AKAMAI TECHNOLOGIES INC Q1 2026 earnings call

Good afternoon, everyone, and thank you for joining Akamai's first quarter 2026 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 that include 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 May 7th, 2026, and we assume no obligation to update any forward-looking statements.

As a reminder, we will be referring to certain non-GAAP financial metrics during today's call. A detailed GAAP to non-GAAP reconciliation is available in the investor relations section of akamai.com under financials. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thanks, Mark. I'm pleased to report that Akamai is off to a strong start to the year. In just a few months, we've achieved major milestones for our cloud computing strategy, marking a definitive turning point in the growth and evolution of our business. Akamai has long been known for operating the world's largest distributed platform for delivery and security solutions at global scale and with a reputation for reliability, quality, and trust. Now we're leveraging our global footprint and years of experience supporting the world's largest enterprises to become an indispensable infrastructure provider for the AI-driven economy. At GTC in March, we unveiled the industry's first global scale implementation of NVIDIA's AI Grid, and we announced the rollout of thousands of NVIDIA RTX PRO 6000 GPUs.

By integrating NVIDIA AI infrastructure into Akamai's massive distributed platform and by leveraging intelligent workload orchestration across our network, we intend to move the market for AI beyond isolated AI factories toward a unified distributed grid for AI inference. By pushing AI inference to the edge and combining it with our massive deployment of CPUs for delivery, security, and Functions as a Service, we're enabling customers to run complex models within milliseconds of their end users with the responsiveness of local compute and the scale of the global web, optimizing performance while reducing latency and cost. Those who attended GTC heard NVIDIA reference Akamai as a vital player in the industry's ecosystem for AI infrastructure, and we've seen very positive market reaction to our rapidly expanding capabilities from a wide spectrum of enterprises.

Today, we're very excited to announce another major milestone for our cloud computing strategy and the evolution of Akamai, the signing of a landmark seven-year, $1.8 billion commitment for our Cloud Infrastructure Services by a leading frontier model company. This is the largest customer deal in Akamai history, and it comes on the heels of the $200 million CIS deal we announced in February with a major U.S. tech company also at the forefront of the AI revolution. These leaders in AI have chosen Akamai because their AI workloads need the scale, performance, and reliability that our cloud platform provides. Many other enterprises have chosen Akamai for similar reasons. For example, since the start of the year, a leading cloud and digital infrastructure provider in Asia chose our VPUs to support their low latency live streaming media service.

An AI company in the U.S. chose our GPU platform to power their voice-first solution to optimize business operations. An AI-powered video intelligent platform in India chose our GPU platform to scale video analytics and computer vision workloads for retailers. A consumer AI platform in the U.S. chose Akamai cloud to run and scale live personalized agents. An AI commerce company in India chose our distributed inference platform to power their ad personalization engine. Two premier global retail brands chose our distributed data capabilities to improve the performance and resilience of their online retail applications. All this is just the beginning. We have a large and rapidly expanding pipeline of prospects who are looking to Akamai for cloud solutions, including some with very large needs.

To satisfy this strong and growing demand for our Cloud Infrastructure Services, we expect to continue to build out both our physical infrastructure and our cloud sales and support teams. As Ed will talk about in a few minutes, we now anticipate significant acceleration of our overall revenue growth heading into 2027 and beyond. Turning to security, I'm pleased to report that Q1 was also strong for our security portfolio, where revenue grew 11% year-over-year as reported and 9% in constant currency. Our security growth was led by strong demand for our market-leading Web Application Firewall, API Security, and Guardicore Segmentation solutions. Our WAF in particular is seeing growing interest from customers eager to deploy the latest defenses for vulnerabilities that could be exposed by the ever-strengthening frontier models and AI-powered attacks.

Frontier models are changing vulnerability management. We're proud to be one of the industry's must-have security providers partnering with the frontier model companies to help ensure the safe and rapid deployment of AI-enhanced defenses. With our early access to their vulnerability detection programs, we're applying our expertise to help keep major enterprises and critical infrastructure safe. Of course, this is important to understand, attackers will also be using more advanced AI technology to develop even more potent ways to cause harm. This means that major enterprises will need Akamai security solutions even more than before. For example, there are many legacy systems and billions of deployed devices that can't be patched. They'll become a lot more vulnerable with the advances in AI, and they'll need our security solutions to keep them safe.

For the devices and systems that can be patched, the patching process still takes time, often days or weeks, and they'll need our protection until that's done. With the advances in AI, we can expect zero-day attacks to occur much more frequently. There's also an increasing challenge with scale. Because AI is enabling attackers to take over more devices and create enormous bot armies, we're now seeing attacks with unprecedented volumes. Just in the last few weeks, we neutralized a series of app layer attacks with millions of malicious requests per second from millions of widely distributed IPs. Akamai can defend against such attacks because of our widely distributed platform.

Our WAF runs in 4,300 locations across 700 cities to intercept the attack traffic right where it enters the Internet and well before it can coalesce onto the target. Having a great WAF with the needed defenses for the latest attacks is obviously important, but that alone isn't enough in the coming age of AI. The WAFs need to be deployed across a vast distributed platform, and this need provides a unique advantage for Akamai when compared to the competition. In summary, we believe that Akamai's security portfolio will be needed more than ever before as attackers take advantage of the advances in AI.

That's because of our massive platform scale to absorb attacks, our unparalleled access to real-time attack data, our tight integration with the early warning ecosystem to provide up-to-the-minute defenses for the latest zero-day attacks, our large and very experienced human security operations team that's equipped with the latest AI tools to enhance visibility and minimize response times, and our innovative, rapidly evolving, and AI-enabled product suite to help prevent penetrations and to limit the damage when penetrations do occur. Customers who selected Akamai in Q1 for that kind of protection for their APIs included one of the largest telecom groups in Africa, a major investment management company in South America, one of the premier investment banks in the Middle East, and one of the world's leading fintech companies in the U.S.

Customers who added or expanded their use of our Guardicore Segmentation solution in Q1 included the leading telecom carrier and media company in South Korea, one of the largest banking groups in Europe, and a leading healthcare company in the U.S. Many of the large renewals we signed in Q1 also included expansions of our security services. After we protected one of America's leading retailers from unwanted bots during the holiday shopping season, they increased the use of our services in a contract worth $24 million. We signed an expansion contract worth $80 million over two years with one of the world's largest video game companies. We signed an expansion contract worth more than $20 million with a global consumer electronics company in Korea.

One of the largest global professional services companies in the world expanded their use of our ZTNA solution to secure large-scale remote access as they move critical applications to a zero trust model. Our security solutions continue to receive top recognitions from the major analyst firms for their effectiveness. For example, last quarter, Akamai achieved a 99% recommendation rating as Customer's Choice at Gartner's Peer Insights report on microsegmentation. Last month, Akamai was the only provider to be named Customer's Choice at Gartner's Peer Insights report on API Protection. In closing, we're thrilled by the way our growth strategy has taken hold and is generating transformative opportunities for our business.

We believe that Akamai is uniquely positioned to enable and benefit from the development of the AI-driven economy. By bringing powerful compute directly to the data and the users at the edge, Akamai is enabling and securing the next generation of agentic AI. With each quarter, the massive opportunity we see ahead becomes more evident. We're making bold investments to capitalize on that opportunity and enable Akamai to do for cloud and AI what we've done for security and CDN to generate significant future growth for our business. Now I'll turn the call over to Ed for more on our results and our outlook for Q2 and the year. Ed?

Thank you, Tom. Before I get started, and to build on Tom's remarks, I want to personally underscore my excitement regarding the $1.8 billion new customer win announced today. This is a powerful validation of the Akamai value proposition in the age of AI and a clear indicator of the scale at which we can operate. To fully capitalize on this momentum and support the accelerated growth we anticipate, we will be investing slightly ahead of revenue. You will see this reflected in the updated capital expenditure and operating margin outlook I will discuss during the guidance portion of my remarks. We view these investments in our CIS portfolio as critical to ensure we have the foundation to meet the significant demand we see on the horizon.

Driven by today's announced $1.8 billion win, the $200 million four-year CIS deal we announced last quarter, and our rapidly accelerating pipeline, we now expect total company annual top-line revenue growth to reach double digits in 2027. We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for Akamai. With that, let's dive into the Q1 results. We delivered strong first quarter results with total revenue of $1.074 billion, which was up 6% year-over-year as reported, and 4% in constant currency. Cloud Infrastructure Services, or CIS revenue, got off to a robust start to the year with revenue of $95 million, up 40% year-over-year as reported, and 39% in constant currency.

As Tom noted, we are seeing CIS wins across a wide spectrum of industries, geographies, and use cases. Even more encouraging, the pipeline for AI-specific use cases is building rapidly. We also maintain very strong momentum in security with revenue of $590 million, up 11% year-over-year as reported, and 9% in constant currency. The strength in the first quarter continued to be driven by our fast-growing API Security and Guardicore Segmentation solutions, along with strong growth from our largest product, Web Application Firewall. Moving to delivery and other cloud applications. Revenue was $389 million, down 7% year-over-year as reported, and down 8% in constant currency. These results were in line with expectations driven by the wraparound impact of the Edgio transaction in 2025.

We expect this effect in the rate of decline to moderate throughout the remainder of the year. International revenue was $530 million, up 9% year-over-year or up 5% in constant currency, representing 49% of total revenue in Q1. Foreign exchange fluctuations had a positive impact on revenue of $2 million on a sequential basis and a +$19 million on a year-over-year basis. Moving to profitability. In Q1, we generated non-GAAP net income of $239 million or $1.61 of earnings per diluted share, down 5% year-over-year as reported and in constant currency. These results include our expanded colocation investments, higher depreciation, and increased headcount costs, all tied to our strategic investment in Cloud Infrastructure Services during the first quarter.

Our non-GAAP operating margin for Q1 was 26% in line with our expectations. We expect operating margin to remain in this range for the remainder of this year as we ramp up our investment to capture the exciting growth opportunities ahead of us. Our Q1 CapEx was $206 million or 19% of revenue. First quarter of CapEx was slightly below our guidance, primarily driven by timing and favorable pricing. Specifically, some expenditures shifted from Q1 into Q2, and we benefited from some lower than expected component costs. Moving to cash and our capital allocation strategy. During the first quarter, we spent approximately $206 million to buy back approximately 2 million shares. We ended the first quarter with approximately $975 million remaining on our current repurchase authorization.

Our intention with capital allocation remains the same, to continue buying back shares to offset dilution from employee equity programs over time and to be opportunistic in both M&A and share repurchases. As of March 31st, we had approximately $1.7 billion of cash equivalents, and marketable securities. Now, before I provide Q2 and full year 2026 guidance, I want to touch on a few housekeeping items. First, for Q2, CapEx is expected to jump significantly as we start to take delivery of the NVIDIA GPUs we discussed on our last quarterly earnings call, and we catch up on some of the CapEx that pushed from Q1 into Q2. Second, we expect to see an increase in operating expenses in the second quarter, due primarily to continued investments in go-to-market and the impact of our annual employee merit cycle that went into effect on April 1st.

Third, we anticipate revenue from the $1.8 billion customer win to start to ramp in Q4, and we expect to generate approximately $20 million-$25 million of revenue in the fourth quarter. Finally, regarding CapEx for this win, we expect to spend a total of approximately $800 million-$825 million over the next 12 months to support this customer. We expect to deploy roughly $700 million of that total in the second half of 2026, with the remaining balance falling into the first half of 2027. Moving now to guidance. For the second quarter, we are projecting revenue in the range of $1.075 billion-$1.1 billion, up 3%-5% as reported and in constant currency over Q2 2025.

At current spot rates, foreign exchange fluctuations are expected to have no material impact on Q2 revenue compared to Q1 levels and a positive $2 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 70%-71%. Gross margin is impacted by the significant increase in co-location as we accelerate the growth in our CIS business. Q2 non-GAAP operating expenses are projected to be $346 million-$357 million. We anticipate Q2 EBITDA margin of approximately 38%-39%. We expect non-GAAP depreciation expense of $144 million-$146 million. We expect non-GAAP operating margin of approximately 25%-26%.

With the overall revenue and spend configuration I just outlined, we expect Q2 non-GAAP EPS in the range of $1.45-$1.65. This EPS guidance assumes taxes of $47 million-$54 million based on an estimated quarterly non-GAAP tax rate of approximately 18.5%. It also reflects a fully diluted share count of approximately 146 million shares. Moving to CapEx. For the reasons I highlighted earlier, we expect to spend approximately $433 million-$453 million in the second quarter. This represents approximately 40%-41% of total revenue.

Looking ahead to the full year 2026, we expect revenue of $4.445 billion-$4.55 billion, which is up 6%-8% as reported and up 5%-8% in constant currency. For Cloud Infrastructure Services, we are raising our outlook to at least 50% year-over-year growth in constant currency. We expect momentum in CIS to continue to build throughout the second half of 2026, driven mainly by the scaling of our AI opportunities and the impact of the two very large transactions we announced in Q4 and today. We continue to expect security revenue growth in the high single digits on a constant currency basis in 2026. For delivery and other cloud apps, we continue to expect a decline in the mid single digits year-over-year on a constant currency basis.

At current spot rates, our guidance assumes foreign exchange will have a positive $20 million impact on revenue in 2026 on a year-over-year basis. Moving to operating margin. For 2026, we are estimating a non-GAAP operating margin of approximately 26% as measured in today's FX rates. Turning to CapEx. At this time, we anticipate our full year capital expenditures will be approximately 40%-42% of total revenue, including the $700 million impact from the $1.8 billion contract we mentioned earlier. Before I move on, I want to provide some additional color on our CapEx outlook. As Tom noted, the demand we are seeing for CIS, including our GPU deployments, is exceptional.

Our current pipeline for GPUs significantly exceeds our existing and projected inventory, meaning we may place additional GPU orders in the second half of the year to meet this demand. This is not factored into our current annual CapEx guide. We will update CapEx guidance on a subsequent earnings call if we place another GPU order before year end. Moving to EPS. For full year 2026, we expect non-GAAP earnings per diluted share in the range of $6.40-$7.15. This EPS guidance includes the impact from the very large win. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% and a fully diluted share count of approximately 147 million shares. With that, I'll wrap things up, and Tom and I are happy to take your questions.