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spk18: Good afternoon, and welcome to the Akamai Technologies, Inc. Earnings Q4 Fiscal Year 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, your touch-tone phone. To withdraw from the question queue, please press star, then 2. Please note this event is being recorded. I'd like to turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead.
spk05: Thank you, Operator. Good afternoon, everyone, and thank you for joining Akamai's fourth quarter 2022 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 risk and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. The factors include any impact from macroeconomic trends, the integration of any acquisitions, 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-K, and quarterly reports on Form 10-Q. The forward-looking statements included in this call represent the company's view on February 14th, 2023. 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 some non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the financial portion of the investor relations section at Akamai.com. And with that, let me turn the call over to Tom.
spk09: Thanks, Tom. And thank you all for joining us today. I'm pleased to report that Akamai delivered strong results in the fourth quarter, exceeding the high end of our guidance range on both the top and bottom lines, despite ongoing challenges with the global economic environment. Q4 revenue was $928 million. up 6% year-over-year in constant currency. Our revenue growth was driven by continued strong demand for our security products, our fast-growing compute business, and by higher-than-expected delivery traffic. Security and compute accounted for 55% of our overall revenue in the fourth quarter and grew a combined 22% year-over-year in constant currency. Non-GAAP operating margin in Q4 was 28%. Q4 non-GAAP EPS was $1.37 per diluted share, down 2% year-over-year in constant currency. For the full year, revenue was $3.62 billion, up 8% over 2021 in constant currency. Non-GAAP operating margin was 29%, down from 32% in 2021 and slightly below our goal of 30%. The decline last year was due to the impact of foreign exchange, the challenging macroeconomic environment, the investments we made to grow GuardaCore's segmentation product, and the rising costs of third-party cloud services. As Ed will describe in a few minutes, we're taking several actions to reduce costs and to shift resources to areas with the strongest potential for growth, such as cybersecurity and especially cloud computing. Going forward, we anticipate that our margins will likely remain slightly under 30% in the near term, and our goal is to grow margins back over 30% during the medium to long term. Non-GAAP EPS last year was $5.37, down 1% over 2021 in constant currency. 2022 was another strong year for cash generation at Akamai, with $816 million in free cash flow. representing 23% of revenue. Akamai's strong cash generation enables us to make strategic acquisitions while also returning value to shareholders. In 2022, we spent $608 million to buy back 6.4 million shares. Over the last 10 years, we've reduced the number of Akamai shares outstanding by approximately 21 million, or 12%. I'll now say a few words about each of our three main lines of business, starting with security. Our security products generated revenue of $400 million in Q4, up 14% year-over-year in constant currency. For the full year, security revenue reached $1.54 billion and grew 20% over 2021 in constant currency. We saw especially strong growth for our market-leading GardaCore segmentation product, with revenue reaching $68 million for the full year. New segmentation customers in Q4 included one of the largest insurance companies in the US, a leading internet services conglomerate in Japan, and one of the largest banks in Scandinavia. Enterprises are choosing our segmentation solution because of its ability to protect against ransomware and data exfiltration attacks. and also for the visibility it provides into their internal infrastructure. These are also among the reasons that Akamai was named as the leader in the Forrester New Wave for micro segmentation last year. We also saw large wins for our market leading application security solutions in Q4, including at one of the UK's largest multinational energy companies, one of the big three multinational banks in Singapore, and two of the largest tech hardware companies in the US. Overall, security accounted for 43% of our revenue last year, up from 39% in 2021. In 2023, we expect security to become our largest line of business. This represents a significant milestone in our evolution since we pioneered the CDN marketplace 25 years ago. That said, and as the security business becomes larger, and with customers becoming more cost-conscious due to the challenging macroeconomic environment, the growth rate of our security business has slowed, a trend that we anticipate will continue over the coming year. As you might expect, we're working hard to realize the full potential of our security business, both in terms of growth and efficiency. For example, we're in the process of moving the compute components of our security products from third-party cloud providers to our new Akamai connected cloud platform, a transformation that will save us a substantial amount of OpEx over the next several years. We're redeploying resources within security from lower growth areas to high growth areas such as segmentation. And we're redeploying go-to-market resources to achieve stronger cross-sell and penetration within our existing base. We're also working more closely with partners to drive better adoption among new customers. And we're continuing to innovate new capabilities, such as our recently released account protector and our new brand protector solutions, to keep our customers safe amidst the rapidly evolving attack landscape. While we believe that our security business will continue to generate strong returns for our shareholders, we foresee an even bigger opportunity in cloud computing and its potential to return Akamai to double-digit top-line growth over the longer term. Our compute business performed well in Q4 with revenue of $112 million, up 65% year over year in constant currency. For the full year, compute revenue was $405 million and grew 64% over 2021 in constant currency. Earlier today, we unveiled Akamai Connected Cloud, our massively distributed platform for cloud computing, security, and content delivery. Akamai Connected Cloud links Linode's 11 core data centers with Akamai's 4,100 edge computing locations. In addition, we're in the process of building out 14 more core enterprise scale data centers with at least three expected to come online in the next few months. We believe integrating these core cloud computing data centers with our unique edge platform will allow us to offer customers better performance, greater scale, and lower costs for enterprise workloads. We also plan to have our new virtual private cloud capability and the first of more than 50 distributed cloud computing sites available in the second half of the year. The distributed sites will enable us to bring cloud computing much closer to end users around the world, which will further enhance the performance benefits of Akamai Connected Cloud. Of course, and as Ed will describe shortly, we'll be incurring substantial capex and co-location costs associated with the build out of our compute infrastructure over the near term. We're also in the process of retasking approximately 1,000 positions, or about 10% of our workforce, to spend the majority of their time working on the development, deployment, support, and go-to-market efforts associated with Akamai Connected Cloud. Because of the natural synergy and close integration between cloud computing and our existing edge platform, we believe we can accomplish this transformation without adding significant headcount to the business. This shift will also further enhance the efficiency of our delivery business. We're undertaking this ambitious investment in Akamai Connected Cloud because we believe it will create substantial value for shareholders in the medium and long term. We expect to achieve nearly half a billion dollars in revenue from Compute in 2023. And the investment we're making this year should help drive that number substantially higher in 2024 and beyond, as we use the new capabilities and capacity to support mission critical enterprise workloads. I think it's worth noting that Akamai is taking a fundamentally different approach to the cloud computing market than providers who base their platforms solely on core data centers. Our strategy is to offer the world's most distributed platform, placing compute, storage, database, and other cloud services closer to end users and enterprise data centers. As IDC's VP of Research, Dave McCarthy says, the cloud's next phase requires a shift in how developers and enterprises think about getting applications and data closer to their customers. It redefines how the industry looks at things like performance, scale, cost, and security as workloads are no longer built for one place, but are delivered across a wide spectrum of compute and geography. IDC adds that Akamai's innovative rethinking of how this gets done and how it is architecting the Akamai Connected Cloud puts it in a unique position to usher in an exciting new era for technology and to help enterprises build, deploy, and secure distributed applications. We couldn't agree more. Distributed applications require a distributed architecture. Akamai's leadership position at the edge of the internet enables us to scale just about everything we touch. We scale content, putting digital experiences closer to users than anyone. We scale cybersecurity, keeping threats farther away from business and people. And now we're building on Akamai's 25 years of experience with scaling and securing the internet for the world's largest enterprises so we can scale cloud computing and provide better performance at lower cost. Although we still have much work to do, we're encouraged by the reaction from customers who want to realize the value of our approach. Last quarter, a well-known digital fitness platform brought business to us that they previously did with a major cloud provider. They chose Akamai Connected Cloud because we can optimize their performance and provide better economics. When a gaming company suffered a DDoS attack that took out their internet relay chat servers, they turned to Akamai Connected Cloud to get back online. After utilizing Connected Cloud for a few weeks, They also migrated their peer-to-peer matchmaking servers to Akamai. This is what they say to other gaming businesses with similar use cases. Our adoption of Akamai's cloud computing solution was painless and turnkey. Akamai has a great backbone network and the connective layer between our global servers has been rock solid. With Akamai's extensive global network, we provide a better experience to our gamers by delivering from the edge and reducing latency. With Akamai, there's no reason to go anywhere else. As you can see from this example, there's a strong synergy between our emerging cloud computing business and our delivery and security businesses, especially for customers in the gaming, media, and commerce verticals. Turning now to content delivery, our CDN business generated revenue of $415 million in Q4, down 8% from Q4 in 2021 in constant currency. For the full year, delivery revenue was $1.67 billion, also down 8% year over year. Traffic on the network was better than expected in Q4, reaching a new peak record of 261 terabits per second on December 14th, as we supported more than 50 customers globally in delivering the World Cup, along with other streaming, gaming, and software download businesses. This World Cup was the first time in Akamai's 25-year history when we delivered more than an exabyte of data for an event. How much is an exabyte? It's 1,000 petabytes. That's 1 billion gigabytes. For the person transcribing this call, that's one byte with 18 zeros after it. That's a lot of zeros and a lot of traffic. I doubt if anyone has managed such a feat before. Once again, Akamai finished the year as the CDN market leader by far, as we continue to support the world's leading brands by delivering reliable, secure, high-performing online experiences. Looking back at 2022, we're pleased that we continued to grow the business and add significant new capabilities in the face of serious global macroeconomic challenges. Today we're redefining our future with Akamai Connected Cloud to become the world's most distributed cloud platform with leading solutions for delivery, security, and cloud computing. With our expanded strategy and business model, we believe that we're on a path to provide even greater value for shareholders and to make Akamai the cloud company that powers and protects life online. Now I'll turn the call over to Ed for more on our Q4 and full year results and our outlook for 2023. Ed?
spk17: Thank you, Tom. Today I plan to provide brief highlights of our strong Q4 results, some color on 2023, and touch on some items to help you with your models, and then close with our Q1 and full year 2023 guidance. Starting with Q4 highlights, we were very pleased with our strong Q4 results despite continued difficult macroeconomic conditions. Q4 revenue was $928 million, up 2% year-over-year or 6% in cost and currency. We saw very strong growth in both our compute and security businesses, as well as better-than-expected traffic in our delivery business during the fourth quarter. As Tom mentioned, our compute business was $112 million, growing 61% year-over-year as reported, and 65% in constant currency. We continue to be very pleased with the initial feedback from our customers on our future compute capabilities, and we are very optimistic about capturing a meaningful share of our customers' cloud spend in the years to come. Our security revenue was $400 million, up 10% year-over-year and up 14% in constant currency. Our delivery revenue was $415 million, which declined 12% year-over-year and 8% in constant currency. Traffic exceeded our expectations during the quarter, led by higher video traffic, stronger-than-expected commerce traffic, and record-setting World Cup online viewership. International revenue was $445 million, up 4% year-over-year, or up 12% in constant currency, representing 48% of our total revenue in Q4. Foreign exchange fluctuations had a negative impact on revenue of $2 million on a sequential basis and negative $36 million on a year-over-year basis. Non-GAAP net income was $216 million, or $1.37 of earnings per diluted share, down 8% year-over-year and down 2% in constant currency, but 7 cents above the high end of our guidance range. Moving to our capital allocation strategy. During the fourth quarter, we spent approximately $178 million to buy back approximately 2.1 million shares. For the full year, we spent approximately $608 million to buy back approximately 6.4 million shares. We ended 2022 with approximately $1.2 billion remaining on our current repurchase authorization. Our intention is to continue to buy back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases. It's worth noting that in addition to offsetting dilution, We have reduced shares outstanding by approximately 21.2 million shares, or 12%, since January 1, 2013. Before I move on to guidance, there are several items that I want to highlight to help you with your 2023 models. The first relates to a change in our network server useful lives. As some of you may recall, we announced on our Q4 2018 earnings call that we were required to extend the useful life of our network servers from four years to five years based on the actual server useful life trends. We carefully monitor the useful lives of all of our capital assets annually, and based on the outcome of our most recent review, we now are extending the useful lives of our servers from five years to six years. Similar to when we made the change four years ago, this extended useful life is a direct result of the continued software and hardware initiatives that we have put in place to manage our global network more efficiently. Because we are now using the servers in our network for an average of six years, we are required under GAAP accounting to adjust our useful life policy to six years beginning in Q1 of 2023. Please keep in mind that this change has no impact on cash flow. but will result in a depreciation benefit of roughly $56 million in 2023 and approximately $31 million in 2024. We have provided a supplemental table in the investor relations section of our website that details the impact of this change. Second, we're expecting non-GAAP gross margins to decline by approximately two points in 2023 due to two primary items. First, As we build out our new compute locations, we are required to account for our co-location leases under GAAP accounting standard ASC 842. In order to achieve more favorable unit economics, we often sign longer term co-location agreements that include certain financial commitments. ASC 842 requires we straight line the cost of those future financial commitments over the life of the agreement. As a result, we expect to record approximately $40 million of non-cash co-location costs related to this accounting standard in 2023. The second item impacting gross margin is our third-party cloud costs. As we've mentioned in the past, we expect to migrate the majority of our third-party cloud spend onto our own cloud infrastructure over the next 12 to 18 months. That said, we expect the majority of the migration effort to impact the back half of the year. We expect we will incur just over $100 million of third-party cloud costs and costs of goods sold in 2023. We do, however, expect we will exit the year on a path to significantly lower our third-party cloud costs in 2024. Third, we expect international sales will represent nearly half of our total revenue in 2023, and the currency markets remain incredibly volatile. I will provide more detail on the impact of currency on each quarter's earnings call, but it is important to note that the strengthening or weakening of the U.S. dollar can have a material impact on our reported results and guidance. As a reminder, the currencies that have the largest impact on our business are the euro, the yen, and the Great British Pounds. Fourth, I want to remind you of the typical seasonality that we experience on the top and bottom lines throughout the year. Regarding revenue, the fourth quarter is usually our strongest quarter, and we typically see a step down in Q1 revenue from Q4 levels. Regarding profitability, as a reminder, in Q3, we have the annual company-wide merit increase, and in Q4, we typically see higher sales commission expense. And one final thought before we move on to guidance. Tom mentioned that we will be investing in what we believe will be two areas of higher growth for the company for years to come, security and compute. While we expect to manage the business below our target operating margin of 30% in 2023, and we expect 2023 to be a higher-than-normal year for CapEx, we will continue to reduce costs and drive efficiency gains in key areas, such as... Third-party cloud savings. We expect to save over $100 million in annual cost as we migrate workloads from the hyperscalers to our own platform over the next 12 to 18 months. Real estate rationalization. As our employees have largely elected to work remotely, we expect to reduce our real estate costs by approximately $20 million in 2023 and achieve further savings in 2024. Shifting resources. As Tom mentioned, We'll be incurring substantial capex and co-location costs associated with the build-out of our compute infrastructure over the near term. As a result, we are prioritizing certain actions and retasking approximately 1,000 positions from other parts of the business to our compute business. In addition, during the fourth quarter, we closed approximately 500 open positions, and we will continue to be very prudent with any headcount additions during the year. Finally, we are lowering CapEx related to delivery. We expect to reduce our CapEx related to the delivery business to 4% of revenue in 2023. Now moving on to guidance. Our guidance for 2023 assumes no material changes, good or bad, in the current macroeconomic landscape, which we view as challenging but navigable. For the first quarter of 2023, we are projecting revenue in the range of $900 to $915 million, or up 0 to 1% as reported, or 2 to 3% in constant currency over Q1 2022. Foreign exchange fluctuations are expected to have a positive $13 million impact on Q1 revenue compared to Q4 levels, but a negative $19 million impact year over year. At these revenue levels, we expect cash gross margins of approximately 73%. Q1 non-GAAP operating expenses are projected to be $299 to $303 million. We anticipate Q1 EBITDA margins of approximately 39% to 40%. We expect non-GAAP depreciation expense to be between $109 to $111 million, and we expect non-GAAP operating margin of approximately 27% to 28% for Q1. With the overall revenue and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.30 to $1.34. The CPS guidance assumes taxes of $43 to $44 million based on an estimated quarterly non-GAAP tax rate of approximately 17.5%. It also reflects a fully diluted share count of approximately 157 million shares. Moving on to CAPEX. We expect to spend approximately $220 to $228 million, excluding equity compensation and capitalized interest in the first quarter. This represents approximately 24 to 25% of anticipated total revenue. Looking ahead to the full year, we expect revenue of $3.7 to $3.78 billion, which is up 2 to 4% year-over-year, both in as reported and in constant currency. We expect security revenue growth to be in the low double digits for the full year 2023. We are estimating non-GAAP operating margin of approximately 27% to 28%. And full year CapEx is expected to be approximately 21% of total revenue. We expect our CapEx to be roughly broken down as follows. Approximately 4% of revenue for our delivery business. Approximately 9% of revenue for our compute business, of which roughly $100 million of that will be for internal workloads moving in-house and the remainder for future revenue growth. Approximately 7% of revenue for capitalized software and the remaining about 1% for IT and facility-related spend. We expect non-GAAP earnings per diluted share of $5.40. to $5.60. And this non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 17.5% and a fully diluted share count of approximately 157 million shares. In closing, we are very pleased with the strong finish to 2022, and we are excited about our growth prospects in both security and cloud computing. Now, Tom and I would be happy to take your questions. Operator?
spk18: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from James Fish with Piper Santher. You may now go ahead.
spk14: Hey, guys. Thanks for the questions and appreciate all those details on the moving part. Ed, I know there's a lot there. I actually want to dive into the security business here. Tom, you had mentioned thinking about go-to-market investments and looking to prioritize on how to better address the market. Are you guys changing at all how you're approaching the market, especially on the network security side with with Zero Trust as it seems to be a little bit of a disconnect. And Ed, is it possible we can actually get an update on what that access control Zero Trust kind of business finished at for 2022?
spk09: Yeah, no, good question. And we are increasing the allocation of our go-to-market investment around the enterprise side and Zero Trust. We have specialist teams there really focused on GardaCorp and now the other enterprise products as we integrate them in with the GuardaCore solution. And we've had a lot of success with that team, as you can see from the really good growth in the GuardaCore product. And so we're doubling down there. And over the course of this year, you'll see, I think, more cross-sell with our enterprise application access product in GuardaCore and ETP. And then I'll turn the other question over to Ed.
spk17: Hey, Jim. Yeah, so what I'd say about Zero Trust is we ended the year on a run rate of about $200 million in Zero Trust, and we had a very strong finish to GuardaCore. And GuardaCore, we'd expect this year to be on a run rate of $100 million, so a very, very strong finish to the year with GuardaCore.
spk14: Helpful. And just a follow-up on the compute side, a big question we've been getting is whether the compute business could get traction really outside the media vertical? Or is that really going to be the focus in terms of gaming and streaming kind of storage and compute on the back end? And kind of what's the competence level that you're not going to see an erosion in that more traditional Linode SMB base? Thanks, guys.
spk09: I think media is the big first set of adopters. In fact, as you know, one of the world's largest if not the largest social media company is already using it. And I think that's because media really is concerned about performance. And so we're doing things like transcoding much closer to the end user. And that's a key thesis of our architecture and our approach to compute is to be much more distributed with the compute, have containers and VMs much closer to the end users. Gaming, another example where that makes a lot of sense. You know, things like leaderboards, you know, manage groups of users as they play the game. You need low latency. There's a lot of back and forth with the clients, and you want that to be close to the end user. That said, this is not limited to media. Commerce is also very sensitive to performance, and we've already signed up commerce companies. And commerce companies, of course, especially with these macroeconomic challenges, very sensitive to cost. And so we're in a position where we can give them, I think, with Akamai Connected Cloud, better performance at a more competitive price point. So I think you'll see penetration on the commerce vertical as well. And of course, Akamai is really close to the big companies in media and commerce. I have the opportunity to talk to the most senior executives in many of these companies, and they're very interested in in what we can do for them. And they've been asking us to do this, and I think they're excited about the potential for Akamai Connected Cloud. I think down the road, take a little bit longer, you know, the financial vertical is another vertical that's very strong for Akamai because of our work in security and our market-leading products there. You know, there we have a little bit more work to do on the certifications. The bar is a little bit higher for financial institutions, but I think that would follow, you know, media and commerce in terms of adoption of Akamai Connected Cloud.
spk18: Our next question will come from James Breen with William Blair. You may now go ahead.
spk06: Thanks for taking the question. Can you just talk a little bit about sort of the internal decision making around shifting resources to the security and cloud side and maybe a little bit on the delivery side of market share to some extent, giving up some market share within that business for the benefit of overall profitability in the long term. Thanks.
spk09: Well, yeah, I think it makes good sense to be shifting resources towards the higher growth areas, both security, but especially in cloud computing. I think we'll see a lot stronger return on the investment. We still have the market leading delivery business. We haven't lost share. To the best of my knowledge, We have turned away a small amount of the business that's very spiky. And that doesn't make as much sense for us to take that business if the price point isn't right today. And that's because traffic growth rates are lower than they used to be. So you have to spend money to build out for the spike. And if your traffic growth rates are lower, it takes longer to fill that capacity on a daily basis. With delivery, your cost is associated with your peak and your revenue more associated with the daily usage or total aggregate usage. And so we have, as we've talked about, turned down some deals there just because the ROI doesn't make as much sense in this environment. And we get a lot better ROI from investing in compute and I think obviously security. And then within security, we're reallocating investment decisions there to focus more resources on the fastest growing security products. So I think it just makes good sense. And, you know, for now with compute, it's something our customers are really asking us to do. And even in this challenging macroeconomic environment, you know, it's something that I think the timing may be even a little bit better there because of that.
spk03: Great, thanks.
spk18: Our next question will come from Keith Wise with Morgan Stanley. You may now go ahead.
spk08: Excellent. Thank you guys for taking the question. A couple of questions. I have a ton of questions, but I'll try to limit it to two or three. On the cloud computing side of the equation, the word of the year amongst investors has been optimization. And we've heard it from AWS and we've heard it from Azure. I'm really interested to hear how that impacted Linode. Given kind of being a lower cost provider in the marketplace, did you see optimization of people trying to sort of reduce the amount of consumption on your platform? Or were you guys like more of a net beneficiary because of people are ultimately seeking just kind of lower costs overall? And then also on cloud, I don't know, did you guys mention what the contribution was from Linode Discord? I believe you guys have been giving me kind of inorganic contribution for the past couple of quarters. And then I have one for Ed on the margin side of the equation.
spk09: All right, I'll take the first part of that and let Ed take the second part. I think Linode, you know, is a much smaller company and really sort of a different market than the giant cloud companies that are, you know, maybe referring to optimization. So we don't see a big impact on Linode. Now, what we're doing is making Linode so it can be used by the big enterprises for mission-critical applications. And that, in part, is building out scale. It's making it be more distributed, available in more cities, integrating it with the Akamai platform in our edge regions, and increasing the functionality. So a lot of work taking place on the Linode platform so we can sell it at a much higher scale to major enterprises. And we're in the stage now with early adopters there. And I think as we get towards the end of this year, we'll be in a position to take on a lot more business there. And I think the value proposition is that we would have better performance, we'll be more distributed, closer to end-users, at a more competitive price point. And I think in this environment, yeah, pricing matters, especially you look at, as we talked about, big media, big commerce, they care, and they are spending a lot in the cloud today. So I think that's a phenomenon you'll see take effect as we're in a position to take on more large-scale business from large enterprises. And then, Ed, you can take the second part of that question.
spk17: Yeah, sure. So the node, you know, it'll get more difficult to break up sort of merging in with everything, but it was about 34 million, a little over 34 million. We did see a slight increase in the, in the growth rate as the, uh, as the year went on and we haven't seen any change in the consumption around optimization, meaning folks are using less of, uh, of the cloud at this point.
spk08: Perfect. Perfect. And then on the expense side of the equation, um, I just want to make sure I'm understanding this correctly. It sounds like you're slowing down or pausing hiring, and I'm assuming you closed those positions off because you hired into them, but you just took it off the job board, if you will, and then repositioning employees rather than any restructuring or headcount reduction. So the way that we should be thinking about it is you're aiming towards relatively flat headcount in 2023? Yeah, Keith.
spk17: So the way I think it will probably go up a little bit. It won't be up as much as it's been up certainly last year. But, I mean, you're thinking about it in the right way. And one of the things that we're fortunate enough to do is if you think about what a typical company would do if you didn't have the skill sets in-house, you'd have to do a layoff that's expensive, and then you'd have to go hire new talent. We're fortunate enough in the areas that Tom talked about, whether it's development or build out of the network, the sales functions, that we can shift those resources over. So if you think about the cost to build out what we're doing, it would cost somebody else a significant amount of money, but we're able to shift those resources. And as far as the new headcount, Going forward, we're going to be pretty judicious with where we're hiring, but it's going to be primarily in the areas of cloud and security and maybe a few on the go-to-market side.
spk08: Got it. And the shifts take place both in terms of development as well as go-to-market, or is it more so like the development resources are being shifted?
spk09: There's a lot of resources being shifted within our platform and delivery organizations. Think of the hundreds of people that are managing our network deployment that build out our 4,100 regions today and the tremendous scale we have. And they are now heavily focused on building out compute resources. Think of the people that manage the operations, the automatic deployment of software, the failover, the load balancing, the resiliency. They are heavily focused on incorporating those capabilities for compute. building on top of the Linode framework. So I would say the large majority of the resources are of that nature that we're retasking.
spk03: Outstanding. Thank you so much for taking the questions, guys.
spk18: Our next question will come from Tim Horan with Oppenheimer. You may now go ahead.
spk12: Thanks, guys. Also on the cloud, can you talk a little bit about – your improvement and price and performance versus the incumbents. Can you give some metrics there? And then can you talk a little bit about what type of cloud you're building out for? I know, Tom, in the past, you were a little skeptical that we could do kind of gaming as a service over cloud infrastructure. Is that changing? And you could optimize your cloud for AI or blockchain or more networking or very, very low latency, just any color there. And then lastly... Have you contemplated maybe partnering with some of the larger cloud providers with, you know, AI really starting to take off? Can you, you know, be a partner to a few of them or one of them that would really accelerate things?
spk09: Oh, yeah, good questions. You know, we'll be the most distributed cloud services provider. And, of course, we start with 4,100 pops for, you know, function as a service, JavaScript at the edge. And we're building out the core cloud capabilities and then this notion of a more distributed, you know, containers closer to the edge, VMs closer to the edge. Now, that will give you better performance for things where you want to be close to the end user because we'll be closer to more end users. We'll be in some cases countries where you don't have a presence from the hyperscalers. And our pricing system. will be less. Already, you can look at the list pricing and see that it's less than what the hyperscalers charge. And because we're integrating it with our backbone and with our edge platform, that gives us great economics on the delivery, taking the data in and out of storage or compute and getting it to end users. We're in a position to do that at a lower cost and to give consumers a better price point Yeah, this works not for all gaming functions, but for a lot of the things you want to do with gaming. You know, it's a great use case. Streaming, obviously, transcoding, you know, APIs, chatting APIs, you know, people communicating during a sporting event. You know, that's all is very relevant to having a more distributed model. AI, you know, I think elementary stuff you can put in a container or VM. Yeah, that makes perfect sense. If you want to have the monolithic storage associated with that, that's more cloud, core cloud compute, I would say. You know, I think in terms of partnering, yeah, we have a lot of customers that obviously use Akamai services today as well as the cloud giants. In fact, the cloud giants themselves, a couple of them are very large Akamai customers, and so they also use their own services. So I think it's an ecosystem where, yeah, I think there'll be customers that would use us and use the hyperscalers, you know, depending on the application and what they're looking to do. You know, and we very much believe in a multi-cloud approach.
spk03: Thank you.
spk18: Our next question will come from Mark Murphy with JP Morgan. You may now go ahead.
spk15: Oh, thank you very much. Is it possible to ballpark the revenue contribution that was driven by this huge scale of the World Cup so that we could then remove that from our models for the next three years and then, I guess, presumably include it back in in year four?
spk17: Yeah. It was about $5 million, roughly.
spk15: Okay. Got it. And then, as a follow-up, just to clarify... During Q4, were you able to capture some of the business that Amazon is losing, either due to the lower pricing structure that you have for Linode or because you have this advantage of broader points of presence? I guess I'm just interested in, it sounds like from what you're describing that potential is there. I'm just wondering if there was a material benefit or tailwind from that in Q4.
spk09: Not in compute in Q4. Obviously, we compete very successfully in delivery and security, you know, with the hyperscalers, with the market leader there. Now in compute, they are the market leaders by far. And so nothing that we would do in compute is going to, you know, make any difference to them. I mean, we're looking to get you know, to a 1% market share in a market that's $100 to $200 billion a year. So it'll take us a while in compute before I think a hyperscaler would even really, really notice. And, of course, a 1% or 2% market share means a lot to us, you know, in compute, that several billion dollars means less, obviously, to folks at the scale of those guys.
spk15: Understood. Thank you very much.
spk18: Our next question will come from Rashid Deluria with RBC. You may now go ahead.
spk13: Wonderful. Thanks so much for taking my questions. I've got two. First, I wanted to start on the compute side of the equation. I appreciate all the color around CapEx. And please forgive me if my math is shoddy over here. But if I just do rough back of the envelope numbers, right, with 9% of total revenue being CapEx specifically for the compute business, And then I strip out $100 million of non-recurring. That's still telling me that CapEx, compute CapEx this year in 2023 is going to be 45% of compute revenue, which, you know, I get it. It's a growing business and everything. Number one, am I directly thinking about this? And maybe piece number two to that is how should we be thinking about steady state CapEx for the compute business, you know, once we get through maybe the next year, year and a half, and then I've got to follow up.
spk17: Yeah, sure. So you're doing the math right. So the way to think about the 100 million, that will enable us for our internal use, that will enable us to save a lot more than 100 million. So think of it, you think about it right in terms of as a one time sort of burst of a charge. Obviously, if we continue to use our own compute capabilities over time down the road, we'll be adding, you know, a little bit from time to time there. But you're thinking about that correctly. You know, in terms of what does a steady state look like? You know, we talked at the analyst day about how, you know, you could approximate sort of future growth percentage with what you would spend. So, for example, if we're, you know, at a billion dollars and we're spending 30% in CapEx, our growth rate would be probably around 30%. It's not quite dollar for dollar, but sort of a rough approximation. So, think of us spending roughly 100 million this year on internal use, another say call 225 to 250, depending where you are on your models. You know, that enables you to get that type of revenue scale potentially. You know, obviously it's going to have to play out in the market a little bit more, maybe a little bit less. That's a pretty decent rule of thumb. And then obviously as we're growing out these locations, you know, we're pretty ambitious in terms of the core locations that we're putting online, also the distributed locations we're putting online. We're going to be investing ahead of revenue. So I would expect for the next year and a half or two years to have elevated CapEx related to the compute business and we'll start to scale into it.
spk13: Okay, got it. Thanks. That's helpful. And then just maybe going back to the security business, you know, going past this year, longer term. You know, what what needs to happen to see security overall reaccelerate to growth rate that you'd be happy with? Is that primarily going to be driven by a continued GuardaCore mix shift? Is that going to be more on the zero trust portfolio X GuardaCore? Maybe walk us through kind of what needs to happen to get security up to kind of an organic growth rate that you'd be happy with. Thanks.
spk09: Yeah, no, I think you characterized it well, and it is more the mix shift to the newer products for us that are growing at a rapid rate but are still relatively small. You know, we've got a substantial return from Bot Manager now. That's a great example starting to really help. Next is GuardaCore, which, as Ed mentioned, you know, we want to, as we exit, 23 should be at over $100 million run rate. And, you know, once you start getting to that size and it's rapidly growing, it starts making a difference for the big security number. And, of course, as that number gets bigger, it obviously gets more challenging to maintain the higher growth rates. We're continuing to invest in new capabilities there. Account Protector is off to a very good start. Really excited about that. But it will take time, you know, to do that. And we're, you know, continuing to look for potential acquisitions that can help jumpstart growth. I don't think anything, you know, huge that gets you the return right away, but areas that we think are really important that we can become market leaders in, like we've done for application firewall, bot management, you know, for segmentation, and that over then a period of years can drive significant growth for us.
spk13: All right. Wonderful. Thank you so much, guys.
spk18: Our next question will come from Amit Daryanani with Evercore. You may now go ahead.
spk16: Thanks. Two questions for me as well. I guess the first one, when we think about 2% to 4% kind of top-line growth in 2023 in constant currency, I think you talked about security growing double digits. Is there a way to think about how do you think growth stacks up on the compute and delivery side as well for the year?
spk17: Yeah, sure. So while we didn't give specific guidance for either delivery or compute, Tom did talk about you know, us achieving, you know, half a billion or so in compute revenue. So depending on where you put your models, you know, you decide on a half a billion for compute and you just solve for the delivery. I think if you were to be on the higher end of the business, delivery might do a little bit better, as we saw in Q4, potentially get security going if the macroeconomic conditions improve. And then, obviously, really just a timing issue in terms of when we can start moving major workloads on compute.
spk16: Got it. And then, you know, as we think about sort of the path from, you know, let's just say 27.5% operating margins that you'll be at in 23, towards this 30% kind of target you folks have had in the past, you have it now actually, what do you think it takes to achieve that target? Is there a revenue number that you need to get there or a mix or the cost reduction? If you just maybe provide a bit of a bridge on how do you get from 27.5% to 30% EBIT margins, that would be really helpful.
spk17: Yeah, so it's a little bit of everything, right? But I think, you know, as we laid out about five or six different things that we're doing, probably the biggest near term item would be the third party cloud cost. So as we migrate that, we're going to save about $100 million or so, you know, think about that as some of that will happen this year, a lot more of it in 24. And then by 25, we should have, you know, almost a majority of our internal cloud, or third party cloud on our internal system. So that's, you know, two to three points right there. You know, co-location, I talked a bit about the oddity of the ASC 842 and lease accounting. We have a little bit more of a burden that we have to take at the beginning of some of these longer-term agreements. But also, we're spending on co-location that we haven't quite scaled into yet. So there's your question about revenue. As revenue scales, you'll get scale with your margins. And then just through some of the depreciation savings that we're getting on delivery and And the real estate savings, we're spending, call it before this year, around $100 million in real estate. We're going to save about $20 million this year, probably room to get maybe another $20 or $30 out of that as well. So it's really a combination of getting the compute revenue to scale into our investments in mostly our co-location facilities and third-party cloud savings. Those would probably be the two biggest areas for margin expansion.
spk16: Perfect. It sounds like most of the ramp to margins is going to be driven by self-help levers versus revenue tailwinds. I mean, it seems like the skew might be a bit more on self-help. Is that a fair way to characterize it?
spk17: Yeah, I mean, I think that's, you know, when you look at the size of those numbers, certainly. I mean, obviously, revenue cures all your rails, right? We've got a pretty scalable model. So if we see acceleration in revenue, especially on the compute side, you're going to see pretty good flow through. But yeah, there's a lot in our control here. I think we're doing the responsible things as far as hiring goes, shifting resources, focusing on reducing our real estate costs, and really focusing on driving down that third-party cloud cost, which is really taking a pretty big chunk out of our gross margin.
spk16: Perfect. Thank you.
spk18: Our next question will come from Fatima Boulani with Citi. You may now go ahead.
spk11: Hi. Good afternoon. I appreciate you taking my questions. Two from me. On the delivery segment, you know, the last couple of years for you have been, you know, maybe a little bit more erratic just by way of, you know, lapping some of the benefits from the pandemic, you know, some of the dynamics you saw in the gaming area where trends were moderating. So at a high level for you, you know, when we think about the underlying cadence from a volume perspective, what are you assuming that's maybe different the same better or worse versus the trends you saw this year? And I'm considering the big renewal cohort, you know, what you've mentioned around holding toe on pricing. So any sort of color commentary you can give us for the delivery segment in terms of traffic trends and in pricing trends under the hood. And then I have a follow-up, please.
spk17: Yeah, sure. Great question. So let me see if I can take that all at once here. So in terms of, The major renewals, we don't have nearly as many major renewals as we had last year. So that's going to be one thing that works in our favor. We are not anticipating in our guidance any significant increase in traffic in terms of levels of growth that we saw last year. We're anticipating a slight increase, but nothing significant. We're anticipating that and we're starting to see that price declines are moderating a bit. They're not nearly as steep as they've been in the past. And then we will continue our posture in terms of being a little bit more selective with some of the spiky traffic. You know, once we start seeing volumes get back to, you know, the historical internet growth rates and beyond, then maybe that posture may change, but that's the way we're going to play it for now.
spk11: I appreciate that. And just the delineation between your U.S. business and the international business, anything you can point to by way of you know, geographical differences in procurement? Is there more sensitivity on budgets in the U.S. versus international? You know, any characterizations there? Because international continues to be a stronghold for you versus, you know, maybe some of the malaise on the U.S. side. But we'd love to get a little bit more granular on what's continuing to drive that trend and if some of that budgetary pressure that you alluded to on the security side is maybe showing up more pronouncedly in U.S. versus international. That's it for me. Thank you. Sure.
spk17: Yeah, I would say just kind of general macro across all regions, I'd say new customer acquisition is more challenging in an environment like this. And I think you hear a lot of companies talk about that. We're seeing that as well. In terms of geographic, you know, obviously the European economy is struggling a bit more than we are in the U.S., slightly higher inflation, et cetera. So, you know, I expect that area to be a bit more weaker than what I'm seeing in the U.S. Asia is still been pretty strong. Latin America has been pretty strong. U.S. has been, you know, kind of holding firm here. But I would expect the European business in particular to be the most impacted by the macroeconomic factors.
spk02: Our next question will come from Frank Luthan with Raymond James.
spk18: You may now go ahead.
spk01: Great, thank you. So with the significant number of POPs that you have already, what is it about the cloud platform you need to expand these sites? What is it about the location and the capabilities that they bring for expanding the compute platform that you already have? And then you touched on possibility for M&A. What do you consider significant, and what size M&A do you think you might be looking at if you do any in the next 12 months? Thanks.
spk09: Yeah, so on the... Akamai Connected Cloud Architecture, we already have 4,100 edge regions. And these regions do delivery and security. They're the first line of defense. They also do what we call edge computing, which is function as a service, JavaScript at the edge. Now, in the core, where Linode had 11 data centers, and we're going to more than double that, You have very large-scale storage object and block storage. You've got VM as a service, container as a service, Kubernetes, core cloud compute. Now, we're adding also an intermediate layer. We call that sort of the distributed compute layer. And this would have not the monolithic storage, but you'd have containers as a service, Kubernetes, you know, VMs as a service, so you could do compute there. And so what you... What you do and where you want to do it depends on the application. You know, things that are a lot of back and forth with the end user that are lighter weight that can be handled in JavaScript. You want to be doing that in the 4100 edge regions. Something like, you know, transcoding. You know, you're doing some data processing. You've got an app in a container. But performance matters. You want to be close to the end user. or say a gaming application that you'll want to do in our distributed edge platform. And the reason you have that is, you know, there's a lot of cities and places in the world that don't have a giant cloud data center there. And they can't really take advantage of the cloud for applications that, you know, have where the proximity to the user is important. And so that's something that we want to be able to provide. So there's three sort of levels here of compute and, You know, and you want to be actually using generally all three for a major company, but the specific application dictates where you want to be doing it and what combination that you want to use.
spk01: Okay, Greg, potential for M&A and thoughts on, you know, what you would consider significant versus more tuck-in?
spk09: Oh, yeah, good. Yeah. So, you know, I think tuck-ins are a team that has the beginnings of a product or technology that we can scale on behalf of our customers. You know, we've done a lot of acquisitions like that. You know, more substantial would be something like GardaCore that, you know, had at that time the number two product in the marketplace, and we've, you know, invested around that. They're now number one. which is great to see, and a more significant cost associated with that. And they had a developed product already. Back, you know, go back farther, Perlexic is another example of that, where they had a developed product. They're already at, you know, $40, $50 million in ARR. And, you know, those are, we do occasionally, and we're always looking, but we do those occasionally, but more you'll see the tech tuck-ins, and then we develop from there.
spk03: All right, thank you.
spk02: Our next question will come from Rudy Kessinger with D8 Davidson.
spk18: You may now go ahead.
spk07: Hey, guys, thanks for taking my questions. I guess I'm curious, you know, how did the macro trend in the quarter just with deals lengthening and, you know, how many deals did you see push, I guess, relative to Q3? And, you know, the guide assumes no, you know, positive or negative change in the macro, just, you know, Why make that assumption? Why not be a bit more conservative? Maybe assume it gets a little worse.
spk17: Yeah, so this is Ed. So in terms of the biggest impact on the quarter, I would say, you know, coming in, we were expecting potentially a weak commerce season. We actually saw a pretty decent commerce season. We saw a decent video traffic. We saw, obviously, we talked about the World Cup being better than our expectations. I would say gaming was noticeably weak. We didn't see as much activity as you typically see in a Q4. And then from a sales side, a couple of deals pushed. You know, there's a few large guard accord deals we tracked that, you know, pushed. And then also, you know, new customer acquisitions are slower than we'd like to see. Those are really the big things. And as far as the macroeconomic conditions, you know, it's tough when you sit in this seat to try to play economist. And, you know, with us, obviously, access is probably the biggest impact on us more than anything, given we've got longer-term contracts. But, you know, it's hard to say that, you know, look, things can change and get dramatically worse. I'm just expecting, you know, what I see right now in front of us in terms of the macroeconomic environment is challenging, but I think we can navigate it pretty well. So that's what we base our guidance on. If things change, we'll obviously update the guidance. But I was just trying to, you know, a lot of times people ask me, what were you thinking as you put your – your guidance that are you expecting things to get dramatically worse? In this case, no. Do I expect things to get dramatically better? No, it's kind of roughly the same. And if things do change, we'll obviously update you as we get more information.
spk07: Yeah, okay, that's fair. And then at a higher level, I mean, obviously it sounds like compute has kind of slotted into growth priority one, if you will, kind of ahead of security. And just at the high level, I'm curious what really is giving you conviction to invest so much in compute? Is it, you know, the early customers that you've signed? Is it just conversations? Is it the pipeline growth you've seen over the last few quarters since you made the acquisition? What's given you so much conviction to make such a large investment and go all in on compute?
spk09: Well, it's all of the above, plus the compelling logic, you know, of the situation. You know, as I mentioned, you know, I do have the opportunity to meet with the senior-most executives at you know, a lot of the world's largest companies, you know, especially you think media, commerce, gaming, and so forth. And there is a lot of interest there in our ability to help them. You know, they're in a situation where they're spending a ton on a third party cloud. It's growing rapidly. Many of them describe it as being out of control. And it's even hard to know, you know, how big it'll get. In some cases, they're spending this with a competitor, and on top of it, they've got major company initiatives to cut costs because of the challenging global economic conditions. And so when we can offer them a service with at least as good, better performance at a lower price point, that's very attractive. Now, on top of it, these companies, they know us well. They already trust us. with scale and performance and security because we provide the vast majority of their delivery and security. So we're a very logical choice. It's not like we're just somebody coming along here saying, hey, we got a cloud service. It's not like that at all. You know, we got a lot of credibility, you know, with these companies. And, you know, they are pretty clear that they think this could be very attractive for them. In fact, I think, you know, one of the analysts on this call did a survey of 50 of our you know, larger customers and found the same thing, you know, the same thing was reported to them. So, you know, we see that, that our customers need that and would like to, you know, shift business to us. Well, we want to get ready for that and help them, you know, and that means building out the capacity, building out the new distributed architecture and, you know, getting the functionality to the level that, you know, they're going to be you know, comfortable putting mission-critical applications at very large scale on our platform. And, of course, Akamai will be, you know, one of the first examples of that. You know, we're going to place, you know, our services that are used by pretty much all the major enterprises, a lot of the major enterprises out there for, for example, security onto our platform. And that will be another great proof point that Akamai Connected Cloud is really going to work for them.
spk18: Our next question will come from Ray McDonough with Guggenheim. You may now go ahead.
spk04: Great. Thanks. Tom, maybe just to ask the M&A question in a slightly different way. As we think about the strategic plan going forward, do you feel the organization has enough operational capacity to continue to expand Linode right now and do another acquisition and security at this point to help you reaccelerate growth? And is 20% long-term growth, including acquisitions in the security business, something you're still targeting after this year?
spk09: Yeah, good question. First, the work on Linode, which is extensive, uses different teams by and large than our security technology group. And so, yes, we're in a position that we can continue that work and also do security acquisition. I don't think there's any challenge there. Now, we have, as we talked about, retask a lot of the positions, either people or positions, from our platform and delivery organizations to the compute effort. So there is a lot of, you know, effort there, and that will be increasing, you know, throughout the year. Now, in terms of the 20%, what we're talking about is we're guiding this year into the low double digits, and then, you know, we'll see where we are. Obviously, we'd like to be growing faster than that. But there are very challenging conditions out there, as we've talked about. And, you know, we'll have to see. So we'll update that guidance as we maybe get to an investor day or get into next year. But right now, we're just guiding for this year in security in the low double digits.
spk04: Great. And one more, if I could. The work we've done on Linode does suggest your customer base is interested in leveraging Linode. And when I think about sort of the lead times for capacity additions in the data center space that you've already leased, how long are the lead times to fill that data center space? And at what point would you expect it at least to get to a somewhat full utilization of just the space that you've already contracted for?
spk09: Yeah, so good question. There's the contracting, there's the build out, there's, you know, getting it all turned on. And the way you want to think of it is we would be doing the core data center build out. The focus of that is in the first half. And, you know, we'll have a lot of that done then. We should finish that, you know, early in the second half or get substantially more than we have today. And then late in the second half, taking on the distributed architecture, and we should have a bunch of those regions turned on live later in the year. And at that point, and also at the same time, getting the certifications in place, virtual private cloud, other capabilities that the big enterprises need, so that when we get to the later part of the year, we're in a position that we can take on you know, this business. And it won't just happen all at once. You know, a major enterprise will try it, use some applications, and then, you know, some of the big ones, you port, you know, some of the traffic over. And so I think the major filling of it and use of it really comes more in 24, not so much this year. You know, we expect, as we talked about this year, to do about, you know, half a billion dollars in compute. But the real growth, I think, And the monetization of what we're building out now comes in 24 and 25. And also for our own use. You know, this year we're in the process of porting our own applications. As Ed talked about, you know, we're going to save some this year, but really the big savings for us comes in 24. So that's the way I think to think about it.
spk04: Great. That's helpful. Thanks for taking the questions.
spk05: Well, it is Valentine's Day, so we're running a little bit over. Operator, why don't we take one more question? I know there's probably a few more, but let's just take one more, and we'll end the call.
spk18: Okay. Our last question will come from Michael Elias with Cohen & Company. You may now go ahead.
spk10: Thanks for squeezing me in here. Just two questions for you. The first is you talked about some Gartacore deals slipping, and last quarter there was commentary around, you know, elongating sales cycles. I was just wondering if you could give us some color on how sales cycles have evolved for not only GuardaCorp, but the broader portfolio. And then my second question for you is, you know, maybe to phrase it a different or frame it a different way, is, is there a rule of thumb that we should use to think about the correlation between incremental revenue and incremental megawatts of data center capacity that you need? I.e., to support an incremental $100 million in compute revenue, you would need X amount of megawatts. Thanks.
spk17: All right, I'll try the second one. It's going to be a little bit more challenging, and maybe I'll come back with a metric on that one. I don't have an exact metric down to the megawatt, but I'm sure somewhere in the business I can find somebody who does. But I've sort of used sort of a rule of thumb of, you know, a dollar of capex is a dollar of revenue, roughly speaking. You know, that may change a bit, but, you know, sort of a good rule of thumb. In terms of sales cycles, you know, the good news with the deals slipping is they're not going away. This is Typically, a big purchase that you make, especially with CardiCorps, that, you know, it could be something where the decision maker is just pushing it off a quarter or two. And it's not that the deals are losing. It just becomes a longer sales cycle and a fight for budget. In terms of just overall sales cycles, like I said, the biggest impact is new customers, right? It's a lot easier with your existing customers. You know, you're going through renewal cycles. You're having upgrade conversations and things like that. Getting new customers to open up a new buying pattern is challenging. I do think one thing that will work in our advantage in all of this, though, is we talk about compute and the need to find a cheaper alternative, go multi-cloud. I think that's going to work in our favor. So I think it's one thing, all the negatives that come with a macroeconomic backdrop that we have. I think that's one positive that will work in our favor. And we are starting to see our pipeline grow pretty dramatically in that area. And as Tom talked about, you know, we should start to see deals close towards the back half of the year and then really set ourselves up for the big 24.
spk05: Thanks for the call. Okay. Well, thank you, Michael. Thank you, everyone. And in closing, we'll be presenting at several investor conferences and events throughout the rest of the first quarter. Details of these can be found in the Investor Relations section at Akamai.com. We want to thank all of you for joining us, and we wish you a very good health and good health to your family. So have a nice evening.
spk03: Take care.
spk18: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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