The paragraph introduces the Fourth Quarter 2024 Earnings Conference Call for Akamai Technologies, Inc. The conference is hosted by Mark Stoutenberg, the Head of Investor Relations, and features presentations by CEO Tom Leighton and CFO Ed McGowan. It includes a disclaimer about forward-looking statements concerning revenue, earnings guidance, and business outlook, mentioning that these statements are subject to risks and uncertainties. The company's current views are as of February 20, 2025, and there's no obligation to update them. Non-GAAP financial metrics will be discussed with reconciliations available on the company's website. The statement also emphasizes Akamai's commitment to transparency and enhanced disclosures for investors' understanding.

In the highlighted paragraph, Akamai's CEO, Dr. Tom Leighton, discusses the company's strong performance in the fourth quarter, with revenue reaching $1.02 billion and non-GAAP earnings per share exceeding expectations at $1.66. He emphasizes Akamai's transformation into a cybersecurity and cloud computing company, noting that in 2024, security services generated over $2 billion in revenue, growing 16% year-over-year. The cloud computing segment earned $630 million, a 25% increase from 2023, with $230 million from cloud infrastructure services, up 32%. Security and compute services accounted for two-thirds of Akamai's revenue in 2024, marking an 18% year-over-year growth.

The paragraph highlights Akamai's achievements in exceeding its annualized revenue run rate goals for key areas such as the Guardicore platform, API security, and cloud infrastructure services. Akamai is expanding its security offerings to provide comprehensive solutions across infrastructure, applications, APIs, and user interactions in cloud and on-premises environments. Security growth was largely driven by the success of the Guardicore segmentation solution, which saw a 31% increase in annual revenue, surpassing targets. Notable achievements include a deployment with a large IT services company in India, displacing competitors in major banks, and securing a significant contract with Petrobras in Brazil in partnership with Deloitte. They also collaborated with Deloitte to safeguard European banks from API risks.

In Q4, Akamai signed a significant contract for API security, increasing its API security solution's ARR to $57 million by the end of 2024, surpassing their $50 million target. Combined with the Guardicore platform, they achieved a total ARR of $247 million. Akamai aims to grow this by 30%-35% in the coming year and expects these products' growth to offset slower growth in web app firewall and DDoS mitigation products. They project maintaining a 10% CAGR for security products, potentially reaching $3 billion in revenue by the decade's end. Meanwhile, Akamai's compute product line, boosted by acquiring Linode in 2022, is growing even faster, with advancements in revenue, customer acquisition, infrastructure, product development, partnerships, and cloud migration.

In Q4, the company rapidly signed several major customers to its cloud infrastructure services, including large financial software companies, retailers, and other enterprises worldwide. By the end of 2024, around 300 enterprises were spending at least $100,000 in ARR on these services, contributing to a total ARR of $115 million, exceeding their $100 million goal. Overall, the cloud services ARR grew to $259 million, a 35% increase year-over-year. Since acquiring Linode in 2022, they've upgraded it to enterprise-grade, allowing significant internal cost savings and improved performance. The number of customers spending over $1 million in ARR more than tripled from 2023 to 15 customers.

The article paragraph highlights Akamai's major milestones in cloud infrastructure services, including securing a $100 million contract with a sophisticated customer, indicating confidence in its capabilities compared to hyperscalers. Akamai expanded its data center network to 41 locations and plans to launch a managed container service across over 700 cities, currently testing it in 100 cities. They boosted their object storage solution's scalability and performance, added GPUs for AI and media tasks, and enhanced the Linode Kubernetes engine. Akamai's edge platform provides lower egress fees and is favored by some customers over hyperscalers for various AI and streaming services due to cost-effectiveness and improved service.

Akamai is enhancing its cloud services by integrating its cloud platform with edge computing, enabling workloads to be closer to users. Utilizing technology from a previous acquisition of Red Kubes, Akamai launched an app platform for developers to easily create and deploy distributed applications. The company grew its ISV partnerships to 23, contributing $36 million to its annual recurring revenue from cloud infrastructure services. Akamai is recognized as a significant player in the public cloud IaaS market by IDC and as an emerging leader in generative AI infrastructure by Gartner. The company is focusing on AI use cases, especially inferencing, anticipating long-term revenue growth and positioning itself as a key player in AI inferencing.

The company aims to grow its cloud infrastructure services ARR by 40% to 45% in constant currency for 2025, primarily driven by enterprise customers. It plans to shift older cloud applications to ISV partners and Akamai's cloud, enabling a focus on expanding cloud infrastructure services. While some cloud application revenues may decline, overall cloud computing solutions are projected to grow by 15% in 2025. The company anticipates a 20% CAGR in cloud computing revenue over the next 3-5 years, aiming to make it their third $1 billion product line by 2027. Additionally, their content delivery network, with extensive global points of presence, remains a key profit generator and differentiator, contributing to cost reduction, scalability, and performance across delivery, security, and compute sectors.

The paragraph discusses Akamai's strategic use of its platform to enhance security, compute, and delivery services, leading to cost efficiencies and market advantages. By running multiple services on the same infrastructure across thousands of points of presence (POPs), Akamai offers unique capabilities that improve performance without increasing costs. The synergy between its delivery, security, and compute services strengthens its competitive edge and profitability. The company has signed numerous deals combining these services and acquired contracts from Edgio to expand its delivery and cloud solutions. Akamai reports improving conditions in the delivery market, with more customers opting for multi-year contracts and stable pricing.

The company expects a 10% year-over-year decline in delivery revenue this year, with further improvement anticipated by 2026. Their largest customer, facing political challenges, is pursuing a DIY approach, impacting overall revenue growth by 1% to 2% annually. However, a five-year agreement with this customer ensures a minimum annual spend, improving predictability. The company aims to enhance growth by transforming its go-to-market strategy, increasing customer acquisition, and promoting new capabilities in security and cloud computing. Efforts include increasing sales resources, focusing on high-growth segments, and investing in partner enablement.

The paragraph outlines Akamai's strategic plans to enhance its sales operations and overall business model, as advised by a leading consulting firm. They aim to optimize areas such as sales operating models, account frameworks, and pricing strategies. Akamai forecasts that their growth will be driven by rising security and cloud computing sectors, a stabilizing delivery business, and an improved product mix. They expect double-digit revenue growth by the end of the decade, potentially sooner, particularly if foreign exchange and customer-specific factors are excluded. The anticipation of growth extends into 2025, with goals to improve operating margins to over 30% and resume non-GAAP EPS growth by 2026. The company remains optimistic about the future due to their cloud computing strategy and expanded security offerings. The paragraph concludes by transitioning to Ed McGowan, who will discuss results and outlook.

The company posted detailed materials in the IR section of its website to provide insights into its business and updated long-term goals, although such detail will not be disclosed every quarter. In a presentation, the speaker covers Q4 results, 2025 forecasts, and long-term revenue and profitability targets. In Q4, total revenue was $1.020 billion, a 3% increase year-over-year. Notably, Compute revenue grew 24% to $167 million, with $65 million from cloud infrastructure and $102 million from other cloud applications. A significant customer plans to spend $100 million on cloud infrastructure services by the end of 2025. Security revenue was $535 million, a 14% increase, including $12 million from onetime licenses.

In the reported quarter, the company experienced a 16% year-over-year growth in compute and security revenue, with security revenue reaching $2.045 billion, driven by a 51% growth in Zero Trust Enterprise plus API security and a 14% growth in other security products. Delivery revenue was $318 million, slightly better than expected but down 18% year-over-year, with anticipated improvement in 2025. International revenue stood at $490 million, a 2% year-over-year increase. Foreign exchange fluctuations negatively impacted revenue by $8 million sequentially and $6 million year-over-year. Non-GAAP net income for Q4 was $254 million, or $1.66 per diluted share, surpassing guidance due to higher revenue, lower transition service costs, and reduced payroll expenses. Capital expenditures were $193 million, and the company repurchased shares worth $138 million in Q4, with $2 billion remaining for repurchases after spending $557 million for the year.

Over the past decade, the company has reduced its shares outstanding by about 16% while buying back shares to counteract dilution from employee equity programs. The capital allocation strategy will continue to focus on share repurchases and strategic M&A. For 2025, expected revenue from the Edgio transaction is between $85 million and $105 million, with around $6 million in Q1 TSA costs. CapEx is anticipated to rise by about 2% compared to last year, driven by increased traffic from the Edgio transaction and infrastructure builds for a $100 million cloud infrastructure services contract. The first quarter will see higher expenditures, with $10 million to $15 million in CapEx pulled forward to mitigate potential tariff risks.

The paragraph outlines financial expectations for 2025, highlighting a projected decline in interest income due to recent acquisitions and the retirement of $1.15 billion in convertible debt, along with expected lower investment yields as interest rates decrease. It anticipates foreign currency market volatility influenced by Federal Reserve policy changes, noting that the strong U.S. dollar has negatively impacted revenue and operating metrics for 2025. The company generates significant revenue from foreign currencies such as the euro, yen, and British pound, with costs primarily in the Indian rupee, Israeli shekel, and Polish zloty. Despite challenges with its largest customer and FX fluctuation, the company's underlying business performance shows growth when these factors are excluded. For Q1 2025, it projects revenue between $1 billion to $1.02 billion, indicating a 1% to 3% increase as reported, or a 3% to 5% rise in constant currency from Q1 2024.

The paragraph outlines the company's financial expectations for Q1, anticipating a decrease in revenue compared to Q4 due to factors such as lower revenue from their largest customer, foreign exchange impacts, reduced one-time license revenue, fewer calendar days, and contract renewals. Despite these challenges, a full quarter's benefit from Edgio is expected to partially offset losses. The foreign exchange is anticipated to negatively impact revenue by $7 million compared to Q4 and $15 million year-over-year. The company projects a cash gross margin of 72%, with non-GAAP operating expenses between $310 million and $316 million, and a non-GAAP EBITDA margin of 41%. Depreciation expenses are expected to be $132 million to $134 million, with an operating margin of 28%. Expected non-GAAP EPS is between $1.54 and $1.59, reflecting a 19.5% tax rate and 152 million diluted shares. CapEx is estimated at $237 million to $245 million, around 24% of total revenue.

The company projects that its capital expenditure will be heavily front-loaded, with significant spending in the first quarter. For the full year, it anticipates revenue between $4 billion to $4.2 billion, with growth of up to 6% in constant currency. This range is wider due to business scale, uncertainties with their largest customer, and macroeconomic factors. The upper revenue range depends on factors like U.S. dollar weakening and strong traffic growth, while the lower range could result from a strong dollar, slowed traffic, and a ban on their largest customer in the U.S. Security revenue is expected to grow by 10% in constant currency by 2025, with combined ARR for Zero Trust Enterprise and API security solutions projected to grow 30%-35% annually. Compute revenue is expected to grow 15%, with Cloud Infrastructure Services' ARR rising 40%-45% by 2025. FX is estimated to negatively impact 2025 revenue by $38 million. The company expects a 28% non-GAAP operating margin for 2025, based on current FX rates.

The paragraph discusses the company's financial projections and strategic goals for 2025 and the next three to five years. It highlights a decline in operating margin due to increased depreciation expenses and foreign exchange impacts, while capital expenditures are expected to rise to 19% of total revenue, with allocations for delivery, compute, capitalized software, and IT facilities. The company anticipates non-GAAP earnings per share of $6 to $6.40, based on a 19.5% tax rate and 152 million diluted shares. Looking ahead, the company aims to grow its Cloud Infrastructure Services and total compute revenue by 20% annually over the next three to five years. In security, growth will be driven by newer products like the Guardicore platform, while mature products like Web Application Firewall and Prolexic have reached high penetration rates.

The company anticipates a slowdown in the growth rate of their products starting in 2025, with moderation expected for the remainder of the decade. Despite this, they aim for a compounded annual growth rate of about 10% in total security revenue over the next three to five years, including mergers and acquisitions. Delivery revenue declines are expected to moderate in 2025, with stabilization in the following years. The combination of strong growth in security products, rapid expansion in compute services, a stabilizing delivery business, and a shift in product mix away from delivery is projected to result in double-digit top-line revenue growth by the end of the decade. They also expect operating margins to exceed 30% by then, leading to strong growth in non-GAAP earnings per share in the coming years. They foresee revenue acceleration and margin expansion in 2026 compared to 2025, although they are not providing specific guidance for that year. The paragraph concludes with the transition to a question-and-answer session, where Roger Boyd from UBS asks about a large cloud deal and the competitive environment.

The paragraph is a transcript of a Q&A session from a conference call. Tom Leighton from Akamai discusses the company's substantial use of cloud infrastructure services for media applications and plans to expand services, including a new data center in Scandinavia to support European operations. Madeline Brooks from Bank of America asks whether a $100 million compute deal is the same as a five-year deal with Akamai's largest delivery customer, to which Tom Leighton confirms it's the same customer. He explains that the customer chose Akamai due to superior performance, better pricing, and extensive connectivity throughout Europe, making their operations efficient and cost-effective. The conversation continues with Amit Daryanani from Evercore, awaiting further questions.

The paragraph discusses two main topics: a $60 million revenue headwind related to Akamai's largest customer moving some content delivery network (CDN) operations in-house, and potential political challenges in the U.S. that could exacerbate the situation. Akamai's exposure is mitigated by minimum commitments, with potential revenue loss if the customer is banned in the U.S., but possible upside if operations continue. Additionally, Ed McGowan addresses the company's operating margins, explaining that improvements will come from a shift towards security and compute services, and scalable revenue growth.

The paragraph discusses the growth prospects and strategic initiatives of a company, mentioning the efficient use of previous investments to drive future expansion. Amit Daryanani and Fatima Boolani from Citi ask questions regarding the company's relationship with TikTok and their use of the company's services, which include delivery, security, and cloud infrastructure. Tom Leighton confirms TikTok utilizes a variety of their services and that this is accounted for in their current and future guidance. Fatima Boolani also inquires about changes in the company's go-to-market strategy, such as account segmentation and pricing, and Tom is asked how far along they are in solidifying these changes.

Tom Leighton discusses the ongoing transformation of the go-to-market organization, which is expected to take about two years. The company is in the early stages of this process, having already increased the number of sales personnel and adjusted their focus from farming to hunting. They are also considering changes in pricing, contracts, and field segmentation. The transformation aligns with the company's evolution from a delivery-focused business to one emphasizing security and cloud services. Notably, their acquisition of Linode has significantly boosted growth, with annual recurring revenue more than doubling and projected growth rates of 40% to 45%. Leighton highlights that the addressable market, especially in the current customer base, exceeds $100 billion, offering significant potential for future growth. This transformation requires the sales team to adapt to new demands and opportunities.

The company is focused on protecting and expanding its existing revenue base while also pursuing new customers and product areas. There's an ongoing transformation of the sales force to support growth in new areas. During the latest quarter, the company experienced significant logo growth, particularly due to acquiring Edgio contracts, which added several hundred logos, with over 100 being new to the company. Most new logos were from security services, specifically in Guardicore and API security, as well as in compute services. The company completed the migration of Edgio contracts and does not expect significant churn, having been selective about the customers they retained.

The paragraph discusses a company's strategy to manage small and less economically beneficial customers, aligning with acceptable use policies, to improve guidance and potential upsell opportunities. They are focusing on retaining and developing customer relationships rather than aggressively selling upfront. In terms of changes in their go-to-market strategy, they aim to minimize disruption by taking a gradual, two-year approach and adding specialized resources to support cross-selling and acquiring new customers. The primary focus is to maintain existing customer relationships and reduce negative impacts during the transition.

In the paragraph, Ed McGowan discusses the strategy of transitioning from hunting to farming in customer support and the involvement of a large consulting firm to aid in this process. He also addresses the impact of Edgio's exit, suggesting that fewer competitors might ease aggressive pricing in the delivery market. McGowan notes some improvement in pricing, particularly with large volume customers and longer contract terms, but emphasizes the market's volume-driven nature, which generally pushes prices down. Rishi Jaluria acknowledges the response, while John DiFucci from Guggenheim appreciates the detailed information provided. DiFucci points out that the guidance for next year suggests a 3% growth, considering a 1% foreign exchange headwind, and references ongoing large customer challenges.

The paragraph discusses expectations for a company's growth to accelerate to 10%. Ed McGowan explains that the growth will be driven by improvements in various business segments. The delivery segment, which has been a drag on growth, is expected to stabilize, reducing its negative impact. Other segments, like security, continue to grow, albeit at a slower pace, with new products introduced to support growth. Additionally, the company is making changes and investments in sales strategies, particularly in markets where they have strong products, which could enhance sales force productivity. The growth estimate also includes a baseline from a large customer contract, with potential upside.

The paragraph discusses the growth and transformation within a company's security and compute sectors. While there's a temporary flattening of revenue in older compute products due to partnerships with independent software vendors (ISVs), these collaborations offer a greater market growth opportunity. The company is enhancing its compute offerings through these partnerships and investments in market strategies, which include hiring specialized salespeople. John DiFucci expresses interest in understanding the profitability of the compute business, given its ties to their delivery operations. Tom Leighton highlights their advantage in efficiently handling large amounts of data, which contributes to their position in the compute business.

The paragraph discusses the competitive advantages of the company's cloud infrastructure platform compared to hyperscalers. It highlights lower pricing, better performance, and unmatched scalability due to a highly distributed platform that brings compute instances closer to end users. The introduction of a managed container service that supports container deployment in hundreds of cities is emphasized as a unique offering. The company has seen significant growth in cloud infrastructure services revenue, reaching $115 million ARR and $259 million in total, with projections of a 40% to 45% increase. These factors contribute to growth and profitability. Ed McGowan notes the importance of synergies, particularly involving the backbone of the platform.

The paragraph discusses strategies for optimizing operations and costs within a business. It highlights that the company is leveraging existing resources and teams in their content delivery network (CDN) and compute business to improve efficiency and profitability. Specifically, they have integrated teams from operations and engineering, capitalizing on customer relationships, and utilizing existing staff without large-scale new hires. John DiFucci jokes about the execution being the easy part, acknowledging its challenges, while Ed McGowan explains the company's growth projections for their compute and infrastructure security segments to Patrick Colville, indicating that while infrastructure security is expected to accelerate, the application services face various factors impacting growth.

The paragraph discusses Akamai's business strategy, particularly the phasing out of its legacy net storage business in favor of migrating customers to their cloud offerings. The company is focusing on collaborating with ISV partners, such as Harmonic, and redirecting efforts towards infrastructure services, which is expected to drive growth. Additionally, a flattening or slight decline is anticipated in areas like image and video management. Akamai's exposure to the U.S. federal government market is mentioned as being minor, with no significant impacts expected from government cost-cutting efforts.

In this paragraph, Ed McGowan discusses the company's investment in their compute business and the transition impact on the compute side. He mentions that 1% of the 6% investment in compute is allocated specifically for a large customer, noting that high demand often arises with large customers in specific regions. The company has been investing in expanding locations to meet this demand, while also transitioning over $100 million of their own applications to their infrastructure, which now supports over $0.5 billion of revenue. This transition is deemed more cost-effective than relying on third-party cloud providers. McGowan distinguishes between fast-growing cloud infrastructure services and another segment where revenues are flattening or declining, attributed to previous mentions.

The company is in the process of transitioning its focus from video and image management services, which are not its specialty, to faster-growing cloud infrastructure services. This transition involves partnering with others for certain services and is expected to slow revenue briefly before reaccelerating growth to 20%, driven by cloud infrastructure. Additionally, they plan to wind down their $50 million legacy storage business, impacting revenue. In response to investor concerns about achieving projected growth, Ed McGowan notes that despite not consistently hitting past targets, there were periods of 20% growth including acquisitions. The company recently achieved 16% growth, suggesting the business remains robust.

The paragraph discusses a company's strategy of consistently adding high-margin security revenue over the years and their continued confidence in this approach. They are not planning large acquisitions but will focus on smaller, strategic ones, like tuck-ins or scaling up companies with promising products, such as API security or Guardicore. They are confident in their M&A strategy and expect it to contribute to fast-growing products by the end of the decade. The company believes they are successfully scaling their business, now worth a couple of billion dollars, and are adjusting expectations as some long-established products slow down. The paragraph ends with the operator introducing a question from Will Power with Baird, who mentions the potential for network applications to aid in edge inference.

The paragraph is a discussion between William Power and Tom Leighton about the current and future impact of generative AI applications on cloud infrastructure services. Tom Leighton notes that AI applications like image normalization, speech recognition, and sentiment analysis are in their early stages but are being utilized on their platform. The cloud infrastructure is projected to grow by 40% to 45%, primarily due to traditional compute uses rather than AI inferencing, which is expected to contribute more in the future. A $100 million deal is mentioned, which will contribute more towards growth in 2026, with the current year's growth mainly driven by existing market opportunities rather than this deal or AI advancements.

The paragraph describes how Akamai's cloud infrastructure platform is being utilized by their ISV partners for a variety of applications, such as media workflows, video optimization, and game orchestration, among others. It highlights the platform's versatility across multiple verticals, with a significant focus on media due to its performance needs and cost concerns. Financial companies are increasingly adopting the platform as well. The paragraph also mentions Akamai's interest in AI as a future opportunity. The conversation then shifts to Mark Murphy from JPMorgan asking Tom Leighton about the implications of technological advancements, particularly the Deep Seek model, on edge inferencing and if AI applications might become more cost-effective on Akamai's compute platform.

The paragraph discusses the improvements and cost-effectiveness of a cloud infrastructure platform that supports models like Deep Seek and can operate on lighter weight GPUs, making it suitable for edge applications. Additionally, Mark Murphy questions Ed McGowan about the expected 10% growth rate of the security market over the next three to five years, noting it compares to the overall market growth of 12% to 14%. They discuss the potential growth from both organic efforts, which might be in the mid- to high-single-digits, and inorganic growth, with acquisitions potentially adding around one percentage point to growth, given the company's scale of over $2 billion in revenue. McGowan agrees with this framework, acknowledging the contributions from both organic and inorganic growth avenues.

The paragraph discusses the potential impact of tariffs on a company and its ability to pass on higher costs to customers. While it's uncertain what the final impact of tariffs will be, the company is exploring options to adjust supply chains, including sourcing from Canada and Mexico. They anticipate an impact of $10 million to $15 million, which is not deemed significant. The company is working with a consulting firm on an overall pricing strategy to potentially incorporate these additional costs if they become material.

The paragraph details the conclusion of a conference call, with Jonathan Ho expressing uncertainty about the final outcome being discussed. Mark Stoutenberg thanks participants, mentions attending upcoming investor conferences, and hopes they have a pleasant evening. The operator then ends the call.

This summary was generated with AI and may contain some inaccuracies.