperscale orders are way ahead.

Some of those folks every application ever made as available in the marketplace.

Speaker 4: As a managed service, we are growing our marketplace. We are growing the tools that are available on Akamai Connected Cloud. And, you know, the first applications that we're targeting are applications that, you know, are more easily able to be cloud agnostic, that are not locked in, that aren't using, you know, 20 other applications in the market.

As a managed service we are growing our marketplace. We are growing the tools that are available on akamai connected cloud and you know the first applications that we're targeting are applications that are more easily able to be cloud agnostic that are not locked in that arent using 20 other applications in the market.

Speaker 4: And so that it'll be much easier to port onto Akamai Connected Cloud. And, you know, so there's some applications that won't be able to port, you know, in the near term. But we don't need all those applications. All we need to get going is a tiny share of that market. And we've identified just, for example, in the media vertical alone, there's a lot of applications.

Place.

And so that it will be much easier to port onto Akamai connected cloud and you know so there are some applications that they won't be able to afford you know in the near term, but we don't we don't need all of those applications. All we need is to get going as a tiny share of that market and we've identified just for example in the media vertical alone there is a lot.

Speaker 4: that are amenable to moving to our platform. And of course, a lot of our partners in our marketplace, to begin with, are media-related companies for that reason. Because they're also threatened by the hyperscalers, and they're very excited about having media applications be on Akamai. Ed, do you want to?

Applications that are amenable to moving to our platform and of course, a lot of our partners in our marketplace to begin with our media related companies for that reason because there are also threatened by the hyper scaler and Theyre very excited about having media applications beyond akamai.

Ed do you want to add anything there.

Speaker 5: Yeah, just a couple of things. Tom talked a little bit about the leverage we have with the backbone, but we also have a lot of other leverage in the company with our go-to-market, where the focus is going to be initially with our install base.

Yeah, just a couple of things you have Tom talk a little bit about the leverage we have with the backbone, but we also have a lot of other leverage in the company with our go to market, where the focus is going to be initially with our installed base.

Speaker 5: that Tom talked about in media to start. There's a tremendous amount. We pretty much work with every major brand. So there's a lot of leverage from that perspective. Also, the people that build and deploy the network are the same people who are building and deploying our.

I'll talk about in media to start there's a tremendous amount we pretty much work with every major brands. There's a lot of leverage from that perspective also the people that build and deploy the network are the same people who are building and deploying R. R.

Our.

CDN network, and we're getting leverage with our co location vendors and things like that so we've seen some pretty large proposals go out, but you know what get us margins that are pretty similar to company margins in terms of gross margins that are you know.

Somewhere between security and delivery and operating margins that potentially could be even greater as we get scale to the bottom line. So.

There's an enormous amount of margin if you think of the math that we're doing with how much we're saving.

Speaker 5: The amount of capital that we're deploying and the cost, we're going to be saving a tremendous amount of money on moving our own applications, and we'll be able to offer some of that to our customers as well.

The amount of capital that we're deploying and the cost we're gonna be saving a tremendous amount of money on.

Moving our own applications, and we'll be able to offer some of that to our customers as well.

Okay.

Thank you.

Speaker 2: The next question is from Alex Henderson of Needham and Company. Please go ahead.

The next question is from Alex Henderson of Needham <unk> Company. Please go ahead.

Right. Thanks.

Speaker 11: I'm rather astounded that we haven't heard the word AI so far in this conference call, at least I don't think we have. So, can you talk a little bit about...

Or others are astounded that we haven't heard the word AI and so far in this conference call or at least I don't think we have.

So can you talk a little bit about.

Speaker 11: the impact of AI in terms of your opportunity to bring it to compute? Is it something that you think you can bring to the edge piece or is, you know, to run on your security, excuse me, your CDN edge?

The impact of AI in terms of your opportunity to bring it to compute.

Is it something that you think you can bring to the edge a piece or as you know to run on your security.

Your CDN edge.

Speaker 11: And alternatively, is it a risk in the sense that inference AI.

And Alternatively is it a risk in the sense that.

Important to say I.

Speaker 11: is going to be distributed but a lot of the compute process might be more centralized in that context, diminish the willingness of people to move applications to your compute. So how do I think about the inference AI opportunity and the risk of customers being more challenged and moving?

It's going to.

Would be distributed but a lot of the compute process.

Might be more centralized and in that context the dimming.

Diminish the willingness of people to move applications to your compute.

So how do I, how do I think about.

The important thing I opportunity and the risk of our customers being more.

Challenged Houston moving.

Speaker 4: Okay, great question. In fact, there's a lot of components to this one too. At a high level, there's a lot of potential opportunity.

Okay. Great question in fact, Theres a lot of components to this one two at a high level.

Oh, Oh, there's a lot of potential opportunity I would say, but let me step back just a minute you know akamai has been using AI and machine learning in our products for a long long time.

Speaker 4: But let me step back just a minute. You know, Akamai has been using AI and machine learning in our products for a long, long time.

Speaker 4: Obviously useful for anomaly detection, bot detection. When an entity is accessing a bank account with the right credential, is it the right person or not? You know, detecting that malware has infected an application inside an enterprise. You know, lots of ways that we've been using AI and...

You know obviously useful for anomaly detection bot detection when an entity is accessing their a bank account with the bright credentials is at the right person or not.

Detecting that malware has infected and application inside an enterprise.

You know lots of ways that we've been using AI and machine learning.

Speaker 4: uh... now with jen ai uh... i think it it helps some but what really helps the attack

Now with Gen. AI I think it helped some but it really helps the attacker.

Speaker 4: You know, it's much easier now to morph malware into a lot of different forms, makes it harder to detect. You know, our teams have created some very nasty bots very quickly.

You know, it's much easier now to morph malware to a lot of different forums makes it harder to detect our teams have created some very nasty bought very quickly.

Speaker 4: using Gen-AI, and I think we're already seeing more penetrations as a result of Gen-AI. That's one area where really it is being actively used today. Now on that side of the house, the implications are, you know, there's more risk in terms of cybersecurity for enterprises. They're going to get penetrated.

Using gen AI and I think we're already seeing more penetration as a result of Gen. AI, that's one area, where it really it is being actively used today now.

Now on that side of the house the implications are.

You know theres more risk in terms of cyber security for enterprises, they're gonna get penetrated more and so you really have to double down on your defense in depth I think it makes our products like God of course segmentation, even more critical because you gotta get penetrated the key is to identify it quickly and proactively block the spread.

Speaker 4: And so you really have to double down on your defense in depth. I think it makes products like GuardaCore segmentation even more critical because you're going to get penetrated. The key is to identify it quickly and proactively block the spread. And, you know, that I think when you look at our growth rate there, you know, very, very hot with the market leading solution.

And you know that.

Are you thinking you look at our growth rate. There you know very very hot with a market leading solution. Now you also asked about what about compute and the impact of Gen. AI. There I do think over time, it will suck up a lot more compute.

Speaker 4: Now, you also ask about, what about compute and the impact of Gen AI there? I do think over time, it will suck up a lot more compute. And that's good for vendors selling compute, like Akamai sells compute. And you're right. There's a difference between the generation of the model, which is, if they're large models, very heavy. And that'll be done in core compute and storage data centers.

And that's good for vendors selling compute like Akamai sells compute and Youre right Theres a difference between the generation of the model.

Which is if they're large models very heavy and that'll be done in core compute and storage data centers.

Speaker 4: Inference engines can run at the edge and will make sense to run at the edge for many applications.

Inference engine can run at the edge and where it makes sense to run at the edge for many applications are and we already have several partners that are supporting you know there are.

Speaker 4: And we already have several partners that are, you know, porting, you know, their, you know, their AI models onto Akamai for inference engines. And so, and I expect that they will be selling that in our marketplace to other companies. And so, in fact, we're already, you know, in a sense using AI as we port our internal applications onto Akamai Connected Cloud.

Their AI.

Models onto Akamai for inference engines.

And so and I expect that they will be selling that in our marketplace to other companies and.

And so in fact, we're already in a in a sense using AI as we put our internal applications onto akamai connected cloud.

Speaker 4: So I think you will see, you know, over time, a lot of revenue generated there because of all the uses that I think, you know, will come about, you know, through AI. Now you ask about risk.

So I think you will see.

You know over time, a lot of revenue generated there.

Because of all the users that I think will come about through a I know you asked about risks I think you will need to do the model generation in the Big data center. So that's not a risk for Akamai because you know we've got two dozen although it is today.

Speaker 4: I think you will need to do the model generation in the big data centers. That's not a risk for Akamai because, you know, we've got two dozen of those today, you know, so that's, it's just, it'll be done in a different place. It won't be done at the edge, but inference engines, yeah, a lot of that work will be done at the edge and we're in a great place there because other companies don't have an edge anything like Akamai's.

So that's it's just it'll be done in a different place it won't be done at the edge, but inference engines. Yeah, a lot of that work will be done at the edge and we're in a great place there because other companies don't have an edge anything like akamai.

Great. Thank you very much.

Speaker 2: The next question is from Abdullah Khan of Evercore. Please go ahead.

The next question is from <unk> Khan of Evercore. Please go ahead.

Speaker 12: Hi, this is Dua speaking for Amit Daryanani. And I just want to ask for you broadly on the enterprise spend environment. And I know we've previously, we've noted elongating sales cycles. And I was just generally curious whether there's any change there. And if you had to characterize it, is enterprise IT spend incrementally worse or better or about the same versus let's say 90 days ago? Thank you.

Hi, This is <unk> speaking for Amit Ahuja, 90, and I just wanted to ask you broadly on the enterprise spending environment and I know, we've previously noted along getting sales cycles and I was just generally curious whether there's any change there.

How would you characterize it is enterprise it spend incrementally worse or better or about the same versus let's say 90 days ago. Thank you.

Speaker 5: Yeah, good question. I would say, you know, I think there's a lot of companies that are being cautious. You know, we have seen a slight uptick in bankruptcies, as you typically would see in a

Yeah. Good question I would say you know I think there's a lot of companies that are being cautious we have seen him slight uptick in bankruptcies and she says you typically would see in a cycle like this but we're not seeing a significant impact certainly in our security business. If anything we've seen better than expected results. There. So I think security is not.

Speaker 5: cycle like this, but we're not seeing a significant impact, certainly in our security business, if anything, we've seen better than expected results there. So I think security's not as impacted, at least at the moment. Obviously, you know, there's a lot of speculation out there that we're heading towards a recession and, you know, things can change pretty quickly, but so far we've fared very well. And also, if you think about our messaging around compute,

As impacted at least at the moment obviously.

A lot of a lot of speculation out there that we're heading towards a recession and things can change pretty quickly but.

So far we fared very well and also if you think about our messaging around compute.

Speaker 5: One of the biggest challenges a lot of companies have is the runaway cost of compute, and we offer a very compelling option for people to look to save money and increase their performance by moving to us. So I think that'll play into our favor in an environment like this.

One of the biggest challenge is a lot of companies have is the runaway cost of compute and we offer a very compelling option for people to look to save money and increase their performance by moving to us. So I think that will play into our favor in an environment like this.

Awesome. Thank you.

Speaker 2: The next question is from Mark Murphy of Gapy Morgan. Please go ahead.

The next question is from Mark Murphy of Jpmorgan. Please go ahead.

Speaker 13: Thank you very much. Ed, how noticeable or how sudden is the increase that you're seeing in the sophistication of all these malware and ransomware attacks? The part of why I was asking is we noticed that you're launching some scrubbing centers in Canada, and I'm wondering if that's driving CapEx a little higher to help make sure that you're able to address all these attacks? And then I have a quick follow-up.

Thank you very much Ed how noticeable or how sudden is the increase that youre seeing in the sophistication of all these malware and ransomware attacks.

[noise] part of why I was asking is we noticed that you're launching some scrubbing centers in Canada, and and I'm wondering if that's driving capex a little higher to you do.

To help make sure that you are able to address all these attacks and then I have a quick follow up.

Speaker 4: Let me just start on the product side, and then Ed will pick up your question. Ransomware isn't related to scrubbing.

Yes.

Yes, let me just start on the product side, and then it'll it'll pick up your question. So.

Ransomware isn't related to scrubbing centers scrubbing centers are just restricting the flow of packets and you know our screening out or scrubbing out the packets that are trying to flood any particular resource.

Speaker 4: Scrubbing centers are just restricting the flow of packets and screening out or scrubbing out the packets that are trying to flood any particular resource. And that's nothing really per se to do with malware and ransomware. To filter that out, you need application layer defenses, where the scrubbing centers are routing layer defenses.

And that's nothing really per se to do with malware and ransomware to filter that out you need application layer defenses with the scrubbing centers of routing layer defenses.

Speaker 4: and putting the scrubbing centers in Canada, and we're actually putting scrubbing centers in many more cities around the world and greatly increasing our capacity, so that with local customers there, we can do the scrubbing for them locally. And that gives them better performance while we're giving them the defense against the volumetric attacks.

And putting the scrubbing centers in Canada, and we're actually putting scrubbing centers in many more cities around the world and greatly increasing our capacity. So that was local customers. There. We can do the scrubbing you know for them locally.

And that gives them better performance you know, while we're giving them the defense against the volumetric attacks for ransomware, you need Garda core for malware you'd need app and API security knows or different products, where there you know done at our edge network into 4000 Pops edge Pops, we have.

Speaker 4: For ransomware, you need GuardaCore, for malware, you need app and API security. Those are different products where they're, you know, done at our Edge Network and the 4,000 Pops, Edge Pops we have around the world. And then Ed, you want to pick up the other part of that? Yes, sure, you know, usually the...

The World and then Ed do you want to pick up the other part of that.

Yeah sure you know usually the as Tom mentioned.

Speaker 5: the building of the scrubbing center generally will follow where we see significant demand from customers. And one of the other reasons security is up a bit this year is we have seen an increase in some of these volumetric attacks in the healthcare sector, a little bit in the financial sector as well.

The building of the Scrubbing center generally will follow where we see significant demand from customers and what are the other reasons securities up a bit this year as we have seen an increase in some of these volumetric attacks in the health care sector, a little bit in the financial sector as well.

Speaker 5: So this is pretty ordinary course for us. So in terms of like the CapEx needs or builds.

So this is pretty ordinary course for us in terms of like the Capex needs are builds going forward I'd say. This is just ordinary course, there's really nothing unusual to call out there, but we have seen a bit of a pickup in <unk>.

Speaker 5: Going forward, I'd say this is just ordinary course. There's really nothing unusual to call out there, but we have seen a bit of a pickup. And, you know, DDoS in particular tends to be a bit more episodic, you know, as you see big headline grabbing attacks. We do tend to see a pickup in business.

Ddos in particular tends to be a bit more episodic you know as you see big headline grabbing attacks, we do tend to see a pickup in business and oftentimes that will incur.

Speaker 5: Oftentimes that will include a scrubbing center bill, but they're pretty well informed with where we're seeing increased demand.

<unk> Scrubbing center, bill, but they're pretty well informed with where we're seeing increased demand.

Speaker 13: Okay, understood. And then, Ed, just as a follow-up, did you mention what was the total consideration paid for the acquired contracts from StackPath and Lumen? And I'm wondering,

Okay understood and then just as a follow up.

Did you mention what was the total consideration paid for the acquired contracts from from stack path and lumen and I'm wondering I believe those are expected to contribute something like $60 million to $70 million next year. In aggregate is that are you taking like are you assuming.

Speaker 13: I believe those are expected to contribute something like 60 to 70 million next year in aggregate. Is that, are you taking, like, are you assuming a similar ongoing run rate?

Similar ongoing run rate that those contracts had with the prior providers and extrapolating that into next year or what are you contemplating into that any kind of.

Speaker 13: uh... that those contracts had with the prior providers in in in extrapolating that into next year or what are you contemplating into that any kind of

Speaker 13: Expansion contraction rate or pricing that up or pricing that lower

Expansion contraction right or pricing that upper pricing that Laura.

Speaker 5: Sure, I'll take it in different pieces here. So in terms of anticipating any upsell or anything like that with the 200 plus customers, I haven't factored anything in for that. So that would be upside to the extent that we can do that. Remember, we purchased selected contracts. There's certain contracts that we did not take. For example, with adult content and some of the small media business customer contracts we didn't take.

Sure, let me start I'll take it in different pieces here so in terms of <unk>.

Anticipating any up sell or anything like that with the 200 plus customers I havent factored anything in for that so that would be upside to the extent that we can do that.

Remember, we purchased selected contracts. So there are certain contracts that we did not take there's for example, adult content and some of the small medium business customer contracts, we didn't take.

Speaker 5: So, that's not included. So, if you're looking at, you know, other numbers that you may have heard about these companies are private, I'd just caution anybody with private company numbers, they're not always accurate. We just looked at the contracts that we're acquiring, what we think will, how many will onboard, what will happen with pricing, how much traffic we'll keep some of these customers, our splitters. So, we anticipate some of that traffic may go away. But we've tried to factor all that in. So, what we're trying to do effectively is look at the other side of the integration.

So that's not included so if youre looking at other numbers that you may have heard about these companies are private I would just caution anybody with private company numbers and not always accurate. We just looked at the contracts that were acquiring what we think will how many we'll onboard what will happen with pricing how much traffic will keep some of these customers are splitters. So we anticipate some of that traffic may go away, but.

We've tried to factor all of that and so what we're trying to do effectively is look at the other side of the integration in terms of the contracts that we acquired what is that run rate of business that we acquired taking into consideration. The best we can volume and pricing dynamics in terms of consideration, we will file our 10-Q tomorrow and you'll see that.

Speaker 5: the contracts that we acquired, what is that run rate of business that we acquired, taking into consideration the best we can, volume and pricing dime.

<unk>.

That contract has got a upfront fee of about $35 million and there's a small earn out.

Speaker 5: Also with the TSA agreements a little wonky accounting here for you, but you have to fair value the

Also with the TSA agreements will walk you to counting here for you, but you have to fair value the.

Speaker 5: the TSA and to the extent that there's excess cost there, that goes to the purchase price. So, when you see the final 10K, once it's filed and the cash flows, the numbers may be slightly higher. On the Lumen, it's about $75 million. There is no earn out there. Same comments on the TSA. There is a fair value analysis you do in purchase accounting. So, that might be slightly higher, but that's the extent of the agreements.

TSA and to the extent that there's excess costs there that goes to the purchase price. So when you see the final 10-K once it's filed in the cash flow into the numbers may be slightly higher on the lumen. It's about 75 million. There is no earn out there same comments on the TSA. There is a fair value analysis, you do and purchase accounting so that might be slightly higher.

But that's.

That's the extent of the agreements.

Understood. Thank you very much.

Speaker 2: The next question is from Rishi Deloria of RBC. Please go ahead.

The next question is from Rishi jewelry of RBC. Please go ahead.

Speaker 14: Oh, wonderful, thanks everyone. I wanted to follow up on two earlier questions that were asked, one on AI and then one on the contracts. Thinking specifically around AI, Tom, appreciate your answer earlier.

Oh, Oh wonderful thanks.

I wanted to follow up on two earlier questions that were asked one on AI and then one on the contracts.

Specifically around AI, Tom I appreciate your answer earlier.

Speaker 14: If we think about the opportunity to do inferencing at the edge, you know, especially for cases like, you know, connected devices or MedTech or financial services, now that people are increasingly worried about data and data residency, can you speak to a little bit of your opportunity for that and maybe alongside that, what investments do you need to make both in the software stack as well as in hardware infrastructure, be it GPUs or anything else?

We think about the opportunity to do inferencing at the edge.

Especially for cases, like connected devices or or or med tech or financial services now that people are increasingly worried about data and data residency can you speak to a little bit of your opportunity for that.

And maybe alongside that what investments do you need to make both on the software stack as well as in a hardware infrastructure being gpus or anything else to really capitalize and get your fair share of that opportunity and then I've got a quick follow up.

Speaker 14: to really capitalize and get your fair share of that opportunity. And then I've got a quick follow up.

Speaker 4: Great. Yeah, you know, the data residency, data sovereignty issues are increasingly important, as I imagine you know, and that's where Akamai has a great opportunity because, you know, we're in 130 different countries with our infrastructure. And as we move compute into our edge pods,

Great.

Yeah, you know the data residency data sovereignty issues are.

Increasingly important as I imagine you know and that's where Akamai has a great opportunity because you know we're in 130 different countries with our infrastructure and as we move compute into our edge Pops.

Speaker 4: uh... that enables us to to do the work locally keep the data local uh... which is an exciting opportunity for us and you know i i think in the not too distant future will be in locations in countries that you know even the hyper scalars are

That enables us to do the work locally keep the data local which is an exciting opportunity for us and you know I think in the not too distant future, we'll be in locations and countries that you know, even the hyperscale or aren't there.

Speaker 4: Now in terms of the work on the software stack

Now in terms of the work on the software stack to be able to do that that is ongoing work now.

Speaker 4: to be able to do that. That is ongoing work now. We are actually already in beta with a few customers.

We are actually already in beta with a few customers. So we're pretty far along and then next year as I mentioned there'll be relatively small amount of capex as we do build out in our.

Speaker 4: So we're pretty far along, and then next year, as I mentioned, there'll be relatively small amount of CapEx as we do build out in, you know, a non-trivial number of our Edge Pops to be able to support compute.

Non trivial number of our etch pops to be able to support compute now.

Speaker 4: Now, today at the edge, I don't, you know, we support GPUs today, but that would be more in the core data centers.

Now today at the edge I don't support Gpus today, but that would be more in the core data centers.

Speaker 4: You know, I think for the inference engines, you know, we're running that just fine on CPUs. And so as we look at the edge where you'd be running the inference engines, I think run on CPUs and be much more cost effective than trying to, you know, buy GPUs or custom hardware there.

I think for the inference engines, we're running that just fine on Cpus and so as we look at the edge, where you'd be running the <unk> zone, I think run on Cpus and be much more cost effective than trying to you know buy gpus or custom hardware. There are I think where you might see that is.

Speaker 4: Uh, I think where you might see that is more if you're working with large scale model development, and then that would be in the core data centers. If that wouldn't be at the edge.

More if you're working with large scale model development, and then that would be in the core data centers, if that wouldn't be at the edge at the edges, where you want to do the inferencing and that's it seems like that's going to be working very well on our edge platform with Cpus.

Speaker 4: The edge is where you want to do the inferencing and that seems like that's going to be working very well on our edge platform with CPU.

Speaker 14: Got it. Thanks. That's really helpful. And then just in terms of the SPAC path and Lumen contracts, again, appreciate the color in terms of your set of assumptions.

Got it. Thanks, that's really helpful. And then just in terms of the stack path and alumina contracts again I. Appreciate the color in terms of your set of assumptions can you walk us through what you can do on your part to ensure those customers, whether they're net new or existing akamai customers that maybe were trying to.

Speaker 14: Can you walk us through what you can do on your part to ensure those customers, whether they're net new or existing Akamai customers that maybe were trying to use a multi-CDN approach, what you can do to get those customers to stay and to not turn off onto other competitors or even, you know, just kind of figure out how to reduce the spend with you. Thanks.

Use a multi CDN approach what you can do to get those customers to stay and to not turn off onto other competitors or even.

Just trying to figure out how to reduce their spend with you. Thanks.

Speaker 5: Yeah, good question. I think first is the approach that we took, right? We got an inbound request.

Yeah. Good question I think first is the approach that we took right we got an inbound request.

Speaker 5: from these two companies and some of them are customers we know and have had a long relationship with

From these two companies and some of them are customers, we know and have had a long relationship with and providing an orderly transition is step one and the relationship right. So now you get a warm relationship and Ah and introduction to its a new customer and certainly if it's a customer that we have they obviously know us.

Speaker 5: And providing an orderly transition is step one in the relationship, right? So now you get a warm relationship and an introduction to a new customer. And certainly with the customers that we have, they obviously know us.

Speaker 5: And you get a set instead of having a jump all in the open market, you have a chance to sit down with a customer and understand what their, their needs are, understand what's going on with their contracts, length of contracts, pricing, et cetera. And you could just.

And you get a sense instead of having a jump ball in the open market you have a chance to sit down with the customer and understand what their needs are understand this.

What's going on with their contracts length of contracts pricing et cetera, and you can just set up a relationship and just go through a normal sales cycle effectively.

Speaker 5: set up a relationship and just go through a normal sales cycle effectively. I think we've got a pretty good track record and I'm certainly understanding that the customers, and if I think about sort of the weighted average.

I think we've got a pretty good track record.

Certainly understanding that the customers and if I think about sort of a weighted average of where the revenue is we've obviously got them talk to a lot of those customers.

Speaker 5: where the revenue is. We've obviously gone and talked to a lot of those customers. We obviously have had a long-term relationship with a lot of these folks.

We obviously have had a long term relationship with all of these folks.

Speaker 5: So I, you know, I think we have a fairly high degree of confidence in the numbers that we've put out. Obviously, things can change, but, you know, based on our experience with a lot of these folks and with some of these new folks that may have not worked with us in the past, we have an awful lot of other services to offer that they didn't have before.

I think we have a fairly high degree of confidence in the numbers that we've put out obviously things can change, but based on our experience with a lot of these folks and with some of these new folks that may have not worked with us in the past we have an awful lot of other services to offer that they didn't have before and especially with security being such a big topic. These days.

Speaker 5: and especially with security being such a big topic these days.

Speaker 5: you know we're hearing from some of these customers that they're glad that they have a relationship with us now.

Hearing from some of these customers that they're glad that they have a relationship with us now.

Our wonderful thank you so much.

Yeah.

Speaker 2: The next question is from Ruby Kessenter of DA Davidson. Please go ahead.

The next question is from we're gonna be Catharine <unk> of D. A Davidson. Please go ahead.

Speaker 3: Hey, great. Thanks for taking my questions. Ed, just want to quantify the TSA impact. It seems to be about a point and a half impact to gross margins and two fours. That accurate and just to be clear, it sounds like, no, that that TSA ends at year end or when exactly does that TSA.

Hey, great. Thanks for taking my questions just wanted to quantify the TSA impact it seems to be about a point and a half impacted cash gross margins in Q4 is that accurate and just to be clear it sounds like.

No that that TSA ends at year end or when exactly does that TSA Ed.

Speaker 5: Yeah, so there might be just a tiny bit that goes into Q1, just depending on how the migration goes. Hopefully, we can be done with it by the next couple of months here. Yeah, it's just under a point and a half. I rounded down to a point, but you're right. If you just take the amount divided by the revenue, it's about 1.3%, 1.4%.

Yeah. So there might be just a tiny bit that goes into Q1, just depending on how the migration goes but hopefully we can be done with it by you know the next couple of months here.

It's just under a point and a half I rounded down to a point, but you're right. If you just take the amount divided by the revenue it's about.

131, 4%.

Speaker 3: Okay, got it. And then if I just look at your delivery guidance, which I guess is implied by your compute and security revenue guidance, and then I back out the expected 17 to 20 million of revenue from Lumen and StackPath and Q4, it implies delivery revenue flat to down.

Okay got it and then if I just look at your delivery guidance, which I guess is implied by your compute security revenue guidance, and then I back out the expected $17 million to $20 million of revenue from Lumina and stack path in Q4, it implies delivery revenue flat to down in Q4 versus.

Speaker 3: in Q4 versus Q3. So is any extra conservatism in the Q4 delivery guy just based on what you're seeing from traffic trends or any pricing pressure to call out or why not? Why aren't we seeing a typical CISN-OQ4 uplift in delivery revenue access acquisition?

Q3, so is.

Any any.

Extra conservatism in the Q4 delivery guide just based on what Youre seeing from traffic trends or any pricing pressure to call out are or why not.

Why aren't we seeing a typical seasonal Q4 uplift in delivery revenue ex those acquisitions.

Speaker 5: Yes, that's a good question. First of all, there's $4 million of delivery in the Q4 number, so you have to look at the net delta between the two. Also, there's about an $8 million headwind from FX, so there is some implied growth in the delivery number. As I talked about, there's a high degree of uncertainty in Q4 as it relates to traffic. Typically, we see a big seasonality in terms of retail and

Yes, that's a good question first of all those $4 million of delivery in the Q4 numbers. So that you have to look at the Delta between the two also there's about an $8 million headwind from FX. So there's there is some implied growth in the delivery number as I talked about there's a high degree of uncertainty in Q4 as it.

Relates to traffic right, you've got typically we see a big seasonality.

In terms of retail and the media side of the business retail as we've gone through zero overage is less impactful, we do still see some burst thing.

Speaker 5: media side of the business. Retail as we've gone to zero overage is less impactful. We do still see some bursting. I think we're being probably a bit more cautious, especially on the commerce side of the equation for now. But there is some implied growth in marriage factor in those other two items I just mentioned.

I think we're being probably a bit more cautious, especially on the commerce side of the equation for now but there is some implied growth in there as you factor in those other two items I just mentioned.

Okay. That's helpful. Thanks for taking my questions.

Okay.

Speaker 2: The next question is from William Power of Baird. Please go ahead.

The next question is from William Power of Baird. Please go ahead.

Speaker 15: Hi, this is Yannis Somoulisant for Will. Thanks for taking the question. So first of all, just looking at delivery, how are you thinking about Q4 delivery trend this year versus normal seasonality, giving all the questions around the consumer and media activity in general? Any color there would be great. Yeah.

Hi, This is young used more sand per well thanks for taking the question.

So first of all just looking at delivery how are you thinking about Q4 delivery trend this year versus normal seasonality given all of the questions around the consumer and media activity in general.

Any color there would be great.

Yes, like I just mentioned on the last question that.

Speaker 5: We're probably a bit more cautious in terms of our outlook, certainly with retail. I mentioned earlier in an earlier question that we've seen an uptick in bankruptcies. We do have a lot of customers that are on the zero overage for commerce.

There were probably a bit more cautious in terms of our our outlook certainly with retail I mentioned earlier in an earlier question that we've seen.

Kicking bankruptcies, we do have a lot of customers that are on the zero overage for commerce.

Speaker 5: So we're not going into the season. We haven't seen it yet. It usually starts right after Thanksgiving. We're just being a bit more cautious. And in terms of the media cycle, we did see a little bit of gaming activity. Gaming's been light flash a year and a half. A couple of years ago, we saw a big console refresh cycle. We don't expect it to see that. So I'd say we're going into this quarter, probably a bit more cautious than we normally have in Q4s. And certainly what we've seen in the past.

We're not going into the season, we haven't seen it yet it usually starts right. After Thanksgiving, we're just being a bit more cautious and in terms of the media cycle.

We did see a little bit of gaming activity gaming has been light for last year and a half.

A couple of years ago, we saw a big console refresh cycle, we don't.

Expecting to see that so I'd say, we're going into this quarter, probably a bit more cautious than we normally have in Q4 and certainly what we've seen in the past.

Okay. Thanks for squeezing me in.

Yeah.

Speaker 2: The next question is from Michael Elias of TD Collins. Please go ahead.

The next question is from Michael Elias of TD Cowen. Please go ahead.

Speaker 16: Great, thanks for taking the questions. First, earlier you talked about portability, particularly for cloud-agnostic workloads. This is my question for you is, as you think about moving and garnering more share here, what are the steps that you could do to pretty much increase the ease of portability of workloads? And then it's part of that.

Great. Thanks for taking the questions.

Earlier, you talked about portability, particularly for cloud agnostic.

Workloads. That's my question for you is how do you think about moving.

Garnering more share here what are the steps that you could do to pretty much increase the ease of portability of workloads and that's part of that through your data center deployments do you have essentially direct cross connect into the cloud on ramps of the major cloud providers to essentially help facilitate the movement of workloads to your platform and then I have a.

Speaker 16: through your data center deployments, do you have essentially direct cross-connect into the cloud on-ramps of the major cloud providers to essentially help facilitate the movement of workloads to your platform? And then I have a quick follow-up.

Follow up.

Speaker 4: Yeah, great question. I think partners are really helpful there because they do a lot of the work in the first place to get into the third-party cloud provider. And today, some of them moved between third-party cloud providers. And so there is a natural partner ecosystem that can be helpful porting that to Akamai. And I think they're finding that the terms are even more favorable for them as well as for the partners.

Yeah, Great question I think partners are really helpful. There because they do a lot of the work in the first place to get into the third party cloud provider and.

Some of them move between third party cloud providers and so there is a natural partner ecosystem that can be helpful reporting that to akamai.

And you know I think they're finding that the terms are even more favorable for them as well as for the partners are also as we grow the ecosystem of third party capabilities, which you know with our qualified compute partner program. We're doing our early focus on media there, which is our initial focus in terms of.

Speaker 4: Also, as we grow the ecosystem of third party capabilities, which

Speaker 4: you know, with our Qualified Compute Partner Program, we're doing early focus on media there, which is our initial focus in terms of applications to move to optimize. And yes, well, it depends on the data center and the third party cloud provider, but we do have direct connections in many cases. Of course, we operate as I mentioned one of the world's largest backbones in a position to also make direct connections to major enterprises, which can help quite a bit.

<unk> to move to Akamai, and yes, well it depends on you know the data center in the third party cloud provider, but we do have direct connections and in many cases and of course, we operate as I mentioned, one of the world's largest backbones and in a position to also make you know a direct connections to major enterprises, which can can help quite a bit.

Yeah.

Speaker 16: Thanks for that. I mean, just as a quick follow up, just curious if you could talk a little bit about the M&A environment that you're seeing. I know you have that your security growth guidance that you gave at your analyst, they would include some M&A. Just curious any thoughts around the M&A environment, particularly for security, and maybe as part of that, just comments on valuations. Thanks.

Thanks for that and then just as a quick follow up just curious if you could talk a little bit about the M&A environment that youre seeing I know you have that your security growth guidance that you gave at your analyst day, which include some M&A just curious any thoughts around the M&A environment, particularly for security and maybe as part of that just comments on valuation. Thank you.

Speaker 4: Yeah, valuations in the companies that we're most interested in are still extremely high. And you see some of the recent acquisitions that have been done at very high revenue multiples.

Yeah valuations in the companies that were most interested in are still extremely high and you see some of the recent acquisitions that have been done at very high revenue multiples.

Speaker 11: So, not a lot of change yet. Probably at the fringes, it's, you know, getting harder, but for companies that, you know, we have an interest in, I'd not say it's, you know, made a lot of improvement yet. That may change with time. We just have to see. It's something we keep a close eye on. Of course, we're always looking, but we're, you know, very disciplined buyers, so it really has to make very good sense for our customers and for our shareholders. Thank you.

So not a lot of change yet probably at the fringes are its getting harder but for companies that you know we have an interesting I'd I'd not say, it's it's you know <unk> made a lot of improvement yet that may change with time, we just have to see something we keep a close eye on of course, we're always looking but.

There are you know.

A very disciplined buyer. So it really has to make very good sense for our customers and for our shareholders.

Thank you.

Hi, operator, we have time for one more please thank you.

Speaker 2: The last question is from Jeff Van Ree of Craig Hallam. Please go ahead.

The last question is from Jeff Van <unk> of Craig Hallum. Please go ahead.

Speaker 17: Great, thanks for taking the questions. Just one quick one on compute kind of getting to the inflection or the acceleration and growth. I have a couple of questions just.

Great. Thanks for taking the questions. Just one quick one on compute kind of getting to the inflection or the acceleration in growth I have a couple of questions just on on top of our sales cycles. There refresh me what is the typical sales cycle for compute deal and then secondly, with the bulk of the build out done and it sounds like functionality isn't the limit or then it's really just getting to maturity.

Speaker 17: on sales cycles there. Refresh me, what is the typical sales cycle for a compute deal? And then secondly, with the bulk of the build-out done,

Speaker 17: and it sounds like functionality isn't the limiter. Then it's really just getting to maturity of these sales like those the sales forces trained, the functionalities there, the infrastructures there. So it looks like Q4 builds in organic growth roughly similar to Q3. So just trying to get a sense of timing of acceleration there. Thanks.

These sales cycles. The sales forces trained the functionality is there the infrastructure's there. So it looks like Q4 built in organic growth roughly similar to Q3. So I'm just trying to get a sense of timing of acceleration there. Thanks.

Yes, good question.

There is the sales cycle.

But when you close the deal and then there's the effort to actually poured it and then the time to grow it.

Speaker 4: And so, it's not like maybe one of a normal service will say like delivery where very quick to port the business and turn it up. That can happen in a period of days to weeks.

And so it's not like a.

Maybe one of our normal service will sound like delivery, we're very quick to support the business and turn it up that can happen in a period of days to weeks here, probably its more months Ah you know.

To actually get the App courted and then.

All of those traffic or all the compute won't move over all at once you would be growing it over time.

Speaker 4: Uh, so it will, this is something you'll see, I think, throughout next year as we, you know, we close customers and then we grow their revenue.

So it will this is something you'll see I think throughout next year as we you know we close customers and then we grow their revenue.

Speaker 4: And the early signings we did this year, that's exactly what we're seeing, initially very small amounts of revenue, relatively speaking, and then grows over time.

And the early signings we did this year that's exactly what we're seeing initially very small amounts of revenue relatively speaking and then grows over time.

Got it great. Thank you.

Speaker 3: Okay, well, thank you everyone. In closing, we will be presenting at a number of investor conferences and events throughout the rest of the year. Details of these can be found in the investor relation affection of Lockmite.com. Again, thank you for joining us and all of us here at Lockmite Wish You and yours a wonderful rest of the year. Have a nice evening.

Okay, well, thank you everyone and closing we'll be presenting at a number of investor conferences and events throughout the rest of the year details of these can be found in the Investor Relations section of Akamai. Dr. Cohen again, thank you for joining us and all of US here at Akamai wish you and yours, a wonderful rest of the year have a nice evening.

Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.