Akamai Technologies, Inc.

Good day, and welcome to the Akamai Technologies first quarter 2023 earnings conference call. All participants are 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 one on your telephone keypad. To withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining Akamai's first quarter 2023 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 May 9, 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 gap and non-gap metrics can be found under the financial portion of the investor relations section of Akamai.com. And with that, let me turn the call over to Tom.

Thanks, Tom, and thank you all for joining us today. I'm pleased to report that despite the challenging macroeconomic environment, Akamai delivered strong results in the first quarter, with both revenue and earnings exceeding the high end of our guidance range. Revenue grew to $916 million, and non-GAAP operating margin expanded to 29% in Q1. Non-GAAP earnings per share was $1.40. In what has been a good start to the year for Akamai, we've continued to invest in the key areas that we expect to drive our future growth, while also taking actions to improve margins. As Ed will explain in his portion of the call, we remain focused on returning to our operating margin target of at least 30% as we work to accelerate growth. I'll now say a few words about each of our three main product areas, starting with security. For the first time in Akamai's 25-year history, security represented the largest share of Akamai's revenue in Q1. This marks a significant milestone for Akamai since our expansion into security a decade ago. While we take pride in this achievement, we're focused on accelerating our security revenue growth rate from here, both organically and through disciplined M&A. For example, this past week, we closed our acquisition of Neosec, which complements Akamai's market-leading app and API security portfolio by extending our capabilities in the rapidly growing API security market. Last year saw a record number of web app and API attacks more than double the number in 2021. The rapid rise in API attacks is becoming a critical challenge for enterprises across all verticals, with IDC and Gartner now projecting the API security market to exceed $1 billion by 2027. The company we acquired, Neosec, is a powerful SaaS security platform that leverages AI-based behavioral analytics, unmatched visibility, and threat hunting capabilities to discover APIs, analyze their behavior, identify vulnerabilities, and help customers defend against attacks. We plan to take Neosec to market immediately while our combined teams work together on product innovation. With the majority of its engineers located in Tel Aviv, where we already have a significant security engineering presence, we expect Neosec will be an excellent fit with our culture. And like our GuardaCore acquisition, We can sell NeoSec to customers that don't use our CDN. Speaking of GuardaCore, our segmentation solution to protect against ransomware continued to achieve strong traction with new customers in Q1, including with one of the largest banking groups in Europe and one of the largest airlines in the UK. We're also continuing our organic investment in innovative new products to help protect major enterprises. For example, at the RSA conference two weeks ago, our new brand protector solution was named one of the 20 hottest security products by CRM. Another trade publication, CSO, listed both brand protector and our new Perlexic network cloud firewall among the most interesting products to see at RSA this year. At RSA, we also featured a new managed security service called Akamai Hunt, Akamai agentless segmentation, and multiple enhancements to our market-leading bot management solution. In addition to our investments in new products, we're focused on accelerating security growth by winning new customers and expanding our relationships with existing customers. For example, one of the biggest security threats in the news last quarter was Killnet's coordinated series of DDoS attacks against some of the top medical centers in the U.S., In response, some very prominent healthcare institutions adopted Akamai's industry-leading solution for DDoS protection. In recognition of the value Akamai provides, the CIO of a world-famous clinic emailed us afterward, thanking Akamai for enabling him to sleep well at night. We're also making good progress on the cloud computing front. Last quarter, we acquired the cloud storage company, Ondat. Storage is a key component of cloud computing, and we expect that ONDAT's technology and considerable expertise will further enhance our enterprise-grade storage solution for Akamai Connected Cloud. Akamai intends to offer the world's most distributed platform, placing compute, storage, databases, and other cloud services closer to end users and enterprise data centers. As a result, we believe that Akamai will be able to offer customers better performance, more points of presence, and lower cost, for many mission-critical enterprise workloads. That's the fundamental difference in our approach compared to other providers. We already have partners working with Akamai to run globally distributed databases with very low latency for synchronization. We have partners utilizing our cloud platform to provide customers with real-time visibility into telemetry from their end users around the world. We're working with customers in e-commerce, travel, hospitality, software as a service, media and entertainment, to improve their ability to personalize experiences, monetize content, accelerate data processing, facilitate collaboration, simplify management, improve performance, and reduce costs, in some cases by large amounts. And we're having early discussions about potentially leveraging Akamai Connected Cloud for AI inference engines. Each of these use cases plays to Akamai's advantage in terms of numbers of pops, global reach, performance, and cost. Another advantage that we hear repeatedly from customers, including those I met with last month at the NAB conference, is that they trust us. They value the years of highly reliable service that we provided in delivery and security, and they trust us not to use their data to compete with them. I'll now say a few words about our delivery business. which experienced an encouraging uptick in traffic growth late in Q1. Akamai continues to be the market leader in delivery, providing industry-leading performance and scale as we continue to support the world's top brands by delivering reliable, secure, and near flawless online experiences. And we continue to see a strong synergy between our delivery business and our security and compute offerings. especially for customers in the gaming, media, and commerce verticals. The synergy is both on the top line, as longtime delivery customers buy our security and compute products, and also on the bottom line, as we realize the cost benefits of using a single infrastructure to provide security and compute services, as well as delivery. We plan to pass some of the cost savings on to our customers, which is especially valuable for customers who are paying exorbitant egress fees to the hyperscalers to access or move their data. The synergy of having a single cloud platform will also help us in our ongoing effort to improve profitability. Not only can we leverage existing infrastructure, but we can also leverage existing talent as we shift resources and focus from delivery to compute. As Ed will explain shortly, We're very focused on managing costs and deploying resources where they generate the best long-term returns. As one part of this effort, we plan to reduce our worldwide workforce by a little less than 3% this quarter. This was a difficult decision, but it was necessary for us to prioritize investments in the areas with the greatest potential for future growth as we strive to deliver greater value for shareholders. I'd like to take this opportunity to thank all of our employees for their hard work on behalf of our customers and shareholders. From our developers and engineers who build and operate the services that power and protect life online, to our sales, services, and marketing teams who do such a great job helping our customers in this challenging environment, and our back office and administrative support teams who help make Akamai be such a great place to work. It really is a privilege for me to be able to work with such an outstanding group of people as we make life better for billions of people, billions of times a day. While this is a time of substantial macroeconomic uncertainty, I believe that it is also a time of great future opportunity for Akamai as we bring new security and compute capabilities to market and as we deploy Akamai Connected Cloud. As you may know, I continue to be a personal buyer of Akamai stock under the 10B51 plan that I filed last year. And I'm pleased to let you know that Akamai repurchased 4.6 million shares of Akamai stock in Q1 for a total of $349 million. Now I'll turn the call over to Ed for more on our Q1 results and our outlook for Q2 in the full year. Ed?