Q2 2025 Akamai Technologies Inc Earnings Call

Good day and welcome to the second quarter, 2025 Aime Technologies, Incorporated earnings conference call.

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I would now like to turn the conference over to Mark Sutton, Head of Investor Relations. Please go ahead.

Thanks and good afternoon, everyone and thank you for joining aami's. Second quarter 2025 earnings call.

Speaking today will be Tom Leighton aimi's. Chief executive officer.

Ned, McGowan aima's Chief Financial Officer.

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

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.

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

The statements included on today's call represent the company's views on August, 7th 2025, and we assume no obligation to update any forward-looking statements.

As a reminder, we will 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 aami.com.au

With that, I'll now hand the call off to our CEO, Dr. Tom Leon.

Thanks, Mark, I'm pleased to report. That akame had an excellent second quarter with results. Coming in above our guidance, for Revenue margin and earnings per share Revenue, grew to 1.043 billion dollars up 7% year-over-year as reported and up 6%. In constant currency. Non-gaap operating margin was 30% and non-gaap earnings per share came in at a dollar 73, cents up, 9% year-over-year, as reported, and in constant currency and 15 cents above the high end of our guidance range.

Our strong performance was enabled by the stabilization of revenue from our delivery product line, combined with solid growth in our security and compute product lines. As we continue to reposition Okami to take advantage of the tailwinds in these markets and the substantial opportunities associated with AI.

I'm especially excited about the growth and opportunity we're seeing for our Cloud Infrastructure Services portfolio.

% year-over-year as reported and 29% in constant currency. We're projecting even faster growth throughout the remainder of the year as we start recognizing revenue from some large deals signed earlier this year as a reminder, our Cloud infrastructure Services, portfolio consists of the compute and storage solutions that we've developed based on Leno along with our edgeworkers product and the isv solutions running on our Cloud platform.

It's the high growth portion of our cloud computing product line and it's where we're focusing our investments.

Our rapid growth in Cloud infrastructure. Services is driven in part by our customers, desire to get their compute instances closer to end users for improved scalability and performance and by their need to reduce cost.

This is particularly true for New Gen AI applications, which are increasingly being used to drive real-time decisions, shape user experiences, and power operations.

To attract and retain customers. Businesses are developing a variety of AI based apps and agents for personalization support search inference and other tasks.

Akame globally, distributed platform spanning more than 4,300 points of presence across 130 countries, offers unique advantages for deploying. Such AI applications, bringing business logic and data to within milliseconds of end users globally and operating at a scale that provides a petabyte per second of throughput capacity.

Already customers have deployed AI powered applications on Okami, Cloud for tasks such as image classification image optimization speech to text and speech to image chat Bots inference engines. Virtual fitting rooms to name a few

Last month, we introduced our new AI Gateway solution to customers at an event in London. This new solution is designed to address 3 of the biggest challenges that businesses encounter. When they deploy large language models AI, That's too slow, too. Vulnerable to attack and too expensive to run at scale.

AI Gateway acts as a smart traffic controller that sits between users and the AI Services deployed by our customers. So now instead of every AI request having to travel all the way to a centralized server Okami, makes it possible to handle many of these requests closer to the user at the edge. Moving AI closer to the action makes each interaction faster makes our customers more energy and cost efficient and ultimately allows our customers.

To deliver a vastly better experience for their users.

The Edge is also where Akamai deploys our security solutions, including our new firewall for AI. That fights prompt abuse and model compromise, as well as our bot and abuse solutions that help our publishing customers monetize their content by monitoring and controlling access by AI scraper bots.

AI Gateway and firewall for AI are prime examples of how we're bringing our expertise, at the edge to the cloud to make AI faster more secure. And significantly more affordable. There are also good examples of the Synergy between our new cloud, computing capabilities, and our security, and delivery product lines as customers by cloud computing, from Okami, alongside security and delivery examples of the many contracts. We signed in Q2, that included a large commit for our Cloud infrastructure. Services are a 3 year, 16 million dollar renewal and expansion agreement. With 1 of the largest companies at the Forefront of the AI Revolution.

A $28 million, 2-year deal with one of the world's leading travel companies.

A 3-year, 18 million dollar deal with a leading internet platform in South Korea.

A $19 million deal with an internet company in Japan.

And a 3 year 10 million agreement with 1 of the world's leading media companies.

Turning now to security.

Security growth was driven in part by the continued strong demand for our market-leading guard of course, segmentation solution as more Enterprises, relied on Okami to meet compliance requirements and to defend against ransomware and data exfiltration malware.

Estimated million dollars in Lost Revenue.

And a retailer in the US reported 20 million dollars in loss sales. When a Cyber attack took down, its e-commerce platform. During their Memorial Day weekend sale in a world where attacks are finding new ways to penetrate traditional perimeter defenses. Segmentation is the last and most important line of defense for major Enterprises and our Market leading segmentation solution is making a big difference for our customers.

With our sophisticated threat intelligence, we've detected a wide variety of malicious ransomware attacks on Commerce companies and customers who use our segmentation solution. We're able to identify these attacks and protect themselves from operational, harm and financial loss.

In fact, akame is the only vendor to be named customer favorite in the New Forest, or wave zero. Trust platforms report, receiving perfect scores in 3, categories, segmentation and control pricing flexibility and supporting services.

Our segmentation wins in Q2 included a 900 million contract for Garda Corps with 1 of the world's leading consumer and Commercial Insurance Providers after akame, demonstrated the fastest time to policy across their on-prem, AWS and Azure environments.

A 5 million dollar contract with 1 of the world's largest financial services companies that selected Garda Corps after struggling to modernize their environment for zero, trust to protect aging networks, for which they had no visibility in a 3 million dollar contract 2/3 of which is regarded core with 1 of Japan's, leading financial institutions.

Wins and other Industries included deals. With a leading manufacturer in the US, a major steel producer in Asia and a large holding company in Latin America.

In Q2, we also continue to see strong interest in our Market leading API security solution, which earned aam my recognition, as a leader in copinger calls leadership, Compass, API security and management report released last month.

Our API security solution combines very well with our market-leading W and Bot Management. Solutions to provide a compelling platform for app and API protection for major Enterprises.

Major API security wins. Last quarter. Included a 15 million with 1 of North America's largest real estate fintech companies which included $2 million for API security,

A 4 million dollar expansion contract with 1 of the largest Managed Care organizations in North America, which included $2 million for API security. A 2.3 million agreement with 1 of the largest life insurance providers in India, which included 1.4 million for the protection of their API ecosystem as they migrated away from their previous provider?

And the 20-year contract renewal was 1 of the leading fashion and home retailers in Europe. That included 7 aami Security Solutions. In addition to compute and delivery

We're very pleased to see customers increasingly utilize the full breadth of our security platform across applications API infrastructure and Enterprise zero trust security. We believe this illustrates the strength of akame security defenses, the depth of our threat intelligence and our close relationships with Enterprise customers who rely on us as a strategic partner in security helping them. Consolidate their security spending with a major vendor. They trust most to protect their businesses and reputations.

Before I turn the call over to Ed. I'd like to say a few words of Welcome to the 2. New directors on aami's board, jaki Aela. And boss Burger G has held several executive roles at Google including as lead for digital transformation for Google Cloud.

And chief of business operations prior to that. She was a partner at McKenzie & Company, she brings deep expertise in cloud computing, cyber security and AI as well as general management and strategy Consulting experience.

Boss Burger is the CEO of BT. International the division of the UK Telco company that delivers global data, voice, security, and Cloud connectivity solutions to multinational organizations.

Boss brings expertise in leading complex. Global organizations, executing go to market initiatives focused on driving customer acquisition retention and expansion and building. Strategic Partnerships with major technology infrastructure and cyber security providers.

Us as we continue to innovate and expand our cloud computing and cyber security offerings and Advance our go to market transformation to best capture future growth opportunities.

Now, I'll turn the call over to Ed to say more in our Q2 results and our outlook for the rest of the Year. Ed

Thank you, Tom.

As Tom just mentioned, we delivered very solid, second quarter results with total Q2 revenue of 1.043 billion, which was up 7% year-over-year as reported in 6% in constant currency.

We also had another quarter of very strong bottom line performance with non-gaap EPS outperforming our guidance range by 15 cents.

this strong non-gaap EPS performance was driven by a combination of higher than expected Revenue lower than expected bandwidth costs, higher interest income related to the convertible debt issuance in May

And lower share count as a result of our stock buyback activity in the first half of the year.

It's also worth noting that we received an unusually high amount of bandwidth and co-location credits. During the quarter resulting in a 1-time positive benefit of approximately 5 million to gross margin in the second quarter.

Moving now to revenue.

Compute Revenue was 171 million of 13% year-over-year as reported. And in constant currency compute Revenue was driven by continued strength in our Cloud infrastructure services or CIS.

CIS Revenue was 71 million of 30%. Year-over-year is reported and 29% in constant currency. As Tom noted, we expect the growth rate of our CIS, business to accelerate throughout the rest of this year. And into next year, driven by some large contracts. Signed earlier this year that will start generating Revenue late this year and into 2026 and Beyond.

We continue to expect CIS ARR year-over-year growth in the range of 40 to 45% in constant currency. At the end of the year, revenue from other Cloud applications, or OCA was $100 million up, 4% year-over-year as reported and up. 3%, in constant currency

As we mentioned on our Q4, call in February, OCA includes many of our more mature compute products, such as image and video manager cloudlets and Legacy, net storage.

We expect the revenue from OCA to remain relatively flat quarter over quarter for the rest of this year.

However, as a result of a $7 million 1-time, benefit included, in Q3 2024 results, we anticipate that the year-over-year revenue growth rate for OCA will take a 1-time dip in Q3.

As a reminder, this 1-time benefit was related to the release of some deferred revenue in conjunction with the expiration of a long-term Legacy, computer contract.

Putting this all together. We remain very excited about our opportunities for compute.

Based on the timing of Revenue recognition for the larger deals. I mentioned earlier, are compute growth for 2025 could be a little less than our goal of approximately. 15% in constant currency for the full year.

Security Revenue was 552 million up, 11% year-over-year as reported and 10% in constant currency.

With insecurities, the combined revenue for API security and Zero Trust Enterprise security was $67 million, an increase of 48%. Year-over-year, this is reported at 49% in constant currency.

these results include approximately 8 million dollars of inorganic revenue from no-name

Excluding this inorganic contribution year-over-year Revenue growth would have been approximately 32%.

We continue to expect, security Revenue, growth of approximately, 10% in constant currency in 2025 and we continue to expect the combined ARR for our zero. Trust Enterprise and API Security Solutions, to increase by 30 to 35% year-over-year in constant currency for 2025.

Delivery Revenue was 320 million down 3%, year-over-year as reported in down, 4% in constant currency. Well above our expectations.

We're very encouraged by the Continuum improvements in both pricing and traffic growth. We observed during the first half of the year.

International Revenue was 516 million of 10% year-over-year or 8% in constant currency representing 49% of our total revenue in Q2

8 million impact on a year-over-year basis.

Moving now to profitability and Q2 we generated non-gaap net, income of 251 million or 1.73 cents of earnings per diluted, share of 9%, year-over-year is reported and in constant currency and 15 cents above the high end of our guidance range. Based on the items I mentioned earlier.

Finally, our Q2 capex was 214 million or 21% of Revenue?

Moving to cash and our Capital allocation strategy, as of June 30th, our cash cash equivalents and marketable securities totaled, approximately 1.6 billion dollars.

As a reminder during the second quarter, we use cash on hand and funds available under our revolving credit facility to fully repay. 1.15 billion of our outstanding convertible, senior notes that matured on May 1st 2025.

following this repayment, we issued 1.725 billion in senior, convertible notes with the maturity date of May 15th 2033 and with a coupon of 25 basis points,

As part of the offering we incurred. Net cost of 275 million from note hedging and warrant transactions while concurrently spending dollars on stock BuyBacks.

It's worth noting that in the second quarter, we used approximately 250 million of the proceeds from this offering to pay off prior borrowings on a revolving credit facility.

The net proceeds of approximately 900 million from this offering have been invested in highly liquid marketable Securities currently yielding approximately 4% on a weighted average basis.

As it relates to return of capital. As I just mentioned, we spent approximately hundred million dollars to buy back approximately 3.9 million shares during the second quarter.

We ended the second quarter with a proximately 1.2 billion dollars remaining on our current repurchase authorization.

Year to date, we spent 800 million dollars to buy back, approximately 10 million shares.

Going forward, Our intention Remains the Same to continue buying back shares to offset dilution from employee Equity programs, over time, and to be opportunistic in both m&a, and share repurchases. When market and business conditions warrant. Before I provide our Q3 and full year 2025 guidance, I want to touch on some housekeeping items. First, despite initial concerns the likelihood of a complete Tik Tok ban in the US appears to be less likely with this in mind, we are now including domestic revenue from Tik Tok and our Q3 and full year 2025 Revenue guidance. Second regarding compute Revenue, as I mentioned earlier last year's Q3 results, included a 1-time, 7 million benefit that will not reoccur in Q3 2025.

sir, as it relates to gross margin, we are projecting, an increase in collocation and related costs starting in Q3 as we anticipate additional compute capacity coming online during the quarter,

This will result in roughly a 1 percentage Point increased and cost of Revenue in Q3 compared to Q2.

In addition.

For our qualified compute partner sales or qcps. We occasionally bundle third-party products as part of a total solution for customers in certain situations, we must record. The gross revenue from these sales and the associated costs. The gross margin on the partner resales is typically lower than our company, gross margin. Therefore as qualified compute partner Revenue increases. We expect it will lower our overall gross margin.

We anticipate the sales of qcp partner Solutions will impact gross margins by approximately 70 basis points this year.

It's worth noting the primary advantage of working with qcp Partners is their Solutions, do help Drive additional higher margins, CIS Revenue,

Forth.

As we previously discussed, we are investing to strengthen our go to market approach. We're increasing our sales rep hunting capacity, to be more proactive in finding and securing new business. And we're adding experienced Specialists to help support the sales of our new security and compute products.

In addition we're also growing our Channel organization to expand our Partnerships and open up potential new Revenue growth opportunities.

These Investments are crucial to our long-term success but it will take time for the incremental headcount to ramp and start delivering results as a result. We anticipate that our operating margin in the second half of the year will be lower than in the first half.

Was favorable tax treatment for certain business provisions.

The new legislation has multiple effective dates with certain Provisions, effective in 2025 and others implemented through 2027.

We are in the process of evaluating the ACT, but we do not expect. It will have a material impact on our tax rate in 2025.

So those factors in mind, I'll move to our Q3 guidance for Q3. We are projecting Revenue in the range of 1.035 to 1.05 billion or up to 3 to 4%, as reported, and up 2, to 4% in constant currency over Q3 2024 at current spot rates. Foreign exchange fluctuations are expected to have a positive 3 million impact on Q3 Revenue. Compared to Q2 levels in a positive 6 million impact year-over-year.

But these Revenue levels. We expect cash growth margins of approximately, 72 to 73%.

Q3 non-gaap operating expenses are projected to be 327 to 332 million. We expect Q3 ebit. Dumb margin of approximately 41%. We expect non-gaap depreciation expense to be between 139 to 141 million. And we expect non-gaap operating margin of approximately 28% for Q3 moving on to capex, we expect to spend approximately 227 to 237 million. This represents approximately 22% of our projected, total revenue.

Based on our expectations for revenue and cost. We expect Q3 non-gaap EPS in the range of 1.62 to 1.66.

This non-GAAP EPS guidance assumes taxes of $54 million to $55 million based on an estimated quarterly non-GAAP tax rate of approximately 19%. It also reflects a fully diluted share count of approximately 145 million shares.

Turning to the full year for 2025, we now expect revenue of $4.135 to $4.25 billion, which is up 4 to 5% as reported and 3 to 5% in constant currency at current spot rates. Our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis.

For 2025, we were estimating a non-GAAP operating margin of approximately 29%, as measured in today's FX rates.

We anticipate that our full-year capex will be approximately 20% of total revenue. For the full year 2025, we expect non-GAAP earnings per diluted share in the range of $6.60 to $6.80.

This non-gaap earnings guidance is based on a non-gaap effective tax rate of approximately 19% and a fully diluted share count of approximately 147 million shares in closing, we're very encouraged by our strong. First half financial performance marked by solid results across both the top and bottom lines with that. I'll wrap things up and Tom and I are happy to take your questions opper.

Operator.

Thank you. We will now begin the question-and-answer session.

to ask a question, you may press star then 1 on your touchtone phone,

We are 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, please press star then 2

At this time, we will pause momentarily to assemble a roster.

The first question comes from Mike Seos with Needham and Co. Please go ahead.

Hey guys, thanks for taking the question here. Um, just wanted to come back to some earlier comments on the financials but I know that we have the the updated view on compute

Just walk us through how the first half of the Year, transpired versus expectations and why we're indicating how calendar 25 could finish up sub. This targeted, 15% that we've been talking to

Uh, yeah, I'll take the first pass of that. Uh, you know, so far this year, compute, and particularly, you know, Cloud Infrastructure Services, where we're focused, is seeing really great growth. Um, you know, it's exceeding and meeting and exceeding expectations. Uh, you know, we've signed a large number of customers that are significant.

And do you want to add anything to that?

Yeah, I think you covered it, Tom. I mean, it really just comes down to some of the large deals that were signed this year, when they actually turn into Revenue. So, if it's a month or 2 late in terms of when the customers ramp up, that may potentially you know, land Revenue slightly below 15%, but I think the big key takeaway here is that we feel very confident with the business that we've signed up that we're on a, a significant acceleration path, for CIS Revenue.

Great, thank you very much.

The next question comes from the line of John deficiency with Google. Hi, please go ahead.

Hey everyone. This is Lauren sens colon for John de fuchi. I just wanted to quickly touch on the delivery business. So you guys have been clear about the headwinds that you've been seeing for some time now, but it seems like the last 2 quarters. We've been ahead over the street was expecting it to be. So if we think about the competitive environment pre-pandemic and where it is now, do you think you're seeing an incremental benefit from the exit of some of your CDN peers in recent years? And some of which that you've acquired assets from? And is this just an improvement in Trends and is this a sustainable Improvement Trends and you call it? There would be very helpful. Thank you.

Uh, yeah there's a, you know, a substantial difference in the competitive landscape, uh, pre-pandemic and today, you know, 4 of our biggest competitors, pre-pandemic are gone. Uh, you know, and we did pick up the contracts. The ones that we wanted uh, from those customers, we've done a good job, you know, upselling and cross-selling there. Uh on top of that you, you know, the traffic Trends overall, I think are improving and we're seeing that, uh, you know, so you get a, a combination of a little bit, uh, better pricing environment. It's still competitive, of course, but not in the crazy way. It was is, you know, as 4 companies were on their Death Rows, you know, just offering any price at all to get some business. Uh, and so as we look forward as Ed talked about where, you know, looking at Mid single digits uh, declines and over the longer term, we want it to be, you know, stable and steady. Uh, you know and not not see declines there.

Got it. That's helpful and clear. Thank you.

The next question comes from Fatima bani with City. Please go ahead.

Hey, good afternoon. This is Mark on for Fatima. Thanks for taking the question. Maybe you just wanted to touch on CIS again. Um, just in regards to that large contract. You guys signed this early this year? Can you give a sense of the contract structure, are there minimum commitments or firm demand that you see in the pipe? That's really given conviction for, you know, on the second half growth acceleration.

Um, just seems like, you know, obviously there's a big healthy ramp here to get to the 45, uh, you know, percent our Target. Thanks.

Yeah. Hey, this is Ed. I'll take that 1 Tom. So um, there's the number of different contracts that were signed. We've announced a couple of them. Uh you know, and both of the 2 largest ones have minimum commitments. And there is a a ramp to the revenue throughout the year. Um and as we had said, at the beginning of the year, we did expect this to be Revenue later in the year. And now we've got, you know,

Better line of sight to it but, um, you know, a lot of it depends on how quickly the customer will move the application and ramp it up. So, um, we do have, like I said, very high confidence level in that Revenue, uh, there's, you know, 3 or 4 really large contracts that have been signed all which have commitments. So, uh, we feel pretty good about that.

Great, and maybe just the follow-up, does the 40 to 45% our growth Target? Assume only the minimum commitment for, you know, what's sort of the uh, building blocks here?

Yeah, so the way we Define the ARR just to to make it simple for investors to follow. Is we just take the Q4 times 4 as an ARR proxy.

So it would be, it wouldn't be the minimum commit necessarily. It would be whatever Revenue that we were generating from those contracts within the particular quarter in Q4.

Thank you.

The next question comes from franklon, with Raymond James, please go ahead.

Great, thank you. Can you the, um, some some insight into the the guide and and to what extent is the uptick in, the guy coming from including Tik Tok for for the rest of the year. Uh and then as a follow-up, um the subdivision on the compute can you can you maybe give us a little more color on on what's going on in the part of that business besides Leno? That's growing a little bit less. Thanks.

Talk is, it's about $40 million 40 to 50 million dollars. So uh, you can assume about half of that roughly given that we're giving guidance for the back half of the year is in the number. So as you can tell the the midpoint of the guide is up much more than that. So there's more to it than just the the Tik Tok increase, its really kind of strength across the board and then your, your other question was in terms of the other Cloud applications. Uh, if you go back to the last call, we had where we talked about the other Cloud applications, that sort of broke it out for you broken into the different categories. Image management video management, the Legacy that storage Cloud, lets apps, Etc. There's a number of things going on underneath that business, some of which, we are transferring some of that business to compute partners of ours, uh, in exchange for large, um, you know, commitments back on the, on the compute side and then we go to market with those particular Partners. So that's going to start, you know, to come off over time, say, over the next

12 to 18 months. Um, legacy in that storage, we have a legacy platform. We had disclosed that number of around $50 million on an annualized basis. We've got a new storage platform, uh, in the load and compute.

Part of the business and the CIS business. So we're going to be end of life in that business and that business will hopefully, migrated over to CIS. And as it does, we'll let you know. Uh, so there's, we're not expecting a lot of growth. It is still growing. It's growing at 3 to 4%, uh, but we're expecting that some of that that Revenue to decline over time just in line with what we have said in the past.

So of that amount that you're sending over to Partners, um, can you quantify that? What is the total amount of that that's that's set to, uh, to be transferred?

Yes, so we haven't disclosed that it's it's not uh overly significant. It's a it's a smaller percentage of that total of the roughly hundred million dollars.

Okay, great. Thank you.

The next question comes from Jackson Ada with Key Bank Capital markets, please go ahead.

Great. You can, guys, thanks for taking our questions. Um, I wanted to just follow up on, uh, two things regarding those large, uh, CIS contracts you mentioned a couple of times, and it kind of depends on when the customer moved the application over. I'm just curious, like, how much visibility do you actually have, or maybe control do you have, um, in the movement of those applications? Are they waiting on AAMI to, you know, to ready anything to do anything, or is it really all in the customer's court?

Yeah, it really depends on the particular customer, for example, with 1 of the larger contracts that we signed, there was a particular application that they had planned to move later in the year, that was dependent on us building out some capacity. So, as you think about my prepared remarks, we talked about adding some capacity, uh, in a location that wasn't, um, in our initial plans to build, but we did build for that. So, there was some, uh, something that we did have to do with other, uh, customers generally. There's a period of time where they're running, a proof of concept. Often times, they'll have their own windows and which they want to move things. It could be, you know, a moratorium on their own end where they don't want to move a particular application, during a particular busy time, Etc. So it really does depend. So it's it's sort of break it out this way. There were some things that we had to to do and we're on schedule to perform all of our obligations and then the rest is really just up to the customer. We do have a lot of communication back and forth with the customer and have pretty good line of sight but there's you know no guarantee that the customer is going to move exactly when you say they will to

The good news is, we're very confident with the, the overall size of the, the contract, and we think these contracts have upside to them. It just really a question of exactly what month that we're going to start to recognize Revenue.

Got it, okay. And then a quick follow-up. You mentioned how, um, I think you're going to make some Investments. Maybe you want to go to market side, to to, uh, try and drive a little bit more of the CIS contracts, curious with the pipeline looks like, uh, heading into the second half for those. Thank you.

You talked about the pipeline for CIS.

Or just the pipeline in general.

Terms of the, the, the what we're seeing from a pipeline perspective with the only call out that I would make is API Security. In particular, is, uh, extremely strong. We're seeing very, very healthy growth, uh, in API security, and a lot of demand for API security, especially with our web application firewall customers. It's a very natural upsell motion, so we're starting to see that pipeline grow significantly in a lot of deals, come in, as a result, as well.

All right, awesome. Thank you very much.

The next question comes from Jonathan Hall with William, Blair & Company, please go ahead.

I uh, good afternoon, I I wanted to follow up on that last comment around the security business. Can you maybe speak to what's driving? The demand for both API and micro segmentation security and, you know, maybe why are we not seeing, you know, stronger security, Revenue growth? I I know there's some, um, Legacy security, uh, components that are tied to delivery. But just wanted to, you know, maybe parse this a little bit and and help us understand how, you know, the other 2 segments are are performing

Uh, yeah, you know, there's a lot of Green Field.

In, uh, both, uh, API security and micro-segmentation. And you know, customers are now realizing they need to have security solutions there. You know, most major enterprises literally have thousands of APIs, uh, exposed, and they don't have a good handle on what?

They are and what the vulnerabilities are. And that's what we provide uh the visibility and also the security and we have the market leading solution to do that. And so there is a lot of demand. You know the same thing for micro segmentation in some sense, even more important. Uh you know the attack rates have gone up the successful penetrations have gone up quite a bit. A bit, the damage from ransomware as we talked about on the call is extraordinary incredibly expensive. And again, we got the market leading solution, uh, and with, with Gore. And so we are seeing, you know, very strong demand there and strong growth and off of, you know, non-trivial number, you know, uh, we're looking at 30 to 35%, you know, ARR growth coming off, you know, over a quarter billion ending last year, uh, and so yeah, good reasons for the demand. And of course, you think about the impact of gen AI 1 of the sort of bad impacts in general.

Is that it really AIDS. The attackers. And so, I think that's part of why you're seeing so many more penetrations today, uh, and micro segmentation is your last and best line of defense and we've got an exceptional track record of protecting our customers there. Uh, and so I think that's why you're seeing the growth now. Uh, those are, you know, decent sized products now, growing rapidly, but the overall security number, you know, running. Now at about 2.2 billion,

Has a very large component from you know, web app firewall, you know, our prolexic dose solution, bot management. Uh, you know, W and and the scrubbing Solutions have been, you know, out there for a while they are growing but at a slower rate. And if you have a slower rate of growth on, you know, a good sized chunk of the 2.2 billion, uh, and so that's why you don't, you know, see security as a whole growing, you know, at 20 or 30%, you know, it's growing in double digits but you know, we're, we're looking more like 10% for now. Now as you see, API security and micro segmentation get bigger, then that 30% plus growth rate has more of an impact on the whole number.

Right? And maybe just as a follow up with your AI commentary. You know what kind of opportunity are you seeing there? And how do your Solutions may be compared with some of your major competitors? You know that are you know, really focusing on you know, AI security and infrastructure. Thank you.

Yeah, so, uh, you know, we have a leading capability, very early days, of course, you know, for AI firewall. Now, of course, the first thing, there's a lot of new applications out there which need regular security protection: API security and web app firewall. And so that's helping, you know, certainly the AI security business, but an AI firewall, in particular, needs extra firewall capability.

Positive customer feedback. Uh, and so it's really kind of its unique in, in the marketplace, to protect the customer facing the user facing AI application, against those kinds of attacks,

The next question comes from Sanje Singh with Morgan Stanley. Please go ahead.

Hi guys, this is John eisenson on for Sanji. Uh, thank you for taking my question. Uh, great to see the the solid results, this quarter, um, and and sorry if I missed this but can you talk about the, um, how much ego, uh, contributed to your Revenue in the quarter and how that's tracking relative to the 85 to 105 uh million dollar range? You gave previously

Thank you. Yeah, yeah, this is Ed. So we its it gets a lot harder to track the exact contribution from edgio just given that there's a lot of customer overlap. So as you have some of your larger customers that are growing, we see we saw a great traffic growth and and video and software download. Uh, which drove, you know, upside in traffic hard to say, how much of that is related to edgio versus what's related to AI. But I would say in General Ed the edgio acquisition is is tracking just as we had hoped. Um, and obviously just the category of of overall deliveries doing better, so you, you could probably assume we're doing a little bit better kind of on the higher end of that range perhaps. But um, we're also starting to see some upsell of, uh, some of the new customer logos that we acquired as well. So I would

Would say the thesis that we had in doing that acquisition is playing out, just like we had hoped. Uh, we are seeing better Trends in the industry as Tom mentioned, both with pricing and with traffic growth. So uh, again I don't have an exact number for you because it gets very hard to track the exact number. But I'd say it's tracking along just as we had hoped, maybe you'll even a little bit better.

Understood very helpful. Thank you.

The next question comes from Jeff, Andre with Craig Haram, please go ahead.

Hey, Tom and this is Daniel Hitchman on for Jeff Van ree just on the delivery. You know, another great quarter, you know? And another another question on that.

you know, just to set the stage, you know, I think on delivery we haven't had a sequential growth quarter, you know, other than obviously Q4 is, you know, show go seasonally but we haven't had outside of Q4 is a sequential growth quarter since as I see a Q2 20202020

So you know, now like Q2 2025, we had 2 sequential growth quarters. Really great to see that trajectory, you know? Very, very different from what we've seen for years. I'm trying to understand a little bit better. I mean, I assume in Q1 2025, you had a full quarter of Edio, so that's the driver. But for Q4, this quarter...

Is there anything about NGO leading into Q2 in organically? That's benefiting the quarter. I mean, anything in terms of the market landscape in a really a more significant way to call out or is there something 1 time about about what we're seeing here?

Yeah, so I I say it's a couple things, what I would it's not an edgio 1 time item or anything like that because you you're correct by we migrated that traffic very, very quickly. So that was 1 of the benefits of that, we were able to migrate that over very, very quickly in the first quarter, actually, by January, we're we're mid January, we're done. So you don't have any sort of inorganic contribution per se related to edgio. Um, the really the the, if I look at the traffic growth, that was surprising to us. It was higher than expected and not quite back to the, you know, what? We used to see sort of pre-pandemic but much healthier traffic growth, and it was across a couple different verticals. And I, I called out software downloaded video and video is the biggest category of traffic, so that was good to see. And then, you know, we do track a, uh, pricing metric where we look at our overall pricing, as a, as a whole, looking at our traffic Revenue, over our our, you know, our over our traffic and that is continued to moderate.

It still declining as Tom mentioned but it's not declining as rapidly as it has. And those are the 2 ingredients. You need for a healthier uh, delivery business. So, you know, it could be, you know, just the industry in general is going through, you know, a better time in terms of, you know, popularity of content that sort of thing. Uh, there is a little bit less competition out there now, obviously. But uh, I'd say it's more of a, a healthier Market than we've seen, uh, in the last say year or 2

Thanks Ed.

The next question comes from Rudy Kissinger with da Davidson please go ahead.

if we adjust for the headwind from the Legacy compute Revenue that you guys transfer to Partners, is that something that can quantify for this quarter,

Yeah, so it wouldn't, it wouldn't make a a significant difference. Um, because if you look at the just an aggregate, you know, we broke that Revenue out for you. Um, at the end of the year, it's down slightly. So it would have a very minimal impact.

Sounds good. Thank you.

Thank you.

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