Good afternoon, and welcome to the Akamai Technologies third quarter 2023 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 one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note, this 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, operator. Good afternoon, everyone, and thank you for joining Akamai's third quarter 2023 earnings call. Speaking today will be Tom Leighton, 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 risks 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 November 17th, 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 of akamai.com. With that, I'll turn the call over to Tom. Thanks, Tom, and thank you all for joining us today. I'm pleased to report that Akamai delivered excellent results in the third quarter, with revenue, operating margin, and earnings all exceeding the high end of our guidance range. Revenue grew to $965 million in Q3, up 9% year-over-year. Non-GAAP operating margin was 31%, and non-GAAP earnings per share was $1.63, up 29% year-over-year. Ed will cover the key factors that drove our bottom-line performance in his portion of the call. I'll now say a few words about each of our three main product areas, starting with security, our largest source of revenue. Security revenue grew 20% year-over-year in Q3. The acceleration in security growth was driven in part by especially strong demand for our market-leading Guardicore Segmentation solution, as enterprises confront the ever-present threats from malware and especially ransomware. CISOs and corporate boards everywhere have seen the recent headlines about devastating ransomware attacks, including at two casino hotels in Las Vegas, a major manufacturer of cleaning products in the U.S., and at a multinational provider of systems for smart buildings. One of them reportedly paid $15 million to get ransomware out of their systems. Another is reportedly spending $25 million to deal with the aftereffects, and a third has reported more than $100 million in losses from the attack. Customers who purchased our segmentation solution last quarter include a major global services provider, one of the world's most recognized entertainment brands, and a leading bank in Switzerland that renewed their segmentation protection with a significant upgrade. We also saw strong demand for our market-leading web app firewall solutions in Q3, where we continue to win against competitors who are challenged to provide the levels of reliability and performance required by major enterprises. Customers who switched to Akamai, including a nationwide retail chain in the U.S. and a leading global manufacturer based in India, also told us that our competitors simply can't provide the level of support and professional services that they need and have come to depend on from Akamai. Customers also value being able to purchase an entire suite of integrated security products from Akamai, a provider who they trust to keep them safe against a wide variety of attacks. For example, we're seeing very strong interest in our new API Security solution that we announced last quarter. This new product is in its very early days, but we've already integrated it with our market-leading web app firewall solution to make it even easier for customers to implement. At the Black Hat Security Conference last quarter, Akamai API Security was named one of the 20 hottest new cybersecurity tools by CRN, a major trade publication for channel resellers. As with Guardicore, you don't need to be a CDN customer to benefit from this new solution. Turning now to cloud computing, I'm pleased to say that we're on track with our product development, infrastructure deployment, and conversations with customers about use cases well suited for the Akamai Connected Cloud. Since our last call, we've gone live with seven more core compute regions in Amsterdam, Jakarta, Los Angeles, Miami, Milan, Osaka, and São Paulo. In addition to the six that we opened earlier this year and the 11 that we acquired from Linode, this brings our total to 24 core compute regions to serve Akamai Connected Cloud customers.... Of course, there are other cloud companies with a few dozen data centers, but Akamai is unique in having these data centers interconnected to the world's most distributed edge platform, with more than 4,100 points of presence across 750 cities and 130 countries. As one trade pub, Blocks and Files, recently wrote, "Akamai is focusing on a future where scale becomes more about the size of the network versus the size of its data centers, more effectively powering modern applications." We agree. Akamai's massively distributed edge network, 25 years in the making and managed by Akamai's team of experts around the world, is a key differentiator in our strategy. We believe that next generation applications will need next generation cloud infrastructure, and we intend to chart the course for the next decade of cloud computing, when more of the compute will be done closer to the end user, and where we believe our platform will have an important edge over more centralized models. As IDC put it in July, "Akamai brings the simplicity, affordability, and accessibility of its cloud computing services to larger commercial customers on an architecture built for the next decade, not the last." The Akamai Connected Cloud will put containers and VMs closer to end users and bring enterprise workloads to locations around the world that are otherwise difficult for organizations to reach. Customers are responding to Akamai's unique offering, and we've already gained cloud computing business across multiple verticals in every major geography, including a European streaming media company, a digital advertising company in Japan, a large financial institution in Indonesia, an e-commerce platform in Korea, major carriers in EMEA and Central America, and a television network in South America. In addition to direct sales, we're seeing good traction in our cloud computing partner ecosystem, where we're acquiring new customers by selling with cloud service providers and managed service providers. We've also partnered successfully with independent software vendors and SaaS and PaaS providers. In fact, we recently signed one of the world's best-known SaaS providers in our second-largest cloud computing deal since we acquired Linode. Turning now to content delivery, I'm pleased to report that we saw an acceleration of traffic growth in Q3. In addition, we acquired enterprise customer contracts from StackPath and Lumen Technologies following their decisions to exit the CDN market. As Ed will talk about shortly, the financial terms of the acquisitions were very attractive for Akamai shareholders. In addition to the delivery business that we acquired, we're planning to introduce these customers to our full portfolio of security and cloud computing solutions to help them power and protect their businesses online. In summary, we are very pleased by our performance in Q3. Our expanded security portfolio is deepening our relationships with customers. Our cloud computing plans are executing on schedule, and we continue to invest in Akamai's future growth while also enhancing our profitability. Now, I'll turn the call over to Ed for more on our Q3 results and our outlook for Q4 and the full year. Ed? Thank you, Tom. As Tom mentioned, Akamai delivered a strong and very profitable quarter in Q3. In my remarks today, I'll cover our Q3 results and then provide some perspective on Q4, share some details on our recent customer contract acquisitions, and close with our increased full-year 2023 guidance. First, let's discuss revenue. Total revenue for the third quarter was $965 million, up 9% year-over-year as reported and in constant currency. In the third quarter, security revenue was $456 million, growing 20% year-over-year as reported, and 19% in constant currency. Security revenue growth was primarily driven by continued strength in our segmentation product, which is now over $100 million on an annualized run rate basis and up 97% year-over-year. I'll note that during the quarter, we had approximately $6 million of one-time segmentation license revenue. Adjusting for that one-time license revenue, total security growth for the third quarter would have been 18% year-over-year, as reported, and 17% in constant currency. Segmentation revenue growth would have been approximately 62% year-over-year and 60% in constant currency. In addition to strength in segmentation, we also saw very strong growth in our flagship Web Application Firewall, or WAF, product family. This growth was primarily driven by stronger than expected adoption of new security bundles offered to new and existing customers that we introduced this year. The new security bundles include additional security entitlements, such as more security policies, additional security configurations, and more advanced rate control policies. Many existing customers are seeing greater value in these new bundles and, as a result, are spending more with us. Moving to compute. Revenue was $130 million, growing 19% year-over-year as reported and in constant currency. On a combined basis, our security and compute business product lines represented 61% of total revenue, growing 20% year-over-year and 19% in constant currency. Shifting to delivery, revenue was $379 million, declining 4% year-over-year as reported and in constant currency. It's worth noting that delivery was aided by approximately $4 million in revenue from the selected CDN customer contracts we acquired from StackPath. International revenue was $467 million, up 11% year-over-year, and up 9% in constant currency. Foreign exchange fluctuations had a negative impact on revenue of $3 million on a sequential basis, and a positive $7 million benefit on a year-over-year basis. Moving now to company profitability. Non-GAAP net income was $251 million, or $1.63 of earnings per diluted share, up 29% year-over-year and up 28% in constant currency. These especially strong EPS results exceeded the high end of our guidance range by $0.11 and were driven primarily by higher revenues and continued progress on the cost savings initiatives we outlined over the last few quarters. As an example, we continue to reduce our third-party cloud spend by migrating internal workloads to our connected cloud platform. In Q3, our third-party cloud spend declined 26% year-over-year. Moving to margins. Our cash gross margin was 73%. Included in our Q3 cost of goods sold was approximately $5 million of transition services agreement, or TSA, costs paid to StackPath. With customer contract acquisitions, TSA payments are used to cover the seller's customer-related network and support costs during the migration period. I'll provide further detail on expected TSA costs going forward in the guidance section in a few moments. Adjusted EBITDA margin was 43%, and our Non-GAAP operating margin was 31%, two points ahead of our guidance, driven by our revenue outperformance and continued focus on driving down costs across the business. Moving now to cash and our use of capital. As of September 30, our cash, cash equivalents, and marketable securities totaled approximately $2.1 billion, which includes the proceeds from the convertible debt raise we did during the quarter. As a reminder, in August, we issued $1.265 billion of senior unsecured convertible debt that will mature on February 15th, 2029. The notes will bear interest at a rate of 1.125% per year, payable semiannually. Finally, the net proceeds of approximately $1 billion from this offering have been invested in highly liquid, marketable securities. These securities yield approximately 5.25% on a weighted average basis, with maturities close to May 2025, as we intend to use these proceeds to pay off approximately $1.15 billion of convertible notes that mature in May 2025. For the third quarter, we spent roughly $113 million to repurchase approximately 1.1 million shares. We now have roughly $600 million remaining on our previously announced share buyback authorization. Our approach to capital allocation remains the same: to opportunistically buy back shares to offset dilution from employee equity programs over time, while maintaining sufficient capital to deploy when strategic M&A presents itself. Before I cover Q4 guidance, I want to provide a quick reminder about our typical fourth quarter dynamics and add some color to our two recent transactions with StackPath and Lumen. 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 large media customers and a pickup in seasonal online retail activity from our e-commerce customers. Both of these traffic patterns are difficult to predict. Q4 also tends to have higher operating expenses than in Q3, driven by higher sales commissions due to accelerator payments for sales reps who overachieve their annual quotas. As it relates to the transactions with StackPath and Lumen, first, both transactions were acquisitions of selected CDN customer contracts, including over 200 net new customers to Akamai. We did not acquire any other assets or liabilities of either company. Second, we expect the two transactions combined will add approximately $17 million-$20 million of revenue in Q4. Third, we expect to record approximately $13 million-$14 million of StackPath and Lumen TSA costs in Q4. These costs will be recorded in our cost of goods sold and will have a negative impact of approximately 1 percentage point on gross margin, adjusted EBITDA margin, and non-GAAP operating margin. Combined, the StackPath and Lumen TSAs will negatively impact our Q4 EPS by approximately $0.06-$0.07. We do not expect to incur any material TSA costs in 2024. Finally, our expectations for these customer acquisitions remain the same as we disclosed previously for the full year 2024. As a reminder, we expect the customer contracts acquired from StackPath to add approximately $20 million of revenue in 2024, and to be accretive to non-GAAP earnings per share by $0.03-$0.05. We expect the customer contracts acquired from Lumen to add approximately $40-$50 million of revenue in 2024, and to be $0.08-$0.12 accretive to non-GAAP EPS. With all that in mind, we are now projecting fourth quarter revenue in the range of $985 million-$1.005 billion, or up 6%-8% as reported and in constant currency over Q4 2022. At current spot rates, foreign exchange fluctuations are expected to have a negative $8 million impact on Q4 revenue compared to Q3 levels, and a positive $2 million impact year-over-year. Taking into account the impact of the StackPath and Lumen TSAs, for the fourth quarter, we expect cash gross margins of approximately 72%. Q4 non-GAAP operating expenses are projected to be $305 million-$311 million. We expect Q4 adjusted EBITDA margin of approximately 41%. We expect non-GAAP depreciation expense to be between $123 million-$125 million, and we expect a non-GAAP operating margin of approximately 29% for Q4. Moving on to CapEx. We expect to spend approximately $143 million-$153 million, excluding equity compensation and capitalized interest in the fourth quarter. This represents approximately 15% of our projected total revenue for the fourth quarter. Additionally, our CapEx guidance includes the integration requirements to support the traffic for both CDN customer contract acquisitions. Based on our expectations for revenue and costs, we expect Q4 non-GAAP EPS to be $1.57-$1.62. The EPS guidance assumes taxes of $50 million-$52 million, based on an estimated quarterly non-GAAP tax rate of approximately 17%. It also reflects a fully diluted share count of approximately 155 million shares. Looking ahead to the full year, we have increased revenue to a range of $3.802 billion-$3.822 billion, which is up 5%-6% year-over-year as reported, and 6% in constant currency. At current spot rates, our guidance assumes foreign exchange will have a negative $18 million impact on revenue in 2023 on a year-over-year basis. We are raising our security revenue growth expectations to approximately 15% for the full year 2023, and we continue to expect to achieve approximately $500 million in revenue from compute in 2023. And despite a year of significant investment, we are estimating non-GAAP operating margin of approximately 29%. With all that in mind, we have raised our estimated non-GAAP earnings per diluted share to a range of $6.08-$6.13. Our non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 17%, a fully diluted share count of approximately 155 million shares. Finally, our full year CapEx is expected to be 19% of total revenue. In closing, we are very pleased with how the business is performing in 2023 as we continue to invest for revenue growth and improve our profitability. With that, we now look forward to your questions. Operator? We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone 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 two. The first question is from James Fish of Piper Sandler. Please go ahead. Hey, guys, really nice quarter there. You know, understanding you're selling Guardicore to the installed base primarily, but what are you seeing with selling outside of the installed base with security and compute, and specifically within security, is there a way to think about that drag along effect or how the Guardicore enterprise sales team are, are really dragging along the rest of the security or even compute portfolios into any net new customer wins? Really, the crux of the question is, is how's the, how's the sales process going outside of the CDN installed base? Yeah. Hey, hey, Jim, this is Ed. I'll start. Tom, you can jump in if there's anything you want to add. So actually, it's interesting, you, you started off by saying Guardicore is mostly to the install base. Actually, we've done a really nice job of selling to new customers. One of the things that came over as part of the Guardicore acquisition is a pretty robust channel, and pretty much every deal is done through the channel. As a matter of fact, I think we could do a better job of selling as the install base and probably come up with some new incentives to incentivize the sales force to do that. So there's a ton of room in the install base because most of the growth in Guardicore has come from outside the install base. Yeah, and I would just add to that, that there is good drag along with Guardicore and, for example, Enterprise Application Access. You know, one's considered north-south, the other east-west. Both are really important in terms of, you know, keeping malware out and identifying when it gets in and really blocking the spread. So it's good that way, too. Helpful, guys. And just to follow up, Tom, you had actually started to allude to it a little bit, but as we think about those Lumen and StackPath contracts, I guess, how much wallet share do you have in aggregate of these new customers? Or what's the overall opportunity for those specific customers beyond just that CDN revenue that you bought? Thanks, guys. Yeah, well, obviously there's the CDN revenue, which is what transfers, but we're gonna be looking to sell our security and compute solutions into those, you know, 200+ new customers. And I think there's, you know, some good opportunity there. The next question is from Fatima Boolani of Citi. Please go ahead. Good afternoon. Thank you for taking my question. Tom, maybe I'll start with you. I want to have a broader conversation, with regards to, you know, some of these contracts that you've been acquiring. It's setting up to be a little bit of a pattern. So look, you've been doing delivery for the better part of two decades here, so I wanted to get your kind of longitudinal perspective on what you're seeing in the marketplace and the market backdrop that's sort of pointing more and more towards consolidation in the delivery sphere. And then ultimately, I wanted to get your perspective on how you think this is going to impact some of the pricing dynamics and ultimately your pricing power in the delivery space. And then I have a follow-up for Ed, if I may. Yeah, I wouldn't, I wouldn't call it a pattern. It's been a long time, you know, really, since we've, you know, acquired, you know, a competitor or competitor contracts. This is a situation where, you know, two of the many CDNs out there, decided to discontinue their operations, and they wanted to. Now, they're still remaining as companies, obviously, and they wanted to have their customers, have the best possible experience as they exited the CDN space. And so they approached Akamai, you know, as the leader, you know, by far in CDN, and, you know, made very compelling, you know, financial terms for the transaction. So it makes a lot of sense for our shareholders, that we take on these customers. And also it's a good opportunity, as we mentioned, to sell them security and compute. So really good for shareholders. It's not something that we're actively doing, trying to go, you know, buy other CDNs, but every once in a while, there is an opportunity, that is compelling for shareholders. I don't see any fundamental change in the marketplace. You know, the hyperscalers and, you know, 12-24 other companies are selling delivery services, so I don't think there'll be any fundamental change there or change with pricing. Separately from this, of course, you know that we talked about Akamai as the, you know, being, you know, more conservative with pricing. As we talked about, we're not taking some of the spiky traffic if the pricing doesn't make sense, and because we've been focusing more on the capital deployment into our compute offering, which we see enormous potential future growth for. Perfect. Thank you. Ed, I was hoping I could parse out some of your prepared remarks with respect to the third-party cloud spend that you're effectively insourcing. I believe a couple of quarters ago, you may have ballparked that figure at about $100 million. So, please correct me if that recollection is correct, and also just wanted to get a sense of how far down the path you are in this insourcing of third-party cloud spend on your Connected Cloud platform. Thank you. Yeah, sure. That's a great recollection, Fatima. You're correct. That's about $100 million, actually north of $100 million. So we are still in the earlier innings of the journey. However, we've made a lot of progress, and the team is doing a great job, so we expect to see that the savings continue to ramp. I'm very happy to say that we're slightly ahead of where we expected to be, and we have a lot of confidence that we'll be able to drive the type of savings that we expect to throughout next year. Thank you very much. The next question is from Madeline Brooks of Bank of America. Please go ahead. Hey, team. Thanks for taking my question. Just wanted to dive into security a bit and see, you know, are the trends differing between international and domestic in terms of what products are doing better versus not? And then one follow-up question after that. Thanks. I don't think there's a fundamental difference. You know, the attacks are global in nature, and the same attacks we'd see here domestically, we see in pretty much all the major geos. And yes, you do see a little bit more attacks where, you know, there's hotspots, you know, wars taking place or political tensions. There'll be more attacks, but the nature of the attacks is similar. You got denial of service attacks, you got ransomware, you know, you've got application layer attacks, more recently, API attacks. And that happens everywhere, you know, because there's no reason it should be in one geography versus another. Got it. Thanks so much. And then for the connected cloud and just the compute segment as well, you know, you guys talked about a lot of really nice international deals, but also just wanted to get a pulse on what's happening domestically and appetite for the products here. Again, I think that is universal as well. We'll have special advantages in locations where, you know, the hyperscalers aren't, but that kind of compute capability can be accessed by customers anywhere. You know, big U.S. companies care a lot about being able to give really good performance for their users all around the world. So again, I think that's. There's not a fundamental difference between the U.S. or other regions. We have gotten off to a really good start in, I would say, APJ, but it's across the board. We're, you know, deep in conversations with major enterprises across all the major geos. Got it. Thanks so much. That's it for me. Congrats. Thank you. The next question is from Ray McDonough of Guggenheim Securities. Please go ahead. Thanks. Thanks for taking my questions. Ed, I appreciate the color on the additional bundle, bundles of security and the additional services you added to those bundles. In our conversations, we did pick up a decent price uplift when those services are added. Can you help us understand what sort of pricing uplift, if any, there might be there, and what the penetration rate is in your install base currently of those services, and what the opportunity is going forward? Yeah, so I'll start and then Thomas, anything you want to add. So this is a pretty targeted program that we identified customers in selected verticals, you know, primarily in commerce, manufacturing, healthcare, pharma, financial services, you know, what we traditionally call sort of our legacy web customers. And we've we took, as we had talked about, included a lot more services and functionality into the bundles, and upon renewal, we're able to upsell. And we're about, this is probably 2-3 thousand customers that fit into this sort of targeted group. We're probably about halfway through in terms of the customers that come up for renewal. If you remember, our average customer contract length is about 18 months. So this probably runs about, you know, 18 months to two years, kind of a program, but we're very happy with what we're seeing with the average uplift in the average sale price. Great. And then maybe if I could, just on, on compute, now that the majority of those core data centers are online, can you talk about how much of the contracted space you've filled out and what sort of utilization you're hoping to achieve as you enter 2024? I know you're not gonna provide any sort of guidance here, but any sort of guideposts in terms of the actual capacity that will be online in 2024, and what the compute pipeline looks like heading into next year, to fill that capacity? It would be helpful just to understand kind of the capital needs of that business as we think about 2024. Yeah, in terms of the capital, we've pretty much now done the major build-out, and, of course, we're big consumers of that ourselves as we move our own applications, you know, in-house to Akamai Connected Cloud. And we've also got plenty of room to take on major enterprise business. So I don't think you'll see a lot of CapEx associated with the big core data centers until we start generating, you know, a lot more revenue from them, and then we would build out further. There'll probably be another couple that we do. What you will see is a relatively smaller amount of CapEx as we do build out into our existing edge pops. And our goal is to start equipping them with compute, so that you can run containers, VMs, Kubernetes in many more cities around the world. And more cities than you can do that with, for example, the hyperscalers. And so that'll be taking place over the course of the next year. But it's not a large amount of CapEx, so much smaller than what you saw this year. And then going from there, it will depend on how fast the revenue grows. So it'll be a good news story if we're back next year saying that, "Okay, great, we filled that up, and now we're gonna be building out some more." So it's a much better situation than we were in this year, where there was a lot of build-out getting ready and no revenue yet. Great. Appreciate the color. The next question is from Frank Louthan, from Raymond James. Please go ahead. Great, thank you. Can you give us some color on sort of the nature of the compute deals that you're getting now versus maybe 6 months-12 months ago? And then, what have you learned by putting some of your own enterprise-level workloads on the compute platform that you've maybe been able to utilize as you sell to customers, and how has that process benefited the product? Yeah, good, good question. I would say you start going back 6+ months ago, there really wasn't a lot of compute deals at that time, 'cause the Linode infrastructure really wasn't ready for it. There were some early experimentation. Now, we're in a position where we really can take on mission-critical applications from big enterprises. We're starting to do that. Some are starting to grow very nicely. You know, in terms of the learnings, we've learned a lot. I would say on the good news side, we're saving a lot of money, and we're gonna help our customers save a lot of money. We're also seeing really good performance, you know, and better in many cases than we can get with the hyperscalers. You know, and as we go forward, we'll get. We, of course, have better scalability in terms of faster scalability. And for Akamai, that's really important, because we have a lot of customers that have flash crowds, peak events, and so forth, hard to predict how big they'll be. And with our deployed platform, we're really good at that, of course, with security and with delivery. And now we're applying those capabilities to compute, so that we can, you know, spin up more, compute instances, you know, in a faster, more responsive way. So we're very happy consumers of our own cloud. Now, on the other side, we've learned that it's not just flip a switch, and you know, that you just don't flip a switch and suddenly you're off the hyperscaler and you're on to Akamai. Of course, that's true when you move from any cloud environment into another one. It does take some effort to do it, but it is well, well worth it. We're so a great reference, and we can now help our customers and our partners. You know, we're working with many partners in cloud so that they can take, you know, their customers and, you know, get them onto Akamai Connected Cloud. All right, great. Thank you. The next question is from Tim Horan of Oppenheimer. Please go ahead. Thanks, guys. Staying on that point, can you maybe just talk about the backlog and customer interest at this point? Just any update, it sounds like it's going well. Also, where are you kind of all the value-added services and tools, and I just maybe just a complete cloud portfolio at this point. And then lastly, could you just remind us what the margins of this business will look like longer term? And I guess, you know, we do get asked a lot, like, "Why can you sell this cheaper than the cloud providers?" I guess, at the end of the day, and will that impact your margins? Thank you. Okay, a lot of components there. I'll start with some of them, and then probably Ed will fill in with some. Yeah, we're in a lot of really good conversations, as you could imagine, because, you know, the world's major media companies, gaming companies, commerce companies, all use Akamai. They have for many, many years. They trust us for scale, reliability, performance. They trust us with security. They trust us not to compete with them. And as they see what we're building in terms of compute, you know, they like the idea of getting better performance, more distributed compute capabilities, and some of those folks really like the idea of a much lower price point. And as an extra benefit, especially, you know, if you're in media or commerce, it's getting to be a bigger problem that they're cutting such giant checks to their leading competitor and sharing, you know, all the, the crown jewels of their data with their leading competitor. So, you know, they, they're taking the Akamai solution with great interest, I would say. Now, in terms of being cheaper, you know, Akamai has been, for a long time, the world's most distributed platform. We run one of the world's largest backbones. You know, we, we have worked for many, many years to be incredibly efficient in terms of moving data around and doing the delivery, and that gives us a real advantage in being able to do this now for compute in a very cost-effective way. Now, that said, I am sure that the hyperscalers pay a little bit less for their hardware than we do. Probably not a lot less, maybe a little less. But when it comes to everything else, I think Akamai is in an excellent position, and what we're seeing, you know, in the marketplace is that, you know, they'll get their best offer from the hyperscalers, and we can be a lot lower than that and be very profitable at doing it. You know, and the good news, you know, I think for Akamai, is that here you've got a 100+ billion-dollar market growing at 20% a year, and, you know, we're a tiny guy there compared to the hyperscalers. So we can operate at a level that is, you know, not threatening to them in any way. They gotta worry about each other, and there's plenty of room for us to, you know, take on a lot of revenue at lower price points and very good margins, you know, for Akamai. Now, in terms of the marketplace, that's an area, obviously, where the hyperscalers are way ahead. You know, some of those folks, every application ever made is available in the marketplace as a managed service. We are growing our marketplace. We are growing the tools that are available on Akamai Connected Cloud. And, you know, the first applications that we're targeting are applications that, you know, are more easily able to be cloud agnostic, that are not locked in, that aren't using, you know, 20 other applications in the marketplace. And so they'll be much easier to port onto Akamai Connected Cloud. You know, so there are some applications that, that won't be able to port, you know, in the near term, but we don't, we don't need all those applications. All we need is a, to get going, is a tiny share of that market, and we've identified just, for example, in the media vertical alone, there's a lot of applications that are amenable to moving to our platform. And of course, a lot of our, our partners in our marketplace, to begin with, are media-related companies for that reason, because they're also threatened by the hyperscalers, and they're very excited about having media applications be on Akamai. Ed, do you want to add anything there? Yeah, just a couple of things. Yeah, Tom talked a little bit about the leverage we have with the backbone, but we also have a lot of other leverage in the company with our go-to-market, where the focus is going to be initially with our install base, that Tom talked about in media to start. There's a tremendous amount. We pretty much work with every major brand, so there's a lot of leverage from that perspective. Also, the people that build and deploy the network are the same people who are building and deploying our CDN network, and we're getting leverage with our co-location vendors and things like that. So we, we've, you know, I've seen some pretty large proposals go out that, you know, get us margins that are pretty similar to company margins in terms of gross margins that are, you know, somewhere between security and delivery, and operating margins that potentially could be even greater as we get scale to the bottom line. So, you know, there's an enormous amount of margin. If you think of the math that we're doing with how much we're saving, you know, the amount of capital that we're deploying and the cost, we're gonna be saving a tremendous amount of money on moving our own applications, and we'll be able to offer some of that to our customers as well. Thank you. The next question is from Alex Henderson of Needham and Company. Please go ahead. Great. Thanks. I'm rather astounded that we haven't heard the word AI so far in this conference call. At least I don't think we have. So can you talk a little bit about the impact of AI in terms of your opportunity to bring it to compute? Is it something that you think you can bring to the edge piece, or is, you know, to run on your security, excuse me, your CDN edge? And alternatively, is it a risk in the sense that inference AI, you know, is going to be distributed, but a lot of the compute process might be more centralized and, you know, in that context, diminish the willingness of people to move applications to your compute? So how do I think about the inference AI opportunity and the risk of customers being more challenged in moving? Okay, great question. In fact, there's a lot of components to this one, too. At a high level, there's a lot of potential opportunity, I would say. But let me step back, just a minute. You know, Akamai has been using AI and machine learning in our products for a long, long time. You know, obviously useful for anomaly detection, bot detection. When an entity is accessing their, a bank account with the right credentials, is it the right person or not? You know, if detecting that malware has infected, an application inside an enterprise. You know, lots of ways that we've been using AI and machine learning. Now, with Gen AI, I think it helps some, but it really helps the attacker. You know, it, it's much easier now to morph malware into a lot of different forms, makes it harder to detect. You know, our teams have created some very nasty bots very quickly, using Gen AI, and I think we're already seeing more penetrations as a result of Gen AI. That's one area where really it is being actively used today. Now, on that side of the house, the implications are, you know, there's more risk in terms of cybersecurity for enterprises. They're gonna get penetrated more, and so you really have to double down on your defense in depth. I think it makes, products like Guardicore Segmentation even more critical, because you're gonna get penetrated, the key is to identify it quickly and proactively block the spread. And, you know, that I think when you look at our growth rate there, you know, very, very high with a market-leading solution. Now, you also ask about, what about compute and the impact of, Gen AI there? I do think, over time, it will suck up a lot more compute. and that's good for, you know, vendors selling compute, like Akamai, sells compute. And you're right, there's a difference between the generation of the model, which is, if they're large models, very heavy, and that'll be done in core compute and storage, data centers. inference engines can run at the edge and will make sense to run at the edge for many applications. And we already have several partners that are, you know, porting, you know, their, you know, their AI models onto Akamai for inference engines. And so, and I expect that they will be selling that in our marketplace to other companies. And so in fact, we're already in a, in a sense, using AI as we port our internal applications onto Akamai Connected Cloud. So I think you will see, you know, over time, a lot of revenue generated there, because of all the uses that I think, you know, will come about, you know, through AI. Now, you ask about risk. I think you will need to do the model generation in the big data centers, and that's not a risk for Akamai because, you know, we've got 24 of those today. You know, so that's, it's just, it'll be done in a different place. It won't be done at the edge, but inference engines, yeah, a lot of that work will be done at the edge, and we're in a great place there because other companies don't have an edge anything like Akamai. Great. Thank you very much. The next question is from Abdullah Khan of Evercore. Please go ahead. Hi, this is Abdullah speaking for Ahmed Ryanani, and I just want to ask really broadly on the enterprise spend environment, and I know we've previously noted elongating sales cycles, and I was just generally curious whether there's any change there, and if you had to characterize it, is enterprise IT spend incrementally worse or better or about the same versus, let's say, 90 days ago? Thank you. Yeah, good question. I would say, you know, I think there's a lot of companies that are, are being cautious. You know, we have seen a slight uptick in bankruptcies as you, as you typically would see in a cycle like this. But we're not seeing a significant impact, certainly in our security business. If anything, we've seen better than expected results there. So I think security's not as impacted, at least at the moment. Obviously, you know, there's a lot of, lot of speculation out there that we're heading towards a recession and, you know, things can change pretty quickly, but, so far we've, we've fared very well. And also, if you think about our messaging around compute, one of the biggest challenges a lot of companies have is the runaway cost of compute, and we offer a very compelling, option for people to look to save money and increase their performance by moving to us. So I think that'll play into our favor in an environment like this. Awesome. Thank you. The next question is from Mark Murphy of JP Morgan. Please go ahead. Thank you very much. Ed, how noticeable or how sudden is the increase that you're seeing in the sophistication of all these malware and ransomware attacks? The part of why I was asking is we noticed that you're launching some scrubbing centers in Canada, and I'm wondering if that's driving CapEx a little higher to, you know, help make sure that you're able to address all these attacks. And then I have a quick follow-up. Yeah, let me just, Yeah. Start on the product side, and then Ed'll pick up your question. You know, ransomware isn't related to scrubbing centers. Scrubbing centers are just restricting the flow of packets and, you know, screening out or scrubbing out the packets that are trying to flood any particular resource. And that's nothing really per se to do with malware and ransomware. To filter that out, you need application layer defenses, where the scrubbing centers are routing layer defenses. And putting the scrubbing centers in Canada, and we're actually putting scrubbing centers in many more cities around the world and greatly increasing our capacity, so that with local customers there, we can do the scrubbing, you know, for them locally. And that gives them better performance, you know, while we're giving them the defense against the volumetric attacks. For ransomware, you need Guardicore. For malware, you need app and API security. Those are different products where they're, you know, done at our edge network in the 4,000 POPs, edge POPs we have around the world. And then, Ed, do you want to pick up the other part of that? Yeah, sure. You know, usually the, as Tom mentioned, the building of the scrubbing center generally will follow where we see significant demand from customers. And, you know, one of the other reasons security is up a bit this year is we, we have seen an increase in some of these volumetric attacks in the healthcare sector, a little bit in the financial sector as well. So this is pretty ordinary course for us. So in terms of like the CapEx needs or builds going forward, I'd say this is just ordinary course. There's really nothing unusual to call out there, but we have seen a bit of a pickup. And, you know, DDoS in particular tends to be a bit more episodic. You know, as you see big headline-grabbing attacks, we do tend to see a pickup in business, and oftentimes that will include a scrubbing center build, but they're pretty well informed with where we're seeing increased demand. Okay, understood. And then, Ed, just as a follow-up, did you mention what was the total consideration paid for the acquired contracts from StackPath and Lumen? And I'm wondering, I believe those are expected to contribute something like $60 million-$70 million next year in aggregate. Is that—are you taking, like, are you assuming a similar ongoing run rate that those contracts had with the prior providers and extrapolating that into next year? Or are you contemplating into that any kind of expansion, contraction, right, or pricing that up or pricing that lower? Sure. Let me start. I'll take it in different pieces here. So in terms of anticipating any upsell or anything like that with the 200+ customers, I haven't factored anything in for that. So that would be, you know, upside to the extent that we can do that. Remember, we purchased selected contracts, so there's certain contracts that we did not take. There's, you know, for example, adult content and some of the small, medium business customer contracts we didn't take. So that's not included. So if you're looking at, you know, other numbers that you may have heard about, these companies are private, I'd just caution anybody with private company numbers are not always accurate. We just looked at the contracts that we're acquiring, what we think will, how many will onboard, what will happen with pricing, how much traffic we'll keep. Some of these customers are splitters, so we anticipate some of that traffic may go away, but we've tried to factor all that in. So what we're trying to do effectively is look at the other side of the integration in terms of the contracts that we acquired, what is that run rate of business that we acquired, taking into consideration the best we can, volume and pricing dynamics. In terms of consideration, we'll file our 10-Q tomorrow, and you'll see that for StackPath, that contract has got a upfront fee of about $35 million, and there's a small earn-out. Also the, with the TSA agreements, a little wonky accounting here for you, but you have to fair value the TSA, and to the extent that there's excess cost there, that goes to the purchase price. So when you see the final 10-K, once it's filed and the cash flows, the numbers may be slightly higher. On the Lumen, it's about $75 million. There is no earn-out there. Same comments on the TSA. There is a fair value analysis you do in purchase accounting, so that might be slightly higher, but that's the extent of the agreements. Understood. Thank you very much. The next question is from Rishi Jaluria of RBC. Please go ahead. Oh, wonderful. Thanks, everyone. I wanted to follow up on two earlier questions that were asked, one on AI and then one on the contracts. Thinking specifically around AI, Tom, you know, I appreciate your answer earlier. If we think about the opportunity to do inferencing at the edge, you know, especially for cases like you know, connected devices or med tech or financial services, now that people are increasingly worried about data and data residency, can you speak to a little bit of your opportunity for that? And maybe alongside that, what investments do you need to make, both in the software stack as well as in hardware infrastructure, be it GPUs or anything else, to really capitalize and get your fair share of that opportunity? And then I've got a quick follow-up. Great. Yeah, you know, the data residency, data sovereignty issues are increasingly important, as I imagine you know, and that's where Akamai has a great opportunity because, you know, we're in 130 different countries with our infrastructure. And as we move compute into our edge POPs, that enables us to do the work locally, keep the data local, which is an exciting opportunity for us. And, you know, I think in the not too distant future, we'll be in locations and countries that, you know, even the hyperscalers aren't there. Now, in terms of the work on the software stack to be able to do that, that is ongoing work now. We are actually already in beta with a few customers, so we're pretty far along. And then next year, as I mentioned, there'll be relatively small amount of CapEx as we do build out in, you know, a non-trivial number of our edge pops to be able to support compute. Now, today, at the edge, you know, we support GPUs today, but that would be more in the core data centers. You know, I think for the inference engines, you know, we're running that just fine on CPUs. And so as we look at the edge, where you'd be running the inference engines, that'll, I think, run on CPUs and be much more cost effective than trying to, you know, buy GPUs or custom hardware there. I think where you might see that is more if you're working with large scale model development, and then that would be in the core data centers. That wouldn't be at the edge. It's the edge is where you want to do the inferencing, and that's it seems like that's gonna be working very well on our edge platform with CPUs. Got it. Thanks. That's really helpful. And then just in terms of the StackPath and Lumen contracts, again, appreciate the color in terms of your set of assumptions. Can you walk us through what you can do on your part to ensure those customers, whether they're net new or existing Akamai customers, that maybe we're trying to use a multi-CDN approach, what you can do to get those customers to stay and to not churn off onto other competitors or even, you know, just kind of figure out how to reduce the spend with you? Thanks. Yeah, good question. I think first is the approach that we took, right? We got an inbound request from these two companies, and some of them are customers we know and have had a long relationship with. And providing an orderly transition is step one in the relationship, right? So now you get a warm relationship and an introduction to it. It's a new customer, and certainly if it's a customer that we have, they obviously know us... and you get a, instead of having a jump all in the open market, you have a chance to sit down with the customer and understand what their needs are, understand what's going on with their contracts, length of contracts, pricing, et cetera. And you can just set up a relationship and just go through a normal sales cycle effectively. I think we've got a pretty good track record on certainly understanding the customers. And if I think about sort of the weighted average of where the revenue is, you know, we've obviously gone and talked to a lot of those customers. You know, we obviously you know have had a long-term relationship with a lot of these folks. So I, you know, I think we have a fairly high degree of confidence in the numbers that we've put out. Obviously, things can change, but, you know, based on our experience with a lot of these folks and with some of these new folks that may have not worked with us in the past, we have an awful lot of other services to offer that they didn't have before. Especially with security being such a big topic these days, you know, we're hearing from some of these customers that they're glad that they have a relationship with us now. All right. Wonderful. Thank you so much. The next question is from Rudy Kessinger of D.A. Davidson. Please go ahead. Hey, great, thanks for taking my questions. Ed, just wanna quantify the TSA impact. It seems to be about a 1.5-point impact to cash gross margins in Q4. Is that accurate? Just to be clear, it sounds like, no, that TSA ends at year-end, or when exactly does that TSA end? Yeah. So there might be just a tiny bit that goes into Q1, just depending on how the migration goes. But hopefully, we can be done with it by, you know, the next couple of months here. Yeah, it's just under 1.5. I rounded down to 1, but you're right. If you just take the amount divided by the revenue, it's about, you know, 1.3%-1.4%. Okay, got it. And then if I just look at your delivery guidance, which I guess is implied by your compute security revenue guidance, and then I back out the expected $17 million-$20 million of revenue from Lumen and StackPath in Q4, it implies delivery revenue flat to down in Q4 versus Q3. So is any, you know, extra conservatism in the Q4 delivery guide just based on what you're seeing from traffic trends or any pricing pressure to call out, or why not, why aren't we seeing a typical seasonal Q4 uplift in delivery revenue ex those acquisitions? Yeah, so that's a good question. First of all, there's $4 million of delivery in the Q4 number, so that you have to look at the net delta between the two. Also, there's about an $8 million headwind from FX. So there's, there is some implied growth in the delivery number. As I talked about, there's a high degree of uncertainty in Q4 as it relates to traffic, right? You've got typically, we see a big seasonality in terms of retail and the media side of the business. Retail is, as we've gone through zero overage, is less impactful. We do still see some bursting. I think we're being probably a bit more cautious, especially on the commerce side of the equation for now. There is some implied growth in there as you factor in those other two items I just mentioned. Okay, that's helpful. Thanks for taking my questions. The next question is from William Power of Baird. Please go ahead. Hi, this is Yanni Samoilis on for Will. Thanks for taking the question. So first of all, just looking at delivery, how are you thinking about Q4 delivery trends this year versus normal seasonality, given all the questions around the consumer and media activity in general? Any color there would be great. Yeah, as I just mentioned on the last question that, yeah, we're probably a bit more cautious in terms of our outlook, certainly with retail. I mentioned earlier in an earlier question that we've seen an uptick in bankruptcies. We do have a lot of customers that are on the zero overage for commerce. So we're not going into the season, we haven't seen it yet. It usually starts right after Thanksgiving. We're just being a bit more cautious. And in terms of the media cycle, we did see a little bit of gaming activity. Gaming's been light for the last year and a half. A couple of years ago, we saw a big console refresh cycle. We're not expecting to see that. So I'd say we're going into this quarter probably a bit more cautious than we normally have in Q4s and certainly what we've seen in the past. Okay, thanks for squeezing me in. The next question is from Michael Elias of TD Cowen. Please go ahead. Great, thanks for taking the questions. First, earlier you talked about portability, particularly for cloud-agnostic workloads. I guess my question for you is, as you think about moving and garnering more share here, what are the steps that you could do to pretty much increase the ease of portability of workloads? And then as part of that, through your data center deployments, do you have essentially direct cross-connect into the cloud on-ramps of the major cloud providers to essentially help facilitate the movement of workloads to your platform? And then I have a quick follow-up. Yeah, great question. I think partners are really helpful there because, you know, they do a lot of the work in the first place to get into, you know, the third-party cloud provider. And today, some of them move between third-party cloud providers, and so there is a natural partner ecosystem that can be helpful porting that to Akamai. And, you know, I think they're finding that the terms are even more favorable for them as well as for the partners. Also, as we grow the ecosystem of third-party capabilities, which, you know, with our qualified compute partner program, we're doing early focus on media there, which is our initial, you know, focus in terms of applications to move to Akamai. And yes, well, it depends on, you know, the data center and the third-party cloud provider, but we do have. Direct connections in many cases. And of course, we operate, as I mentioned, one of the world's largest backbones and in a position to also make, you know, direct connections to major enterprises, which can help quite a bit. Thanks for that. And then just as a quick follow-up, just curious if you could talk a little bit about the M&A environment that you're seeing. I know you have that, your security growth guidance that you gave at your Analyst Day, which includes some M&A. Just curious, any thoughts around, the M&A environment, particularly for security, and maybe as part of that, just comments on valuations? Thank you. Yeah, valuations in the companies that, you know, we're most interested in are still extremely high. You see some of the recent acquisitions that have been done at very high revenue multiples. So not a lot of change yet. Probably at the fringes, it's, you know, getting harder, but for companies that, you know, we have an interest in, I'd not say it's, you know, made a lot of improvement yet. That may change with time. We just have to see. It's something we keep a close eye on. Of course, we're always looking, but we're, you know, a very disciplined buyer, so it really has to make very good sense for our customers and for our shareholders. Thank you. Hi, operator. We have time for one more, please. Thank you. The last question is from Jeff Van Rhee of Craig-Hallum. Please go ahead. Great, thanks for taking the question. Just one quick one on, on Compute. Kind of getting to the inflection or the acceleration in growth, I have a couple questions. Just on, on typical, sales cycles there, refresh me, what is the typical sales cycle for a Compute deal? And then secondly, with the bulk of the build-out done, and it sounds like functionality isn't the limiter, then it's really just getting to maturity of these sales cycles. The sales force is trained, the functionality is there, the infrastructure's there. So it looks like Q4 builds in organic growth, roughly similar to Q3. So just trying to get a sense of timing of acceleration there. Thanks. Yeah, good question. You know, there is the sales cycle, but when you close the deal, then there's the effort to actually port it and then the time to grow it. And so it, it's not like maybe one of a normal service will say, like delivery, where very quick to port the business and turn it up. That can happen in a period of days to weeks. Here, probably it's more months, you know, to actually get the app ported. And then, you know, all the traffic or all the compute won't move over all at once. You would be growing it over time. So it will... This is something you'll see, I think, throughout next year as we, you know, we close customers, and then we grow their revenue. The early signings we did this year, that's exactly what we're seeing. Initially, very small amounts of revenue, relatively speaking, and then grows over time. Got it. Great. Thank you. Okay. Well, thank you, everyone. In closing, we will be presenting at a number of investor conferences and events throughout the rest of the year. Details of these can be found in the Investor Relations section of Akamai.com. Again, thank you for joining us, and all of us here at Akamai wish you and yours a wonderful rest of the year. Have a nice evening! The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.