AKAM
#Well, we see tremendous potential for growth in APJ.
You have a lot of the world's most important companies there.
The majority of the world's population is there.
A lot of end-users coming online.
So, a lot of potential growth for us.
And we are building out our strength and experience, and our management team there.
And so that's why you would see those announcements.
Are you talking about going forward, <UNK>.
Yes.
I mean, I think as we've talked about, that the media business can have variability from quarter to quarter because of gaming releases, software updates, things of that nature.
But I think what we've said consistently is we expect the business to grow in the mid-teens kind of on a ongoing basis.
There is going to be some quarters and some years it grows well north of that.
There will be some quarters and some years where it grows a little bit less than that.
But we believe it's going to be a strong mid-teens grower kind of long-term.
And I would say that, again, some period is going to be faster than that and some period is going to be lower than that.
Yes.
I mean, if you just do the math on it, that the kind of the ---+ in that Performance and Security category, that the other non-security businesses grew about 14%, which is consistent with what they grew in Q4.
Again, pretty solid growth that, as you can imagine, that security is the new offering for the Company.
It's been the new offering for a while.
I think with the Prolexic acquisition, there's been a lot of training and I would say focus from the sales force for selling security.
And one of the things I had shared is that in addition, as we've been building out the sales force, the sales force also sells media.
And so I think what you are seeing is the sales force sells the myriad of our solutions.
I think we are seeing a little bit stronger growth in media and certainly in security.
I think the Web performance growth rates are pretty good, but I think that, certainly, the Web performance growth rates, I think, are being impacted by maybe the focus more on the security space for now.
Yes.
I mean, we are very pleased with the gross margin performance.
I think what tends to happen sometimes in Q4, Q4 has tended to be seasonally our strongest revenue quarters, and so sometimes you tend to see margins uptick.
Last year, we had gross margins of around 78%.
I think we are probably going to have gross margins in the 77% to 78%.
We're not that tight within a point.
So we are very pleased.
As you can imagine that we've been building out more on the platform.
We built more out in Q4.
We built more out in Q1.
We are signaling we've got to do more in Q2.
You can expect that when we are doing that, we are increasing in particular colocation costs for that buildout.
We are seeing bandwidth costs that obviously increase with the level of traffic growth.
But if you look at it in aggregate, having gross margins of 77% to 78%, we are very pleased with that.
Yes.
Well, to be clear, I mean, we were a little bit lighter in Q1.
We didn't signal in Q1 that we were going to be kind of at 16% of revenue for the year.
Our range of 16% to 18%, and what I am saying is that I think we are going to be at 18% or maybe a little bit higher than that.
And I think what you are seeing is we are signaling that we are doing more network buildout.
We did some in Q1.
We're going to do more in Q2.
And you can expect that that is in anticipation of traffic demand.
And there is a lag between building out the network and monetizing it from a revenue perspective.
The lag tends to be maybe a quarter to two.
And what we want to make sure we're doing is we want to make sure we're building out the network to support the most aggressive traffic growth expectations.
And we have found that if those traffic growth expectations don't materialize, we grow into it in the following quarter.
So, it's a low-risk proposition for us.
And what we're doing is we are building out for what we think is going to be traffic growth in the back half of the year.
And we'll see if that occurs.
But if it's a little bit less than what we expect, we'll just dial back CapEx thereafter.
So I think you're going to see us go through a period of kind of increased network buildout.
And I think you should view that as a bullish sign from the Company around what we think is opportunity ahead.
Yes.
I think you heard the tail end of it that we are ---+ actually, we are quite bullish on all the businesses, but media in particular, the traffic buildout that we are signaling is we are definitely signaling some bullishness that we have on the traffic side.
We'll see.
Again, as I said, we build out in anticipation of what we think is an aggressive traffic demand, so that we are there for our customers should they need us.
If we fall a bit short of that, it will be just a quarter thereafter that we kind of lower our CapEx expectations.
But we are very bullish about the prospects for security.
So I think you are going to see continued growth in the security space.
You know there's a lot of opportunities as well with Web performance.
We're not nearly penetrated on Web performance with customers that ---+ in particular, in the international markets, there's a lot more opportunity.
We certainly have opportunities in the US as well, but we are pretty bullish on all the areas that I think there is secular tailwinds for the Company, both in media with more content moving online.
I think there's opportunities in security, and there's opportunities in Web performance.
And I think what you're seeing us do is we are investing to capitalize on those opportunities.
Well, I'm not going to provide guidance beyond the second quarter.
I did signal kind of just so that people have an awareness of where we are heading, so that it's not a surprise.
I think you can expect that it's a combination of both.
It's customers that we currently have and it's customers that we expect may move to the Akamai platform.
That's what we are bullish about.
Hello.
Yes, we don't disclose the EBITDA and operating margin of each one of the individual businesses.
I think you can expect that the Security business is in early stage growth where we are investing more rapidly than we are seeing in revenue growth.
So you can certainly see the Security business is early-stage.
You can expect that we are going to continue to invest in that.
We are going to invest in buildout of the network to support what we think is growing demand there.
We're going to invest in more security engineering capability, more security sales capability.
So, we are going to continue to invest in certainly one of the areas of significant investment for the Company.
It probably is worthy to note beyond Security, though, your comment about EBITDA, because I'm sure it's going to come up as a question.
So I'm guiding 40% to 41%.
I know we've joked about it on other calls that I've been signaling this for a while.
This is certainly something that we are guiding here for Q2.
And I certainly signaled that that is the intent of the Company to operate in the 40% to 41% in the foreseeable future.
I did outline a few areas.
Obviously, M&A is a variable that may affect EBITDA margins longer-term, depending upon M&A activity that ---+ whatever that company's profile is.
Foreign exchange, depending upon what happens with foreign exchange.
We have a little bit of a natural hedge, but it's certainly, as I mentioned, an EBITDA erosion.
So if foreign exchange continues to see the dollar strengthen, that will obviously have an impact on EBITDA margins that is somewhat out of our control.
And I'd say a third area is, we signaled more network buildout.
I would say if we start to see a ---+ maybe an inflection point in the need for us to build out faster to support our customers, we will do that.
And that may have an impact on EBITDA margins.
So those are things I would say as I sit here right now, I think we're going to operate in the 40% to 41% range.
But those are variables that could affect it higher or lower.
Yes I think you can expect as the maturity business scales, that the growth rates will slow from ---+ let's face it, we've had growth rates over 100%, some of it benefiting from the Prolexic acquisition.
But certainly, yes, I think you can expect in the near-term, it's going to grow well north of the Company average, because even with the Prolexic acquisition anniversary occurring.
But our expectation ---+ again, we talked about the Company model that our desire and ambition is to grow to $5 billion by the end of 2020.
That requires a 17% growth rate.
We think that there is opportunity for 17% growth rates really in all of our businesses.
I think media has that opportunity to grow like that.
I think the performance businesses have that opportunity.
I think security does.
That ---+ so I think there are a lot of ---+ each one of our businesses individually have a lot of room left to grow.
So, even though security growth rate certainly, once you go through an anniversary, will slow, I think you can expect that we are not nearly tapped out as far as opportunity in that space.
Yes.
As we develop major new carrier relationships, typically that will be followed with some CapEx deployment to take advantage of those relationships.
I don't think any one in particular is a big swing, per se, so I wouldn't worry about that in particular.
Obviously, China is a very important market, and so we are going to be working on the relationships there and expanding deployments.
In terms of security, we develop a lot of the core technologies ourselves.
We also look at partnerships, and as you know, M&A.
We did acquire Prolexic, as I ---+ last year, as I talked about earlier today.
We acquired Xerocole.
Now, Xerocole, I don't think was positioned as a security company with their recursive DNS technology, but that is an important component, technology component, for us as we develop our enterprise security solutions that we plan to bring to market next year.
So as we go forward, you can expect sort of more of the same that way.
There will be a lot of organic development.
There will be partnerships.
And potentially, we are always looking for companies that have good technology that we can bring to bear for the benefit of our customers.
Cisco is still in the early stages, so there has been customer adoption.
There is a strong pipeline.
I don't expect material impact on our revenues this year to Cisco with a Cisco relationship, but there's a good roadmap in place.
And we hope that there will be success in the marketplace that will start to really have a help to us in 2016.
Sure.
On the M&A front, both Xerocole and Octoshape had very little revenue.
That was really not the purpose of those acquisitions.
Those were kind of technology acquisitions and people-related acquisitions that were quite ---+ they had a little bit of revenue, but I would say not material to even comment on.
I think we commented or in the press release, both companies combined had roughly 50 employees.
So just do general math on that, you can probably ---+ it's probably a $3 million sequential increase ---+ $3 million to $4 million on spending.
They certainly didn't have, obviously, the margin profile that Akamai does, so they are slightly dilutive; not very material, but slightly dilutive to Akamai.
And on the EBITDA front, yes, I'm not moving off the 40% to 42% ---+ 40% to 42% is our long-term model.
What I'm suggesting to you is that we are going through a period here where we are probably going to be operating the Company at a lower end of that.
And you know, some of that I think is based on some investments that we think are going to pay dividends.
One of the areas that we talked about is we are doing a little bit more in the way of network buildout.
And so I think that is going to pressure EBITDA margins in the near-term.
And we probably shouldn't dwell too, too much on EBITDA margins by themselves, because I think you need to look at the financial model of the Company in aggregate, that if our media business starts to explode on revenue, and it has an impact on EBITDA margins, I'm not going to be unhappy with that.
I mean that's a business mix phenomena that we'll deal with.
That ---+ and so I think we just want to make sure that we are agile in responding to what we believe is traffic demand.
And that's really what we're doing.
And I think what I'm signaling is that we are probably going to operate at the lower end of our kind of range, and we'll see what happens as far as kind of the ecosystem for media.
We'll see what happens with the overall macroeconomic environment with foreign exchange.
And we'll see what happens relative to M&A for the Company.
But I would say, based on what I shared at the Investor Summit, I do believe that is a very long-term model for the Company.
I don't know if you will really see seasonality.
I think what you might see in the Security business sometimes is that because there can be very high profile attacks that you read about in the media, sometimes when that happens, you do see an uptick in our security business, because customers need to be protected immediately.
And they will turn to us to help them immediately.
So you might see some ---+ well, I wouldn't call it seasonality, but you might see an uptick if, in fact, you start to see some significant high-profile media events that occur.
But I think, in general, it's a subscription revenue business.
And that's the way it will operate.
It doesn't necessarily have spikes based on traffic usage or things of that nature.
Well, you can think that, as I mentioned, it's about a 1 point EBITDA impact year-on-year.
So you can ---+ kind of a general flavor of what the flowthrough is of that.
Our EBITDA is 40% to 41%; the flowthrough is probably closer ---+ on the FX line, closer to 50%.
So you can take that $22 million that I mentioned and you're probably going to see an $11 million flowthrough from a foreign exchange perspective.
And obviously that will flow through to earnings as well.
Well, it has a potential for both.
But as we talked about previously, the large majority of the world's major broadcasters are already sizable Akamai customers.
So, I think probably a lot of it is from customers that exist with us today but would be doing new things with us as they move TV content over-the-top.
Yes.
We added about a little over 300 people in the quarter.
We've been hiring ---+ you are right, we've been hiring in sales; we've been hiring in services.
We've been hiring in engineering.
So hiring has been pretty pervasive in the Company.
And it's focused in kind of two specific areas.
One, it's hiring to enable us to grow, and it's also hiring to enable us to scale as a company.
So we are hiring in all those areas.
You can expect that we're going to continue to hire throughout the year.
I think you're probably going to see us hiring and our spending maybe grow more in line with revenue growth kind of longer-term.
But we have been going through a period of hiring and spending growing faster than revenue.
That will kind of continue for a kind of a short period of time, but I think they are going to see it level off and grow more in line with revenue.
Yes.
So we've had good adoption on the new Ion product line.
As you know, there's Ion Standard, which is really focused on excellent performance, ease of use.
And on the mobile environment, Ion is all about providing excellent performance in a variety of use cases, where the user may be and how they are connecting, and what device they are using.
And then Ion Premier, which is really the ultimate ---+ you know, all the technologies we have, designed to make a really fast and reliable experience for the end-user.
There's a lot of mobile technologies that we are developing.
In fact, if you look at the Investor Summit presentations, we list several of them and talk about them there, so you can get a lot more technical detail.
But things ---+ front-end optimization, adaptive image compressing ---+ compression; the shutter protocol, which we developed for decreasing the frequency of communications in mobile devices and suppressing the headers.
So, less back and forth there.
So there is a variety of things we do to try to optimize the experience and get around the inherent bottleneck of lack of capacity and high latencies in cellular environments.
