Akamai Technologies, Inc.

Good day and welcome to the third quarter 2025 Akamai Technologies, Inc. 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 a question. 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 Mark Stoutenberg, Head of Investment Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining Akamai's third quarter 2025 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 those regarding revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on November 6, 2025, and we assume no obligation to update any of these forward-looking statements. As a reminder, we'll be referring to certain non-GAAP financial metrics during today's call. A detailed reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the investor relations section of Akamai.com. With that, I'll now hand the call off to our CEO, Dr. Tom Leon.

Thanks, Mark. I'm pleased to report that Akamai had a strong third quarter, with results coming in above expectations for revenue, margin, and earnings per share. Revenue grew to $1.055 billion, up 5% year-over-year as reported, and up 4% in constant currency. Non-GAAP operating margins improved to 31%. And non-GAAP earnings per share was $1.86, up 17% year-over-year as reported and in constant currency. Our business performed well across the spectrum of our portfolio with accelerating momentum for our cloud infrastructure services, or CIS, continued strong demand for our high-growth security products, and continued stabilization of our delivery revenue. We're especially pleased with the greater recognition of the strength of our distributed platform and differentiated strategy among customers and industry analysts. For investors who may be less familiar with how we have transformed Akamai's business model from the CDN pioneer to a leader in cloud security and distributed cloud computing, I encourage you to read the new report on Akamai from IDC, titled Akamai, Navigating the Cloud Frontier, a Transformation from CDN to to distributed cloud provider. It offers an objective third-party perspective of how Akamai has evolved, our strategy, and our key differentiators in security and distributed cloud computing for AI inferencing at the edge. You can find the report on our website. As a great proof point for the advantages offered by Akamai's uniquely distributed compute capabilities, the top three cloud providers in the U.S. are all now using Akamai Cloud Infrastructure Services. And in Q3, one of them signed an expanded multi-year renewal that solidifies Akamai's position to be their premier distributed cloud computing provider. This customer has a dominant position at the core of the Internet and uses our widely distributed managed container service to get their business logic closer to end users for superior performance. Our revenue for cloud infrastructure services in Q3 was $81 million. up 39% year-over-year as reported and in constant currency. That's an acceleration from the 30% growth rate we had in Q2. We signed many new and expanded contracts for our cloud infrastructure services in Q3, including with a major global appliance and consumer electronics manufacturer in South Korea, a multinational financial services company in Singapore, a leading US developer of analytics software, a US-based supply chain planning software vendor, a European cybersecurity provider, a major US airline, a leading American video game company, a leading media and entertainment company in India, and one of the largest media companies in the world. Also, a multinational gaming company in Japan contracted for our cloud infrastructure services as part of a larger $37 million two-year renewal, for an array of Akamai products and services. Last week, I was with our team at the AI Industry Conference NVIDIA GTC, where Akamai took a major step toward the future with the launch of Akamai Inference Cloud, our platform to support the growing demand to scale AI inference on the Internet. With the rise of AI, the Internet is undergoing a fundamental shift in architecture. The Internet we're building today is driven by AI. where human intelligence is supported and augmented by intelligent systems powered by AI inference. Akamai is positioned to power inference the way we power the web, by bringing inference physically close to users. This will enable faster performance and global scale to support intelligent applications worldwide. When the web was first taking hold, the need for performance and scale is what catalyzed Akamai's founding. Akamai helped to end what was known as the worldwide wait, enabling the internet to scale to provide real-time services to billions of people around the world. Subsequently, we introduced web security as a cloud service, enabling the web to be used safely for myriad critical applications, such as banking and commerce. We see the same need for performance, scale, and security playing out again with AI inference today. By combining highly scaled GPU and compute capacity with Akamai's unparalleled global reach and security at the edge, Akamai Inference Cloud enables intelligence to run instantly, securely, and exactly where it's needed, right next to the user, agent, or device. This is how Akamai can power the new generation of AI applications, conversational, personalized, and agentic. all designed to scale in real time to meet unprecedented demand. As we look at AI investment cycles, we see the market at a transition point. Until now, the AI story has largely focused on training, the initial creation of AI models from massive amounts of underlying data. To train foundation models, AI pioneers have relied on hyperscale clouds and their centralized data centers. with their enormous concentrations of compute, power, and capital. We believe that AI inference, or the execution of queries against a trained model, is the new frontier, one that requires purpose-built infrastructure to enable distributed, low latency, globally scalable inference at the edge, with response times measured in a few tens of milliseconds. As AI systems are adopted at scale, we expect the growth of inference will drive enormous demand to this new intelligent layer of the Internet. And we're not the only ones who see it coming. Fortune Business Insights noted in a report on the rising global AI inference market that due to rising demand for real-time, low-latency AI processing near data sources, edge inference leads the market and is projected to grow at the highest CAGR of all AI inference models. And as NVIDIA's founder and CEO, Jensen Wong, said when we launched Akamai Inference Cloud at GTC, quote, inference has become the most compute-intensive phase of AI, demanding real-time reasoning at planetary scale. Together, NVIDIA and Akamai are moving inference closer to users everywhere, delivering faster, more scalable generative AI, and unlocking the next generation of intelligent applications, end quote. Akamai Inference Cloud brings together Akamai's globally distributed architecture and expertise with NVIDIA's Blackwell AI infrastructure to provide the computing needed to unlock AI's true potential. The service is available today with 17 locations around the world, and we're building out more points of presence as customer demand grows. One of our initial customers, Monk's, The European digital first marketing technology services and consulting company said, quote, with Akamai Inference Cloud, we will accelerate the delivery of key capabilities, including identifying players and plays and delivering tactical insights to coaches while the game is still happening. That's only possible by distributing advanced GPUs to the edge. And we believe it will transform how we approach sports broadcasting and and immersive fan experiences, end quote. Another customer, Harmonic, whose technology helps to distribute video content for television and the Internet, said, quote, Akamai Inference Cloud will allow us to run larger parameter, more capable models locally, expanding the number of functions we can deliver cost-effectively within the same compute instance to deliver fast response times, sophisticated personalization, and more enriching video content, end quote. At Akamai, we believe the technology ecosystem that enables the AI revolution will require multiple providers of AI infrastructure, the hyperscalers, NVIDIA, and also Akamai, with our unique distributed capabilities and our unparalleled expertise at the edge. We are very excited about what lies ahead. The edge, of course, is also where Akamai deploys our security solutions. And as customers speak with us about their plans for AI inferencing, they tell us they see valuable synergy between Akamai security and delivery product lines and our cloud computing capabilities. And how they trust Akamai to help make the internet faster, more reliable, and secure for their businesses. Akamai security growth in Q3 continued to be driven by strong demand for our market-leading segmentation solution and by rapidly growing customer adoption of our API security solution. Combined, these high-growth security products grew revenue 35% year-over-year as reported and 34% in constant currency. Our segmentation wins in Q3 included a $3 million expansion contract, to give one of North America's largest healthcare technology companies the visibility and control they didn't have before. A $1 million contract with the European Insurance Group that is also a net new Akamai customer. A multi-year contract with a large insurance company in Korea. And an expansion contract with a large bank in Mexico to extend their initial deployment across their operations in Latin America. In Q3, we also continue to see growing interest in our market-leading API security solution as organizations shift towards an API-first strategy and expand their use of AI applications that rely on APIs in a fundamental way. Adopt tools that enable them to discover and monitor deployed APIs and to manage risk. Comply with stricter data protection regulations, especially in Europe. and respond to public reports of API-related breaches that have raised awareness and increased the stakes for financial and reputational loss. Akamai API security wins in Q3 included a $7 million contract for API security with one of Europe's most important banks as part of a $31 million multi-year commitment for security and compute. Adoption of API security as part of a $20 million expansion contract with one of the world's largest airlines. An expansion of API security as part of a $42 million contract across the breadth of our portfolio with one of the world's largest software companies. A $2.6 million contract with one of the largest life insurance groups in Asia. The displacement of a competitor at a FinTech payments provider in Brazil. And we also signed seven-figure contracts for API security with two of the ten largest financial institutions in the U.S. and one of the largest banks in Canada. We're also pleased to note that for the sixth straight year, Akamai has been named Customer's Choice in Gartner's latest Voice of the Customer report for cloud web application and API protection. Akamai was also recognized as Customer Choice in Gartner's Voice of the Customer report on online fraud detection. Before I turn the call over to Ed, I'd like to express my gratitude to our employees for their great work in Q3 and for making Akamai a great place to work. In recognition of your efforts, Glassdoor named Akamai as one of their top 50 best-led companies of 2025. Now I'll turn the call over to Ed to say more on our Q3 results and our outlook for Q4 and the year. Ed?

Thank you, Tom. I'm pleased to report that we delivered strong third quarter results with total revenue of $1.055 billion, up 5% year-over-year as reported, and 4% in constant currency. We also had another quarter of very strong bottom line performance with non-GAAP EPS of $1.86 per share, up 17% year-over-year as reported, and in constant currency. Our strong EPS results were driven by higher-than-expected revenue and strong execution across the board. Moving now to revenue. Compute revenue, which is comprised of the fast-growing cloud infrastructure service, or CIS, solutions that Tom mentioned earlier, and our other cloud applications, or OCA, was $180 million, up 8% year-over-year as reported and up 7% in cost and currency. As a reminder, in Q3 2024, we recorded a $7 million one-time benefit related to the release of some deferred revenue in conjunction with the expiration of a long-term legacy compute contract. This revenue was part of our other cloud application products, and it had a five percentage point impact on a year-over-year total compute revenue growth rate. Total compute revenue was driven by continued strength in CIS. For Q3 2025, CIS revenue was $81 million, accelerating to 39% growth year-over-year as reported and in constant currency, a nice step up from approximately 30% growth last quarter. As a result, we continue to expect CIS ARR year-over-year growth in the range of 40% to 45% in constant currency at year-end. Security revenue was $568 million, up 10% year-over-year as reported, and 9% in constant currency. Revenue from our high-growth security products, by that I mean API security and Zero Trust Enterprise security, was $77 million, an increase of 35% year-over-year and 34% in constant currency. Given the continued strength in our API security business, we now expect to exit 2025 with a run rate of approximately $100 million for that product line on both an as-reported and constant currency basis. Finally, we continue to expect the combined ARR for our high-growth security solutions to increase by 30% to 35% year-over-year in constant currency for 2025. Moving to delivery, revenue is $306 million, down 4% year-over-year as reported, and in constant currency. This result was slightly better than expected, marking another quarter of improved trends in our delivery business. International revenue was $525 million, up 9% year-over-year, or up 8% in constant currency, representing 50% of our total revenue in Q3. Foreign exchange fluctuations had a positive impact on revenue of $4 million on a sequential basis and positive $8 million on a year-over-year basis. Moving to profitability. In Q3, we generated non-GAAP net income of $269 million of $1.86 of earnings per diluted share, up an impressive 17% year-over-year as reported and in constant currency, and 20 cents above the high end of our guidance rate. Finally, our Q3 capex was $224 million, a 21% of revenue, as we continue to invest in our fast-growing CIS business. Moving to cash in our capital allocation strategy. As of September 30th, our cash and cash equivalents and marketable securities totaled approximately $1.8 billion. During the third quarter, we did not repurchase any shares. As a reminder, year-to-date, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. As it relates to our use of capital, our intentions remain the same, to continue buying back shares over time, to offset dilution from employee equity programs, and to be opportunistic in both M&A and share repurchases when market and business conditions warrant. Before I provide our Q4 and full year 2025 guidance, I want to touch on some housekeeping items. First, as in prior years, seasonality plays a significant role in determining our financial performance for the fourth quarter. Typically, we see higher than normal traffic from our large media customers and a pickup in seasonal online retail activity from our e-commerce customers. However, both are difficult to predict. Second, regarding Q4 operating expenses, as is typical for our business, We expect it to be higher than in Q3. The main driver is the seasonal jump in sales commissions as our most successful reps achieve their annual quota accelerators. Finally, in July 4, 2025, the One Big Beautiful Bill Act was signed into law, introducing significant provisions, such as the permanent extension of certain expiring Tax Cuts and Jobs Act provisions, international tax framework modifications, and it restored some business tax benefits. This new legislation, however, has not had a material impact on our tax rate in 2025. With those factors in mind, I'll move to our Q4 guidance. For Q4, we are projecting revenue in the range of $1.065 to $1.085 billion, up 4% to 6% as reported, and up 3% to 5% in constant currency over Q4 2024. At current spot rates, foreign exchange fluctuations are expected to have a negative $5 million impact on Q4 compared to Q3 levels and a positive $11 million impact year-over-year. And for the full year at current spot rates, our guidance assumes foreign exchange will have a positive $13 million impact on revenue in 2025 on a year-over-year basis. At these revenue levels, we expect cash gross margins of approximately 72% to 73%. Q4 non-GAAP operating expenses are projected to be $322 to $331 million. We expect Q4 EBITDA margin to be approximately 42% to 43%. We expect non-GAAP depreciation expense to be between $143 to $145 million, and we expect non-GAAP operating margin of approximately 28% to 30% for Q4. Moving on to CapEx, we expect to spend approximately $171 to $181 million. This represents approximately 16% of our total projected revenue. Based on our expectations for revenue and cost, we expect Q4 non-GAAP EPS in the range of $1.65 to $1.85. This non-GAAP guidance assumes taxes of $57 to $60 million based on an estimated quarterly non-GAAP tax rate of approximately 18% to 19%. It also reflects a fully diluted share count of approximately 147 million shares. Our complete guidance for full year 2025 is available in today's press release, but let me walk you through the highlights for now. For the full year, we expect total revenue to grow 4% to 5% in constant currency, non-GAAP operating margin of approximately 29% to 30%, and EPS in the range of $6.93 to $7.13. In closing, we continue to be very pleased with the performance of our cloud infrastructure service and high-growth security solutions. We're very excited about the potential of the Yakima Inference Cloud as we extend AI to the edge. With that, I'll wrap things up, and Tom and I are happy to take your questions. Operator?

Thank you. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Today's first question comes from Mike Sikos at Needham & Company. Please go ahead.

Hey, guys. Thanks for taking the questions here, and congrats on the solid quarter and the execution you're talking to. I just wanted to come back to the segment commentary real quick, and just to make sure that I'm understanding the guidance and the various components properly. For security or compute, are we at this point reiterating the growth that we had spoken to last quarter? I think you were looking for compute in the magnitude of 15%. Call it security around 10%. Can you provide any finer parameters there? And then I do have a follow-up.

Hey, Mike, this is Ed. Yeah, so with security, we're calling for about 10%. We don't give guidance by quarter. So for the full year, we obviously reiterated our ARR guidance, so that hasn't changed. And as we said before with compute, we'll be maybe a touch under 15% for the year as some of the bigger contracts ramped up a little bit later in the year than we had expected. But definitely picking up momentum in CIS, though.

Great. And I have one more for Tom, but just, Ed, before I leave it there, are there any tea leaves or guardrails you can give us as we're thinking about 26, just given how 25 has played out at this point?

No, so we'll give you guidance in 26, in the February call. The only thing I would say is that the momentum that we're seeing in CIS, especially with the new AI inference cloud, we're getting a tremendous amount of activity in demand for that. So there's a very good chance we could accelerate growth in our CIS business next year.

That's excellent. And that actually feeds right into my next question beautifully then. For Tom, I know you spent a good chunk of your prepared comments on the Akamai Inference Cloud, which has to be intentional, right? But you spoke to a couple of different initial customers, Harmonic being one of them. You spoke to the seven team locations and this being available on a global basis. Can you just help us think about where we are in that inference curve, right? We've been in frontier pioneer model world for a couple of years now. It feels like things are happening at the inference level, but what's the boots on the ground view that you have today?

Thank you. Yeah, first inning of a very exciting game. You know, there's just so many customers that want to adopt AI applications and do inferences. for, you know, applications that need to be fast for real users. You know, example would be a commerce company, and they want to present the right products, personalized, you know, images to the user. And then if the user is interested in something, they really want to show not only the product, but the user wearing the product. And not just in a picture, but in a video. And in the video, they want to show the user in a context, an environment that makes sense for the user. We've got customers with AI-powered toys, you know, customers that want to do robotics, and they need really fast control and response. And so they need to do the compute, the inference close to the end user at the end. Media workflow. People are going to see different versions of games, different versions of movies. It will all be personalized. And this needs, you know, something like the NVIDIA Blackwell 6000, which is, you know, very powerful but also well-suited to run at our edge. And that's why the partnership with NVIDIA makes so much sense. So we're in the first inning. We're just, you know, launching the service in the last, you know, couple of weeks. But we're seeing a very strong amount of interest among our customer base. This is exactly what they want.

Good luck with this. Thank you again. Thanks.

And our next question today comes from John DeFucci with Guggenheim Securities. Please go ahead.

Hey, thanks, guys. This is for John DeFucci. Thanks for taking our question. You've communicated your initiatives related to the go-to-market strategy with the hiring of hunters and experienced specialists to support new business sales and security and compute. Can you just walk us through how you're thinking about the hiring of additional reps for the remainder of this year, and how should we think about the brand period of these sales reps before they become fully productive? Thanks.

Yeah, we've made a lot of progress in the go-to-market transformation, and that will be continuing through the early part of next year. I would say by the time we get into Q2, a lot of the transformation will be done. There will be continued hiring from now through at least the first half of next year. to have increased sales capacity for hunting, both in security and obviously also in compute. So that's an ongoing effort, but the transformation part will be largely done by the beginning, towards the beginning of next year.

Great. Thank you very much.

Thank you. And our next question today comes from Rishi Jaloria with RBC. Please go ahead.

Wonderful. Thanks so much for taking my questions. Great to hear so a lot of the momentum, especially on the compute side. Maybe two questions from me. I want to first start with – You talked, Tom, about some of the deals that you're signing with the hyperscalers and, you know, where they're using you for more edge inferencing. At the same time, though, as we know from all the hyperscalers, everyone is suffering through capacity constraints right now, and everyone's trying to find any resources wherever they can, as we think about it. just advancing AI on both the training and inferencing slash reasoning side. So maybe help me understand what gives you confidence that as we get through this capacity-constrained era, regardless of how long it lasts, that Akamai will still be well-positioned to benefit from that, and that's not something that some of the hyperscalers or partners might think about bringing out in-house as the opportunity materializes itself, especially with edge inferencing, and more capacity gets built out. Then I've got a quick follow-up.

Yeah, Akamai has a unique platform. Nobody is like us. We have over 4,000 points of presence. We're already in 700-plus cities, and that's unique. And, you know, we already support our edge worker solution or function of the service in every location. In fact, one of the hyperscalers is using us for ad logic to get their ad logic a lot closer to users. Another hyperscaler using us for API orchestration. Again, needs to be fast and close to users. We talked about our managed container service. A third hyperscaler is using our managed container service for their media workflow. And again, because it's closer to users. So it's not a capacity constraint issue. It's not that the hyperscalers have run out of capacity. Certainly that's not the case. It's because our platform is different. and we can make their logic, their compute logic, run faster for users because it's closer. And obviously we compete with, you know, their cloud businesses to win that business, but it's because of our better performance. And the good news is we don't have to go deploy 4,000 new reasons or start new deployments in 700 cities because we already have this distributed platform. We're augmenting. You know, several of the regions that we've talked about with the new Blackwell 6000s, and that's pretty exciting. And we will continue to do that as we scale that business.

Yeah, I understand. Now that's helpful. Thanks. And then maybe if I then shift to just thinking about the API security business. Obviously, you've done well with that. In addition, just as we think about kind of the evolving paradigm in applications, right, shifting to agents and multi-agentic systems, and obviously we're seeing the rise of things like MCP and A2A as a way to bring those all together, you know, are there opportunities to take what you're doing in API security today and start to extend it now into, you know, these new kind of agentic protocols? Thanks.

Absolutely, and we're already doing that. You know, for example, with API security and detecting the APIs, detecting the new AI agents and apps that, you know, the shadow AI that enterprises have running and don't know. And then, of course, to protect that with our new AI firewall service. And this is one of the reasons that we're so excited about our API security business. So not just to protect the legacy APIs, but, you know, the new agentic web. and to identify and protect all those new inferencing applications.

All right. Very helpful. Thank you so much.

Thank you. And our next question today comes from James Fish with Piper Sandler. Please go ahead.

Hey, guys. Interesting stuff on the compute side. How should we think about the required capex for inferencing here and relationship you have now with NVIDIA? How has that evolved over the last year or so? And, Ed, for you on that point, how should we think about compute gross margins here moving forward over the next year or two?

Yeah, hey, Jim, good questions. So we've done an initial deployment with NVIDIA. We're in about 17 cities or so, and we've got that up and running. That was in our Q4 capex. It will be informed by demand, and what we're seeing is initially some customers coming to us with some pretty large requests. So the CapEx will very closely be followed by revenue, and it will be informed by demand. So, you know, we had given you sort of a metric of about a dollar of CapEx is a dollar of revenue. It's about the same here. It could be a little better depending on utilization. As far as margins go, it will be very similar. I would expect, you know, obviously as we do a deployment, let's say we get some orders for, you know, 50, 100 million, whatever it may be, and you're putting out a little bit more CapEx for, you know, further down the line pipeline stuff, it'll be a little inefficient at first, but once it gets to scale, I would expect to see similar gross margins to what we see in compute, maybe even a little bit better just given the scarcity in the marketplace. So you could potentially have slightly better margins, but I also expect to get pretty good operating leverage and scale out of it as well. So as we scale up, I expect us to get – you know, help the overall gross margin of the company as we get to scale.

Got it. And going back to the good market side of things, this quarter did seem to have a lot of call-outs around, I'll say, cross-seller packaging across all three segments. Is there a way to understand what incentives you're giving to your sales team or what percentage of the business is, whatever you want to call it, you know, ELA, others call it pool of funds. What percentage of customers are using all three segments at this point?

Yeah, good question. So I would say one of the things we did and what we're seeing in the field this go around here this year is we incented longer-term deals. So we're definitely seeing an elongation of our sales cycle, which is good. Not sales cycle, but our customer average length, which is good. So we're seeing longer-term deals, larger deals, et cetera. You'll see that reflect in the RPO metric that will come out tomorrow in the queue. So that's one of the drivers. We're also seeing larger deals, not necessarily pool of funds or ELA's. We do have a few of those, but those aren't necessarily drivers. We are seeing the adoption of compute definitely pick up in the install base. So I don't have a metric to give you today on what the percentage is that use all three. There's a decent amount of customers. I'd say we have some compute-only customers, but largely speaking, most of the customers are either a security customer or a compute customer. About 74% or 75% of our customers are both security and delivery customers. So that's been fantastic. pretty consistent over the years, maybe come up a little bit. But, yeah, we don't have those necessarily those pool of funds deals or, you know, ELAs where you've got a big commitment without product specifically addressed or, you know, volume against a particular product line.

Perfect. Thanks, Ted.

And our question today comes from Gabriella Borges with Goldman Sachs. Please go ahead.

Hi, good afternoon. Thanks for having me on the call. I wanted to follow up exactly where the prior commentary left off. So in terms of the potential sizes of inference deals, Ed, I think you mentioned offhand there in the order of magnitude 50 to 100 million. I'd just love to hear a little bit more about that. Do you think that the pipeline can support or does the pipeline already show deals of that sort of order of magnitude? Because I could see how that could be a meaningful contributor to your growth algorithm into next year.

Yeah, what I was saying there was let's say if you had a large – because we have had some interest in some fairly large deals. If you had a deal of that size, you would buy more CapEx than that. So let's say if I got an order for $50 to $100 or something along those lines, I'd probably be buying more CapEx because there's more demand to follow. But the point I was trying to make there is that we are seeing some customers reach out to us for some pretty sizable – deal sizes in terms of, you know, larger than what we typically see in compute today. So it would be, you know, I'd say just in general just going to be larger deals to start for sure.

Yeah, super interesting. The follow-up I have either for yourself or for Tom is on the delivery business. You're putting up the stabilization and growth rates that you've been talking about for a couple of quarters now. Remind us, is there idiosyncratic opportunities when the cohorts come up for refresh, depending on the year, that help influence those pricing dynamics? And remind us why pricing is more stable now than it has been in the past. Thank you.

Yeah, so good question. We will call out generally when we have, you know, we've got today now six customers that are 1% or greater of our revenues. We don't have a ton of concentration risk, but when those you know, six or our top 10, say, come up for renewal in, you know, one quarter or within a six-month period, that will definitely have an impact on revenue. We don't, we didn't have that this year. We don't expect that next year. We just have the normal revenue, you know, renewal cycles that we typically have. We are pushing and then sending our sales reps for longer sales, longer contract lengths, and we are seeing that, which is good, including with some of our larger customers, which is good as well. As far as the pricing dynamics go, you know, we have seen some stabilization in the larger media deals where you see probably the biggest impact on revenue. You know, there's still some price pressure in sort of the larger base, if you will, but nothing that's out of the ordinary. As a matter of fact, it's a little bit better than what we've seen historically. And in terms of what the drivers are of that, I think it's just, you know, there are fewer competitors in the marketplace. You know, a lot of them have... gone out of business or, you know, in some cases just exited the business if they're an existing different company that's not just focused on delivery. So that may have something to do with it as well.

Thank you for that, Collin.

Thank you. And our next question comes from Frank Waltham with Raymond James.

Please go ahead. Great. Thank you. So it's been a pretty good year for delivery overall. Anything really driving that and anything early that you see in the trends in Q3? to give us an indication of how that C-value is shaping up. And then with the larger contract deals you're getting with customers, any risk that the sales cycle elongates? Thanks.

Yeah, usually – so on longer sales – sorry, I keep saying cycles. I don't mean longer contracts. No, it doesn't necessarily elongate the sales cycle with existing customers. With newer customers, obviously your sales cycle is a bit longer, but not with existing customers, no. In terms of the dynamics in the business, Q3 typically is a little bit lighter of a seasonal quarter for delivery just given the dynamics of content, sports seasons, vacations, that sort of stuff. So we saw kind of a normal pattern there. But traffic growth is probably the biggest driver, coupled secondarily with the pricing declines that moderated consistently throughout the year. So it's really a combination of the two.

Thank you.

Thank you. And our next question today comes from Sanjit Singh with Morgan Stanley. Please go ahead.

Yeah, thank you for taking the questions and collecting the solid results. I wanted to go back to the compute business, and it's great to see, you know, CIS accelerating. In terms of that other $100 million in that portion of the business, I know there's headwinds around, you know, the storage piece, and I think there was some video optimization workflows that you guys were transitioning to partner. In terms of when does that potentially stop being a headwind to overall growth, I'd just love an update on that portion of the reference.

Yeah, those would be in our other cloud compute applications segment, and that's not really the focus of the business. There's still some more that will happen there, but you know, more or less that was flat quarter over quarter. It's not where we're investing, not where we'll see the growth. I think you want to focus on the CIS, the cloud infrastructure services. That's where all the excitement is and where all the future potential growth is, you know. And so, in fact, going forward, we may, you know, even just separate the two and report on CIS because OCA is pretty small, pretty stable. And the big driver of our future growth is cloud infrastructure services. And that's where we have our products like Edge Workers for function as a service and, you know, 4,000 POPs, managed container service, you know, that was being used by a hyperscaler for their media workflow, and Akamai Inference Cloud with huge potential growth. And that's all part of cloud infrastructure services. So probably that's what you want to be thinking about when you think about Akamai Compute.

Yes, and that's what we're looking at as well. I just wanted to get a sense of maybe when some of the revenue held by the CA start to fade. But fair enough. On the Inference Cloud opportunity, what do you sort of envision? Is there a security attach opportunity associated with Akamai Inference Cloud? I'd love to hear about how you're thinking about the security attach to Akamai Inference Clouds.

Yeah, absolutely. And that's a great question because as you're putting these applications and models out there, they've got to be secured. In fact, they have even greater vulnerabilities than a normal application or API would have. And so you're going to need API security. You're going to need like an AI firewall. And those are things that we have market-leading solutions for so that we can build that around your inferences engines and your models that are on optimized cloud.

Appreciate that, Tom. Thank you.

And our next question today comes from Fatima Boulani with Citi. Please go ahead.

Oh, good afternoon. Thank you for taking my questions. Tom, I wanted to ask you a big picture question. As we think about the mix of traffic and let's just call it your traffic estate that runs through your pipes, When we think about the mix between, you know, classic, you know, video delivery and OTT versus, you know, enterprise, but now maybe even AI and some consumerized AI applications potentially driving uplift there. I'm curious how you're thinking, well, what the state of affairs is today from a traffic estate mixed perspective with the rise of AI and bots, and how should that – you know, modulate over the next couple of years and thinking about how that dovetails into your delivery and CIS business would love your perspective on that. And then I have a follow-up for Ed, please.

Yeah, interesting question. You know, today the vast majority of the traffic would be video, either on demand or live, and software downloads. Now, as you think about the future, you're right. you know, sites that, like commerce sites that might not have had any video or much video in the past, you know, they're already thinking about how to make the entire experience, you know, be immersive with video. So that as you go to a page, it starts with a video of you wearing something they think you'll like to buy. And that does increase the traffic. Also, even the traditional video, you know, live sports. As we talked about, we already have a customer that, you know, the feed that I see when I'm watching the game is going to be different than the feed you see. Or, you know, things that will be customized to the person. And so AI is going to be used even to watch, you know, traditional video to give a better, more personalized experience. And You know, who knows, if you ever get people wearing devices, you know, that, you know, give you augmented reality, well, that drives a lot of new traffic. So I do think that you're right, that there is a reasonable prospect that as AI becomes, you know, more prevalent, that it will impact the traditional delivery business in a way that will be favorable to Akamai.

Thank you. And, Ed, this is a back-to-basics question, you know, piggybacking on some of what you discussed earlier. But could you just walk us through the relative high-level gross margin and gross profit profiles of the business from a segmentation perspective? And really, the spirit of the question is, you've seen very nice operating leverage in the business, in spite of the fact that I would have thought that the delivery business is perhaps got the most inferior gross margin profile relative to the other segments or revenue segments, rather. So, I would love to kind of get a a quick recap of the relative gross margin profiles and some of the puts and takes, especially as it relates to some of the CIS business and the CapEx requirements that you talked about earlier. Thank you.

Yeah, sure. So I'd say, you know, we had shown some margin back a couple of years ago in terms of the three segments with, you know, security and from a gross margin perspective, kind of high 80s. You know, compute was in the low 70s and, you know, delivery was probably high 60s if I'm remembering it correctly. you know, it's probably still in that sort of ballpark. And I think, you know, the business in general will run in the kind of low 70 gross margins. Might be down a point or two as we're, you know, building out scale for, you got a little bit of a timing issue between the demand and, you know, the revenue and the build-out. Because you have two pieces of the build-out. You've got the co-location where you're, you know, especially with AI inference, we'll be buying, you know, more larger co-lo buys. So you have some unfavorable accounting potentially. So you might have a little, down trend in gross margin and compute for a bit. But we do think you can get to that sort of low 70s gross margin. We are seeing from a CapEx perspective, even with the AI inference and what we're selling with the AI inference cloud, that dollar of revenue to dollar of CapEx is a reasonable proxy for what we're seeing. And like I said, it could be a little bit better with the GPU as a service because There is a scarcity there, so there's a pretty decent market price set for that today, but that could be a little bit better. So I do think that overall you get good leverage because our sales force, the way we're going to be designed, you've got some specialists, but it's reasonable in terms of the specialists, and our sales force will be able to sell everything and bring specialists in, so we should get good operating leverage. across the entire business. So it's not just delivery that gives you good operating leverage, which it does, but it's all three products will give you good operating leverage.

Very clear. Thank you so much.

Thank you. And our next question today comes from Jonathan Howe with William Blair & Company.

Please go ahead.

Hi, good afternoon, and thank you for taking the question. With CIS, are these mostly sort of new compute and capacity deals that you're winning, or is there also sort of growth coming from existing workloads that are being migrated onto CIS? And, you know, as related to that, is there maybe an opportunity to benefit from outages at AWS and Azure, you know, as customers look for greater resiliency?

It's a combination. But, you know, the attitudes you raise is a really important point. And, you know, people don't think about it very much. And this is important whether you're buying compute or delivery or even security. In fact, maybe even more important in security. You know, our goal at Akamai is to have five nines of reliability. And that means that over two years, the site or the app is down less than ten minutes. collectively from all causes, including attacks. And we're achieving that today. And we know that, you know, because some of the world's major banks, the regulators, want to see 5.9. And we put a tremendous amount of investment into our platform to make sure that when, you know, we update metadata or software or a customer updates their metadata, it doesn't have some unintended consequence that, you know, blows up the platform. And, you know, we see what happens with our competitors who don't make that investment. You know, and for example, in security companies that we compete with, where, you know, some of them, they're down for an hour every quarter. And that's just a disaster for a bank. They can't survive like that in today's world. So reliability is critical. And that's an area that really is a strength for Akamai. And, you know, so I think that's, That's super important, and that's a great call-out.

Just maybe as a follow-up, when we think about your security business, can you talk a little bit about the penetration rates for opportunities such as segmentation as well as how your AI security products are doing? Thank you.

Yeah, so there's a lot of room for growth. It was segmentation and API security. And also, as we talked about earlier, with API security, you get a whole new – you know, market around the AI inference engines and models and agents that are going to need special security. You know, obviously it's early days on our specific protection for, you know, AI firewall, but very strong interest in the customer base, hundreds of prospects and lots of proofs of concept and starting to get the first customers now adopting the solutions. And I think that'll be a pretty quickly evolving landscape in terms of protecting, you know, the models, the inference engines, and the agents.

Thank you. Thank you. And our next question today comes from Will Power at Baird. Please go ahead.

Okay, great. Thanks. I guess two questions. Tom, maybe starting with you, I guess it'd be great, I know you've touched on this a fair amount, but as I think about the Akamai Inference Cloud and the NVIDIA partnership, I wonder if you could just speak to the, you know, the medium, longer term strategic importance of it. Is it principally access to, you know, Blackwell GPUs or are there other parameters and facets of the partnership to be aware of? Anything on the go-to-market side, you know, et cetera? And then I have a question for Ed.

You know, I think the really important thing is it's providing very strong compute capabilities to support AI close to the users, the data, the devices, the robots, you know, and the agents. And that's what's unique about the offers. So you're combining Akamai's distributed platform, which is the most distributed by far in the world, with leading GPU capability. You know, the new 6000s are very powerful. You can support models with hundreds of billions of variables. They can do very cool things that weren't possible before, literally like showing a user who comes to the site in the site in a video. Very cool stuff. And that's unique, I think, with Akamai. And we do have a good relationship with NVIDIA, and we are working together in terms of, you know, commercializing the capability with customers and the ecosystem.

Okay, great. Thank you. And I guess, you know, Ed, you know, nice upside on, you know, operating margin performance and It sounds like largely expecting that to continue into Q4. So it'd just be great to get, you know, any color as to kind of what's driving the upside relative to prior expectations. And, you know, it is kind of this 30% just an operating margin level. Is that kind of the right, you know, framework to think about as we kind of move into next year?

Yeah, so we'll give you guidance for next year in February. I'd say, you know, execution, I mentioned that at the top of the call. You know, some of that's driving additional revenue. Some of it's just – Even with our development efforts and the capitalization of labor is a good gauge for productivity. That was a bit higher this quarter, so we were more productive there. The team's done a nice job, even in procurement, with some of our vendors in terms of getting better pricing. We're modernizing some of our back office, so we're able to retire some older systems and consolidate onto one. Oracle's a good example of where we're consolidating onto. we've got great execution with our, you know, team that's building out the network in terms of getting, you know, better pricing on co-location and bandwidth and that sort of stuff. So, it's just good execution across the board.

Okay. Thank you.

Thank you. And our next question today comes from Patrick Calvo at Scotiabank. Please go ahead.

Thanks for taking my question. I guess one quickly for Dr. Tom and then one for if possible. So Dr. Tom, I guess my question for you, in regards to the NVIDIA partnership, there was some releases last year, and how come I introducing NVIDIA GPUs out of the edge. So just help us understand what is new this year in 2020, or late 2025, versus last year, with this NVIDIA partnership.

Oh, it's, you know, much deeper And now we're deploying the Blackwell 6000s. And that's a huge leap from, you know, where we were with the 4000s in terms of, you know, capabilities. And we're deploying them much more broadly and a much stronger partnership and relationship. So it's a world of difference and that enables the inference cloud and all the applications that we talked about.

Okay. Crystal clear. And, you know, congratulations on, that exciting partnership. Ed, if I may, just a numbers question. I mean, the first caller kind of asked you about your soft guidance for the different business lines. I think your answer, if I was not mistaken, was 10% for security, 15, just under 15 for compute. So if I understood that rightly, That implies that delivery probably takes a leg back down again in 4Q. Am I thinking about that the right way? And if so, is that conservatism or is there something that we should know about as to why growth in delivery would inflect back down?

Yeah, we gave you a pretty wide range there and delivery is hard to call in Q4. So I wouldn't read it as we're expecting anything negative necessarily with delivery. You know, the seasonal aspects of the quarter don't really manifest themselves until around Thanksgiving, so it's hard to say what the retail season will look like and what the sort of end-of-year media season will look like as you get new devices online. So there's a variety of outcomes you can get this quarter. And, yeah, what I said was, you know, we should get to about 10% for security, you know, a little bit below 15% on compute, but, you know, that actually bodes well. well for next year because it's really just a timing issue. And then, you know, delivery is sort of the fill-in. So depending on where you peg your model on that range, you'll get a variety of outcomes for delivery.

Thank you very much, Chris.

Thank you. And our next question today comes from Rudy Kessinger with DA Davidson. Please go ahead.

Hey, thanks for taking my question. This is Andres Miranda for Rudy. Coming back to the beginning of the call, You said that you had now the three larger cloud providers using CIS. That implies to us that that wasn't the case before. Can you just confirm that? And if that's the case, do you just sign one this quarter? And what is the upside moving forward? Also, we think about the three large cloud providers. Thank you.

I didn't completely get the question. Can you repeat the question that you're asking?

Yes, so like at the beginning of the call, you said you had the three larger cloud providers now using CIS. Does that imply that that wasn't the case before? So did you just sign one of them in the quarter, or what is the upside moving forward for the CIS?

Good. We just signed the third one, and the first one signed a much larger contract. So one got a lot bigger, and one is new. And so now we have all three. Is that what you're asking? Yes. Thank you. Okay.

Thank you. And our next question comes from Tomer Zuberman with Bank of America. Please go ahead.

Hey, guys. I actually want to go back to security and talk about the demand you're seeing there. If I take the commentary from some of your peers, they're talking about an acceleration in the underlying demand environment, but When I look at your trends, you know, you've kind of been growing 9% to 10% the last few quarters, and you called out, you know, 10% for the year. So I just wanted to see kind of the puts and takes of what you're seeing in terms of demand and how you're thinking about that as you go into next year.

Yeah, so I think what we're trying to highlight for you today is we're seeing significant demand for our API security and our GuardaCore Zero Trust platform security products. You know, API security in particular, if you – Go back in time, you know, we closed our acquisition of NoName back in June. So this is the first quarter of, you know, full organic year-on-year growth. And, you know, we more than doubled. So, you know, we're going to exit at about $100 million run rate. So we're seeing amazing demand for API security and continued strong demand for GuardaCore. And also you have, as Tom talked about, with API security and what's happening with the agentic web and, the opportunity for future growth. If you kind of look out into the future, there's a lot of runway for API security, and the penetration rate inside of our base for both products is relatively low, and we've got a great track record of getting very high penetration. So we've got some products that are been around for a while that are still growing, but just not growing as quickly. So I think you missed the opportunity if you just focus on the overall number. You're really going to look at the two fast-growing products, the underlying demand for those products, and also our position in the market. We're very well positioned in the market with market-leading products.

Got it. Thanks.

Thank you. And our next question comes from Jeff Henry with Craig Howland Capital. Please go ahead.

Hey, this is Daniel Hedgman on for Jeff VanRee. Congrats on the quarter, maybe one just to open up on the delivery trajectory and what's being expected there. Now, is this a sort of line where it's always the growth rates are kind of always being constant flux just based on the market dynamics that year? Or do you think you know, the trend line we're stabilizing around here kind of in the single digit growth, single digit decline?

is sort of a trend line to be expecting into the future just kind of long-term vision on on how you expect that to behave secularly yeah good question so there's always seasonality just in the trends on traffic on the internet you know q4 is always a larger seasonal quarter you've got the return of college football and you know the nfl and you've got new content for new tv shows and that sort of stuff so that always drives you know, more traffic, get new devices coming online. You've got a big holiday shopping season. So that's very typical to see a jump in traffic there. Typically, Q1 might be a little bit lower than what you saw in Q4. Q2 generally in line with Q1, and then Q3 tends to be a little bit seasonally softer, just traditionally because of, you know, not as much sports going on. You don't have this, you know, you've got, you know, no new shows coming out in, you know, People are on vacation not using the Internet as much. So, you know, I don't see any change in that sort of general trend on the Internet. You know, as Tom talked about with these AI agent applications could create more video traffic, you know, just more API traffic. So there's, you know, a possibility for a leg up there. We've had weak gaming over the last couple of years. You know, some big titles are in the backlog. That actually helps console recycle, refreshes help as well. So, you know, we're due for one of those in the next year or two. So, you know, I think the demand trends could get better over time. But, you know, we've been pretty cautious with delivery because, you know, occasionally you can get surprised. But, you know, we're very pleased with what we're seeing. And we are, you know, kind of getting back to that, you know, where we had projected the business to be kind of flat to down single digits is, That's certainly what we've delivered this year. And if the trends remain constant in terms of what we saw this year, it's possible we could do that again.

And then just one other for me on the share repurchases, just any methodology or strategy change to call out both, you know, in regard to the record buybacks we saw in the first half. And then it looks like I just out of curiosity was looking, it looks like this is the first quarter. Akamai hasn't bought back any shares since it looks like a quarter back in 2009. So, you know, typically just a very, very steady cadence. You know, is this a little bit of a shift to buying more opportunistically and more concentrated amounts? Or just any thoughts if there's any change in the thinking there?

No, as Ed talked about earlier, no change in our thinking or strategy. And, in fact, we've bought back more shares or spent more on shares this year than ever before. So, yeah, we didn't buy back shares in Q3, but we bought back a ton this year. Thanks.

Thank you. And our next question comes from Jackson Adder with KeyBank Capital Markets. Please go ahead.

Great. Thanks for taking our questions, guys. The international versus the U.S. script has flipped a little bit here in the last couple of quarters. Just curious which segments were strong or maybe stronger than you expected in the international segment and just traditionally? you know, when we see international strength versus U.S., which segments should kind of be flagged in our minds?

Yeah, good question, and you're right. It did flip a little bit. One thing that did aid the U.S. growth last year, or in 25, was some of the Egeo contracts were more concentrated in the U.S., so those are now, you know, starting to anniversary. So that was a piece of it. But internationally, I would say in APJ in particular, we are seeing – That sales team really embraced compute in a way that they're sort of leading the charge as far as signing up a lot of large compute deals and embracing security as well. So it's kind of strength across the board there. APJ in general has been very, very strong for us. EMEA has been strong. Some of the country growth that I've seen. across Western Europe was a little bit surprising in terms of a bit healthier than we've normally seen. So I just say across the board, international's always been good for us. We're seeing it sort of pick back up again. And I would say compute in APJ is probably the one thing that I would call out in terms of strength.

Okay, great. And then a quick follow-up on the inference cloud. Tom, you know, the fact that, you know, you're close to the robots, right, you're close to the user, which I understand. But I'm just curious, I mean, would there be other things outside of kind of, you know, what I think of as like almost the Internet of Things use case that might also trigger more inference at the edge, like if a rise in small language models were to happen or a diversity of silicons? Are there kind of headlines we should use as word association that would be positive for the inference cloud when we see them? Thank you.

Yeah, I think, well, you know, I don't know about, you know, catch words to look at, but pretty much everything is going to be powered by AI. I think how the web works is going to change. You know, everything is going to be model-based. How you interact with it will be different. There'll be applications people haven't even dreamed about yet. And a lot of these, especially when there's, you know, a bot that's doing something important, like a car or, you know, humans interacting in some way, you're going to want the thing to be in real time. And by that I mean, you know, within a small number of tens of milliseconds. And for that you need to be close. And you're not going to want to be going far away to a big data center and with a giant model that's doing a zillion things and has a lot of, you know, capacity and infrastructure that really isn't relevant to your task. And so I do think you're going to see the proliferation of, you know, small to medium-sized models that are operating close to the user with specific tasks in mind. And I think that's why you're starting to hear the industry leaders, you know, talk about inference as being, well, really – you know, the next big thing and ultimately larger than the giant models in the training and the core of the Internet and that that's where the future of the Internet and the Web goes.

Understood. Thank you.

Thank you. And that concludes today's question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.