Q4 2024 Akamai Technologies Inc Earnings Call

Good day and welcome to the fourth quarter 'twenty 'twenty four Akamai technologies incorporated earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after today's presentation.

There will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mark Stoutenburg head of Investor Relations. Please go ahead.

Ed.

Good afternoon, everyone and thank you for joining Akamai as fourth quarter 2024 earnings call.

Today will be Tom Leighton <unk>, Chief Executive Officer, Ed Mcgowan, <unk>, Chief Financial Officer. Please.

Please note that today's comments include forward looking statements, including those regarding revenue and earnings guidance, along with our business outlook three to five year goals and longer term targets.

These forward looking statements are based on current expectations and assumptions that are subject to certain 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.

Factors include but are not limited to any impact from macroeconomic trends the integration of any acquisition geopolitical developments and any other risk factors identified in our filings with the SEC.

Forward looking statements included in this call represent the company's views on February 22025.

Akamai undertakes no obligation to update any forward looking statements, which speak only as of date there man.

As a reminder, we'll be referring to certain non-GAAP financial metrics during today's call.

A detailed reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the Investor Relations section of Akamai com.

Also as part of our ongoing commitment to transparency, we enhanced our disclosures to provide investors with a more comprehensive understanding of our business.

This quarter, we've created a new presentation available in the Investor Relations section of our website offering a bit more information on our product portfolios financials and performance goals.

Presentation supplements the information in our earnings release and annual filings and we encourage you to review.

Within the presentation, you will find an overview of select revenue and year over year revenue growth rates. Please note all growth rate percentages are reported on a constant currency basis.

With that I'll now hand, the call off to our CEO Dr. <unk>.

Thanks, Mark as you can see in today's press release Akamai delivered solid performance in the fourth quarter with revenue coming in at one point or $2 billion and non-GAAP earnings per share coming in well above our guidance range at a dollar in 66 cents.

I'm also pleased to report that we made excellent progress on our multiyear journey to transform akamai from our CDN pioneer into the cyber security and cloud computing company that powers and protects business online.

For the first time and Akamai is history security delivered the majority of our annual revenue in 2020 for surpassing the 2 billion dollar threshold and growing at 16% year over year.

Our cloud computing portfolio recorded $630 million in revenue last year growing 25% over 2023.

A portion of this revenue derived from our cloud infrastructure services was $230 million up 32% over 2023.

Our cloud infrastructure services, primarily consist of the compute and storage solutions that we've developed based on Lenovo.

They also include our edge workers product and I S V solution running on our cloud platform.

Combined security and compute accounted for two thirds of Akamai revenue in 2024 growing 18% year over year.

And we exceeded all our year end annualized revenue run rate or a are our goals for the fastest growing areas of the business, namely for our guard a core platform, our API security solution and enterprise revenue for our cloud infrastructure services.

These are three of the key areas that we anticipate will drive revenue acceleration for our overall business in 2026 and beyond.

In the area of security Akamai has expanded into new adjacent markets growing beyond point solutions to provide a more holistic and comprehensive security offering. This has enabled us to expand our customer base and to better serve enterprises with a broader portfolio for protecting infrastructure Apple.

Occasions, a P is end user interactions in both cloud and on Prem environments.

Security growth in Q4 was driven by continued strong demand for our market leading guard of course segmentation solution as more enterprises relied on akamai to defend against malware and ransomware. The Garda core platform ended the year with an E. R. R of $190 million up 31% year.

Year over year, and surpassing our goal of $180 million.

In Q4, we signed our largest deployment to date for Garda core with a leading it services company in India. The solution covers 30000 servers and nearly 300000 endpoints. We also displaced a competitor segmentation offering that was falling short at major banks, but both Hong Kong.

And in the U S.

More than 80% of our segmentation revenue in 2024 came through channel partners, including one of the world's leading S is deloitte.

Which wraps it services and implementation expertise around our segmentation and API security products to create value for our customers that Deloitte knows well.

Together in Q4, we won a 5.8 million dollar contract with Petrobras in Brazil to reduce the risk of a breach and ransomware attacks. We also partner with Deloitte to help defend two large European banks from API risks.

In Q4, Akamai also signed a large contract for API security with one of the biggest asset managers at brokerage firms in the U S.

Our API security solution ended 2024 with an E. R. R. A $57 million up from just 1 million at the end of 2020 three.

And exceeding our goal of $50 million.

Taken together, our API security solution and Garda core platform ended 2024 with $247 million of a R. R. As we look ahead, we expect to generate continued strong growth for these products with a goal of increasing their combined a IRR by 30 to 35 per.

<unk> during the year.

We also anticipate that over the next several years the rapid growth in more meaningful amount of revenue from these new products will help offset the slower growth of our more widely adopted and market, leading web app firewall and Ddos mitigation products.

Speaker Change: As a result, and as noted in our supplemental disclosure that Mark mentioned, a few minutes ago. We believe that we can maintain a CAGR of about 10% in constant currency for our security products over the next three to five years with typical M&A.

Speaker Change: This would bring us to more than $3 billion and security revenue by the end of the decade.

Speaker Change: While our security product line is performing very well our compute product line is growing even faster and has a much larger addressable market.

Speaker Change: We've come a long way since we expanded into the cloud computing market in 2022 with the acquisition of Lenovo and we made a lot of progress last year, achieving what we set out to do in revenue growth signing new enterprise customers infrastructure deployment product development partner ecosystem expansion in <unk>.

Speaker Change: Migrating our own applications from hyperscale or to the Akamai cloud.

Speaker Change: We continued design compute customers at a rapid pace in Q4, including two financial software companies in the U S. Two of the largest retailers in the U S. Our cyber security provider in Europe, and Enterprise software company in Asia, one of the largest banks in southeast Asia and in intelligent.

Speaker Change: Transportation system provider in Latin America.

Speaker Change: When we measure the progress of our cloud infrastructure services, we've been looking at the results through two lenses are primary lands is the uptake of these solutions by larger enterprise customers such as those doing over $100000 in a R. R.

Speaker Change: The second lens is looking at the performance of these products across customers of all sizes.

Speaker Change: At year end, approximately 300 enterprises, we're spending at least $100000 in a R. R for our cloud infrastructure services up significantly from the year before.

Speaker Change: Collectively these customers finished the year with an E. R. R of $115 million for our cloud infrastructure services far exceeding our goal of $100 million.

Speaker Change: When you include all customers the IRR for our cloud infrastructure services finished 2024 at $259 million up 35% year over year.

Speaker Change: This is a substantial improvement from when we acquired will note in 2022 when the E. R. R. From these services was approximately $127 million and was growing in the mid teens.

Speaker Change: In addition to enabling customer growth our work to make the node be enterprise grade has allowed us to move some of our most important products from Hyperscale to Akamai is cloud. This has resulted in improved performance and savings of well over $100 million per year.

Many of our customers have also significantly expanded their use of our cloud infrastructure services over the last year. Some by a factor of Forex or more by year end 15 customers were spending over $1 million and a IRR for our cloud infrastructure services more than triple the number from 22.

Speaker Change: One three.

Speaker Change: And today, we announced our first customer to sign a contract committing to spend more than $100 million for our cloud infrastructure services over the next several years. We believe this is a remarkable validation of our new cloud capabilities signaling that an extremely sophisticated buyer of cloud services.

Is confident in our ability to execute and provide a level of service and performance comparable to or better than the hyperscale.

Speaker Change: Yeah.

Speaker Change: The recent improvements that we've made to our cloud platform will enable us to do even more for enterprise customers in 2025.

Speaker Change: For example in the last year, we expanded Akamai is core data center footprint to 41 locations in 36 cities around the world.

Speaker Change: Next week, we plan to announce that we've enabled our new managed container service in our 4300 plus points of presence in more than 700 cities around the world. We're currently testing this service with customer workloads in over 100 cities.

Speaker Change: We significantly upgraded our object storage solution with a five X increase in scalability and a 10 X increase in performance, making it comparable to the hyper scaler, but with much lower egress fees due to the efficiencies of our unique edge platform.

Speaker Change: We added Gpus for a variety of AI or media use cases, one customer ran a proof of concept between akamai and a hyperscale or and then chose akamai for text to image AI Inferencing workloads.

Speaker Change: Another customer uses our cloud for AI powered speech recognition for its in vehicle voice assistant Andrew.

Speaker Change: And an OTT provider switched from a hyperscale or to Akamai to provide a more cost effective platform for its AD supported streaming TV service.

Speaker Change: We enhance the scale and security of our law node Cooper and Eddie's engine product traditional cloud providers run kubernetes platforms from a relatively small number of core data centers occam.

Speaker Change: Akamai has differentiated approach will combine the computing power of our cloud platform with the proximity and efficiency of our edge to put workloads closer to users than any other cloud provider.

Speaker Change: Building on technology that we acquired from Red Cubes last year, we released the Akamai app platform to enable developers to build and deploy highly distributed applications in just a few clicks.

Speaker Change: And we added nine compute I S V partners last year, bringing our total to 23, our ISP partners accounted for $36 million of cloud infrastructure services a R. R at year end.

Speaker Change: We're very excited about our opportunity for continued strong growth as we bring the power of compute to the edge with our broadly deployed network getting compute instances closer to end users with an open platform that ensures flexibility and portability orchestrated resource deployment to ensure efficient scaling and operations.

Speaker Change: And predictable pricing with an unmatched ability to minimize egress costs.

I think our rapid progress in cloud computing are summed up well in an evaluation of public cloud platforms released last month by IDC.

Speaker Change: Their worldwide public cloud market scape per eye as identified Akamai as a major player relative to industry peers, saying quote Akamai has accelerated its journey into the public cloud I S space transforming from a pure play CDN provider into a formidable public cloud compare.

Speaker Change: <unk>.

Speaker Change: In addition, gartner positioned to Akamai as an emerging leader for Gen. A I specialized infrastructure in their recent innovation guide for generative AI technologies.

Speaker Change: As we noted in the supplemental materials Mark mentioned, we're supporting a growing number of AI use cases with a special focus on inferencing, while it's still early days. We're excited about the long term revenue opportunity and we believe that the unique properties of Akamai cloud position us to be a major player in AI.

Speaker Change: Inferencing in the years to come.

Speaker Change: As we look forward to the rest of 2025, our goal is to grow our total cloud infrastructure services a R. R by 40% to 45% in constant currency.

Speaker Change: We believe that the accelerating growth of our cloud infrastructure services revenue will be driven primarily by enterprise customers.

Speaker Change: Given the great success that we're having with our cloud infrastructure services, we plan to focus more of our compute investments in this area in.

Speaker Change: In particular, we're in the process of migrating some of our older cloud applications for tasks, such as visitor prioritization image and video management and live streaming workflow to I S V partners, who specialize in these areas and you plan to move some or all of their workloads to Akamai is cloud.

Speaker Change: In addition to converting former competitors into important ISP partners for our cloud. We believe this transition will enable us to focus more of our internal resources on further development and expansion of our cloud infrastructure services.

Speaker Change: The transition also means that we expect that the revenue from some of our cloud applications will decline in 2025, and as Ed will discuss shortly that we're projecting about 15% growth, where our cloud computing solutions as a whole in 2025.

Speaker Change: As our cloud infrastructure services revenue continues to rapidly increase we believe that we can reaccelerate. The overall cloud computing revenue growth rate to achieve a CAGR of at least 20% over the next three to five years in constant currency.

Speaker Change: This would make cloud computing, our third billion dollar product line by 2027.

Speaker Change: Our next talk about content delivery, which continues to be an important generator of profit that we used to develop new products to fuel our future growth.

Speaker Change: Our unique edge platform with over 4300 points of presence and over 700 cities continues to be a major differentiator in terms of lowering our cost, enabling massive scale and providing superior performance and this is true not only for delivery, but also for security and compute.

Speaker Change: In security, we use the platform to provide a massive shield against all sorts of attacks without impacting performance are raising costs and in compute we use the platform to provide function as a service with our edge workers product.

Speaker Change: And as we will announce next week, we'll also use the same platform to run our new managed container service in thousands of Pops across hundreds of cities. This capability is unique in the market and it will enable our customers to get their compute workloads much closer to users.

Speaker Change: Akamai achieved substantial cost synergies by using the same physical server to support our delivery security and now compute services and over 4300 Pops and 700 cities. It's a unique capability and a key reason why akamai has been so profitable while many of our <unk>.

Speaker Change: Patters have struggled.

Speaker Change: Our installed base of delivery customers also continues to be a key contributor to our growth in security and cloud computing as we harvest the competitive and performance advantages of offering delivery security and compute as a bundle on the same platform that.

Speaker Change: That synergy works, especially well for our security and compute customers that want delivery as a feature and see it as critical to their relationship with us over other vendors.

In Q4, we signed many deals that included security and compute solutions alongside our best in class delivery and we won back delivery business for our competitors at one of the leading tech players in AI and had a leading player in streaming media.

Speaker Change: And in December we acquired select customer contracts from NGO to offer their customers our market, leading delivery services and the opportunity to take advantage of Akamai full range of security and cloud solutions.

Speaker Change: I'm pleased to report that we're beginning to see signs of improvement in the delivery marketplace with more customers willing to sign multi year contracts with predictable pricing.

Speaker Change: A more stable pricing environment generally and early signs of stabilizing traffic growth as a result, and as Ed will discuss in a few minutes. We now expect to see the year over year decline in delivery revenue shrink to about 10% this year.

Speaker Change: The favorable trends hold we should see the decline in delivery revenue continue to lessen in 2026 and beyond.

Speaker Change: As we noted in our call last may our largest customer is navigating political challenges and is pursuing a DIY strategy. As a result, we expect that the revenue from this customer will produce a headwind of about 1% to 2% per year on our overall revenue growth rate for the next couple of <unk>.

Speaker Change: Years before stabilizing at a level similar to some of our hyperscale customers, which would be about 2% to 3% of our total revenue.

That said I'm pleased to report that we entered into a five year committed relationship with this customer in Q4 that includes a substantial minimum annual spend which provides greater predictability and which reduces our exposure to their political situation in the U S.

Speaker Change: Okay.

Speaker Change: While we're pleased with the progress that we made last year on our multi year transformation journey, we still have work to do to reach more new customers and cross sell our new capabilities in security and cloud computing to our installed base.

To drive greater top line growth over the next three to five years, we're transforming our go to market strategy to align more resources with the higher growth segments of our business and to accelerate the pace at which we add new customers in particular, we've already begun to raise the ratio of hunters to farmers in sales and.

Speaker Change: To increase the number of specialized sellers and pre sales resources that support sales of our Garda core platform API security and cloud infrastructure services. We're also investing more in partner enablement as the channel has become a major source of revenue growth for us.

Speaker Change: Based on advice from one of the world's top consulting firms. We're also embarking on a major project to optimize our sales operating model account coverage framework compensation structure pricing strategy and the way that we leverage our channel partner ecosystem.

Speaker Change: As we disclosed in the supplemental forecast posted on Akamai as the Investor Relations website, we believe that the combination of double digit security growth very fast growth in cloud computing are stabilizing delivery business and are constantly improving product mix should enable us to accelerate revenue growth in the year.

Speaker Change: <unk> ahead and to achieve double digit revenue growth by the end of the decade, if not sooner.

Speaker Change: In fact, if you remove the impact of foreign exchange headwinds and the large customer I mentioned earlier you can see that the acceleration is already underway. Excluding these two factors revenue growth accelerated in 2024 over 2023 and as Ed will describe shortly we anticipate further access.

Speaker Change: Duration in 2025.

Speaker Change: We believe that improving our topline growth and product mix combined with our continued efforts to improve efficiency will help to improve operating margins. So that we can meet and then exceed our goal of 30% over the next several years. We also believe that we can resume growing our non-GAAP EPS in 2026.

Speaker Change: <unk>.

Speaker Change: While we still have much to do we're very optimistic about the future. Our cloud computing strategy is taking hold as we envisioned our expanded security portfolio is enabling us to deepen and expand our relationships with customers and partners and we continue to invest in akamai future growth, while also maintaining strong.

Speaker Change: Long profitability.

Ed: Now I'll turn the call over to Ed for more on our results and our outlook Ed.

Ed: Thank you Tom.

Before I begin I want to reiterate what Mark mentioned at the start of the call and highlight some of the new disclosures we issued earlier today.

Ed: The materials, we posted to the IR section of our website include a bit more detail than what we will cover in today's prepared remarks.

Ed: Our aim is to provide deeper insights into our business and present, our updated long term goals.

Ed: While we do not intend to provide this level of disclosure every quarter, we will occasionally offer additional context, if we believe it will be helpful.

Ed: Today I plan to cover our Q4 results provide some color on 2025, including a few new disclosures and then cover our Q1 and full year 2025 guidance and I'll close with our long term thoughts on revenue and profitability goals now.

Ed: Now, let's cover our Q4 results starting with revenue.

Ed: Total revenue was one point or $2 billion up 3% year over year as reported and in constant currency.

Ed: We continue to see solid growth in our compute and security portfolios during the fourth quarter.

Speaker Change: <unk> will contribute approximately $9 million of revenue in the quarter, which was in line with our expectations.

Speaker Change: Compute revenue grew to $167 million, a 24% year over year increase as reported and 25% in constant currency.

Speaker Change: In the fourth quarter compute revenue was comprised of $65 million from our cloud infrastructure services and $102 million from our other cloud applications as Tom pointed out one of our largest customers is committed to spending at least $100 million on our cloud infrastructure services over the next few years, we expect that their workloads.

Speaker Change: We'll begin ramping up by the end of 2025.

Speaker Change: Moving to security revenue.

Speaker Change: Security revenue was $535 million growing 14% year over year as reported and in constant currency.

Speaker Change: During Q4, we had approximately $12 million of one time license revenue compared to $5 million in Q4 of last year.

Speaker Change: As noted in our added disclosure our security revenue was comprised of $205 million from Zero Trust Enterprise, plus API security, which grew 51% in constant currency year over year, and 1.84 billion from all other security products, which grew 14% in constant currency year over year.

Speaker Change: Combined computing security revenue grew 16% year over year as reported and 17% in constant currency in Q4, and now represents 69% total revenue.

Speaker Change: Our delivery revenue was $318 million slightly ahead of our expectations down 18% year over year as reported and in constant currency.

Speaker Change: We anticipate an improvement in delivery revenue in 2025, driven by a more positive outlook on delivery as Tom discussed earlier.

Speaker Change: International revenue was $490 million.

Speaker Change: 2% year over year or 4% in constant currency, representing 48% of total revenue in Q4 finally foreign exchange fluctuations had a negative impact on revenue of $8 million on a sequential basis, and a negative $6 million impact on a year over year basis moving to profitability in Q4, we generated non-GAAP net.

Speaker Change: Income of $254 million or $1.66 of earnings per diluted share down 2% year over year.

Speaker Change: Flat in constant currency and well above the high end of our guidance range. These EPS results exceeded our guidance driven primarily by slightly higher than expected revenue.

Speaker Change: Lower than expected transition services, our TSA costs related to the NGL transaction greater savings from the head count actions, we announced in Q3 and lower payroll costs due to some hiring pushing from Q4 into Q1.

Speaker Change: Finally, our Q4 Capex was $193 million were 19% of revenue.

Speaker Change: Moving to our capital allocation strategy.

Speaker Change: During the fourth quarter, we spent approximately $138 million to buy back approximately one 4 million shares for the full year, we spent $557 million to buyback approximately $5 6 million shares.

Speaker Change: We ended 2024 with approximately $2 billion remaining on our current repurchase authorization, it's worth noting that over the past decade, we've not only met our objective of buying back shares to offset dilution from our employee equity programs, but we have also decreased our shares outstanding by approximately 16% over that timeframe.

Speaker Change: Going forward, our capital allocation strategy 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.

Speaker Change: Before I move to guidance there are several items that I want to highlight to help with your 2025 models.

Speaker Change: The first relates to revenue from the NGO transaction, we now expect approximately $85 million to $105 million in <unk> revenue for 2025.

Speaker Change: In addition, we expect to have approximately $6 million of TSA costs in Q1 related to NGO approximately $4 million of those costs will be included in cost of goods sold and the remainder in operating expense.

Speaker Change: We do not anticipate any TSA costs beyond Q1.

Speaker Change: Second we expect our capex to be approximately two percentage points higher than last year for the following reasons.

Speaker Change: First we plan to increase spend by about 1% of revenue to accommodate the increased traffic, resulting from the NGO transaction.

Speaker Change: Second we anticipate approximately another 1% of revenue will be used for geo specific infrastructure builds to support the recently signed 100 million dollar cloud infrastructure services contract, we announced earlier today.

Speaker Change: Additionally, we expect our capex spend will be heavily front end loaded with the first quarter seeing significantly higher expenditures compared to the rest of the year.

Speaker Change: This is due in part to the items I mentioned above and our plans to pull forward approximately $10 million to $15 million of capex into the first quarter to help mitigate the risk of potential tariffs that may be announced later this year.

Speaker Change: Third we expect interest income to decline in 2025 due to lower cash balances, resulting from recent acquisitions and our plan to retire our 1.15 billion convertible debt instrument that matures on May one 2025, along with expected lower investment yields as interest rates come down throughout the year.

Speaker Change: Fourth for 2025, we anticipate continued heightened volatility in foreign currency markets, driven by unpredictable timing and magnitude of federal reserve policy changes and their impact on interest rates.

Speaker Change: As an example of how impactful FX can be to our results since our last earnings call in early November the strength of the U S. Dollar has negatively impacted our 2025 X expectations by approximately $18 million in revenue on an annual basis and negatively impacted our non-GAAP operating margin by approximately 30.

Speaker Change: Basis points.

Speaker Change: And negatively impacted our non-GAAP EPS expectations by approximately nine approximately nine cents per share.

Speaker Change: As a reminder related to currency, we have approximately $1 $2 billion of annual revenue that is generated from foreign currency with the euro yen and great British pound being our largest non U S dollar sources of revenue and.

Speaker Change: In addition, our cost in non U S dollars tend to be significantly lower than revenue in our primarily in Indian rupee Israeli shekel in Polish zloty.

Speaker Change: And finally, as Tom mentioned and illustrated in our supplemental disclosure the traction that we're seeing in our business is being obscured by the challenges facing our largest customer and the significant FX fluctuations.

Speaker Change: If we exclude the effect of this customer and FX, our revenue growth rate would have accelerated year over year in 2024 compared to 2023.

Speaker Change: Now moving to guidance.

Speaker Change: The first quarter of 2025, we are projecting revenue in the range of $1 billion to $1.02 billion up 1% to 3% as reported or up 3% to 5% in constant currency over Q1 2024.

Speaker Change: We anticipate that Q1 revenue levels will be slightly lower than Q4 due to the following.

Speaker Change: Lower revenue from our largest customer as we discussed earlier.

Speaker Change: The negative impact of foreign exchange.

Speaker Change: Reduced onetime license revenue in Q1 from Q4 levels.

Speaker Change: Two fewer calendar days in Q1 compared to Q4, there's two less days of usage revenue and finally, a significant number of delivery customers have calendar year end dates on their contracts. Therefore, the aggregate impact of all those renewals tends to have a negative impact on Q1 revenue compared to Q4 levels.

Note that we expect these items will be partially offset by a full quarter's benefit from NGO.

Speaker Change: The current spot rates foreign exchange fluctuations are expected to have a negative $7 million impact on Q1, compared to Q4 levels and a negative $15 million impact year over year at these revenue levels, we expect cash gross margin of approximately 72%.

Speaker Change: Q1, non-GAAP operating expenses are projected to be $310 million to $316 million. We anticipate Q1 EBITDA margin of approximately 41%, we expect non-GAAP depreciation expense of $132 million to $134 million, we expect non-GAAP operating margin of approximately 28%.

Speaker Change: And with this overall revenue and spend configuration I just outlined we expect Q1 non-GAAP EPS in the range of $1.54 to $1.59 were down 6% to 3% as reported and down 2% to up 1% in constant currency. This EPS guidance assumes taxes of $57 million to $59 million based.

Speaker Change: On an estimated quarterly non-GAAP tax rate of approximately 19, 5%. It also reflects a fully diluted share count of approximately 152 million shares.

Speaker Change: Moving on to Capex, we expect to spend approximately $237 million to $245 million, excluding equity compensation and capitalized interest in the first quarter. This represents approximately 24% of total revenue as noted earlier, we anticipate that our capex spending will be heavily front end loaded with the first quarter seeing significantly high expenditures compared to the rest of the year.

Speaker Change: Looking ahead to the full year.

Speaker Change: We expect revenue of four to $4 $2 billion, which is flat to up 5% as reported and up 1% to 6% in constant currency.

Speaker Change: We are providing a wider range than past practice due to the larger scale of our business the uncertainty around our largest customer and continuing macroeconomic and geopolitical factors.

Speaker Change: We would expect to come in at the higher end of that range. If we see significant weakening of the U S dollar traffic growth materially exceeds our current levels and there is no ban in the U S for our largest customer.

Speaker Change: We would expect to come in at the lower end of this range. If we see significant strengthening of the U S. Dollar traffic materially slows from current levels in our largest customer is banned in the U S.

Speaker Change: Moving on to security.

Speaker Change: We expect security revenue growth of approximately 10% in constant currency in 2025.

Speaker Change: Q4 included and security of the combined AOR for our Zero Trust Enterprise and API Security solutions was approximately $247 million.

We expect the combined are are these two products to increase by 30% to 35% year over year in constant currency for 2025.

For compute we expect revenue growth to be approximately 15% in constant currency included in compute our cloud infrastructure services delivered $259 million in a or are exiting 'twenty 'twenty. Four we would expect cloud infrastructure services are our year over year growth in the range of 40% to 45% in constant currency for 2025.

Speaker Change: The current spot rates, our guidance assumes foreign exchange will have a negative $38 million impact to revenue in 2025 on a year over year basis moving to operating margins for 2025, we are estimating the non-GAAP operating margin of approximately 28% as measured in todays FX rates.

Speaker Change: Decline in operating margin for the full year twenty-five is due mainly to depreciation expense being approximately 90 basis points higher than last year, and a negative impact of foreign exchange year over year.

Speaker Change: We anticipate that our full year capital expenditures will be approximately 19% of total revenue up approximately two points from 2024 due to the items that I listed earlier as a percentage of total revenue or 2025, Capex is expected to be roughly broken down as follows.

Speaker Change: Actually 4% for delivery and security.

Speaker Change: Approximately 6% for compute approximately 8% for capitalized software and the remainder is for it and facilities related spending.

Speaker Change: Moving to EPS for the full year 2025, we expect non-GAAP earnings per diluted share in the range of $6 to $6 40.

Speaker Change: This non-GAAP earnings guidance is based on non-GAAP effective tax rate of approximately 19, 5% and a fully diluted share count of approximately 152 million shares.

Speaker Change: Before closing I wanted to comment on our revenue and profitability goals for the next three to five years.

Speaker Change: Cloud infrastructure services is experiencing significant growth, which we believe will be the main driver of our total compute revenue in the near to medium term.

Speaker Change: Our goal is to grow total compute revenue at a compounded annual growth rate of approximately 20% over the next three to five years moving to security given the size and scale in our security business. It is natural that we will see some products reach maturity and experienced slowing growth rates, while other products in emerging areas, we'll see more rapid growth as.

Speaker Change: A result, we expect security growth over the next three to five years to be led mainly by our newer guard our core platform and API security products. However, some of our largest security products like web application firewall or WAF and Prolexic are examples of some of our more mature products.

Speaker Change: Been offering these products for over a decade and have reached a very high penetration rate within our customer base as a result.

Speaker Change: We expect the growth rate for these products to begin slowing of 2025 and continue to moderate throughout the remainder of the decade.

Speaker Change: Given these dynamics and our security portfolio. Our goal is to grow total security revenue at an overall compounded annual growth rate of about 10% over the next three to five years, including our typical level of M&A.

Speaker Change: We anticipate.

Speaker Change: Delivery revenue declines will moderate in 2025 with increasing stabilization expected over the next few years in summary, we anticipate that the combination of double digit growth of our security products. The rapid expansion in our compute services are stabilizing delivery business and our continuously improving product mix away from delivery will allow.

Speaker Change: To us to achieve double digit topline revenue growth by the end of the decade, if not sooner.

Speaker Change: As for profitability, we expect operating margins to reach 30% plus by the end of the decade and with accelerating top line and expanding operating margins our goal would be to deliver strong growth in non-GAAP EPS over the next few years finally, while we're not providing specific guidance for 2026, we do anticipate revenue acceleration in March.

Speaker Change: <unk> expansion compared to 2025 levels with that I'll wrap things up and Tom and I are happy to take your questions operator.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw your question.

Speaker Change: Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Roger Boyd: The first question comes from Roger Boyd with UBS. Please go ahead.

Great. Thank you for taking my question and congrats on the quarter and congrats on the large cloud deal common above if you could maybe expand a little bit on that <unk>.

Roger Boyd: Provide any more details on the nature of workloads as customers, bringing over and it sounds like it's <unk>.

Roger Boyd: Coming out of a hyperscale are but any additional info you can provide on the competitive environment. There as it relates to pricing performance edge presence I think Ed noted theres. Some geo specific conditions the customers looking for and I know, that's a lot but thanks.

Roger Boyd: Yes.

Roger Boyd: They already have been using substantial cloud infrastructure services that akamai for a variety of media applications and will increase that usage. In addition.

Roger Boyd: They have some special needs in Scandinavia.

Roger Boyd: And we are building out a data center there for them to handle a substantial applications for them throughout Europe.

Roger Boyd: So they're using the services in a normal way plus we have a special situation that we're doing a build out for them and development for them that ultimately we think many of our customers will use.

Speaker Change: Super helpful. I appreciate the color.

Matthew Brooks: The next question comes from Matthew Brooks with Bank of America. Please go ahead.

Matthew Brooks: Hi team. Thanks, so much for taking my question first just for housekeeping I just want to clarify that that 100 million can QTL is not the same as the five year deal that you signed your largest delivery customer and then I have a quick follow up to that.

Matthew Brooks: They are the same customer.

Got it okay. Thank you and then the other on acuity can you just give us more details outside of just the geolocation on why they chose akamai.

Matthew Brooks: Is that does that have anything to do with the newer products that you have and work on AI or intelligence things of that nature would be helpful. Thank you.

Speaker Change: Yeah, They chose Akamai for superior performance.

Matthew Brooks: And you know.

Matthew Brooks: At our pricing.

Matthew Brooks: You know we are very well connected throughout Europe, nobody has the points of presence that we do.

Matthew Brooks: And so we can handle requests for this customer throughout the continent.

Matthew Brooks: And get it into the datacenter facility they'd like to have in Scandinavia, and do that very efficiently at a favorable price point because of our existing platform and capabilities.

Matthew Brooks: The next question comes from Amit <unk> with Evercore. Please go ahead.

Amit: Yeah, Thanks, a lot and not putting my question I guess I have two quick ones hopefully.

Amit: First one with your largest customer the $60 million headwind that you talked about I'm, hoping you just maybe expand a little bit on that is that had been going to happened irrespective of what happens with the recent executive order around the operations.

Amit: I'm sorry, it sounds like you know is this more about them intending to move some of the C D and in house or is it more of Mexico water. So that 60 million headwind does it happen irrespective and it sounds like its another $60 million and 26, maybe just level set that kind of what's happening there and how to ring fence that that'd be helpful. And then you know just.

Amit: Pushed operating margins what do you think it takes for Akamai to get back to a 30% operating margin number over time.

Speaker Change: You kind of help on revenue cost control it would be helpful. Thank you.

Speaker Change: Yeah. So the headwind is by and large because of their DIY build out as we've talked about so they'll be taking on more.

Speaker Change: You know the services themselves.

Speaker Change: And you know.

Speaker Change: There are no political challenges obviously in the U S. As a result of the five year agreement our exposure there is mitigated quite a bit.

Speaker Change: As we talked about in the disclosure last year, we had about $50 million you have about $50 million of U S business with this customer that obviously would be.

Speaker Change: Taken away.

Speaker Change: They are a band in the U S. However, as a result of the minimum commitments made our exposure there is less.

Speaker Change: As Ed pointed out if they are banned in the U S.

Speaker Change: You know then we would have less revenue from them then if they continue to operate and if they continue to operate there would be upside.

Speaker Change: And to the upper end of the range in.

Speaker Change: And Ed do you want to talk about the margins.

Ed: Sure, Yes. So most of the expansion is going to come through two things one the mix is going to move more towards security and compute and then just from an operating leverage perspective with the revenue growth. We just believe we can scale the business accordingly, and a lot of that additional growth will drop to the bottom line.

Ed: The changes that Tom is talking about Dodd mentioned on the call about go to market. Some of that has already been funded by the action that we took before and will be very responsible with the future investments. So we expect to see some scale as we grow top line.

Ed: Great. Thanks, so much.

Speaker Change: The next question comes from Fatima <unk> with Citi. Please go ahead.

Speaker Change: Oh, good afternoon, and thank you for taking my questions tumor Ed Please feel free to chime in on this with regards to talk.

Speaker Change: You talked specifically about the delivery business and some of the minimal minimum commitments they've made to you to protect you, but I was actually curious if you can opine or comment on.

Speaker Change: That is a customer that has adopted other solutions in your portfolio and specifically anything security rally that we have to be mindful of.

Speaker Change: Eroding away and then I have a quick follow up on the go to market as well.

Speaker Change: Yeah like any large customer are they.

Speaker Change: Pretty much use all our services. So there are large delivery customer they use a lot of our security services and actually a growing amount of our compute our cloud infrastructure services.

Speaker Change: And we have factored that in to.

Speaker Change: Two the guidance, we'd given both the guidance for this year and the three to five year guidance.

Speaker Change: Great and just from a go to market perspective, Tom you were very explicit in that there has been.

Speaker Change: A lot of thoughtful change.

Speaker Change: And maybe a little bit of an overhaul in the go to market organization by way of a second.

Speaker Change: Second account segmentation.

Speaker Change: Our pricing strategy et cetera.

Speaker Change: Wondering how far along are you in the process of.

Speaker Change: Ironing out or cementing a lot of these changes because it does seem like there might be a couple of things in flux from the aggregate go to market strategy perspective, So would love to hear kind of where you are.

Speaker Change: On the journey to overhaul the go to market organization and how we should think about you coming out the other end of that thank you.

Speaker Change: Yeah, Great question I think of this as sort of a two year process roughly speaking and.

Speaker Change: We're in the beginning stages we've already.

Speaker Change: <unk> increased the number of our hunters and as I said the ratio of hunting to farming.

Speaker Change: We've already increased and we will do further increases in the specialized sales team.

Speaker Change: We are working now thinking through pricing structure changes contract potential contract structure changes.

Speaker Change: Making progress in segmentation for the field.

Speaker Change: So a lot of work still underway and you want to I think position just in the context that you know we're transforming the company.

Speaker Change: And you look at our product set and we're evolving substantially from what was a delivery company and then delivery and Sandy have web App firewall company, where most of our revenue has been and you look at the products that are really growing and driving us forward to the future and you're looking at.

Speaker Change: You know segment. Thank God of course segmentation Enterprise Zero Trust security Youre looking at API security.

Speaker Change: You know huge Greenfield, therefore us and best of all you are looking at our cloud infrastructure services, what you just really taken off.

Speaker Change: Remarkable I think when you see what's happened we bought one note about three years ago.

Speaker Change: About $127 million a are all growing mid teens at best.

Speaker Change: And today more than doubled now growing at 35% last year, and we're forecasting 40% to 45%. This year and you know I think what's really exciting about that is the addressable market for us is literally over $100 billion.

Speaker Change: And that's probably just in our current customer base.

Speaker Change: So tremendous potential and it's it's really taking off now so that changes the company and it changes what we need from the sales force what what they need to be doing obviously, we want to.

Speaker Change: Tact and grow the revenue in our existing base, but we want to be out there selling those new products both in the existing base and to a lot of new customers and so in response to that.

Speaker Change: We're in the process of transforming.

Speaker Change: You know the sales force.

Speaker Change: To get the the capabilities that we need to continue.

Speaker Change: Very strong growth, we're seeing in these new areas.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: The next question comes from Frank Louthan with Raymond James. Please go ahead.

Great. Thank you can you.

Speaker Change: Let's see can you give us an idea of what the what logo growth was in the quarter.

Speaker Change: That'd be great and is there any particular groups security compute et cetera that saw better or worst growth.

Speaker Change: How many logos thanks.

Speaker Change: Hey, Frank this is Ed.

Speaker Change: Actually local gross obviously was probably most.

Speaker Change: Positively impacted from.

Speaker Change: The NGL contracts that we acquired we added a few hundred logos there.

Speaker Change: Over 100 of those were new to the company. So that was the biggest.

Speaker Change: Addition, as far as where the new logos are coming from it's mostly in security and the two new areas that Tom talked about Garda core and API security and also in the compute side as well so I would say, it's probably stronger than normal.

Speaker Change: The new acquisition quarter in Q4, just normal course, and then obviously agio helped quite a bit as well.

Speaker Change: And what's your outlook for being able to retain those NGL contracts do you think some of those will churn off or what's the likelihood of those converting into more permanent customer.

Speaker Change: Customers.

Speaker Change: Yeah. So we've gone through the migration at this point, we've moved everybody off Joe network is closed so or shut down at this point. So we have a good idea of who's come over at this point, we don't anticipate significant churn from what we have today, we're very selective in what we took we didn't take all the customers there are certain things.

Speaker Change: Certain small customers it.

Speaker Change: Didn't make sense for us to take or something.

Speaker Change: Acceptable use policy violations that we wouldn't take and there was some economics with certain customers that we didn't want so.

Speaker Change: And factored into our guidance is what we think will do with our customer base I think theres, probably some upside there with upsell Gen.

Speaker Change: Generally speaking you want to land the customer make sure. They are happy and then start.

Speaker Change: No.

Speaker Change: Developing a pipeline with them don't want to just attack them right away with the with the sales pitch. So.

Speaker Change: Pretty happy with what we were able to retain it was pretty much right in line, maybe a little bit better than we expected.

Speaker Change: Okay, great. Thank you.

Speaker Change: The next question comes from Rishi Galeria with RBC. Please go ahead.

Speaker Change: Wonderful. Thanks, so much for taking my questions. Just two quick ones first going back to some of the changes in go to market and changes in sales.

Speaker Change: What what can you do on your end to minimize the disruption from that what are you assuming when you think about your 2025 guide and I asked because in the history of softer we see sales re org changes that go to market and they always end up being a lot more disruptive than anticipated. So maybe if you could walk us through your assumptions.

Speaker Change: You can do to minimize that disruption that'd be helpful and I hope my follow up.

Speaker Change: Well you know the first key is to avoid.

Speaker Change: Breakage and so we're not doing it all at once as I mentioned this is a two year journey.

Speaker Change: And of course, we're adding resources with specialization on the new products and so those folks are helping.

Speaker Change: It was a cross sell and have a chance to hunt for new customers.

Speaker Change: So the key really I think as is.

Speaker Change: We'll minimize the breakage of the rap associations with customers in the accounts in and is there anything you'd like to add to that.

Speaker Change: Yes, I'll, just say that as Tom mentioned, we're working with one of the large consulting firms and bringing some expertise into help us think through that but absolutely we want to be very careful with how we think about.

Speaker Change: The movement from hunting to farming and how we support customers going forward the less breakage the better.

Speaker Change: Got it that's helpful. And then just really quickly on NGL.

Speaker Change: The color and the detailed guide as we think maybe a little bit more longer term given eight years out of the fold now and you have those contracts in asset how should we be thinking about the pricing environment for the delivery and can just having fewer players in the space.

Speaker Change: Maybe lead to a less aggressive pricing environment. Thanks.

Speaker Change: Yeah.

It really comes down to the different buckets of customers I'd say with some of the.

Speaker Change: Larger high volume customers, we are seeing some.

Speaker Change: Rationalization to some extent longer contract terms, which is helpful. Obviously, if you have less players you do potentially have some.

Speaker Change: Better pricing, but we're already starting to see that in the market.

Speaker Change: So I'd say it's.

Speaker Change: Getting a little bit better, but you know, it's always been a volume driven business. So to the extent that volumes continue to drop.

Speaker Change: Go higher will still see the.

Speaker Change: General trend and pricing to go down, but hopefully, we'll see it moderate a little bit more in the future.

Speaker Change: Wonderful thank you.

Speaker Change: The next question comes from John Fucci with Guggenheim. Please go ahead.

Speaker Change: Thank you.

John Fucci: So Tom and Tom and Ed I think this the place both U business looks to be going as planned and we appreciate the three to five year goals and actually all the information you gave us this is great, but the guidance for next year implies 3% growth and I think there's a 1%.

Speaker Change: FX headwind, so that's about 4%.

Speaker Change: The large customer issues, but you know there's always issues right.

Speaker Change: That aside for now how do we get comfort that growth is going to accelerate to 10% is it just math because I haven't gone through it all yet that the faster growing portions of the business will more than offset the delivery business and or are you <unk>. I guess are you expecting improved macro backdrop and the forecast.

Speaker Change: Or does it I guess also related to this does that 10% eventual 10% excluding any impacts from that large customer.

Alright, so I'll take this one so I'll start with the back part the large cuts what we've done is we've modeled out what their minimum spend would be.

Speaker Change: So that five year contracts so.

Speaker Change: Think of that as being the bottom of the potential there for that customer. So there's more upside there potentially but in terms of what we're seeing for growth I think you have to kind of break the business down into the buckets and why we showed you all of that data we will start with delivery first so delivery, obviously has been a pretty big drag is starting to improve we expect it to improve this year continue to improve so you should start to see some stabilization.

Speaker Change: <unk> and delivery over that period of time, so that you think of that as a big drag sort of moderating significantly. So you don't have as much of a drag. So then when you take the businesses that we have look at security.

Speaker Change: The bigger franchises are slowing a bit but they're still growing so we're still getting some growth out of that and underneath that say for example in.

Speaker Change: Our security products, we have new fraud products, we'll be introducing new products. So that that franchise will still grow just won't be growing as fast as it was but the between Garda corn API that those are very large markets. We have market leading products, we think will be able to and that included with the some of the changes we're making in go to market and the investments, we're making in hunting will get more.

Speaker Change: Activity out of the sales force and there's still a long way to go there. So we think that that growth as it gets bigger and you get 10% growth other security that we think is pretty durable.

Speaker Change: Those factors and then Theres compute so with compute we're going through a little bit of a transformation as Tom talked about with the sort of book.

Speaker Change: Don't want to say the legacy, but some of the other older products in the other applications bucket, where we're partnering with some of the ISP partners, which has a little bit of a near term the flattening of revenue in that bucket, but it gives us a much bigger opportunity to grow the market by partnering with those folks getting some of their own business, but also getting them.

Speaker Change: Product thats being invested in et cetera. So we have a much more robust offering and then again with the go to market investments, we're making in compute.

Speaker Change: Not only just with the hunters, but also with the overlay specialist we think that will also help drive more productivity in the field.

Speaker Change: Hopefully that answered your question and that was really good that's really helpful. It makes me think we need to do a lot more work around.

Speaker Change: Especially compute but it's exciting to think about Garda coordinate pie I guess, just one thing one last question on the compute business and one of the things that I can't help to think about here is profitability.

Speaker Change: And it's always a question and anybody that's coming into this business, but you allude to having some advantages and entering this business given that the delivery business I guess can you describe that in a little more detail.

Speaker Change: Get that the high level is it as simple as you're utilizing underutilized assets across your network or is there something more to it.

Speaker Change: There are several reasons first we probably move around more data then.

Speaker Change: Pretty much antibody.

Speaker Change: And we figured out how to do that aerie efficiently.

Speaker Change: And so for customers of our cloud infrastructure platform when they compare our pricing to the hyper scaler, we're a lot less at least for the applications, where they're moving around data they've got a lot of hits and that's a lot of the applications out there today.

Speaker Change: And so in head to head competition now with the Hyperscale or.

Speaker Change: We can offer a much better price.

Speaker Change: Second is performance and you know as we've talked about we have the world's most distributed platform. We are in a position to get our customers compute instances a lot closer to end users and not only is that good for scalability, it's great for performance because the business logic is running.

Speaker Change: Close to the users and so when we do head to head trials now against the Hyperscale or for a lot of the applications. We perform better. So we're able to offer better performance at a lower price point and now with the managed container service that's super exciting we can actually support our customers.

Speaker Change: Painters in hundreds of cities nobody is doing that today.

Speaker Change: And so again those are locations. We've had already you know for the delivery business and the security business. So we're already there.

Speaker Change: So you get better performance and scalability at a lower price point.

Speaker Change: And then you combine that with the enormous market.

Speaker Change: That we have a chance to tap into and I think probably really important as you make the models to look at you know our cloud infrastructure services revenue and what's happening. There you know, we only really started selling that to enterprise as last year.

Speaker Change: Went from very little revenue to 115 million a or are in the total you know for our cloud infrastructure services $259 million and we're projecting that total number to grow by 40% at least $40 to 45%. This year. So I would encourage you to keep a close.

I on that because that drives a lot of growth and profitability for us going forward.

Speaker Change: Okay.

Speaker Change: Just to add on the profitability of this this four main synergies one is the backbone. So we obviously can leverage that.

Speaker Change: Obviously, you don't contract that we serve there number two is with operations. So a lot of the folks that build out the CDN also build out the data centers for our our compute business. So we didn't have to go hire a big team number three is engineering, we move we talked earlier in the year that moved about 1000 people out of the <unk>.

Speaker Change: Engineering organization, and our delivery business into into the compute business both in operations and engineering and then the fourth thing is on go to market. So we can leverage our existing customer relationships and our reps and we're augmenting that a bit with some of our.

Our specialists, but we don't have to go on hire a whole new team. So theres an awful lot of offer.

Speaker Change: Operating expenses that we can take advantage of in terms of driving profitability.

Speaker Change: Thank you guys. This all makes sense now it's easy for you just have to execute.

Speaker Change: That was a joke, it's exactly right.

Speaker Change: Thanks, guys.

Speaker Change: The next question comes from Patrick Colville with Scotiabank. Please go ahead.

Speaker Change: Thanks for squeezing me in guys. So I guess this one's full probably booked at home and Ed.

Speaker Change: In the prepared remarks, you touched on.

Speaker Change: You know the reasons why computed slow, but I just I'm going through my model now and the year on year Delta, It's pretty stark and so I just want to make sure I've got them completely nailed down.

Speaker Change: So I guess it's installed.

Speaker Change: This year, 25% growth in compute next yield guidance of 15.

Speaker Change: Can you just double coastal.

Speaker Change: What is driving that.

Speaker Change: Yeah sure. So there's the two pieces, there's the court infrastructure security, which will continue to grow it actually accelerate so that piece. It's the smaller piece of the two businesses, but that's going to accelerate pretty significantly when you look under the covers of the other the application services. There's a number of things in there. For example, we have some of our legacy net storage business, which will be.

Speaker Change: <unk>.

Speaker Change: End of life in that soon in the next year or two and you know some customers will migrate to our cloud offering some may decide to do something else, but that's going to be in a bit of a decline and then we've got a lot of revenue that comes from some of these potential ISP partners. For example, we've got.

Speaker Change: Some of our trans coding, we announce something with a partner called harmonic where we're partnering with them and we're migrating some of that business over there they're using us now for their compute so that's going to be shifting over time, and there's probably a four or five different buckets, whether it's image manager video manager.

Our waiting room application of visitor prioritization, those things, we're going to be moving towards.

Speaker Change: Isd partners.

Speaker Change: Focusing more of our efforts on the.

Speaker Change: Infrastructure services, so you're going to see flattening to maybe slightly down in that bucket and you'll see that most of the growth coming from cloud infrastructure services.

Speaker Change: Okay. Okay helpful.

Speaker Change: And then I guess as a quick one because I've been getting this from <unk>.

Speaker Change: Investors in terms of.

Speaker Change: Akamai has exposure to the U S fed.

Speaker Change: How should we think about that.

Speaker Change: In 'twenty 'twenty towards is there any expectations for that business embedded into guidance for 2035.

Speaker Change: So when you say the U S, but you're talking about the federal reserve interest rate policy, you're talking about the federal government.

Speaker Change: Yes.

Speaker Change: The latter.

Speaker Change: Oh, Okay. Yeah. So we obviously do sell to the government, it's not a huge portion of our business it's way too early to tell.

Speaker Change: What the cost cutting efforts that are going on how that would impact us, but it's not an overly material part of the business. So I wouldn't expect.

Speaker Change: Anything material out of that we haven't modeled anything material just kind of regular way business for now so I'm not anticipating anything.

Crystal clear alright. Thank you so much guys really appreciate it.

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

Speaker Change: Okay got it.

Speaker Change: All the details here.

Speaker Change: An increased disclosures I think investors will as well maybe just following up on something you. Just said first Ed can you just walk us through some of that transition impact on the acute side.

Speaker Change: And which which are the products you plan sort of be transitioning off and how to think about the utilization of the compute network today that we need to invest this much after two years of investing as much behind the compute business.

Speaker Change: Yeah. So I mean, we I gave you the terms of the investment the percentage of revenue that we're spending for that 1% of that of the six that were using for.

Speaker Change: Compute will be specifically for that big customer and I've always talked about how.

Speaker Change: From time to time, if we do get large customers you do tend to sometimes get outsized demand in particular G O.

Speaker Change: We added an awful lot of investment.

Speaker Change: Investment this year in terms of bulking up the number of locations et cetera, we're going to continue to add to those we're also seeing very strong demand. So we're continuing to.

Speaker Change: Investor that but also keep in mind, we did migrate over $100 million worth of our own applications thats running well over half a billion dollars of our revenue today.

Speaker Change: And that business continues to grow so we're still happy to provide some investment to support that which is significantly less than what we would be paying if we were to continue to use third party cloud providers now in terms of the debt.

Speaker Change: Two different components of revenue I think I discussed the cloud infrastructure services I think you guys get that that's a real fast growing stuff and inside that other bucket is where youll see that flattening out to declining and it's really just the items I mentioned, we've got video management image management visitor prioritization and some various workflow <unk>.

Speaker Change: <unk> like Trans coding that we have built from time to time for customers, there's not a ton of demand for it has grown decently, but it's not a specialty of ours. So we want to make sure that we're investing in the right areas. So as we're migrating that to partners and we.

Speaker Change: Shifting our investment into the faster growing infrastructure cloud services, you'll see a bottoming out here. This year and then the growth will reaccelerate to 20% led by cloud infrastructure services and also keep in mind I've got about last time, we broke it out it was about $50 million of.

Speaker Change: Legacy storage, so think of that as like the.

Speaker Change: Media companies spot not storing like a backup origin for there.

Oh files and music files, and that sort of stuff images et cetera that that business will be winding down over the next year or so so that's going to have a bit of a drag on revenue as well.

Speaker Change: Understood and I think a lot of investors here.

Speaker Change: You guys are sitting here on an earnings call, giving a three to five year framework. The last time you got this type of framework for you guys was many years ago.

Speaker Change: I think in that framework, we had talked about a 20% constant currency security growth for example, and we didn't hit that so you're talking about a 10% CAGR that includes M&A from here within security.

Speaker Change: What's what's going to drive to the.

Speaker Change: Reason that we actually achieve these results and that this is a reasonable expectation that that actually might be conservative.

Speaker Change: As opposed to hoping that we hit that number thanks guys.

Speaker Change: Well I mean to be fair there were several several years during that period of time, when we did grow 20%. We've always said, 20% would include acquisitions that we did some acquisitions along the way. We've looked we just did but up 16%. So that business has been very healthy we've been adding a couple hundred million dollars of high margin <unk>.

Speaker Change: Security revenue for years now and if you do the math, we'll continue to do that.

Speaker Change: In terms of the impact of acquisitions going forward, we're not anticipating doing significantly large acquisitions more of what we've done in the past, whether it's tech tuck ins or smaller companies that are got a product that's in market that's about to scale like API security where.

Speaker Change: The company is looking at making a big investment in go to market or raising around or looking to exit we buy something like that or like Garda core we scaled that up and we've shown that we've got success. There. So I think we've got confidence in our M&A strategy, it's not going to be a significant portion, but maybe overtime it might be one of the faster growing products as we exit the decade.

Speaker Change: And what we've been why we broke these businesses out four you can see how well we're scaling a bit.

Speaker Change: Now that's a couple of hundred million growing extremely fast so.

I think we have pretty good confidence again, yeah, you can we can quibble over the 20% and maybe a couple of years, we were in the high teens, but as we said that would have included acquisitions and always do them, but I thought we did pretty well over that period of time and we just thought now that we're getting to a scale of couple of billion it made sense to uptake.

Speaker Change: Expectations as we see some of our products that we've been in the market for over a decade slowing down.

Will Power: The next question comes from will power with Baird. Please go ahead.

Speaker Change: Okay great.

Speaker Change: Hey, Tom could you provide some good examples in the prepared remarks are thinking of.

Speaker Change: Some of the applications.

Speaker Change: <unk> been using your network I mean, it seemed for some time that you should be well positioned for inference.

Speaker Change: At the edge.

Speaker Change: I Wonder if you can maybe update us just as.

Speaker Change: Along the lines of the tone of conversations you're having what kind of the pipeline looks like just kind of activity level youre seeing.

Speaker Change: In terms of taking advantage of particularly some of these generative AI applications in inference.

Speaker Change: Maybe just starting to develop or do you just think is going to start to develop.

Speaker Change: Yeah, I think Theres a lot.

Speaker Change: AI powered at image normalization, so that the various images have the same consistent size quality.

Speaker Change: Image classification, even for things like detecting disease in crops.

Speaker Change: You know AI powered speech recognition and cars.

Howard: Howard Chatbot.

Howard: You know sentiment analysis packed it impacts the image in print staying for a variety of applications.

Howard: You know all sorts of applications already using gen AI on the platform and we have.

Howard: Partners, our ISP partners some of them.

Howard: Doing AI on the platform in a web assembly.

Howard: AI inferencing.

Howard: So I would say, it's early days, but all sorts of things being done on our <unk>.

Howard: <unk>.

Howard: Restructure services to that.

Howard: Okay, and then as we look at the cloud infrastructure assumed acceleration I think you're looking for 40% to 45% AOR growth.

Howard: Any further breakdown I mean, how much is different saying influencing that or is that is that still early.

Howard: And if not what are the kind of the key drivers of the acceleration there, including you know impact of the $100 million deal how does that factor in.

Howard: Yes, the $100 million deal doesn't do a lot this year that doesn't really ramp up until the end of the year. So I don't think that's a material impact on our 40% to 45% projection that will certainly help us in 'twenty six and beyond.

Howard: And I don't think you know AI inferencing is a big part of the growth. This year, either there could be some but I think that will fall more into the upside category.

Howard: Think it's just more of the traditional uses of compute.

Howard: Now on the platform and you know keep in mind that the 100 billion dollar market today pause you know.

Howard: Without getting into into AI or the new large deal that we've done.

Howard: And just as examples.

Howard: With R. R. I S V partners database at the edge observe ability for all sorts of applications.

Howard: Media workflow things like file transcoding and live in coding video packaging interactive web RTC. These are what are our Isd partners have their applications doing on our cloud infrastructure.

Howard: Infrastructure platform digital asset management video optimization game orchestration fleet management DRM Kubernetes, you know activity in auto scaling AD insertion server side ad insertion.

Howard: So there's just a bunch of stuff that its just good old regular.

Howard: Compute.

Howard: Running on the platform I would say, we're as you can see from the examples we've given we're selling it into pretty much all of the verticals a lot of financial companies are starting to use it now media broadly construed is still I think the sweet spot and partly thats by design.

Howard: Because those customers need to get great performance, they need to cut costs. They don't like riding a huge check to their biggest competitor.

Howard: And they are big Akamai customers and they like Akamai a lot. So that's that's sort of the center of mass, but it goes across verticals and across a lot of use cases.

Howard: And I'd say, we're excited about AI.

Howard: Upside and probably comes down the road.

Howard: That's helpful. Thank you.

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

Mark Murphy: So thank you very much Tom I'm interested to get your view of the ramifications for Akamai.

Speaker Change: All of the technological advancements and efficiencies that we've seen with the deep seek.

Speaker Change: Model and whether you see any signs of that opening up kind of a broader wave of experimentation.

Speaker Change: For doing edge inferencing on Akamai compute maybe some of those AI applications become more economically viable and then I had a quick follow up for Ed.

Speaker Change: Yeah, I think yeah, deep seek phenomenon or announced or whatever you want to call. It is.

Speaker Change: It's very consistent with what we've been saying it's going to happen.

Speaker Change: I think you will see further improvements.

Speaker Change: Great for us because it validates what we've been saying and how we've designed our cloud infrastructure platforms. In fact, theres already entities running deep seek on our cloud infrastructure platform.

Speaker Change: Along with other other models.

Speaker Change: And it does mean that it is a lot less expensive it doesn't need that giant core gpus. It can be run on a lighter weight gpus.

Speaker Change: A lot of use cases, where you want that you know on the edge.

Speaker Change: And I think it's I think it's great and very much what we expected to happen and I think you'll see more <unk>.

Speaker Change: Elements along those lines.

Speaker Change: Okay, that's great to hear and Ed as a as a follow up on the security CAGR, where youre expecting about 10% of the next three to five years.

Speaker Change: That's fairly close I believe to the overall market growing at something like 12% to 14%.

Speaker Change: And you said that it includes the typical level of M&A. If we think about it organically should we should we pencil out something like.

Speaker Change: Maybe mid to high single digits organically and then.

Speaker Change: If you're able to find some of these.

Speaker Change: Some of these tuck ins that you've done an incredible job.

Picking those out and executing on this recently, there and they're growing like a weed.

Speaker Change: And maybe maybe the inorganic piece gives you gives you a couple of few.

Speaker Change: Points there over the next three to five years is that a decent framework.

Mark Murphy: Yes, I think that's a good way to think about it Mark I mean, obviously you know with the <unk>.

Scale were at now over $2 billion, we talked about even the bigger revenue companies. We've acquired have been $20 million to $30 million. That's insignificant it's about a point in total from inorganic.

Mark Murphy: In terms of the near term, there's going to be mostly from organic but yeah, probably maybe one point something like that.

Mark Murphy: Did you get out a couple of years and then obviously if we picked a good company like we did with no name or what like we did with Garda core as you get out further we consider that organic growth at that point that might be contributing because it's a faster growing area. If we get into a hot space that is growing quickly, but in terms of like to make a number in any given year, we don't anticipate.

Mark Murphy: Paid getting much more than that maybe 1% from an acquisition and organically.

Speaker Change: Okay understood. Thank you so much.

Speaker Change: I understand that we have time for one last questioner and that will come from Jonathan Ho with William Blair and company. Please go ahead.

Speaker Change: Excellent and let me echo the.

Speaker Change: Thank you for the additional disclosure.

Speaker Change: Just one question from me, how concerned should we be with potential tariff impacts and can you maybe pass through higher costs that are associated with that I know you're trying to maybe accelerate some investment ahead of time.

Particularly with given your need to invest on the compute side over the long run I mean, it does seem like there's maybe some exposure here. So just wanted to understand the implications there. Thank you.

Speaker Change: Yes, I mean, it's obviously tough to call just given we don't know what the ultimate end game is here in terms of towers, but to the extent, we do have the ability to move supply chains around and we're looking at obviously doing that.

Speaker Change: There was some talk about Canada, and Mexico, we do get some server builds out of there but.

Speaker Change: So we fast forwarded some I gave you the number 10 to 15 million. So it's not significant in terms of can we pass some of these.

Speaker Change: Pricing costs, along we're certainly exploring that as part of the work we're doing with the consulting firm, we hired overall pricing strategy as part of it and to the extent that it becomes somewhat material in any way, we certainly would have to bake that into our pricing, but it's tough to say at this point because we just don't know what the final <unk> status.

Speaker Change: Thank you.

Speaker Change: This concludes our question and answer session.

Speaker Change: I'd like to turn the conference back over to Mark Stoutenburg for any closing remarks.

Speaker Change: Thank you everyone.

Speaker Change: As usual, we will be attending investor conferences throughout the rest of the quarter. We look forward to see you there and discussing everything that we talked about today. So thanks again for joining US Tonight I know it was a long call.

Speaker Change: We hope to we hope that you have a.

Speaker Change: Nice up you're eating.

Speaker Change: Nice evening, operator, you can end the call now.

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

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: [music].