Q1 2024 Akamai Technologies Inc Earnings Call
Good day and welcome to the first quarter 'twenty 'twenty four Akamai technologies incorporated earnings Conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After today's remarks, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Mark Stoutenburg head of Investor Relations. Please go ahead.
Edward J. McGowan: Thank you operator, good afternoon, everyone and thank you for joining Akamai is first quarter 2024 earnings call speaking today will be Tom Leighton Akamai as Chief Executive Officer, and Ed Mcgowan <unk> Chief Financial Officer. Please note that today's comments include forward looking statements.
Edward J. McGowan: <unk> statements regarding revenue and earnings guidance.
Edward J. McGowan: These forward looking statements.
Subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied.
Such statements.
Edward J. McGowan: The factors include any impact from macroeconomic trends the integration of any acquisitions and any impact from geopolitical developments.
Edward J. McGowan: Additional information concerning these factors is contained in Akamai filings with the SEC, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
Edward J. McGowan: The forward looking statements included in this call represent the company's view on May 19th.
24.
Edward J. McGowan: Akamai disclaims any obligation to update these statements to reflect new information future events or circumstances, except as required by law.
As a reminder, we will be referring to certain 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 <unk>.
Edward J. McGowan: Combined the dotcom IL.
Speaker Change: I'll now hand, the call off to our CEO, Dr. Tom Leighton.
Tom Leighton: Thanks, Mark I'll come I got off to a strong start for the year with our security and compute portfolios and we continued to experience industry headwinds with our delivery product line.
Speaker Change: First quarter revenue grew to $987 million up 8% year over year as reported and in constant currency non-GAAP operating margin was 30% and.
Speaker Change: And non-GAAP earnings per share it was a dollar and 64 cents up 17% year over year and up 18% in constant currency.
The fast growing parts of our business security and cloud computing grew to represent almost two thirds of total revenue in Q1 and combined they grew 22% over Q1 of 2023.
Speaker Change: The continued shift in Akamai is revenue mix towards security and compute is a clear indicator that our growth strategy is achieving the intended results. We continue to successfully leverage the market leadership and cash flow of our delivery product line to invest in our faster growing and more profitable security and cloud computing port.
Tom Leighton: Folios and we're excited about the opportunities we have ahead of us, especially with our planned acquisition of no names security, which we announced this week I'll say more about no name in a minute.
Tom Leighton: But first looking at our security portfolio more broadly.
Tom Leighton: Security revenue grew 21% year over year in Q1 to $491 million driven in part by continued strong demand for our market, leading Garda course segmentation solution.
Speaker Change: Customers, who purchase segmentation from Akamai in Q1 included one of the top telcos in the U S. A supermarket chain with more than 1500 stores across Canada, and a major business management software company in Latin America.
Speaker Change: Our Zero Trust network access solution is also seeing good traction for example, the United States Army announced last month that it selected Akamai for Zero Trust security in battlefield networks. After a competitive evaluation of more than 40 vendors.
The army will use akamai Fritz tactical identity, credential and access management to enhance defenses in high risk operational environments and limit network access to authorized users devices applications and services.
Speaker Change: In response to customer requests to bring our enterprise Zero Trust solutions together into a single platform, we've integrated Garda core with our other enterprise security solutions to form our recently announced Akamai Garda core platform. This new platform is the first of its kind to enable zero Trust security.
Speaker Change: <unk> through a fully integrated combination of micro segmentation Zero Trust network access multifactor authentication, DNS firewall and threat hunting.
Speaker Change: All designed to strengthen and simplify enterprise security with broad visibility and granular controls through a single console.
We think it will appeal to customers looking to consolidate security vendors and integrate their security tools.
Speaker Change: We also continue to see strong customer interest in our App and API security solutions.
Speaker Change: Customers, who purchased Akamai API security in Q1 included a major consumer financial services company, a U S supermarket chain with more than 1200 stores and a leading U S manufacturer of electric vehicles.
Speaker Change: Last month, one of our largest customers are well known hyper scaler was hit with a massive denial of service attack.
Speaker Change: One 4 million requests per minute user.
Speaker Change: Using our rate controls and custom web App firewall rules the customer successfully supported 99.9, 99% of the attack traffic that's five nines of protection.
Speaker Change: The customer was delighted telling us well.
Speaker Change: That's an a plus by just about every calculation and quote.
Speaker Change: Unlike some of our competitors, who struggled to defend against far small our ddos attacks in recent months Akamai is capable of protecting even the hyper scaler.
Speaker Change: The scale of Akamai defenses, and the depth of our expertise really matter for customers, who named Akamai customers choice for the fifth year in a row in the new Gartner peer insights voice of the customers report for cloud web App and API protection.
Speaker Change: And soon our suite of App and API security solutions will become even stronger with the planned acquisition of no named security.
Speaker Change: The use of a P. Ice has exploded in nearly every industry driven by digital transformation. The widespread adoption of mobile phones, and Iot devices and the increased sharing of data between third party providers.
Speaker Change: The increasing use of AP is also opens up new threat vectors for attackers and the need for API security for.
Speaker Change: For example, we saw a P I attacks on our platform more than double from January 2023, the January 'twenty 'twenty four and.
Speaker Change: And I D. C research now predicts that the API security market will grow at a CAGR of 34% to nearly a $1 billion by 'twenty 'twenty seven.
Speaker Change: That's one reason why we're so excited about our plan to acquire no name as we accelerate our momentum in this fast growing segment.
Speaker Change: That's one of the market, leading API security offerings, no named a labors visibility in the API business logic abuse, and contextual awareness between API requests and responses to ensure that anomalous traffic is detected inspected and blocked when warranted.
Speaker Change: We believe that the addition of no name to our API security solution will offer akamai customers enhanced attack analysis more flexible deployment options and extensive vendor integrations, Ed will share some financial details about the acquisition shortly.
Speaker Change: Turning now to cloud computing I'm pleased to say that 'twenty 'twenty four is off to a great start with strong early momentum across multiple verticals customers are excited about our differentiated cloud platform, which offers superior performance through a more distributed footprint cloud.
Speaker Change: Asian and lower costs.
Speaker Change: Examples of major enterprises, using our cloud computing platform now include one of the world's largest e-commerce platforms.
Speaker Change: Several global auto manufacturers, several large direct to consumer and OTT providers.
Speaker Change: Several global SaaS providers, numerous travel and hospitality companies, including one of the world's largest cruise lines and a large airline in Asia.
Speaker Change: One of the largest credit unions in the U S.
Speaker Change: A multinational financial services company and iconic Global Corporation that manufactures and sells consumer electronics computer software and online services.
Speaker Change: European Cyber security company, and a leading AD Tech company.
Speaker Change: Just this week, we signed up one of the world's best known media companies to a two year deal where several million dollars per year for compute.
Speaker Change: Yet another Great example of major enterprises, using our new cloud computing platform is Sony Group Sony.
Speaker Change: Sony is excited about Akamai is investment into edge compute it has multiple latency sensitive compute workloads that are running on akamai.
Speaker Change: Current use cases include Playstation dot com, leveraging edge compute to improve search engine optimization and Playstation direct leveraging edge compute to ensure a fair experience for customers purchasing Playstation hardware.
Speaker Change: We're also seeing strong early traction with our independent software vendor or I S V partners.
Speaker Change: They offer solutions that run on our compute platform and which our go to market teams co sell to help customers solve big challenges with our better together solution.
Speaker Change: For example, our media workflow provider, which powers OTT video now offers its live encoder solution on Akamai connect to cloud the.
Speaker Change: The solution is designed to increase efficiency for large scale streaming while also lowering egress fees by as much as 90% according to their calculations.
Speaker Change: Joint customers of the offering it include one football one of the world's biggest digital soccer platforms backed by clubs, such as real Madrid, Manchester City and Bayern Munich.
Speaker Change: In partnership with an observer ability solution provider, we want cloud computing deals in Q1 with one of the world's leading gaming companies, a leading luxury goods brand in Europe, and one of India's largest conglomerates.
Speaker Change: Their solution powers observer ability using akamai cloud computing and enables real time data ingestion at scale Lightning fast query performance and extensive data retention at a fraction of the cost of other platforms.
Speaker Change: Another ISP partner that is providing distributed database services enabled a well known online travel marketplace to go live in Q1 with a geolocation implementation that uses akamai edge computing to execute code at the edge for optimal performance the travel site invoked more than 68 billion.
Speaker Change: Edge compute instances in March alone.
Speaker Change: By the end of Q1, we had over 200 customers spending $36000 or more in annual recurring revenue for our new compute services with about half spending $100000 or more and six spending over $1 million per year, all just for compute.
Speaker Change: All of these customer counts are triple what we had in Q1 of last year.
Speaker Change: Collectively these customers are spending over $50 million annually coming out of Q1 for our new cloud computing solutions, which is up more than four X year over year.
Speaker Change: Beginning this quarter, our global enterprise cloud sales team is now led by Dan Lawrence, who joined US from AWS, where he ran data and analytics for its private equity segment before that Dan ran the Americas analytics business for five customer segments, including gaming and high Tech SaaS.
Speaker Change: Dan joined Akamai for the potential he sees to combine akamai is trusted brand and edge computing platform with a large market opportunity and distributed cloud.
Speaker Change: I will now say a few words about content delivery, which represents a little over one third of our overall revenue.
Speaker Change: Akamai remains the market leader in delivery by a wide margin, providing the scale and performance required by the worlds top brands as we help them deliver reliable secure and near flawless digital experiences.
Speaker Change: That said our delivery revenue was less than expected in Q1 due to slowing traffic growth across the industry.
Speaker Change: And a large social media customer that is now optimizing their business to reduce costs as a result, and as Ed will discuss shortly we now expect our delivery revenue to decline at a higher rate this year.
Speaker Change: As we've noted before delivery continues to generate profits that we used to fuel our future growth. It also helps our security and cloud computing portfolios as we harvest the competitive and cost advantages of offering delivery security and compute on the same platform.
Speaker Change: Of course were not happy to see the declining revenue and our delivery portfolio and while it remains difficult to predict exactly when that business will begin to stabilize we believe that akamai CDN remains a critical enabler of doing business on the internet.
Speaker Change: This has been the case for the past 25 years, and we remain convinced that businesses will continue to need Akamai is superior scale reliability and security in the future as they migrate more workloads to the cloud seek to secure their internal and external applications and look to unlock the promise of Bay.
Speaker Change: Hi.
Speaker Change: Often while also leveraging akamai security and compute capabilities.
Speaker Change: Moreover, given the exciting growth, we're seeing in our security and compute portfolios. We believe it is only a matter of time before these businesses drive accelerating revenue growth for Akamai as a whole.
Speaker Change: In summary, we're pleased by the strong performance of our security and compute portfolios to start the year and we're very excited about our potential for future growth and profitability as we add no name to our security portfolio and as our fast growing compute portfolio contributes a larger share of revenue.
Speaker Change: Now I'll turn the call over to Ed for more on our Q1 results and our outlook for Q2 and the full year.
Speaker Change: Ed.
Edward J. McGowan: Thank you Tom.
Edward J. McGowan: I plan to review, our Q1 results and then provide some color.
Edward J. McGowan: On our Q2 expectations and our updated full year 2024 guidance, along with the financial impact of our recently announced acquisition of no named security.
Edward J. McGowan: Before we get into that I wanted to address a few items, including what Tom mentioned in his remarks that have caused us to reduce our guidance for the remainder of the year.
Speaker Change: First the U S dollar has strengthened significantly since the start of the year.
Speaker Change: We have noted on many prior calls foreign exchange fluctuations can significantly impact our top and bottom lines.
Speaker Change: Just on the strength of the U S. Dollar we now expect FX to have a negative impact of approximately $40 million on our top line outlook for the full year 2024.
Speaker Change: Translated to a negative impact of approximately <unk> 12 cents to our expected non-GAAP EPS for 2024. In addition, we expect this will negatively impact our full year 2024, non-GAAP operating margin by approximately 30 basis points.
Speaker Change: Second as Tom mentioned, a large social media customer has recently taken steps to lower its cost through a series of optimizations across its platform.
Speaker Change: As a result, they have reduced their overall traffic. Therefore, we now expect approximately $40 million to $60 million less revenue from this customer for the full year than we previously thought this change will primarily impact our delivery product line.
Speaker Change: Finally, as Tom mentioned in his remarks.
Speaker Change: In addition to the large social media customer, we've seen lower than expected traffic in our delivery business over the past two months, most notably in gaming and video.
Speaker Change: This is in line with similar patterns that were cited earlier this week in a research note from a leading wall Street Bank that stated video streaming services, we're seeing a draw and downloads and active users during April the <unk>.
Speaker Change: Note also mentioned that.
Speaker Change: That weakness was coming from streaming service providers pushing for AD supported versions and password sharing crackdowns to stay ahead in the streaming wars.
Speaker Change: As a result of these recent market conditions.
Speaker Change: It's prudent to assume that this traffic weakness will continue for the remainder of 2024.
Speaker Change: This lowered traffic outlook would translate into approximately $20 million to $30 million less delivery revenue for the remainder of the year than we previously expected.
Speaker Change: The good news is that in contrast to some other competitors in the industry, both our delivery business and the overall company continue to be highly profitable as a result, the significant cash flows we generate give us the financial flexibility to execute strategic acquisitions and return capital to shareholders.
Speaker Change: And our future growth and further diversify our business away from delivery and into the faster growing and even more profitable areas in security and compute.
Speaker Change: Turning now to our first quarter results.
Speaker Change: Total revenue for the first quarter was $987 million up 8% year over year as reported and in constant currency.
Speaker Change: Our two fastest growing offerings compute and security grew 22% year over year on a combined basis and now represent 64% of total revenue.
Speaker Change: Computer revenue was $145 million up 25% year over year as reported and in constant currency.
Speaker Change: As I mentioned we.
Speaker Change: We have more than 200 enterprise customers using our cloud computing solutions, our offerings, clearly resonate well with customers and we remain optimistic.
Speaker Change: The early traction we see from large enterprise businesses, it's worth noting that the annual run rate of our enterprise compute revenue is now over $50 million it was growing at over 300% year over year.
Speaker Change: Security revenue was $491 million security revenue grew 21% year over year as reported and in constant currency.
Speaker Change: We are very pleased by our continued performance with our garden core Zero Trust solution and highly encourage by the traction we are seeing in our recently launched.
Speaker Change: The API security solution.
Speaker Change: Moving to delivery revenue was $352 million, which declined 11% year over year as reported and 10% in constant currency.
Speaker Change: International revenue was $475 million up 7% year over year and up 8% in constant currency, representing 48% of total revenue in Q1.
Speaker Change: Foreign exchange fluctuations had a positive impact on revenue of $2 million on a sequential basis, and a negative $4 million impact on a year over year impact basis.
Speaker Change: non-GAAP net income was $225 million for $1.64 of earnings per diluted share up 17% year over year and up 18% in constant currency and finally, our non-GAAP operating margin in Q1 was 30%.
Speaker Change: Moving now to cash and our use of capital as of March 31st our cash cash equivalents in marketable securities totaled approximately $2 $3 billion. During the first quarter. We spent approximately $125 million to repurchase approximately one 1 million shares. We now have roughly $400 million remaining on our previously announced.
Speaker Change: Sure by buyback authorization.
Speaker Change: As noted in today's press release, our board authorized a new buyback program of up to $2 billion effective today and running through the end of June 2027.
Speaker Change: Combining the two authorizations, we currently have roughly $2 $4 billion available for share repurchases.
Speaker Change: Our intention is to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases.
Speaker Change: Earlier this week, we announced our intent to acquire no named security for approximately $450 million. We believe this acquisition demonstrates our continued balanced approach to capital allocation by Opportunistically buying back shares over time, while maintaining sufficient capital to deploy on strategic M&A presents itself.
Speaker Change: Before I provide our Q2 and full year 'twenty 'twenty four guidance I wanted to touch on some housekeeping items first regarding our planned acquisition of known named security. We expect this transaction to add approximately $20 million in revenue for the full year to be dilutive to non-GAAP EPS by approximately 10 sense it to be dilutive to non-GAAP operating margin.
Speaker Change: By approximately 50 basis points in 2024.
Speaker Change: We expect that the acquisition will close sometime in June do not expect the acquisition to have a material impact on Q2 results and as a reminder, our updated full year guidance includes the impact of the acquisition.
Speaker Change: Finally specific to traffic, we expect a modest uptick in media traffic in Q3, primarily due to the Olympics.
Speaker Change: This event is expected to drive approximately $3 million to $4 million of additional revenue in the third quarter.
Speaker Change: And while Q4 is typically our strongest quarter seasonally we saw a more muted impact of that seasonality last year and we expect that we will see a similar result this year.
Speaker Change: So with those factors in mind, turning to our Q2 guidance. We're now projecting revenue in the range of $967 million to $986 million were up 3% to 5% as reported and 4% to 6% in constant currency over Q2 2023.
Speaker Change: Current spot rates foreign exchange fluctuations are expected to have a negative $5 million impact on Q2 revenue compared to Q1 levels and the negative $9 million impact year over year.
Speaker Change: At these revenue levels, we expect cash gross margins of approximately 72% to 73%.
Speaker Change: Q2, non-GAAP operating expenses are projected to be $302 million to $307 million, we expect Q2, EBITDA margins of approximately 41% to 42% we.
Speaker Change: We expect non-GAAP depreciation expense to be between $126 million to $128 million and we expect non-GAAP operating margin of approximately 28% to 29% for Q2.
Speaker Change: Moving on to Capex, we expect to spend approximately $175 million to $183 million. This represents approximately 18% to 19% of our projected total revenue.
Speaker Change: Based on our expectations for revenue and costs, we expect Q2 non-GAAP EPS in the range of $1.51 to $1.56. This EPS guidance assumes taxes of $56 million to $59 million based on an estimated quarterly non-GAAP tax rate of approximately 19, the 19, 5%.
Speaker Change: It also reflects a fully diluted share count of approximately 155 million shares looking ahead to the full year. We now expect revenue of $3 95, Boe to 4.0, $200 billion, which was up 4% to 5% year over year as reported and up 4% to 6% in constant currency.
Speaker Change: We now expect security revenue growth of approximately 15% to 17% in constant currency in 2024, including the contribution from the acquisition of Nomura.
Speaker Change: And with the strong start for our compute offerings in Q1, we now expect compute revenue growth to be approximately 21% to 23% in constant currency for the full year 2024.
Speaker Change: We are estimating non-GAAP operating margin of approximately 28% to 29%. We now estimate non-GAAP earnings per diluted share of $6 20 to $6.40 and non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 19 to 19, 5%.
Speaker Change: Fully diluted share count of approximately 155 million shares.
Speaker Change: Finally, our full year Capex is expected to be approximately 16% of total revenue. This updated capex is higher than our original expectations outlined last quarter due to a lower revenue outlook slightly higher software capitalization rates across the business as more work is being done on capitalized projects.
Speaker Change: And higher than expected server component costs, driven primarily by NAND storage pricing certain servers that support our cloud computing buildup.
Speaker Change: In closing we are pleased with our progress in security and compute to start the year, Tom and I would be very happy to take your questions operator.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: Withdraw your question. Please press Star then two.
Speaker Change: In the interest of time, please limit yourself to one question and one follow up.
Speaker Change: At this time, we'll pause momentarily to assemble our roster.
Speaker Change: Okay.
Speaker Change: Our first question comes from Madeline Brooks from Bank of America. Please go ahead.
Madeline Nicole Brooks: Hey team. Thanks, so much for taking my question and great to see compute kick up in terms of the guidance.
Madeline Nicole Brooks: One question for me on the delivery side of the House last quarter, you had mentioned that first quarter and second quarter of this year.
Madeline Nicole Brooks: Even your walls.
Madeline Nicole Brooks: And as to how those renewals are calling it there isn't any updated outlook in your guidance that from the renewal side of the house. Thank you.
Madeline Nicole Brooks: Hey, Matt This is Ed yeah. So the renewals are going as planned in terms of the pricing expectations. We've got a few of them done now will have about five of the seven completed by the end of this quarter and the other two will be done in early.
Madeline Nicole Brooks: Q3 as.
Madeline Nicole Brooks: As far as expectations go like I said pricing is coming in line volume a little bit lower than we expected normally when we do these large renewals we tend to see an uptick in traffic. We just haven't seen that so that's all been reflected in our guidance.
Speaker Change: Great. Thanks, and maybe one more question if I could.
Madeline Nicole Brooks: Are there things out there for any of your larger deals are you seeing any type of offsetting the compute crowd for maybe some larger customers.
Madeline Nicole Brooks: Our volume.
Speaker Change: I'm, sorry could you just repeat that again.
Speaker Change: Are you seeing a lower customers larger customers who are coming in.
Speaker Change: Lower volume than expected are you seeing that offset at all by any type of compute crowd aircrafts in other areas.
Speaker Change: Oh, yeah, they're not directly tied but as we talked about.
Speaker Change: You know several of the world's largest media companies are starting to use our compute capabilities for.
Speaker Change: For a variety of our Paas. So that's a good news story, it's not tied to the traffic levels in any way.
Speaker Change: Of course, these big media companies still use akamai for a large fraction of their delivery needs by traffic in the industry as a whole, especially media and gaming is in lower than we had initially expected.
Speaker Change: Great. Thank you so much.
Speaker Change: The next question comes from Keith Weiss from Morgan Stanley. Please go ahead.
Speaker Change: Thank you. This is Josh Baer on for Keith a question was on margin guidance was lowered by 150 basis points at the midpoint 50 from the No-name acquisition, you mentioned 30 basis points from FX was hoping you could just walk through.
Speaker Change: The rest of them move.
Speaker Change: Lower on the margin guidance.
Speaker Change: Yeah, I think just the rest of that would just be due to the lower delivery revenue as a whole.
Speaker Change: Okay.
Speaker Change: Got it I guess as a follow up related to margins is there any like structural change and reaching I guess that the low thirties type of long term target and just just asking given the lower guidance for this year, but also because from a mix perspective.
Speaker Change: You've actually moved faster to the higher margin security.
Speaker Change: And compute versus delivery. Thank you.
Speaker Change: Yeah sure. So theres really no structural change, obviously, we're making some pretty big investments in R&D and you can see that in the R&D line and also just the acquisitions. We made an acquisition last year made an acquisition now so.
Speaker Change: So we're investing in growth, but there's also a fair bit of investment that goes into the.
Speaker Change: Cost of goods sold line as we build out our compute platform.
Speaker Change: So you can see that in the higher co location costs and there were some accounting that you have to do when you get through some of the long term agreements for co location. So we should start to see that get some benefit of that is as compute grows even faster.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from James Fish from Piper Sandler. Please go ahead.
James Edward Fish: Hey, guys just on the on the social media customer here and they know what's going on but you know it does seem as though traffic has been slowing for the loss.
James Edward Fish: Two years or so from from what we can tell but on on some of these renewals and specifically on the social media customer I guess, what's the confidence confidence that this isn't just tied to kind of DIY efforts picking back up in the space.
James Edward Fish: Yeah for the the large social media costs, where we talk about there's a few components are generally tied to their efforts to reduce costs.
Speaker Change: You know, they're using less bits per transaction and end user experience. They are optimizing their doing less pre fetching a they do have a very large DIY component as well and we havent seen the impact of that yet, but we do think that they may use that more throughout the.
Speaker Change: Rest of the year and that's factored into our lower guidance for this particular customer.
Speaker Change: So we haven't seen that yet, but we anticipate it at this point as part of their overall cost reduction efforts.
Speaker Change: Yeah.
Speaker Change: Got it and then on the security side of the House I mean, what did no name have that shared neo SEC with smaller.
Speaker Change: In scale, but that nios acted and so why isn't this just kind of a roll up strategy.
Speaker Change: Space and Ed if you could just walk me through the security guidance you guys had a hand like a pretty good beat here.
Speaker Change: And I get FX is kind of moving against you on this but why wouldnt, we see further upside given the strength you saw in Q1 is it just because some of the security revenues tied to some of these delivery renewals are wide.
Speaker Change: Conservative security guys.
Speaker Change: I'll take the first part and then let Ed to answer the second part, yes, no name as the market leader.
Edward J. McGowan: And they have a lot of capabilities that we don't have yet and it's actually very synergistic with what we have they have an on prem and hybrid solution. Our solution has been SaaS only a they have a great channel partner ecosystem.
Edward J. McGowan: Our market, leading presence very easy to use and to integrate and by the time, we get the the acquisition close later this quarter. We anticipate we will have full integration with Akamai security services, which is the piece that we're really missing.
Speaker Change: And a great user experience and console.
Speaker Change: So really strong capabilities and of course much bigger business.
Speaker Change: And with our solution you know, we can add to that.
Speaker Change: Stronger forensics and threat hunting with our data lake capabilities.
Speaker Change: And by putting the pieces together really a very compelling solution and you know I was just out at RSA earlier, this week and I got to say the news was incredibly well received a lot of customers both ours and no name customers are very happy about the acquisition and what we're gonna be able to do for them.
Speaker Change: Also the partner ecosystem, you know no name is very partner friendly.
Speaker Change: And then.
Speaker Change: That will really help our go to market motion and they were very excited about the news as well and Ed I'll turn it over to you for the the second part there.
Edward J. McGowan: Yeah sure. So first of all just you know great quarter for security, great sequential growth strength across the board really in terms of pretty much all of our solutions, obviously seeing great growth with API security and expect that will accelerate now that we have no name in the mix, but I think as you look at last year, we had very very strong sequential growth sort of unusually strong including some.
Edward J. McGowan: License revenue in the back half of last year. So the compares get a little bit tougher I don't think there's anything structurally that we're seeing that would cause us to be less bullish I think one thing just to keep in mind. We introduced some bundled last year, we had identified about 3000 customers or so obviously had great success with that that's going to have less of an impact this year as we start to anniversary.
Speaker Change: That.
Speaker Change: But we're very excited about what we're seeing with Garda core which is starting to become more material and the growth from API security. So we're very bullish with the growth going forward and I think just getting tougher comps in the back half, which is going to perhaps causes the percentages to be up a little bit lower than what we saw here in Q1.
Speaker Change: Okay.
Speaker Change: The next question comes from Fatima <unk> from Citi. Please go ahead.
Fatima: Good afternoon, and thank you for taking my question.
Fatima: And just one on delivery.
Fatima: I can appreciate how difficult it is chinchilla parameter ride.
Fatima: And that are playing out in the industry.
Speaker Change: Both the both of you.
Speaker Change: <unk> laid that out in the prepared remarks.
Speaker Change: And how should we think about the floor in terms of declines in net and how what type of guard guardrails that you were anticipating and putting around this business.
Speaker Change: Essentially what I'm trying to get around and how confident are you that that's a recalibration malware.
Speaker Change: Keep in consideration and everything that's happening in front of them.
Speaker Change: A follow up.
Speaker Change: Yeah, I'll start and then that'll give us some more color on this.
Speaker Change: Of course, when we give guidance we do it based on the best available information we have at the time, obviously, you know we don't like to see.
Speaker Change: The revenue decline and you'd never like be in a position of taking down the guidance for you know one of your portfolios.
Speaker Change: We do believe that you know our delivery business is critical for major enterprises to operate on the Internet.
Speaker Change: That said delivery is a very competitive environment and we are subject to overall traffic levels on the Internet, which we now believe will be.
Speaker Change: Lower state than we had thought before and you know this is typical we've been doing this as the market leader now for 25 years and there's times you know when traffic accelerates more than you might have thought in times. When it doesn't then I think we're in sort of the ladder mode. Right. Now now we do believe that business will get back up to par.
Speaker Change: Can't tell you exactly when that will be it's important for us to do that I should add though it's not our top priority. You know we are not out there you know doing whatever price. It takes to go grab all the business in fact, I think we've been pretty clear that's not the case, there's traffic that we are not taking because we don't.
Speaker Change: Phil that it's profitable are really strategic for us.
Speaker Change: Our primary goal is using delivery for very strong cash flow that we can invest in security and compute which we think are much more lucrative markets and not the long run offering much more growth and also we use it.
Speaker Change: With our customers to you know introduced for example, compute you know the big Big customers Big Media gaming are big prospects in compute.
Speaker Change: And our largest customers there are over $1 billion in third party cloud spent typical large media customers hundreds of millions and we want to get a share of that business, which is much more profitable and ultimately much larger that delivery and so that is our focus here, obviously, we want to get back to par we don't like to see a.
Speaker Change: Turning business, but it's a it's a bigger picture and of course, we're competing with a lot of companies that are very desperate just to get a little bit more growth in delivery and even if theyre doing it at a very unprofitable level not that makes it more challenging and add maybe you want to talk a little bit more on the details of the guidance and the comp.
Speaker Change: Yes.
Speaker Change: Yeah, Yeah, as Tom talked about we use the best information, we possibly can we obviously work with a lot of the big telcos, we try to get feedback from them as to what they're seeing we talked to our large customers to get an understanding of what they have planned.
Speaker Change: In terms of a big events or if theyre doing downloads, how big the downloads are going to be what sort of share. We should expect as we go through things like our large renewals and that sort of stuff.
Speaker Change: When we see a trend like we saw in March where traffic was lower than we expected and then continued into April it did cause us to go back and re look at our forecast and be a little bit more cautious, but those forecasts.
Speaker Change: Unusual to see traffic decline month over month doesn't generally happen.
Speaker Change: But you know theres, a big pressure in the industry to save costs, especially in the streaming business gaming tends to be very seasonal and a little fickle in terms of <unk>.
Speaker Change: Different titles being popular or not we're just sort of been excellent. The downtrend in gaming, but you know as Tom mentioned, we've seen these trends before we're usually pretty good at predicting when things will turn around but when we do see something that is concerning were going to call. It out.
Speaker Change: <unk> reset our forecast.
Speaker Change: I appreciate that and then just to go with regards to the new go to market leadership on the Capes.
Speaker Change: Syed.
Speaker Change: I'm just curious is there going to be any material changes or is this.
Speaker Change: A deepening of the bench, that's going to allow for an ongoing acceleration of the country.
Syed: Can you just get a little bit more detail on that and go to market change or something like that pretty excellent pedigree. Thanks. So much.
Speaker Change: Yes, its more the ladder and getting really solid.
Speaker Change: You know experience and expertise as we increase our investment in the go to market effort around compute and we think Dan is an excellent addition to our leadership.
Syed: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from Mike Mark Murphy from J P. Morgan. Please go ahead.
Mark Murphy: Thank you very much I wanted to congratulate you on the strength in compute and security and the the U S Army wherein the Sony.
Mark Murphy: We are now obviously, good things happening there about coming back to the social media company that you referenced is that a typical kind of garden variety.
Speaker Change: Base of cost optimization or is there is there perhaps anything unusual like a corner case, where the you know the clock might be ticking on legislative proposals in there yeah theyre moving in advance of that or is it could it be a social media company that is struggling and and a shrinking anything along those lines.
Speaker Change: No I think you described it pretty well in the first two descriptions you get Ah.
Speaker Change: And there just are a very large customer.
Speaker Change: For Akamai in a very in a very good customer they are looking to cut costs and they are looking at potential you know geopolitical challenges.
Speaker Change: And so that you know I think a lot of companies look to cut costs, particularly these days in media.
Speaker Change: And maybe they have additional construction.
Speaker Change: I understand Okay, and then Ed D. The security company, you're acquiring I forget the name of it can you provide any any metrics on the head count or are there growth rates in the last 12 months or the or the gross margins and I'm. Just wondering does it does it focus on the API security.
Speaker Change: That is that aligns any more or less across any of their particular hyperscale or <unk>.
Speaker Change: Yeah I'll take the first part time you can you can take the second part about the the product now in terms of growth.
Speaker Change: Growth rates and stuff like that I hesitate to give growth rates, because we obviously have to translate everything theyre doing into.
Speaker Change: GAAP revenue ASC 606, but just needless to say they were growing pretty quickly we talked about we think it will contribute about $20 million of revenue, but again growing very fast since we introduced them into the mix. There. We think we can accelerate that growth rate quite a bit as we introduce it to our customer base gross margins I would say is pretty typical of what you'd see in a software company.
Speaker Change: Let's call it like high Seventy's, maybe low eighty's or some people costs that go into your cost of goods sold as far as people go right around 250 people give or take 60% or so is in the R&D, 30% in the go to market and the rest is sort of a mixture in kind of your back office support.
Speaker Change: Yeah in terms of the question on the Hyperscale or as an API security. They don't offer API security they have API gateways, which is something totally different.
Speaker Change: Our competition in API security is more startups or younger companies smaller.
Speaker Change: Emerging field and really we feel now named as a leader there.
Speaker Change: Thank you.
Speaker Change: The next question comes from Frank Louthan from Raymond James. Please go ahead.
Frank Garrett Louthan: Great. Thank you just to go back on the.
Frank Garrett Louthan: The delivery side was there a price that they would've been willing.
Frank Garrett Louthan: With him is just pretty much a business decision there and Tom you can get back to par.
Frank Garrett Louthan: What do you what do you mean by that is that a level of revenue how should we think about what it would be to kind of getting back to par.
Tom Leighton: Well, Paul we don't want to see revenue decline in our portfolio we.
Tom Leighton: We'd like to see it to grow and were declining obviously.
Tom Leighton: Now in delivery and in the particular case of the large social media company I.
Tom Leighton: I don't think this is a price related issue.
Tom Leighton: Really so.
Tom Leighton: I mentioned I think pricing.
Tom Leighton: Obviously very competitive out there and.
Tom Leighton: And we don't go and chase the bottom stuff, that's not really profitable for us, but you know pricing is sort of as we expected more of a it's a that's a traffic overall traffic in the industry right now.
Tom Leighton: Yeah.
Tom Leighton: Okay.
Tom Leighton: What level do you see that.
Tom Leighton: Every business sort of bottoming at out that would be kind of considered sort of flat for you.
Speaker Change: Yeah, you know I started talking about it is it's hard to hard to predict I mean, I think what you need to see for that to happen is.
Tom Leighton: Traffic growth to improve to see pricing rationalize a bit more than where it is now and nothing.
Tom Leighton: Less concentration of big renewals.
Tom Leighton: But that's really the formula that you would need to see a bit of a stabilized delivery business.
Speaker Change: Okay, great. Thank you.
Speaker Change: The next question comes from Amit <unk> from Evercore. Please go ahead.
Tom Leighton: Hey, guys. Thanks for taking the question. This is Chad Park on for Amit I just had a quick one on the delivery business. Given this is an election year do you think we could see a step up in the delivery business will go in the back half normally elections tend to drive some sort of benefit as well as kind of the Olympics benefits you mentioned earlier.
Tom Leighton: Yes, we talked about the Olympics.
Tom Leighton: It's an event for us.
Tom Leighton: That's $3 million to $4 million.
Speaker Change: This year, you know as far as the election goes really hard to tell.
Speaker Change: We saw back in 2016, a bit more traffic 20 didn't really drive a ton of traffic I would say this is probably closer to what we saw in 'twenty. So we're not really anticipating a significant amount of traffic as a result of this.
Speaker Change: This year's election, but we'll see.
Speaker Change: Hey.
Speaker Change: Got it and then just as a follow up I think free cash flow was really strong during this quarter, but if I look back historically Q1 is kind of a low in them.
Speaker Change: Sequentially in the September quarter, there, it's much greater so could you talk about maybe any changes to your capex on the free cash flow expectations for fiscal 'twenty four.
Speaker Change: Yeah. So I would think that next year should play out or excuse me 24 should play out like it's done in the past Q1 was a little bit stronger than normal as we've talked about on several calls back last year. We did move some folks to a stock based bonus programs. When we start a cash based bonus program.
Speaker Change: Q1 that would drive cash flow down a little bit in Q1, but in terms of the progression throughout the year. It should look like.
Tom Leighton: The other years.
Speaker Change: Great Thanks for that.
Speaker Change: The next question comes from Jonathan Ho from William Blair <unk> Company. Please go ahead.
Jonathan Frank Ho: Hi, Good afternoon, just wanted to understand in the Zero Trust platform that you announced today can you talk a little bit about how customers are thinking about I guess purchasing you know just on sort of the assembly of products that you're talking about and you know how that compares with maybe some of the other your views on how you know.
Jonathan Frank Ho: As you and others are just platform some of them up over time.
Speaker Change: Yeah. This is a really good platform core zero trust for enterprise applications. So you get your micro segmentation and your employees Zero Trust network access what's your employee access that's your north South and East West now combined.
Speaker Change: Same agents you don't have to have two different agents same console and playing a class.
Speaker Change: And on top of it you get your MFA your DNS security and your threat hunting service all packaged in a platform and that is something customers have been asking for it makes their lives a lot easier than having what seemed to be different products with different agents and different interfaces you know on top of it.
Speaker Change: At RSA, we demonstrated a very cool new capability that actually uses gen. A I L. L. Ams to give a very nice human interface into your your enterprise infrastructure. It identifies what your various applications and devices are and you just want to thank all of <unk>.
Speaker Change: Would know, but they don't you know enterprise major enterprise just have zillions of applications and devices on the internal network and they don't even know what they all are and this couch and then actually a human language form.
Speaker Change: I can actually tell you you.
Speaker Change: What is not sufficiently protected.
Speaker Change: Or if the firewall rules. The agent rules are out of date, we've got a lot of positive feedback about that at RSA and it's something that over time, we want to take to our entire suite of security services, which I think it'll be that'll be pretty exciting. So yeah. So this helps because customers want to see you know really have.
Speaker Change: New basic platforms of which Akamai is one and simplification of interface.
Speaker Change: And control.
Speaker Change: Both for the.
Speaker Change: The control plane and for the agent that's on their applications and servers.
Speaker Change: Excellent excellent and just in terms of a follow up with compute you you obviously spoke about a number of large wins here large types of customers can you talk about the potential to take that larger share of the pie over time, you know as you grow within these customers and help US understand are you landing in sort of a small footprint.
Speaker Change: With and then growing from there or are you just sort of taking everything upfront.
Speaker Change: Trying to understand you know what that that net retention opportunity it looks like overtime. Thank you yeah.
Speaker Change: Yeah, Great question and it very much is a land small sums.
Speaker Change: I'll try out a single App without a little of the traffic for it and then grow it and then add more apps and you see that with our our profile of customers.
Speaker Change: Starting with the ones that you know a $3000 a month and half of them now up to a 100 Grand a year six at a million one at $10 million a year and Akamai is actually our first hundred million dollar a year customer on the platform and that's the same progression. We went through over the last you know year.
Speaker Change: Year.
Speaker Change: A year and a half and.
Speaker Change: And we expect and that's what we're trying to do with with all of our accounts. These customers I talked about it I Couldnt give you most of their names, but you would recognize them and are they are what their spend now with us is a tiny fraction, even the big ones of their overall cloud spend and they are finding the platform is easy to use performs very well.
Speaker Change: And it's saving them a boatload of money.
Speaker Change: And I think that's why we're seeing such good early traction and now the goal is to grow those accounts. Both in terms of the number of use cases and the scale of a use case and then to add more customers and again they will come in at the at a lower revenue volumes to start.
Speaker Change: The next question comes from Alex Henderson from Needham. Please go ahead.
Alexander Henderson: Great. Thanks.
Alexander Henderson: First off.
Alexander Henderson: Picking off no name was.
Alexander Henderson: Real true for you I think.
Alexander Henderson: Outstanding acquisition.
Speaker Change: So congratulations on that.
Speaker Change: I wanted to ask.
Speaker Change: Some some content around.
Speaker Change: The compute piece.
Speaker Change: First.
Speaker Change: Moved a bunch of your internal apps from other compute.
Speaker Change: Compute platforms to internal where are you on that what what does that look like in terms of the cost savings.
Speaker Change: And.
Speaker Change: What has been.
Speaker Change: The variance relative to.
Speaker Change: What you had expected when you started it I assume you've probably got better and better results not worse results.
Speaker Change: And I was hoping you could.
Speaker Change: In the context of the compute.
Speaker Change: Platform talk about gross retention as opposed to net retention obviously your net retention looks very good with this.
Speaker Change: Ticks, but.
Speaker Change: And I was wondering if there was any churn of people who were on the platform before that they may have fallen out of the equation.
Speaker Change: Yeah, we're more than halfway through.
Speaker Change: The migration of our third party cloud spend onto Akamai connect the cloud and as I mentioned seeing really.
Speaker Change: Dramatic savings in all in performance improvement so.
Speaker Change: So we're more than $100 million a year on the platform now which is really fabulous for us.
Speaker Change: And.
Speaker Change: Maybe Andrew you want to take the second part of that question.
Andrew: Yes. So if you think about where you see that Alex is there is some absolute savings. If you look on our cost of goods sold line you can see that on that network build and support.
Andrew: Subhlok subcategory, it's offset a little bit by what you see in Colocation fees, so you're not seeing a ton of margin expansion, but what doesn't show up there is that that line was growing at 30, 40% or 50% a year now while it was growing 30, 40% if we hadn't done it so the cost avoidance is pretty significant and as Tom said.
Speaker Change: We're finding this to be much better than we had expected we should get the rest of the expected applications moved over here between now and the.
Speaker Change: Early part of next year into this year into the early part of next year. So.
Speaker Change: I'm very very pleased with that and again a lot of cost avoidance and some absolute cost savings like I said being a little bit masked by the investments, we're making in la and the port.
Speaker Change: And the platform, but then you also asked a question on gross retention I think was the term you used in terms of are we seeing any churn on.
Speaker Change: On the enterprise side, we're not seeing any churn so far we haven't seen any customers that have left the platform, we do see a little bit of churn in the legacy retail retail the node business, which was pretty common when you're talking about the smbs, but but where we're really aiming to grow the business, we're not seeing any of that yet.
Speaker Change: Okay, Great just one last question.
Speaker Change: On this subject.
Speaker Change: Can you talk about whether you're seeing any potential around inference.
Speaker Change: On this platform.
Speaker Change: Because it hasn't been mentioned yet thanks.
Speaker Change: Yeah, we already have several.
Speaker Change: Customers.
Speaker Change: Doing all sorts of AI, but in per se on our platform and we have partners.
Speaker Change: Our ISP partners some of them that's their product capability.
Speaker Change: Yeah, we foresee substantial use of the platform for inference.
Speaker Change: Great. Thank you.
Speaker Change: The next question comes from Rudy Kessinger from D. A Davidson. Please go ahead.
Rudy Grayson Kessinger: Hey, Thanks for taking my questions, Ed just given a quicker than expected mix shift to the higher gross margin revenue lines why aren't we seeing gross margins at least hold steady if not expand its been compressing.
Rudy Grayson Kessinger: For the last few years.
Edward J. McGowan: Yeah. So if you look back a few years ago, they've been compressing a bit we have some.
Edward J. McGowan: Pricing pressure as we always do in the delivery business, but I talked a little bit about this in a few questions ago, and they've been a little bit with Alex and that last question.
Rudy Grayson Kessinger: We invest in the platform to build a compute locations we're doing the gecko.
Rudy Grayson Kessinger: We built out the 25 core locations last year.
Rudy Grayson Kessinger: We enter into these long term leases for co location and whether it's underlying commit you have to straight line that so theres noncash co location expenses. So if you look at our Colo cost line, that's been growing pretty substantially so that's masking a lot of the savings that youre seeing from our third party compute costs. There's also additional build out and support costs.
Rudy Grayson Kessinger: Along with a well so that's why you're seeing the margins sort of holding flat to where they've been over let's say the last year or so, but I don't expect them to decline.
Rudy Grayson Kessinger: Overtime, they should start to expand a bit but as we're building out aggressively in the.
Rudy Grayson Kessinger: In the.
Rudy Grayson Kessinger: We can compute platform that does put a little bit of pressure on margins, but as we start to fill up those locations, we should start to see expansion of margin.
Speaker Change: Yeah, Okay, and then on delivery.
Rudy Grayson Kessinger: Could you just talk about where some of the re pricing came in and some of those contracts and as I look at kind of what's implied for delivery in the rest of the year on an organic basis adjusting for some of those contracts you acquired it looks like a ton of probably gets down to down 20%.
Rudy Grayson Kessinger: Year over year on an organic basis, what is the mix of of you know price compression versus traffic growth is it flat kind of traffic on the network given all the things you talked about 20% price compression or what what is the combination there.
Speaker Change: Yeah. So we don't we don't share those those are numbers for obvious reasons with the the.
Speaker Change: The price compression because obviously, there's customers that get certain discounts others don't get decided disco because you'll have less traffic, but also it's a competitive number I'd want to know what my competitors are doing well with that number as well, but if I think about sort of the mix of whats driving pricing is always always a factor and if you don't get the commensurate traffic growth to offset.
Rudy Grayson Kessinger: That then you're going to decline and that's what we're seeing is really the back half story is a lower than expected traffic now that you know a couple that with your some of your largest customers renewing at the same time and you don't have that that.
Rudy Grayson Kessinger: That volume to offset it it just exaggerate the impact at the back half of the year. So like I said, it's really more of a volume issue than it is on overall pricing issue.
Rudy Grayson Kessinger: Okay.
Speaker Change: Okay, Operator, I think we've got time for one last question.
Speaker Change: The next question comes from Tom Blakey from Keybanc capital markets. Please go ahead.
Tom Barth: Hey, Mark.
Tom Barth: Guys. Thanks for squeezing me in here I just want to go back I think maybe to Doug.
Tom Barth: Dive a little deeper Moody's question about gross margins, you talked about moving to more profitable solutions.
Tom Barth: Longer term and made some headway here in one queue.
Tom Barth: In the past you've kind of given us a framework about lowering capex as a percentage of revenue for CDN.
Tom Barth: Essentially zero percent Capex is needed.
Tom Barth: Theoretically anyway for security.
Tom Barth: Walk us through what the nothing near term NAND price components are but longer term structurally what.
Tom Barth: Compute look like at scale for Akamai.
Tom Barth: Sure.
Speaker Change: Yeah. So good question.
Speaker Change: So I'll start with what the components of Capex are today, So we said, 16% or 8% of that is software cap. So that's probably going to be seven 8%.
Tom Barth: Sort of going forward don't expect much of a change there that's kind of been historically in that range.
Tom Barth: This year is about 4% CDN and securities around three and then there's always 1% call it for.
Tom Barth: Your back office.
Tom Barth: T systems in your facility related costs.
Tom Barth: So in terms of how that's going to go throughout the year. We are three years, we've obviously driven down our capex on the CDN business pretty dramatically that used to be sort of 8% to 10% is what we used to talk about so we've more than cut that in half that expect that.
Tom Barth: At a low single digit range will probably be where we stay unless we see just a dramatic increase like we saw during the pandemic, but theres no reason to believe that just happened with what we know about the the industry right now.
Tom Barth: In terms of the compute business, it's really a question of growth now.
Tom Barth: Expanding in terms of the number of locations right now obviously revenue is growing very fast.
Tom Barth: Big investment last year, and we talked about having room for revenue growth and obviously that enterprise revenue growth because it.
Tom Barth: It's quite substantial in terms of.
Tom Barth: Year over year, and getting to the material numbers, Tom and I talked about the $50 million run rate just for that growing at over 300% now we've used kind of a metric of about a dollar of capex per dollar of revenue not a perfect metric, but it's not a bad one to use that actually looked at some of the hyperscale or is it something other public.
Tom Barth: Information that's available it's a fairly decent proxy, obviously as you're making major investments like the testing right now.
Tom Barth: Yeah.
Tom Barth: I think that's a fairly decent place to put it for now and then obviously as we get more experience, we'll update you from there.
Speaker Change: Okay. Thanks, Thanks, again for that review and update there.
Speaker Change: Back to no name.
Tom Barth: N D kind of set up here. So we model it correctly and look at organic growth does that $20 million for the back half conclude like.
Tom Barth: Cross sell or uplift from being on the Akamai platform is that just kind of annualizing. What no names revenues are today, then and maybe from a strategic perspective photonic is with no name also purchase to be more of a strategic asset in the context of not just API related posture management and bundling there, whereas yours or is learning is going to be.
Tom Barth: He is in its code base going to be more of a hub for bundling more additional security services for Akamai, Yeah, I'll just do a quick answer on the second part there yet no name of strategic API security is strategic and we're looking forward to integrating that more deeply in the Akamai platform and then building on top of it.
Tom Barth: New capabilities and add I'll, let you talk about the financial.
Speaker Change: Yeah. So what we what we've baked in really is just essentially what we expect their contribution to be without a <unk>.
Speaker Change: Significant increase in sales from our.
Speaker Change: Revenue synergy so theres an opportunity to drive additional revenue synergies throughout the back half your assumption. There is a closing sometime in June that we're training our sales reps up it always takes a little while for that acquisition to settle and then you start opening up sales campaigns and we'll start closing some deals towards the.
Speaker Change: Latter part of the year, hopefully, we can do better than that but in terms of our thinking we just sort of layer in what that contribution will be and hopefully we can drive some revenue synergy in addition to that.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Okay. Thank you everyone and closing we'll be presenting at several investor conferences throughout the rest of the quarter. We look forward to seeing you at those and thanks again for joining US Tonight. We hope you have a nice evening operator, you can now end the call.
Speaker Change: Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.