NASDAQ:AKAM Akamai Technologies Q2 2024 Earnings Report $79.12 -0.08 (-0.10%) As of 12:07 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Akamai Technologies EPS ResultsActual EPS$1.58Consensus EPS $1.53Beat/MissBeat by +$0.05One Year Ago EPS$1.01Akamai Technologies Revenue ResultsActual Revenue$979.60 millionExpected Revenue$977.67 millionBeat/MissBeat by +$1.93 millionYoY Revenue Growth+4.70%Akamai Technologies Announcement DetailsQuarterQ2 2024Date8/8/2024TimeAfter Market ClosesConference Call DateThursday, August 8, 2024Conference Call Time4:30PM ETUpcoming EarningsAkamai Technologies' Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled at 4:30 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Akamai Technologies Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 8, 2024 ShareLink copied to clipboard.There are 16 speakers on the call. Operator00:00:00Good day, and welcome to the Second Quarter 20 24 Akamai Technology Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Stoutenburg, Head of Investor Relations. Operator00:00:39Please go ahead. Speaker 100:00:42Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's Q2 2024 Earnings Call. Speaking today will be Tom Layton, Akamai's Chief Executive Officer and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward looking statements, including statements regarding revenue and earnings guidance. These forward looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Speaker 100:01:19The factors include any impact from macroeconomic trends, the integration of any acquisition and any impact from geopolitical developments. Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10 ks and our quarterly reports on Form 10 Q. The forward looking statements included in this call represent the company's view on August 8, 2024. Akamai disclaims any obligation to update these statements to reflect new information, future events or circumstances, except as required by law. As a reminder, we will be referring to certain non GAAP financial metrics today. Speaker 100:02:06A detailed reconciliation of GAAP and non GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. I'll now hand the call off to our Co Founder and CEO, Doctor. Tom Layton. Speaker 200:02:20Thanks, Mark. I'm pleased to report that in the 2nd quarter, Akamai delivered continued strong momentum in compute, strong growth in our security portfolio, steady operating margins and healthy earnings growth on the bottom line. 2nd quarter revenue grew to $980,000,000 up 5% year over year as reported and up 6% in constant currency. Non GAAP operating margin was 29%. Non GAAP earnings per share was $1.58 up 6% year over year and up 9% in constant currency. Speaker 200:02:57These results were in line with or above our guidance. Before I provide more color on our performance, I'd like to review how Akamai is evolving as we grow. As most of you know, Akamai first made name with the invention of content delivery services and we're still the world's leader in that market today. We stand out providing the scale and performance required by the world's top brands as we help them deliver reliable, secure and near flawless digital experiences. Recent examples include delivering the Euros Football Tournament and the summer games in Paris for top broadcasters around the world. Speaker 200:03:40As we've said in previous calls, our delivery business has been challenged in recent quarters by macroeconomic and geopolitical headwinds. Our plan for delivery is threefold. 1st, we will remain disciplined when it comes to the profitability of traffic that we choose to serve. 2nd, we will continue to leverage our market leadership position and installed base of major enterprises to generate cross selling opportunities. And third, we will continue to take steps to retain our market leadership while also reinvesting most of the cash flow from our delivery product line into the fast growing areas of the business. Speaker 200:04:21In Q2, delivery accounted for 1 third of our revenue or $329,000,000 This is quite a change from 5 years ago when delivery accounted for 2 thirds of Akamai revenue. The diversification of our revenue across new markets through continuous innovation has long been a core part of Akamai's strategy for long term profitable revenue growth. A little more than a decade ago, we expanded our business into security with the creation of Web App Firewall as a cloud service. We did this to meet what we recognized as a growing customer need in a way that was complementary to what Akamai was already doing for customers with delivery. The opportunity was clear to us because we listened to our customers. Speaker 200:05:09We created what has proved to be a very successful cloud service for web app firewall. And now for the first time in Akamai history, security delivered the majority of Akamai's revenue, dollars 499,000,000 in Q2, up 15% year over year and up 16% in constant currency. This amounts to an annual run rate of about $2,000,000,000 per year. Of course, we greatly expanded our security product set over the years. We now offer market leading solutions for DDoS prevention, bot management, account and content protection, app and API security and 0 Trust Enterprise Security led by our Gardacore segmentation solution. Speaker 200:05:56Customer interest in our security solutions is strong and we had many significant wins in Q2. 1 of the world's largest energy companies became a new Zero Trust customer with Akamai. One of the top 3 airlines in the U. S. Is moving from a legacy VPN architecture to a 0 Trust architecture with Akamai. Speaker 200:06:19We provided Akamai app and API protector to one of the largest providers of HR management software and services in the U. S. And the German retailers to Life, Douglas, Wagner and Zalando. Effiflex, the German maker of high speed We provided DDoS protection to 1 of the largest banks in the world and to a government ministry in the Middle East. And at one major electric utility in Southeast Asia, we replaced a well known competitor in a 5 year deal for our web app firewall, DDoS Protection, Bot Management, Account Takeover Prevention and API Security. Speaker 200:07:09We're especially excited about the most recent additions to our security portfolio. In Q2, we announced our new Akamai GardaCore platform, the first of its kind to enable 0 trust security through a fully integrated combination of micro segmentation, 0 trust network access, multi factor authentication, DNS firewall and threat hunting. Its single agent and unified control count console powered by GenAI are designed to strengthen and simplify enterprise security with broad visibility and granular controls. The new Gen AI interface enables our customers' operations teams to ask questions in a human language to gain information about their enterprise networks. The new Akamai GardaCore platform reflects our evolution as a security vendor, growing beyond point solutions to a broader and more comprehensive security offering. Speaker 200:08:11Customers tell us they want to consolidate security products and tools with vendors they can trust and we think this will appeal to their needs. In Q2, we also closed the acquisition of Noname Security as we accelerate our momentum in the fast growing API security market. IDC forecast this market will grow at a CAGR of 34% to nearly $1,000,000,000 by 2027. With Noname, we believe that Akamai now has one of the most comprehensive API security solutions in the industry. Within 2 weeks of the close, Akamai offered Noname customers our new Edge Connector, an integration with Akamai web app and API protector that works with a click of a button. Speaker 200:08:58Noname saw significant increase in closed deals in Q2, including wins at some of the largest banks and insurance companies in North America and at leading software companies in Europe and Asia. We're also beginning to see a good up sell motion with early no name adopters. For example, one of the largest U. S. Healthcare insurers more than doubled their no name contract in Q2 to over $1,700,000 annually. Speaker 200:09:26About a decade after we entered the security market, we again expanded Akamai's future opportunity by developing a much broader offering in cloud computing. As many of you know, Akamai has offered function as a service in our edge platform for many years. This kind of edge computing has been used by thousands of our customers and it is deeply integrated into our delivery and security services. But our customers asked for more. They wanted us to offer full stack cloud computing so that they could run their VMs and containers on the Akamai platform. Speaker 200:10:02And they wanted us to do it in a way that would be more efficient and less costly than comparable offerings provided by the hyperscalers. They wanted Akamai to do this because they were already delivering and securing their sites and apps on our platform. They liked our track record of reliability and they knew they could trust Akamai to be a good partner. Many of them also like the fact that we don't compete against them unlike the hyperscalers. Adding cloud computing to our portfolio also makes good sense for Akamai. Speaker 200:10:34In addition to satisfying customer demand, we can reap the advantages offering customers delivery, security and compute on the same platform. The synergies include improved performance, seamless integration and other operational efficiencies, bundling for cross selling and strong customer retention, increased margins for all of our services, deepening relationships with carrier networks, capacity to quickly detect and stop massive cyber attacks at the edge, unmatched visibility into enormous volumes of traffic insights and threat intelligence that we gain as a result. If you step back and look at how the marketplace has evolved, you can see how the hyper scalers have worked to achieve a similar suite of offerings, although they've taken a different route to get there. They started with cloud computing and infrastructure as a service and then moved into security and delivery, validating our view that there is synergy and offering has the world's most distributed cloud platform with more than 4,100 points of presence in over 700 cities across 130 countries. We believe that being more distributed provides customers with better performance, better economics and greater reliability. Speaker 200:12:03As we reported in our last earnings call, response from customers to our new cloud offering has been very encouraging. The strong early momentum that we achieved in Q1 continued in Q2 with compute revenue growing to $151,000,000 up 23% year over year and up 24% in constant currency. New compute customers added in Q2 include 1 of the world's best known media and entertainment brands based here in the U. S. The European cybersecurity company, Sequoia. Speaker 200:12:39Io Claro Video, the video brand of the biggest telco in Latin America. Mware TV, a technology platform for IPTV and OTT services. And a cable satellite IPTV provider that reaches almost half the households in Australia. Customers are also leveraging our ISV partners, which we call Qualified Compute Partners to run low latency workloads on our compute platform. These include solutions for observability into workload behavior, cybersecurity and large scale events, where the need to store very large sets of data makes Akamai a more attractive and cost effective option than competitors. Speaker 200:13:24Our media customers can now take advantage of a full suite of media workflow offerings on Akamai Connected Cloud, which provides valuable synergy with our delivery platform for more efficient image manipulation, decisioning and video transcoding. And with Akamai's latest qualified compute partner and customer, YoSpace, media companies around the globe can leverage their advanced ad tech and ad strategies at scale across the Akamai Connected Cloud. Customers are also building new apps on our significantly reduced cost. One customer is training and testing the machine learning engines that power their security scanning product. Another is building an AI powered chatbot application to improve their customer experience and streamline operations with intelligent conversational customer engagement. Speaker 200:14:23Such AI powered applications are increasingly popular with recent advances in large language models. Akamai is also a very large user of our new cloud solution. As a result of migrating most of our own apps from the hyperscalers to Akamai Connected Cloud, we're seeing better performance and greatly reduced cost. In fact, we expect to reduce our spending on third party clouds to less than a third of what it would have been this year had we stayed on the hyperscalers, saving us well over $100,000,000 in annual OpEx. It sure feels good not writing a 9 figure check to your competitors every year and this is a feeling that we look forward to providing to our large enterprise customers. Speaker 200:15:08In summary, Akamai has undergone a fundamental transformation. We transformed from a content delivery pioneer into the cloud company that powers and protects life online. Compute and security now generate 2 thirds of our revenue and we believe that they provide Akamai with excellent potential for future growth and profitability. And we've achieved this transformation while successfully maintaining robust margins because both of our fast growing product areas, our large security portfolio and our rapidly growing cloud computing portfolio are built upon and enabled by the foundation of our business, our highly efficient and massively distributed delivery platform. Our near term operating margin goal remains 30% and we see potential margin upside over time as the fast growing areas of the business expand our profitability. Speaker 200:16:06Looking back at the first half of twenty twenty four, we're pleased by our strong performance in security and compute. Looking ahead, we're very excited about our potential for future growth as we integrate Noname and as our fast growing compute offerings continue to gain traction with customers. Now I'll turn the call over to Ed for more on our Q2 results and our outlook for Q3 and the full year. Ed? Speaker 300:16:32Thank you, Tom. Today I plan to review our Q2 results and then provide some color on our expectations for Q3 and the full year. Turning to our Q2 results. Total revenue for the Q2 was $980,000,000 up 5% year over year as reported and 6% in constant currency. Compute revenue was $151,000,000 up 23% year over year as reported and 24% in constant currency. Speaker 300:17:01We continue to be very pleased with the level of enthusiasm in the market as more and more customers are leveraging our enterprise compute solutions. In particular, we are seeing a broad array of enterprise compute use cases including live transcoding, secure access, observability, object storage, real time log aggregation and insight, spatial computing and deep learning AI models across many verticals including media, e commerce, software and financial services. Moving to security revenue. In the Q2, security revenue was $499,000,000 up 15% year over year as reported and 16% in constant currency. We're very pleased by the continued performance of our GardaCore 0 Trust solution and highly encouraged by the traction we are seeing in our recently launched API security solution. Speaker 300:17:54It's worth noting that the Noname transaction closed in late June and the revenue contribution in the Q2 was less than $1,000,000 Combined, compute and security revenue grew 17% year over year as reported and 18% in constant currency, representing 66% of total revenue. Moving to delivery. Revenue was $329,000,000 which declined 13% year over year as reported and 12% in constant currency. The decline in delivery revenue was primarily related to the revenue impacting items that I outlined last quarter and was in line with our expectations. International revenue was $471,000,000 up 3% year over year and up 5% in constant currency, representing 48% of total revenue in Q2. Speaker 300:18:43Foreign exchange fluctuations had a negative impact on revenue of $5,000,000 on a sequential basis and a negative $10,000,000 impact on a year over year basis. Non GAAP net income was $243,000,000 or $1.58 of earnings per diluted share, up 6% year over year and up 9% in constant currency. And our non GAAP operating margin in Q2 was 29%. Moving now to cash and our use of capital. As of June 30, our cash, cash equivalents and marketable securities totaled approximately $1,900,000,000 During the second quarter, we spent approximately $128,000,000 repurchasing approximately 1,400,000 shares. Speaker 300:19:27We now have an aggregate of roughly 2 $300,000,000 remaining in our share buyback authorizations. We also used approximately $450,000,000 in cash in the Q2 for the acquisition of Noname. As it relates to our use of capital, our intention remains the same to continue buying back shares over time to offset dilution from employee equity programs and to be opportunistic in both M and A and share repurchases. Before I provide our Q3 and updated full year 2024 guidance, I want to touch on some housekeeping items. 1st, regarding the close of the Noname Security acquisition, we expect this transaction to add approximately $8,000,000 to $10,000,000 of revenue in Q3 and approximately $18,000,000 to $20,000,000 in revenue for the full year 2024. Speaker 300:20:14We also expect it to be dilutive to non GAAP EPS by approximately 0 point approximately 30 to 40 basis points in 2024. As a reminder, our updated full year guidance includes the impact of the acquisition. 2nd and specific to traffic, we expect a modest uptick in year over year traffic in Q3 primarily due to the Paris Summer Games. This event is expected to drive approximately $3,000,000 to $4,000,000 of additional revenue in the Q3. And while Q4 is typically our strongest quarter seasonally, we saw a more muted impact of that seasonality last year and we expect to see a similar result this year. Speaker 300:20:593rd, the country of India recently announced plans to eliminate its digital service tax effective as of August 1, 2024. We are working with our tax advisors to determine the full impact of this tax change on our non GAAP effective tax rate. Based on our initial assessment, we believe this could result in a small increase in our effective non GAAP tax rate and we have adjusted our guidance accordingly. Finally, the macroeconomic environment remains challenging and geopolitical tensions persist. Any negative developments could have a meaningful impact on our business. Speaker 300:21:34So with those factors in mind, I'll move to our Q3 guidance. For Q3, we're projecting revenue in the range of 988 $1,008,000,000 or up 2% to 4% as reported and 3% to 5% in constant currency over Q3 2023. At current spot rates, foreign exchange fluctuations are expected to have a positive $2,000,000 impact on Q3 revenue compared to Q2 levels and a negative $5,000,000 impact year over year. At these revenue levels, we expect cash gross margins of approximately 73%. Q3 non GAAP operating expenses are projected to be $307,000,000 to $312,000,000 We expect Q3 EBITDA margin of approximately 42%. Speaker 300:22:18We expect non GAAP depreciation expense to be between $129,000,000 to $131,000,000 and we expect non GAAP operating margin of approximately 29% for Q3. Moving on to CapEx, we expect to spend 166 to $174,000,000 This represents approximately 17% of our projected total revenue. Based on our expectations for revenue and costs, we expect Q3 non GAAP EPS in the range of $1.56 to $1.62 The CPS guidance assumes taxes of $59,000,000 to $60,000,000 based on an estimated quarterly non GAAP tax rate of approximately 19% to 20%. It also reflects a fully diluted share count of approximately 154,000,000 shares. Looking ahead to the full year, we now expect revenue of $3,970,000,000 to $4,010,000,000 which is up 4% to 5% year over year as reported and up 5% to 6% in constant currency. Speaker 300:23:16At current spot rates, our guidance assumes foreign exchange will have a negative $20,000,000 impact to revenue in 2024 on a year over year basis. We continue to expect security revenue growth of approximately 15% to 17% in constant currency in 2024, including the contribution from the acquisition of Nomi. And given the strong momentum and adoption from both new and existing enterprise compute customers, we now expect enterprise compute annualized revenue run rate to double from the $50,000,000 we reported last quarter to over $100,000,000 as we exit 2024. As a result, we are now increasing our overall expected compute revenue growth to approximately 23% to 25% in constant currency for the full year 2024. Moving to profitability. Speaker 300:24:04We estimate non GAAP operating margin of approximately 29% and non GAAP earnings per diluted share of $6.34 to $6.47 Our non GAAP earnings guidance is based on non GAAP effective tax rate of approximately 19% to 20% and a fully diluted share count of approximately 154,000,000 shares. Finally, our full year CapEx is expected to be approximately 16% of total revenue. In closing, we are pleased with the traction we are seeing in enterprise compute and look forward to helping our customers migrate services to the Akamai Connected Cloud. Thank you. Tom and I would now be happy to take your questions. Speaker 300:24:40Operator? Operator00:24:44We will now begin the question and answer session. The first question today comes from Patrick Colville with Scotiabank. Please go ahead. Speaker 400:25:22Thank you so much for Speaker 500:25:23taking my question. Frank and Ed, really great to be part of the Akamai story. I want to talk about the business mix shift. I mean, that's where you opened your kind of prepared remarks. Specifically, I want to focus on compute. Speaker 500:25:40The $100,000,000 revenue you just called out from Akamai Connected Cloud is really compelling and great to see that that's ramping. When might that hockey stick to become even greater kind of revenue base? Like what's the kind of trajectory of back in my connected cloud over the coming kind of quarters and if you think out beyond that? Speaker 200:26:08Yes, great question. And I got to say we were very pleased to see the rapid early adoption. That's a capability that we really just started selling in earnest this year. We had some very early adopters towards the end of last year. And if we can get up to $100,000,000 ARR by the of the year, which we think we're going to do, that's great for the 1st year of the product. Speaker 200:26:35And then we'll see where we are at the beginning next year. We'll give guidance in February for the year in compute, but we're very optimistic about strong growth in compute driven by the enterprise customers and our new capability there. There's an enormous market there obviously. And so we're really looking forward into tapping into that. Speaker 500:27:02Very helpful. Thank you. And I guess the second part of my question, I want to ask about delivery. I mean this year you've been very clear about the kind of headwinds of the delivery business in 2024. I appreciate you might not want to kind of give guidance beyond 2024, but wondering whether the headwinds we're seeing right now are cyclical headwinds or are they structural in nature? Speaker 500:27:38Thank you. Speaker 200:27:40Yes. I don't think what we're seeing today persists over the long term. Traffic, I think will grow, continue to grow, maybe at a little bit of a slower rate than it did certainly during the COVID times. But delivery, I believe is here to stay. We are intent on remaining the market leader by a good margin. Speaker 200:28:06It's a very profitable business for us. We were very careful about that. We're very efficient in what we do. And it's very synergistic with our security, web app firewall business and our emerging compute business. So I don't see these headwinds persisting over the long term. Speaker 200:28:26There are geopolitical considerations that we're worried about for next year, but I don't think this is a long term phenomenon. And in any case, given the very fast growth of our security and compute product lines, they've nearly tripled in revenue over the last 5 years. So now where they're 2 thirds of our revenue overall. I think the what you see with delivery with sometimes challenges, sometimes good, it has a lot less impact on the overall growth rates as we go forward. Ed, do you have anything you want to add to that? Speaker 200:29:03No, I Speaker 400:29:03think you covered it well, Tom. Operator00:29:12The next question comes from Keith Weiss with Morgan Stanley. Please go ahead. Speaker 600:29:19Excellent. Thank you guys for taking the question. And congratulations on a solid quarter. And I wanted to ask you a little bit about kind of parsing out the guidance, particularly the full year guidance. If I'm doing my math right, the midpoint of the full year comes up by about $5,000,000 for the full year. Speaker 600:29:38But we're adding for known name security, it sounds like about $20,000,000 in revenues for the full year. Is there a part of the equation that's coming down a part of the business that you're getting more cautious on that makes up that difference? Speaker 300:29:53No, Keith. Yes. So we included No Name in our guidance last quarter as well. So there's nothing that's changed. If anything, the business has gotten a little bit better. Speaker 300:30:02So our guidance has come up a bit to reflect that. Speaker 600:30:06Got it. Got it. And then on the expense side of the equation, the savings from moving sort of in house from the hyperscalers, $100,000,000 in real savings. Congratulations on that. That's quite a feat. Speaker 600:30:22Tom, you talked about the ability to sort of start pushing that more into operating margins in the near future. Can you give us an indication of what near future means? Like is 2025 near future? Or are we thinking 2 or 3 years out or further? Speaker 200:30:38Yes, the operating savings we're getting, as Ed said, we've been plowing that back into the business by and large, so that we can invest in growth. There's more savings to come there, but we really get the upward pressure on margins, the beneficial tailwinds on margins as the mix shift continues. As we add compute customers, that is good margin for us and it's accretive. Security as we add customers there, it's accretive. Now as Ed noted that today with the new security products initially they're dilutive, but as we grow the revenue there, every customer we add, every deal we sign improves margins. Speaker 200:31:22So that over time, 30% is our goal with very close to that today. But over time, we think we have good potential to grow beyond that. Operator00:31:41The next question comes from John DiFucci with Guggenheim Securities. Please go ahead. Speaker 700:31:49Thank you. I have a question on GARCOR. So segmentation broadly seems like it's becoming more relevant in the market. Customers are more accepting of it. It's no longer like a new thing. Speaker 700:32:02And then it has been for a while and you guys have been there and you bought Garticore a couple of years ago. But frankly, it seems like an essential component to a 0 Trust environment. Not everybody has it. So can you talk a little bit more about how about this business, but really about your Akamai Gardacore 0 Trust platform that you just launched a few months ago and how that sort of fits in the ecosystem of some of an enterprise when they need to protect all their assets and to establish that 0 trust environment? Because it always seemed to me that this was essential, like I said, for 0 trust. Speaker 700:32:41And I guess, if you can also, in addition to the technologies and what else it fits in with, can you also hit on your channel efforts regarding this platform? Because I know this is sold through the channel. I think Ed, you said this before, but it seems like a really sophisticated solution. Like it's not just you're buying a firewall for somebody or something like that. If you can just talk a little bit about how I know it's only it's early, but how that is how that's working through the channel? Speaker 200:33:12Yes. I think you characterized it very well. Segmentation is essential. I mean, you got to lock the doors and the windows as best you can, but now we're still getting. And I think really the most important thing an enterprise can do is lock down everything inside. Speaker 200:33:32And that means Gardicore. It means having your agent on every application on every device. And you're right, most enterprises don't have it. When you go back a few years and I think the community at large really disfavored segmentation. And that's because the way it was done back then was really crude. Speaker 200:33:56You did it in hardware, it's very inflexible, hard to do. And at the end of the day, if you did it at all, you had giant segments which defeated the whole purpose. You weren't very secure because the malware would get in and wipe out an entire giant segment and you had a big problem. And GardaCore solved that problem through software, very easy to manipulate, make updates, much more secure, fine grain controls. And so it's been an education process for us in the marketplace. Speaker 200:34:29We viewed it as something that was going to be essential and that I think is proving out as you noted. And of course with all the ransomware headlines and disasters, not surprising to see why people are waking up to why they really do need this. So now the next question is with the platform. And there what we've done is combine the GardaCore which is protecting inside app to app device to device communication with the employee device to internal applications. And so we've combined what's called north south and east west. Speaker 200:35:10Now again, you go back a few years ago, they were different buyers and treated differently. But then we were thinking back then, boy, it's going to make sense to put this all together and sure enough, we're now seeing customers say, hey, we want that in the same platform. We want a single agent, not 2 different agents and we got to deal with a single control panel so that the business logic can be applied to employee devices at the same way and the same time as it is to internal applications. And so that's what the Guardicore platform is all about. We actually also combine it with DNS firewall, multi factor authentication, threat hunting capabilities so that you can tell when you've got malware, where it is, what's going on into a platform which customers are excited about. Speaker 200:36:03And I think it's important not to underestimate the importance of a single agent to do this that's really important real estate. And the new control panel powered by GenAI, it's actually pretty cool. You can converse in a human language, if you will, with your network infrastructure. So you get much greater visibility, probably much better compliance as a result, which means a better security. Now to your channel question, yes, Gardacore is all channel. Speaker 200:36:34And you're right, it is a sophisticated integration and deployment. It's not just like throw a firewall out there. And that's where the partners can really add value. And so in some cases, many cases, the partner will derive even more revenue than Akamai will and it's ongoing because you're growing your GardaCore, your segmentation footprint to include more applications and devices. And it's great for partners when they can add value and generate revenue. Speaker 200:37:07So it's really good channel friendly product. And of course not easy to do per se, but a lot easier than the way segmentation used to be. Speaker 700:37:19And if I could Tom, because that all makes a ton of sense to me. But it also raises a question like what do people what do they do? What are the alternatives? Like I'm familiar with Olumio and there's another company I've seen called Trufort. But again, like you said, like people don't a lot of enterprises don't even have segmentation implemented. Speaker 700:37:42A lot do, but a lot don't. And so what are they are there other things that we're just that I'm just missing? Like I don't know, is Palo say you don't want to go in and you buy the whole Palo platform, are they just saying you don't need it or we have something that kind of does it? Like I'm just trying to because the opportunities just sounds seems really big here. Speaker 200:38:04No, I think it is a big opportunity and very few relatively speaking enterprises have it today. The early adopters are the critical infrastructure companies because they really, really have to have it. And we do compete with Alumio, they're probably our leading competitor. We believe the Guardicore solution is a lot better. We actually have our own mini firewall in the Asia. Speaker 200:38:27We don't have to rely on the firewall in the OS, which sometimes won't be there or might not be consistent. We can cover a lot of the legacy systems, which that's important to enterprises to get more universal coverage. I think there is a ton of greenfield. And I wouldn't be there when one of the other competitors is talking about their platforms. They probably don't spend a lot of time talking about segmentation because they don't really have a solution for it. Speaker 700:38:56Thank you very much, Tom. Operator00:39:02The next question comes from Mark Murphy with JPMorgan. Please go ahead. Speaker 800:39:08Thank you very much. Ed, what is your latest thinking on the FX headwind to the full year revenue forecast? I'm just curious if there's any movement there from I think previously you've been looking at that as I believe $40,000,000 headwind. Speaker 300:39:26Yes. Hey Mark. Yes, not much of a change. The dollar moved around quite a bit during the quarter up and down, but it's pretty much exactly the same. So for the full year, it's about 40. Speaker 300:39:37I gave the guidance already in the quarter in terms of the impact quarter over quarter and for year over year, but it's still about the same, just around 40 for the full year. Speaker 800:39:47Okay. Thank you. And then, Tom, as a quick follow-up, you mentioned a pretty wide array of the workload types that you're seeing under cloud computing platform. And you mentioned toward the end deep learning and AI models. I'm wondering if you can double click on that, for instance. Speaker 800:40:03What are the types of models? Are you seeing LLMs or text models or image models or something else? And is it possible to estimate what percentage of your cloud ARR might be relating to those newer types of AI workloads? Speaker 200:40:20Yes, great question. I would say today AI workload is probably a small fraction of the ARR. I think over time, potential for growth there. As we talked about useful in security applications, chatbots, tailoring content for commerce companies, ad targeting, recommendation engines. I would say that the models are smaller because they're more focused. Speaker 200:40:52The giant models sort of are used to learn everything. Your chat CPT, you can ask it any question at all, have it try to be knowledgeable about everything. Those are giant models. And we're not really targeting that business. But for our customer base, they tend to be a lot more focused on what they're trying to do. Speaker 200:41:12Maybe it's a commerce site, maybe it's an ad site, maybe it's a security company and they don't need to learn the whole world to really provide value. In fact, we see that with our own solution with the Yakamai Gardicore platform with the control interface powered by GenAI. Really it's a very specific application, which means that you don't need the gigantic model to really provide the value. And that means it doesn't have to run on this giant suite of GPUs. It can run just great on our platform, which has GPUs, but it's primarily CPU based, which gives us much better ROI. Speaker 200:41:55And that works great for what our customers are looking to do in terms of their AI applications. Speaker 800:42:02Thank you very much. Operator00:42:06The next question comes from Madelyn Brooks with Bank of America. Please go ahead. Speaker 900:42:13Hi, team. Thanks for taking my question. So I want to continue on the discussion of Connected Cloud. And you mentioned some nice wins for non media, non e commerce? What are the use cases that those customers are finding from connected cloud? Speaker 900:42:35And if you could just help us break out to growth of those customers maybe versus growth of your more traditional customers, are they growing around the same in terms of their adoption of connected cloud? Thanks so much. Speaker 200:42:46Yes, we're seeing growth both within the base and outside the base. I think for example with our qualified compute partner program with observability, a lot of companies need that to know what's going on with their applications. Security companies would need that. Now we also have a lot of media customers and I would say that's probably the biggest segment today. We have by design a full media workflow ecosystem now supported through our QCP program on the platform. Speaker 200:43:23And so a lot of media customers starting to take advantage of that. Outside of that, for example, OS and firmware, patch storage, personalized waiting room experience, improved page performance with hints and so forth. We talked about with AI tailoring the site for a user based on what they've been doing so far. Real time log aggregation and Speaker 300:43:55running on it, a 5 gs Speaker 200:43:56Internet Gateway running on it, running on it, a 5 gs Internet gateway running on it. So it does broaden the base, which is I think exciting for us in the future. But today, probably the biggest segment would be media. Operator00:44:15Thanks so much. The next question comes from Alex Henderson with Needham. Please go ahead. Speaker 1000:44:26Great. First off, I think congratulations are in order on the great results out of both security and out of the compute. And I wanted to focus a little bit on the compute side of the business because I think ultimately that's the area that needs to be proven out to the street more than anything else. Can you talk a little bit about the mechanics around what portion of the customer base that's converting to compute is coming from internal? What portion of the compute are true new customers? Speaker 1000:45:02How many how much of the growth is coming from existing customers that are increasing their upsell? Just kind of look at it as if it was a traditional standalone business and give us some of those critical metrics that go into analyzing the success of that business? Speaker 200:45:25Yes, I'll take our first half and turn it over to Ed and the answer will be pretty similar to the last question. I would say our biggest users and the biggest segment for compute today is our large media customers. And that's by design. And our a lot of our QCP, our qualified compute partners are media workflow companies. So that's sort of the biggest segment. Speaker 200:45:51I would say observability as a capability, a very large one as well and that spans across all verticals and would include new customers. So we do have a bunch of customers in non traditional Akamai verticals that are using compute. And I think over the longer run that opens up a whole new market verticals for us. But the biggest chunk today would be existing Akamai Media Companies is the biggest. And Ed, you want to add some color on that? Speaker 300:46:26Yes, sure. Hey, Alex. Yes, so as Tom mentioned, we're seeing growth in both existing applications for stuff that's been on the platform for a while, But the bulk of the growth is actually coming from new customers. The new customer additions is growing very, very quickly. We broke out some numbers for you last quarter and that continues to ramp very nicely and we're seeing a significant increase in the pipeline. Speaker 300:46:49We are seeing some new customers come to the platform. And what's interesting is we're probably seeing more workloads and repeatable workloads in areas even Tom talked about media, but outside of media. And we're seeing customers that may be relatively small, CDN customers are fairly large compute customers. So I'd say it's across the board where we're seeing the growth, but it's mostly from adding new customers to the mix and then they start to ramp. Speaker 1000:47:19Thank you. Operator00:47:24The next question comes from Fatima Boolani with Citi. Please go ahead. Speaker 1100:47:31Thank you for taking my questions. Ed, I wanted to 0 in on the delivery guidance and the expected performance in the back half. So appreciate you experienced a lot of the traffic degradation patterns in the first half. But I'm just curious why the trajectory of the business is actually worsening in the back half? And then I have a follow-up for Tom, please. Speaker 300:47:56Yes, sure. So I talked a little bit about the expectations for Q4. Just based on what we're seeing now in terms of traffic growth and what we saw last year, we're not expecting the normal hockey stick to any significant degree like we've seen in prior years. And also keep in mind, we closed the transaction with StackPath and Lumin last year and that's all delivery revenue. So that makes your Q4 a tougher comparison. Speaker 300:48:20If you're looking at sort of year over year growth rates, that's going to skew your perspective a bit. And as we talked about, on the last call, there was some dynamics going on with 1 of our larger social media customers. The good news there is we've got a good handle on that and that's sort of playing out as we expected. But as we've talked about, those are the factors that as you put that into your model, why it may look like it's deteriorating a little bit. But I'd say the biggest issue is the fact that you're anniversarying the StackPath and Lumen contribution from Q4 last year. Speaker 1100:48:51That makes sense. That's very fair. And Tom for you, I think you've been very constructive around the compute opportunity. There are so many specific examples of the momentum you've been garnering in the compute franchise. But taking a step back as a broader strategy question for you, as you think about scaling that franchise and have it become an even bigger part of the overall revenue story. Speaker 1100:49:21How are you straddling this notion of not using compute as or essentially ensuring compute ends up being wallet share accretive against your base as opposed to potentially managing a situation in which the delivery franchise sort of bumps along and compute sort of plugging the hole? Just what are some of the mechanisms you have in place to continue to drive actual wallet share growth and accretion within existing delivery customers from where you are extracting a lot of net new compute demand for now? Thank you. Speaker 200:50:02Yes. Compute is different than delivery. So it's not a situation where delivery revenue is going into compute. That's not the case here. And that compute opportunity is orders of magnitude bigger than the delivery opportunity. Speaker 200:50:20And so I think over time it becomes a much bigger business and delivery. And I think delivery does its thing and is a very good business for us in terms of cash generation, in terms of cross selling and in terms actually of the economics of the platform. So we can go out there and offer compute at a and especially for chatty applications and applications where data is moving around at a much lower price point than the hyperscalers because we have the delivery platform, but it doesn't it's not a situation where it's plugging a hole in delivery. I think compute is a huge revenue growth driver for us in the future independent of anything in delivery. Speaker 1100:51:13Very clear. Thank you. Operator00:51:18The next question comes from Jim Fish with Piper Sandler. Please go ahead. Speaker 1200:51:24Hey, guys. This is Quintin on for Jim Fish. Thanks for taking our question. Maybe touching on that first question there. Our competitor in the space recently talked about pricing pressures from some of the largest media customers getting worse over the past couple of months. Speaker 1200:51:38Are you seeing those pricing trends in the market that's maybe driving some of that second half weakness alongside obviously the StackPath and Lumen impact? Or are you not really seeing these pressures given your decision to move away from these kind of lower margin delivery opportunities? Speaker 300:51:56Hey, Quentin, this is Ed. As we talked about, we had some large renewals this year. So obviously, those we've been through all those and there's certain pricing pressure there. I'd say it's nothing different than what we've traditionally seen in the marketplace. I wouldn't say that it's significantly worse. Speaker 300:52:10I think the issue is just not as much traffic growth. So as you reprice a customer, you tend to see significant traffic growth. So the revenue declines don't persist as long as they have in a situation like this. So I wouldn't say if anything has changed in terms of the trajectory of the pricing. It's always been very competitive. Speaker 300:52:29It always will be. So that's really not the issue. The issue is just we're not seeing the type of traffic growth that we normally see. Speaker 1200:52:39Yes, that's really helpful. And then obviously, it's still really early here with the Noname acquisition. But any update you can provide on the integration between Noname and your kind of existing NeoSack API opportunity? And maybe how you balance that go to market of those two platforms? And how you can kind Speaker 300:52:57of leverage a full suite to kind of Speaker 1200:52:59grow the wallet share within Speaker 200:53:00a customer? Thank you. Yes. We are now going to market with Noname. And as I mentioned, within 2 weeks of the close, we had it fully integrated with Akamai products, existing Akamai products, in particular our Web App firewall, where a lot of the APIs would go through that. Speaker 200:53:17So I would say we're basically integrated today. We have some Neosec customers, who we are maintaining over time that will evolve into the no name product with some of capabilities from Neosex, so we get the best of both worlds. Speaker 300:53:35Yes. Just to add Just to add the no name acquisition came with a pretty sophisticated channel as well as a number of specialists. So we have both of those, so that's going to help drive some sales. And actually from the minute we announced the close to when we closed or not so deal to when we closed, we saw a nice pickup in deals closed. So no impact on the funnel and the teams already out there selling. Speaker 300:54:03So very excited about that. I think we've just enhanced our go to market capability as part of the acquisition. Operator00:54:16The next question comes from Jonathan Ho with William Blair and Company. Please go ahead. Speaker 1300:54:24Hi, good afternoon. As you listen to customers and what they need or want from the compute side of things, are there any core services or capabilities that you feel like you're missing or you're going to add pretty soon that are maybe potentially catalysts for even faster adoption? Speaker 200:54:44I think probably the biggest difference today would be the size of the marketplace. Obviously, the hyperscalers have an enormous marketplace and we're getting started there. We're really excited that I think now we have a very competitive media workflow marketplace. I think we've got a very competitive observability marketplace. And that's something that we're going to be continuing to grow. Speaker 200:55:12We're also building out, as you know, our distributed compute capabilities. So that will be in more locations and in many locations where the scalers don't have a presence, which will give us an advantage in performance and also in countries where you've got data sovereignty laws will be in a better position to handle that. But it's yes, it's ongoing. We're continuing to develop and improve the platform, including with storage, a lot of effort going on there too. So that's going to be that'll be ongoing for the foreseeable future. Speaker 200:55:45But as you can tell from the results, we're in a position now we can get out there and be selling it. And it's great to see the rapid early adoption. Speaker 1300:55:56That makes a ton of sense. Just in terms of the delivery business, as we continue to see this decline as a percentage of revenue, yet it seems to be carrying the business in terms of margins. How concerned are you over deleveraging effects and CapEx efficiency as we see sort of the two sides of the business move in opposite directions? Thank you. Speaker 400:56:20Yes. I said it's not Speaker 300:56:21a huge concern there. The margins of the newer products are very high gross margin products, so that will be helpful. Sure, the compute business is a bit more capital intensive, but we've been able to drive down the CapEx of the core business and delivery pretty dramatically. So you're down low single digits as a percentage of revenue for that business. So that will maintain as long as the delivery as long as traffic is not growing significantly. Speaker 300:56:46And part of our strategy and being more selective of the type of peak traffic to average that we're taking on the platform is by design, is to make sure that we do maintain that efficiency as we're spending more CapEx in the compute business and we're not taking on that sort of not as profitable peak to average type traffic so that we can maintain a low CapEx posture in the delivery business. Operator00:57:16The next question comes from Tim Horan with Oppenheimer. Please go ahead. Speaker 1400:57:23Thanks guys. Kind of a few part question on cloud. Can you use your own platform? It sounds like you're moving a lot of legacy services on there to create kind of do you think unique services for yourself and new services or improve legacy services on that platform? And then secondly, if you look at Microsoft, Google Cloudflare, they're kind of growing cloud in the 30% range. Speaker 1400:57:46Do you think you can kind of get there? And are you kind of maybe CapEx constrained to do that? Or just maybe talk about how you can kind of get up to your peers there? And what do you have to do in the SMB market to hit that type of 30% growth? Thanks. Speaker 200:58:02Yes. On the first question, we have built capabilities for ourselves as part of our migration. So we're off of Snowflake and Databricks, which we had big spends there. Looking at over time, making our capabilities available to customers again, a service that is more efficient, which I think is really important for customers. In terms of the growth rate, I would say that you want to compare the enterprise compute number, which we've talked about was at a $50,000,000 ARR at the end of Q1. Speaker 200:58:37We think that'll more than double by the end of the year. That's sort of the number you want to look at that's comparable. We've got more in the overall compute number, but those are have products like Image and Video Manager, Legacy Akamai Net Storage, other kinds of things, which aren't as comparable for what you're looking at in terms of the hyperscaler growth. So if you focus on the enterprise compute, which is really going to be the growth driver for us, that's going to very, very fast percentage now and of course on a much, much smaller number than the hyperscalers. Ed, do you have want to add to that? Speaker 300:59:16No, I think that's exactly right. And that's something that over time as that number becomes more material, we'll start to break that out for folks to make it easy for you to see where that growth is coming from. But Tom is absolutely right. That's where the big market is. That's where we're seeing the explosive growth and we see that maybe we think that could continue. Speaker 300:59:35Obviously, the pipeline is growing. We're seeing a lot more use cases than we expected. I see a great participation from all of our reps across the world. It's not just for 1 geo. So we're very excited about it. Speaker 1400:59:47Eduardo, do you think you're capital constrained at all or product constrained at all in the enterprise there? Speaker 400:59:53No, I don't think there's Speaker 300:59:54a capital constraint problem. I mean, you could envision perhaps as a customer that may come to us with Speaker 101:00:00a big task where you Speaker 301:00:01may have to do some build out if it's in a particular concentrated geography. But we've got a very strong balance sheet. We produce a ton of free cash flow. So there's no issue from a capital constraint perspective. I think we can grow this business to a significant size over time. Speaker 301:00:20And I don't think capital is a problem right now. Speaker 401:00:23Thank you. Operator01:00:27The next question comes from Rudy Kessinger with D. A. Davidson. Please go ahead. Speaker 1501:00:34Hey, great. Thanks for taking my questions. On security, I guess in the second half, if I look at it, adjusting out middle name, it looks like organic growth at constant currency is just about 11% to 12%, obviously a bit of a slowdown versus the last several quarters. And you know, in general, the strategic growth rate has kind of been pretty volatile over the last 5 to 6 quarters. Could you just give us the puts and takes on maybe some tough compares in the second half? Speaker 1501:01:04I think you had some spiky TDoS strength last year, but also just going forward, just what's the kind of right growth range that we should expect out of the security business? Speaker 301:01:16Yes, sure. So just in terms of some of the puts and takes, just remember last year in Q3, we had a little over $6,000,000 of license revenue, that's a couple of percentage point. So that's going to make your Q3 compare a little bit more challenging. The other thing to keep in mind too, last year we introduced some new security bundles for Web App Firewall that did phenomenally well. So we've anniversaried that. Speaker 301:01:39So that makes your compares a little bit more challenging. And then between Guardicore and API Security, as they start to ramp, we think API is going to ramp very, very quickly. It's just a smaller number. So as you've talked about, the growth has bounced around a little bit over time. That happens as you bring new products into market and they start to ramp up. Speaker 301:01:59Think about when we brought Botman Manager to the market. It was a small product and then accrued 100 of 1,000,000 of dollars. I think the same thing you'll see with Cardiacor and API security. Speaker 1501:02:12Yes, okay. And then on the delivery outlook, I guess, yes, your competitors, I mean, Vasti, say it more directly. I mean, they certainly seem to indicate that outside it was broader than just one social media customers. It was several large media customers that seem to be shifting traffic to lower cost providers. It sounds like you guys aren't really seeing that dynamic or maybe it's not heard earlier in the year and it was already factored into the guide. Speaker 1501:02:40Any comment on that? Speaker 301:02:42Yes. No, we're not seeing a phenomenon of someone moving to low cost providers. As a matter of fact, there's 2 less of them in the market today. So we're not seeing that. As I talked about earlier, we have a tough compare with that path in Q4. Speaker 301:02:57And then, we've just seen just a lower traffic year. Gaming has been unusually weak. Video traffic isn't as robust as it normally is. That stuff that happens from time to time, but we're not seeing a shift to low cost providers or any new low cost providers in the market. Speaker 1501:03:20Okay, got it. Thanks. Operator01:03:26The last question today comes from William Power with Baird. Please go ahead. Speaker 1201:03:33This is Yannis Samulit on for Will. Thanks for taking the question. Ed, just going back to that more muted Q4 seasonality you're expecting for delivery again this year. If I remember correctly, last year you were pointing to weaker trends in retail, including an uptick in bankruptcies there and then also weaker in terms of gaming. And now I know it's probably still a little early to forecast still, but is it those same verticals where you're expecting weaker traffic again this year that you're informing your expectation or is it some others? Speaker 1201:04:01Or maybe it's more broad Speaker 301:04:04based? Yes. I'd say it's a combination of those two verticals. We've seen sort of over time the retail seasonal burst being less and less. Some of that has to do with the 0 overage product that we offer in the market. Speaker 301:04:17But just in general, it just hasn't been as robust as it has been, say, 4 or 5 years ago. And then from gaming, yes, still weak. I haven't seen any major launches or any we're not hearing anything from our customers that would lead me to believe that Q4 will be strong from that perspective. And then also, as I just talked about several times here that just traffic in general has been a bit sluggish from a growth perspective in general. So I don't see anything that tells me that that's going to change going into Q4. Speaker 301:04:46So obviously, we got a few months to go here before we get there. We'll update you when we talk again in November. But based on what I'm seeing today, just thought it was worthwhile calling that out to folks as they build out their models. Speaker 1201:05:00Okay. That makes sense. Thanks so much. Operator01:05:05This concludes our question and answer session. I would like to turn the conference back over to Mark Stoutenburg for closing remarks. Speaker 101:05:13Thank you, everyone. In closing, we will be presenting at several investor conferences throughout the rest of the quarter and the rest of the year. We look forward to seeing you at those. We hope everyone has a nice evening tonight. Operator, you may now end the call. Operator01:05:29The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAkamai Technologies Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Akamai Technologies Earnings HeadlinesAsia Pacific and Japan see 51bn web attacks in 2024, driven by AI useApril 24 at 11:02 PM | msn.comFormer MTV 'Real World' house in Old City looking for new tenantApril 24 at 11:02 PM | bizjournals.comWarning: “DOGE Collapse” imminentElon Strikes Back You may already sense that the tide is turning against Elon Musk and DOGE. Just this week, President Trump promised to buy a Tesla to help support Musk in the face of a boycott against his company. But according to one research group, with connections to the Pentagon and the U.S. government, Elon's preparing to strike back in a much bigger way in the days ahead.April 25, 2025 | Altimetry (Ad)Akamai Empowers Partners to Deliver Services and SupportApril 24 at 6:00 AM | prnewswire.comAI-Driven Web Attacks Surge 73% in APJ, Akamai Report RevealsApril 24 at 5:31 AM | msn.comAkamai Technologies Inc (AKAM) Reports 33% Increase in Web Attacks, Highlights API ...April 22 at 7:15 AM | gurufocus.comSee More Akamai Technologies Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Akamai Technologies? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Akamai Technologies and other key companies, straight to your email. Email Address About Akamai TechnologiesAkamai Technologies (NASDAQ:AKAM) provides cloud computing, security, and content delivery services in the United States and internationally. The company offers cloud solutions to keep infrastructure, websites, applications, application programming interfaces, and users safe from various cyberattacks and online threats while enhancing performance. It also provides web and mobile performance solutions to enable dynamic websites and applications; media delivery solutions, including video streaming and video player services, game and software delivery, broadcast operations, authoritative domain name system, resolution, and data and analytics; and cloud computing services, such as compute, storage, networking, database, and container management services to build, deploy, and secure applications and workloads. In addition, the company offers content delivery solutions; and an array of service and support to assist customers with integrating, configuring, optimizing, and managing its offerings. It sells its solutions through various channel partners. 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There are 16 speakers on the call. Operator00:00:00Good day, and welcome to the Second Quarter 20 24 Akamai Technology Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Stoutenburg, Head of Investor Relations. Operator00:00:39Please go ahead. Speaker 100:00:42Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's Q2 2024 Earnings Call. Speaking today will be Tom Layton, Akamai's Chief Executive Officer and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward looking statements, including statements regarding revenue and earnings guidance. These forward looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. Speaker 100:01:19The factors include any impact from macroeconomic trends, the integration of any acquisition and any impact from geopolitical developments. Additional information concerning these factors is contained in Akamai's filings with the SEC, including our annual report on Form 10 ks and our quarterly reports on Form 10 Q. The forward looking statements included in this call represent the company's view on August 8, 2024. Akamai disclaims any obligation to update these statements to reflect new information, future events or circumstances, except as required by law. As a reminder, we will be referring to certain non GAAP financial metrics today. Speaker 100:02:06A detailed reconciliation of GAAP and non GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. I'll now hand the call off to our Co Founder and CEO, Doctor. Tom Layton. Speaker 200:02:20Thanks, Mark. I'm pleased to report that in the 2nd quarter, Akamai delivered continued strong momentum in compute, strong growth in our security portfolio, steady operating margins and healthy earnings growth on the bottom line. 2nd quarter revenue grew to $980,000,000 up 5% year over year as reported and up 6% in constant currency. Non GAAP operating margin was 29%. Non GAAP earnings per share was $1.58 up 6% year over year and up 9% in constant currency. Speaker 200:02:57These results were in line with or above our guidance. Before I provide more color on our performance, I'd like to review how Akamai is evolving as we grow. As most of you know, Akamai first made name with the invention of content delivery services and we're still the world's leader in that market today. We stand out providing the scale and performance required by the world's top brands as we help them deliver reliable, secure and near flawless digital experiences. Recent examples include delivering the Euros Football Tournament and the summer games in Paris for top broadcasters around the world. Speaker 200:03:40As we've said in previous calls, our delivery business has been challenged in recent quarters by macroeconomic and geopolitical headwinds. Our plan for delivery is threefold. 1st, we will remain disciplined when it comes to the profitability of traffic that we choose to serve. 2nd, we will continue to leverage our market leadership position and installed base of major enterprises to generate cross selling opportunities. And third, we will continue to take steps to retain our market leadership while also reinvesting most of the cash flow from our delivery product line into the fast growing areas of the business. Speaker 200:04:21In Q2, delivery accounted for 1 third of our revenue or $329,000,000 This is quite a change from 5 years ago when delivery accounted for 2 thirds of Akamai revenue. The diversification of our revenue across new markets through continuous innovation has long been a core part of Akamai's strategy for long term profitable revenue growth. A little more than a decade ago, we expanded our business into security with the creation of Web App Firewall as a cloud service. We did this to meet what we recognized as a growing customer need in a way that was complementary to what Akamai was already doing for customers with delivery. The opportunity was clear to us because we listened to our customers. Speaker 200:05:09We created what has proved to be a very successful cloud service for web app firewall. And now for the first time in Akamai history, security delivered the majority of Akamai's revenue, dollars 499,000,000 in Q2, up 15% year over year and up 16% in constant currency. This amounts to an annual run rate of about $2,000,000,000 per year. Of course, we greatly expanded our security product set over the years. We now offer market leading solutions for DDoS prevention, bot management, account and content protection, app and API security and 0 Trust Enterprise Security led by our Gardacore segmentation solution. Speaker 200:05:56Customer interest in our security solutions is strong and we had many significant wins in Q2. 1 of the world's largest energy companies became a new Zero Trust customer with Akamai. One of the top 3 airlines in the U. S. Is moving from a legacy VPN architecture to a 0 Trust architecture with Akamai. Speaker 200:06:19We provided Akamai app and API protector to one of the largest providers of HR management software and services in the U. S. And the German retailers to Life, Douglas, Wagner and Zalando. Effiflex, the German maker of high speed We provided DDoS protection to 1 of the largest banks in the world and to a government ministry in the Middle East. And at one major electric utility in Southeast Asia, we replaced a well known competitor in a 5 year deal for our web app firewall, DDoS Protection, Bot Management, Account Takeover Prevention and API Security. Speaker 200:07:09We're especially excited about the most recent additions to our security portfolio. In Q2, we announced our new Akamai GardaCore platform, the first of its kind to enable 0 trust security through a fully integrated combination of micro segmentation, 0 trust network access, multi factor authentication, DNS firewall and threat hunting. Its single agent and unified control count console powered by GenAI are designed to strengthen and simplify enterprise security with broad visibility and granular controls. The new Gen AI interface enables our customers' operations teams to ask questions in a human language to gain information about their enterprise networks. The new Akamai GardaCore platform reflects our evolution as a security vendor, growing beyond point solutions to a broader and more comprehensive security offering. Speaker 200:08:11Customers tell us they want to consolidate security products and tools with vendors they can trust and we think this will appeal to their needs. In Q2, we also closed the acquisition of Noname Security as we accelerate our momentum in the fast growing API security market. IDC forecast this market will grow at a CAGR of 34% to nearly $1,000,000,000 by 2027. With Noname, we believe that Akamai now has one of the most comprehensive API security solutions in the industry. Within 2 weeks of the close, Akamai offered Noname customers our new Edge Connector, an integration with Akamai web app and API protector that works with a click of a button. Speaker 200:08:58Noname saw significant increase in closed deals in Q2, including wins at some of the largest banks and insurance companies in North America and at leading software companies in Europe and Asia. We're also beginning to see a good up sell motion with early no name adopters. For example, one of the largest U. S. Healthcare insurers more than doubled their no name contract in Q2 to over $1,700,000 annually. Speaker 200:09:26About a decade after we entered the security market, we again expanded Akamai's future opportunity by developing a much broader offering in cloud computing. As many of you know, Akamai has offered function as a service in our edge platform for many years. This kind of edge computing has been used by thousands of our customers and it is deeply integrated into our delivery and security services. But our customers asked for more. They wanted us to offer full stack cloud computing so that they could run their VMs and containers on the Akamai platform. Speaker 200:10:02And they wanted us to do it in a way that would be more efficient and less costly than comparable offerings provided by the hyperscalers. They wanted Akamai to do this because they were already delivering and securing their sites and apps on our platform. They liked our track record of reliability and they knew they could trust Akamai to be a good partner. Many of them also like the fact that we don't compete against them unlike the hyperscalers. Adding cloud computing to our portfolio also makes good sense for Akamai. Speaker 200:10:34In addition to satisfying customer demand, we can reap the advantages offering customers delivery, security and compute on the same platform. The synergies include improved performance, seamless integration and other operational efficiencies, bundling for cross selling and strong customer retention, increased margins for all of our services, deepening relationships with carrier networks, capacity to quickly detect and stop massive cyber attacks at the edge, unmatched visibility into enormous volumes of traffic insights and threat intelligence that we gain as a result. If you step back and look at how the marketplace has evolved, you can see how the hyper scalers have worked to achieve a similar suite of offerings, although they've taken a different route to get there. They started with cloud computing and infrastructure as a service and then moved into security and delivery, validating our view that there is synergy and offering has the world's most distributed cloud platform with more than 4,100 points of presence in over 700 cities across 130 countries. We believe that being more distributed provides customers with better performance, better economics and greater reliability. Speaker 200:12:03As we reported in our last earnings call, response from customers to our new cloud offering has been very encouraging. The strong early momentum that we achieved in Q1 continued in Q2 with compute revenue growing to $151,000,000 up 23% year over year and up 24% in constant currency. New compute customers added in Q2 include 1 of the world's best known media and entertainment brands based here in the U. S. The European cybersecurity company, Sequoia. Speaker 200:12:39Io Claro Video, the video brand of the biggest telco in Latin America. Mware TV, a technology platform for IPTV and OTT services. And a cable satellite IPTV provider that reaches almost half the households in Australia. Customers are also leveraging our ISV partners, which we call Qualified Compute Partners to run low latency workloads on our compute platform. These include solutions for observability into workload behavior, cybersecurity and large scale events, where the need to store very large sets of data makes Akamai a more attractive and cost effective option than competitors. Speaker 200:13:24Our media customers can now take advantage of a full suite of media workflow offerings on Akamai Connected Cloud, which provides valuable synergy with our delivery platform for more efficient image manipulation, decisioning and video transcoding. And with Akamai's latest qualified compute partner and customer, YoSpace, media companies around the globe can leverage their advanced ad tech and ad strategies at scale across the Akamai Connected Cloud. Customers are also building new apps on our significantly reduced cost. One customer is training and testing the machine learning engines that power their security scanning product. Another is building an AI powered chatbot application to improve their customer experience and streamline operations with intelligent conversational customer engagement. Speaker 200:14:23Such AI powered applications are increasingly popular with recent advances in large language models. Akamai is also a very large user of our new cloud solution. As a result of migrating most of our own apps from the hyperscalers to Akamai Connected Cloud, we're seeing better performance and greatly reduced cost. In fact, we expect to reduce our spending on third party clouds to less than a third of what it would have been this year had we stayed on the hyperscalers, saving us well over $100,000,000 in annual OpEx. It sure feels good not writing a 9 figure check to your competitors every year and this is a feeling that we look forward to providing to our large enterprise customers. Speaker 200:15:08In summary, Akamai has undergone a fundamental transformation. We transformed from a content delivery pioneer into the cloud company that powers and protects life online. Compute and security now generate 2 thirds of our revenue and we believe that they provide Akamai with excellent potential for future growth and profitability. And we've achieved this transformation while successfully maintaining robust margins because both of our fast growing product areas, our large security portfolio and our rapidly growing cloud computing portfolio are built upon and enabled by the foundation of our business, our highly efficient and massively distributed delivery platform. Our near term operating margin goal remains 30% and we see potential margin upside over time as the fast growing areas of the business expand our profitability. Speaker 200:16:06Looking back at the first half of twenty twenty four, we're pleased by our strong performance in security and compute. Looking ahead, we're very excited about our potential for future growth as we integrate Noname and as our fast growing compute offerings continue to gain traction with customers. Now I'll turn the call over to Ed for more on our Q2 results and our outlook for Q3 and the full year. Ed? Speaker 300:16:32Thank you, Tom. Today I plan to review our Q2 results and then provide some color on our expectations for Q3 and the full year. Turning to our Q2 results. Total revenue for the Q2 was $980,000,000 up 5% year over year as reported and 6% in constant currency. Compute revenue was $151,000,000 up 23% year over year as reported and 24% in constant currency. Speaker 300:17:01We continue to be very pleased with the level of enthusiasm in the market as more and more customers are leveraging our enterprise compute solutions. In particular, we are seeing a broad array of enterprise compute use cases including live transcoding, secure access, observability, object storage, real time log aggregation and insight, spatial computing and deep learning AI models across many verticals including media, e commerce, software and financial services. Moving to security revenue. In the Q2, security revenue was $499,000,000 up 15% year over year as reported and 16% in constant currency. We're very pleased by the continued performance of our GardaCore 0 Trust solution and highly encouraged by the traction we are seeing in our recently launched API security solution. Speaker 300:17:54It's worth noting that the Noname transaction closed in late June and the revenue contribution in the Q2 was less than $1,000,000 Combined, compute and security revenue grew 17% year over year as reported and 18% in constant currency, representing 66% of total revenue. Moving to delivery. Revenue was $329,000,000 which declined 13% year over year as reported and 12% in constant currency. The decline in delivery revenue was primarily related to the revenue impacting items that I outlined last quarter and was in line with our expectations. International revenue was $471,000,000 up 3% year over year and up 5% in constant currency, representing 48% of total revenue in Q2. Speaker 300:18:43Foreign exchange fluctuations had a negative impact on revenue of $5,000,000 on a sequential basis and a negative $10,000,000 impact on a year over year basis. Non GAAP net income was $243,000,000 or $1.58 of earnings per diluted share, up 6% year over year and up 9% in constant currency. And our non GAAP operating margin in Q2 was 29%. Moving now to cash and our use of capital. As of June 30, our cash, cash equivalents and marketable securities totaled approximately $1,900,000,000 During the second quarter, we spent approximately $128,000,000 repurchasing approximately 1,400,000 shares. Speaker 300:19:27We now have an aggregate of roughly 2 $300,000,000 remaining in our share buyback authorizations. We also used approximately $450,000,000 in cash in the Q2 for the acquisition of Noname. As it relates to our use of capital, our intention remains the same to continue buying back shares over time to offset dilution from employee equity programs and to be opportunistic in both M and A and share repurchases. Before I provide our Q3 and updated full year 2024 guidance, I want to touch on some housekeeping items. 1st, regarding the close of the Noname Security acquisition, we expect this transaction to add approximately $8,000,000 to $10,000,000 of revenue in Q3 and approximately $18,000,000 to $20,000,000 in revenue for the full year 2024. Speaker 300:20:14We also expect it to be dilutive to non GAAP EPS by approximately 0 point approximately 30 to 40 basis points in 2024. As a reminder, our updated full year guidance includes the impact of the acquisition. 2nd and specific to traffic, we expect a modest uptick in year over year traffic in Q3 primarily due to the Paris Summer Games. This event is expected to drive approximately $3,000,000 to $4,000,000 of additional revenue in the Q3. And while Q4 is typically our strongest quarter seasonally, we saw a more muted impact of that seasonality last year and we expect to see a similar result this year. Speaker 300:20:593rd, the country of India recently announced plans to eliminate its digital service tax effective as of August 1, 2024. We are working with our tax advisors to determine the full impact of this tax change on our non GAAP effective tax rate. Based on our initial assessment, we believe this could result in a small increase in our effective non GAAP tax rate and we have adjusted our guidance accordingly. Finally, the macroeconomic environment remains challenging and geopolitical tensions persist. Any negative developments could have a meaningful impact on our business. Speaker 300:21:34So with those factors in mind, I'll move to our Q3 guidance. For Q3, we're projecting revenue in the range of 988 $1,008,000,000 or up 2% to 4% as reported and 3% to 5% in constant currency over Q3 2023. At current spot rates, foreign exchange fluctuations are expected to have a positive $2,000,000 impact on Q3 revenue compared to Q2 levels and a negative $5,000,000 impact year over year. At these revenue levels, we expect cash gross margins of approximately 73%. Q3 non GAAP operating expenses are projected to be $307,000,000 to $312,000,000 We expect Q3 EBITDA margin of approximately 42%. Speaker 300:22:18We expect non GAAP depreciation expense to be between $129,000,000 to $131,000,000 and we expect non GAAP operating margin of approximately 29% for Q3. Moving on to CapEx, we expect to spend 166 to $174,000,000 This represents approximately 17% of our projected total revenue. Based on our expectations for revenue and costs, we expect Q3 non GAAP EPS in the range of $1.56 to $1.62 The CPS guidance assumes taxes of $59,000,000 to $60,000,000 based on an estimated quarterly non GAAP tax rate of approximately 19% to 20%. It also reflects a fully diluted share count of approximately 154,000,000 shares. Looking ahead to the full year, we now expect revenue of $3,970,000,000 to $4,010,000,000 which is up 4% to 5% year over year as reported and up 5% to 6% in constant currency. Speaker 300:23:16At current spot rates, our guidance assumes foreign exchange will have a negative $20,000,000 impact to revenue in 2024 on a year over year basis. We continue to expect security revenue growth of approximately 15% to 17% in constant currency in 2024, including the contribution from the acquisition of Nomi. And given the strong momentum and adoption from both new and existing enterprise compute customers, we now expect enterprise compute annualized revenue run rate to double from the $50,000,000 we reported last quarter to over $100,000,000 as we exit 2024. As a result, we are now increasing our overall expected compute revenue growth to approximately 23% to 25% in constant currency for the full year 2024. Moving to profitability. Speaker 300:24:04We estimate non GAAP operating margin of approximately 29% and non GAAP earnings per diluted share of $6.34 to $6.47 Our non GAAP earnings guidance is based on non GAAP effective tax rate of approximately 19% to 20% and a fully diluted share count of approximately 154,000,000 shares. Finally, our full year CapEx is expected to be approximately 16% of total revenue. In closing, we are pleased with the traction we are seeing in enterprise compute and look forward to helping our customers migrate services to the Akamai Connected Cloud. Thank you. Tom and I would now be happy to take your questions. Speaker 300:24:40Operator? Operator00:24:44We will now begin the question and answer session. The first question today comes from Patrick Colville with Scotiabank. Please go ahead. Speaker 400:25:22Thank you so much for Speaker 500:25:23taking my question. Frank and Ed, really great to be part of the Akamai story. I want to talk about the business mix shift. I mean, that's where you opened your kind of prepared remarks. Specifically, I want to focus on compute. Speaker 500:25:40The $100,000,000 revenue you just called out from Akamai Connected Cloud is really compelling and great to see that that's ramping. When might that hockey stick to become even greater kind of revenue base? Like what's the kind of trajectory of back in my connected cloud over the coming kind of quarters and if you think out beyond that? Speaker 200:26:08Yes, great question. And I got to say we were very pleased to see the rapid early adoption. That's a capability that we really just started selling in earnest this year. We had some very early adopters towards the end of last year. And if we can get up to $100,000,000 ARR by the of the year, which we think we're going to do, that's great for the 1st year of the product. Speaker 200:26:35And then we'll see where we are at the beginning next year. We'll give guidance in February for the year in compute, but we're very optimistic about strong growth in compute driven by the enterprise customers and our new capability there. There's an enormous market there obviously. And so we're really looking forward into tapping into that. Speaker 500:27:02Very helpful. Thank you. And I guess the second part of my question, I want to ask about delivery. I mean this year you've been very clear about the kind of headwinds of the delivery business in 2024. I appreciate you might not want to kind of give guidance beyond 2024, but wondering whether the headwinds we're seeing right now are cyclical headwinds or are they structural in nature? Speaker 500:27:38Thank you. Speaker 200:27:40Yes. I don't think what we're seeing today persists over the long term. Traffic, I think will grow, continue to grow, maybe at a little bit of a slower rate than it did certainly during the COVID times. But delivery, I believe is here to stay. We are intent on remaining the market leader by a good margin. Speaker 200:28:06It's a very profitable business for us. We were very careful about that. We're very efficient in what we do. And it's very synergistic with our security, web app firewall business and our emerging compute business. So I don't see these headwinds persisting over the long term. Speaker 200:28:26There are geopolitical considerations that we're worried about for next year, but I don't think this is a long term phenomenon. And in any case, given the very fast growth of our security and compute product lines, they've nearly tripled in revenue over the last 5 years. So now where they're 2 thirds of our revenue overall. I think the what you see with delivery with sometimes challenges, sometimes good, it has a lot less impact on the overall growth rates as we go forward. Ed, do you have anything you want to add to that? Speaker 200:29:03No, I Speaker 400:29:03think you covered it well, Tom. Operator00:29:12The next question comes from Keith Weiss with Morgan Stanley. Please go ahead. Speaker 600:29:19Excellent. Thank you guys for taking the question. And congratulations on a solid quarter. And I wanted to ask you a little bit about kind of parsing out the guidance, particularly the full year guidance. If I'm doing my math right, the midpoint of the full year comes up by about $5,000,000 for the full year. Speaker 600:29:38But we're adding for known name security, it sounds like about $20,000,000 in revenues for the full year. Is there a part of the equation that's coming down a part of the business that you're getting more cautious on that makes up that difference? Speaker 300:29:53No, Keith. Yes. So we included No Name in our guidance last quarter as well. So there's nothing that's changed. If anything, the business has gotten a little bit better. Speaker 300:30:02So our guidance has come up a bit to reflect that. Speaker 600:30:06Got it. Got it. And then on the expense side of the equation, the savings from moving sort of in house from the hyperscalers, $100,000,000 in real savings. Congratulations on that. That's quite a feat. Speaker 600:30:22Tom, you talked about the ability to sort of start pushing that more into operating margins in the near future. Can you give us an indication of what near future means? Like is 2025 near future? Or are we thinking 2 or 3 years out or further? Speaker 200:30:38Yes, the operating savings we're getting, as Ed said, we've been plowing that back into the business by and large, so that we can invest in growth. There's more savings to come there, but we really get the upward pressure on margins, the beneficial tailwinds on margins as the mix shift continues. As we add compute customers, that is good margin for us and it's accretive. Security as we add customers there, it's accretive. Now as Ed noted that today with the new security products initially they're dilutive, but as we grow the revenue there, every customer we add, every deal we sign improves margins. Speaker 200:31:22So that over time, 30% is our goal with very close to that today. But over time, we think we have good potential to grow beyond that. Operator00:31:41The next question comes from John DiFucci with Guggenheim Securities. Please go ahead. Speaker 700:31:49Thank you. I have a question on GARCOR. So segmentation broadly seems like it's becoming more relevant in the market. Customers are more accepting of it. It's no longer like a new thing. Speaker 700:32:02And then it has been for a while and you guys have been there and you bought Garticore a couple of years ago. But frankly, it seems like an essential component to a 0 Trust environment. Not everybody has it. So can you talk a little bit more about how about this business, but really about your Akamai Gardacore 0 Trust platform that you just launched a few months ago and how that sort of fits in the ecosystem of some of an enterprise when they need to protect all their assets and to establish that 0 trust environment? Because it always seemed to me that this was essential, like I said, for 0 trust. Speaker 700:32:41And I guess, if you can also, in addition to the technologies and what else it fits in with, can you also hit on your channel efforts regarding this platform? Because I know this is sold through the channel. I think Ed, you said this before, but it seems like a really sophisticated solution. Like it's not just you're buying a firewall for somebody or something like that. If you can just talk a little bit about how I know it's only it's early, but how that is how that's working through the channel? Speaker 200:33:12Yes. I think you characterized it very well. Segmentation is essential. I mean, you got to lock the doors and the windows as best you can, but now we're still getting. And I think really the most important thing an enterprise can do is lock down everything inside. Speaker 200:33:32And that means Gardicore. It means having your agent on every application on every device. And you're right, most enterprises don't have it. When you go back a few years and I think the community at large really disfavored segmentation. And that's because the way it was done back then was really crude. Speaker 200:33:56You did it in hardware, it's very inflexible, hard to do. And at the end of the day, if you did it at all, you had giant segments which defeated the whole purpose. You weren't very secure because the malware would get in and wipe out an entire giant segment and you had a big problem. And GardaCore solved that problem through software, very easy to manipulate, make updates, much more secure, fine grain controls. And so it's been an education process for us in the marketplace. Speaker 200:34:29We viewed it as something that was going to be essential and that I think is proving out as you noted. And of course with all the ransomware headlines and disasters, not surprising to see why people are waking up to why they really do need this. So now the next question is with the platform. And there what we've done is combine the GardaCore which is protecting inside app to app device to device communication with the employee device to internal applications. And so we've combined what's called north south and east west. Speaker 200:35:10Now again, you go back a few years ago, they were different buyers and treated differently. But then we were thinking back then, boy, it's going to make sense to put this all together and sure enough, we're now seeing customers say, hey, we want that in the same platform. We want a single agent, not 2 different agents and we got to deal with a single control panel so that the business logic can be applied to employee devices at the same way and the same time as it is to internal applications. And so that's what the Guardicore platform is all about. We actually also combine it with DNS firewall, multi factor authentication, threat hunting capabilities so that you can tell when you've got malware, where it is, what's going on into a platform which customers are excited about. Speaker 200:36:03And I think it's important not to underestimate the importance of a single agent to do this that's really important real estate. And the new control panel powered by GenAI, it's actually pretty cool. You can converse in a human language, if you will, with your network infrastructure. So you get much greater visibility, probably much better compliance as a result, which means a better security. Now to your channel question, yes, Gardacore is all channel. Speaker 200:36:34And you're right, it is a sophisticated integration and deployment. It's not just like throw a firewall out there. And that's where the partners can really add value. And so in some cases, many cases, the partner will derive even more revenue than Akamai will and it's ongoing because you're growing your GardaCore, your segmentation footprint to include more applications and devices. And it's great for partners when they can add value and generate revenue. Speaker 200:37:07So it's really good channel friendly product. And of course not easy to do per se, but a lot easier than the way segmentation used to be. Speaker 700:37:19And if I could Tom, because that all makes a ton of sense to me. But it also raises a question like what do people what do they do? What are the alternatives? Like I'm familiar with Olumio and there's another company I've seen called Trufort. But again, like you said, like people don't a lot of enterprises don't even have segmentation implemented. Speaker 700:37:42A lot do, but a lot don't. And so what are they are there other things that we're just that I'm just missing? Like I don't know, is Palo say you don't want to go in and you buy the whole Palo platform, are they just saying you don't need it or we have something that kind of does it? Like I'm just trying to because the opportunities just sounds seems really big here. Speaker 200:38:04No, I think it is a big opportunity and very few relatively speaking enterprises have it today. The early adopters are the critical infrastructure companies because they really, really have to have it. And we do compete with Alumio, they're probably our leading competitor. We believe the Guardicore solution is a lot better. We actually have our own mini firewall in the Asia. Speaker 200:38:27We don't have to rely on the firewall in the OS, which sometimes won't be there or might not be consistent. We can cover a lot of the legacy systems, which that's important to enterprises to get more universal coverage. I think there is a ton of greenfield. And I wouldn't be there when one of the other competitors is talking about their platforms. They probably don't spend a lot of time talking about segmentation because they don't really have a solution for it. Speaker 700:38:56Thank you very much, Tom. Operator00:39:02The next question comes from Mark Murphy with JPMorgan. Please go ahead. Speaker 800:39:08Thank you very much. Ed, what is your latest thinking on the FX headwind to the full year revenue forecast? I'm just curious if there's any movement there from I think previously you've been looking at that as I believe $40,000,000 headwind. Speaker 300:39:26Yes. Hey Mark. Yes, not much of a change. The dollar moved around quite a bit during the quarter up and down, but it's pretty much exactly the same. So for the full year, it's about 40. Speaker 300:39:37I gave the guidance already in the quarter in terms of the impact quarter over quarter and for year over year, but it's still about the same, just around 40 for the full year. Speaker 800:39:47Okay. Thank you. And then, Tom, as a quick follow-up, you mentioned a pretty wide array of the workload types that you're seeing under cloud computing platform. And you mentioned toward the end deep learning and AI models. I'm wondering if you can double click on that, for instance. Speaker 800:40:03What are the types of models? Are you seeing LLMs or text models or image models or something else? And is it possible to estimate what percentage of your cloud ARR might be relating to those newer types of AI workloads? Speaker 200:40:20Yes, great question. I would say today AI workload is probably a small fraction of the ARR. I think over time, potential for growth there. As we talked about useful in security applications, chatbots, tailoring content for commerce companies, ad targeting, recommendation engines. I would say that the models are smaller because they're more focused. Speaker 200:40:52The giant models sort of are used to learn everything. Your chat CPT, you can ask it any question at all, have it try to be knowledgeable about everything. Those are giant models. And we're not really targeting that business. But for our customer base, they tend to be a lot more focused on what they're trying to do. Speaker 200:41:12Maybe it's a commerce site, maybe it's an ad site, maybe it's a security company and they don't need to learn the whole world to really provide value. In fact, we see that with our own solution with the Yakamai Gardicore platform with the control interface powered by GenAI. Really it's a very specific application, which means that you don't need the gigantic model to really provide the value. And that means it doesn't have to run on this giant suite of GPUs. It can run just great on our platform, which has GPUs, but it's primarily CPU based, which gives us much better ROI. Speaker 200:41:55And that works great for what our customers are looking to do in terms of their AI applications. Speaker 800:42:02Thank you very much. Operator00:42:06The next question comes from Madelyn Brooks with Bank of America. Please go ahead. Speaker 900:42:13Hi, team. Thanks for taking my question. So I want to continue on the discussion of Connected Cloud. And you mentioned some nice wins for non media, non e commerce? What are the use cases that those customers are finding from connected cloud? Speaker 900:42:35And if you could just help us break out to growth of those customers maybe versus growth of your more traditional customers, are they growing around the same in terms of their adoption of connected cloud? Thanks so much. Speaker 200:42:46Yes, we're seeing growth both within the base and outside the base. I think for example with our qualified compute partner program with observability, a lot of companies need that to know what's going on with their applications. Security companies would need that. Now we also have a lot of media customers and I would say that's probably the biggest segment today. We have by design a full media workflow ecosystem now supported through our QCP program on the platform. Speaker 200:43:23And so a lot of media customers starting to take advantage of that. Outside of that, for example, OS and firmware, patch storage, personalized waiting room experience, improved page performance with hints and so forth. We talked about with AI tailoring the site for a user based on what they've been doing so far. Real time log aggregation and Speaker 300:43:55running on it, a 5 gs Speaker 200:43:56Internet Gateway running on it, running on it, a 5 gs Internet gateway running on it. So it does broaden the base, which is I think exciting for us in the future. But today, probably the biggest segment would be media. Operator00:44:15Thanks so much. The next question comes from Alex Henderson with Needham. Please go ahead. Speaker 1000:44:26Great. First off, I think congratulations are in order on the great results out of both security and out of the compute. And I wanted to focus a little bit on the compute side of the business because I think ultimately that's the area that needs to be proven out to the street more than anything else. Can you talk a little bit about the mechanics around what portion of the customer base that's converting to compute is coming from internal? What portion of the compute are true new customers? Speaker 1000:45:02How many how much of the growth is coming from existing customers that are increasing their upsell? Just kind of look at it as if it was a traditional standalone business and give us some of those critical metrics that go into analyzing the success of that business? Speaker 200:45:25Yes, I'll take our first half and turn it over to Ed and the answer will be pretty similar to the last question. I would say our biggest users and the biggest segment for compute today is our large media customers. And that's by design. And our a lot of our QCP, our qualified compute partners are media workflow companies. So that's sort of the biggest segment. Speaker 200:45:51I would say observability as a capability, a very large one as well and that spans across all verticals and would include new customers. So we do have a bunch of customers in non traditional Akamai verticals that are using compute. And I think over the longer run that opens up a whole new market verticals for us. But the biggest chunk today would be existing Akamai Media Companies is the biggest. And Ed, you want to add some color on that? Speaker 300:46:26Yes, sure. Hey, Alex. Yes, so as Tom mentioned, we're seeing growth in both existing applications for stuff that's been on the platform for a while, But the bulk of the growth is actually coming from new customers. The new customer additions is growing very, very quickly. We broke out some numbers for you last quarter and that continues to ramp very nicely and we're seeing a significant increase in the pipeline. Speaker 300:46:49We are seeing some new customers come to the platform. And what's interesting is we're probably seeing more workloads and repeatable workloads in areas even Tom talked about media, but outside of media. And we're seeing customers that may be relatively small, CDN customers are fairly large compute customers. So I'd say it's across the board where we're seeing the growth, but it's mostly from adding new customers to the mix and then they start to ramp. Speaker 1000:47:19Thank you. Operator00:47:24The next question comes from Fatima Boolani with Citi. Please go ahead. Speaker 1100:47:31Thank you for taking my questions. Ed, I wanted to 0 in on the delivery guidance and the expected performance in the back half. So appreciate you experienced a lot of the traffic degradation patterns in the first half. But I'm just curious why the trajectory of the business is actually worsening in the back half? And then I have a follow-up for Tom, please. Speaker 300:47:56Yes, sure. So I talked a little bit about the expectations for Q4. Just based on what we're seeing now in terms of traffic growth and what we saw last year, we're not expecting the normal hockey stick to any significant degree like we've seen in prior years. And also keep in mind, we closed the transaction with StackPath and Lumin last year and that's all delivery revenue. So that makes your Q4 a tougher comparison. Speaker 300:48:20If you're looking at sort of year over year growth rates, that's going to skew your perspective a bit. And as we talked about, on the last call, there was some dynamics going on with 1 of our larger social media customers. The good news there is we've got a good handle on that and that's sort of playing out as we expected. But as we've talked about, those are the factors that as you put that into your model, why it may look like it's deteriorating a little bit. But I'd say the biggest issue is the fact that you're anniversarying the StackPath and Lumen contribution from Q4 last year. Speaker 1100:48:51That makes sense. That's very fair. And Tom for you, I think you've been very constructive around the compute opportunity. There are so many specific examples of the momentum you've been garnering in the compute franchise. But taking a step back as a broader strategy question for you, as you think about scaling that franchise and have it become an even bigger part of the overall revenue story. Speaker 1100:49:21How are you straddling this notion of not using compute as or essentially ensuring compute ends up being wallet share accretive against your base as opposed to potentially managing a situation in which the delivery franchise sort of bumps along and compute sort of plugging the hole? Just what are some of the mechanisms you have in place to continue to drive actual wallet share growth and accretion within existing delivery customers from where you are extracting a lot of net new compute demand for now? Thank you. Speaker 200:50:02Yes. Compute is different than delivery. So it's not a situation where delivery revenue is going into compute. That's not the case here. And that compute opportunity is orders of magnitude bigger than the delivery opportunity. Speaker 200:50:20And so I think over time it becomes a much bigger business and delivery. And I think delivery does its thing and is a very good business for us in terms of cash generation, in terms of cross selling and in terms actually of the economics of the platform. So we can go out there and offer compute at a and especially for chatty applications and applications where data is moving around at a much lower price point than the hyperscalers because we have the delivery platform, but it doesn't it's not a situation where it's plugging a hole in delivery. I think compute is a huge revenue growth driver for us in the future independent of anything in delivery. Speaker 1100:51:13Very clear. Thank you. Operator00:51:18The next question comes from Jim Fish with Piper Sandler. Please go ahead. Speaker 1200:51:24Hey, guys. This is Quintin on for Jim Fish. Thanks for taking our question. Maybe touching on that first question there. Our competitor in the space recently talked about pricing pressures from some of the largest media customers getting worse over the past couple of months. Speaker 1200:51:38Are you seeing those pricing trends in the market that's maybe driving some of that second half weakness alongside obviously the StackPath and Lumen impact? Or are you not really seeing these pressures given your decision to move away from these kind of lower margin delivery opportunities? Speaker 300:51:56Hey, Quentin, this is Ed. As we talked about, we had some large renewals this year. So obviously, those we've been through all those and there's certain pricing pressure there. I'd say it's nothing different than what we've traditionally seen in the marketplace. I wouldn't say that it's significantly worse. Speaker 300:52:10I think the issue is just not as much traffic growth. So as you reprice a customer, you tend to see significant traffic growth. So the revenue declines don't persist as long as they have in a situation like this. So I wouldn't say if anything has changed in terms of the trajectory of the pricing. It's always been very competitive. Speaker 300:52:29It always will be. So that's really not the issue. The issue is just we're not seeing the type of traffic growth that we normally see. Speaker 1200:52:39Yes, that's really helpful. And then obviously, it's still really early here with the Noname acquisition. But any update you can provide on the integration between Noname and your kind of existing NeoSack API opportunity? And maybe how you balance that go to market of those two platforms? And how you can kind Speaker 300:52:57of leverage a full suite to kind of Speaker 1200:52:59grow the wallet share within Speaker 200:53:00a customer? Thank you. Yes. We are now going to market with Noname. And as I mentioned, within 2 weeks of the close, we had it fully integrated with Akamai products, existing Akamai products, in particular our Web App firewall, where a lot of the APIs would go through that. Speaker 200:53:17So I would say we're basically integrated today. We have some Neosec customers, who we are maintaining over time that will evolve into the no name product with some of capabilities from Neosex, so we get the best of both worlds. Speaker 300:53:35Yes. Just to add Just to add the no name acquisition came with a pretty sophisticated channel as well as a number of specialists. So we have both of those, so that's going to help drive some sales. And actually from the minute we announced the close to when we closed or not so deal to when we closed, we saw a nice pickup in deals closed. So no impact on the funnel and the teams already out there selling. Speaker 300:54:03So very excited about that. I think we've just enhanced our go to market capability as part of the acquisition. Operator00:54:16The next question comes from Jonathan Ho with William Blair and Company. Please go ahead. Speaker 1300:54:24Hi, good afternoon. As you listen to customers and what they need or want from the compute side of things, are there any core services or capabilities that you feel like you're missing or you're going to add pretty soon that are maybe potentially catalysts for even faster adoption? Speaker 200:54:44I think probably the biggest difference today would be the size of the marketplace. Obviously, the hyperscalers have an enormous marketplace and we're getting started there. We're really excited that I think now we have a very competitive media workflow marketplace. I think we've got a very competitive observability marketplace. And that's something that we're going to be continuing to grow. Speaker 200:55:12We're also building out, as you know, our distributed compute capabilities. So that will be in more locations and in many locations where the scalers don't have a presence, which will give us an advantage in performance and also in countries where you've got data sovereignty laws will be in a better position to handle that. But it's yes, it's ongoing. We're continuing to develop and improve the platform, including with storage, a lot of effort going on there too. So that's going to be that'll be ongoing for the foreseeable future. Speaker 200:55:45But as you can tell from the results, we're in a position now we can get out there and be selling it. And it's great to see the rapid early adoption. Speaker 1300:55:56That makes a ton of sense. Just in terms of the delivery business, as we continue to see this decline as a percentage of revenue, yet it seems to be carrying the business in terms of margins. How concerned are you over deleveraging effects and CapEx efficiency as we see sort of the two sides of the business move in opposite directions? Thank you. Speaker 400:56:20Yes. I said it's not Speaker 300:56:21a huge concern there. The margins of the newer products are very high gross margin products, so that will be helpful. Sure, the compute business is a bit more capital intensive, but we've been able to drive down the CapEx of the core business and delivery pretty dramatically. So you're down low single digits as a percentage of revenue for that business. So that will maintain as long as the delivery as long as traffic is not growing significantly. Speaker 300:56:46And part of our strategy and being more selective of the type of peak traffic to average that we're taking on the platform is by design, is to make sure that we do maintain that efficiency as we're spending more CapEx in the compute business and we're not taking on that sort of not as profitable peak to average type traffic so that we can maintain a low CapEx posture in the delivery business. Operator00:57:16The next question comes from Tim Horan with Oppenheimer. Please go ahead. Speaker 1400:57:23Thanks guys. Kind of a few part question on cloud. Can you use your own platform? It sounds like you're moving a lot of legacy services on there to create kind of do you think unique services for yourself and new services or improve legacy services on that platform? And then secondly, if you look at Microsoft, Google Cloudflare, they're kind of growing cloud in the 30% range. Speaker 1400:57:46Do you think you can kind of get there? And are you kind of maybe CapEx constrained to do that? Or just maybe talk about how you can kind of get up to your peers there? And what do you have to do in the SMB market to hit that type of 30% growth? Thanks. Speaker 200:58:02Yes. On the first question, we have built capabilities for ourselves as part of our migration. So we're off of Snowflake and Databricks, which we had big spends there. Looking at over time, making our capabilities available to customers again, a service that is more efficient, which I think is really important for customers. In terms of the growth rate, I would say that you want to compare the enterprise compute number, which we've talked about was at a $50,000,000 ARR at the end of Q1. Speaker 200:58:37We think that'll more than double by the end of the year. That's sort of the number you want to look at that's comparable. We've got more in the overall compute number, but those are have products like Image and Video Manager, Legacy Akamai Net Storage, other kinds of things, which aren't as comparable for what you're looking at in terms of the hyperscaler growth. So if you focus on the enterprise compute, which is really going to be the growth driver for us, that's going to very, very fast percentage now and of course on a much, much smaller number than the hyperscalers. Ed, do you have want to add to that? Speaker 300:59:16No, I think that's exactly right. And that's something that over time as that number becomes more material, we'll start to break that out for folks to make it easy for you to see where that growth is coming from. But Tom is absolutely right. That's where the big market is. That's where we're seeing the explosive growth and we see that maybe we think that could continue. Speaker 300:59:35Obviously, the pipeline is growing. We're seeing a lot more use cases than we expected. I see a great participation from all of our reps across the world. It's not just for 1 geo. So we're very excited about it. Speaker 1400:59:47Eduardo, do you think you're capital constrained at all or product constrained at all in the enterprise there? Speaker 400:59:53No, I don't think there's Speaker 300:59:54a capital constraint problem. I mean, you could envision perhaps as a customer that may come to us with Speaker 101:00:00a big task where you Speaker 301:00:01may have to do some build out if it's in a particular concentrated geography. But we've got a very strong balance sheet. We produce a ton of free cash flow. So there's no issue from a capital constraint perspective. I think we can grow this business to a significant size over time. Speaker 301:00:20And I don't think capital is a problem right now. Speaker 401:00:23Thank you. Operator01:00:27The next question comes from Rudy Kessinger with D. A. Davidson. Please go ahead. Speaker 1501:00:34Hey, great. Thanks for taking my questions. On security, I guess in the second half, if I look at it, adjusting out middle name, it looks like organic growth at constant currency is just about 11% to 12%, obviously a bit of a slowdown versus the last several quarters. And you know, in general, the strategic growth rate has kind of been pretty volatile over the last 5 to 6 quarters. Could you just give us the puts and takes on maybe some tough compares in the second half? Speaker 1501:01:04I think you had some spiky TDoS strength last year, but also just going forward, just what's the kind of right growth range that we should expect out of the security business? Speaker 301:01:16Yes, sure. So just in terms of some of the puts and takes, just remember last year in Q3, we had a little over $6,000,000 of license revenue, that's a couple of percentage point. So that's going to make your Q3 compare a little bit more challenging. The other thing to keep in mind too, last year we introduced some new security bundles for Web App Firewall that did phenomenally well. So we've anniversaried that. Speaker 301:01:39So that makes your compares a little bit more challenging. And then between Guardicore and API Security, as they start to ramp, we think API is going to ramp very, very quickly. It's just a smaller number. So as you've talked about, the growth has bounced around a little bit over time. That happens as you bring new products into market and they start to ramp up. Speaker 301:01:59Think about when we brought Botman Manager to the market. It was a small product and then accrued 100 of 1,000,000 of dollars. I think the same thing you'll see with Cardiacor and API security. Speaker 1501:02:12Yes, okay. And then on the delivery outlook, I guess, yes, your competitors, I mean, Vasti, say it more directly. I mean, they certainly seem to indicate that outside it was broader than just one social media customers. It was several large media customers that seem to be shifting traffic to lower cost providers. It sounds like you guys aren't really seeing that dynamic or maybe it's not heard earlier in the year and it was already factored into the guide. Speaker 1501:02:40Any comment on that? Speaker 301:02:42Yes. No, we're not seeing a phenomenon of someone moving to low cost providers. As a matter of fact, there's 2 less of them in the market today. So we're not seeing that. As I talked about earlier, we have a tough compare with that path in Q4. Speaker 301:02:57And then, we've just seen just a lower traffic year. Gaming has been unusually weak. Video traffic isn't as robust as it normally is. That stuff that happens from time to time, but we're not seeing a shift to low cost providers or any new low cost providers in the market. Speaker 1501:03:20Okay, got it. Thanks. Operator01:03:26The last question today comes from William Power with Baird. Please go ahead. Speaker 1201:03:33This is Yannis Samulit on for Will. Thanks for taking the question. Ed, just going back to that more muted Q4 seasonality you're expecting for delivery again this year. If I remember correctly, last year you were pointing to weaker trends in retail, including an uptick in bankruptcies there and then also weaker in terms of gaming. And now I know it's probably still a little early to forecast still, but is it those same verticals where you're expecting weaker traffic again this year that you're informing your expectation or is it some others? Speaker 1201:04:01Or maybe it's more broad Speaker 301:04:04based? Yes. I'd say it's a combination of those two verticals. We've seen sort of over time the retail seasonal burst being less and less. Some of that has to do with the 0 overage product that we offer in the market. Speaker 301:04:17But just in general, it just hasn't been as robust as it has been, say, 4 or 5 years ago. And then from gaming, yes, still weak. I haven't seen any major launches or any we're not hearing anything from our customers that would lead me to believe that Q4 will be strong from that perspective. And then also, as I just talked about several times here that just traffic in general has been a bit sluggish from a growth perspective in general. So I don't see anything that tells me that that's going to change going into Q4. Speaker 301:04:46So obviously, we got a few months to go here before we get there. We'll update you when we talk again in November. But based on what I'm seeing today, just thought it was worthwhile calling that out to folks as they build out their models. Speaker 1201:05:00Okay. That makes sense. Thanks so much. Operator01:05:05This concludes our question and answer session. I would like to turn the conference back over to Mark Stoutenburg for closing remarks. Speaker 101:05:13Thank you, everyone. In closing, we will be presenting at several investor conferences throughout the rest of the quarter and the rest of the year. We look forward to seeing you at those. We hope everyone has a nice evening tonight. Operator, you may now end the call. Operator01:05:29The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.Read morePowered by