Q2 2024 Akamai Technologies Inc Earnings Call

Speaker Change: B.B.F. M.D. L.A. D.M. P.A. G.A. M.D. L.A. D.M. P.A. G.A. M.D. L.A. D.M. P.A. G.A. M.D. L.A. D.M. P.A. G.A. M.D. L.A. D.M. P.A. G.A. M.D. L.A.

Speaker Change: The End

Operator: Good day and welcome to the second quarter 2024 Akamai Technology Earnings Conference Call. All participants will be on a list and only notes will be provided.

Speaker Change: Good day, and welcome to the second quarter 2024 Akamai Technology Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0.

Operator: Jr. Media Assistant, please signal a conference specialist by pressing the star key followed by B-Rops. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then 1 on a touch-tone phone. To withdraw your question, please press star and tune in. Please note, this event is being recorded. I would now like to turn the conference over to Mark Stoutenberg, Head of Investor Relations. Please go ahead.

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

Speaker Change: To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2.

Speaker Change: Please note, this event is being recorded.

Speaker Change: I would now like to turn the conference over to Mark Stoutenberg, Head of Investor Relations. Please go ahead.

Mark Stoutenberg: Thank you, operator. Good afternoon, everyone.

Mark Stoutenberg: Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's second quarter 2024 earnings call.

Mark Stoutenberg: And thank you for joining Akamai's second quarter 2024 earnings. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements, including statements regarding revenue, in earnings guidance. These forward-looking statements are subject to risks and uncertainties and are subject to a number of factors that could cause actual results to differ materially from those expressed or implied by such states. The factors include any impact from economic trends, the integration of any acquisition, and any impact from geopolitical developments.

Speaker Change: Speaking today will be Tom Layton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer.

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

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

Speaker Change: The factors include any impact from macroeconomic trends, the integration of any acquisition, and any impact from geopolitical developments.

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

Speaker Change: The forward-looking statements included in this call represent the company's view on August 8, 2024.

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

Speaker Change: As a reminder, we will be referring to certain non-GAAP financial metrics today. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the financial portion of the investor relations section of Akamai.com.

Mark Stoutenberg: Additional information concerning these factors is contained in optimized filings with the SEC, including our annual report on form 10K and our quarterly reports on form 10K. The forward-looking statements included in this call represent the company's view as of August 8, 2020. Disclaims any obligation to update these statements to reflect new information, future events, or circumstances, except as required by them. As a reminder, we will be referring to certain non-gap financial metrics today; a detailed reconciliation of gap and non-gap metrics can be found under the financial portion of the Investor Relations section of akamai.com. I'll now hand the call off to our co-founder and CEO, Dr. Tom Leighton.

Tom Leighton: Thanks, Mark. I'm pleased to report that in the second quarter, Akamai delivered continued strong momentum in compute, strong growth in our security portfolio, steady operating margins, and healthy earnings growth on the bottom line. Second quarter revenue grew to $980 million, up 5% year over year as reported and up 6% in constant currency. Non-GAAP operating margin was 29%. Non-Gap earnings per share were a dollar and 58 cents, up 6% year over year and up 9% in constant currency.

Speaker Change: I'll now hand the call off to our co-founder and CEO, Dr. Tom Leighton.

Tom Leighton: Thanks, Mark. I'm pleased to report that in the second quarter, Akamai delivered continued strong momentum in compute, strong growth in our security portfolio, steady operating margins, and healthy earnings growth on the bottom line.

Speaker Change: Second quarter revenue grew to 980 million dollars, up 5% year-over-year as reported, and up 6% in constant currency.

Speaker Change: non-GAAP operating margin was 29%. non-GAAP earnings per share was $1.58, up 6% year-over-year, and up 9% in constant currency. These results were in line with, or above, our guidance.

Speaker Change: Before I provide more color on our performance, I'd like to review how Akamai is evolving as we grow.

Speaker Change: As most of you know, Akamai first made its name with the invention of content delivery services.

Speaker Change: And we're still the world's leader in that market today. We stand out for providing the scale and performance required by the world's top brands as we help them deliver reliable, secure, and near flawless digital experiences.

Speaker Change: Recent examples include delivering the Euros football tournament and the summer games in Paris for top broadcasters around the world.

Tom Leighton: As we've said in previous calls, our delivery business has been challenged in recent quarters by macroeconomic and geopolitical headwinds. Our plan for delivery is threefold. First, we will remain disciplined when it comes to the profitability of traffic that we choose to serve. Second, we will continue to leverage our market leadership position and establish a base of major enterprises to generate cross-selling opportunities. Third, we will continue to take steps to retain our market leadership while also reinvesting most of the cash flow from our delivery product line into the fast growing areas of the business. In Q2, Delivery Accountant accounted for 1-3rd of our revenue, or $329 million.

Speaker Change: As we've said in previous calls, our delivery business has been challenged in recent quarters by macroeconomic and geopolitical headwinds.

Speaker Change: Our plan for delivery is threefold. First, we will remain disciplined when it comes to the profitability of traffic that we choose to serve.

Speaker Change: Second, we will continue to leverage our market leadership position and installed base of major enterprises to generate cross-selling opportunities.

Speaker Change: And third, we will continue to take steps to retain our market leadership while also reinvesting most of the cash flow from our delivery product line into the fast-growing areas of the business.

Speaker Change: In Q2, delivery accounted for one-third of our revenue, or $329 million. This is quite a change from five years ago when delivery accounted for two-thirds of Akamai revenue.

Tom Leighton: This is quite a change from five years ago when delivery accounted for two-thirds of Akamai's revenue. The diversification of our revenue across new markets through continuous innovation has long been a core part of Akamai's strategy for long-term profitable revenue growth. A little more than a decade ago, we expanded our business into security with the creation of Web App Firewall as a cloud service. We did this to meet what we recognized as a growing customer need in a way that was complementary to what Akamai was already doing for customers with delivery. The opportunity was clear to us because we listened to our instincts.

Speaker Change: The diversification of our revenue across new markets through continuous innovation has long been a core part of Akamai's strategy for long-term profitable revenue growth.

Speaker Change: A little more than a decade ago, we expanded our business into security with the creation of Web App Firewall as a cloud service.

Speaker Change: We did this to meet what we recognized as a growing customer need in a way that was complementary to what Akamai was already doing for customers with delivery.

Tom Leighton: We created what has proved to be a very successful cloud service for webout firewalls. And now, for the first time in Akamai history, security delivered the majority of Akamai's revenue, $499 million in Q2, up 15% year over year, and up 16% in constant currency. This amounts to an annual run rate of about $2 billion per year.

Speaker Change: The opportunity was clear to us because we listened to our customers.

Speaker Change: We created what has proved to be a very successful cloud service for web app firewall.

Speaker Change: And now, for the first time in Akamai history, security delivered the majority of Akamai's revenue, $499 million in Q2, up 15% year-over-year and up 16% in constant currency.

Speaker Change: This amounts to an annual run rate of about $2 billion per year.

Tom Leighton: Of course, we have greatly expanded our security products set over the years. We now offer market-leading solutions for DDoS prevention, bond management, account and content protection, app and API security, and zero-trust enterprise security, led by our GardaCore segmentation solution. Customer interest in our Security Solutions is strong, and we had many significant wins in Q2. For example, one of the world's largest energy companies became a new zero-cross customer with Akamai. One of the top three airlines in the U.S. is moving from a legacy VPN architecture to a zero-trust architecture with Akamai.

Speaker Change: Of course, we've greatly expanded our security product set over the years.

Speaker Change: We now offer market-leading solutions for DDoS prevention, bot management,

Speaker Change: Account and Content Protection, App and API Security, and Zero Trust Enterprise Security led by our GuardaCore Segmentation Solution.

Speaker Change: Customer interest in our security solutions is strong and we had many significant wins in Q2. One of the world's largest energy companies became a new zero-trust customer with Akamai.

Speaker Change: One of the top three airlines in the U.S. is moving from a legacy VPN architecture to a zero-trust architecture with Akamai.

Tom Leighton: We provided the Akamai app and API protector to one of the largest providers of HR management software and services in the U.S., and we brought German retailers to life, Douglas, Fogner, and Zelanda. FFX, the German maker of high-speed industrial doors, purchased our segmentation solution. As did a major stock exchange and a leading cybersecurity company in Latin America.

Speaker Change: We provided Akamai App and API Protector to one of the largest providers of HR management software and services in the U.S.

Speaker Change: and the German retailers Delife, Douglas, Wagner, and Zalando.

Speaker Change: Effaflex, the German maker of high-speed industrial doors, purchased our segmentation solution, as did a major stock exchange and a leading cybersecurity company in Latin America.

Tom Leighton: We provided DDoS protection to one of the largest banks in the world and to a government ministry in the Middle East, and at one major electric utility in Southeast Asia, we replaced a well-known competitor in a five-year deal for a web app firewall, DDoS Protection, Bot Management, Account Takeover Prevention, and API secure. We're especially excited about the most recent additions to our security portfolio. In Q2, we announced our new Akamai Garda Core platform, the first of its kind to enable zero trust security for a fully integrated combination of micro segmentation, zero trust network access, multi-factor authentication, DNS firewall, and threat hunt.

Speaker Change: We provided DDoS protection to one of the largest banks in the world and to a government ministry in the Middle East.

Speaker Change: And at one major electric utility in Southeast Asia, we replaced a well-known competitor in a five-year deal for our web app firewall, DDoS protection, bot management, account takeover prevention, and API security.

Speaker Change: We're especially excited about the most recent additions to our security portfolio.

Speaker Change: In Q2, we announced our new Akamai GuardiCorps platform.

Speaker Change: The first of its kind to enable zero-trust security through a fully integrated combination of micro-segmentation, zero-trust network access, multi-factor authentication, DNS firewall, and threat hunting.

Tom Leighton: It's single agent and unified control council powered by GNAI, our design to strengthen and simplify enterprise security with broad visibility and granular control. The new Gen-AI interface enables our customers' operations teams to ask questions in a human language to gain information about their enterprise network. The new Akamai GuardiCorps platform reflects our evolution as a security vendor, growing beyond point solutions to a broader and more comprehensive security offering. Customers tell us they want to consolidate security products and tools with vendors they can trust, and we think this will appeal to their needs.

Speaker Change: It's single agent and unified control council powered by GNAI, our design to strengthen and simplify enterprise security with broad visibility and granular controls.

Speaker Change: The new Gen AI interface enables our customers' operations teams to ask questions in a human language to gain information about their enterprise networks.

Speaker Change: The new Aqua My Guardic War platform reflects our evolution as a security vendor, growing beyond point solutions to a broader and more comprehensive security offering.

Speaker Change: Customers tell us they want to consolidate security products and tools with vendors they can trust and we think this will appeal to their needs.

Tom Leighton: In Q2, we also closed the acquisition of no-name security as we accelerate our momentum in the fast-growing API security market. IDC forecasts this market will grow at a CAGR of 34% to nearly $1 billion by 2027.

Speaker Change: In Q2, we also close the acquisition of no-name security as we accelerate our momentum in the fast-growing API security market.

Speaker Change: IDC forecast this market will grow at a keg or a 34% to nearly $1 billion by 2027.

Tom Leighton: With no name, we believe that Akamai now has one of the most comprehensive API security solutions in the industry. Within two weeks of the close, Akamai offered no-name customers our new Edge Connector, an integration with Akamai Web App and API Protector that works with a click of a button. No Name saw a significant increase in closed deals in Q2, including wins at some of the largest banks and insurance companies in North America and at leading software companies in Europe and Asia.

Speaker Change: With no name, we believe that Akamai now has one of the most comprehensive API security solutions in the industry.

Speaker Change: Within two weeks of the close, Akamai offered no-name customers our new Edge Connector, an integration with Akamai Web App and API Protector that works with a click of a button.

Speaker Change: No name saw a significant increase in closed deals in Q2, including wins at some of the largest banks and insurance companies in North America and at leading software companies in Europe and Asia.

Tom Leighton: We're also beginning to see a good upsell motion with early no-name adopters. For example, one of the largest U.S. healthcare insurers more than doubled their no-name contracting revenue in Q2 to over $1.7 million annual. About a decade after we entered the security market, we again expanded Akamai's future opportunities by developing a much broader offering in cloud computing. As many of you know, Akamai has offered function as a service on our Edge platform for many years.

Speaker Change: We're also beginning to see a good upsell motion with early no-name adopters. For example, one of the largest U.S. health care insurers more than doubled their no-name contract in Q2 to over $1.7 million annually.

Speaker Change: About a decade after we entered the security market, we again expanded Akamai's future opportunity by developing a much broader offering in cloud computing.

Speaker Change: As many of you know, Akamai has offered function as a service in our Edge platform for many years. This kind of Edge computing has been used by thousands of our customers, and it is deeply integrated into our delivery and security services.

Tom Leighton: This kind of edge computing has been used by thousands of our customers, and it is deeply integrated into our delivery and security services. But our customers asked for more. They wanted us to offer full-stack cloud computing so that they could run their VMs and containers on the Akamai platform. And they wanted us to do it in a way that would be more efficient and less costly than comparable offerings provided by the hyperscalers.

Speaker Change: But our customers asked for more. They wanted us to offer full-stack cloud computing so that they could run their VMs and containers on the Akamai platform.

Speaker Change: And they wanted us to do it in a way that would be more efficient and less costly than comparable offerings provided by the hyperscalers.

Tom Leighton: They wanted Akamai to do this because they were already delivering and securing their sites and apps on our platform. They liked our track record of reliability, and they knew they could trust Akamai to be a good partner. Many of them also like the fact that we don't compete against them, unlike the hyperscale.

Speaker Change: They wanted Akamai to do this because they were already delivering and securing their sites and apps on our platform. They liked our track record of reliability, and they knew they could trust Akamai to be a good partner.

Speaker Change: Many of them also like the fact that we don't compete against them unlike the hyperscalers.

Tom Leighton: Adding cloud computing to our portfolio also makes good sense for Akamai. In addition to satisfying customer demand, we can reap the advantages of offering customers delivery, security, and compute on the same platform. The synergies include improved performance, seamless integration, and other operational efficiencies. Bundling for cross-selling and strong customer retention increase margins for all of our services.

Speaker Change: Adding cloud computing to our portfolio also makes good sense for Akamai. In addition to satisfying customer demand, we can reap the advantages from offering customers delivery, security, and compute on the same platform.

Speaker Change: The synergies include improved performance, seamless integration, and other operational efficiencies.

Speaker Change: Bundling for cross-selling and strong customer retention. Increase margins for all of our services.

Tom Leighton: Deepening Relationships with Carrier Networks. Capacity to quickly detect and stop massive cyber attacks at the edge. Unmatchable visibility into enormous volumes of traffic, and the security insights and threat intelligence that we gain as a result.

Speaker Change: Deepening Relationships with Carrier Networks

Speaker Change: Capacity to quickly detect and stop massive cyber attacks at the edge.

Speaker Change: Unmatched visibility into enormous volumes of traffic and the security insights and threat intelligence that we gain as a result.

Tom Leighton: If you step back and look at how the marketplace has evolved, you can see how the hyperscalers have worked to achieve a similar suite of offerings, although they've taken a different route to get there. They started with cloud computing and infrastructure as a service and then moved into security and delivery, validating our view that there is synergy and offering customers all three together. The hyperscalers also have a more centralized architecture.

Speaker Change: If you step back and look at how the marketplace has evolved, you can see how the hyperscalers have worked to achieve a similar suite of offerings, although they've taken a different route to get there.

Speaker Change: They started with cloud computing and infrastructure as a service, and then moved into security and delivery, validating our view that there is synergy in offering customers all three together.

Tom Leighton: Well, Akamai has the world's most distributed cloud platform, with more than 4,100 points of presence in over 700 cities across 130 countries. We believe that being more distributed provides customers with better performance, better economics, and greater reliability. As we reported in our last earnings call, the initial response from customers to our new cloud offering has been very encouraging. The strong Early Momentum that we achieved in Q1 continued in Q2, with compute revenue growing to $151 million, up 23% year over year, and up 24% in constant currents.

Speaker Change: The hyperscalers also have a more centralized architecture.

Speaker Change: Well, Akamai has the world's most distributed cloud platform, with more than 4,100 points of presence in over 700 cities across 130 countries.

Speaker Change: We believe that being more distributor provides customers with better performance, better economics, and greater reliability.

Speaker Change: As we reported in our last earnings call, the initial response from customers to our new cloud offering has been very encouraging.

Speaker Change: The strong early momentum that we achieved in Q1 continued in Q2, with compute revenue growing to $151 million, up 23% year-over-year, and up 24% in constant currency.

Tom Leighton: New compute customers added in Q2 include one of the world's best-known media and entertainment brands based here in the U.S., the European Cybersecurity Company, sequoia.io; Claro Video, the video brand of the biggest telco in Latin America; M-Ware TV, a technology platform for IPTV and OTT services; and a cable satellite IPTV provider that reaches almost half the households in Australia.

Speaker Change: New Compute customers added in Q2 include one of the world's best known media and entertainment brands based here in the U.S.

Speaker Change: The European Cyber Security Company Sequoia.io.

Speaker Change: Claro Video, the video brand of the biggest telco in Latin America.

Speaker Change: M-Ware TV, a technology platform for IPTV and OTT services.

Speaker Change: and a cable satellite IPTV provider that reaches almost half the households in Australia.

Tom Leighton: Customers are also leveraging our ISV partners, which we call qualified compute partners, to run low latency workloads on our compute platform. These include solutions for observability into workload behavior, cybersecurity, and large-scale events, where the need to store very large sets of data makes Akamai a more attractive and cost-effective option than competitors. Our media customers can now take advantage of a full suite of media workflow offerings on Akamai Connected Cloud, which provides valuable synergy with our delivery platform for more efficient image manipulation, decisioning, and video transcoding.

Speaker Change: Customers are also leveraging our ISV partners, which we call Qualified Compute Partners, to run low latency workloads on our compute platform.

Speaker Change: These include solutions for observability into workload behavior, cybersecurity, and large-scale events.

Speaker Change: Where the need to store very large sets of data makes Akamai a more attractive and cost-effective option than competitors.

Speaker Change: Our media customers can now take advantage of a full suite of media workflow offerings on Atomic Connected Cloud, which provides valuable synergy with our delivery platform for more efficient image manipulation, decisioning, and video transcoding.

Tom Leighton: And with Akamai's latest qualified compute partner and customer, YoSpace, media companies around the globe can leverage their advanced ad tech and ad strategies at scale across the Akamai Connected Cloud. Customers are also building new apps on our platform where low-latency data distribution and processing provides a better user experience for their customers at significantly reduced cost. One customer is training and testing the machine learning engines that power their security scanning products. Another is building an AI-powered chatbot application to improve its customer experience and streamline operations with intelligent conversational customer engagement. Such AI-powered applications are increasingly popular, and with recent advances in large-language models, is also a very large user of our new cloud solution.

Speaker Change: And with Akamai's latest qualified compute partner and customer, YoSpace, media companies around the globe can leverage their advanced ad tech and ad strategies at scale across the Akamai Connected Cloud.

Speaker Change: Customers are also building new apps on our platform where low latency, data distribution and processing provides a better user experience for their customers at significantly reduced cost.

Speaker Change: One customer is training and testing the machine learning engines that power their security scanning product.

Speaker Change: Another is building an AI-powered chatbot application to improve their customer experience and streamline operations with intelligent conversational customer engagement.

Speaker Change: Such AI-powered applications are increasingly popular with recent advances in large language models.

Tom Leighton: As a result of migrating most of our own apps from hyperscalers to Akamai Connected Cloud, we're seeing better performance and greatly reduced costs. In fact, we expect to reduce our spending on third-party clouds to less than a third of what it would have been this year, and we stayed on the hyperscale, saving us well over a hundred million dollars a year. It sure feels good not writing a nine-figure check to your competitors every year. And this is a feeling that we look forward to providing to our large enterprise customers. In summary, Akamai has undergone a fundamental transformation.

Speaker Change: Akamai is also a very large user of our new cloud solution.

Speaker Change: As a result of migrating most of our own apps from the hyperscalers to Akamai Connected Cloud, we're seeing better performance and greatly reduced cost.

Speaker Change: In fact, we expect to reduce our spending on third-party clouds to less than a third of what it would have been this year had we stayed on the hyperscalers, saving us well over $100 million in annual OPEX.

Speaker Change: It sure feels good not writing a nine-figure check to your competitors every year. And this is a feeling that we look forward to providing to our large enterprise customers.

Tom Leighton: We are transforming from a content delivery pioneer into the cloud company that powers and protects life online. Compute and Security now generate two-thirds of our revenue, and we believe that they provide Akamai with excellent potential for future growth and profitability. And we've achieved this transformation while successfully maintaining robust margin because both of our fast-growing product areas, our large security portfolio, and our rapidly-growing cloud computing portfolio are built upon and enabled by the foundation of our business, our highly-efficient and massively-distributed delivery platform.

Speaker Change: In summary, Akamai has undergone a fundamental transformation. We transform from a content delivery pioneer into the cloud company that powers and protects life online.

Speaker Change: Compute and security now generate two-thirds of our revenue and we believe that they provide Akamai with excellent potential for future growth and profitability.

Speaker Change: And we've achieved this transformation while successfully maintaining robust margins.

Speaker Change: because both of our fast-growing product areas, our large security portfolio, and our rapidly growing cloud computing portfolio are built upon and enabled by the foundation of our business, our highly efficient and massively distributed delivery platform.

Tom Leighton: Our near-term operating margin goal remains 30%, and we see potential margin upside over time as the fast-growing areas of the business expand our profitability. Looking back at the first half of 2024, we're pleased by our strong performance in security and compute. Looking ahead, we're very excited about our potential for future growth as we integrate No Name and as our fast growing compute offerings continue to gain traction with cuts. Now I'll turn the call over to Ed for more on our Q2 results and our outlook for Q3 for the full year. Ed?

Speaker Change: Our near-term operating margin goal remains 30%, and we see potential margin upside over time as the fast-growing areas of the business expand our profitability.

Speaker Change: Looking back at the first half of 2024, we're pleased by our strong performance in security and compute. Looking ahead, we're very excited about our potential for future growth as we integrate NoName and as our fast-growing compute offerings continue to gain traction with customers.

Speaker Change: Now I'll turn the call over to Ed for more on our Q2 results and our Outlook for Q3 in the full year. Ed?

Ed Mcgowan: Thank you, Tom. Today, I plan to review our Q2 results and then provide some color on our expectations for Q3 and the full year. Turning to our second quarter results, total revenue for the second quarter was $980 million, up 5% year-over-year as reported and 6% in constant currency. Compute revenue was $151 million, up 23% year-over-year as reported and 24% in constant currency. We continue to be very pleased with the level of enthusiasm and the market, as more and more customers are leveraging our enterprise compute solutions, in particular. We are seeing a broad array of enterprise compute use cases, including live transcoding, secure access, observability, object storage, real-time log aggregation and insight, Spatial Computing, and Deep Learning AI Models.

Ed Mcgowan: Thank you, Tom. Today I plan to review our Q2 results and then provide some color on our expectations for Q3 in the full year.

Ed Mcgowan: Across many verticals, including media, e-commerce, software, and financial services. Moving to security revenue. In the second quarter, security revenue was $499 million, up 15% year-over-year as reported and 16% in constant currency. We're very pleased by the continued performance of a Garda Corps Zero Trust solution and highly encouraged by the traction we are seeing with our recently launched API Securities.

Ed Mcgowan: Turning to our second quarter results.

Ed Mcgowan: Total revenue for the second quarter was 980 million dollars, up 5% year-over-year as reported, and 6% in constant currency. Compute revenue was 151 million dollars, up 23% year-over-year as reported, and 24% in constant currency.

Ed Mcgowan: We continue to be very pleased with the level of enthusiasm in the market as more and more customers are leveraging our enterprise compute solutions. In particular,

Ed Mcgowan: We are seeing a broad array of enterprise compute use cases, including live transcoding, secure access, observability, object storage, real-time log aggregation and insight.

Ed Mcgowan: Spatial Computing and Deep Learning AI Models.

Ed Mcgowan: Across many verticals included media, e-commerce, software, and financial services.

Speaker Change: Moving to security revenue, the second quarter, security revenue was $499 million, a 15% year-rear as reported in 16% in constant currency.

Speaker Change: We're very pleased by the continued performance of our GuardaCore Zero Trust Solution and highly encouraged by the traction we are seeing in our recently launched API security solution.

Ed Mcgowan: It's worth noting that the no-name transaction closed in late June, and the revenue contribution in the second quarter was less than one million dollars. Combined, compute and security revenue grew 17% year-over-year, as reported, and 18% in cost and currency, representing 66% of total revenue. Moving to delivery.

Speaker Change: It's worth noting that the no-name transaction closed in late June and the revenue contribution in the second quarter was less than 1 million dollars.

Speaker Change: Combined, compute and security revenue grew 17% year-over-year as reported, and 18% in cost and currency, representing 66% of total revenue.

Ed Mcgowan: Revenue was $329 million, which declined 13% year-over-year as reported and 12% in cost and currency. The decline in delivery revenue was primarily related to the revenue-impacting items that I outlined last quarter and was in line with our expectations. International revenue was $471 million, up 3% year-over-year and up 5% in constant currency, representing 48% of total revenue in Q2, with exchange fluctuations having a negative impact on revenue of $5 million on a sequential basis and a negative $10 million, in fact, on a year or a year bit.

Speaker Change: Moving to delivery, revenue was three hundred and twenty nine million dollars which declined thirteen percent year-over-year as reported and twelve percent in cost and currency.

Ed Mcgowan: The decline in delivery revenue was primarily related to the revenue-impacting items that I outlined last quarter and was in line with our expectations.

Ed Mcgowan: International revenue was $471 million, up 3% year over year and up 5% in constant currency, representing 48% of total revenue in Q2.

Ed Mcgowan: Foreign exchange fluctuations had a negative impact on revenue of $5 million on a sequential basis and a negative $10 million impact on a year-over-year basis.

Ed Mcgowan: Non-GAAP net income was $243 million, or $1.58 of earnings per diluted share, up 6% year-over-year and up 9% in constant currency, and our non-GAAP operating margin in Q2 was 29%. Moving now to cash and our use of capital. As of June 30th, our cash, cash equivalents, and marketable securities totaled approximately $1.9 billion.

Ed Mcgowan: Non-GAAP net income was two hundred and forty three million dollars or one dollar and fifty eight cents of earnings per diluted share, up six percent year over year and up nine percent in cost and currency.

Ed Mcgowan: During the second quarter, we spent approximately $128 million repurchasing approximately 1.4 million shares. We now have an aggregate of roughly $2.3 billion remaining in our share buyback authorizations. We also used approximately $450 million in cash in the second quarter for the acquisition of NoName.

Ed Mcgowan: And our non-GAAP operating margin in Q2 was 29%.

Ed Mcgowan: Moving now to cash and our use of capital. As of June 30th, our cash, cash equivalents and marketable securities totaled approximately 1.9 billion dollars.

Ed Mcgowan: During the second quarter, we spent approximately $128 million repurchasing approximately 1.4 million shares.

Ed Mcgowan: We now have an aggregate of roughly $2.3 billion remaining in our shared buyback authorizations. We also used approximately $450 million in cash in the second quarter for the acquisition of No Name.

Ed Mcgowan: As relates to our use of capital, our intention remains the same, to continue buying back shares over time, to offset delusion from employee equity programs, and to be opportunistic in both M&A share repurchase. Before I provide our Q3 and updated full year 2024 guidance, I want to touch on some housekeeping items. First, regarding the close of the No-Name Security Act.

Ed Mcgowan: As it relates to our use of capital, our intention remains the same, to continue buying back shares over time to offset dilution from employee equity programs and to be opportunistic in both M&A and share repurchases.

Ed Mcgowan: Before I provide our Q3, an updated fully year 2024 guidance, I want to touch on some housekeeping items.

Ed Mcgowan: We expect this transaction to add approximately $8 to $10 million of revenue in Q3 and approximately $18 to $20 million of revenue for the full year 2024. We also expect it to be diluted to non-gab BPS by approximately 4 to 5 cents for the full year 2024 and to be diluted to non-gab operating margin by approximately 30 to 40 basis points in 20. As a reminder, our updated full year guidance includes the impact of the acquisition. Second, the specific to traffic.

Speaker Change: First, regarding the clothes of the no-name security acquisition.

Ed Mcgowan: We expect this transaction to add approximately $8 to $10 million of revenue in Q3 and approximately $18 to $20 million in revenue for the full year 2024.

Ed Mcgowan: We also expected to be diluted to non-gab BPS by approximately 4-5 cents for the full year 2024, and to be diluted to non-gab operating margin by approximately 30-40 basis points in 2024.

Ed Mcgowan: As a reminder, our updated full-year guidance includes the impact of the acquisition.

Ed Mcgowan: We expect a modest uptick in year-over-year traffic in the second and third quarters primarily due to the Paris summer games. This event is expected to drive approximately three to four million dollars of additional revenue in the third quarter. And while Q4 is typically our strongest quarter seasonally, we saw a more muted impact of that seasonality last year, and we expect to see a similar result this year.

Ed Mcgowan: Second, and specific to traffic, we expect a modest uptick in year-over-year traffic in Q3, primarily due to the Paris Summer Games. This event is expected to drive approximately three to four million dollars of additional revenue in the third quarter.

Ed Mcgowan: And while Q4 is typically our strongest quarter seasonally, we saw a more muted impact of that seasonality last year, and we expect to see a similar result this year.

Ed Mcgowan: The country of India recently announced plans to eliminate its digital service tax effective as of August 1, 2024. We are working with our tax advisers to determine the full impact of this tax change on our non-gap effective tax rate. Based on our initial assessment, we believe this could result in a small increase in our effective non-GAAP tax rate. We have adjusted our guidance accordingly. Finally, the macroeconomic environment remains challenging, and geopolitical tensions persist.

Ed Mcgowan: Third.

Speaker Change: The country of India recently announced plans to eliminate its digital service tax effective as of August 1, 2024. We are working with our tax advisers to determine the full impact of this tax change on our non-gap effective tax rate.

Ed Mcgowan: Based on our initial assessment, we believe this could result in a small increase in our effective non-GAAP tax rate.

Ed Mcgowan: We have adjusted our guidance accordingly.

Ed Mcgowan: Finally, the macroeconomic environment remains challenging and geopolitical tensions persist. Any negative developments could have a meaningful impact on our business.

Ed Mcgowan: Any negative developments could have a meaningful impact on our business. So with those factors in mind, I'll move to our Q3 guidance. For Q3, we're projecting revenue in the range of $988 to $1.008 billion, or up 2% to 4% as reported and 3% to 5% in cost and currency over Q3 2023. The current spot rates foreign exchange fluctuations are expected to have a positive $2 million impact on Q3 revenue compared to Q2 levels and a negative $5 million impact year over year.

Ed Mcgowan: At these revenue levels, we expect cash gross margins of approximately 73 percent. Q3 non-GAAP operating expenses are projected to be $307 to $312 million. We expect Q3 EBITDA margin of approximately 42 percent. We expect non-gap depreciation expense to be between $129 to $131 million. We expect a non-GAAP operating margin of approximately 29% for Q3. Moving on to CapEx, we expect to spend 166 to 174 million dollars. This represents approximately 17% of our projected total revenue.

Ed Mcgowan: So with those factors in mind, I'll move to our Q3 guidance. For Q3, we're projecting revenue in the range of $988 to $1.008 billion, or up 2% to 4% as reported and 3% to 5% in cost and currency over Q3 2023.

Ed Mcgowan: The current spot rates foreign exchange fluctuations are expected to have a positive $2 million impact on Q3 revenue compared to Q2 levels and a negative $5 million impact year-over-year.

Ed Mcgowan: Based on our expectations for revenue and cost, we expect Q3 non-GAAP EPS in a range of $1.56 to $1.62. The CPS guidance assumes taxes of $59 to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 19% to 20%. It also reflects a fully diluted share cut of approximately 154 million shares.

Ed Mcgowan: Looking ahead to the full year, we now expect revenue of $3.970 to $4.010 billion, which is up 4% to 5% year-over-year as reported and up 5% to 6% in costs and covers. The current spot rates and guidance assumes foreign exchange will have a negative $20 million impact on revenue in 2024 on the year-over-year basis. We continue to expect security revenue growth of approximately 15% to 17% in constant currency in 2024, including the contribution from the acquisition of Nomin.

Ed Mcgowan: Looking ahead to the full year, we now expect revenue of 3.970 $4.010 billion, which is up 4% to 5% year over year as reported and up 5% to 6% in constant currency.

Ed Mcgowan: Current spot rates, our guidance assumes foreign exchange will have a negative $20 million impact to revenue in 2024 on a year over year basis.

Ed Mcgowan: We continue to expect security revenue growth of approximately 15% to 17% in constant currency in 2024, including the contribution from the acquisition of Nuomi.

Ed Mcgowan: And given the strong momentum and adoption from both new and existing Enterprise Compute customers, we now expect Enterprise Compute annualized revenue run rate to double from the $50 million we reported last quarter to over $100 million as we exit 2024. As a result, we are now increasing our overall expected compute revenue growth to approximately 23 to 25 percent in constant currency for the full year 2020. Moving to profitability, we estimate a non-GAAP operating margin of approximately 29 percent.

Ed Mcgowan: And given the strong momentum and adoption from both new and existing enterprise compute customers. We now expect enterprise compute annualized revenue run rate to double from the $50 million, we recorded last quarter to over $100 million as we exit 2024.

Ed Mcgowan: As a result, we are now increasing our overall expected compute revenue growth to approximately 23% to 25% in constant currency for the full year 2024.

Ed Mcgowan: Moving to profitability, we estimate non-GAAP operating margin of approximately 29% non-GAAP earnings per diluted share of $6.34 to $6.47.

Ed Mcgowan: And non-GAAP earnings per diluted share of $6.34 to $6.47. Our non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 19 to 20 percent and a fully diluted share count of approximately 154 million shares. Finally, our full-year CAPEX is expected to be approximately 16 percent of total revenue.

Ed Mcgowan: Our non-GAAP earnings guidance is based on non-GAAP effective tax rate of approximately 19% to 20% of the fully diluted share count of approximately 154 million shares finally, our full year Capex is expected to be approximately 16% of total revenue.

Ed Mcgowan: In closing, we are pleased with the traction we are seeing in Enterprise Compute and look forward to helping our customers migrate services to the Akamai Connected Cloud. Thank you. Tom and I would now be happy to take your questions. Operator?

Ed Mcgowan: In closing we are pleased with the traction we are seeing in enterprise compute and look forward to helping our customers migrate services to the Akamai connected cloud. Thank you, Tom and I would now be happy to take your questions operator.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Patrick Colville with Scotiabank. Please go ahead.

Speaker Change: We will now begin the question and answer session.

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

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Ed Mcgowan: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Ed Mcgowan: At this time, we will pause momentarily to assemble our roster.

Speaker Change: The first question today comes from Patrick Colville with Deutsche Bank. Please go ahead.

Patrick Colville: Thank you so much for taking my question. Frank and Ed, it's really great to be part of the Akamai story. I want to talk about the business makeshift, I mean that's where you open, you're kind of a pattern mark, specifically, I want to focus on compute. The 100 million revenue just called out from Akamai Connecti Cloud is really compelling, and if I'm great to see that ramping, when might that stocky stake go to you to become an even greater kind of review base, like what's the kind of trajectory of Akamai over the coming kind of quarters and if we think out beyond that.

Patrick Colville: Thank you so much for taking my question Brent.

Ed Mcgowan: Brent can add pretty great to be part of the that's my story.

Speaker Change: I want to talk about.

Speaker Change: The business mix shifts I mean, that's why you opened a you kind of prepared remarks, specifically I want to focus on compute the 100 million revenue you just called out from Akamai connected cloud is really compelling and it's great to see that that's ramping.

Speaker Change: When might that hockey stick to.

Speaker Change: To become.

Speaker Change: And even greater revenue base like what's the kind of trajectory of Akamai connect to clouds.

Speaker Change: Over the coming quarters.

Speaker Change: Pick up beyond that.

Tom Leighton: Yeah, great question. And I have to say we were very pleased to see the rapid early adoption. You know, that's a capability that we really just started selling in earnest this year; we had some very early adopters towards the end of last year. And, you know, if we can get up to 100 million ARR by the end of the year, which we think we're going to do, that's great, you know, for the first year of the product.

Speaker Change: Yeah, Great question and I got to say, we were very pleased to see the rapid early adoption.

Speaker Change: That's a capability that we really just started selling in earnest. This year, we had some very early adopters towards the end of last year and you know if.

Speaker Change: If we can get up to a 100 million a our or by the end of the year, which we think we're gonna do Ah. That's great you know for that the first year of the product.

Tom Leighton: And then, you know, we'll see where we are at the beginning of next year; we'll give guidance in February for the year in compute, but we're very optimistic about strong growth in compute driven by enterprise customers and our new capabilities. You know, there's an enormous market there, obviously. And so we're really looking forward to tapping into it.

Speaker Change: And then well see where we are at the beginning next year, we'll give guidance in February.

Speaker Change: You know for the year in compute, but we're very optimistic about strong grow.

Speaker Change: You know in compute driven by the enterprise customers in our new capability there.

Speaker Change: You know, there's there's an enormous market there obviously and so we're really looking forward into tapping into that.

Patrick Colville: Very helpful, thank you. And I guess the second part of my question is about... delivery. I mean, this year you've been very clear about the kind of headwinds that delivery businesses will face in 2024. I appreciate you might not want to...

Speaker Change: Very helpful. Thank you.

Speaker Change: And I guess the second part of my question I wanted to ask about that.

Speaker Change: <unk> I mean this year.

Speaker Change: You've been very clear about the the the kind of headwinds the delivery business in 2024.

Speaker Change:

Speaker Change: I appreciate you might not want to.

Patrick Colville: I don't want to give guidance beyond 2024, but... wondering whether the headwinds we're seeing right now are... Cyclical headwinds, or are they structural in nature?

Speaker Change: Kinda give guidance beyond 2024, but.

Patrick Colville: Thank you.

Speaker Change: Wondering whether the headwinds, we're seeing right now or cyclical headwinds or are.

Speaker Change: Are they structural.

Speaker Change: In nature. Thank you.

Tom Leighton: Yeah, you know, I don't think what we're seeing today will persist over the long term. You know, traffic, I think, will grow, continue to grow, maybe at a little bit of a slower rate than it did certainly during the COVID times. But, you know, delivery, I believe, is here to stay.

Speaker Change: Yeah, you know I don't think what we're seeing today persist over the long term.

Speaker Change: You know traffic I think will grow continue to grow maybe.

Speaker Change: Maybe at a little bit of a slower rate you know that it did certainly during the Covid time.

Speaker Change: But you know delivery I believe is here to stay we are intent on remaining the market leader by a good margin. It's a very profitable business for US we were very careful about that were very efficient in what we do and it's very synergistic.

Tom Leighton: We are intent on remaining the market leader by a good margin. It's a very profitable business for us, and we're very careful about that. We're very efficient in what we do.

Tom Leighton: And it's very synergistic, you know, with our security, with our firewall business and our emerging compute business. So I don't see these headwinds persisting over the long term. You know, there are geopolitical considerations that we're worried about for next year, but I don't think this is a long-term phenomenon. And in any case, given the very fast growth of our security and compute product lines, they've nearly tripled in revenue over the last five years.

Speaker Change: With our security web App firewall business and our emerging <unk> compute business. So I don't see these headwinds persisting over the long term you know there are geopolitical considerations that we're worried about you know for next year, but I don't think this is a long term phenomenon.

Speaker Change: And in any case, you know given the very fast growth of our security and compute product lines.

Speaker Change: Nearly tripled in revenue over the last five years to now where there are two thirds of our revenue overall I think the what you see with delivery with sometimes challenges sometimes good it has a lot less impact on the overall growth rates as we go forward.

Tom Leighton: So now we're at two-thirds of our revenue overall. I think what you see with delivery, sometimes challenges, sometimes good, it has a lot less impact on the overall growth rates as we go forward. Ned, do you have anything you want to add to that? No, I think you covered it well, Tom.

Speaker Change: And do you have anything you want to add to that.

Speaker Change: No I think you covered it Walter.

Keith Weiss: The next question comes from Keith Weiss with the Morgan Family. Please go ahead.

Speaker Change: The next question comes from Keith Weiss with Morgan Stanley. Please go ahead.

Keith Weiss: Thanks a lot. Thank you guys for taking the question and congratulations on a solid quarter. And I wanted to ask you a little bit about kind of parsing out the guidance, particularly the earlier guidance. If I'm doing my math right, the midpoint of the full year comes up by about 5 million for the full year. We're adding for no name security, and it sounds like about 20 million in revenue for the full year. Is there a part of the equation that's coming down to a part of the business that you're getting more foster sons that makes up that?

Keith Weiss: Excellent. Thank you guys for taking my question and congratulation on.

Speaker Change: Good quarter.

Keith Weiss: And I wanted to ask you a little bit about kind of parsing out the guidance, particularly the full year guidance if.

Keith Weiss: If I'm doing my math right the midpoint of the full year comes up by about 5 million.

Speaker Change: For the full year, or we're adding or no name security it sounds like about $20 million in revenue for the full year or is there a part of the equation, that's coming down a part of that business that youre getting more cautious on that makes up that difference.

Ed Mcgowan: No, Keith. Yes, so we included no names in our guidance last quarter as well, so there's nothing that's changed. If anything, the business has gotten a little bit better, so our guidance has come up a bit to reflect that.

Keith Weiss: No Keith Yes, we included no name in our guidance last quarter as well. So there's there's nothing that's changed if anything the business has gotten a little bit better. So our guidance has come up a bit to reflect that.

Keith Weiss: Got it. Got it.

Keith Weiss: And then on the expense side of the equation, the savings from moving sort of in-house from the hyperscalers, $100 million, is a real savings. Congratulations on that. That's quite a feat.

Speaker Change: Got it got it and then on the expense side of the equation.

Keith Weiss: The savings from moving in.

Speaker Change: In house from the Hyperscale or the $100 million.

Speaker Change: Real saving congratulations on that.

Speaker Change: Quite a feat.

Speaker Change: Tom you talked about the ability to sort of.

Tom: Start pushing that more into operating margins in the near future can you give us an indication of what your future means like.

Speaker Change: 125, near future or are we thinking two or three years out or further.

Tom Leighton: Well, yeah, the operating savings were...

Tom Leighton: Tom, you talked about the ability to sort of start pushing that more into operating margins in the near future. Can you give us an indication of what the near future means? Like, is 2025 the near future? Or are we thinking two or three years out or further?

Tom: Well, yeah, the say the operating savings we're getting.

Tom: Ed said, we've been plowing that back into the business by and large so that we can invest in growth there's more savings to come there, but we really get the upward pressure on margins you know the beneficial tailwind on margin as the mix shift continues.

Tom Leighton: Well, yeah, the operating savings we're getting, you know, as Ed said, we've been plowing that back into the business, by and large, so that we can invest in growth. There's more savings to come there.

Tom Leighton: But we really get the upward pressure on margins, you know, the beneficial tailwinds on margins as the mix shift continues. You know, as we add compute customers, that is good margin for us, and it's accretive. Security, as we add customers there, it's accretive. Now, you know, as Ed noted, that today, with the new security products, initially, they're dilutive. But as we grow revenue there, every customer we add, every deal we sign, improves margins. So, you know, over time, if 30% is our goal, we're very close to that today. But over time, we think we have good potential to grow beyond that.

Speaker Change: As we add compute customers that is good margin for us and it's accretive security.

Speaker Change: Security as we add customers there it's accretive now.

Speaker Change: It noted that today with the new security products initially, they're dilutive, but as we grow the revenue. There every customer we add every deal we sign improves margins. So that you know over time, 30% as it is our goal with very close to that today.

Speaker Change: But over time, we think we have good potential to grow beyond that.

Speaker Change: Outstanding Thank you guys.

John DeFuci: The next question comes from John DeFucio with Guggenheim Securities. Please go ahead.

John <unk>: The next question comes from John <unk> with Guggenheim Securities. Please go ahead.

John DeFuci: Thank you. I have a question about GuardaCore. So segmentation broadly seems like it's becoming more relevant in the market, and customers are more accepting of it. It's not like a new thing, and it has been for a while, and you guys have been there, and you bought GuardaCore a couple years ago. But frankly, it seems like an essential component to a zero-trust environment. Not everybody has it. So can you talk a little bit more about this business but really about your Akamai GuardaCore zero-trust platform that you just launched a few months ago and how that sort of fits in the ecosystem of some enterprises when they need to protect all their assets and establish that zero-trust environment? Because you know, it always seemed to me that this was [inaudible]

John: Thank you I have a question on guard Corps, so segmentation broadly.

Speaker Change: Broadly it seems like it's becoming more relevant in the market customers are more accepting of it it's no longer like a new thing and then it has been for a while and you guys have had been there <unk> got a core a couple of years ago.

Speaker Change: But frankly, it seems like an essential component to zero trust environment and not everybody has it so could you talk a little bit more about how.

Speaker Change: About this business, but really about your Akamai card of course Zero Trust platform that you just launched a few months ago, and how how that sort of fits in the ecosystem of some of an enterprise when they need to protect.

Speaker Change: All of their assets and two to establish that zero trust environment because it you know it always seemed to me that this was the essential like I said that for Zero Trust and then and I guess if you can also.

Speaker Change: In addition to the technologies and what else it fits in with can you also hit on your channel efforts regarding this platform because you know I know this is sold through the through the channel I forget you said this before but it seems like a really sophisticated solution.

Speaker Change: You know you're buying a firewall for somebody or or something like that if you can just talk a little bit about how I know, it's only it's early but how is that is how that's working through the channel.

Tom Leighton: Yeah, you know, I think you characterized it very well; segmentation is essential. You know, I mean, you got a lot of the doors and the windows as best you could, but now we're still getting finished. I think the most important thing an enterprise can do, you know, is lock down everything inside. And that means guarding a court.

Speaker Change: Yeah, you know I think you characterized it very well segmentation is essential.

Speaker Change: You know I mean, you got to lock the doors and the Windows as best you can but malware still get.

Speaker Change: I think the most important thing in enterprise can do you know is locked down everything inside.

Speaker Change: And that means Garda core it means you know having your your agent on every application on every device and Youre right. Most enterprises don't habit you know when you go back a few years and I think you know the community at large really does favor segmentation and that's big.

Speaker Change: Cause the way it was done back then was really crude you did it in hardware very inflexible hard to do and at the end of the day are you. If you did it at all you had giant segments, which defeated the whole purpose you weren't very secure as the malware would get in and wipe out of entire giant segment, you had a big problem.

Speaker Change: And you know God of course solve that problem through.

Speaker Change: Through software very easy to manipulate make updates much more secure fine green controls and so it's been an education process for us in the marketplace. You know, we we viewed it as something that was going to be.

Speaker Change: Central and that I think is proving out as you noted and of course, well also ransomware headline.

Speaker Change: And disasters, it's not surprising to see why people are waking up to what they really do need this.

Speaker Change: So now the next question is with the platform and there what we've done is combine the Garda core which is protecting inside app to app device the device communication with the employee device to internal applications and so we've combined what's called north.

Speaker Change: South and east West.

Tom Leighton: Now, again, you go back a few years ago, they were different buyers and were treated differently. But, you know, then, we were thinking back then, boy, it's going to make sense to put this all together. And sure enough, we're now seeing customers say, hey, we want that on the same platform. We want a single agent, not two different agents, and we've got to deal with a single control panel so that the business logic can be applied to employee devices in the same way, at the same time as it is to internal applications.

Speaker Change: Now again, you go back a few years ago, they were different buyers and treated differently, but you know then we wouldn't they can pack that Boise was kind of makes sense to put this all together ensure enough. We're now seeing customers say, hey, we want that on the same platform.

Speaker Change: Want a single agent not two different agents and we got a deal with a singer control panel. So that the business logic can be applied to employee devices at the same way and the same time as it is to internal applications.

Tom Leighton: And so that's what the GuardiCorps platform is all about. We actually combine it with DNS firewall, multi-factor authentication, and threat hunting capabilities so that you can tell when you've got malware, where it is, and what's going on in a platform that customers are excited about. And I think, you know, it's important not to underestimate the importance of a single agent to do this, because that's really important in real estate. And the new control panel, you know, powered by GenAI, is actually pretty cool.

Speaker Change: And so that's what the guard a core platform is all about we actually also combine it with DNS firewall multifactor authentication threat hunting capabilities. So that you can tell when you've got malware aware. It is what what's going on into our platform, which customers are excited about and I think.

Speaker Change: You know.

Speaker Change: Of course, not to underestimate the importance of a single agent to do this because that's really important real estate and the new control panel you know powered by Jan AI, it's actually pretty cool.

Tom Leighton: You know, you can converse in a human language, if you will, with your network infrastructure, so you get much greater visibility, probably much better compliance as a result, which means better security. Now, to your channel question: yes, GuardiCorps is all about the channel. And, you know, you're right, it is a sophisticated integration and deployment. It's not just like throwing a firewall out there. And that's where partners can really add value.

Speaker Change: You can converse and a human language. If you will with your network infrastructure. So you get much greater visibility probably much better compliance as a result, which means a better security.

Speaker Change: Your your channel question, Yes, God of cortisol all channel.

Speaker Change: And you're right it is a sophisticated.

Speaker Change: You know integration and deployment, it's not just like throw a firewall out there and that's where the partners can really add value.

Tom Leighton: And so in some cases, you know, many cases, the partner will derive even more revenue than Akamai will, and it's ongoing because you're growing your GuardiCorps, your segmentation footprint to include more applications and devices. And it's great for partners when they can add value and generate revenue. So it's a really good channel-friendly product. And, of course, not easy to do, per se, but a lot easier than the way segmentation used to be.

Speaker Change: And so in some cases you know in many cases, the partner will derive even more revenue than akamai will in its ongoing because you're growing your Garda Kumar your segmentation footprint to include more applications and devices and it's great for partners when they can add value and generate revenue. So it's really good.

Speaker Change: Channel friendly product.

Speaker Change: And of course, you know not easy to do per se, but a lot easier than the way segmentation used to be.

John DeFuci: You know, if I could, Tom, because that all makes a ton of sense to me, but it also raises a question, like, what do people do, what do they do, what are the alternatives? Like, I'm familiar with Illumio, and there's another company I've seen called Truefort, but again, like you said, like, people don't, a lot of enterprises don't even have A lot do, but a lot don't, and so what do they do? Are there other things that we're just missing?

Tom: You know, it's like if I could Tom because that all makes.

Speaker Change: A ton of sense to me, but it also raises the question like what do people what do they do what are the alternatives like I'm I'm familiar with Illumina, Oh, and then there's another company I've seen culture for but like you said like people don't lot of enterprises don't even have segmentation implemented a lot.

Tom: Two but a lot don't and so what are they are there other things that were just that I'm just missing like I don't know.

John DeFuci: Like, I don't know, is Palo, say, when they go in and you buy a whole Palo platform, are they just saying, you don't need it, or do they have something that kind of does it? Like, I'm just trying to, because the opportunity just sounds, seems really big. No, I think it's...

Paolo: Paolo So you don't really go in Dubai, a toll power platform are they just saying you don't need it or we have something that kind of does it like.

Speaker Change: I'm just trying to because the opportunities just SUNS seems really big here no I think it is a big opportunity and very few relatively speaking enterprises have it today. The early adopters are the critical infrastructure companies because they really really have to have it and we do compete with a looming out there probably our leading competitor.

Tom Leighton: No, I think it is a big opportunity, and very few, relatively speaking, enterprises have it today. The early adopters are the critical infrastructure companies because they really, really have to have it. And we do compete with Lumio; they're probably our leading competitor. We believe the Guardic Course solution is a lot better. You know, we actually have our own minifire wall on the edge.

Speaker Change: We believe the guard a core solution is a lot better.

Speaker Change: We actually have our own mini firewall on the agent we don't have to rely on the firewall in D O S, which sometimes won't be there it might not be consistent we can cover a lot of the legacy systems, which that's important to enterprises to get more universal coverage I think there is a ton of greenfield.

Speaker Change: You know and I.

Speaker Change: I wouldn't be there when our you know one of the other competitors is talking about their platform. They probably don't spend a lot of time talking about segmentation because they don't really have a solution for it.

John DeFuci: Thank you very much, Tom.

John DeFuci: Thank you very

Speaker Change: Thank you very much Tom.

Mark Murphy: and the next question comes from Mark Murphy with Chaky Morgan. Please go ahead.

Speaker Change: The next question comes from Mark Murphy with J P. Morgan. Please go ahead.

Mark Murphy: Thank you very much. Ed, what is your latest thinking on the FX headwind to the fiscal full-year revenue forecast? I'm just curious if there's been any movement there from, I think, previously you've been looking at that as, I believe, $40 million headwind.

Mark Murphy: Thank you very much Ed what is your latest thinking on the FX headwind to the full year, our revenue forecast and I'm. Just curious if there's any movement. There from I think previously you'd been looking at that as I believe 40 million dollar headwind.

Ed Mcgowan: Yeah, not much of a change; the dollar moved around quite a bit during the quarter, up and down, but it's pretty much exactly the same. So for the full year, it's about 40. I gave the guidance already in the quarter in terms of the impact of the quarter on the full year, but it's still about the same throughout 40 to the full year.

Mark Murphy: Okay.

Ed: Yeah, Hey, Mark Yeah, not much of a change the dollar moved around quite a bit during the quarter up and down but it's pretty much exactly the same so for the full year.

Speaker Change: <unk> 40.

Speaker Change: I gave the guidance already in the quarter in terms of.

Speaker Change: The impact quarter over quarter and for year over year, but it's still about the same just around 40 for the full year.

Mark Murphy: Okay, thank you. And then, Tom, as a quick follow-up, you mentioned a pretty wide array of the workload types that you're seeing on your cloud computing platform, and you mentioned, toward the end, deep learning and AI models. I'm wondering if you can double-click on that.

Speaker Change: Okay. Thank you and then Tom as a as a quick follow up you mentioned, a pretty wide array of the workload types that youre seeing on your cloud computing platform. It you mentioned towards the end deep learning and AI models I'm wondering if you could double click on that for instance, what are the types of models that are you seeing L O M.

Tom Leighton: For instance, what are the types of models? Are you seeing LLM, text models, or image models, or something else? And is it possible to estimate what percentage of your cloud ARR might be...

Speaker Change: Text models or image models.

Speaker Change: Or something else and is it possible to estimate what percentage of your cloud a R R might be relating to those.

Speaker Change: Newer types of AI workloads.

Tom Leighton: Yeah, great question. I would say today the AI workload is probably a small fraction of the ARR. I think over time there is potential for growth there. You know, as we talked about, useful in security applications, chatbots, tailoring content, you know, for commerce companies, ad targeting, recommendation engines. You know, I would say that the models are smaller because they're more focused. You know, the giant models are sort of used to learn everything. You know, your chat TPT, you can ask it any question at all, have it try to be knowledgeable about everything.

Speaker Change: Yeah, Great question I would take today AI workloads, probably a small fraction of the E. R. R. I think over time, our potential for growth there.

Speaker Change: As we talked about useful in security applications chat bots are tailoring content for Commerce company Ad targeting.

Speaker Change: Recommendation engines.

Speaker Change: I would say that the models are smaller because they are more focused.

Speaker Change: You know the giant models sort of are used to learn everything you know your chat GPT you can ask any question at all have it tried to be knowledgeable about everything goes or giant models.

Tom Leighton: Those are giant models. And, you know, we're not really, you know, targeting that business. But, you know, for our customer base, they tend to be a lot more focused on what they're trying to do. Maybe it's a commerce site, maybe it's an ad site, maybe it's a security company.

Speaker Change: And you know, we're not really targeting that business.

Speaker Change: But you know for our customer base they tend to be a lot more focused on what they're trying to do maybe it's a commerce site, maybe it's an AD site, maybe it's a security company and.

Speaker Change: And they don't they don't need to learn the whole world.

Speaker Change: Can really provide value in fact, we see that you know with our own solution with the Oh My God are core platform with the control interface powered by <unk>.

Tom Leighton: And they don't need to learn the whole world to really provide value. In fact, we see that, you know, with our own solution with the Akamai GuardiCorps platform with the control interface powered by Gen AI. You know, really, it's a very specific application, which means that you don't need the gigantic model to really provide value. And that means it doesn't have to run on this giant suite of GPUs. It can run just great on, you know, our platform, which has GPUs, but it's primarily CPU-based, which gives us a much better ROI.

Speaker Change: Really it's a very specific application, which means that you don't need the gigantic model to really provide the value and and that means it doesn't have to run on this giant suite of Gpus. It can run just great on our platform, which has gpus, but primarily.

Speaker Change: CPU based which gives us much better ROI and that works great for what our customers are looking to do in terms of their AI applications.

Speaker Change: Thank you very much.

Mark Murphy: And that works great for what our customers are looking to do in terms of their AI application. Thank you very much. The next question comes from Madeline Brooks with Bank of America. Please go ahead. Hi, team. Thanks for taking my questions. I want to continue the discussion of connected devices.

Madeline Brooks: The next question comes from Madeline Brooks with Bank of America. Please go ahead. My team, thanks for taking my questions. So, when I can,

Speaker Change: Our next question comes from Madeline Brooke with Bank of America. Please go ahead.

Madeline Brooke: Hi team. Thanks for taking my question. So when I continue on the discussion of connected cloud and then you.

Madeline Brooke: And you mentioned some nice wins in enterprise outside of your traditional CDN customers, but I guess I just wanted to double click on that and can't get a little bit of color. What are what are those customers were and non linear non E. Commerce. What are the use cases that customers are finding from connected cloud and if you could just help us break out to growth and third customers maybe in person.

Speaker Change: But I think your more traditional customers are they growing around the same in terms of their adoption of connected cloud. Thanks. So much yeah, we're seeing growth both within the base and outside the base you know I think for example, with our qualified compute partner program with observe ability.

Tom Leighton: Yeah, we're seeing growth both within the base and outside the base, you know, I think for example, with our qualified compute partner program with observability, a lot of companies need that to know what's going on with their applications, you know, security companies would need that, you know, now we also have a lot of media customers and I would say that's probably the biggest segment today, you know, we have by design a full media workflow ecosystem now supported through our QCP program on the platform and so a lot of media customers starting to take advantage of that, you know, outside of that, for example, OS and firmware, patch storage, personalized, waiting room experience, improved page performance, you know, with hints and so forth, you know, we talked about with AI, tailoring the site, for a user based on what they've been doing, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, so far, real-time log aggregation and insights into your logs, observability, kinds of things, we even have a PBX, a telephone switching system, you know, running on it, 5G, and then gateway running on it. So it does broaden the base, which is I think exciting, you know, for us in the future, but today probably the biggest segment would be media.

Madeline Brooke: Companies need that to know what's going on with their applications.

Madeline Brooke: Security companies would need that.

Madeline Brooke: Now we also have a lot of media customers and I would say that's probably the biggest segment. Today you know we have by design a full media workflow ecosystem now supported through our QC program on the platform and so a lot of media customers starting to take advantage of that.

Speaker Change: You know outside of that for example, our west and firmware patch storage personalize waiting room experience improved page performance, you know with him and so forth.

Madeline Brooke: We talked about with AI tailoring the site for user based on what they've been doing so far real time log aggregation and insights into your logs observer ability kinds of things.

Madeline Brooke: We even have a PBX or telephone switching system.

Madeline Brooke: Running on it five G Internet gateway running on it so it does broaden the base, which is I think exciting for us in the future.

Madeline Brooke: But today, probably the biggest segment would be media.

Madeline Brooke: Yeah.

Speaker Change: Thanks, so much.

Alex Henderson: The next question comes from Alex Henderson with Needham. Please go ahead.

Speaker Change: The next question comes from Alex Henderson with Needham. Please go ahead.

Tom Leighton: Great, first of all, I think congratulations are in order on the great results from both security and compute, and I wanted to focus a little bit on the compute side of the business because I think, ultimately, that's the area that needs to be proven on the street more than anything else. Can you talk a little bit about the mechanics around what portion of the customer base that's converting to compute is coming from internal, what portion of the compute is true new customers, and how much of the growth is coming from existing customers that are increasing their upsell. Just look at it as if it was a traditional standalone business, and give us some of those critical metrics that go into analyzing the success of that business.

Madeline Brooke: Great.

Alex Henderson: First off I think congratulations are in order on the great results out of both security and out of the compute.

Alex Henderson: Wanted to focus a little bit on the compute side of the business because I think ultimately.

Speaker Change: That's the area that needs to be proven out to the street more than anything else can you talk a little bit about the.

Speaker Change: The mechanics around what portion of the customer base, that's converting to compute is coming from internal what portion of the compute.

Speaker Change: Our true new customers.

Speaker Change: How many how much of the growth is coming from existing.

Speaker Change: Customers that are increasing their theyre up so just kind of look at it as if it was a.

Speaker Change: Traditional standalone business and give us some of those critical metrics that did go into.

Speaker Change: Analyzing the success of that business.

Tom Leighton: Yeah, I'll take our first task and turn it over to Ed, and the answer will be pretty similar to the last question. I would say our biggest users and the biggest segment for Compute today are our large media customers. And that's by design. And a lot of our QCPs, our Qualified Compute Partners, are media workflow companies. So that's sort of the biggest segment. I would say observability is a capability, a very large one as well, and that spans across all verticals and would include new customers.

Speaker Change: Yeah, I'll take a first half and then turn it over to add and the answer will be pretty similar to the last question I would say our biggest users in the biggest segment for compute today.

Speaker Change: Is our large media customers and that's by design.

Speaker Change: And are there a lot of our Q C. P. R qualified compute partners our immediate workflow companies.

Speaker Change: So that's sort of the biggest segment I would say observe ability as a capability a V.

Speaker Change: Very large one as well and that spans across all verticals and would include new customers.

Tom Leighton: So, we do have a bunch of customers in non-traditional Akamai verticals that are using Compute. And I think over the longer run, that opens up a whole new market, you know, verticals for us. But the biggest chunk today would be existing Akamai media companies.

Speaker Change: So we do have a bunch of customers in non traditional akamai verticals that are using compute and I think over the longer run that opens up a whole new market.

Speaker Change: Verticals for us, but the biggest chunk today would be existing Akamai media companies is the biggest and Ed do you want to add some color on that.

Ed Mcgowan: And Ed, you want to add some color to that? Yeah, sure. Hey, Alex.

Ed Mcgowan: Yeah, so, as Tom mentioned, we're seeing growth in both existing applications for stuff that's been on the platform for a while, but the bulk of the growth is actually coming from new customers. The new customer additions are growing very, very quickly, and we broke out some numbers for you last quarter, and that continues to ramp very nicely, and we're seeing a significant increase in the pipeline. We are seeing some new customers come to the platform, and what's interesting is we're probably seeing more workloads and repeatable workloads in areas even, you know, Tom talked about media, but outside of media, and we're seeing, you know, customers that may be relatively small CEN customers are fairly large compute customers. So I'd say it's across the board where we're seeing growth, but it's mostly from adding new customers to the mix, and then they start to win.

Ed Mcgowan: Yeah, sure. Hey Alex.

Ed: Yeah, sure Hey, Alex So as Tom mentioned, we're seeing growth in both existing applications for stuff that's been on the platform for a while but the bulk of the growth is actually coming from new customers. So new customer additions is growing very very quickly.

Speaker Change: Broke out some numbers for you last quarter and that continues to ramp very nicely and we're seeing a significant increase in the pipeline. We are seeing some new customers come to the platform and what's interesting is we're probably seeing more.

Speaker Change: Workloads and repeatable workloads in the areas, even Tom talked about media, but outside of media and we're seeing cuts.

Tom: Customers that may be relatively small CDN customers are fairly large compute customers. So I'd say, it's across the board, where we're seeing the growth, but it's mostly from adding new customers to the mix and then they start to ramp.

Speaker Change: Thank you.

Fatima Boolani: The next question comes from Fatima Boolani with a city. Please go ahead.

Speaker Change: The next question comes from a team up to Lonnie with Citi. Please go ahead.

Speaker Change: Yes.

Fatima Boolani: Oh, thank you for taking my questions. And I wanted to be specific about the delivery guidance and the expected performance in the back cap, so I appreciate and have experienced a lot of the traffic degradation patterns in the first half, but I'm just curious why the trajectory of the business is actually worsening in the back cap, and then I have a follow-up for Tom.

Fatima Boolani: Hello, Thank you for taking my questions.

Fatima Boolani: And I wanted to zero in on.

Speaker Change: Our guidance and.

Speaker Change: Performance in the back half. So appreciate you experienced a lot.

Speaker Change: Traffic degradation patterns in the first half, but I'm just curious why the trajectory of the business is actually worsening in the back half and then I have a follow up for Tom.

Ed Mcgowan: Yeah, sure. So, you know, I talked a little bit about the expectations for Q4, just based on what we're seeing now in terms of traffic growth and what we saw last year, we're not expecting the normal hockey stick to any significant degree like we've seen in prior years. And also keep in mind that we closed the transaction with Stackpath and Lumen last year, and that's all delivery revenue, so that makes your Q4 a tougher comparison if you're looking at sort of year-over-year growth rates. That's going to skew your perspective a bit.

Speaker Change: Yeah, sure so I talked a little bit about.

Patrick Colville: The expectations for Q4, just based on what we're seeing now in terms of traffic growth and what we saw last year, we're not expecting the normal hockey stick to any significant degree like we've seen in prior years and also keep in mind, we closed the transaction with staff bathroom lumen last year and that's all delivery revenue so that makes sure Q4.

Ed Mcgowan: The tougher compares but if youre looking at sort of year over year growth rates, that's going to skew your perspective, a bit and as we talked about on the last call. There was some dynamics going on with one of our largest social media customers. The good news. There is we've got a good handle on that that's sort of playing out as we expected but.

Ed Mcgowan: And as we talked about on the last call, there was some dynamics going on with one of our larger social media customers, you know, the good news there is we've got a good handle on that, and that's sort of playing out as we expected, but, you know, as we've talked about, those are the factors that, as you put that into your model, why it may look like it's deteriorating a little bit, but I'd say the biggest issue is the fact that your anniversary and the Stackpath and Lumen contribution from Q4 last year.

Speaker Change: Yeah.

Ed Mcgowan: Talked about those are the factors that as you put that into your model why it may look like it's deteriorated a little bit, but I'd say the biggest issue is the fact that you're anniversarying the stack path of aluminum.

Ed Mcgowan: Contribution from Q4 of last year.

Fatima Boolani: That makes sense. That's very fair.

Ed Mcgowan: That makes sense, that's very fair and Tom for you you know I think we've been very.

Tom Leighton: And Tom, for you, you know, I think you've been very constructive around the computer opportunity; there are so many specific examples of the momentum we've been garnering in the computer franchise. The taking a step back as a broader strategy question for you, as you think about scaling that franchise and how it's becoming a bigger part of the overall revenue story. How are you straddling this notion of, you know, not using compute as, or essentially ensuring compute ends up being wallet share accretive against your base as opposed to, you know, potentially managing a situation in which the delivery franchise sort of bumps along and compute sort of plugs the hole?

Fatima Boolani: Hum.

Speaker Change: Constructive around the compute opportunity theres. So many specific examples.

Tom Leighton: <unk> been garnering in the continued franchise, but taking a step back as a broader strategy question for you as you think about scaling not franchise and have it become a <unk>.

Speaker Change: And then bigger part of the overall revenue story.

Tom Leighton: How are you struggling this notion of.

Tom Leighton: Not using compute.

Tom Leighton: Or essentially ensuring compute being wallet share our credo against your base as opposed to potentially manageable situation in which the delivery franchise kind of bumps along and compete sort of plugging the hole just.

Tom Leighton: What are some of the mechanisms you have in place to continue to drive actual wallet share growth and accretion within existing delivery customers from where you are extracting a lot of net new compute demand for now? Thank you. Yeah, you know, compute is different than delivery.

Speaker Change: What are some of the mechanisms we have in place to continue to drive the actual wallet share goes incretion.

Tom Leighton: Our existing bell delivery customers from where you are extracting a lot of.

Speaker Change: Can sheet demand.

Speaker Change: Thank you.

Tom Leighton: Yeah, you know, compute is different than delivery, so it's not a situation where delivery revenue is going into compute, that's not the case here, and that compute opportunity is orders of magnitude bigger than the delivery opportunity, and so I think over time it becomes a much bigger business than delivery, you know, and I think delivery does its thing, and is a very good business for us in terms of cash generation, in terms of crop selling, and in terms actually of the economics of the platform, so we can go out there and, you know, offer compute at a, and, you know, especially for, you know, chatty applications and applications where data is moving around at a much lower price point than the hyperscalers, because we have the delivery platform, but it doesn't, it's not a situation where it's plugging a hole in delivery, I think compute is a huge revenue growth driver for us in the future, independent of anything in delivery.

Tom Leighton: Yeah.

Tom Leighton: <unk> is different than delivery.

Tom Leighton: So it's not a situation where delivery revenue was going in to compute that that's not the case here.

Tom Leighton: And that compute opportunity is orders of magnitude bigger than the delivery opportunity.

Tom Leighton: So I think over time, it becomes a much bigger business than delivery.

Tom Leighton: And I think delivery does its thing.

Tom Leighton: And as a very good business for us in terms of cash generation in terms of cross selling and in terms of actually of the the economics of the platform. So we can go out there and offer compute add up and especially for <unk>.

Tom Leighton: Chatty applications and applications, where data is moving around at a much lower price point than the hyperscale.

Tom Leighton: Because we have the delivery platform, but it doesn't it's not a situation where it's plugging a hole and delivery I think compute is a huge revenue growth driver for us in the future independent of anything and in delivery.

Speaker Change: Very clear thank you.

Jim Fish: The next question comes from Jim Fish with Piper Sandler. Please go ahead.

Speaker Change: The next question comes from Jim Fish with Piper Sandler. Please go ahead.

Jim Fish: Hey, guys, this is Quinton speaking on behalf of James Fish. Thanks for taking our question. Maybe touching on that first question there, you know, a competitor in the space recently talked about pricing pressures from some of the largest media customers getting worse over the past couple months. Are you seeing those pricing trends in the market that's maybe driving some of that second half weakness alongside, obviously, the Stackpath and Lumen impact? Or are you not really seeing these pressures given your decision to move away from these kinds of lower margin delivery opportunities?

Quint: Hey, guys. This is quint down for Jim fish tanks for taking my question, maybe touching on that first question there.

Jim Fish: Petitor in the space recently talked about pricing pressures from some of the largest media customers getting worse over the past couple of months are you seeing those pricing trend in the market. That's maybe driving some of that second half weakness alongside obviously, the backpack and lumen.

Jim Fish: Impact or are you not really seeing these pressures given your decision to move away from these kind of a lower margin delivery opportunities.

Ed Mcgowan: Hey Quinn, this is Ed. You know, as we talked about, we had some large renewals this year, so obviously, we've been through all those, and there's certain pricing pressure there. I'd say it's nothing different than what we've traditionally seen in the marketplace. I wouldn't say that it's. I think the issue is just not as much traffic growth. So as you reprice a customer, you tend to see significant traffic growth, so the revenue declines don't persist as long as they do in a situation like this.

Jim Fish: Yeah, Hey, Kevin This is Ed.

Ed Mcgowan: You know as we talked about we had some large renewals. This year. So obviously those we've been through all those and there are certain pricing pressure there I'd say, it's nothing different than what we've traditionally seen in the marketplace. So I wouldn't say that it's significantly worse I think that the issue is just not as much traffic growth. So as you reprice a customer you tend to see significant.

Ed Mcgowan: Rapid growth sort of revenue declines don't persist as long as they have in a situation like this so I wouldn't say it's anything.

Ed Mcgowan: So I wouldn't say if anything has changed in terms of the trajectory of pricing. It's always been very competitive, and it always will be. So that's really not the issue. The issue is just that we're not seeing the type of traffic growth that we normally see.

Ed Mcgowan: Has changed in terms of the trajectory of the pricing, it's always been very competitive it always will be.

Ed Mcgowan: So that's really not the issue. The issue is just we're not seeing the type of traffic growth that we normally see.

Jim Fish: Yeah, it's really helpful. And then, you know, obviously, it's still really early here with the no-name acquisition, but any update you can provide on the integration between no-name and your kind of existing NeoStack API opportunity and maybe how you balance the go-to-market of those two platforms and how you can kind of leverage a full suite to kind of grow the wallet here within a customer. Thank you.

Quinn: Yeah, that's really helpful.

Speaker Change: And then obviously, it's still really early here with the known in acquisition, but any update you can provide on the integration between no name and your kind of existing New York stack API opportunity and maybe how you balance that go to market of those two platforms and how you can kind of leverage our full suite to kind of grow the wallet share with that customer. Thank you.

Tom Leighton: Yeah, we are now going to market with NoName, and as I mentioned, within two weeks of the close, we had it fully integrated with Akamai products, existing Akamai products, in particular our web app firewall, where a lot of the APIs, you know, would go through that. So, I would say we're basically integrated today. We have some NeoSEC customers who we are maintaining over time that will evolve into the NoName product with some of the capabilities from NeoSEC, so we get the best of both worlds. Yeah, just to add...

Speaker Change: Yeah, we are now going to market with no name and a as I mentioned within two weeks of the clause, we havent fully integrated with Akamai products existing akamai products in particular, our web App firewall, what where a lot of the Apis would go through that.

Tom Leighton: So I would I would say, we're basically integrated today, we have some nios that customers.

Speaker Change: Who we are maintaining over time that will evolve into the no name product with some of the capabilities from a capabilities from <unk>. So we get the best of both worlds.

Tom Leighton: Yeah just to add.

Ed Mcgowan: You just had the no-name... The acquisition came with a pretty sophisticated channel, as well as a number of specialists. So we kept both of those, so that's going to help drive some sales. And actually, from the minute we announced the close to when we closed, or announced the deal to when we closed, we saw a nice pickup in deals closed. So, no impact on the funnel and the teams already out there selling. So, very excited about that. I think we've just enhanced our go-to-market capability as part of the acquisition.

Speaker Change: Could you just add the no name.

Ed Mcgowan: The acquisition came with a pretty sophisticated channel as well as a number of specialists. So we both of those so that's going to help drive some.

Ed Mcgowan: Sales and actually from the <unk> that we announced the close to one we closed the deal.

Ed Mcgowan: Ultimately closed we saw a nice pickup in deals closed so no no impact on the funnel and the team is already out there selling so very excited about that I think we've just.

Ed Mcgowan: Our go to market capabilities as part of the acquisition.

Jonathan Ho: The next question comes from Jonathan Ho with Williams Lawyer & Company. Please go ahead.

Speaker Change: The next question comes from Jonathan Ho William Blair <unk> Company. Please go ahead.

Tom Leighton: Hi, good afternoon. As you listen to customers and you know what they need or want from the compute side of things, are there any core services or capabilities that you feel like you're missing or you're going to add pretty soon that are maybe potentially catalysts for even faster adoption?

Speaker Change: Hi, good afternoon.

Tom Leighton: As you listen to customers and you know what they need or want from the compute side of things. You know are there any core services or capabilities that you feel like you're missing or you're going to add pretty soon that are maybe potentially catalysts for you even faster adoption.

Tom Leighton: You know, I think that probably the biggest difference today would be the size of the marketplace. Obviously, the hyperscalers have an enormous marketplace, and, you know, we're just getting started there. We're really excited that I think we now have a very competitive media workflow marketplace. I think we've got a very competitive observability marketplace, and that's something that we're going to be continuing to grow. We're also building out, as you know, our distributed compute capabilities so that we'll be in more locations and in many locations where the hyperscalers don't have a presence, which will give us an advantage in performance. And also, in countries where, you know, you've got data sovereignty laws, we'll be in a better position to handle that.

Speaker Change: I think they are probably the biggest difference today would be the size of the marketplace. Obviously.

Tom Leighton: You know the hyperscale or is having enormous marketplace and you know we're getting started there. We're really excited that I think now we have a very competitive media workflow marketplace. I think we've got a very competitive observe ability.

Tom Leighton: Marketplace, and that's something that we're going to be continuing to grow.

Tom Leighton: We're also building out.

Tom Leighton: You know our distributed compute capabilities, so that will be in more locations than in many locations, where the hyperscale or don't have a presence, which will give us an advantage in our performance and also in countries, where you know you've got data sovereignty laws will be in a better position to handle that.

Tom Leighton: But it's, yeah, it's ongoing. We're continuing to develop and improve the platform, including with storage. A lot of effort going on there, too. So that'll be ongoing for the foreseeable future, but as you can tell from the results, we're in a position now where we can get out there and be selling it. And, you know, it's great to see the rapid early adoption.

Speaker Change: But it's yes, it's ongoing we're continuing to develop and improve the platforms, including with starch a lot of effort going on there too.

Tom Leighton: So that's gonna be that'll be ongoing for the foreseeable future, but if you can tell from the results. We're in a position now we can get out there and be selling it and it's great to see the rapid early adoption.

Tom Leighton: That makes a ton of sense. You know, just in terms of the delivery business, as we continue to see this decline as a percentage of revenue, it seems to be carrying the business in terms of margins. You know, how concerned are you over deleveraging effects and CapEx efficiency, as we see sort of the two sides of the business move in opposite directions? Thank you. Yeah, I should have done that.

Speaker Change: That makes a ton of sense just on in terms of the delivery business. You know as we continue to see this decline as a percentage of revenue it seems to be carrying the business in terms of margins. How concerned are you over deleveraging effects and capex efficiency.

Speaker Change: As we see sort of the two sides of the business move in opposite directions. Thank you.

Ed Mcgowan: Yeah, I'd say there's not a huge concern there. You know, the margins on the new products are very high, gross margin products, so that'll be helpful. Sure, the compute business is a bit more capital intensive, but we've been able to drive down the capex of the core business and delivery pretty dramatically. So, you know, you're down low single digits as a percentage of revenue for that business, but that'll last as long as delivery, as long as traffic's not growing significantly.

Speaker Change: Yeah, I'd say, there's not a not a huge concern there I know the margins of the new products are very high gross margin products. So that'll be that'll be helpful. Sure. The compute business is a bit more capital intensive, but we've been able to drive down the capex of the core business and delivery.

Ed Mcgowan: Dramatically, so now you're down low single digits as a percentage of revenue for that business.

Ed Mcgowan: That will maintain as long as the delivery as long as traffic is not growing significantly and part of our strategy and being more selective on the type of peak traffic to average that we're taking on the platform is by design is to make sure that we do maintain that efficiency as we're spending more capex in the compute business and we're not taking on that.

Ed Mcgowan: Part of our strategy in being more selective of the type of peak traffic to average that we're taking on the platform is, by design, to make sure that we do maintain that efficiency as we're spending more capex in the compute business, and we're not taking on that sort of not as profitable peak to average type traffic so that we can maintain a low capex posture in delivery.

Ed Mcgowan: Not not as profitable peak average site traffic so that we can maintain a low capex.

Ed Mcgowan: Posture in the delivery business.

Ed Mcgowan: Okay.

Tim Horan: The next question comes from Tim Horan with Oppenheimer. Please go ahead.

Ed Mcgowan: The next question comes from Tim Horan with Oppenheimer. Please go ahead.

Tim Horan: Thanks guys. Kind of a few part question on the cloud. Can you use your own platform? It sounds like you're moving a lot of legacy services on there to create kind of unique services for yourself and new services or you know improve legacy services on that platform? And then secondly, if you look at Microsoft, Google, Cloudflare, they're kind of growing the cloud, you know, in the 30% range. Do you think you can kind of get there and are you kind of maybe capex constrained to do that or, you know, just maybe talk about how you can kind of get your peers there and what do you have to do on the S&B market to hit that type of 30% growth?

Tim Horan: I think there's kind of two part question on cloud could you use your own platform. It's you know it sounds like you're moving a lot of legacy services on there to create kind of a do you think unique services for yourself, a new services or improved legacy services on that platform.

Tim Horan: And then secondly, if you look at Microsoft Google Cloud, whether Theyre kind of growing cloud you know in the 30% range. Do you think you can kind of get there and how are you kind of maybe capex constrained to do that or just.

Tim Horan: Just maybe talk about how you can kind of get up to your peers, there and what do you have to do on the S&P market hit that type of 30% growth.

Tom Leighton: Yeah, on the first question, we have built capabilities for ourselves as part of our migration. So we're off of Snowflake and Databricks, which we had big spends on.

Speaker Change: Yeah on the first question, we have built capabilities for ourselves as part of our migration. So we're off of a snowflake data bricks, which where we had big spend there.

Tom Leighton: Looking at over time, making our capabilities available to customers, again, you know, a service that is, you know, more efficient, which I think is really important for customers. You know, in terms of the growth rate, I would say that you want to compare the enterprise compute number, which we've talked about, was it a 50 million ARR at the end of Q1? We think that number will more than double by the end of the year.

Tom Leighton: Looking at over time, making our capabilities available to customers again.

Tom Leighton: All our service that is.

Tom Leighton: More efficient.

Tom Leighton: I think it's really important for customers.

Tom Leighton: In terms of the growth rate.

Tom Leighton: I would say that you want to compare the enterprise compute number which we've talked about was about 50 million at the end of Q1, we think that will more than double by the end of the year, that's sort of the number you want to look at that's comparable we've got more in the overall compute number but those are have products like.

Tom Leighton: That's sort of the number you want to look at that's comparable. You know, we've got more in the overall compute number, but those are, you know, have products like, you know, Image and Video Manager, Legacy Akamai Net Storage, other kinds of things, you know, which aren't as comparable for what you're looking at in terms of hyperscaler growth. So, you know, if you focus on enterprise compute, which is really going to be the growth driver for us, that's going at a very, very fast rate now, and, of course, on a much, much smaller number than the hyperscalers. Ed, do you have anything to add to that?

Ed Mcgowan: You know image and video manager legacy Akamai net storage other kinds of things.

Tom Leighton: Which aren't as comparable for what Youre looking at in terms of the hyperscale or grow.

Ed Mcgowan: So if you focus on the enterprise compute which is really going to be the growth driver for us that's growing at a very very fast percentage now and of course on a much much smaller number than the hyperscale or and do you have to add to that.

Ed Mcgowan: No, I think that's exactly right. And that's something that, you know, over time, as that number becomes more material, we'll start to break that out for folks to make it easy for you to see where that growth is coming from. But Tom's absolutely right.

Ed Mcgowan: No I think that's exactly right and that's something that over time as that number becomes more material, we'll start to break that out for folks to make it easy for you to see where that growth is coming from but Tom's absolutely right, that's where the big market is that's what we're seeing.

Ed Mcgowan: That's where the big market is. That's where we're seeing explosive growth, and we think that can continue. You know, obviously, the pipeline is growing. We're seeing a lot more use cases than we expected. And we're seeing great participation from all of our reps across the world. It's not just one geography. So we're very excited about it.

Ed Mcgowan: The explosive growth and we see that do you think that can continue obviously the pipeline is growing we're seeing a lot more use cases than we expected.

Ed Mcgowan: Great participation from all of our reps across the world its not just one geo.

Ed Mcgowan: So we're very excited about it.

Ed Mcgowan: Ed, do you think you're capital constrained at all or product constrained at all in the enterprise there? No, I don't think there's a capital constraint problem.

Speaker Change: And do you think you're capital constrained at all or product constrained at all in the enterprises there.

Ed Mcgowan: No, I don't think there's a capital constraint problem. I mean, you could imagine, perhaps, as a customer that may come to us with a big task where you may have to do some build-out if it's in a particular concentrated geography. But, you know, we've got a very strong balance sheet. We produce a ton of free cash flow. So there's no issue from a capital constraints perspective. You know, I think we can grow this business to a significant size over time. And I don't think capital is the problem.

Ed Mcgowan: No I don't think Theres, a capital constraint problem I mean, you could you could envision perhaps as a customer that may come to us with a big ask where you may have to do some build out if it's in a particular concentrated geography, but we've got a very strong balance sheet and produce a ton of free cash flow. So theres no issue from a.

Ed Mcgowan: Capital constraint perspective.

Ed Mcgowan: We can grow this business.

Ed Mcgowan: To a significant size over time and I don't think capital is a problem later.

Speaker Change: Thank you.

Ed Mcgowan: Yeah.

Rudy Kessinger: The next question comes from Rudy Kessinger with D. A. Davidson. Please go ahead.

Ed Mcgowan: The next question comes from Moody Kasinger with D. A Davidson. Please go ahead.

Rudy Kessinger: Hey, great. Thanks for taking my questions. On security, you know, I guess in the second half, if I look at it, adjusting out no name, it looks like organic growth at constant currency is just about 11 to 12 percent. Obviously, there's a slowdown versus the last several quarters. And, you know, in general, the security growth rate has kind of been pretty volatile in the last five to six quarters. Could you just give us the puts and takes on maybe some tough comparisons in the second half? I think you had some spiky TDOT strength last year, but also, just going forward, just what's the kind of right growth range that we should expect out of the security business?

Rudy Kessinger: Hey, great. Thanks for taking my questions on security.

Rudy Kessinger: In the second half if I look at it adjusting out no name.

Rudy Kessinger: Yeah, it looks like organic growth at constant currencies, just about 11%, 12%, obviously, if there's a slowdown versus last several quarters and you know in general the security growth rate has kind of been pretty volatile over the last five to six quarters.

Rudy Kessinger: Could you just give us the puts and takes on on maybe some tough compares in the second half I think you had some.

Rudy Kessinger: Spiky Ddos strike last year, but also just going forward just what's the kind of rate growth.

Speaker Change: Range that we should expect out of the security business.

Ed Mcgowan: Yeah, sure, so just in terms of some of the puts and takes, just remember last year in Q3 we had a little over $6 million in license revenue. That's a couple percentage points, so that's going to make your Q3 comparison a little bit more challenging. The other thing to keep in mind, too, is that last year we introduced some new security bundles for Web App Firewall that did phenomenally well on the anniversary of that, so that makes your comparison a little bit more challenging.

Speaker Change: Yes, sure. So just in terms of some of the puts and takes just remember last year in Q3, we had.

Ed Mcgowan: A little over 6 million of license revenue. That's a couple of percentage points. So that's going to make your Q3 compare a little bit more challenging.

Ed Mcgowan: The other thing to keep in mind too last year, we introduced.

Ed Mcgowan: Some new security bundles for web App firewall, but did phenomenally well. So we've anniversaried that so that makes your compares a little bit more challenging and then between Garda core and API security as they start to ramp.

Ed Mcgowan: And then, you know, between GuardaCore and API security, as they start to ramp, and we think API's going to ramp very, very quickly, it's just a smaller number. So, you know, as you talked about, the growth has bounced around a little bit over time. That happens as you bring new products into the market, and they start to ramp up. Think about when we brought Botman Manager to the market; it was a small product, and it cost, you know, hundreds of millions of dollars. I think the same thing you'll see with GuardaCore and API security.

Ed Mcgowan: We think they've got some very very quickly, but it's just a smaller number so as you've talked about the growth has bounced around a little bit over time that happens as you.

Ed Mcgowan: You bring new products into market and they start to ramp up think about when we bought bachman.

Ed Mcgowan: Manager to the market. It was a small product in illiquid or hundreds of millions of dollars like the same thing youll see with garlock or an API security.

Rudy Kessinger: Yeah, okay. And then on the delivery outlook, I guess, yeah, you're competitive. I mean, lastly, I'll say it more directly. I mean, they certainly seem to indicate that outside, it was broader than just one social media customer. It was several large media customers that seemed to be shifting traffic to lower-cost providers. It sounds like you guys aren't really seeing that dynamic, or maybe it's not something you've heard of this year, and it was already factored into the guide. Any comment on that?

Speaker Change: Yeah, Okay, and then on the delivery outlook.

Speaker Change: You know I guess, you guys Youre exactly I'll say it more directly I mean, they certainly seem to indicate that upside it was broader than just one social media customers and several large media customers that.

Rudy Kessinger: Seems to be shifting traffic to lower cost providers at.

Rudy Kessinger: It sounds like you guys aren't really seeing that dynamic or maybe a thought or a year. It was already factored into the guide and any comment on that.

Ed Mcgowan: Yeah, no, we're not seeing a phenomenon of someone moving to low-cost providers. As a matter of fact, there are two fewer of them in the market today.

Speaker Change: Yeah, no we're not seeing a phenomenon of someone moving to low cost providers as a matter of fact is too.

Ed Mcgowan: Less of them in the market today, so we're not seeing that as I talked about earlier, we had the tough compare with Q.

Ed Mcgowan: So we're not seeing that. You know, as I talked about earlier, we have a tough comparison with Q4. And then, you know, we've just seen a lower traffic year. You know, gaming has been, you know, unusually weak, and video traffic isn't as robust as it normally is. You know, that stuff happens from time to time. But we're not seeing a shift to low-cost providers or any new low-cost providers in the market. OK.

William Power: Okay.

William Power: In Q4 and then.

William Power: Just seeing just a lower traffic year gaming has been.

William Power: Unusually weak.

William Power: Video traffic isn't as robust as it normally is that stuff that happens from time to time.

William Power: Not seeing a shift to low low cost providers, writing new low cost providers in the market.

Speaker Change: Okay got it thanks.

William Power: The last question today comes from William Power with Baer. Please go ahead.

William Power: The last question today comes from William Power with Baird. Please go ahead.

William Power: Great, this is Janice Moloton for Well, thanks for taking the question, and just going back to that more muted Q4 seasonality or expecting delivery again this year. If I remember correctly last year, you were pointing to weaker times in retail, including an uptick in bakeries there, and then also weaker in terms of gaming, and now I know it's probably so early to forecast, though, but are it those same verticals where you're expecting weaker traffic again this year that you're informing your expectations, or is it some other, or maybe it's more broad-based?

William Power: Great. This is the honest them all the time for well thanks for taking the question.

William Power: Just going back to that more muted Q4 seasonality youre expecting for delivery again. This year, if I remember correctly last year, you were pointing to weaker trends in retail, including an uptick in bankruptcies. There and then also weaker in terms of gaming.

William Power: I know, it's probably still a little early to forecast, though but is that those same verticals, where you're expecting weaker traffic again. This year that are informing your expectation or is it some others or maybe it's more broad based.

Ed Mcgowan: Yeah, I'd say it's a combination of those two verticals. You know, we've seen, sort of, over time, the retail seasonal burst become less and less. Some of that has to do with the zero overage product that we offer in the market, but just in general, it just hasn't been as robust as it was, say, four or five years ago. And then from a gaming perspective, yes, still weak

Speaker Change: Yeah, I'd say, it's a combination of those two verticals, we've seen sort of over time, the retail seasonal worse to be less and less some of that has to do with a zero overage product.

Ed Mcgowan: We offer in the market, but just in general it just hasn't been.

Ed Mcgowan: As robust as it has been say four or five years ago, and then from gaming, yes, still still weak I don't I haven't seen any major launches or any and we're not hearing anything from our customers that would lead me to believe that Q4 will be strong.

William Power: I haven't seen any major launches, or we're not hearing anything from our customers that would lead me to believe that Q4 will be strong from that perspective. And then also, as I just talked about several times here, traffic in general has been a bit sluggish from a growth perspective in general. So I don't see anything that tells me that that's going to change going into Q4. So obviously, we've got a few months to go before we get there. We'll update you when we talk again in November, but you know, based on what I'm seeing today, just thought it was worthwhile calling that out to folks as they build out their models.

William Power: Perspective, and then also as I just talked about several times here just traffic in general has been a bit sluggish from a growth perspective in general So I don't see anything that tells me that that's going to change going into Q4. So obviously, we've got a few months to go here before we get there we'll update you when we talk again in November but based.

William Power: Okay, that makes sense. Thanks so much.

William Power: What I'm seeing today, just thought it was worthwhile, calling that out to folks as they build out their models.

Speaker Change: Okay that makes sense. Thanks, so much.

Speaker Change: Uh huh.

Mark Stoutenberg: This concludes our question and answer session. I would like to turn the conference back over to Mark Stoutenberg for closing remarks.

William Power: This concludes our question and answer session I would like to turn the conference back over to Mark Sutton back for closing remarks.

Operator: Thank you, everyone. In closing, we will be presenting at several investor conferences throughout the rest of the quarter and the rest of the year. We look forward to seeing you at those. We hope everyone has a nice evening tonight. Operator, you may now end the call.

Mark Stoutenberg: Thank you everyone and closing we will be presenting at several investor conferences throughout the rest of the quarter and the rest of the year. We look forward to seeing you at those we hope everyone has a nice evening Tonight, operator, you might know in Oklahoma.

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

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

Operator: [music].

Tom Leighton: These results are in line with or above our guidance. Before I provide more color on our performance, I'd like to review how Akamai is evolving as we grow. As most of you know, Akamai first made its name with the invention of content delivery services, and we're still the world leader in that market today. We stand out for providing the scale and performance required by the world's top brands as we help them deliver reliable, secure, and near-flawless digital experiences. Recent examples include delivering the Euro 2016 football tournament and the Summer Games in Paris for top broadcasters around the world.

Tom Leighton: We don't have to rely on the firewall in the OS, which sometimes won't be there. It might not be consistent. We can cover a lot of the legacy systems, which is important to enterprises to get more universal coverage. I think there is a ton of greenfield. You know, and I wouldn't be there when, you know, one of the other competitors is talking about their platform. They probably don't spend a lot of time talking about segmentation because they don't really have a solution for it.

Tom Leighton: It means, you know, having your agent on every application on every device. And you're right, most enterprises don't have it. You know, and if you go back a few years, I think, you know, the community of large enterprises really disfavored segmentation. And that's because the way it was done back then was really crude.

Tom Leighton: You did it in hardware; it's very insecure, hard to do. And at the end of the day, if you did it at all, you had giant segments, which defeated the whole purpose. You weren't very secure.

Tom Leighton: There's malware that would get in and wipe out an entire giant segment, and you had a big problem. And, you know, guard a court solve that problem through software. Very easy to manipulate, make updates, much more secure, and fine green controls. And so it's been an education process for us in the marketplace. You know, we viewed it as something that was going to be essential, and that, I think, is proving out, as you noted. And of course, with the ransomware headlines and disasters, it's not surprising to see why people are waking up to watch. They really do need this.

Tom Leighton: You know, so now the next question is with the platform. And there, what we've done is combine the GuardiCorps, which is protecting inside app-to-app, device-to-device communication, with the employee device to internal applications. And so we've combined what's called North, South, and East, West.