Q1 2026 Akamai Technologies Inc Earnings Call

May 7, 2026

Operator 3: Good morning, and welcome to the Q1 2026 Akamai Technologies, Inc. Earnings Conference Call. I would now like to turn the conference over to Mark Stoutenberg. Thank you, and over to you.

Operator: Good morning, and welcome to the Q1 2026 Akamai Technologies, Inc. Earnings Conference Call. I would now like to turn the conference over to Mark Stoutenberg. Thank you, and over to you.

Speaker #2: After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad.

Speaker #2: To withdraw your question, you may press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Mark Stoutenberg, thank you and over to you.

Mark Stoutenberg: Good afternoon, everyone, and thank you for joining Akamai's First Quarter 2026 Earnings Call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements that include 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, the 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 7 May 2026, and we assume no obligation to update any forward-looking statements.

Mark Stoutenberg: Good afternoon, everyone, and thank you for joining Akamai's Q1 2026 Earnings Call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements that include 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, the 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 7 May 2026, and we assume no obligation to update any forward-looking statements.

Speaker #2: Good afternoon, everyone, and thank you for joining AKAMAI's first quarter 2026 earnings call. Speaking today will be Tom Leighton, AKAMAI's chief executive officer, and Ed McGowan, AKAMAI's chief financial officer.

Speaker #2: Please note that today's comments include forward-looking statements that include 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.

Speaker #2: The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC.

Speaker #2: The statements included on today's call represent the company's views on May 7th, 2026. 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.

Mark Stoutenberg: As a reminder, we will be referring to certain non-GAAP financial metrics during today's call. A detailed GAAP to non-GAAP reconciliation is available in the investor relations section of akamai.com under Financials. With that, I will now hand the call off to our CEO, Dr. Tom Leighton.

Speaker #2: A detailed GAAP to non-GAAP reconciliation is available in the investor relations section of akamai.com under financials. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Tom Leighton: Thanks, Mark. I'm pleased to report that Akamai is off to a strong start to the year. In just a few months, we've achieved major milestones for our cloud computing strategy, marking a definitive turning point in the growth and evolution of our business. Akamai has long been known for operating the world's largest distributed platform for delivery and security solutions at global scale and with a reputation for reliability, quality, and trust. Now we're leveraging our global footprint and years of experience supporting the world's largest enterprises to become an indispensable infrastructure provider for the AI-driven economy. At GTC in March, we unveiled the industry's first global scale implementation of NVIDIA AI Grid, and we announced the rollout of thousands of NVIDIA RTX PRO 6000 GPUs.

Speaker #3: Thanks, Mark. I'm pleased to report that AKAMAI is off to a strong start to the year. In just a few months, we've achieved major milestones for our cloud computing strategy, marking a definitive turning point in the growth and evolution of our business.

Speaker #3: AKAMAI has long been known for operating the world's delivery and security solutions, at global scale and with a reputation for reliability, quality, and trust.

Speaker #3: Now we're leveraging our global footprint and years of experience supporting the world's largest enterprises to become an indispensable infrastructure provider for the AI-driven economy.

Speaker #3: At GTC in March, we unveiled the industry's first global-scale implementation of NVIDIA's AI grid. And we announced the rollout of thousands of NVIDIA RTX Pro 6000 GPUs.

Tom Leighton: By integrating NVIDIA AI infrastructure into Akamai's massive distributed platform, and by leveraging intelligent workload orchestration across our network, we intend to move the market for AI beyond isolated AI factories toward a unified distributed grid for AI inference. By pushing AI inference to the edge and combining it with our massive deployment of CPUs for delivery, security, and Function as a Service, we're enabling customers to run complex models within milliseconds of their end users with the responsiveness of local compute and the scale of the global web, optimizing performance while reducing latency and cost. Those who attended GTC heard NVIDIA reference Akamai as a vital player in the industry's ecosystem for AI infrastructure, and we've seen very positive market reaction to our rapidly expanding capabilities from a wide spectrum of enterprises.

Speaker #3: By integrating NVIDIA AI infrastructure, into AKAMAI's massive distributed platform, and by leveraging intelligent workload orchestration across our network, we intend to move the market for AI beyond isolated AI factories toward a unified distributed grid for AI inference.

Speaker #3: By pushing AI inference to the edge, and combining it with our massive deployment of CPUs for delivery, security, and functions as a service, we're enabling customers to run complex models within milliseconds of their end users, with the responsiveness of local compute and the scale of the global web.

Speaker #3: Optimizing performance while reducing latency and cost. Those who attended GTC heard NVIDIA reference AKAMAI as a vital player in the industry's ecosystem for AI infrastructure.

Speaker #3: And we've seen very positive market reaction to our rapidly expanding capabilities from a wide spectrum of enterprises. Today, we're very excited to announce another major milestone for our cloud computing strategy and the evolution of AKAMAI.

Tom Leighton: Today, we're very excited to announce another major milestone for our cloud computing strategy and the evolution of Akamai, the signing of a landmark 7-year, $1.8 billion commitment for our cloud infrastructure services by a leading frontier model company. This is the largest customer deal in Akamai history, and it comes on the heels of the $200 million CIS deal we announced in February with a major US tech company also at the forefront of the AI revolution. These leaders in AI have chosen Akamai because their AI workloads need the scale, performance, and reliability that our cloud platform provides. Many other enterprises have chosen Akamai for similar reasons. For example, since the start of the year, a leading cloud and digital infrastructure provider in Asia chose our VPUs to support their low latency live streaming media service.

Speaker #3: The signing of a landmark seven-year, $1.8 billion commitment for our cloud infrastructure services by a leading frontier model company. This is the largest customer deal in Akamai history, and it comes on the heels of the $200 million CIS deal we announced in February, with a major U.S. tech company also at the forefront of the AI revolution.

Speaker #3: These leaders in AI have chosen AKAMAI because their AI workloads need the scale, performance, and reliability that our cloud platform provides. Many other enterprises have chosen AKAMAI for similar reasons.

Speaker #3: For example, since the start of the year, a leading cloud and digital infrastructure provider in Asia chose our VPUs to support their low-latency live streaming media service.

Tom Leighton: An AI company in the US chose our GPU platform to power their voice-first solution to optimize business operations. An AI-powered video intelligent platform in India chose our GPU platform to scale video analytics and computer vision workloads for retailers. A consumer AI platform in the US chose Akamai Cloud to run and scale live personalized agents. An AI commerce company in India chose our distributed inference platform to power their ad personalization engine. Two premier global retail brands chose our distributed data capabilities to improve the performance and resilience of their online retail applications. All this is just the beginning. We have a large and rapidly expanding pipeline of prospects who are looking to Akamai for cloud solutions, including some with very large needs.

Speaker #3: An AI company in the US chose our GPU platform to power their voice-first solution to optimize business operations. An AI-powered video intelligent platform in India chose our GPU platform to scale video analytics and computer vision workloads for retailers.

Speaker #3: A consumer AI platform in the US chose AKAMAI Cloud to run and scale live personalized agents. An AI commerce company in India chose our distributed inference platform to power their ad personalization engine.

Speaker #3: And two premier global retail brands chose our distributed data capabilities to improve the performance and resilience of their online retail applications. But all this is just the beginning.

Speaker #3: We have a large and rapidly expanding pipeline of prospects who are looking to AKAMAI for cloud solutions, including some with very large needs. To satisfy this strong and growing demand for our cloud infrastructure services, we expect to continue to build out both our physical infrastructure and our cloud sales and support teams.

Tom Leighton: To satisfy this strong and growing demand for our cloud infrastructure services, we expect to continue to build out both our physical infrastructure and our cloud sales and support teams. As Ed will talk about in a few minutes, we now anticipate significant acceleration of our overall revenue growth heading into 2027 and beyond. Turning to security, I'm pleased to report that Q1 was also strong for our security portfolio, where revenue grew 11% year over year as reported and 9% in constant currency. Our security growth was led by strong demand for our market-leading Web Application Firewall, API security, and Guardicore Segmentation solutions. Our WAF in particular is seeing growing interest from customers eager to deploy the latest defenses for vulnerabilities that could be exposed by the ever-strengthening frontier models and AI-powered attacks.

Speaker #3: And as Ed will talk about in a few minutes, we now anticipate significant acceleration of our overall revenue growth heading into 2027 and beyond.

Speaker #3: Turning to security, I'm pleased to report that Q1 was also strong for our security portfolio. Where revenue grew 11% year over year as reported, and 9% in constant currency.

Speaker #3: Our security growth was led by strong demand for our market-leading web app firewall, API security, and Guardicor segmentation solutions. Our WAF in particular is seeing growing interest from customers eager to deploy the latest defenses for vulnerabilities that could be exposed by the ever-strengthening frontier models and AI-powered attacks.

Tom Leighton: Frontier models are changing vulnerability management, and we're proud to be one of the industry's must-have security providers partnering with the frontier model companies to help ensure the safe and rapid deployment of AI-enhanced defenses. With our early access to their vulnerability detection programs, we're applying our expertise to help keep major enterprises and critical infrastructure safe. Of course, this is important to understand, attackers will also be using more advanced AI technology to develop even more potent ways to cause harm. This means that major enterprises will need Akamai security solutions even more than before. For example, there are many legacy systems and billions of deployed devices that can't be patched. They'll become a lot more vulnerable with the advances in AI, and they'll need our security solutions to keep them safe.

Speaker #3: Frontier models are changing vulnerability management, and we're proud to be one of the industry's must-have security providers, partnering with the frontier model companies to help ensure the safe and rapid deployment of AI-enhanced defenses.

Speaker #3: With our early access to their vulnerability detection programs, we're applying our expertise to help keep major enterprises and critical infrastructure safe. Of course, and this is important to understand, attackers will also be using more advanced AI technology to develop even more potent ways to cause harm.

Speaker #3: This means that major enterprises will need AKAMAI security solutions even more than before. For example, there are many legacy systems and billions of deployed devices that can't be patched.

Speaker #3: They'll become a lot more vulnerable with the advances in AI, and they'll need our security solutions to keep them safe. For the devices and systems that can be patched, the patching process still takes time, often days or weeks, and they'll need our protection until that's done.

Tom Leighton: For the devices and systems that can be patched, the patching process still takes time, often days or weeks, and they'll need our protection until that's done. We've seen this happen before when zero-day attacks emerged. With the advances in AI, we can expect zero-day attacks to occur much more frequently. There's also an increasing challenge with scale. Because AI is enabling attackers to take over more devices and create enormous bot armies, we're now seeing attacks with unprecedented volumes. Just in the last few weeks, we neutralized a series of app layer attacks with millions of malicious requests per second from millions of widely distributed IPs. Akamai can defend against such attacks because of our widely distributed platform. Our WAF runs in 4,300 locations across 700 cities to intercept the attack traffic right where it enters the internet and well before it can coalesce onto the target.

Speaker #3: We've seen this happen before when zero-day attacks emerged. And with the advances in AI, we can expect zero-day attacks to occur much more frequently.

Speaker #3: There's also an increasing challenge with scale. Because AI is enabling attackers to take over more devices, and create enormous bot armies, we're now seeing attacks with unprecedented volumes.

Speaker #3: Just in the last few weeks, we neutralized a series of app layer attacks with millions of malicious requests per second from millions of widely distributed IPs.

Speaker #3: AKAMAI can defend against such attacks because of our widely distributed platform. Our WAF runs in 4,300 locations across 700 cities, to intercept the attack traffic right where it enters the internet, and well before it can coalesce onto the target.

Tom Leighton: Having a great WAF with the needed defenses for the latest attacks is obviously important, but that alone isn't enough in the coming age of AI. The WAFs need to be deployed across a vast distributed platform, and this need provides a unique advantage for Akamai when compared to the competition. In summary, we believe that Akamai's security portfolio will be needed more than ever before as attackers take advantage of the advances in AI.

Speaker #3: Having a great WAF with the needed defenses for the latest attacks is obviously important, but that alone isn't enough in the coming age of AI.

Speaker #3: The WAFs need to be deployed across a vast distributed platform, and this need provides a unique advantage for Akamai when compared to the competition.

Speaker #3: In summary, we believe that AKAMAI's security portfolio will be needed more than ever before as attackers take advantage of the advances in AI. That's because of our massive platform scale to absorb attacks, our unparalleled access to real-time attack data, our tight integration with the early warning ecosystem to provide up-to-the-minute defenses for the latest zero-day attacks, our large and very experienced human security operations team that's equipped with the latest AI tools to enhance visibility and minimize response times.

Tom Leighton: That's because of our massive platform scale to absorb attacks, our unparalleled access to real-time attack data, our tight integration with the early warning ecosystem to provide up-to-the-minute defenses for the latest zero-day attacks, our large and very experienced human security operations team that's equipped with the latest AI tools to enhance visibility and minimize response times, and our innovative, rapidly evolving, and AI-enabled product suite to help prevent penetrations and to limit the damage when penetrations do occur. Customers who selected Akamai in Q1 for that kind of protection for their APIs included one of the largest telecom groups in Africa, a major investment management company in South America, one of the premier investment banks in the Middle East, and one of the world's leading fintech companies in the US.

Speaker #3: And our innovative, rapidly evolving, and AI-enabled product suite to help prevent penetrations, and to limit the damage when penetrations do occur. Customers who selected AKAMAI in Q1 for that kind of protection for their APIs included one of the largest telecom groups in Africa, a major investment management company in South America, one of the premier investment banks in the Middle East, and one of the world's leading fintech companies in the US.

Tom Leighton: Customers who added or expanded their use of our Guardicore segmentation solution in Q1 included the leading telecom carrier and media company in South Korea, one of the largest banking groups in Europe, and a leading healthcare company in the US. Many of the large renewals we signed in Q1 also included expansions of our security services. For example, after we protected one of America's leading retailers from unwanted bots during the holiday shopping season, they increased the use of our services in a contract worth $24 million. We signed an expansion contract worth $80 million over 2 years with one of the world's largest video game companies. We signed an expansion contract worth more than $20 million with a global consumer electronics company in Korea.

Speaker #3: Customers who added or expanded their use of our Guardicor segmentation solution in Q1 included the leading telecom carrier and media company in South Korea, one of the largest banking groups in Europe, and a leading healthcare company in the US.

Speaker #3: Many of the large renewals we signed in Q1 also included expansions of our security services. For example, after we protected one of America's leading retailers from unwanted bots during the holiday shopping season, they increased the use of our services in a contract worth $24 million dollars.

Speaker #3: We signed an expansion contract worth $80 million dollars over two years with one of the world's largest video game companies. We signed an expansion contract worth more than $20 million dollars with a global consumer electronics company in Korea.

Tom Leighton: One of the largest global professional services companies in the world expanded their use of our ZTNA solution to secure large-scale remote access as they move critical applications to a zero-trust model. Our security solutions continue to receive top recognitions from the major analyst firms for their effectiveness. For example, last quarter, Akamai achieved a 99% recommendation rating as Customers' Choice at Gartner's Peer Insights report on microsegmentation. Last month, Akamai was the only provider to be named Customers' Choice at Gartner's Peer Insights report on API Protection. In closing, we're thrilled by the way our growth strategy has taken hold and is generating transformative opportunities for our business. We believe that Akamai is uniquely positioned to enable and benefit from the development of the AI-driven economy.

Speaker #3: And one of the largest global professional services companies in the world expanded their use of our ZTNA solution to secure large-scale remote access as they move critical applications to a zero-trust model.

Speaker #3: Our security solutions continue to receive top recognitions from the major analyst firms for their effectiveness. For example, last quarter, AKAMAI achieved a 99% recommendation rating as customers' choice in Gartner's Peer Insights report on micro-segmentation.

Speaker #3: And last month, Akamai was the only provider to be named Customers' Choice in Gartner's Peer Insights report on API protection. In closing, we're thrilled by the way our growth strategy has taken hold and is generating transformative opportunities for our business.

Speaker #3: We believe that AKAMAI is uniquely positioned to enable and benefit from the development of the AI-driven economy. By bringing powerful compute directly to the data and the users at the edge, AKAMAI is enabling and securing the next generation of agentic AI.

Tom Leighton: By bringing powerful compute directly to the data and the users at the edge, Akamai is enabling and securing the next generation of agentic AI. With each quarter, the massive opportunity we see ahead becomes more evident. We're making bold investments to capitalize on that opportunity and enable Akamai to do for cloud and AI what we've done for security and CDN, to generate significant future growth for our business. Now I'll turn the call over to Ed for more on our results and our outlook for Q2 and the year. Ed?

Speaker #3: With each quarter, the massive opportunity we see ahead becomes more evident, and we're making bold investments to capitalize on that opportunity and enable AKAMAI to do for cloud and AI what we've done for security and CDN, to generate significant future growth for our business.

Speaker #3: Now I'll turn the call over to Ed for more on our results and our outlook for Q2 and the year. Ed?

Ed McGowan: Thank you, Tom. Before I get started, and to build on Tom's remarks, I want to personally underscore my excitement regarding the $1.8 billion new customer win announced today. This is a powerful validation of the Akamai value proposition in the age of AI and a clear indicator of the scale at which we can operate. To fully capitalize on this momentum and support the accelerated growth we anticipate, we will be investing slightly ahead of revenue. You will see this reflected in the updated capital expenditure and operating margin outlook I will discuss during the guidance portion of my remarks. We view these investments in our CIS portfolio as critical to ensure we have the foundation to meet the significant demand we see on the horizon.

Speaker #2: Thank you, Tom. Before I get started and to build on Tom's remarks, I want to personally underscore my excitement regarding the $1.8 billion new customer win announced today.

Speaker #2: This is a powerful validation of the AKAMAI value proposition and the age of AI, and a clear indicator of the scale at which we can operate.

Speaker #2: To fully capitalize on this momentum, and support the accelerated growth we anticipate, we will be investing slightly ahead of revenue. You will see this reflected in the updated capital expenditure and operating margin outlook I will discuss during the guidance portion of my remarks.

Speaker #2: We view these investments in our CIS portfolio as critical to ensure we have the foundation to meet the significant demand we see on the horizon.

Ed McGowan: Also, driven by today's announced $1.8 billion win, the $200 million 4-year CIS deal we announced last quarter, and our rapidly accelerating pipeline, we now expect total company annual top-line revenue growth to reach double digits in 2027. We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for Akamai. With that, let's dive into the Q1 results. We delivered strong first quarter results with total revenue of $1.074 billion, which was up 6% year over year as reported, and 4% in constant currency. Cloud infrastructure services, or CIS revenue, got off to a robust start to the year with revenue of $95 million, up 40% year over year as reported, and 39% in constant currency.

Ed McGowan: Also, driven by today's announced $1.8 billion win, the $200 million 4-year CIS deal we announced last quarter, and our rapidly accelerating pipeline, we now expect total company annual top-line revenue growth to reach double digits in 2027. We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for Akamai. With that, let's dive into the Q1 results. We delivered strong Q1 results with total revenue of $1.074 billion, which was up 6% year over year as reported, and 4% in constant currency. Cloud infrastructure services, or CIS revenue, got off to a robust start to the year with revenue of $95 million, up 40% year over year as reported, and 39% in constant currency.

Speaker #2: Also, driven by today’s announced $1.8 billion win, the $200 million four-year CIS deal we announced last quarter, and our rapidly accelerating pipeline, we now expect total company annual top-line revenue growth to reach double digits in 2027.

Speaker #2: We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for AKAMAI. With that, let's dive into the Q1 results.

Speaker #2: We delivered strong first quarter results with total revenue of $1.074 billion dollars, which was up 6% year over year as reported, and 4% in constant currency.

Speaker #2: Cloud infrastructure services, or CIS revenue, got off to a robust start to the year with revenue of $95 million dollars, up 40% year over year as reported, and 39% in constant currency.

Ed McGowan: As Tom noted, we are seeing CIS wins across a wide spectrum of industries, geographies, and use cases. Even more encouraging, the pipeline for AI-specific use cases is building rapidly. We also maintain very strong momentum in security with revenue of $590 million, up 11% year-over-year as reported, and 9% in constant currency. The strength in Q1 continued to be driven by our fast-growing API security and Guardicore Segmentation solutions, along with strong growth from our largest product, Web Application Firewall. Moving to delivery and other cloud applications. Revenue was $389 million, down 7% year-over-year as reported, and down 8% in constant currency. These results were in line with expectations, driven by the wraparound impact of the Edgio transaction in 2025.

Speaker #2: As Tom noted, we are seeing CIS wins across a wide spectrum of industries, geographies, and use cases, even more encouraging the pipeline for AI-specific use cases is building rapidly.

Speaker #2: We also maintain very strong momentum in security with revenue of $590 million dollars, up 11% year over year as reported, and 9% in constant currency.

Speaker #2: The strength in the first quarter continued to be driven by our fast-growing API security and Guardicor segmentation solutions, along with strong growth from our largest product, web application firewall.

Speaker #2: Moving to delivery and other cloud applications, revenue was $389 million, down 7% year over year as reported, and down 8% in constant currency.

Speaker #2: These results were in line with expectations, driven by the wraparound impact of the Edgio transaction in 2025. We expect this effect in the rate of decline to moderate throughout the remainder of the year.

Ed McGowan: We expect this effect in the rate of decline to moderate throughout the remainder of the year. International revenue was $530 million, up 9% year over year or up 5% in constant currency, representing 49% of total revenue in Q1. Foreign exchange fluctuations had a positive impact on revenue of $2 million on a sequential basis and a +$19 million on a year-over-year basis. Moving to profitability. In Q1, we generated non-GAAP net income of $239 million or $1.61 of earnings per diluted share, down 5% year over year as reported and in constant currency. These results include our expanded co-location investments, higher depreciation and increased headcount costs, all tied to our strategic investment in cloud infrastructure services during Q1.

Speaker #2: International revenue was $530 million dollars, up 9% year over year, or up 5% in constant currency, representing 49% of total revenue in Q1. Foreign exchange fluctuations had a positive impact on revenue of $2 million dollars on a sequential basis and a positive $19 million dollars on a year-over-year basis.

Speaker #2: Moving to profitability, in Q1, we generated non-gap net income of $239 million dollars, or $1.61 of earnings per diluted share, down 5% year over year as reported, and in constant currency.

Speaker #2: These results include our expanded colocation investments, higher depreciation, and increased headcount costs, all tied to our strategic investment in cloud infrastructure services during the first quarter.

Ed McGowan: Our non-GAAP operating margin for Q1 was 26%, in line with our expectations. We expect operating margin to remain in this range for the remainder of this year as we ramp up our investment to capture the exciting growth opportunities ahead of us. Our Q1 CapEx was $206 million or 19% of revenue. Q1 CapEx was slightly below our guidance, primarily driven by timing and favorable pricing. Specifically, some expenditures shifted from Q1 into Q2, and we benefited from some lower than expected component costs. Moving to cash and our capital allocation strategy. During Q1, we spent approximately $206 million to buy back approximately 2 million shares. We ended Q1 with approximately $975 million remaining on our current repurchase authorization.

Speaker #2: Our non-gap operating margin for Q1 was 26%, in line with our expectations. We expect operating margin to remain in this range for the remainder of this year as we ramp up our investment to capture the exciting growth opportunities ahead of us.

Speaker #2: Our Q1 CapEx was $206 million dollars, or 19% of revenue. First quarter CapEx was slightly below our guidance, primarily driven by timing and favorable pricing, specifically some expenditures shifted from Q1 into Q2, and we benefited from some lower-than-expected component costs.

Speaker #2: Moving to cash in our capital allocation strategy, during the first quarter, we spent approximately $206 million dollars to buy back approximately $2 million shares.

Speaker #2: We ended the first quarter with approximately $975 million dollars remaining, on our current repurchase authorization. Our intention with capital allocation 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.

Ed McGowan: Our intention with capital allocation 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. As of 31 March, we had approximately $1.7 billion of cash equivalents, and marketable securities. Now, before I provide Q2 and full year 2026 guidance, I want to touch on a few housekeeping items. First, for Q2, CapEx is expected to jump significantly as we start to take delivery of the NVIDIA GPUs we discussed on our last quarterly earnings call, and we catch up on some of the CapEx that pushed from Q1 into Q2. Second, we expect to see an increase in operating expenses in Q2, due primarily to continued investments in go-to-market and the impact of our annual employee merit cycle that went into effect on 1 April.

Speaker #2: As of March 31st, we had approximately $1.7 billion of cash, cash equivalents, and marketable securities. Now, before I provide Q2 and full year 2026 guidance, I want to touch on a few housekeeping items.

Speaker #2: First, for Q2, CapEx is expected to jump significantly as we start to take delivery of the NVIDIA GPUs we discussed on our last quarterly earnings call, and we catch up on some of the CapEx that pushed from Q1 into Q2.

Speaker #2: Second, we expect to see an increase in operating expenses in the second quarter, due primarily to continued investments in go-to-market and the impact of our annual employee merit cycle that went into effect on April 1st.

Ed McGowan: Third, we anticipate revenue from the $1.8 billion dollar customer win to start to ramp in Q4, and we expect to generate approximately $20 to 25 million of revenue in Q4. Regarding CapEx for this win, we expect to spend a total of approximately $800 to 825 million over the next 12 months to support this customer. We expect to deploy roughly $700 million of that total in H2 2026, with the remaining balance falling into H1 2027. Moving now to guidance. For Q2, we are projecting revenue in the range of $1.075 to 1.1 billion, up 3% to 5% as reported and in constant currency over Q2 2025.

Speaker #2: Third, we anticipate revenue from the $1.8 billion customer win to start to ramp in Q4, and we expect to generate approximately $20 to $25 million of revenue in the fourth quarter.

Speaker #2: Finally, regarding CapEx for this win, we expect to spend a total of approximately $800 to $825 million dollars over the next 12 months to support this customer.

Speaker #2: We expect to deploy roughly $700 million dollars of that total in the second half of 2026, with the remaining balance falling into the first half of 2027.

Speaker #2: Moving now to guidance, for the second quarter, we are projecting revenue in the range of $1.075 to $1.1 billion dollars, up 3% to 5% as reported, and in constant currency over Q2 2025.

Ed McGowan: At current spot rates, foreign exchange fluctuations are expected to have no material impact on Q2 revenue compared to Q1 levels and a +$2 million impact year over year. At these revenue levels, we expect cash gross margins of approximately 70% to 71%. Gross margin is impacted by the significant increase in co-location as we accelerate the growth in our CIS business. Q2 non-GAAP operating expenses are projected to be $346 million to $357 million. We anticipate Q2 EBITDA margin of approximately 38% to 39%. We expect non-GAAP depreciation expense of $144 million to $146 million. We expect non-GAAP operating margin of approximately 25% to 26%.

Speaker #2: At current spot rates, foreign exchange fluctuations are expected to have no material impact on Q2 revenue compared to Q1 levels, and a positive $2 million dollar impact year over year.

Speaker #2: At these revenue levels, we expect cash gross margins of approximately 70 to 71%. Gross margin is impacted by the significant increase in colocation as we accelerate the growth in our CIS business.

Speaker #2: Q2 non-gap operating expenses are projected to be $346 to $357 million dollars. We anticipate Q2 EBITDA margin of approximately 38 to 39%. We expect non-gap depreciation expense of $144 to $146 million dollars, we expect non-gap operating margin of approximately 25 to 26%, and with the overall revenue and spend configuration I just outlined, we expect Q2 non-gap EPS in the range of $1.45 to $1.65.

Ed McGowan: With the overall revenue and spend configuration I just outlined, we expect Q2 non-GAAP EPS in the range of $1.45 to $1.65. This EPS guidance assumes taxes of $47 to $54 million based on an estimated quarterly non-GAAP tax rate of approximately 18.5%. It also reflects a fully diluted share count of approximately 146 million shares. Moving to CapEx. For the reasons I highlighted earlier, we expect to spend approximately $433 to $453 million in Q2. This represents approximately 40% to 41% of total revenue.

Speaker #2: This EPS guidance assumes taxes of 47 to 54 million dollars, based on an estimated quarterly non-gap tax rate of approximately 18.5%. It also reflects a fully diluted share count of approximately 146 million shares.

Speaker #2: Moving to CapEx, for the reasons I highlighted earlier, we expect to spend approximately $433 to $453 million dollars in the second quarter. This represents approximately 40 to 41% of total revenue.

Ed McGowan: Looking ahead to the full year 2026, we expect revenue of $4.445 to 4.55 billion, which is up 6% to 8% as reported and up 5% to 8% in constant currency. For cloud infrastructure services, we are raising our outlook to at least 50% year-over-year growth in constant currency. We expect momentum in CIS to continue to build throughout H2 of 2026, driven mainly by the scaling of our AI opportunities and the impact of the two very large transactions we announced in Q4 and today. Also, we continue to expect security revenue growth in the high single digits on a constant currency basis in 2026. For delivery and other cloud apps, we continue to expect a decline in mid-single digits year-over-year on a constant currency basis.

Speaker #2: Looking ahead to the full year 2026, we expect revenue of $4.445 to $4.55 billion dollars, which is up 6% to 8% as reported, and up 5% to 8% in constant currency.

Speaker #2: For cloud infrastructure services, we are raising our outlook to at least 50% year over year growth in constant currency. We expect momentum in CIS to continue to build throughout the second half of 2026, driven mainly by the scaling of our AI opportunities and the impact of the two very large transactions we announced in Q4 and today.

Speaker #2: Also, we continue to expect security revenue growth and the high single digits on a constant currency basis in 2026. And for delivery and other cloud apps, we continue to expect a decline in the mid-single digits year over year on a constant currency basis.

Ed McGowan: At current spot rates, our guidance assumes foreign exchange will have a +$20 million impact on revenue in 2026 on a year-over-year basis. Moving to operating margin. For 2026, we are estimating a non-GAAP operating margin of approximately 26% as measured in today's FX rates. Turning to CapEx. At this time, we anticipate our full year capital expenditures will be approximately 40% to 42% of total revenue, including the $700 million impact from the $1.8 billion contract we mentioned earlier. Before I move on, I want to provide some additional color on our CapEx outlook. As Tom noted, the demand we are seeing for CIS, including our GPU deployments, is exceptional.

Speaker #2: At current spot rates, our guidance assumes foreign exchange will have a positive $20 million dollar impact on revenue in 2026 on a year over year basis.

Speaker #2: Moving to operating margin, for 2026, we are estimating a non-gap operating margin of approximately 26% as measured in today's FX rates. Turning to CapEx, at this time, we anticipate our full year capital expenditures will be approximately 40 to 42% of total revenue, including the $700 million dollar impact from the $1.8 billion dollar contract we mentioned earlier.

Speaker #2: Before I move on, I want to provide some additional color on our CapEx outlook. As Tom noted, the demand we are seeing for CIS, including our GPU deployments, is exceptional.

Ed McGowan: Our current pipeline for GPUs significantly exceeds our existing and projected inventory, meaning we may place additional GPU orders in H2 of the year to meet this demand. This is not factored into our current annual CapEx guide. We will update CapEx guidance on a subsequent earnings call if we place another GPU order before year-end. Moving to EPS. For full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.40 to $7.15. This EPS guidance includes the impact from the very large win. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% and a fully diluted share count of approximately 147 million shares. With that, I'll wrap things up, and Tom and I are happy to take your questions. Operator?

Speaker #2: Our current pipeline for GPUs significantly exceeds our existing and projected inventory, meaning we may place additional GPU orders in the second half of the year to meet this demand.

Speaker #2: This is not factored into our current annual CapEx guide. We will update CapEx guidance on a subsequent earnings call if we place another GPU order before year-end.

Speaker #2: Moving to EPS, for full year 2026, we expect non-gap earnings per diluted share in the range of $6.40 to $7.15. This EPS guidance includes the impact from the very large win.

Speaker #2: This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% and a fully diluted share count of approximately 147 million shares.

Speaker #2: With that, I'll wrap things up, and Tom and I are happy to take your questions. Operator?

Operator 3: Thank you. We will now begin the question and answer session. We have the first question from the line of Roger Boyd from UBS. Please go ahead.

Operator: Thank you. We will now begin the question and answer session. We have the first question from the line of Roger Boyd from UBS. Please go ahead.

Speaker #1: Thank you. We will now begin the question and answer session. To ask a question, you may press star and one on your touchstone telephone.

Speaker #1: If you're using a speakerphone, 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 and two.

Speaker #1: At this time, we'll pause momentarily to assemble our roster. We have the first question from the line of Roger Boyd from UBS. Please go ahead.

Roger Boyd: A question, and congrats on the landmark deal there. Maybe if you can, Tom Leighton, just broad strokes about kind of the competitive set to win that deal. Are you going toe-to-toe with other hyperscalers or neo clouds? Anything you can provide on kind of the use cases, is it inference? Is it agentic workloads? When you think about your compute-enabled POPs, just how is this customer leveraging the Akamai network as a whole? Thanks.

Speaker #2: My question—and congrats on the landmark deal there. Maybe if you can, Tom, just broad strokes about kind of the competitive set to win that deal.

Speaker #2: Are you going toe to toe with other hyperscalers or NeoClouds and anything you can provide on kind of the use cases, this inference? Is it agentic workloads?

Speaker #2: And when you think about your compute-enabled POPs, just how is this customer leveraging the Akamai network as a whole? Thanks.

Tom Leighton: Yeah. I can't give any more details about this specific deal. In general, yes, we do compete with the hyperscalers and the neo clouds with our cloud infrastructure services. That's the primary competition. You know, they select Akamai because of our proven ability to manage and scale complex distributed systems, our ability to get the necessary data center space and locations around the globe to interconnect that with the world's largest and best-performing delivery network and leading security solutions. We offer the best in terms of latency, scalability. We probably deal with more data center companies than anybody, you know, with being in 4,300 locations across 700 cities and 130 countries. Yeah, we have significant competition.

Speaker #3: Yeah, I can't give any more details about this specific deal. But in general, yes, we do compete with the hyperscalers and the NeoClouds with our cloud infrastructure services.

Speaker #3: That's the primary competition. They select Akamai because of our proven ability to manage and scale complex distributed systems. Our ability to get the necessary data center space and locations around the globe to interconnect that with the world's largest and best performing delivery network and leading security solutions.

Speaker #3: We offer the best in terms of latency, scalability, and we probably deal with more data center companies than anybody. With being in 4,300 locations across 700 cities and 130 countries, so yeah, we have significant competition.

Tom Leighton: Every deal is competitive, but we also have unique capabilities, which is, I think, why our pipeline is so strong and why we're winning some very large deals.

Speaker #3: Every deal is competitive, but we also have unique capabilities, which is, I think, why our pipeline is so strong and why we're winning some very large deals.

Roger Boyd: Excellent. Just on security, I wonder if you could unpack what you're seeing from a demand perspective there. A nice result in Q1. Just what are you seeing around conversion rates, sales cycles? Are you seeing more urgency from organizations that are thinking about ways to limit the blast radius and defend against kind of an AI-fueled attack landscape? Thanks.

Speaker #2: Excellent. And then just on security, I wonder if you could unpack what you're seeing from a demand perspective there. And a nice result in the first quarter, just what are you seeing around conversion rates, sales cycles, or are you seeing more urgency from organizations that are thinking about ways to limit the blast radius and defend against kind of an AI-fueled attack landscape?

Speaker #2: Thanks.

Tom Leighton: Yeah. I don't think I've ever seen the CISOs more agitated and feeling more of a sense of urgency than they are now. Over the last several weeks, couple of months, I've had the chance to meet with a lot of the world's biggest company CISOs, many cases, the CEOs and senior executives, they are very concerned, you know, about what happens when the attackers get access to advanced AI or the latest AI frontier models, which it seems that they will. You know, this is gonna uncover a lot more vulnerabilities. We're gonna see the equivalent of a lot more zero days. They are literally scrambling now, in many cases, to make sure all their applications, their agents, their APIs are pro-protected by Akamai.

Speaker #3: Yeah. I don't think I've ever seen the CISOs more agitated and feeling more of a sense of urgency than they are now. Over the last several weeks, couple of months, I've had the chance to meet with a lot of the world's biggest companies' CISOs.

Speaker #3: In many cases, the CEOs and senior executives—and they are very concerned about what happens when the attackers get access to advanced AI, or the latest AI frontier models, which it seems that they will.

Speaker #3: This is going to uncover a lot more vulnerabilities. We're going to see the equivalent of a lot more zero days. And they are literally scrambling now, in many cases, to make sure all their applications, their agents, their APIs are protected by Akamai.

Tom Leighton: You can imagine, you know, most of the world's major banks rely on us for security, and they're looking at a pretty big wave of new attacks, you know, coming their way. This is I don't know of a comparable time where there's this much concern about what's gonna happen with security and also this much appreciation for what Akamai provides with our security platform.

Speaker #3: And you can imagine most of the world's major banks rely on us for security. And they're looking at a pretty big wave of new attacks, coming their way.

Speaker #3: So this is, I don't know of a comparable time where there's this much concern about what's going to happen with security and also this much appreciation for what Akamai provides with our security platform.

Roger Boyd: Very good. Thanks for the color.

Speaker #2: Very good. Thanks for the color.

Operator 3: Thank you. We have the next question from the line of Patrick Colville from Scotiabank. Please go ahead.

Operator: Thank you. We have the next question from the line of Patrick Colville from Scotiabank. Please go ahead.

Speaker #1: Thank you. We have the next question from the line of Patrick Cowell from Scotiabank. Please go ahead.

Patrick Colville: Thank you so much for taking my question. I mean, this one's for Dr. Tom. I mean, when I think about Akamai, the value prop for, you know, the last 30 plus years has been the distributed architecture. You know, 700 cities, 130 countries. When I think about this mega deal, is that a kind of highly distributed use case or should we think about it as being served from, you know, a few like sub 10 type data centers?

Speaker #4: Thank you so much for taking my question. I mean, this one's for Dr. Tom. I mean, when I think about Akamai, the value prop for the last 30-plus years has been the distributed architecture.

Speaker #4: 700 cities, 130 countries. When I think about this mega deal, is that a kind of highly distributed use case? Or should we think about it as being served from a few sub-10-type data centers?

Tom Leighton: Well, I'm not at liberty to talk about the recent deal. However, I think when you're thinking about Akamai's value proposition, you hit a very key point with our really unparalleled distributed architecture. You know, I did reference a bunch of use cases in the prepared remarks. They very much rely on our distributed platform, where you wanna get the agents and the applications, the business logic, close to users, close to the data, so you get low latency, you get scalability, particularly anything to do with, you know, video processing or video generation. It needs a lot of scale. Akamai is unique there. You know, I think absolutely what we're able to offer is very compelling.

Speaker #3: Well, I'm not at liberty to talk about the recent deal. However, I think when you're thinking about Akamai's value proposition, you hit a very key point with our really unparalleled distributed architecture.

Speaker #3: And I did reference a bunch of use cases in the prepared remarks. And yeah, they very much rely on our distributed platform. Where you want to get the agents and the applications, the business logic close to users, close to the data, so you get low latency, you get scalability, particularly anything to do with video processing or video generation, anything that takes a lot needs a lot of scale.

Speaker #3: And Akamai is unique there. And so, I think absolutely what we're able to offer is very compelling.

Operator 2: Yeah. Look, congrats on the deal. I guess, for my follow-up, please, Ed, you made this kind of subtle point that there's a CapEx guide that might have to increase the CapEx.

Patrick Colville: Yeah. Look, congrats on the deal. I guess, for my follow-up, please, Ed, you made this kind of subtle point that there's a CapEx guide that might have to increase the CapEx.

Speaker #2: Yeah. And look, congrats on the deal. I guess for my follow-up, please, Ed, you made this kind of subtle point that there's a CapEx guide that might have to increase.

Operator 3: Sorry to interrupt you, Patrick. Your voice is breaking. If you could probably go off the speaker phone, we would be able to hear you better.

Tom Leighton: Sorry to interrupt you, Patrick. Your voice is breaking. If you could probably go off the speaker phone, we would be able to hear you better.

Speaker #1: Sorry to interrupt you, Patrick. Your voice is breaking. If you could probably go off the speakerphone, we would be able to hear you better.

Patrick Colville: Thanks for that. I guess this follow-up is for Ed. I mean, Ed, you gave us a CapEx guide, then you kind of give us this kind of subtle point that might have to increase CapEx further. Just help us understand the nuances of why there might be an increase in the CapEx mid-year, I guess what that might mean.

Speaker #2: Thanks for that. I guess this follow-up is for Ed. I mean, Ed, you gave us a CapEx guide, but then you kind of gave us this kind of subtle point that might have to increase CapEx further.

Speaker #2: Just help us understand that nuance as to why there might be an increase in the CapEx mid-year. And I guess what that might mean.

Ed McGowan: Thanks for the question, Patrick. What I had mentioned was we have a very, very strong pipeline for our GPU, the platform, and we're just starting to get the bulk of those chips up and running now. We've got a very large pipeline. It exceeds what we have in inventory. Obviously, we want to prosecute that pipeline, start winning all those deals, converting that into contracts, et cetera. The reason I sort of hedged a little bit is, one, we want to obviously fulfill that pipeline, but two, there is some time that it takes to get the chips. Even if we were to place an order, it may slip into next year.

Speaker #4: Yeah. So thanks for the question, Patrick. So what I had mentioned was we have a very, very strong pipeline for our GPU, the platform.

Speaker #4: And we're just starting to get the bulk of those chips up and running now. And we've got a very large pipeline. It exceeds what we have in inventory.

Speaker #4: So obviously, we want to prosecute that pipeline. Start winning all those deals, converting that into contracts, etc. And then the reason I sort of hedged a little bit is, one, we want to obviously fulfill that pipeline.

Speaker #4: But two, there is some time that it takes to get the chips. So even if we were to place an order, it may slip into next year.

Ed McGowan: What I wanna do is just give it another quarter, and if in fact, we're, you know, in a position to place an order and receive that by year-end, we'll certainly do that and let you guys know. I see that as a very bullish comment. Again, I just didn't want to, you know, come up and surprise you with another, you know, whatever it is, couple hundred million or whatever the order may be, without at least giving you some color behind that.

Speaker #4: So what I want to do is just give it another quarter. And if, in fact, we're in a position to place an order and receive that by year-end, we'll certainly do that and let you guys know.

Speaker #4: I see that as a very bullish comment. And again, I just didn't want to come up and surprise you with another whatever it is, a couple of hundred million or whatever the order may be, without at least giving you some color behind that.

Patrick Colville: Crystal clear. Thank you so much, Tom and Ed.

Speaker #2: Crystal clear. Thank you so much, Tom. And Ed.

Operator 3: Thank you. We have the next question on the line of John DiFucci from Guggenheim Securities. Please go ahead.

Operator: Thank you. We have the next question on the line of John DiFucci from Guggenheim Securities. Please go ahead.

Speaker #1: Thank you. We have the next question on the line of John Difucci from Guggenheim Securities. Please go ahead.

John DiFucci: Thanks for taking my question. My first question is for Ed, and I have a quick follow-up for Tom. Ed, thanks for all the detail on CapEx. When I think about the CapEx for this mega deal, and I think Patrick was kind of going here. I mean, this is over a long time, right? 7 years. Are you accountable, for example, like right now, we're seeing higher memory costs than we would have thought of maybe 1 year ago. Are you, like, when you locked in this deal, do you also have the supply locked in, or are you know, exposed to that if that were to happen, I don't know, 2 years from now, higher prices again on that?

Speaker #5: Thanks for taking my question. My first question is for Ed, and then I have a quick follow-up for Tom. Ed, thanks for all the detail on CapEx.

Speaker #5: But when I think about the CapEx for this mega deal, and I think Patrick was kind of going here, I mean, this is over a long time, right?

Speaker #5: Seven years. Are you accountable for example, right now, we're seeing higher memory costs than we would have thought of maybe a year ago. Are you when you locked in this deal, do you also have the supply locked in?

Speaker #5: Or are you exposed to that if that were to happen? I don't know, two years from now. Higher prices again on that.

Ed McGowan: Yeah, great question. That, you know, I was, I was fortunate enough to work very closely with the team on both sides of this transaction. Yeah, we've been able to get the supply chain ready. We anticipate receiving all the goods that we need to deliver this service over the 7 years within the next 12 months. With obviously, you saw the way the CapEx was broken out with the majority of it this year. We anticipate receiving a significant portion. Now, there's always the potential for some slippage and delays, but we have mechanisms in our contracts to deal with, if in fact, say, 6 months from now, prices were to go up. We've taken that into consideration. We've got that taken care of.

Speaker #4: Yeah. Great question. So I was fortunate enough to work very closely with the team on both sides of this transaction. So yeah, we've been able to get the supply chain ready.

Speaker #4: We anticipate receiving all the goods that we need to deliver this service over the seven years within the next 12 months. With obviously you saw the way the CapEx was broken out with the majority of it this year.

Speaker #4: So we anticipate receiving a significant portion. Now, there's always the potential for some slippage and delays. But we have mechanisms in our contracts to deal with if, in fact, say, six months from now, prices were to go up.

Speaker #4: So we've taken that into consideration. We've got that taken care of. And the way this from a revenue perspective, the way to think about this deal is it's a set amount of capacity that we're deploying.

Ed McGowan: The way this, you know, from a revenue perspective, the way to think about this deal is it's a set amount of capacity that we're deploying, and there's no usage to it. It's a straight, you know, committed deal over 7 years. As soon as we ramp all the capacity up, we'll start taking the revenue for a full year. I expect, as I said, a little bit this year, and then next year we'll get a partial year as we receive the, you know, the remainder of what's to be deployed. From there, it'll go on for the remaining 6+ years.

Speaker #4: And there's no usage to it. It's a straight usage sorry, committed deal over seven years. So as soon as we ramp all the capacity up, we'll start taking the revenue for a full year.

Speaker #4: I expect, as I said, a little bit this year, and then next year we'll get a partial year as we receive the remainder of what's to be deployed.

Speaker #4: And then from there, it'll go on for the remaining six-plus years.

John DiFucci: Okay. That'll kind of look, even though it's a consumption, it'll kind of look like a subscription. Is that accurate?

Speaker #1: Okay. So that'll kind of look even though it's a consumption, it'll kind of look like a subscription. Is that accurate?

Ed McGowan: Exactly. Yep, that's exactly how to think about it.

Speaker #4: Exactly. Yep. That's exactly what I think about it.

John DiFucci: Okay. Awesome. Okay, great. Thank you. Dr Tom, a component of your delivery business is video streaming. In March, we saw OpenAI, they confirmed they shut down their AI video generation system, Sora. I'm just curious, do you expect that to have any effect on your delivery or compute business forecasts?

Speaker #1: Okay. Awesome. Okay. Great. Thank you. And Dr. Tom, a component of your delivery business is video streaming. And in March, we saw OpenAI, they confirmed they shut down their AI video generation system, Sora.

Speaker #1: I'm just curious, do you expect that to have any effect on your delivery or compute business forecasts?

Tom Leighton: No. We partner with OpenAI on security vulnerabilities, helping to find them and protecting our customers for the associated attacks. OpenAI is not and has not been a customer of Akamai. Yeah, no impact on us at all.

Speaker #3: No. We partner with OpenAI on security, vulnerabilities, helping define them and protecting our customers for the associated attacks. But OpenAI is not and has not been a customer of Akamai.

Speaker #3: So yeah, no impact on us at all.

John DiFucci: Great. Okay, thanks. Nice, nice guy. Nice job, guys. Thank you.

Speaker #1: Great. Okay. Thanks. Nice job, guys. Thank you.

Operator 3: Thank you. We have the next question on the line of Jackson Ader from KeyBanc Capital Markets. Please go ahead.

Operator: Thank you. We have the next question on the line of Jackson Ader from KeyBanc Capital Markets. Please go ahead.

Speaker #5: Thank you. We have the next question on the line of Jackson Edo from KeyBank Capital Markets. Please go ahead.

Aidan Daniels: Hey, guys. This is Aidan Daniels on for Jackson Ader. Thanks for taking our question. With this big deal, you know, as you allocate capacity going forward, you know, how can we kind of think about the impact on any amount of on-demand GPU capacity you are able to offer going forward? Like, you know, how are you kind of balancing what you have committed from this deal with maintaining flexibility for, you know, new or incremental demand going forward? Thank you.

Speaker #6: Hey, guys. This is Aiden Daniels on for Jackson Edo. Thanks for taking our question. With this big deal, as you allocate capacity, going forward, how can we kind of think about the impact on any amount of on-demand GPU capacity you're able to offer going forward?

Speaker #6: How are you kind of balancing what you have committed from this deal with maintaining flexibility for newer incremental demand going forward? Thank you.

Tom Leighton: No, we support both on-demand, you know, per token or per VM hour access to our platform, and also we support, you know, large tranche deals. It's not a really a matter at this point of trading off. As we need more GPUs, as Ed said, you know, and that may well be the case, that we would purchase more.

Speaker #3: No, we support both on-demand per token or per VM hour access to our platform. And also, we support large tranche deals. And so it's not really a matter at this point of trading off.

Speaker #3: And as we need more GPUs, as Ed said, and that may well be the case, that we would purchase more.

Aidan Daniels: Awesome. Then just one quick follow-up. I know you can't really talk too much about the deal, but I guess, like, how can we kind of think about the proportion of whether it's CPU or more of the GPU inference cloud going forward? Is there kind of like a framework we can think about with this deal?

Speaker #6: Awesome. And then just one quick follow-up. I know you can't really talk too much about the deal, but I guess how can we kind of think about the proportion of whether it's CPU or more of the GPU inference cloud going forward?

Speaker #6: Is there kind of a framework we can think about with this deal?

Tom Leighton: With this deal, we can't comment on this deal. However, in general, you know, with inference and AI, you need both really. You know, part of the value we provide is that we can help provide the computational resource that's most appropriate, you know, for the workload that you have, which might be CPU, might be GPU, 'cause you wanna be as efficient as possible. Also you wanna have it be as close as possible to the user, so you get the best performance. It's a mix, and every application is different in the mix of CPU versus GPU that it needs.

Speaker #3: With this deal, we can't comment on this deal. However, in general, with inference and AI, you need both, really. And part of the value we provide is that we can help provide the computational resource that's most appropriate for the workload that you have, which might be CPU, might be GPU, because you want to be as efficient as possible.

Speaker #3: And also, you want to have it be as close as possible to the user. So you get the best performance. So it's a mix.

Speaker #3: And every application is different in the mix of CPU versus GPU that it needs.

Aidan Daniels: Thank you.

Speaker #6: Thank you.

Speaker #5: Thank you. We have the next question from the line of Fatima Bulani from Citi. Please go ahead.

Operator 3: Thank you. We have the next question on the line of Fatima Boolani from Citi. Please go ahead.

Operator: Thank you. We have the next question on the line of Fatima Boolani from Citi. Please go ahead.

Fatima Boolani: Good afternoon. Thank you for taking my questions. Just a higher level strategic question. You have opted to take more of a dedicated capacity approach in terms of satisfying demand and some of the supply constraints out there. I wanted to sort of dig deeper into why, simply because the spot rates and the market rates for what otherwise could be almost entirely a rental or GPU-as-a-Service business are significantly more attractive. I just kind of wanted to get the division and the thought process and the decision-making calculus around steering the network and the platform more towards larger customers, longer commits, and more dedicated capacity. I had a follow-up as well, please.

Speaker #7: Good afternoon. Thank you for taking my questions. Just a higher-level strategic question. You have opted to take more of a dedicated capacity approach in terms of satisfying demand and some of the supply constraints out there.

Speaker #7: I wanted to sort of dig deeper into why simply because the spot rates and the market rates for what otherwise could be almost entirely a rental or GPU as a service business are significantly more attractive.

Speaker #7: So I just kind of wanted to get the vision and the thought process and the decision-making calculus around steering the network and the platform more towards larger customers, longer commits, and more dedicated capacity.

Speaker #7: And then I had a follow-up as well. Please.

Tom Leighton: Well, we do both. You know, the larger, bigger deals with long-term commits are more attractive in many ways. You know, you have the commit. In the big deals, yeah, the pricing would be lower. We also support, you know, the on-demand, where you can buy it by the token or the hour. You get a little bit higher pricing, you know, there can be more expense associated with that, you know, getting the customer on, if you have a rep engaged in the account. Both are attractive, and we support both. It's not a matter of us doing one or the other.

Speaker #4: Well, we do both. And the larger bigger deals with long-term commits, our more attractive in many ways. You have the commit. And in the big, big deals, yeah, the pricing would be lower.

Speaker #4: But we also support the on-demand where you can buy it by the token or the hour. And you get a little bit higher pricing.

Speaker #4: But there can be more expense associated with that, getting the customer on if you have a rep engaged in the account. But both are attractive.

Speaker #4: And we support both. So it's not a matter of us doing one or the other.

Fatima Boolani: Okay.

Fatima Boolani: Yeah, the one thing I would add there is this is Fatima, just to jump in here for a second. The customers are really driving that. If I look at our pipeline, a lot of our customers want to have dedicated capacity, say a dedicated number of GPUs or whatnot, because there is a scarcity in the marketplace. Rather than going on a consumption basis, they can get slightly better pricing and lock in that capacity for themselves. It's really a market-driven thing more than anything.

Ed McGowan: Yeah, the one thing I would add there is this is Fatima, just to jump in here for a second. The customers are really driving that. If I look at our pipeline, a lot of our customers want to have dedicated capacity, say a dedicated number of GPUs or whatnot, because there is a scarcity in the marketplace. Rather than going on a consumption basis, they can get slightly better pricing and lock in that capacity for themselves. It's really a market-driven thing more than anything.

Speaker #6: Yeah. The one thing I would add there is this is just Fatima, just to jump in here for a second. The customers are really driving that.

Speaker #6: If I look at our pipeline, a lot of our customers want to have dedicated capacity, say a dedicated number of GPUs or whatnot. Because there is a scarcity in the marketplace.

Speaker #6: So rather than going on a consumption basis, they can get slightly better pricing and lock in that capacity for themselves. So it's really a market-driven thing more than anything.

Fatima Boolani: I appreciate that. Ed, since I have you telegraphed for us pretty nicely that, you know, should the pipeline continue to grow and morph in the way and positively morph in the way you are seeing, you will be very open to continuing to throw down CapEx and bringing and lighting up megawatts online. Wondering, you know, sources of funds and capital to fund these investments, is that something you feel you can intrinsically do from running the business? Or should we expect maybe other sources of the capital to be tapped as you know, build out with the, you know, bigger CapEx profile for some of these larger customers and their demands? Thank you.

Speaker #7: I appreciate that. And Ed, since I have you, you telegraphed for us pretty nicely that should the pipeline continue to grow and morph in the way and positively morph in the way you are seeing, you will be very open to continuing to throw down CapEx and bringing and lighting up megawatts online.

Speaker #7: But wondering sources of funds and capital to fund these investments. Is that something you feel you can intrinsically do from running the business? Or should we expect maybe other sources of capital to be tapped as you build out with the bigger CapEx profile for some of these larger customers and their demands?

Speaker #7: Thank you.

Ed McGowan: So far, no issues as far as financing the these build-outs from our own capital today. We're obviously a company that's very profitable, produce a lot of cash. Obviously, in the years when we're investing big, cash flow will be a bit lower. These things have phenomenal free cash flow after you do the initial deployment. That's one of the attractive things. We, you know, from a cash and equivalents, we have $1.7 billion on the books today. We also have a line of credit of $1 billion if we need to tap it. Obviously, you know, we've got excellent credit and have no problem raising money in the capital markets if we need to. Right now, you know, we haven't announced anything there.

Speaker #4: Yeah. So so far, no issues as far as financing the build-outs from our own capital today. We're obviously a company that's very profitable, produce a lot of cash.

Speaker #4: Obviously, in the years when we're investing big cash flow, we'll be a bit lower. But these things have phenomenal free cash flow after you do the initial deployment.

Speaker #4: So that's one of the attractive things. We from a cash and equivalence, we have a billion seven on the books today. We also have a line of credit of a billion dollars if we need to tap it.

Speaker #4: And then obviously, we've got excellent credit and have no problem raising money in the capital markets if we need to. Right now, we haven't announced anything there.

Ed McGowan: If we continue to get large deals and need to get capital, we'll certainly go to look to do that. So far, we've been able to use our own funds.

Speaker #4: And if we continue to get large deals and need to get capital, we'll certainly go to look to do that. But so far, we've been able to use our own funds.

Fatima Boolani: Thank you.

Speaker #7: Thank you.

Operator 3: Thank you. We have the next question on the line of Mark Murphy from JP Morgan. Please go ahead.

Operator: Thank you. We have the next question on the line of Mark Murphy from JP Morgan. Please go ahead.

Speaker #5: Thank you. We have the next question on the line of Mark Murphy from JP Morgan. Please go ahead.

Ari Vuella: Hey, this is Ari Vuella from JP Morgan on for Mark Murphy. Thanks for taking the question. great to see the momentum you're having with the large CIS deals with companies on the AI technology frontier. You had a large deal last quarter, another one this quarter that dwarfed the one before it. just at a high level, can you help us understand from your perspective, like, you know, it seems like all of a sudden you're getting some of these large deals. has this been brewing for a while in the pipeline, or have these been a little bit faster? What's changed that's brought a lot of this business to your doorstep seemingly, pretty quickly from our point of view?

Arti Vula: Hey, this is Ari Vuella from JP Morgan on for Mark Murphy. Thanks for taking the question. great to see the momentum you're having with the large CIS deals with companies on the AI technology frontier. You had a large deal last quarter, another one this quarter that dwarfed the one before it. just at a high level, can you help us understand from your perspective, like, you know, it seems like all of a sudden you're getting some of these large deals. has this been brewing for a while in the pipeline, or have these been a little bit faster? What's changed that's brought a lot of this business to your doorstep seemingly, pretty quickly from our point of view?

Speaker #8: Hey, this is Artie Vula from JP Morgan. I'm from Mark Murphy. Thanks for taking the question. Great to see the momentum you're having with the large CIS deals with companies on the AI technology frontier.

Speaker #8: They had a large deal last quarter, another one this quarter. That dwarfed the one before it. So just at a high level, can you help us understand from your perspective it seems like all of a sudden you're getting some of these large deals?

Speaker #8: Has this been brewing for a while in the pipeline? Or have these been a little bit faster? What's changed that's brought a lot of this business to your doorstep?

Speaker #8: Seemingly pretty quickly from our point of view. And then as a quick follow-up to that, as you're dedicating the financial and operational resources to the CIS and these large deals, does it change how you're thinking about other business segments?

Ari Vuella: As a quick follow-up to that, you know, as you're dedicating the financial and operational resources to the CIS and these large deals, does it change how you're thinking about other business segments? Thanks.

Arti Vula: As a quick follow-up to that, you know, as you're dedicating the financial and operational resources to the CIS and these large deals, does it change how you're thinking about other business segments? Thanks.

Speaker #8: Thanks.

Tom Leighton: Well, this has been the strategy all along. We're very pleased to be executing against it. You know, the goal has been to be deploying a distributed inference platform, distributed compute platform that would be desired by enterprises, you know, really across the spectrum and with many large customers. Of course, Akamai's customer base does feature many of the world's largest enterprises. As we've talked about before, they spend 10x or more on compute than they do on, you know, our traditional services, delivery, and security. This is exactly what we said we were gonna do. Now we're delivering those results. The platform is to a point where we can do that, and I think you'll see more of this going forward.

Speaker #3: Well, this has been the strategy all along. So and we're very pleased to be executing against it. The goal has been to be deploying a distributed inference platform, distributed compute platform that would be desired by enterprises really across the spectrum.

Speaker #3: And with many large customers. And of course, Akamai's customer base does feature many of the world's largest enterprises. And as we've talked about before, they spend 10X or more on compute than they do on our traditional services delivery and security.

Speaker #3: So this is exactly what we said we were going to do. And now we're delivering those results. The platform is to a point where we can do that.

Speaker #3: And I think you'll see more of this going forward.

Ari Vuella: Got it. Thank you.

Arti Vula: Got it. Thank you.

Speaker #8: Got it. Thank you.

Operator 3: Thank you. We have the next question from the line of Sanjit Singh from Morgan Stanley. Please go ahead.

Operator: Thank you. We have the next question from the line of Sanjit Singh from Morgan Stanley. Please go ahead.

Speaker #5: Thank you. We have the next question for the line of Sanjit Singh from Morgan Stanley. Please go ahead.

Sanjit Singh: Yeah, thank you for taking the questions, and congrats on the biggest deal in company history. On that point, this might be a trivial question, but in terms of this $1.8 billion contract, is that more of a public cloud opportunity? 'Cause I know part of the public cloud business also has a GPU component, or is this was specifically for Akamai Inference Cloud? That was the first question, then I had a follow-up.

Speaker #6: Yeah. Thank you for taking the questions and congrats on the biggest deal in company history. On that point, this might be a trivial question, but in terms of this 1.8 billion contract, is that more of a public cloud opportunity?

Speaker #6: Because I know part of the public cloud business also has a GPU component. Or is this with a specifically for Akamai inference cloud? That was the first question that I had to follow up.

Tom Leighton: Yeah, we really can't talk more about this particular deal. Obviously there are a lot of companies where we've, you know, signed contracts that we did talk about across the spectrum. You know, those deals for our Akamai Inference Cloud and our cloud capabilities are for our GPUs and our CPUs. It really is our ability to bring the right hardware for the particular application and have it located where you get the best benefit for the use of that application.

Speaker #3: Yeah. We really can't talk more about this particular deal. But obviously, there are a lot of companies where we've signed contracts. We did talk about across the spectrum.

Speaker #3: And those deals for our inference cloud and our cloud capabilities are for our GPUs and our CPUs. And it really is our ability to bring the right hardware for the particular application and have it located where you get the best benefit for the use of that application.

Sanjit Singh: No, that's fair enough, Tom. My follow-up question actually goes to the delivery business. You know, there's a lot of people in the market kind of, you know, debating about a potential new lever for growth in CDN and delivery in a world where you have, you know, millions, potentially billions of agents running around, you know, calling tools, executing tasks, doing web searches. Has the team internally sort of revisited its thesis around the secular growth prospects in delivery, or is it still a business that you're mostly looking to harvest for profitability and gross profit dollars to fund, you know, the compelling opportunities in security and compute?

Speaker #6: No, that's fair enough, Tom. My follow-up question actually goes to the delivery business. And there's a lot of people in the market kind of debating about a potential new lever for growth in CDN and delivery in a world where you have millions potentially billions of agents running around calling tools executing tasks.

Speaker #6: Doing web searches. Has the team internally sort of revisited this thesis around the secular growth prospects in delivery? Or is it still a business that you're mostly looking to harvest for profitability and gross profit dollars to fund the compelling opportunities in security and compute?

Tom Leighton: Yeah, great question. When you look at what is the proliferation of agents and what's coming, the biggest driver for growth is gonna be the compute platform, the cloud platform that supports that. You know, we're really well set up to do that. Next, you have a big security issue, you know, because AI and the agents are a whole new, you know, vulnerability surface that not only do you need your Web Application Firewall, your API security, you need special security for AI. We get a real tailwind from STG for our security technology group there. Also, the agents are you know, you have to interpret what an agent is, who's behind it, and what they wanna do when you're delivering or protecting an application or a site or another agent.

Speaker #3: Yeah. Great question. When you look at what is the proliferation of agents and what's coming, the biggest driver for growth is going to be the compute platform.

Speaker #3: The cloud platform that supports that. And we're really well set up to do that. Next, you have a big security issue, because AI and the agents are a whole new vulnerability surface. Not only do you need your web app firewall and your API security, you need special security for AI.

Speaker #3: And so we get a real tailwind from STG for our security technology group there. Also, the agents are you have to interpret what an agent is, who's behind it, and what they want to do when you're delivering or protecting an application or a site or another agent.

Tom Leighton: The response you give is really tailored to what the customer wants you to do when an agent of this flavor, you know, comes and interacts with you. We developed a lot of capabilities there, and they fall generally within our security capabilities. Now, in terms of delivery, yeah, there'll be some traffic that used to be human-generated, now agent-generated. Okay. That doesn't make a huge swing in the amount of bits you're delivering. That starts to change if you have agents dealing with video, generating video. Like you go to a commerce site, and the user wants to see what do they look like in that sweater they're thinking of buying.

Speaker #3: And the response you give is really tailored to what the customer wants you to do when an agent of this flavor comes and interacts with you.

Speaker #3: And so we developed a lot of capabilities there. And they fall generally within our security capabilities. Now, in terms of delivery, yeah, there'll be some traffic that used to be human-generated.

Speaker #3: Now agent-generated. Okay. That doesn't make a huge swing in the amount of bits you're delivering. That starts to change if you have agents dealing with video, generating video like you go to a commerce site and the user wants to see what do they look like in that sweater they're thinking of buying.

Tom Leighton: And if you generate a video showing them wearing the sweater, that'll, you know, improve the return, you know, for the site, and that generates a lot of traffic. We're just at the very early days of seeing things like that. They're being experimented with now. That could generate, you know, more traffic for delivery. The biggest impact, you know, for us is in the cloud business and then next in the security business. Delivery, really important, very synergistic with our whole platform approach, does generate a lot of cash for us, and we're, you know, plowing a lot of that cash into the growth of the cloud business.

Speaker #3: And if you generate a video showing them wearing the sweater, that'll improve the return for the site. And that generates a lot of traffic.

Speaker #3: And so we're just at the very early days of seeing things like that. They're being experimented with now. That could generate more traffic for delivery.

Speaker #3: But the biggest impact for us is in the cloud business. And then next in the security business. Delivery really important, very synergistic with our whole platform approach does generate a lot of cash for us.

Speaker #3: And we're plowing a lot of that cash into the growth of the cloud business.

Sanjit Singh: Understood. Thank you, Tom.

Speaker #6: Understood. Thank you, Tom.

Operator 3: Thank you. We have the next question on the line of Mike Cikos from Needham. Please go ahead.

Operator: Thank you. We have the next question on the line of Mike Cikos from Needham. Please go ahead.

Speaker #5: Thank you. We have the next question on the line of Mike Sikos from Needham. Please go ahead.

Mike Cikos: Great. Thanks for taking the questions, guys, and congratulations on the strong quarter and the customer win. I just wanted to make sure I'm understanding at least the mechanics of this deal. You signed a 7-year, $1.8 billion commitment. Can we expect the full $1.8 billion to show up in RPO, or does that include anything as far as potential renewals? Is that all take or pay? Just anything to make sure we're understanding the mechanics of the deal.

Speaker #7: Great. Thanks for taking the questions, guys. And congratulations on the strong quarter and the customer wins. I just wanted to make sure I'm understanding at least the mechanics of this deal.

Speaker #7: So you signed a seven-year 1.8 billion commitment. Can we expect the full 1.8 billion to show up in RPO? Or does that include anything as far as potential renewals?

Speaker #7: Is that all take or pay? Just anything to make sure we're understanding the mechanics of the deal?

Ed McGowan: Yeah, sure. I touched on this a little bit earlier that, you know, and there was a follow-up question around this, you know, notion of capacity, dedicated capacity versus, you know, pay by the hour. This is more of the pay by the dedicated capacity. As soon as we get the capacity set up, we will take the revenue ratably over the contract. As I said, we'll get some revenue this year and a little not a full year next year, but a partial year next year as we're still, you know, building up and getting the capacity up and live.

Speaker #8: Yeah. Sure. So I touched on this a little bit earlier that and there was a follow-up question around this notion of capacity dedicated capacity versus pay by the hour.

Speaker #8: This is more of the pay by the dedicated capacity. So as soon as we get the capacity set up, we will take the revenue radically over the contract.

Speaker #8: As I said, we'll get some revenue this year and not a full year next year, but a partial year next year as we're still building up and getting the capacity up and live.

Ed McGowan: In terms of the way you account for RPO, we will see most of that in the next quarter, and then by the time we get everything delivered, it will be all in RPO eventually. There's just some odd mechanics with the first 12 months and how we're receiving the goods. We talked about a pricing mechanism to handle if prices would go up or down, that sort of thing. There's a little bit of nuance in there, but once we get this fully up and running, you'll see it in RPO. There'll be some amount next quarter, and then it will build from there.

Speaker #8: In terms of the way you account for RPO, there's we'll see most of that in the next quarter. And then by the time we get everything delivered, it will be all in RPO eventually.

Speaker #8: There's just some odd mechanics with the first 12 months and how we're dealing with how we're receiving the goods and we talked about a pricing mechanism to handle if prices would go up or down, that sort of thing.

Speaker #8: So there's a little bit of a little bit of nuance in there. But once we get this fully up and running, you'll see it in RPO.

Speaker #8: There'll be some amount next quarter, and then it will build from there.

Mike Cikos: Thanks for that. I appreciate you spelling out the mechanics there. Then, for Dr. Leighton, just to make sure I'm clear as well, and it's great to hear that your largest security product here with WAF is seeing some stronger growth, which I wouldn't have expected. Can you just tap into that one more time as far as what's driving that? Is it really this heightened environment that we're in, or is there something else behind there?

Speaker #7: Thanks for that. I appreciate you spelling out the mechanics there. And then for Dr. Leighton, just to make sure I'm clear as well, and it's great to hear that your largest security product here with WAF is seeing some stronger growth, which I wouldn't have expected.

Speaker #7: Can you just tap into that one more time as far as what's driving that? Is it really this heightened environment that we're in? Or is there something else behind there?

Tom Leighton: You know, there's real, as you know, real advances in AI, and it's getting much better at finding vulnerabilities and helping the attacker take over devices and penetrate enterprises. You need our defenses now more than ever before. You know, there's billions of devices out there that you can't patch, now the adversary can find ways into those devices and take them over. As a result, we're seeing attacks much bigger than we've seen before. You know, literally application layer attacks from millions of distributed IPs with millions of attacks on a target per second. You can't defend against that with just a WAF in a data center or anything close.

Speaker #3: Yeah. There's real, as you know, real advances in AI. And it's getting much better at finding vulnerabilities and helping the attacker take over devices and penetrate enterprises.

Speaker #3: And you need our defenses now more than ever before. There's billions of devices out there that you can't patch. And now the adversary can find ways into those devices and take them over.

Speaker #3: And so as a result, we're seeing attacks much bigger than we've seen before. Literally, application layer attacks from millions of distributed IPs with millions of attacks on a target per second.

Speaker #3: And you can't defend against that with just a WAF in a data center or anything close. You need the vast platform that we have.

Tom Leighton: You need the vast platform that we have to be able to intercept all that traffic and deal with it, you know, 'cause you gotta separate the bad stuff from the good stuff, and there's a huge amount of the bad stuff now. Our platform, the physical infrastructure, is needed more than ever before for our security services, and our customers know that. There is a heightened sense of urgency now because they know the attacks are getting more capable due to AI and larger in size because they can take over all these devices and launch the attacks from many more locations. That's why we're seeing, you know, things like our Web Application Firewall suddenly, you know, in a lot more demand. Now, AI helps on the defense, but doesn't solve that problem.

Speaker #3: To be able to intercept all that traffic and deal with it. Because you got to separate the bad stuff from the good stuff. And there's a huge amount of the bad stuff now.

Speaker #3: So our platform, the physical infrastructure, is needed more than ever before for our security services. And our customers know that. And there is a heightened sense of urgency now because they know the attacks are getting more capable due to AI and larger in size because they can take over all these devices and launch the attacks from many more locations.

Speaker #3: And so that's why we're seeing things like our web app firewall suddenly in a lot more demand. Now, AI helps on the defense, but doesn't solve that problem.

Tom Leighton: Net-net, this is a very challenging time for CISOs, and that's why they're turning to us to make sure everything that they have, you know, is protected by Akamai.

Speaker #3: And so net-net, this is a very challenging time for CISOs. And that's why they're turning to us to make sure everything that they have is protected by Akamai.

Mike Cikos: Thank you. It's great to hear about that halo effect, and congratulations again on the strong customer win.

Speaker #7: halo effect. And congratulations again on the strong customer win.

Tom Leighton: Thanks.

Speaker #3: Thanks.

Operator 3: Thank you. We have the next question from the line of Frank Louthan from Raymond James. Please go ahead.

Operator: Thank you. We have the next question from the line of Frank Louthan from Raymond James. Please go ahead.

Speaker #5: Thank you. We have the next question on the line of Frank Loughton from Raymond James. Please go ahead.

Frank Louthan: Yeah, just to follow up on the question about the $1.8 billion, how that's being booked. Is all of that gonna come in as revenue? Will any of that be counted as, you know, paid for upfront CapEx or something like that? also wanted to follow up and see how many locations do you have Inference Cloud built out to currently, and what's the plan? Thank you.

Speaker #9: Yeah. Just a follow-up on the question about the 1.8 billion, how that's being booked. Is all of that going to come in as revenue?

Speaker #9: Will any of that be counted as paid for upfront CapEx? Or something like that? And then I also wanted to follow up and see how many locations do you have inference cloud built out to currently?

Speaker #9: And what's the plan? Thank you.

Ed McGowan: Sure. I'll take the first part. Tom, you can take the second. Yeah, it's all revenue. There's no offset to CapEx or anything like that, so it's gonna be all revenue.

Speaker #8: Sure. I'll take the first part, Tom. You can take the second. Yeah. It's all revenue. There's no offset to CapEx or anything like that.

Speaker #8: So it's going to be all revenue.

Tom Leighton: To the second part of the question, Inference Cloud covers all of our 4,300 locations. You know, we have Function as a Service running in a serverless way in all 4,300 locations. We have our managed container service running in well over 100 cities and, you know, conceivably can run in all 700 cities, but active in well over 100 today. We've got full IaaS capabilities in several dozen cities, and a couple dozen of those are equipped with the new, you know, 6,000 GPUs. The goal, of course, is to have all this orchestrated so that when, you know, there's an application or an agent that needs to be run, it's run on the most computationally efficient resource.

Speaker #3: Yeah. And to the second part of the question, we have inference cloud covers all of our 4,300 locations. We have functions as a service running in a serverless way in all 4,300 locations.

Speaker #3: We have our managed container service. Running and well over 100 cities. And conceivably can run in all 700 cities. But active and well over 100 today.

Speaker #3: We've got full IaaS capabilities in several dozen cities. And a couple dozen of those are equipped with the new 6,000 GPUs. And the goal, of course, is to have all this orchestrated.

Speaker #3: So that when there's an application or an agent that needs to be run, it's run on the most computationally efficient resource. If you can do it on an edge server with the existing CPU, fabulous.

Tom Leighton: If you can do it, you know, on an edge server, with the existing CPU, fabulous. Fast, very low cost. If you can do it on a container in the same city in a CPU, great. You know, if you need a group of GPUs, in one of those couple dozen locations, okay. Again, you want it to be on the most efficient resource to be close to the user and to already be ready to go. You don't wanna have to spin it up in response to a request, and that's what our orchestration layer is designed to make possible. This is how it fits in with the vision, you know, from NVIDIA with the AI Grid. You think of AI like you would an electrical grid, and that's what Akamai is building.

Speaker #3: Fast, very low cost. If you can do it on a container in the same city, in a CPU, great. If you need a group of GPUs in one of those couple dozen locations, okay.

Speaker #3: And again, so you want it to be on the most efficient resource to be close to the user and to already be ready to go.

Speaker #3: You don't want to have to spin it up in response to a request. And that's what our orchestration layer is designed to make possible.

Speaker #3: And this is how it fits in with the vision from NVIDIA with the AI grid. You think of AI like you would an electrical grid.

Speaker #3: And that's what Akamai is building.

Operator 3: Okay, great. Thank you. Thank you. We have the next question from the line of Will Power from Baird. Please go ahead.

Frank Louthan: Okay, great. Thank you.

Speaker #5: Okay. Great. Thank you. Thank you. We have the next question on the line of Will Power from Beard. Please go ahead.

Operator: Thank you. We have the next question from the line of Will Power from Baird. Please go ahead.

Will Power: Oh, great. Thank you. Yeah, I'll echo my congratulations on this on this massive deal. Just maybe two questions. First, just a clarification, perhaps, Ed. When you talk about needing additional GPUs, do you need more GPUs to satisfy the new deal, or is that more related to, you know, the building pipeline? Is there I know the timing is uncertain as to, you know, when the GPUs might be available, but is there any framework for what we're talking about in, you know, in terms of overall cost? Then I have a second question.

Speaker #8: Oh, great. Thank you. Yeah. I'll echo my congratulations on this massive deal. Just maybe two questions. First, just a clarification perhaps, Ed. When you talk about needing additional GPUs, do you need more GPUs to satisfy the new deal?

Speaker #8: Or is that more related to the building pipeline? And is there—I know the timing is uncertain as to when the GPUs might be available.

Speaker #8: But is there any framework for what we're talking about in terms of overall cost? And then I have a second question. Yeah. Sure. So I sort of, if you listen to the prepared remarks, we talked about all the CapEx that we need is in the guidance for satisfying the 1.8 billion.

Ed McGowan: Yeah, sure. I sort of if you listen to the prepared remarks, we talked about all the CapEx that we need, is in the guidance for satisfying the $1.8 billion. That's separate from the comment I made around the additional GPU purchase. That was really tied to how we're doing with the pipeline, how quickly we can execute on that. You know, again, there's always the question of can you get them delivered in time. We'll give you more information on that. It really depend on, you know, what we're seeing in terms of demand. We're seeing, you know, a pipeline that's very, very strong, some very large opportunities, some, you know, customers that want to start with a couple hundred GPUs, some that want to start with a 1,000 or more.

Speaker #8: So that's separate from the comment I made around the additional GPU purchase. And that was really tied to how we're doing with the pipeline, how quickly we can execute on that, and again, there's always the question of can you get them delivered in time.

Speaker #8: So we'll give you more information on that. It really depends on what we're seeing in terms of demand. We're seeing a pipeline that's very, very strong.

Speaker #8: Some very large opportunities. Some customers that want to start with a couple hundred GPUs. Some that want to start with a thousand or more.

Ed McGowan: It's really all over the map in terms of opportunities, and it's growing every day, which is great. We'll size it up for you. The last one was around $250 million in CapEx. You know, I don't have anything to tell you in terms of how big I think it will be, but, you know, hopefully, I'm telling you it's a really big number because we've got significant demand for it.

Speaker #8: So it's really all over the map in terms of opportunities. And it's growing every day, which is great. So we'll size it up for you.

Speaker #8: The last one was around 250 million in CapEx. I don't have anything to tell you in terms of how big I think it will be.

Speaker #8: But hopefully, I'm telling you it's a really big number because we've got significant demand for it.

Will Power: Yeah. Okay. Any way to kind of frame, you know, how you're thinking about, you know, gross margin, operating margin, you know, impacts? I know, you know, 2027 sounds like it's still a partial year. You know, as you look into, you know, 2028, you know, how do we kind of think about how this impacts the overall, you know, financial model relative to where maybe relative to where you are today?

Speaker #7: Yeah. Okay. And then any way to kind of frame how you're thinking about gross margin, operating margin, impacts? I know 2027 sounds like it's still a partial year.

Speaker #7: As you look into 2028, how do we kind of think about how this impacts the overall financial model relative to where maybe relative to where you are today?

Ed McGowan: Yeah. Let me talk about sort of a high level. If you think about especially some of these larger deals that are more of that, comes to us and says, Hey, I want, you know, 1,000 GPUs, or in this, you know, the case with this big customer, I want a certain amount of capacity over a long period of time. The biggest cost driver there is your depreciation over the period of time. You know, the costs that go into your cash gross margin are much less, right. It's your colocation cost, maybe if there's some bandwidth or networking costs, and things like that. Sometimes there's some people cost. Generally speaking, these scale pretty well. What you would expect over time is, you know, your cash gross margin could improve.

Speaker #8: Yeah. So let me talk about sort of a high level. So if you think about especially some of these larger deals that are more of that someone who comes to us and says, "Hey, I want 1,000 GPUs," or in the case with this big customer, "I want a certain amount of capacity over a long period of time." The biggest cost driver there is your depreciation over the period of time.

Speaker #8: The costs that go into your cash gross margin are much less, right? It's your colocation costs. Maybe if there's some bandwidth or networking costs and things like that.

Speaker #8: And sometimes there's some people costs. But generally speaking, these scale pretty well. So what you would expect over time is your cash gross margin could improve.

Ed McGowan: Obviously, there's some push and pull here between, you know, lighting up colo for, you know, expected demand, and you have to light that up first and all that kind of stuff. It'll take a bit for this to sort of play out, but you should see your cash gross margin expand a bit, your EBITDA margin expand a bit. From an operating margin perspective, you know, it really depends on the mix. You know, we're willing to do, you know, some of these deals that are a lot larger, potentially at margins that might be sub the 30% operating margin. If you look at the, you know, certainly the GPU-as-a-Service rented GPU, much higher than the company operating margin.

Speaker #8: Now, obviously, there's some push and pull here between lighting up colo for expected demand. And you have to light that up first and all that kind of stuff.

Speaker #8: So it'll take a bit for this to sort of play out. But you should see your cash gross margin expand a bit. Your EBITDA margin expand a bit.

Speaker #8: And then from an operating margin perspective, it really depends on the mix. We're willing to do some of these deals that are a lot larger, potentially at margins that might be sub the 30% operating margin.

Speaker #8: If you look at the certainly the GPU by the service rent a GPU, much higher than the company operating margin. You're going to get a lot of scale across the OPEX as we take on certainly larger customers.

Ed McGowan: You're gonna get a lot of scale across the OpEx as we take on, you know, certainly larger customers. You know, we're gonna really focus over the next year or 2 on really capitalizing on this growth. We won't be in a margin expansion, you know, point right now, but at some point, you know, that will, that will happen naturally, and your free cash flow margins will improve and things like that. That's sort of the way we're thinking about it, but we're really excited about going after this growth opportunity, and we're gonna continue to invest to go get it.

Speaker #8: So we're going to really focus over the next year or two on really capitalizing on this growth. So it won't be in a margin expansion point right now.

Speaker #8: But at some point, that will happen naturally in your free cash flow margins will improve and things like that. So that's sort of the way we're thinking about it.

Speaker #8: But we're really excited about going after this growth opportunity. And we're going to continue to invest to go get it.

Will Power: Yeah. That's helpful perspective. Thank you.

Speaker #7: Yeah. That's helpful perspective. Thank you.

Operator 3: Thank you. We have the next question from the line of James Fish from Piper Sandler. Please go ahead.

Operator: Thank you. We have the next question from the line of James Fish from Piper Sandler. Please go ahead.

Speaker #5: Thank you. We have the next question on the line of James Fish from Piper Sandler. Please go ahead.

James Fish: Hey, guys. Look, given what you've discussed around power in the past, with the large sites having, I think, Ed, you said 5 to 10 MW and smaller sites a fraction of that, it puts you above 300 MW. Now you don't have enough revenue that aligns to this. How much of that power is for non-compute services? Is that why you need to bring on, from what I can tell, another roughly 40 MW just for this deal alone? It doesn't seem to kind of math, and you guys should be able to kind of support this if that power is all allocated to compute.

Speaker #8: Hey, guys. Look, given what you've discussed around power in the past, with the large sites having I think, Ed, you've said 5 to 10 megawatts and smaller sites a fraction of that, it puts you above 300 megawatts.

Speaker #8: So now you don't have enough revenue that aligns to this. So how much of that power is for non-compute services? And is that why you need to bring on, from what I can tell, another roughly 40 megawatts just for this deal alone as it doesn't seem to kind of mass?

Speaker #8: And you guys should be able to kind of support this if that power is all allocated to compute. So can you just walk us through how you guys are in terms of megawatts and kind of what the plan is by the end of '27 then?

James Fish: Can you just walk us through how you guys are in terms of megawatts and kind of what the plan is by the end of 2027 then?

Ed McGowan: Yeah. I didn't quite follow all that. But let me just start by saying you know, your math isn't right in terms of what would be required to deliver this particular deal. I'll just leave it at that. It's significantly lower than that. In terms of, you know, our capacity, you know, we have Like if you think about what uses the megawatts of power that we have, the CDN and the security business is a small fraction. You think about that as being, you know, kilowatts in some cases, maybe a megawatt or 2 in some of the, you know, big CDN deployments. There's not a ton of, you know, like massive power required to run the CDN business.

Speaker #8: Yeah. So I didn't quite follow all that. But let me just start by saying your math isn't right in terms of what would be required to deliver this particular deal.

Speaker #8: I'll just leave it at that. It's significantly lower than that. In terms of our capacity, we have the if you think about what uses the megawatts of power that we have, the CDN and the security business is a small fraction.

Speaker #8: You think about that as being kilowatts in some cases, maybe a megawatt or two. And some of the big CDN deployments. So there's not a ton of massive power required to run the CDN business.

Ed McGowan: When it comes to the compute business, it's a lot greater, especially when you get customers who want, you know, say, a few thousand GPUs in a particular location or they're, you know, in Say 20, 30 locations, and they've got a lot of CPU. You do tend to see a lot more need for power there. What I've talked about is our typical deployment for some of our larger locations. We talked about having 40-core compute locations, and those were in the 5 to 10 MW, expandable to, say, 20 to 30. It really, you know, again, depends. We can get a little bit bigger than that, but there's plenty of opportunity for us to get additional colo. We expect to light up a lot more going forward here.

Speaker #8: When it comes to the compute business, it's a lot greater, especially when you get customers who want say a few thousand GPUs in a particular location or they're in, say, 20, 30 locations.

Speaker #8: And they've got a lot of CPU. So you do tend to see a lot more need for power there. And what I've talked about is our typical deployment for some of our larger locations.

Speaker #8: We talked about having 40 core compute locations. And those were in the 5 to 10 megawatts expandable to, say, 20 to 30. And it really again, depends.

Speaker #8: And we can get a little bit bigger than that. But there's plenty of opportunity for us to get additional colo we expect to light up a lot more going forward here.

Ed McGowan: If the concern is that we don't have access to enough power or can't get colo, that is not a concern of ours right now at all. As Tom talked about earlier, we've got great relationships, and we're a very attractive client for some of these data center providers. We've got excellent credit. We're not a do-it-yourselfer like a hyperscaler. We've got much better credit than, say, some of the neo clouds. We do take significant chunks of colo in some cases and actually help some of our colo partners build out. I'm not concerned about that at all. The power dynamics for each one of the different products is different. GPUs take up more power than CPUs. There's math that goes along with that. I've shared that math.

Speaker #8: So if the concern is that we don't have access to enough power or can't get colo, that is not a concern of ours right now at all.

Speaker #8: We're as Tom talked about earlier, we've got great relationships. And we're very attractive client for some of these data center providers. We've got excellent credit.

Speaker #8: We're not a do-it-yourselfer like a hyperscaler. We've got much better credits than, say, some of the Neo Clouds. And we do take significant chunks of colo in some cases and actually help some of our colo partners build out.

Speaker #8: So I'm not concerned about that at all in the power dynamics for each one of the different products is different. So GPUs take up more power than CPUs.

Speaker #8: And so there's math that goes along with that. And I've shared that math. The CPU math is much lower. You don't need as much power.

Ed McGowan: The CPU math is much lower, you don't need as much power. Then also the type of equipment that you're running can also have a pretty significant impact on power. You know, we're seeing a lot of interesting hardware providers coming out with stuff that's incredibly efficient from a power perspective. It's hard for me to answer that question specifically, but just take it that we're not too concerned at all about getting enough power to run these things, and the power requirements are very different. We factor that in to any deal that we do and ensure that we're not gonna take anything on that's not profitable.

Speaker #8: And then also the type of equipment that you're running can also have a pretty significant impact on power. Certain we're seeing a lot of interesting hardware providers coming out with stuff that's incredibly efficient from a power perspective.

Speaker #8: So it's really it's hard for me to answer that question specifically. But just take it that we're not too concerned at all about getting enough power to run these things.

Speaker #8: And the power requirements are very different. But we factor that in to any deal that we do and ensure that we're not going to take anything on that's not profitable.

James Fish: Got it. Makes sense. Just add on the security side, normally give us an API and zero-trust versus kind of the core. I guess, how did that trend, how did compute in the quarter trend between with enterprise? Thanks.

Speaker #7: Got it. Makes sense. And just add on the security side, normally give us an API and zero trust versus kind of the core, I guess.

Speaker #7: How did that trend? And then how did compute in the core trend between with enterprise? Thanks.

Ed McGowan: Yeah. With security, we didn't break out API and Guardicore. We did say it was the majority of what's driving growth. I would just say the growth rates are similar to what we had last quarter. Just remember, last quarter had a fair bit of license revenue, so when you back that out, it's kinda apples to apples growing at roughly the same rates when you back out the impact of the license revenue. Still very healthy growth rates there. On compute, you asked about enterprise compute. We don't break it out that way. Really, the way to think about enterprise compute is CIS, which is broken out separately, and we do provide what we used to call our application services, which is included inside of the third bucket, the delivery and app services.

Speaker #8: Yeah. So with security, we didn't break out API and Guardicor. We did say it was the majority of what's driving growth. And I would just say the growth rates are similar to what we had last quarter.

Speaker #8: Just remember, last quarter had a fair bit of license revenue. So, when you back that out, it's kind of apples to apples, growing at roughly the same rates.

Speaker #8: When you back out the impact of the license revenue. So still very, very healthy growth rates there. And then on compute, you asked about enterprise compute.

Speaker #8: We don't break it out that way really. The way to think about enterprise compute is CIS. Which is broken out separately. And we do provide what we used to call our application services, which is included inside of the third bucket, the delivery and app services.

Ed McGowan: That number is broken out for you. Forty percent growth was for CIS year-over-year, and we expect that to accelerate.

Speaker #8: So that number is broken out for you. So 40% growth was for CIS year over year. And we expect that to accelerate.

Operator 3: Thank you. We have the next question from the line of Jonathan Ho from William Blair & Company. Please go ahead.

Operator: Thank you. We have the next question from the line of Jonathan Ho from William Blair & Company. Please go ahead.

Speaker #5: Thank you. We have the next question from the line of Jonathan Ho from William Blair and Company. Please go ahead.

Jonathan Ho: Hi, good afternoon, let me echo my congratulations as well. Just one for me. Just given the types of mega customers that you're bringing onto your platform, you know, is there more opportunity to upsell to them, you know, once they are on your platform? Are there, you know, potential additional services, or, you know, could they come back to the well, you know, if they continue to expand their growth as well? Thank you.

Speaker #9: Hi. Good afternoon. And let me echo my congratulations as well. Just one for me. Just given the types of mega customers that you're bringing onto your platform, is there more opportunity to upsell to them once they are on your platform?

Speaker #9: Are there potential additional services or could they come back to the well if they continue to expand their growth as well? Thank you. Yeah.

Tom Leighton: Yeah. As you know, the demand for AI is rapidly increasing. We're really early on there. Yeah, I would expect there's plenty of room to grow the existing base and, of course, add other customers of that scale.

Speaker #9: As you know, the demand for AI is rapidly increasing. We're really early on there. And yeah, I would expect there's plenty of room to grow.

Speaker #9: The existing base, and of course, add other customers of that scale.

Jonathan Ho: Thank you.

Speaker #8: Thank you.

Operator 3: Thank you. We have time for one last question from the line of Jeff Henry from Craig-Hallum. Please go ahead.

Operator: Thank you. We have time for one last question from the line of Jeff Henry from Craig-Hallum. Please go ahead.

Speaker #5: Thank you. We have time for one last question from the line of Jeff Ventry from Craig Hellum. Please go ahead.

Jeff Henry: Great. Thanks for taking the question and sneaking me in there. Two quick ones. First, maybe Tom, just, you know, a lot of blowback nationally against AI data centers and the power consumption correlated to them. As you're stepping into deals of this magnitude, how do you think about staying out of the crosshair of some of those community-wide pushback on, you know, the broader AI compute environment, if you will?

Jeff Van Rhee: Great. Thanks for taking the question and sneaking me in there. Two quick ones. First, maybe Tom, just, you know, a lot of blowback nationally against AI data centers and the power consumption correlated to them. As you're stepping into deals of this magnitude, how do you think about staying out of the crosshair of some of those community-wide pushback on, you know, the broader AI compute environment, if you will?

Speaker #10: Great. Thanks for taking the question sneaking me in there. Two quick ones. First, maybe Tom, just a lot of blowback nationally against AI data centers and the power consumption correlated to them.

Speaker #10: As you're stepping into deals of this magnitude, how do you think about staying out of the crosshair of some of those community-wide pushback on the broader AI compute environment, if you will?

Tom Leighton: Yeah, I don't, I don't think we're of a profile in the popular press anything like, you know, the giant hyperscalers are. I don't think that's really an issue for us. Yeah, we're not worried about that yet. Maybe that's even a problem, you know, would be good to have once we're much, much larger than we are today.

Speaker #8: Yeah. I don't think we're of a profile in the popular press, anything like the giant hyperscalers are. So I don't think that's really an issue for us.

Speaker #8: So yeah, we're not worried about that yet. Maybe that's even a problem. It'd be good to have once we're much, much larger than we are today.

Jeff Henry: Okay. Second, on the security side, given the comments about AI becoming a tailwind there, would you think this year is likely a floor in terms of growth rate? Namely, we should be thinking maybe re-acceleration as we get into 2027 and beyond.

Jeff Van Rhee: Okay. Second, on the security side, given the comments about AI becoming a tailwind there, would you think this year is likely a floor in terms of growth rate? Namely, we should be thinking maybe re-acceleration as we get into 2027 and beyond.

Speaker #10: Okay. And then second, the on the security side, given the comments about AI becoming a tailwind there, would you think this year is likely a floor in terms of growth rate, namely we should be thinking maybe re-acceleration as we get into 27 and beyond?

Ed McGowan: You know, we'll see. We, you know, we gave you guidance for the year. We're obviously very pleased with what we saw in Q1. We do like what we see, especially around, you know, API security. Still early days, low penetration rate. Guardicore's growing very, very consistently. Yeah, we'll see how it goes, and, you know, we'll update you as we go.

Speaker #8: We'll see. We gave you guidance for the year. We're obviously very pleased with what we saw in the first quarter. We do like what we see, especially around API security, still early days, low penetration rate, Guardicor is growing very, very consistently.

Speaker #8: So yeah, we'll see how it goes. And we'll update you as we go.

Jeff Henry: Got it. Thanks so much.

Jeff Van Rhee: Got it. Thanks so much.

Speaker #5: Got it. Thanks so much. Thank you. This concludes our question answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator 3: Thank you. This concludes our question answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: Thank you. This concludes our question answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.