Dr. Tom Leighton
Chief Executive Officer and Co-Founder at Akamai Technologies
Thanks, Tom, and thank you all for joining us today. I'm pleased to report that Akamai delivered excellent financial results in the third quarter, coming in at or above the high end of our guidance ranges for revenue, operating margin and earnings per share. Q3 revenue was $860 million, up 9% year-over-year and up 8% in constant currency. Non-GAAP operating margin in Q3 was 32%, which reflects our continued focus on operational efficiency, even as we've continued to invest for future growth. Q3 non-GAAP EPS was $1.45 per diluted share, up 11% year-over-year. Akamai's strong performance in Q3 was largely driven by our security business, which is now one of the leading cloud security businesses in the world, with an annualized revenue run rate of more than $1.3 billion, up 26% year-over-year and up 25% in constant currency. Over the last several years, we've grown our security portfolio from point solutions into a comprehensive platform that provides defense in depth to address our customers' biggest threats. The unique breadth of our defenses is important to our customers who want more security capabilities from fewer vendors. Our security solutions are highly differentiated and recognized as best-in-class by our customers, who see us as a leading provider of services that protect their most critical assets, including enterprise websites, applications, data and access. We routinely earn top rankings in multiple categories from major industry analysts.
For example, Akamai disrupted the web app security market when we launched Kona Site Defender in 2012. Since then, we've continued to extend our leadership position in the web app firewall sector with Gartner recently naming Akamai as a market leader for the fifth year in a row. Akamai has been the market leader in DDoS protection, since we acquired Prolexic in 2014. Forrester recently said, large enterprise clients that want an experienced trusted vendor to make their DDoS problem go away, should look to Akamai. As new threat vectors have emerged, we've extended our platform to defend against them. For example, we created the first comprehensive bot management solution to protect our customers from sophisticated bot operators who try to steal content, disrupt operations or penetrate user accounts. According to Forrester, Akamai is best for companies wanting to fort bots at the edge. Bloomberg Business Week, even quoted a hacker, calling Akamai Bot Defense, the hardest to crack. More recently, we released Akamai page Integrity Manager to identify malicious code in third-party scripts and websites that's designed to steal end user data. page Integrity Manager helps to address a major threat that's been costing businesses, hundreds of millions of dollars and fines, as well as serious reputation damage. We plan to extend our web app protections further in the coming months with the release of account protector and audience hijacking prevention. Account Protector is designed to reduce fraud by making sure that the entity logging into an account is the true owner of that account. Audience hijacking prevention can help businesses protect sales by fording malware that diverts a customer just before the completion of a transaction.
Since founding Akamai over 20 years ago, our vision has always been to help our customers solve their toughest Internet challenges. And today, that includes stopping ransomware. Ransomware is a huge problem for enterprises around the world with a new attack striking every 11 seconds. The damage resulting from ransomware is expected to amount to over $20 billion this year alone. Guardicore is critical to stopping the spread of ransomware, and that's a key reason why we acquired the company. Akamai is already selling solutions, such as Enterprise Application Access, that help prevent attackers from gaining access to enterprise infrastructure and applications. But to be secure in today's world, you also need a second layer of defense to block the spread of malware that has gained a foothold in the enterprise. And that's where Guardicore comes in. Guardicore helps detect when a breach has occurred by identifying anomalous data flows within enterprise networks. Guardicore also helps prevent the malware from spreading through a capability known as micro-segmentation. Guardicore's micro-segmentation solution limits access within the enterprise to only those applications that are authorized to communicate with one another. Denying communication as the default greatly limits the spread of malware and protects the flow of enterprise data across the network. And that's the key to stopping ransomware. We believe Guardicore's best-in-class micro-segmentation solution is the perfect addition to our Zero Trust portfolio, enabling Akamai to offer customers a comprehensive solution to stop the damage being caused by ransomware and malware.
During the call we held on September 29, we spoke about the parallels between our acquisition of Guardicore with our acquisition of Prolexic in 2014. Just as the acquisition of Prolexic propelled us to a leadership position in helping to stop DDoS attacks -- We believe that the acquisition of Guardicore will establish Akamai as a leader in helping to stop the damage caused by ransomware as well as other forms of malware. Customers see Akamai as a strategic partner in security, not only because of the strength and breadth of our solutions, but also because of the depth of our security expertise and threat intelligence and the scale of our platform. The same platform that underpins our world-leading CDN. Akamai CDN handles over five trillion requests every day. In addition, we resolved more than three trillion DNS queries each day. This gives us unmatched real-time insight into the world's Internet traffic, which we analyze to provide best-in-class threat intelligence, protection and support. We also have one of the industry's largest and most experienced teams of security professionals with thousands of engineers and consultants working on security for our customers. Our security solutions are tightly integrated into the world's largest and most distributed edge platform, and that provides unmatched global scale to defend customers against not only the largest DDoS attacks, but also against the best spot armies that are waging attacks from the edge.
The integration of our security solutions with our CDN solutions also provides benefits to our customers in terms of improved performance and ease of use. With Akamai, security and performance go hand in hand. You can buy them together as a single protect and perform package, which makes purchasing and integration easy for the customer. And when you buy security from Akamai, your performance has automatically improved. That's because we apply the security layer as we are delivering the content from the world's True Edge platform. This means that the processing needed for security stays close to the end user, which makes for much better performance. Akamai's unique combination of security and delivery provides a powerful offering in the market, which is one reason by we're the market leaders in both security and CDN. Our CDN business also generates substantial cash that we can use to invest in future growth, as we've recently done with the Guardicore acquisition. For example, our CDN business generated revenue of $526 million in Q3 and contributed substantially to our overall free cash flow of $273 million, enough to cover almost half of what we spent to acquire Guardicore. We believe that having the world's largest and most distributed edge network also provides a great foundation for the growth of our Edge applications business. As 5G rolls out as IoT applications proliferate and as more data is created and processed at the edge, Akamai's edge compute platform is very well suited to support the high throughput and low latency applications that are not well served by traditional cloud providers today.
From delivery and performance to compute and security, the world's leading brands want our help. That's because the Internet is getting more complicated, with more traffic, higher user expectations and more cyber threats every day. And the world's leading enterprises know that Akamai can help keep their digital experiences close to their end users and the threats farther away. They know that what we do makes life better for billions of people, billions of times a day and that nobody powers and protects life online like Akamai. I'll now turn the call over to Ed to provide further details on our Q3 results and our outlook for the rest of the year. Ed?
