Q2 2026 Akamai Technologies Inc Earnings Call

August 6, 2026

Operator: Good day, everyone, welcome to the Q2 2026 Akamai Technologies, Inc. Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mark Stoutenberg, Head of IR. Sir, please go ahead.

Speaker #1: After today's 2. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Mark Stoutenberg, Head of IR, sir.

Speaker #1: Please go ahead.

Speaker #2: Good afternoon, everyone, and thank you for joining Akamai's second quarter 2026 earnings call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer.

Mark Stoutenberg: Good afternoon, everyone, thank you for joining Akamai's Q2 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 with our filings with the SEC. The statements included on today's call represent the company's views on 06 August 2026, we assume no obligation to update any forward-looking statements.

Speaker #2: Please note that today's comments include forward-looking statements, including 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 with our filings with the SEC.

Speaker #2: The statements included on today's call represent the company's views on August 6, 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'll 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.

Speaker #3: Thanks, Mark. I'm very pleased to report that Akamai continues to build momentum and gain wide industry recognition as a key infrastructure provider for the AI-driven economy.

Tom Leighton: Thanks, Mark. I'm very pleased to report that Akamai continues to build momentum and gain wide industry recognition as a key infrastructure provider for the AI-driven economy. Akamai has long been known for operating the world's most distributed platform for content delivery and cybersecurity at global scale and with a reputation for reliability, quality, and trust. Now we're leveraging our global footprint and years of experience serving the world's largest enterprises to do for the AI-driven economy what we've done for cybersecurity and content delivery. The response from industry leaders and major enterprises has been very strong. In fact, we were very pleased to announce today that a US-based technology company has committed more than $600 million over four years for our cloud infrastructure services to power their robotics development.

Speaker #3: AKAMAI has long been known for operating in the world's most distributed platform for content delivery and cybersecurity, at global scale and with a reputation for reliability, quality, and trust.

Speaker #3: And now we're leveraging our global footprint and years of experience serving the world's largest enterprises to do for the AI-driven economy what we've done for cybersecurity and content delivery.

Speaker #3: The response from industry leaders and major enterprises has been very strong. In fact, we were very pleased to announce today that a U.S.-based technology company has committed more than $600 million over four years for our cloud infrastructure services to power their robotics development.

Speaker #3: The addition of this new customer brings the total volume of the multi-year commitments signed so far this year for our cloud infrastructure services to more than $2.8 billion.

Tom Leighton: The addition of this new customer brings the total volume of the multi-year commitments signed so far this year for our cloud infrastructure services to more than $2.8 billion. As a result of these commitments and the exceptionally strong pipeline we're seeing, we now anticipate that Akamai's overall revenue growth will accelerate into the low teens in 2027. For investors who want to understand how the AI market is evolving and why Akamai is such a unique and vital player in this new ecosystem, we encourage you to read the 23 July article in Fast Company by Victor Dey. In the article, Dey explains the role played by Akamai's distributed platform in transforming the content delivery and cybersecurity marketplaces, and how a similar approach can benefit the AI ecosystem, with many agentic workloads being processed at the edge, close to users, instead of in massive centralized data centers.

Tom Leighton: The addition of this new customer brings the total volume of the multi-year commitments signed so far this year for our cloud infrastructure services to more than $2.8 billion. As a result of these commitments and the exceptionally strong pipeline we're seeing, we now anticipate that Akamai's overall revenue growth will accelerate into the low-teens in 2027. For investors who want to understand how the AI market is evolving and why Akamai is such a unique and vital player in this new ecosystem, we encourage you to read the 23 July article in Fast Company by Victor Dey. In the article, Dey explains the role played by Akamai's distributed platform in transforming the content delivery and cybersecurity marketplaces, and how a similar approach can benefit the AI ecosystem, with many agentic workloads being processed at the edge, close to users, instead of in massive centralized data centers.

Speaker #3: As a result of these commitments, and the exceptionally strong pipeline we're seeing, we now anticipate that AKAMAI's overall revenue growth will accelerate into the low teens in 2027.

Speaker #3: For investors who want to understand how the AI market is evolving and why AKAMAI is such a unique and vital player in this new ecosystem, we encourage you to read the July 23rd article in Fast Company by Victor Day.

Speaker #3: In the article, Day explains the role played by AKAMAI's distributed platform in transforming the content delivery and cybersecurity marketplaces. And how a similar approach can benefit the AI ecosystem, with many agentic workloads being processed at the edge, close to users, instead of in massive centralized data centers.

Speaker #3: In a related blog, IDC analyst Dave McCarthy considers a world transformed by AI agents and the practical challenges of automated execution of queries against a trained model.

Tom Leighton: In a related blog, IDC analyst Dave McCarthy considers a world transformed by AI agents and the practical challenges of automated execution of queries against a trained model. Whereas training frontier models requires massive data centers and energy consumption, the next challenge for AI is what it will take to run those models everywhere at low latency and with affordable cost. It's also helpful to read a recent blog by Akamai CTO Bobby Blumofe on how AI inference is reshaping the cloud. Bobby's post explains why the infrastructure needed for AI agents will ultimately be a flexible continuum, stretching from the core to the edge. As the market for AI moves beyond centralized AI factories, Akamai's strategy is to provide a unified, distributed grid for AI inference.

Speaker #3: Whereas training frontier models requires massive data centers and energy consumption, the next challenge for AI is everywhere, at low latency and with affordable cost.

Speaker #3: It's also helpful to read a recent blog by AKAMAI's CTO, Bobby Blumhoff, on how AI inference is reshaping the cloud. Bobby's post explains why the infrastructure needed for AI agents will ultimately be a flexible continuum, stretching from the core to the edge.

Speaker #3: As the market for AI moves beyond centralized AI factories, AKAMAI's strategy is to provide 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 functions as a service, our platform will enable customers to run agents and 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.

Tom Leighton: By pushing AI inference to the edge and combining it with our massive deployment of CPUs for delivery, security, and Function as a Service, our platform will enable customers to run agents and 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. Customers are already leveraging our cloud infrastructure services for a wide variety of repeatable use cases. For example, an AI patent intelligence platform in Singapore shifted its inference workloads from a hyperscaler to Akamai, boosting performance by 30% and cutting infrastructure costs by 20%. An AI-powered decision intelligence platform in Poland chose us to run low-latency game theory simulations globally and with predictable costs. An enterprise data storage provider in the US chose us to run their high-throughput storage observability and analytics platform.

Speaker #3: Customers are already leveraging our cloud infrastructure services for a wide variety of repeatable use cases. For example, an AI patent intelligence platform in Singapore shifted its inference workloads from a hyperscaler to AKAMAI, boosting performance by 30 percent and cutting infrastructure costs by 20 percent.

Speaker #3: An AI-powered decision intelligence platform in Poland chose us to run low-latency game theory simulations globally, and with predictable costs. An enterprise data storage provider in the US chose us to run their high-throughput storage observability and analytics platform.

Speaker #3: A global AI software company in India chose us to run their Gen AI image creation and a 12 million dollar win over a hyperscaler.

Tom Leighton: A global AI software company in India chose us to run their Gen AI image creation in a $12 million win over a hyperscaler. An AI-powered communications provider in India chose us to eliminate unpredictable hyperscaler billing and accelerate their customer engagement. A SaaS media workflow platform in the US chose us for high throughput live media encoding. Looking across our business as a whole, AI is not only driving adoption and revenue growth for Akamai cloud, AI has also been a tailwind for our security solutions. In Q2, Akamai security revenue grew 10% year over year as reported, and 9% in constant currency. Security growth was led once again by strong demand for our market-leading Web app Firewall, API Security, and Guardicore segmentation solutions.

Speaker #3: An AI-powered communications provider in India chose us to eliminate unpredictable hyperscaler billing and accelerate their customer engagement. An assass media workflow platform in the US chose us for high-throughput live media encoding.

Speaker #3: Looking across our business as a whole, AI is not only driving adoption and revenue growth for AKAMAI Cloud, AI is also been a tailwind for our security solutions.

Speaker #3: In Q2, AKAMAI's security revenue grew 10 percent year over year as reported, and 9 percent in constant currency. Security growth was led once again by strong demand for our market-leading web app firewall, API security, and guarded core segmentation solutions.

Speaker #3: Our WAF continued to see strong demand in Q2 from customers eager to protect against vulnerabilities that could be exposed by frontier models like Mythos or GPT-5.5.

Tom Leighton: Our WAF continued to see strong demand in Q2 from customers eager to protect against vulnerabilities that could be exposed by frontier models like Mythos or GPT-5.5. Customers that added or significantly expanded their WAF usage in Q2 included one of the world's leading commerce sites, one of the world's leading automakers, and one of the world's largest banks in a $14 million upgrade to have Akamai secure all of their applications. We also signed renewal upgrades for security and CIS products with one of the world's largest telcos in a contract worth more than $20 million over two years. Today, we're also very pleased to announce that CrowdStrike, a leading AI-native cybersecurity platform, has switched to Akamai for its web security and content delivery needs. CrowdStrike told us they were dissatisfied with the inconsistent service they received from one of our SMB-focused competitors.

Speaker #3: Customers that added or significantly expanded their WAF usage in Q2 included one of the world's leading commerce sites, one of the world's leading automakers, and one of the world's largest banks, in a 14 million dollar upgrade to have AKAMAI's secure all of their applications.

Speaker #3: We also signed renewal upgrades for security and CIS products with one of the world's largest telcos, in a contract worth more than $20 million over two years.

Speaker #3: And today, we're also very pleased to announce that CrowdStrike, a leading AI-native cybersecurity platform, has switched to AKAMAI for its web security and content delivery needs.

Speaker #3: CrowdStrike told us they were dissatisfied with the inconsistent service they received from one of our SMB-focused competitors. We see this validation from another security leader as a strong endorsement of AKAMAI's enterprise security capabilities and our hard-won reputation for trust, reliability, and dedicated customer support.

Tom Leighton: We see this validation from another security leader as a strong endorsement of Akamai's enterprise security capabilities and our hard-won reputation for trust, reliability, and dedicated customer support. On the go-to-market front, we recently announced that Akamai has been selected as a strategic partner for WWT's AI Readiness Model for Operational Resilience, or ARMOR for short. This is the industry's first holistic, vendor-agnostic AI security framework, and our inclusion positions Akamai as a foundational security architecture for the AI factories being built by WWT and accelerated by NVIDIA. Without this collaborative security framework for AI, organizations are often forced to piece together fragmented security strategies. By aligning the Akamai security portfolio with ARMOR, we provide a methodology to protect large-scale AI clusters proactively by preventing the lateral movement of threats. As WWT's Chris Konrad said, No single vendor can secure the AI frontier alone.

Speaker #3: On the go-to-market front, we recently announced that AKAMAI has been selected as a strategic partner for WWT's AI readiness model for operational resilience, or ARMR for short.

Speaker #3: This is the industry's first holistic, vendor-agnostic AI security framework, and our inclusion positions AKAMAI as a foundational security architecture for the AI factories being built by WWT and accelerated by NVIDIA.

Speaker #3: Without this collaborative security framework for AI, organizations are often forced to piece together fragmented security strategies. By aligning the Akamai security portfolio with ARMR, we provide a methodology to protect large-scale AI clusters proactively, by preventing the lateral movement of threats.

Speaker #3: As WWT's Chris Conrad said, "No single vendor can secure the AI frontier alone. Through our close partnership with AKAMAI, we're turning the hype of secure enterprise AI into a tangible scalable reality for customers." AKAMAI has also proud to be one of the industry's must-have security providers, partnering with Anthropic and OpenAI to help ensure the safe and rapid deployment of AI-enhanced defenses.

Tom Leighton: Through our close partnership with Akamai, we're turning the hype of secure enterprise AI into a tangible, scalable reality for customers. Akamai is also proud to be one of the industry's must-have security providers partnering with Anthropic and OpenAI to help ensure the safe and rapid deployment of AI-enhanced defenses. With our access to programs like Glasswing and Daybreak and our participation in programs like the Open Secure AI Alliance, we're applying our expertise to help keep major enterprises and critical infrastructure secure. As employees across all industries use AI tools more frequently, enterprises need more help to secure their workforce and prevent sensitive data from being leaked. That's why we acquired LayerX, a leading provider of secure enterprise browser and AI usage control.

Speaker #3: With our access to programs like Glasswing and Daybreak, and our participation in programs like the Open Secure AI Alliance, we're applying our expertise to help keep major enterprises and critical infrastructure secure.

Speaker #3: As employees across all industries use AI tools more frequently, enterprises need more help to secure their workforce and prevent sensitive data from being leaked.

Speaker #3: That's why we acquired LayerX, a leading provider of secure enterprise browser and AI usage control. With LayerX—now branded as Akamai Workforce Protector—we're able to give security teams the deep visibility they need to see exactly how users are interacting with web content, SaaS applications, file uploads, and even raw AI prompts.

Tom Leighton: With LayerX, now rebranded as Akamai Workforce Protector, we're able to give security teams the deep visibility they need to see exactly how users are interacting with web content, SaaS applications, file uploads, and even raw AI prompts. By adding this browser security platform to our portfolio, Akamai is now uniquely positioned to protect enterprises from unauthorized AI agents, whether they're operating on a user's laptop or living inside internal applications that talk to external LLMs. What makes the combination particularly exciting is how nicely Workforce Protector aligns with Akamai's existing Zero Trust portfolio, including our Guardicore microsegmentation, Zero Trust Network Access, and DNS security solutions that thousands of enterprises rely on today. Ultimately, we believe these combined capabilities will deliver a powerful, unified workforce security solution that directly addresses one of the industry's most urgent challenges, securing and governing how employees, partners, and supply chain ecosystems interact with AI.

Speaker #3: By adding this browser security platform to our portfolio, AKAMAI is now uniquely positioned to protect enterprises from unauthorized AI agents, whether they're operating on a user's laptop or living inside internal applications that talk to external LLMs.

Speaker #3: What makes the combination particularly exciting is how nicely Workforce Protector aligns with Akamai's existing Zero Trust portfolio, including our Guardicore micro-segmentation, Zero Trust network access, and DNS security solutions.

Speaker #3: That thousands of enterprises rely on today. Ultimately, we believe these combined capabilities will deliver a powerful, unified workforce security solution that directly addresses one of the industry's most urgent challenges: securing and governing how employees, partners, and supply chain ecosystems interact with AI.

Speaker #3: LayerX is the latest in a series of acquisitions we've made to build out our security portfolio, and make it easier for enterprises to obtain more comprehensive solutions from AKAMAI, as their strategic security partner.

Tom Leighton: LayerX is the latest in a series of acquisitions we've made to build out our security portfolio and make it easier for enterprises to obtain more comprehensive solutions from Akamai as their strategic security partner. Overall, we expect our security portfolio to generate more than $2.4 billion in revenue this year, making Akamai one of the largest security providers in the market. In summary, we're excited to see AI driving demand for our cloud and security portfolios, and we're grateful for our talented team here at Akamai, who continue to perform extraordinary work to deliver flawless digital experiences for our customers. Our employees' dedication to our customers' success is one of the reasons why so many of the world's top brands and most demanding businesses rely on Akamai as their trusted, dependable, and reliable partner.

Speaker #3: Overall, we expect our security portfolio to generate more than 2.4 billion dollars in revenue this year, making AKAMAI one of the largest security providers in the market.

Speaker #3: In summary, we're excited to see AI driving demand for our cloud and security portfolios, and we're grateful for our talented team here at AKAMAI, who continue to perform extraordinary work to deliver flawless digital experiences for our customers.

Speaker #3: Our employees' dedication to our customers' success is one of the reasons why so many of the world's top brands and most demanding businesses rely on Akamai as their trusted, dependable, and reliable partner.

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

Tom Leighton: Now I'll turn the call over to Ed for more on our results and our outlook for the remainder of the year. Ed?

Speaker #2: Thanks, Tom. Before I begin, the standard review of our quarterly financials and updated 2026 outlook, I want to build on Tom's remarks. From a strategic and financial perspective, we couldn't be more excited about the trajectory of our business.

Ed McGowan: Thanks, Tom. Before I begin the standard review of our quarterly financials and updated 2026 outlook, I want to build on Tom's remarks. From a strategic and financial perspective, we couldn't be more excited about the trajectory of our business. Securing a four-year, $600 million GPU services deal with a leading US-based technology company focused on robotics development brings our recently announced major wins to over $2.8 billion this year, a huge validation of our platform. Beyond providing great multi-year revenue visibility, it also underscores the scale of our cloud infrastructure services business. For this new customer, we don't expect any material revenue impact for 2026. We do expect revenue to fully ramp throughout 2027.

Speaker #2: Securing a four-year, $600 million GPU services deal with a leading US-based technology company focused on robotics development brings our recently

Speaker #1: Announce major wins to over $2.8 billion this year , a huge validation of our platform Beyond providing great multi-year revenue visibility , it also underscores the scale of our cloud infrastructure services business for this new customer .

Speaker #1: We don't expect any material revenue impact for 2026 , but we do expect revenue to fully ramp throughout 2027 . And finally , as Tom mentioned earlier , and backed by these multiyear commitments along with an expanding pipeline , we have a clear line of sight to accelerating our top line revenue growth from single digits this year to the low teens in 2027 .

Ed McGowan: Finally, as Tom mentioned earlier, backed by these multi-year commitments, along with an expanding pipeline, we have a clear line of sight to accelerating our top-line revenue growth from single digits this year to the low teens in 2027. With that, let's dive into the Q2 results. Revenue in Q2 was $1.1 billion, up 5% year-over-year as reported and in constant currency. Cloud infrastructure services, or CIS revenue, was $99 million, up 39% year-over-year as reported and in constant currency. This was in line with our expectations, and we continue to expect CIS revenue to meaningfully accelerate in Q4 and then further accelerate in 2027. Security revenue maintained strong momentum, with revenue of $604 million, up 10% year-over-year as reported and 9% in constant currency.

Speaker #1: With that , let's dive into Q2 results . Revenue in the second quarter was $1.1 billion , up 5% year over year . As reported , and in constant currency , cloud infrastructure services , or CIS revenue was $99 million , up 39% year over year , as reported , and in constant currency .

Speaker #1: This was in line with our expectations, and we continue to expect CIS revenue to meaningfully accelerate in Q4 and then further accelerate in 2027.

Speaker #1: Security revenue maintained strong momentum with revenue of $604 million , up 10% year over year . As reported , and 9% in constant currency .

Speaker #1: The strength in the second quarter continued to be driven by our fast growing API security and Guardicore segmentation solutions . Moving to delivery and other cloud applications , revenue was $396 million , down 6% year over year .

Ed McGowan: The strength in Q2 continued to be driven by our fast-growing API Security and Guardicore segmentation solutions. Moving to delivery and other cloud applications. Revenue was $396 million, down 6% year-over-year as reported and down 5% in constant currency. International revenue was $549 million, up 6% year-over-year, or up 7% in constant currency, representing approximately 50% of total revenue in Q2. US foreign exchange fluctuations had a negative impact on revenue of $2 million on a sequential basis and a -$1 million impact on a year-over-year basis. Moving to profitability. In Q2, we generated non-GAAP net income of $236 million, or $1.59 of earnings per diluted share, down 8% year-over-year as reported and down 6% in constant currency. These results include our expanded co-location investments, higher depreciation, and increased headcount costs, all to help fuel faster growth in our cloud infrastructure services.

Speaker #1: As reported , and down 5% in constant currency International revenue was $549 million , up 6% year over year , or up 7% in constant currency , representing approximately 50% of total revenue in Q2 U.S.

Speaker #1: Foreign exchange fluctuations had a negative impact on revenue of $2 million on a sequential basis, and a negative $1 million impact on a year-over-year basis.

Speaker #1: Moving to profitability in Q2, we generated non-GAAP net income of $236 million, or $1.59 of earnings per diluted share, down 8% year over year.

Speaker #1: As reported , and down 6% in constant currency . These results include our expanded co-location investments , higher depreciation and increased headcount costs , all to help fuel faster growth in our cloud infrastructure services Our non-GAAP operating margin for Q2 was 25% , in line with our expectations .

Ed McGowan: Our non-GAAP operating margin for Q2 was 25%, in line with our expectations. We expect operating margin to remain in the mid-20s for the remainder of this year as we continue to invest to capture the exciting growth opportunities in CIS. Our Q2 CapEx was $347 million, or 32% of revenue. Q2 CapEx was below our guidance, primarily driven by the timing of receipt of some GPUs. These shipments arrived a few weeks later than expected following the quarter end, pushing the bulk of the planned spend into Q3. Moving to cash and our capital allocation strategy. In May, we raised $3.5 billion via two equal tranches of zero coupon convertible debt maturing in 2030 and 2032 to fund our growing CIS pipeline and for general corporate purposes. In Q2, we spent approximately $410 million to buy back approximately 3 million shares.

Speaker #1: We expect operating margin to remain in the mid 20s for the remainder of this year . As we continue to invest to capture the exciting growth opportunities in CIS Our Q2 CapEx was $347 million , or 32% of revenue Second quarter CapEx was below our guidance , primarily driven by the timing of receipt of some .

Speaker #1: GPUs . These shipments arrived a few weeks later than expected following the quarter end , pushing the bulk of the planned spend into Q3 .

Speaker #1: Moving to cash in our capital allocation strategy in May, we raised $3.5 billion via two equal tranches of zero-coupon convertible debt maturing in 2030 and 2032 to fund our growing CIS pipeline and for general corporate purposes.

Speaker #1: In Q2 , we spent approximately $410 million to buy back approximately 3 million shares . Year to date , we have repurchased roughly 5 million shares for a total of approximately $616 million .

Ed McGowan: Year to date, we have repurchased roughly 5 million shares for a total of approximately $616 million. We ended the Q2 with approximately $565 million remaining on our current repurchase authorization. However, given the strong market demand for CIS, we are temporarily pausing share repurchases to reallocate capital to support our high growth CIS pipeline. Finally, as of 30 June, we had approximately $4.6 billion of cash equivalents, and marketable securities. Now, before I provide Q3 and full year 2026 guidance, I want to touch on a few housekeeping items. First, on 2 July, we completed the acquisition of security company LayerX for approximately $205 million. From a financial perspective, we expect the acquisition to have no material impact on full year 2026 revenue.

Speaker #1: We ended the second quarter with approximately $565 million remaining on our current repurchase authorization . However , given the strong market demand for CIS , we are temporarily pausing share repurchases to reallocate capital to support our high growth CIS pipeline .

Speaker #1: And finally , as of June 30th , we had approximately $4.6 billion of cash . Cash equivalents and marketable securities . Now , before I provide Q3 and full year 2026 guidance , I want to touch on a few housekeeping items .

Speaker #1: First , on July 2nd , we completed the acquisition of security company layer X for approximately $205 million . From a financial perspective , we expect the acquisition to have no material impact on full year 2026 revenue .

Speaker #1: On the bottom line , we expect layer X will be dilutive to our non-GAAP EPS by approximately $0.12 for 2026 , split evenly across Q3 and Q4 Second , I'd like to turn to foreign exchange and its expected impact on our second half 2026 performance based on currency movements since our last earnings call , we now expect second half revenue headwinds of approximately $9 million .

Ed McGowan: On the bottom line, we expect LayerX will be dilutive to our non-GAAP EPS by approximately $0.12 for 2026, split evenly across Q3 and Q4. Second, I'd like to turn to foreign exchange and its expected impact on our H2 2026 performance. Based on currency movement since our last earnings call, we now expect H2 revenue headwinds of approximately $9 million. Finally, I'd like to provide additional color on our CapEx for the remainder of the year. For Q3, CapEx is projected to step up significantly, partly due to the shipments that slipped into July that I referenced earlier, and as we ramp up build-outs to support the major contracts announced earlier this year. As mentioned on our last call, GPU demand remains exceptionally strong. As a result, all of our GPU capacity is completely sold out.

Speaker #1: Finally , I'd like to provide additional color on our capital expenditures for the remainder of the year . For two three . CapEx is projected to step up significantly , partly due to the shipments that slipped into July that I referenced earlier .

Speaker #1: And as we ramp up build-outs to support the major contracts announced earlier this year, as mentioned on our last call, GPU demand remains exceptionally strong.

Speaker #1: As a result , all of our GPU capacity is completely sold out , therefore , driven by the $600 million new customer win , we announced today and a very robust pipeline , we expect to invest up to $500 million in CapEx to replenish and expand our GPU capacity .

Ed McGowan: Therefore, driven by the $600 million new customer win we announced today and a very robust pipeline, we expect to invest up to $500 million in CapEx to replenish and expand our GPU capacity. We expect to spend approximately $60 million of that this year, with the remainder hitting in early 2027. Moving now to guidance. For the Q3, we are projecting revenue in the range of $1.105 to $1.13 billion, up 5% to 7% as reported and up 5% to 8% in constant currency over Q3 2025. At current spot rates, foreign exchange fluctuations are expected to have a -$2 million impact on Q3 revenue compared to Q2 levels and a -$8 million impact year over year. At these revenue levels, we expect cash gross margin of approximately 70%.

Speaker #1: We expect to spend approximately $60 million of that this year , with the remainder hitting in early 2027 . Moving now to guidance for the third quarter , we are projecting revenue in the range of 1.105 to $1.13 billion , up reported , and up 5 to 8% in constant currency over Q3 2025 .

Speaker #1: At current spot rates, foreign exchange fluctuations are expected to have a -$2 million impact on Q3 revenue compared to Q2 levels, and a -$8 million impact year over year.

Speaker #1: These revenue levels , we expect cash gross margin of approximately 70% . As a reminder , gross margin is impacted by the significant increase in colocation as we accelerate the growth in our CIS business Q3 non-GAAP operating expenses are projected to be 347 to $359 million .

Ed McGowan: As a reminder, gross margin is impacted by the significant increase in co-location as we accelerate the growth in our CIS business. Q3 non-GAAP operating expenses are projected to be $347 to $359 million. We anticipate Q3 EBITDA margin of approximately 38% to 40%. We expect non-GAAP depreciation expense to be $153 to $155 million. We expect non-GAAP operating margin of approximately 24% to 26%. With the overall revenue and spend configuration I just outlined, we expect Q3 non-GAAP EPS in the range of $1.60 to $1.80. This EPS guidance assumes taxes of $55 to $62 million based on an estimated quarterly non-GAAP tax rate of approximately 19%, and it also reflects a fully diluted share count of approximately 150 million shares. Moving to CapEx. For the reasons I highlighted earlier, we expect to spend approximately $475 to $525 million in the Q3.

Speaker #1: We anticipate Q3 , EBITDA margin of approximately 38 to 40% . We expect non-GAAP depreciation expense to be 153 to $155 million . We expect non-GAAP operating margin of approximately 24 to 26% , and with the overall revenue and spend configuration I just outlined , we expect Q3 , non-GAAP EPS in the range of $1.60 to $1.80 .

Speaker #1: This EPS guidance assumes taxes of 55 to $62 million , based on an estimated quarterly non-GAAP tax rate of approximately 19% . And it also reflects a fully diluted share count of approximately 150 million shares .

Speaker #1: Moving to CapEx . For the reasons I highlighted earlier , we expect to spend approximately 475 to $525 million in the third quarter .

Speaker #1: This represents approximately 43 to 46% of total revenue . Looking ahead to the full year 2026 , we expect revenue of 4.445 to $4.53 billion , which is up 6 to 8% as reported , and up 5 to 7% in constant currency .

Ed McGowan: This represents approximately 43% to 46% of total revenue. Looking ahead to the full year 2026, we expect revenue of $4.445 to $4.53 billion, which is up 6% to 8% as reported and up 5% to 7% in constant currency. For cloud infrastructure services, we continue to expect year-over-year revenue growth of at least 50% in constant currency. 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 the mid-single digits year-over-year on a constant currency basis. The current spot rates, our guidance assumes foreign exchange will have a +$9 million impact on revenue in 2026 on a year-over-year basis.

Speaker #1: For cloud infrastructure services , we continue to expect year over year revenue growth of at least 50% in constant currency . We continue to expect security revenue growth in the high single digits on a constant currency basis in 2026 , and for delivering other cloud apps .

Speaker #1: We continue to expect a decline in the mid-single digits year over year on a constant currency basis. At current spot rates, our guidance assumes foreign exchange will have a positive $9 million impact on revenue in 2026.

Speaker #1: On a year over year basis . Given the recent strength in the US dollar , this impact is significantly less than the positive $20 million we discussed on our last quarter's earnings call .

Ed McGowan: Given the recent strength in the US dollar, this impact is significantly less than the +$20 million we discussed on our last quarter's earnings call. Moving to operating margins for 2026, we are estimating a non-GAAP operating margin of approximately 25% to 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% of total revenue. Moving to EPS. For the full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.40 to $7.05. This non-GAAP earnings guidance is based on non-GAAP effective tax rate of approximately 19% and a fully diluted share count of approximately 150 million shares. Before wrapping things up, I want to provide additional color on how we safeguard profitability and manage risk across our cloud infrastructure services business, specifically as it relates to our recently announced large contracts.

Speaker #1: Moving to operating margins for 2026 , we were estimating a non-GAAP operating margin of approximately 25 to 26% , as measured in today's FX rates .

Speaker #1: Turning to CapEx , at this time , we anticipate our full year capital expenditures will be approximately 40% of total revenue moving to EPS for the full year 2026 .

Speaker #1: We expect non-GAAP earnings per diluted share in the range of $6.40 to $7.05 . This non-GAAP earnings guidance is based on non-GAAP effective tax rate of approximately 19% and a fully diluted share count of approximately 150 million shares Before wrapping things up , I want to provide additional color on how we safeguard profitability and manage risk across our cloud infrastructure services business , specifically as it relates to our recently announced large contracts While initial capital deployment happens upfront , these contracts are structured to deliver strong cash flows over their life , backed by take or pay commitments to give you visibility into how we manage these opportunities , I'd like to outline the economics that are typical in these multi hundred million dollar , multi-year contracts .

Ed McGowan: While initial capital deployment happens upfront, these contracts are structured to deliver strong cash flows over their life, backed by take-or-pay commitments. To give you visibility into how we manage these opportunities, I'd like to outline the economics that are typical in these multi-hundred million dollar multi-year contracts we have seen to date and expect in the future. While I won't speak to any one contract in particular, the following is meant to illustrate large deals that have been signed and what we see in our current pipeline. For these multi-megawatt large-scale deployments, we take several factors into consideration, including customer credit quality, contract duration, the specific compute architecture deployed, i.e., GPU or CPU, data center space and power availability, CapEx, and direct operating expenses such as networking, power, along with any software and hardware maintenance.

Speaker #1: We have seen to date and expect in the future . While I won't speak to any one contract in particular , the following is meant to illustrate large deals that have been signed in what we see in our current pipeline .

Speaker #1: For these multi-megawatt large scale deployments , we take several factors into consideration , including customer credit quality , contract duration , the specific compute architecture deployed i.e. GPU or CPU data center space , and power availability , CapEx , and direct operating expenses such as networking , power , along with any software and hardware maintenance .

Ed McGowan: Taking all these factors into account, our signed deals and active pipeline consistently reflect a highly attractive profile, delivering non-GAAP cash gross margins spanning from the mid-60s up to the mid-70s. After factoring in hardware depreciation and other operating expenses, these large-scale contracts typically generate non-GAAP operating margins ranging from the low to mid-20s up to the low 30s. With that, I'll wrap things up, and Tom and I are happy to take your questions. Operator?

Speaker #1: Taking all these factors into account , our signed deals and active pipeline consistently reflect a highly attractive profile , delivering non-GAAP cash gross margins spanning from the mid 60s up to the mid 70s , and after factoring in hardware depreciation and other operating expenses , these large scale contracts typically generate non-GAAP operating margins , ranging from the low to mid 20s up to the low 30s .

Speaker #1: So with that , I'll wrap things up and Tom and I are happy to take your questions Operator

Operator: Ladies and gentlemen, at this time, we will begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Again, that is star and then one to ask a question. Our first question today comes from Samik Chatterjee from J.P. Morgan. Please go ahead with your question.

Speaker #2: Ladies and gentlemen , at this time , we will begin the question and answer session . To ask a question , you may press star and then one using a touch tone telephone .

Speaker #2: To withdraw your questions , you may press star and two , if you are using a speakerphone . We do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality .

Speaker #2: Again , that is star and then one to ask a question Our first question today comes from Sumeet Chatterjee from JP Morgan . Please go ahead with your question

Samik Chatterjee: Hi, thanks for taking the question and congrats on the new customer win here. Maybe if you can just help us think about what you're seeing in terms of more appetite from customers for the CIS business in terms of pipeline. You have announced these sort of significant deals, but you're also sold out as you're indicating. Does that sort of preclude you from signing any significant more sort of award wins with your customers in the near future as well? Any visibility on both those fronts would be helpful. Thank you.

Speaker #3: Hey , thanks for taking the question and congrats on the new win . Customer win here . Maybe if you can just help us think about the what you're seeing in terms of more appetite from customers for the service business in terms of pipeline , you have announced these sort of significant deals , but you're also sold out as you're indicating So does that sort of preclude you from signing any significant more sort of award wins ?

Speaker #3: Your customers in the near future as well ? So any visibility on both those fronts would be helpful . Thank you .

Tom Leighton: Yeah, very strong pipeline. Really across the spectrum of industries and scale of the deals. No, that doesn't keep us from signing up more customers because we're ordering obviously more hardware. Typically, we're looking at about a six to nine-month window on the larger side. No, we're continuing to sign customers up. Ed, do you have more color on that?

Speaker #4: Yeah , very strong pipeline really across the spectrum of industries and scale . The deals and no , that doesn't keep us from signing up more customers because we're ordering obviously more hardware .

Speaker #4: And typically we're looking at about a 6 to 9 month window on the larger side . So no , we're continuing to sign sign customers up .

Speaker #4: Editor . You have more color on that .

Ed McGowan: Yeah, I was just going to add so that the way to think about the commentary, we sort of gave you a little preview last Q that there was a good chance we might be placing an order for more GPUs based on what we saw from the pipeline, and we were able to sell that all out. Some of that large deal will take up some of that remaining inventory. We're placing another order with NVIDIA for a significant chunk of additional GPUs, some to satisfy the new order, but a lot of that's covered by what we had before. The rest of it's based on the strong pipeline we see for additional GPU demand.

Speaker #1: Yeah , I was just going to add , so , you know , the way to think about the commentary , we sort of gave you a little preview last quarter that there was a good chance we might be placing an order for more GPUs based on what we saw from the And we were able to sell that all out Some of that large deal will take up , you know , some of that remaining inventory .

Speaker #1: And , you know , we're placing another order with Nvidia for , you know , chunk of additional GPUs , some to satisfy the new order .

Speaker #1: But a lot of that's covered by what we had before . And then the rest of it is based on the strong pipeline we see for additional GPU demand .

Ed McGowan: In terms of the way the market is going at this point, customers are essentially pre-ordering in a lot of cases where a lot of folks don't have a ton of inventory on hand. Usually the conversations are about getting some GPU capacity. Generally, customers want to lock that in for a long period of time. Think of it as like a reserved instance is a good analogy to what folks do in the cloud market. Will generally reserve that months in advance. It actually enables us to maintain a good inventory, if you will, and not extend ourselves too far out and meet the market demands.

Speaker #1: Now , in terms of the way the market is , is going at this point , customers are essentially pre-ordering in a lot of cases where a lot of folks don't have a ton of inventory on hand .

Speaker #1: So usually the conversations are about getting some GPU capacity . Generally , customers want to lock that in for a long period of time .

Speaker #1: So think of it as, like, a reserved instance is a good analogy to what folks do in the cloud market, and we'll generally reserve that, you know, months in advance.

Speaker #1: So it actually enables maintain a good , you know , inventory , if you will , and not extend ourselves too far out and meet the market demands

Samik Chatterjee: Great. I'll pass it on. Thank you.

Speaker #3: I'll pass it on . Thank you

Operator: Our next question comes from Jackson Ader from KeyBanc Capital Markets. Please go ahead with your question.

Speaker #2: Our next question comes from Jackson Ader from KeyBanc Capital Markets. Please go ahead with your question.

Jackson Ader: Great. Good evening, guys. Thanks for taking our question. The first one I had was actually about the timing between deal signage for these multi-year deals and the multimillion, multi-year deals, and when you actually expect them to fold into revenue. Tom, you said something about, like, a six to nine-month window, I was curious, are you talking about from deal signage to actually seeing the revenue, or was that window referring to something else? Thanks.

Speaker #5: Great . Good evening guys . Thanks for taking our question . The first one I had was was actually about the timing between deal signage for these multiyear deals .

Speaker #5: And , you know , the multimillion multiyear deals . And when you actually expect them to fold into revenue , Tom , you said , you know , something about like a 6 to 9 month window .

Speaker #5: And I was curious , are you talking about from deal signage to actually seeing the revenue , or is that window referring to something else ?

Speaker #5: Thanks

Ed McGowan: Yeah, I'll take that one, Tom, for you. It's usually between signing and when we recognize revenue. For the really large deals, we generally won't keep the type of inventory, like for example, the last deal we mentioned last quarter, we're not buying that much sort of speculatively. That'll be informed by a large customer coming and ordering. Generally speaking, there, you may need to get some additional data center space. We have a nice pipeline of data center space that's coming online between now through the end of next year, and it's sort of a core competency of ours anyway, so it's sort of a normal motion for us. When we talk about the delta between signage and revenue recognition, that's usually six to nine months, typically with these large deals.

Speaker #1: Yeah , I'll take that one . Tom for you . So it's usually between signing and when we recognize revenue for the really large deals , we generally won't keep the type of inventory .

Speaker #1: Like for example , the last deal we mentioned last quarter , you know , we're not buying that much sort of speculatively . So that'll be informed by a , you know , a large customer coming in and ordering .

Speaker #1: And generally speaking , they're you may need to get some additional data center space , you know , we have a nice pipeline of data center space that's coming online between now through the end of next year .

Speaker #1: And it's sort of a core competency of ours anyway . So it's sort of a normal motion for us , but when we talk about the delta between signage and revenue recognition , that's usually 6 to 9 months .

Speaker #1: Typically with these large deals . And to the extent that they are large enough , we will call them out on the call like we did over the last three calls , actually , and give you some indication of when we think these contracts will start generating revenue .

Ed McGowan: To the extent that they are large enough, we will call them out on the call like we did over the last three calls actually, and give you some indication of when we think these contracts will start generating revenue.

Jackson Ader: Okay. All right. That makes sense. Then a quick follow-up. Ed, it was really helpful to kind of walk through like, hey, an illustrated example of the margin profile of these deals. Does that remain pretty consistent as the component pricing and your own pricing on GPUs has fluctuated? Is there any risk that some of the margin profile were to structurally shift lower if there is more upward pressure on components in the future? Thank you.

Speaker #5: Okay . All right . That makes sense . And then a quick follow up . And it was really helpful to , to kind of walk through like , hey , you know , in illustrative example of the margin profile of these deals , but has that .

Speaker #5: Has that remain pretty consistent as you know , the component pricing and your own pricing on GPUs has fluctuated . And is there any risk that some of the margin profile were to structurally shift lower ?

Speaker #5: If there is more upward pressure on components in the future? Thank you.

Ed McGowan: Yeah, great question. I'm going to use a term that's in terms of the pricing environment, especially with the big customers, I'd say it's a bit more collaborative. What I mean by that is there's a general understanding that inventory is tight, availability of data centers is tight, and customers understand that, A, if they don't order when they say they're going to order, things may not be there and prices may go up. Prices are moving relatively quickly in the marketplace, and we are able to pass on any sort of increase in pricing. Generally, we'll have that structured into a large contract. For example, let's say I'm receiving goods over a period of six to nine months or something like that.

Speaker #1: Yeah . Great . Great question . And , you know , I'm gonna use a term that's in terms of the pricing environment with especially with the big customers .

Speaker #1: I'd say it's a bit more collaborative . And what I mean by that is there's a general understanding that inventory is tight availability of data centers is tight .

Speaker #1: And customers understand that A if they order , when they say they're going to order , things may not be there . And prices may go up .

Speaker #1: So prices are moving relatively quickly in the marketplace . And we are able to pass on any sort of increase in pricing and generally we'll have that structured into a large contract .

Speaker #1: So for example , let's say I'm receiving goods over a period of 6 to 9 months or something like that . If there are movements in pricing , whether it's memory or hardware costs or things like that , we do have mechanisms to take that into consideration .

Ed McGowan: If there are movements in pricing, whether it's memory or hardware costs or things like that, we do have mechanisms to take that into consideration, and we're constantly adjusting pricing. For example, somebody may do a follow-on order where they bought six months ago, and now they're buying today, or buying the next set of inventory, and that's at a higher price. We just mark that price right up. It is very collaborative with customers, and we are able to get price increases passed along in CIS.

Speaker #1: And we're constantly adjusting pricing . So for example , somebody may do a follow on order where they bought six months ago , and now they're buying today and we're buying the next set of inventory .

Speaker #1: And that's at a higher price . We just marked that price right up , but it is very collaborative with customers . And we are able to get price increases passed along in CIS .

Jackson Ader: Got it. Thank you.

Speaker #5: Got it . Thank you

Operator: Our next question comes from John DiFucci from Guggenheim Securities. Please go ahead with your question.

Speaker #2: Our next question comes from John Dhiffushi from Guggenheim Securities . Please go ahead with your question

John DiFucci: Thanks for taking my questions. Listen, nice job, guys. Things look really impressive here. Ed, I really appreciate all the detail you gave on some of the characteristics, the profitability characteristics of these deals. I mean, the size of them and the revenue that's going to come is pretty impressive. So is the profit. Can I ask a little bit about, you gave some, like over the life of these contracts, but just from other companies that do similar deals, it seems like at first you're going to see probably less profit coming from these things. You're going to have to start spending and incurring expenses even before revenue, I would assume, and then they'll ramp up over time. Over the life of a longer-term deal, let's say a year deal or whatever it is, when is it that you achieve that profit?

Speaker #6: Thanks for taking my questions and listen . Nice job guys . I mean , it really things look really impressive here . And I really appreciate all the detail you gave on some of the characteristics .

Speaker #6: The profitability characteristics of these deals and the size of them , and , and the revenue that's going to come is , is pretty impressive .

Speaker #6: But so is the profit . But can I ask a little bit about you gave some over the life of these contracts , but just in from other companies that do similar deals , it seems like at first you're going to see a , you know , probably less profit coming from these things .

Speaker #6: You're going to have to start spending and incurring expenses even before revenue , I would assume . And then the ramp up over time .

Speaker #6: So over the life of a longer term deal , let's say a year deal or whatever it is , when is it that you achieve that profit ?

John DiFucci: I just don't want people to be surprised if at first you're seeing more pressure on the profit line until you get to where you need to be.

Speaker #6: Because I just want people to be surprised if at first you're seeing more pressure on the profit line until you get to where you need to be .

Ed McGowan: Yeah, it's a great question, John, the answer is it depends a bit, it's also a dynamic you have in the business itself, right? In many cases, you will take on data center space ahead of time. I'll talk in terms of the big deals, where you might open up, say, a half dozen data centers or whatever it may be with a particular customer, the equipment is being received over a several-month period or whatnot. You'll have definitely co-location costs ahead of revenue. Depending on the way the contract's structured, but generally speaking, when the equipment is ordered and we start taking depreciation, it's a relatively short period of time between when you rack and stack and get the equipment up and running to get revenue.

Speaker #1: Yeah , it's a great question , John . And the answer is it depends a bit . And it's also a dynamic . You have in the business itself , right ?

Speaker #1: So in many cases , you will take on data center space ahead of time . So I'll talk in terms of the big deals where you might open up , say a half dozen data centers or whatever it may be with a particular customer .

Speaker #1: And the equipment is being received over a several month period or whatnot . So you'll have definitely co-location costs ahead of revenue , depending on the way the contract structured .

Speaker #1: But generally speaking , when the when the equipment is ordered and we start taking depreciation , it's a relatively short period of time between when you , you know , rack and stack and get the equipment up and running to get revenue .

Ed McGowan: The other thing to keep in mind, too, is the accounting rules for both revenue and for co-location or leases, really. If you have escalators and things like that, you generally will spread that out over the entire contract, your costs will be amortized flat, your revenue will be amortized flat. You do pretty quickly get up to that full profitability. There may be a quarter where you have a little bit of noise, where you have some costs ahead of time. Generally speaking, there is a pretty quick ramp-up to get to that profitability given what we're seeing so far, both in the pipeline and also with what we've signed as far as customers wanting to stand up this capacity and more of, like I said, a reserved instance type capacity, where you give them a certain amount of up to capacity,

Speaker #1: The other thing to keep in mind too , is the accounting rules for both revenue and for co-location or leases really , if you have escalators and things like that , you generally will spread that out over the entire contract .

Speaker #1: So your costs will be amortized flat , your revenue will be amortized flat . So you do pretty quickly get that full profitability .

Speaker #1: But there may be a quarter where you have a little bit of noise , where you have some costs ahead of time , but generally there speaking , is a pretty quick ramp up to get to that profitability .

Ed McGowan: Generally speaking, there is a pretty quick ramp-up to get to that profitability given what we're seeing so far, both in the pipeline and also with what we've signed as far as customers wanting to stand up this capacity and more of, like I said, a reserved instance type capacity, where you give them a certain amount of up to capacity, they have the right to use that over the life of the contract. It's just a question of how quickly you can stand it up. As you're modeling, I would expect to see margins a bit lower as we're ramping into these things, they should start to ramp up into those levels that I talked about.

Speaker #1: Given what we're seeing so far , both in the pipeline and also with what we signed as far as customers wanting to , you know , stand up , this capacity and more of , like I said , a reserve instance type capacity where you give them a certain amount of up to capacity and they have the right to use that over the life of the contract .

Ed McGowan: they have the right to use that over the life of the contract. It's just a question of how quickly you can stand it up. As you're modeling, I would expect to see margins a bit lower as we're ramping into these things, they should start to ramp up into those levels that I talked about.

Speaker #1: It's just a question of how quickly you can stand it up . So as you're modeling , I would expect to see margins a bit lower as we're ramping into these things .

Speaker #1: And then they should start to ramp up into those levels that I talked about .

John DiFucci: Okay, great. When you say a relatively short time, like a quarter, maybe? I know every deal is different.

Speaker #6: Okay , great . And so when you say a relatively short time , like a quarter , maybe , I mean , I know every deal is different , but okay .

Ed McGowan: Yeah.

Ed McGowan: Yeah. Yeah, a quarter. On the long end, maybe it's five or six months, but generally speaking, about a quarter.

John DiFucci: Okay.

Ed McGowan: Yeah, a quarter. On the long end, maybe it's five or six months, but generally speaking, about a quarter.

Speaker #1: Yeah , a quarter . I mean , on the long end , maybe it's 5 or 6 months . But generally speaking , about a quarter .

John DiFucci: Okay, perfect. If I could, a follow-up to Jackson's question, because I think he's going right down where I'm trying to think through this anyway.

Speaker #6: Okay , perfect . And if I could , a follow up to Jackson's question , because I think he's going right down where I'm trying to think through this anyway .

John DiFucci: If some of these longer-term deliveries, like you mentioned a deal where you're going to deliver capacity in maybe four data centers along the way, that's all coming online over the next year. It's coming out in the future. You mentioned a lot about everybody's focused on inflation and on component inflation. Are some of these contracts the ones that are longer term, when you have longer-term delivery, are they cost-plus contracts where you're going to get a certain margin? Is that margin protected even if inflation takes off like it has over the last year or two?

Speaker #6: Are these if some of these longer term deliveries , like you mentioned , a deal where you're going to deliver capacity and maybe for data centers along the way , that's all coming online over the next year .

Speaker #6: I mean , it's coming out in the future . And you mentioned a lot about everybody's been focused on inflation , on component inflation .

Speaker #6: Are some of these contracts the ones that are longer term when you have longer term delivery , are they cost plus contracts or you're going to get a certain margin ?

Speaker #6: And is that margin protected even if inflation takes off like , like it has over the last year or two ?

Ed McGowan: Yeah. Every deal is a little different. Generally, let's talk about the procurement side first. We'll get into the revenue side. On the procurement side, when we will contract for a data center, we generally try to get as fixed of a term as we can for as long as we can. There is some variability in power, and generally what you do is you agree to some sort of upfront escalator, a couple percentage points or something like that. Like I said, on the accounting rules, you end up straight-lining that, just like you would on rent when you get free rent or an escalator in rent, that sort of thing. That generally covers that. We pretty much know going in what our costs are for our power, and then our hardware is obviously fixed.

Speaker #1: Yeah . I mean , every deal is a little different , but generally let's talk about the , the procurement side first and we'll get into the to the revenue side .

Speaker #1: So on the procurement side , when we will contract for a data center , we generally try to get as fixed of a term as we can for as long as we can .

Speaker #1: There is some variability in power and you do is you agree to some sort of upfront escalator . A couple percentage points or something like that .

Speaker #1: And like I said , in the accounting rules , you end up straight lining that just like you would on rent . When you get like free rent or an escalator in rent , that sort of thing .

Speaker #1: So that generally covers that . So we pretty much know going in what our costs are for our power and our hardware is obviously fixed .

Ed McGowan: Generally, if you have any hardware maintenance, you would negotiate that upfront and have a long-term agreement. You structure the revenue contract to do the same. There might be an escalator for each year to cover your increase in labor cost, your cost for your power escalations and things like that. Generally, you can get a fair amount of it fixed over time. If there are long lead times in terms of, let's say I'm getting 20% of the capacity stood up in the first quarter, 30%, and 50 in the last quarter. Say it takes 9 months to spin it all up. If there are variations in pricing, like say with memory, you will have contemplated that and have a mechanism in the contract to deal with it, typically. This is, like I said, it's very collaborative with the customers.

Speaker #1: Generally , if you have any hardware maintenance , you would you would negotiate that upfront and have a long term agreement . So you structure the revenue contract to do the same .

Speaker #1: So there might be an escalator for each year to cover your increase in labor costs, your costs for your power escalations, and things like that.

Speaker #1: But generally you can get a fair amount of it fixed over time if there are long lead times in terms of , let's say I'm getting , you know , 20% of the capacity stood up in the first quarter .

Speaker #1: Then 30% , and then 50 in the last quarter . Say it takes nine months to spin it all up . If there are variations in pricing , like , say , with memory , you will have contemplated that and have a mechanism in the contract to deal with it typically .

Speaker #1: So this is like I said , it's very collaborative with the customers . We're having these kind of conversations and making sure that we're protected as best that we can in generally speaking , so far , it's been working out as we've expected .

Ed McGowan: We're having these kind of conversations and making sure that we're protected as best that we can. Generally speaking, so far, it's been working out as we've expected.

John DiFucci: Perfect. Ed, thank you very much. Nice to everybody.

Speaker #6: Perfect . Thank you very much . And nice , nice everybody .

Tom Leighton: Thank you.

Ed McGowan: Thank you.

Speaker #5: Thank you .

Operator: Our next question comes from Param Singh from Oppenheimer. Please go ahead with your question.

Speaker #2: Our next question comes from from Singh , from Oppenheimer . Please go ahead with your question .

Param Singh: Yeah. Hi. Thanks for taking my questions. Firstly, on the compute side, good to see all this visibility and pipeline. Just wanted to understand, when you think about available capacity and what do you have in terms of megawatts, what's your pipeline, how much you can expand? I also wanted to understand, would you need to expand to more sites versus what you have today to support this growth? I do have a follow-up. Thank you.

Speaker #7: Yeah . Hi . Thanks for taking my questions . Firstly , on the compute side , you know , good to see all this visibility and pipeline .

Speaker #7: I just wanted to understand , when you think about available capacity and what do you have in terms of megawatts ? What's your pipeline , how much you can expand ?

Speaker #7: And I also wanted to understand , would you need to expand to more sites versus what you have today to support this growth ?

Speaker #7: And then I do have a follow-up. Thank you.

Tom Leighton: Yeah. We're continuing to expand the platform in more locations, more cities having GPUs, I think you'll continue to see that going forward. We're in a very good position to get the capacity and data center space that we need. We probably deal with more data center companies than anybody. We have our servers today in 700 cities around the world, 130 countries. We've got a great reputation for being a reliable partner, strong financials, and established relationships. We're in a good position to get what we need to take on these very large customers.

Speaker #4: Yeah , we're continuing to expand the platform in more locations , more cities , having GPUs . And I think you'll continue to see that going forward .

Speaker #4: And we're in a very good position to get the capacity and data center space that we need . You know , we probably deal with more data center companies than anybody .

Speaker #4: We have our servers today in 700 cities around the world , 130 countries . We've got a great reputation for being a reliable partner .

Speaker #4: You know , strong financials . And , you know , and established relationships . So we're in a good position to get what we need to , you know , take on these very large customers .

Param Singh: Thank you for that. As my follow-up, good to hear the commentary around agentic. How do you think about acceleration in that part of the business, especially certain modules such as API Security and microsegmentation attach pickup with agentic AI traffic coming into the platform?

Speaker #7: Thank you for that . And that's my follow up . You know , good to hear the commentary around Agentic . You know , how do you think about acceleration in that part of the business , especially as certain modules such as API security and Micro-segmentation attached pick up with Agentic ?

Speaker #7: AI traffic coming into the platform ?

Tom Leighton: Yeah, there's a great synergy there in a lot of different dimensions. We use AI to make our products a lot more capable. We help our customers identify their Shadow AI with API Security. Now with LayerX, we help them protect the workforce. When the workforce is using AI, they're not inadvertently exfiltrating sensitive corporate data. Of course, in the compute business, we're enabling the AI on our platform. We're in a great position to support our customers' use of AI and to secure it at the same time.

Speaker #4: Yeah , there's a great synergy there in a lot of different dimensions . You know , we use AI to make our products a lot more capable .

Speaker #4: We help our customers identify their shadow AI with API security . Now with layer X , help protect the workforce . So when the workforce is using AI , they're not inadvertently exfiltrating corporate sensitive corporate data .

Speaker #4: And of course , you know , in the compute business , we're enabling , you know , the AI on our platform . So we're in a great position to support our customers use of AI .

Speaker #4: And to secure it at the same time .

Param Singh: Thank you so much for that. Appreciate it.

Speaker #7: Thank you so much for that. Appreciate it.

Operator: Our next question comes from Rishi Jaluria from RBC. Please go ahead with your question.

Speaker #2: Our next question comes from Rishi Galleria from RBC . Please go ahead with your question .

Rishi Jaluria: Oh, wonderful. Thanks so much for taking my questions. Great to see continued momentum in the CIS business as well as some major customer wins. Two from me. First, look, I think in addition to these large CIS deals that you're talking about, a lot of us have been debating the opportunity for true AI edge inferencing to leverage the edge network that you have a long history of and the largest edge network in the world. Can you talk about some of the opportunities you're seeing there? Is there an opportunity for some of these large, more central cloud-driven AI deals to start to expand more to edge cloud, especially because you're the only one out there that has edge cloud and central cloud on one platform? Maybe help us understand that, I've got a quick follow-up.

Speaker #8: Oh , wonderful . Thanks so much for taking my questions . Great to see continued momentum in the CIS business , as well as some some major customer wins , two for me .

Speaker #8: First , you know , look , I think in addition to these large CIS deals that you're talking about , you know , a lot of us have been debating the opportunity for , true AI edge inferencing to leverage the edge network that you've you have a long history of .

Speaker #8: And the largest edge network in the world . Can you some of the opportunities you're seeing there ? And is there an opportunity for some of these large , more central , cloud driven AI deals to start to expand more to edge cloud , especially because you're the only one out there that has edge , cloud and central cloud on one platform .

Speaker #8: Maybe help us understand that . And I've got a quick follow up .

Tom Leighton: Yeah, I think you said it very well. It's really a continuum, a big advantage that we have is that we can do the core for enterprise customers that want to train their model, we can do the edge for when they're doing the inferencing in situations where it's latency sensitive or bandwidth sensitive. A great example is robotics, for example. The robot has sensors which could include the equivalent of video. They're seeing the environment around them. That's high bandwidth to get the video input and ingested. Our GPUs that we deployed are actually very well-suited to processing that video and then using AI to figure out what's going on, and then with the AI to give an instruction back to the robot, what to do about it.

Speaker #4: Yeah , I think you said it very well . It's really a continuum and a big advantage that we have is that we we can do the core , you know , for enterprise customers that want to train their model .

Speaker #4: And we can do the edge for when they're doing the inferencing in situations where it's latency sensitive or bandwidth sensitive , you know , a great example is robotics , for example , you know , the robot has sensors which could include , you know , the equivalent of video they're seeing the environment around them .

Speaker #4: And that's high bandwidth to get the video inputted ingested . And then our GPUs that we deployed are actually very well suited to processing that video .

Speaker #4: And then using AI to figure out what's going on . And then with the AI to give an instruction back to the robot , what to do about it , and in many of these situations , it's also latency sensitive .

Tom Leighton: In many of these situations, it's also latency sensitive, not only the bandwidth of the video, but telling the robot what to do quickly. Think about the robot being a car, a driverless car, or the robot's in an environment with humans, or it's in a factory where if it does something in an untimely way, you could have a problem. So that's a great example where, yeah, maybe the training is done to be most efficient in a more centralized fashion, but the inferencing and the usage of it as it's operating, well, there's examples you want to do that really close to where the robot is. We see that really across the spectrum, and it's a big advantage for us to have it all on one platform. Now, to be clear, we're not in the business of training the foundation models, the giant models.

Speaker #4: Not only the bandwidth of the video , but telling the robot what to do quickly . You know , think about the robot being a car , a driverless car , or the robots in an environment with humans , or it's in a factory where , you know , if it does something in an untimely way , you could have a problem .

Speaker #4: And so that's a great example where , yeah , maybe the training is done to be most efficient in a more centralized fashion , but the inferencing and the usage of it as it's operating well , there's examples you want to do that really close to where the robot is .

Speaker #4: And , you we see that really across the spectrum . And it's a big advantage for us to have it all on one platform .

Speaker #4: Now , to be clear , we're not in the business of training the foundation models , the giant models that we're not doing , but usage of the models or training medium or smaller models .

Tom Leighton: That we're not doing. Usage of the models or training medium or smaller models, yeah, that works very well on our platform. The key is to have the right resource in the right place for whatever your agent or model is trying to do. You optimize cost and you optimize performance.

Speaker #4: Yeah , that works very well on our platform . And the key is to have the right resource in the right place for whatever your agent or model is trying to do .

Speaker #4: So you optimize cost and you optimize performance

Rishi Jaluria: Wonderful. Very helpful. Then maybe just on the security side right now, especially with LayerX acquisition coming in when it closes. As we see the proliferation of agents, every brand has to figure out how do they embrace them, but also protect themselves, especially from not just nefarious, but even competitive agents. Maybe can you walk us through how we should be thinking about that as potentially becoming an accelerant to the security business and where LayerX can fit in that overall strategy? Thank you.

Speaker #8: Wonderful . Very helpful . And then maybe just on , on the security side , right now , especially with layer X acquisition coming in when it closes .

Speaker #8: But as we see kind of the proliferation of agents , right ? It's every brand has to figure out how do they embrace them , but also protect themselves , especially from not just nefarious , but even competitive agents ?

Speaker #8: Maybe . Can you walk us through how we should be thinking about that as potentially becoming an accelerant to , to the security business and where layer X can fit in that overall strategy ?

Tom Leighton: Yeah. LayerX, think of that as protecting your employees who, for all the right reasons, are using a variety of AI tools and agents and models and so forth. The danger, of course, is that they're actually leaking sensitive data when they use those tools. That's what LayerX prevents, identifies and prevents, and it enforces the business rules that the security team has set up for an enterprise. Now, the dealing with the agents really goes far beyond that. In fact, we're a leader today with our bot management and agent management solutions because our customers with their sites and applications, more and more agents are coming, maybe instead of people. Some of the agents are just fine. They're authorized by a user. Of course, we want to be sure that's the case and then give them very good service.

Speaker #8: Thank you .

Speaker #4: Yeah . Layer X , think of that as protecting your employees who you know for all the right reasons . Are using a variety of AI tools and agents and models and so forth .

Speaker #4: And the danger , of course , is , is that they're actually leaking sensitive data when they use those tools . And that's what layer X prevents , identifies and prevents .

Speaker #4: And it enforces , you know , the business rules that the security team has set up for an enterprise . Now , the dealing with the agents really goes far beyond that .

Speaker #4: You know , in fact , we're a leader today with our bot management and agent management solutions because our customers , with their sites and applications more and more agents are coming .

Speaker #4: Maybe instead of people , some of the agents are just fine . They're authorized by a user . And of course , that we want to be sure that's the case .

Speaker #4: And then give them very good service . But there's a lot of agents doing things that aren't authorized . And we help our customer by identifying what's the agent .

Tom Leighton: There's a lot of agents doing things that aren't authorized, and we help our customer by identifying what's the agent, is it authorized, what's it doing, and then our customer will tell us what they want us to do in response. A good example is the LLM search engines. Of course, it's really important today that your brand show up in the next generation of search engines. To help with that, we identify that, hey, this is a scraper coming from a search engine, and we give it different content than the regular app or the site. We give it content that has all the right keywords and also is structured so that the scraper can process it much more efficiently. As a result, the customer gets much better search rankings.

Speaker #4: Is it authorized ? What's it doing ? And then our customer will tell us what they want us to do in response . You know , a good example is the , the LLM search engines , you know , of course , it's really important today that your brand show up in the next generation of search engines and to help with that , we identified that , hey , this is a scraper coming from , you know , a search engine .

Speaker #4: And we give it different content than the regular app or the site . And we give it content that has all the right keywords and also is structured so that the agent can the scraper can process it much more efficiently .

Speaker #4: And as a result, the customer gets much better search rankings. And that's just one example of an agent that happens to be one example of a scraper, but there's just a myriad of different cases.

Tom Leighton: That's just one example of an agent that happens to be one example of a scraper, but there's just a myriad of different cases, and that's what we help our customers do, is identify what it is it legitimate, and then take the appropriate action for their business.

Speaker #4: And that's what we help our customers do , is identify what it is . Is it legitimate ? And then take the appropriate action for their business .

Rishi Jaluria: Very helpful. Thank you.

Speaker #8: Very helpful . Thank you

Operator: Our next question comes from Sanjit Singh from Morgan Stanley. Please go ahead with your question.

Speaker #2: Our next question comes from Sanjay Singh from Morgan Stanley . Please go ahead with your question .

Sanjit Singh: Thank you for taking the questions. In a year that, or less than a year that CIS has been stood up as a business, you guys have come up with almost $3 billion in bookings, which is super impressive. It sounds like these trend lines are going to continue, just given your comments on the pipeline. I wanted to get a sense from the team about to what extent or what's sort of the financing strategies going forward, and to what extent is the company willing to go into either a net debt position or access more equity capital to fund what seems to be a very strong pipeline of future business?

Speaker #8: Thank you for taking the questions . In a year that are less than a year that Sis has been stood up as a business , you guys have come up with almost $3 billion in bookings , which is which is super impressive .

Speaker #8: It sounds like these trend lines are going to continue just giving your comments on the pipeline . So I wanted to get a sense from the team about to what extent or what sort of the financing strategies going forward , and to what extent is the company willing to go into either a net debt position access more equity capital to fund what seems to be a very strong pipeline of future business ?

Tom Leighton: Yeah, I'll start and then hand it over to Ed. First, we've been working on this business for years and it's built on top of a platform that we've been developing for decades. It's not an overnight phenomenon. You're right that it's in really the last year we've made more of an investment in go-to-market because CIS and the platform, our cloud platform, is now in a position where we can take on major enterprise customers at scale. You are seeing very rapid growth, and we're in a good position that we have over $4 billion of cash. We are going to invest to continue the growth of this platform. Ed, you want to give some more details around that?

Speaker #4: Yeah, I'll start and then hand it over to Ed first. You know, we've been working on this business for years, and it's built on top of a platform that we've been developing for decades.

Speaker #4: So it's not an overnight phenomenon . But you're right that it's in the really the last year we've made more of an investment in go to market because Sis and the platform are cloud platform is now in a position where we can take on major enterprise customers at scale .

Speaker #4: And so you are seeing very rapid growth . And we're in a good position that we have over $4 billion of cash , and we are going to invest to continue the growth of this platform .

Speaker #4: And, Ed, do you want to give some more details around that?

Ed McGowan: Yeah, sure. As we talked about, we have $4.6 billion of cash on the balance sheet today. We've structured our debt so far to have every 2 years or so, there's a payment or a ladder, if you will, of retirements of debt coming up. The way these big deals work, even the free cash flow is excellent after you deploy the initial capital. You dip down a little bit here, and then as you start to recover some of this on the other side, it's extremely high free cash flow margins on these deals. That said, we have excellent banking partners. We've been so lucky to work with a lot of amazing firms, and they give us excellent advice. So far, converts have been very attractive for us and have offered the best economics.

Speaker #1: Yeah , sure . And as we talked about , you know , we have 4.6 billion of cash on the balance sheet today .

Speaker #1: We've we've structured our debt so far to have , you know , every two years or so . There's , there's a payment of a , of a or a ladder , if you will , of retirements of debt coming up .

Speaker #1: But you know , the way these big deals work , even the free cash flow is excellent . After you , deploy the initial capital .

Speaker #1: So , you know , you dip down a little bit here . And then as you start to recover some of this on the on the other side , it's extremely high free cash flow margins on the on these deals , but that said , you know , we , we have excellent banking partners .

Speaker #1: We've been so lucky to work with a lot of amazing firms and they give us excellent advice . So far , converts have been very attractive for us and have offered the best economics , you know , we've worked with our board all the time on different strategies and scenarios and look at , you know , what , what makes the most sense for our shareholders ?

Ed McGowan: We work with our board all the time on different strategies and scenarios and look at what makes the most sense for our shareholders. There's still a lot of debt capacity if we need it. If that's the right thing to do, we will do that. So far, we've done equity linked debt, we haven't done any equity offerings. We'll look at whatever the best opportunity is and what makes the most sense, the lowest cost of capital for us. I think we can grow the business quite a bit just in the model that we're in right now. We're still holding an investment-grade credit rating, which is important and helps us with our colocation providers.

Speaker #1: There's still a lot of debt capacity if we need it . If that's the right thing to do , we will do that .

Speaker #1: So far , we haven't done we've done equity linked debt , but we haven't done any equity offerings . But we'll look at whatever the best opportunity is and what makes the most sense .

Speaker #1: The lowest cost of capital for us . I think we can grow the business quite a bit , just in the model that we're in right now .

Speaker #1: We're still holding a investment grade credit rating , which is important and helps us with our co-location providers . But , you know , we , we , you heard us talk about suspending the buyback temporarily here to , you know , use all the available cash we have for growth because we haven't seen a growth opportunity like this in a very , very long time .

Ed McGowan: You heard us talk about suspending the buyback temporarily here to use all the available cash we have for growth because we haven't seen a growth opportunity like this in a very long time. To make sure we capture that, I'm very comfortable with our ability to finance the growth going forward.

Speaker #1: So to make sure we capture that . But I'm very comfortable with our ability to finance the growth going forward .

Sanjit Singh: Understood. As my follow-up, in terms of the trajectory of growth for CIS, we've had two quarters of sub 40% growth, which is a little bit less than what we exited last year with. You are targeting at least 50% growth for the full year. In terms of how you guys are sort of converting those big contracts and hopefully getting them to a revenue generation capability, how should we think about the ramp Q3 to Q4? Is it more of a sustained growth in CIS and then sort of a big hockey stick? What gives you the confidence that that hockey stick will emerge in Q4?

Speaker #8: Understood . And that's my follow up in terms of the trajectory of growth for CIS , we've had two quarters of of sub 40% growth , which is a little bit less than what we exited last year's with .

Speaker #8: And then you are targeting at least 50% growth for the full year in terms of how you guys are sort of converting those , those big contracts and hopefully getting them to a revenue generation capability .

Speaker #8: What is the how should we think about the ramp Q3 to Q4 ? Is it more of a sustained growth in CIS and then sort of a big hockey stick ?

Speaker #8: And what gives you the confidence that that that hockey stick will emerge in Q4 ?

Ed McGowan: Yeah, good question. We don't provide quarterly guidance. One thing I will say is we did talk about how we did receive some of our GPUs a little bit later than we expected. They just pushed from Q2 into Q3. There will be a few less weeks of revenue for deals that were signed that were scheduled to ramp in Q3. I am not expecting any kind of a growth acceleration, certainly for CIS in Q3. In Q4, I do expect to see a big hockey stick of acceleration for a number of reasons. One, we're now able to start getting revenue for the GPUs that we've sold, that we've taken into inventory and starting to rack and stack and get revenue for those contracts.

Speaker #1: Yeah . Good question . So we don't we don't provide quarterly guidance . One thing I will say is we did talk about how we did receive some of our GPUs a little bit later than we expected .

Speaker #1: They just pushed from Q2 into Q3 . So there will be a few less weeks of revenue for deals that were signed that were scheduled to ramp up in Q3 .

Speaker #1: So I'm not expecting a , you know , a , any kind of a growth acceleration , certainly for CIS and Q3 . But in Q4 , I do expect to see a big hockey stick of acceleration for a number of reasons .

Speaker #1: One , we're now able to start getting revenue for the GPUs that we've sold , that we've taken into inventory and starting to rack and stack and get revenue for those contracts .

Ed McGowan: The big contracts I've given you guys some guidance on when I thought those would start to produce revenue, and they do start in Q4. Right now, as we look at everything's on track, it's not a question of having to execute, of getting anything signed. It's just the time that we have in terms of everything being delivered, set up, and generating revenue. Right now, we feel like we're on track with everything, and we expect a big hockey stick. That should continue to ramp pretty significantly into Q1 of next year as well, because you get a partial quarter of revenue from some pretty big deals, and then you start to get a lot more going into Q1. I expect that acceleration to continue throughout the year of next year.

Speaker #1: The big contracts have given you guys some some guidance on when I thought those would start to produce revenue . And they do start in Q4 right now , as we look at everything's on track .

Speaker #1: It's not a question of having to execute , of getting anything signed . It's just the time that we have in terms of everything being delivered , set up and generating revenue .

Speaker #1: So right now we feel like we're on track with everything and we expect a big hockey stick , and that should continue to ramp pretty significantly into Q1 of next year as well , because you'll get a partial quarter of revenue from some pretty big deals .

Speaker #1: And then you start to get a lot more going into Q1 . And I expect that acceleration to continue throughout the year , next year .

Sanjit Singh: Appreciate the thoughts. Thank you.

Speaker #8: Appreciate the thoughts. Thank you.

Operator: Our next question comes from Frank Louthan from Raymond James. Please go ahead with your question.

Speaker #2: Our next question comes from Frank Louthan from Raymond James . Please go ahead with your question .

Frank Louthan: Great. Thank you. How challenging is it to get the power at the facilities where you're doing CIS? Can you give us an update on how many locations you have today and how many will you need to have built out for this new business that you just signed? Thanks.

Speaker #9: Great . Thank you . How challenging is it to to get the power at the facilities where you're doing this ? And can you give us an update on how many locations you have today and how many will you need to have built out for this new business that you that you just signed ?

Speaker #9: Thanks .

Tom Leighton: Yeah, great question. We're really in a very good position to get the data center capacity and power that we need. We've been in this business for an awfully long time. We probably deal with more data center companies than anybody. We have our infrastructure today deployed in over 700 cities in 130 countries. We've got a great reputation built up over many years for being a reliable business partner, for financial strength, and having a very strong business. We're able to get the capacity that we need. We are continuing to grow our data center footprint, more locations, and we are taking on larger locations, more power as we grow. I would expect to see that continue. We're in a really good position there.

Speaker #4: Yeah, great question. You know, we're really in a very good position to get the data center capacity and power that we need.

Speaker #4: You know , we've been in this business for an awfully long time . We probably deal with more data center companies than anybody .

Speaker #4: We have our infrastructure today deployed in over 700 cities in 130 countries . We've got a great reputation built up over many years for being a reliable business partner for financial strength and having a very strong business .

Speaker #4: And so we're able to get the capacity that we need . We are continuing to grow our data center footprint , you know , more locations , and we are taking on larger locations .

Speaker #4: You know , more power as we grow . And I would expect to see that continue . But we're in a position there

Ed McGowan: Yeah. One thing I would add, one of the advantages we have, Frank, is we're incredibly flexible, given that we run such a large backbone, that for us to get power, say, for the West Coast, we have many different options of where we can go. It's very attractive for data center providers where not all power is created equally, even as you go state by state. You might be able to go a couple of hundred miles from a really expensive state into a cheaper state, get an anchor tenant for somebody who's building out data centers, make a long-term commitment, get guaranteed power with great performance because it's connected to our backbone, et cetera, and you're able to satisfy whatever the demands are for that particular customer and get much better economics because the power is cheaper.

Speaker #1: Yeah . So one thing I would add , one of the advantages we have , Frank , is we're incredibly flexible , given that we run such a large backbone that for us to get power , say , for the West Coast , we have many different options of where we can go .

Speaker #1: And it's very attractive for data center providers where not all power is created equally , even as you go state by state . So you might be able to go a couple hundred miles from a really expensive state into a cheaper state deal .

Speaker #1: Anchor tenant for somebody who's building out data centers , make a long term commitment , get guaranteed power with great performance because it's connected to our backbone , etc.

Speaker #1: And you're, you know, able to satisfy whatever the demands are for that particular customer and get much better economics because the power is cheaper.

Ed McGowan: That's one of the other advantages we have is we're very flexible with where we can build out. We're interesting enough to these big data center builders, where we're not asking for gigawatt facilities. We're talking oftentimes 5 to 10, maybe 15, 20 megawatts, which is a big enough commitment that can really help them scale and get good IRR on their investment as they go and get credit to build these facilities.

Speaker #1: So that's one of the other advantages we have is we're very , very flexible with where we can build out . And we're interesting enough to these big data center builders where , you know , we're not asking for , you know , gigawatt facilities .

Speaker #1: We're talking , you know , oftentimes 5 to 10 , maybe 15 , 20MW , which is a big enough commitment that can really help them scale and get , you know , good IRR on their investment as they go and get credit to build these facilities .

Tom Leighton: Yeah, Ed raises a great point. People don't think about it much, but we operate one of the world's largest backbones. Of course, we use it to connect all of our locations. We don't sell connectivity per se, and that makes a big difference when it comes to going into new locations. We can go places very successfully and connect it to our platform that others may have a challenge.

Speaker #4: Yeah , Ed , raises a great point . You know , people don't think about it much , but we operate one of the world's largest backbones .

Speaker #4: And of course , we use it to connect all of our locations . We don't sell connectivity per se . And that makes a big difference when it comes to going into new locations .

Speaker #4: We can go places very successfully and connect it to our platform that others may have a challenge

Frank Louthan: Great. Thank you very much.

Speaker #9: Great . Thank you very much

Operator: Our next question comes from Rudy Kessinger from D.A. Davidson. Please go ahead with your question.

Speaker #2: Our next question comes from Rudy Kessinger from D.A. Davidson . Please go ahead with your question .

Rudy Kessinger: Hey, great. Thanks for taking my questions, guys. Question. Could you guys, I know you don't really talk a ton about these massive deals and the use cases that you're doing there, but to the extent you're able to maybe just talk about whether it's this robotics deal or some of these other large deals or just the deals in the pipeline. What are the specific metrics, whether it's latency or what have you, that these customers are looking at and saying, "Akamai delivers a definitive edge versus the neoclouds with the hyperscalers, therefore, we're going to go this route with Akamai." What are the specific performance advantages that are making you guys the choice for some of these large workloads?

Speaker #10: Hey , great . Thanks for taking my questions , guys . Question . Could you guys , I know you don't really talk a ton about these massive deals in the use cases that you're doing there , but to the extent you're able to maybe just talk about whether it's this robotics deal or some of these other large deals , or just the deals in the pipeline , you know , what , what are the specific metrics , whether it's latency or what have you , that these customers are looking at and saying , you know , Akamai delivers a definitive edge versus the cloud with the hyperscalers .

Speaker #10: Therefore , we're going to go this route with Akamai . What what are what are the specific performance advantages that are making you guys the choice for some of these large workloads ?

Tom Leighton: Yeah, no, that's a great question. We can't talk about the specific deals, but in general, Akamai would be chosen because we have a great hard-earned reputation for reliability. They can trust us. We have a massively distributed platform that's really unique in the marketplace. As I mentioned, 700 cities in 130 countries. We can get our customers' compute needs close to the users, close to the data. That provides better performance, lower latency, better scalability, particularly if you're doing anything to do with video. We have full stack compute and storage combined with the world's leading cybersecurity solutions, the world's leading delivery platform, and at a really good cost. Because we have the world's leading delivery platform and this massively distributed capability, our cost for egress is a lot lower than the competition.

Speaker #4: Yeah , no , that's that's a great question . And we can't talk about the specific deals , but in general , Akamai would be chosen because we have a great you know , hard earned reputation for reliability .

Speaker #4: They can trust us . We have a massively distributed platform that's , you really unique in the marketplace . As I mentioned , 700 cities in 130 countries .

Speaker #4: We can get our customers compute needs close to the users , close to the data that provides better performance , lower latency , better scalability , particularly if you're doing anything to do with video .

Speaker #4: We have full stack compute and storage combined with the world's leading cyber security solutions . The world's leading delivery platform . And , you know , at a at a really good cost , you know , because we have the world's leading delivery platform and this massively distributed capability , our cost for , you egress is a lot lower than the competition .

Tom Leighton: We can give a compelling value proposition of, hey, great performance, great reliability at a lower cost.

Speaker #4: And so we can give a compelling value proposition of , hey , great performance , great reliability at a lower cost

Operator: Our next question comes from Fatima Boolani from Citi. Please go ahead with your question.

Speaker #2: Our next question comes from Fatima Bulani from Citi . Please go ahead with your question .

Fatima Boolani: Good afternoon. Thank you so much for taking my question. Ed, I wanted to talk to you about the capacity that you're bringing online, and you framed it as a reserved instance-type model, which gives you a lot of visibility, and it gives customers a lot of predictability. I know you have entertained sort of standing up a rental business within the confines of your CIS business. I wanted to get a sense of where you are on that journey and to the extent you do have excess capacity against which you can have more of a spot pricing orientation, to see maybe faster growth in CIS and to the extent that is relevant to think about over the course of this year. I have a follow-up on the security business, please.

Speaker #11: Oh , good afternoon . Thank you so much for taking my question . I wanted to talk to you about the capacity that you're bringing online , and you framed it as a reserved instance type model , which gives you a lot of visibility .

Speaker #11: And it gives customers a lot of predictability . But I know you have entertained sort of standing up a rental business within the confines of your Sis business .

Speaker #11: So I wanted to get a sense of where you are on that journey. And to the extent you do have excess capacity, against which you can have more of a spot pricing orientation to see maybe faster growth in SIS, and to the extent that is relevant to think about over the course of this year.

Speaker #11: And then I have a follow up on the security business . Please .

Ed McGowan: Fatima, we offer both. What we're finding, though, is there is a stronger demand for customers who want to lock in for a longer period of time. Those obviously are better for us in terms of locking in the value over a longer period of time, and you get a guaranteed ROI on what you're investing in. We do offer both. We even have some customers that will come to us and ask us for different models of whatever you have excess, I'll take it for a period of time, and just give me some amount of heads-up if you need to take it back. The market is, I'd say, probably more skewed, certainly with our customers anyway, for those who would like to have certainty versus just going and renting by the hour.

Speaker #1: Yeah . So , so we offer both . And what we're finding though , is there is a stronger demand for customers who want to lock in for a longer period of time .

Speaker #1: And those obviously are a better for us in terms of locking in the value over a longer period of time . And you get a guaranteed ROI on what you're investing in .

Speaker #1: We do offer both . We even have some customers that will come to us and ask us for different models of whatever you have access .

Speaker #1: I'll take it for a period of time, and you just give me some amount of heads up if you need to take it back.

Speaker #1: So the market is , I'd say , probably more skewed , certainly with our customers anyway , for those who would like to have certainty versus just going and renting by the hour , but we do offer both .

Ed McGowan: We do offer both, and I'd say most of the growth right now, obviously, given the size of these deals, is coming from that more committed model. We do offer both.

Speaker #1: And I'd say most of the growth right now , obviously , given , you know , the size of these deals is coming from that more committed model .

Speaker #1: But we do, what we do, offer both.

Fatima Boolani: I appreciate that. Just on the security business, you specifically called out kind of the tailwind that you are seeing on the Guardicore segmentation side, API Security, just on the back of the traffic mix on the Internet and, by extension, your platform changing. I'm wondering if you can speak to some of your more traditional and maybe more mature product areas like the DDoS and I would say classic WAF. What are you seeing there? Is there a rising tide lifting all boats in that maybe there's a renaissance of spending from a customer standpoint, maybe a reinvigorated focus? I'd love to kind of get a better sense on what some of those traditional and more mature areas of the security product portfolio are doing in contrast to some of your higher growth SKUs in the portfolio. Thank you.

Speaker #11: I appreciate that . And just on the security business , you specifically called out kind of the tailwinds that you are seeing on the Guardicore segmentation side , API security , just on the back of the traffic mix , on the internet , and by extension , your platform changing .

Speaker #11: I'm wondering if you can speak to some of your more traditional and maybe more mature product areas like the DDoS . And I would say classic WAF , what are you seeing there ?

Speaker #11: Is there a rising tide lifting all boats ? And that maybe there's a renaissance of spending from a customer standpoint , maybe a reinvigorated focus ?

Speaker #11: I'd love to kind of get a better sense of what some of those traditional and more mature areas of the security product portfolio are doing, in contrast to some of your higher-growth SKUs.

Tom Leighton: Great question. Yeah. We have seen real tailwinds from AI and sort of the post-Mythos world for our more longer-term security products. I think roughly because of AI, the attackers have assembled much larger bot armies to launch attacks. We've seen the scale of the attacks grow by maybe a factor of 10 over the last year. There's more of a need for our DDoS services and with Web Application Firewall, especially there, because now there's going to be a lot more zero-days. We see those first, and we get our firewall rules updated to protect our customers before the zero-day becomes public knowledge. That they'll have time to do whatever patching they need to do, and they can do that safely.

Speaker #11: Yeah , great . Thank you .

Speaker #4: Great question . Yeah . And we have seen real tailwinds from AI and sort of the post mythos world for our , you know , more , you know , longer term security products .

Speaker #4: You know, I think roughly because of AI, the attackers have assembled much larger bot armies to launch attacks. And we've seen the scale of the attacks grow by maybe a factor of 10 over the last year.

Speaker #4: And so there's more of a need for our DDoS services . And with webapp firewall , especially there , because now there's going to be a lot more zero days .

Speaker #4: And we see those first and we get our firewall rules updated to protect our customers before the zero day becomes public knowledge . And so that they'll have time to do whatever patching they need to do .

Speaker #4: And they can do that safely . And I can't tell you , I've talked to so many CISOs and CIOs and CEOs , you know , over the last few months and many of them are having emergency product projects underway to make sure all of their applications and sites are protected by our web app firewall , because they know if it's behind Akamai's web app firewall , they're going to be okay as the zero days inevitably come out .

Tom Leighton: I can't tell you, I've talked to so many CISOs, CIOs, and CEOs over the last few months. Many of them are having emergency projects underway to make sure all of their applications and sites are protected by our Web App Firewall. Because they know if it's behind Akamai's Web App Firewall, they're going to be okay as the zero-days inevitably come out. We are seeing good tailwinds from AI across the board, and it's a chance for Akamai to really help major enterprise customers.

Speaker #4: So we are seeing good tailwinds from AI across the board , and it's a chance for Akamai to really help major enterprise customers

Fatima Boolani: Thank you.

Speaker #12: Thank you

Operator: We have time for one final question, and that comes from Patrick Colville from Scotiabank. Please go ahead with your question.

Speaker #2: And we have time for one final question . And that comes from Patrick Colville from Scotiabank . Please go ahead with your question .

[Analyst] (Scotiabank): This is Conner on for Patrick. Thanks for taking the question. Just was wondering if you could double-click on the CrowdStrike customer win, which is really a positive sign, I think, for the Akamai kind of architecture. Could you talk a little bit about when did that deal close, and if there's any really partnership dynamics there as well as a customer relationship?

Speaker #13: This is Conor on for Patrick . Thanks for taking the question . Just was wondering if you could double click on the CrowdStrike customer win , which is really a positive sign , I think , for the Akamai architecture Could you talk a little bit about when did that deal close and if there was any really , you know , dynamics there as well as a customer relationship

Tom Leighton: Yeah, that closed recently. It's a real validation point for our security solutions. Obviously, CrowdStrike is a company that cares a lot about security and cares a lot about reliability. As stated, they were not happy with their current, the prior provider, and they really were attracted to Akamai because of our reliability and the higher level of security capabilities that we offer them. We do partner with them. It's a good relationship that way as well. I think it's a great validation of Akamai and our security solutions.

Speaker #4: Yeah , that closed recently . And it's a real validation point for our security solutions . Obviously , CrowdStrike as a company that cares a lot about security and cares a lot about reliability .

Speaker #4: And , you know , they were have stated they were not happy with their current or the , the prior provider . And they , you know , really were attracted to Akamai because of our reliability and the higher level of security capabilities that we offer them .

Speaker #4: And we do partner with them , you know , and so it's a good relationship that way as well . But I think it's a great validation of Akamai and our security solutions

[Analyst] (Scotiabank): Great. Thank you.

Speaker #13: Great . Thank you

Operator: Ladies and gentlemen, with that, we'll be concluding today's question and answer session, as well as today's conference call. We do thank you for participating and joining today. You may now disconnect your lines.

Speaker #2: And ladies and gentlemen , with that , we'll be concluding today's question and answer session as well as today's conference call . We do thank you for participating and joining today .

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