The paragraph is from the Akamai Technologies First Quarter 2025 Earnings Conference Call. The operator introduces the call, which is recorded and includes instructions for participants. Mark Stoutenberg, the Head of Investor Relations, provides an overview of the call, mentioning that remarks will contain forward-looking statements subject to various risks and uncertainties. The company disclaims any obligation to update these statements. Non-GAAP financial metrics will also be discussed, with reconciliations available online. The call is then handed to CEO Tom Leighton, who reports that Akamai began the year well, with first-quarter revenue reaching $1.015 billion, marking a 3% increase year-over-year and a 4% increase in constant currency.

In the second paragraph, Akamai reported a strong financial performance, with a non-GAAP operating margin of 30% and earnings per share of $1.07, exceeding their guidance. Security and compute services grew significantly, accounting for 69% of total revenue, highlighting Akamai's shift toward cybersecurity and cloud computing. The company's Guardicore segmentation solution experienced strong demand, particularly for defending against ransomware, as evidenced by successful integrations with major clients like a U.S. bank, European government authority, clinical research lab, and credit union. Akamai also expanded existing contracts with notable organizations, emphasizing their trusted and effective security solutions.

In Q1, there was significant interest in Akamai's API security solution, as highlighted in an Internet security report showing APIs cost organizations around $87 billion annually due to vulnerabilities like shadow and Zombie APIs. Many organizations are unaware of their exposed APIs, which was demonstrated at a customer event where a major Korean company's CISO discussed the detection of numerous undocumented APIs and security issues. Contracts for API security were signed with several major companies across various industries. The solution won a global Infosec Award at the RSA Security Conference, where Akamai also announced a new AI firewall security product, praised by industry publications.

The paragraph discusses the rise of Agentic AI, autonomous software agents used by organizations, and the cybersecurity challenges they present. Deloitte predicts significant adoption of AI agents by 2027. Cyber criminals exploit these technologies, prompting Akamai to introduce a firewall for AI to protect against a variety of threats, including data leaks, remote code execution, and denial of service attacks. The product has received positive feedback, particularly from a financial services firm highlighting its effectiveness. Additionally, Akamai earned high recognition for its other security products in the Forrester Wave Web Application Firewall report.

The paragraph highlights Akamai's strong performance in the first quarter, focusing on their Web Application Firewall (WAF) and cloud computing services. It notes significant multimillion-dollar contracts with a global bank and a large railway. The company reported better-than-expected results for its delivery products, citing traffic growth, excellent performance during live events, and new customer accounts from Edgio. A notable new contract involves a $16 million commitment over three years for multiple Akamai services. Akamai also continued its expansion in cloud computing, introducing new capabilities, signing new clients, and launching the Akamai Cloud inference solution in March to support AI applications and data-intensive workloads close to end users.

The paragraph highlights Akamai's competitive edge in edge computing, achieved through their new Butte platform, which offers better throughput, lower latency, and cost savings compared to other cloud providers. The platform has proven effective in improving AI application response times and enhancing publishing company's performance. Akamai's impressive Q1 client acquisitions include major companies in live streaming, cybersecurity, and retail sectors. Additionally, Akamai was recognized by Gartner as an emerging leader in GenAI specialized infrastructure and has partnered with Vast Data for AI solutions. The company plans to enhance its edge computing with a new managed Container Service (MCS) supporting customer containers in over 4,000 locations globally and is the first to offer cloud-based video processing units with specialized processors.

The paragraph discusses Akamai's VPU architecture, which offers significantly better performance and cost savings compared to CPU solutions, benefiting media companies and strengthening Akamai's partnerships with major media giants. Akamai's services, including those from ISV partners, provide a cost-effective alternative to hyperscalers, who often compete with their customers. At industry events, executives have expressed appreciation for Akamai's offerings due to discontent with high payments to hyperscalers. Akamai is progressing in its sales transformation, emphasizing both new customer acquisition and existing customer relationships. The company is also focusing on longer multiyear contracts and tackling global economic challenges, with minimal anticipated impact from tariffs in 2025.

The paragraph discusses Akamai's current business environment and future outlook. Concerns about a potential recession and reliance on American companies for critical infrastructure have been raised by some customers but haven't yet impacted Akamai's business. They are working to reassure clients of their continued reliability and have strong engagement with U.S. federal sector customers, which make up less than 5% of their revenue. While possible revenue losses from federal cutbacks are anticipated in late 2025, there are also opportunities for increased revenue through solutions offering savings to federal agencies. Akamai was recognized as a trustworthy company, highlighting the importance of trust and integrity. The paragraph ends with a transition to Ed McGowan, who will discuss Q1 results and future expectations, noting a solid start to the year with a 3% revenue increase year-over-year.

In the first quarter, the company reported a 10% increase in combined revenue from compute and security, accounting for 69% of total revenue, while delivery revenue declined by 9%. International revenue rose by 2%, impacted negatively by foreign exchange fluctuations. GEO contributed $23 million in revenue. The company posted a non-GAAP net income of $256 million, with earnings per share up 4% and exceeding guidance, driven by better-than-expected revenue and lower costs. Capital expenditures were $226 million, representing 22% of revenue.

In the first quarter, the company's capital expenditures (CapEx) were slightly below guidance due to timing shifts, with some CapEx delayed to the second quarter. They repurchased approximately 6.2 million shares for about $500 million, with $1.5 billion remaining for repurchases. The company aims to continue buybacks to offset equity dilution and engage in M&A opportunities. By March 31, they had $1.3 billion in cash and equivalents. After the quarter ended, they used available cash and credit to repay $1.15 billion in convertible notes maturing on May 1. They finished migrating Ageo customers, eliminating future TSA costs, and expect $85-$105 million in revenue from this transaction in 2025. They anticipate increased operating expenses in Q2 due to a weaker U.S. dollar, higher marketing costs, and the effects of the annual merit cycle starting April 1. CapEx will be higher in the first half of the year, with $10 million pulled forward to mitigate potential tariff risks.

The paragraph provides a financial outlook for 2025 and Q2 guidance. The company expects a decline in interest income starting May 2025 due to reduced cash balances from stock repurchases, acquisitions, and debt retirement, along with lower investment yields as interest rates decrease. For Q2, projected revenue is between $1.012 billion and $1.032 billion, reflecting a 3% to 5% increase from Q2 2024. Foreign exchange is anticipated to have a positive impact on Q2 revenue. Expected cash gross margins are around 72%, with non-GAAP operating expenses between $315 million and $320 million, and an EBITDA margin of 41% to 42%. The non-GAAP operating margin is projected to be approximately 28% for Q2. Capital expenditures are expected to be $226 million to $236 million, about 22% to 23% of revenue. The anticipated non-GAAP EPS ranges from $1.52 to $1.58, assuming taxes of $54 million to $57 million and a 19% to 20% tax rate, with 148 million fully diluted shares.

For 2025, the company anticipates revenue growth between $4.050 billion and $4.2 billion, potentially reaching the higher end of that range if the U.S. dollar weakens and other positive conditions occur. Security revenue is expected to grow by approximately 10%, with Zero Trust and API security solutions increasing by 30% to 35%. Compute growth is projected at 15%, with cloud infrastructure ARR growing by 30% to 45%. Foreign exchange is projected to positively impact revenue by $8 million. The non-GAAP operating margin is estimated at 8%, with capital expenditures comprising 19% to 20% of total revenue. Non-GAAP earnings per diluted share are expected to be between $6.10 and $6.40, factoring in a 19% to 20% tax rate and 150 million shares.

In summary, Akamai is positioned to continue its revenue growth and maintain healthy margins despite anticipated economic volatility. The company attributes its success to newer security and cloud computing products, stabilized declines in content delivery revenue, and disciplined cost management. During the earnings call, Ed McGowan explained to Amit Daryanani from Evercore that the quarter's growth was primarily driven by increased traffic rather than pricing, with all sub-verticals showing strong performance, including video, gaming, software downloads, and commerce. However, Akamai remains cautious about declaring a market bottom as revenue has been flat sequentially for three quarters. On the security side, performance in March was slightly lower than expected.

The paragraph discusses expectations and actual performance in terms of revenue and growth. Ed McGowan notes that the quarterly results were in line with internal expectations, achieving a 10% growth in constant currency. He mentions discrepancies in license revenue between quarters and variations in revenue due to certain bundles, especially in Q4. Growth drivers include API security and Guardicore, aligning with forecasts. Jonathan Ho from William Blair asks about the role of agentic AI in AI firewalls, highlighting the potential benefits as AI usage in enterprises expands. Tom Leighton responds by discussing challenges with AI applications, particularly agentic AI, in relation to data security and manipulation by adversaries.

The paragraph discusses the importance of protecting AI applications from attackers who might manipulate them into making poor decisions by feeding them harmful information. It highlights the challenge enterprises face in regulating AI use and tracking the AI applications they use. The text emphasizes the significance of security measures, noting that services like Akamai play a crucial role in safeguarding major banks and commerce companies due to limited alternatives. Additionally, it touches upon some global concerns regarding the reliance on U.S.-based services, suggesting there might be a future need for diversification. The passage concludes by stressing the ongoing need to stay ahead of potential attacks to maintain customer safety.

In the paragraph, Tom Leighton from Akamai emphasizes the company's strengths in the Security segment, particularly in its ability to scale for large enterprises with extensive applications and devices to protect. The factors that set Akamai apart include ease of use, with a new AI-enabled interface that simplifies integration and manages firewall rules, and the trustworthiness of their solutions. Although Akamai is not the lowest cost provider, its reliability and strong track record in deploying large-scale security solutions make it a preferred choice among customers.

The paragraph discusses Akamai's efforts to protect critical infrastructure from threats such as ransomware and data breaches by using their unique software solutions, particularly highlighting their zero trust solution, Guardicore. It also touches upon their comprehensive protection approach using Guardicore and their Enterprise Application Access solution. The conversation then shifts to financial performance, where William Power asks about the sustainability of better margins observed in a quarter, and Ed McGowan explains that the higher margins were due to revenue upside and some event-driven costs. He mentions an early merit cycle and hiring as factors affecting costs, but expresses optimism that as the business grows, margins will improve, with potential for expansion in the latter half of the year. An unidentified analyst from Raymond James then asks about recent sales changes.

In the paragraph, Tom Leighton discusses Akamai's progress in hiring new employees and optimizing roles between hunting and farming sales strategies to better cater to new customer needs, like API security and cloud computing. They're about a third of the way towards their goals and emphasizing long-term contracts to enhance their market presence. Ed McGowan adds that driving margin improvements are scaling the compute business, which is still subscale, and the growing emphasis on high-margin security products like API security. Additionally, reducing the strain from other areas could help stabilize or improve margins as growth in content delivery management (CDM) has positive effects.

The paragraph discusses a company's efforts to enhance operational efficiencies and reduce costs, particularly in real estate and computing. It also addresses the company's security business performance, noting a slowdown in Web Application Firewall (WAF) growth due to high penetration, while API security is experiencing rapid growth and is expected to become significant. The infrastructure security segment shows low single-digit growth, and Prolexic's growth remains consistent without recent spikes from large-scale attacks, which are considered episodic.

The paragraph discusses the company's financial performance and upcoming strategies. It highlights that while revenue growth has been consistent in the low double to high single-digit range, there is a shift due to the natural slowdown of older products and the gradual uptake of newer products like Guardicore and API. In the compute segment, there were anticipated impacts from phasing out legacy revenue streams like video transcoding and image management, which are unfolding as expected. Additionally, there is strong growth in the company's CIS compute infrastructure services, with a projected 40% to 45% growth in ARR. Changes in sales focus are also mentioned, with an emphasis on acquiring new customers ("hunters"), which may be reflected in new customer metrics.

The paragraph discusses a company's consideration of providing sales productivity metrics, emphasizing caution as booking metrics may not always clearly translate to revenue. It mentions their investments in capacity, particularly in hiring "hunters" and specialists for compute and security, which are expected to drive stronger revenue growth. The company is contemplating breaking out helpful metrics. Additionally, it addresses a question from an analyst regarding cross-selling opportunities with new customers from Edgio, noting that Edgio lacks security and compute products. The company is focused on initial customer integration and familiarization before planning upselling campaigns, expecting to build a pipeline over the next 6 to 9 months.

The paragraph discusses the growth expectations for both compute and security segments. Tom Leighton highlights that the growth in cloud infrastructure services is a key driver for compute growth, with an annual recurring revenue (ARR) expected to grow by 40% to 45%, which should enhance the overall compute growth rate. In the security segment, despite a reduced growth guidance of 10% compared to previous years' 15%-16%, Leighton expresses confidence due to strong market demand and their leading solutions in API security. Additionally, the introduction of new AI firewall solutions, though currently generating minimal revenue, is anticipated to drive future growth. This strategic positioning in large potential markets underpins the confidence in achieving the projected growth rates.

The paragraph is part of a discussion involving Ed McGowan, where he highlights the strengths and growth projections of a subscription-based business with a recurring revenue model. He emphasizes the business's low churn rate and the high visibility in revenue due to its sticky security products. Ed points out that the growth is dependent on acquiring new customers and expanding the existing customer base but expresses confidence in the sales force's ability to generate the needed revenue. In response to a question from Rudy Kessinger about compute growth, Ed explains that the cloud infrastructure service grew by over 30% last year, while other legacy compute segments grew by about 20%.

The paragraph discusses the current state and future expectations of a company's cloud infrastructure and legacy services. The company is experiencing growth in its cloud infrastructure service, while its legacy storage business is declining as expected. Custom deals that previously contributed to growth have run their course. Pricing trends for services are mixed, with some stabilization seen, particularly with larger media customers, but overall volume growth has slowed. Additionally, due to fewer low-cost provider options following the Edgio bankruptcy, there is potential for improved pricing on renewals in the future. Economic factors continue to influence pricing pressure in commerce sectors.

The paragraph discusses how Akamai is focusing on expanding its reach in the faster-growing segments of security, particularly API Security, NeoSeand, and Guardicore. These products are primarily sold through different channels than their traditional ones, involving partners such as Presidio, WWT, Optiv, GuidePoint, IBM, Deloitte, and others. A significant portion (80-90%) of new customer acquisitions occurs through these channels. Although much of the growth is driven by these partners, some sales, particularly involving existing customers, will still be led by Akamai's traditional sales representatives.

The article discusses a company's business strategy, emphasizing that over one-third of their business and more than half of their security-related business comes through channel partnerships. The company anticipates growth in this area, citing the acquisition of NeoSec and Guardicore, which brought new channel relationships. John DiFucci suggests using these partners to sell slower-growing security products, such as DDoS protection and WAF, as competitors are also targeting these channels. Tom Leighton agrees and notes that while new customer sales often start with products like Guardicore or API security, the entire security platform can be sold through channel partners. An unidentified analyst asks about security performance, to which Ed McGowan responds that it met expectations and emphasizes that much of the business consists of recurring revenue.

The paragraph discusses how most growth is coming from API security and Guardicore, as anticipated. These do not immediately contribute significantly to revenue in the same quarter they're sold because they take about a month to be fully operational. The balance between new customer acquisitions and upselling to existing customers is consistent with typical quarters. The statement concludes the question-and-answer session, turning the call back to Mark Stoutenberg for closing remarks, and the operator ends the conference.

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