Akamai Technologies (AKAM) Earnings Report: Q1 2016 ... · PDF fileAkamai Technologies (AKAM) Earnings Report: Q1 2016 ... Akamai disclaims any obligation to ... I'm also pleased to

CompanyName:AkamaiT echnologiesIncCompanyTicker:AKAMSector:T echnologyIndustry:Internet

EventDescription:Q12016EarningsCallMarketCapasofEventDate:9.03BPriceasofEventDate:52.66

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

AkamaiTechnologies(AKAM)EarningsReport:Q12016ConferenceCallTranscriptThefollowingAkamaiTechnologiesconferencecalltookplaceonApril26,2016,04:30PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

TomBarth;AkamaiTechnologies;InvestorRelationsTomLeighton;AkamaiTechnologies;CEOJimBenson;AkamaiTechnologies;CFO

OtherPart icipants

MarkMahaney;RBCCapitalMarkets;AnalystRobSanderson;MKMPartners;AnalystVijayBhagavath;DeutscheBank;AnalystColbySynesael;CowenandCompany;AnalystSterlingAuty;JPMorgan;AnalystJonathanSchildkraut;EvercoreISI;AnalystJamesBreen;WilliamBlair&Company;AnalystMikeOlson;PiperJaffray&Co.;AnalystSitiPanigrahi;CreditSuisse;AnalystMarkKelleher;D.A.Davidson&Co.;AnalystMichaelBowen;PacificCrestSecurities;AnalystMichaelTurits;RaymondJames&Associates,Inc.;AnalystHeatherBellini;GoldmanSachs;AnalystEdMaguire;CLSALimited;AnalystWillPower;RobertW.Baird&Company,Inc.;AnalystSameetSinha;B.Riley&Co.;AnalystPriyaParasuraman;WellsFargoSecurities;AnalystJeffVanRhee;Craig-HallumCapitalGroup;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodday,ladiesandgentlemen,andwelcometotheAkamaiTechnologies,Inc.firstquarter2016earningsconferencecall.

(OperatorInstructions)

Asareminder,today'sconferenceisbeingrecorded.

Iwouldliketointroduceyourhostfortoday'sconference,Mr.TomBarth,HeadofInvestorRelations.Sir,pleasegoahead.

T omBarth (InvestorRelations):

Thankyou,andgoodafternoon.ThankyouforjoiningusonAkamai'sfirstquarter2016earnings




conferencecall.

SpeakingtodaywillbeTomLeighton,Akamai'sChiefExecutiveOfficer;andJimBenson,Akamai'sChiefFinancialOfficer.

Butbeforewegetstarted,pleasenotethattoday'scommentsincludeforward-lookingstatements,includingstatementsregardingrevenueandearningsguidance.

Theseforward-lookingstatementsaresubjecttorisksanduncertaintiesandinvolveanumberoffactorsthatcouldcauseactualresultstodiffermateriallyfromthoseexpressedorimpliedbysuchstatements.AdditionalinformationconcerningthesefactorsiscontainedinAkamai'sfilingswiththeSEC,includingourannualreportonForm10-KandquarterlyreportsonForm10-Q.

Theforward-lookingstatementsincludedinthiscallrepresentthecompany'sviewonApril26,2016.Akamaidisclaimsanyobligationtoupdatethesestatementstoreflectfutureeventsorcircumstances.

Asareminder,wewillbereferringtosomenon-GAAPfinancialmetricsduringtoday'scall.AdetailedreconciliationofGAAPandnon-GAAPmetricscanbefoundunderthefinancialportionoftheInvestorRelationssectionofourwebsite.

Andwiththat,letmepleaseturnthecallovertoTom.

T omLeighton (CEO):

Thanks,Tom.Andthankyouallforjoiningus.

Q1wasaverysolidquarterforAkamaiinboththetopandbottomlines.Revenueinthefirstquarterwas$568million,up8%yearoveryearandup9%whenadjustedforforeignexchangeheadwinds.Excludingthecontributionfromourtwolargestcustomers,revenueinthefirstquarterwasup15%overQ1of2015.

Ourstrongrevenueachievementwasdrivenbythecontinuedrobustdemandforoursecurityservices,whichgrew47%inconstantcurrencyoverthefirstquarteroflastyear,aswellassolidperformanceacrossallofourmajorproductlinesandgeographies.Non-GAAPEPSforthefirstquarterwas$0.66perdilutedshare,up8%yearoveryearandexceedingthehighendofourguidancerangeduetoourstrongrevenueachievementsandourcontinuedfocusonefficiencyacrosstheCompany.

OursolidperformanceinQ1hasgottenusofftoanexcellentstartfortheyear.IwasparticularlypleasedtoseeourcontinuedstrongexecutionduringthetimewhenwewererealigningtheCompany.Asaresultoftherealignment,wenowhavethreemajordivisions--media,web,andenterpriseandcarrier.Eachdivisionhasitsownresourcesfordevelopment,productmanagement,marketing,andsales.

Forexample,themediadivisionisdevelopingproductsfocusedonvideoandsoftwaredelivery.Theymanageourcustomersandprospectsinthemedia,software,socialnetworking,andgamingverticals.

Thewebdivisionisresponsiblefordevelopingourwebsecurityandapplicationaccelerationproducts.Andtheymanagecustomersandprospectsinverticalssuchase-commerce,financialservices,softwareasaservice,andthepublicsector.

Theenterpriseandcarrierdivisionisresponsiblefordevelopingproductsforenterpriseandcarriernetworksandenterprisesecurity.Andtheymanageourcarrierrelationships.

Goingforward,wewillreporttherevenueforeachdivisionintermsoftherevenuederivedfromcustomersinthatdivision.Forcontinuitypurposes,wewillalsocontinuetoprovidetheproductbasedviewofrevenuethatwehavehistoricallyreported.JimwillprovideallofthisdataforQ1shortly.




But,first,I'dliketomentionsomeoftherecenthighlightsfromthemediaandwebdivisions.It'sbeenanexcitingstarttotheyearforthemediadivision,withrecord-breakingonlineaudiencesformajoreventssuchastheSuperBowlandMarchMadness.4millionviewerswatchedtheSuperBowlonlinethisyear,upfrom2.5millionin2015.Theaveragebitratewasup30%to4.5megabitspersecondin2016,andtheaverageviewingtimewasup20%toover100minutes.

Wealsodeliveredamajorgolftournamentinthenew4Kformatafewweeksago.ThiswasthefirsttimethatamajorUSsportingeventhasbeendeliveredin4Konline.Thequalitylevelswereextraordinary.UsingourOctoshapeclienttechnology,wedeliveredanaveragebitrateof13megabitspersecondwithare-bufferingrateoflessthan1%,showing,onceagain,Akamai'sabilitytodeliverbroadcastqualitycontentreliablyandsecurely.

Theexcellentend-userexperiencethatweareprovidingwithouradvancedvideodeliverycapabilitieswasamajortopicofdiscussionattherecentNationalAssociationofBroadcasters,orNAB,show.That'sbecausetheabilitytodeliverhigh-qualityvideoatscaleiscriticaltotheenablementofover-the-top,orOTT,services.

Acommonthemeinmyconversationswithmanyoftheworld'sleadingbroadcastersandmediacompaniesattheshowwasthattheygreatlyvalueourabilitytoprovidesuchhighqualityandscaleandtodosowithaveryhighlevelofreliability.Itisverydifficulttoreplicateourabilitytodeliveronlinemediawithworld-classquality,scale,andsecurity.That'sbecauseofouruniqueapproachofstreamingcontentthroughaglobalnetworkofmorethan200,000edgeserverslocatedclosetoendusers,whichallowsustobypasscongestedmiddlemilepeeringpoints,resultinginamorereliableviewingexperienceforendusers.

Oursuperiorcommunicationandvideotransportprotocols,whicharedesignedtodeliverthehigherqualitypicturethatisdesiredbyviewersandbroadcastersalike.Ourclient-sidesoftware,whichisnowinstalledonover100milliondevicesaroundtheworldanddesignedtogreatlyimprovequalityandscalewhilealsoloweringcosts.Andournew24-by-7broadcastoperationscontrolcenter,orBOC,capabilityforend-to-endmonitoringofqualityandfastresolutionofperformanceissues.

I'mpleasedtoreportthatourBOCisalreadyreceivingnationalaccoladesforthelevelofservicethatitcanprovidetoourbroadcastcustomers.AtNAB,theBOCwasselectedasTVTechnology'sbestofshowforitsdesign,features,costefficiency,andperformance.TheBOCalsowonStreamingMedia'sBestofNAB2016,oneofonlysixawardsthepublicationpresentedfromamongthe1,600-plusexhibitorsattheshow.Ofcourse,it'shardtopredicthowfasttheOTTmarketwillgrow,butwebelievethatweareverywellpositionedtobenefitfromtheincreasingdemandforhigh-qualityvideoonline.

Therearealsosomeexcitingdevelopmentstoreportfromourwebdivision,mostnotably,ournewBotManagerservicebecamegenerallyavailableearlierthismonth.BotManageridentifiesover1,200typesofbots,andenablesourcustomerstocustomizetheirresponsetorequestsbasedonthebottype.

Forexample,oneofourgovernmentcustomersrecentlydeployedBotManagertothwartmaliciousentitiesthatwerecheckingonthevalidityofstolenaccountnamesandpasswords.UsingBotManagertheywereabletoautomaticallyreportpasswordsasbeinginvalidwhenwedetectedthatabotwasmakingtherequestinsteadofahuman,therebypreventingthefraudulentuseofstolenidentity.

I'malsopleasedtoreportthatwenowhaveover1,000Ioncustomers.Asyoumayrecall,welaunchedIonalittleoverthreeyearsagoandithassincebecometheleadingsolutionforacceleratingwebsitesandapplicationsonline.Ionisparticularlywell-suitedforacceleratingmobileappsandcontentbeingdeliveredtomobiledevices.

Thisisimportantbecausethemobileenvironmentisoftenmuchslowerthanthedesktopenvironment.




Usersexpectmobiledevicestobefast,andoverhalfofalltransactionsontheAkamaiplatformnowcomefrommobiledevices.

BeforeturningthecallovertoJim,Iwouldliketoemphasizethat,althoughwehaveanewdivisionalstructure,Akamai'sgoalremainsthesameasithasalwaysbeen--tomaketheInternetfast,reliable,andsecure.

Andwearestilllaser-focusedonsolvingfourgrandchallengesforourcustomers--deliveringvideoovertheInternetwithunparalleledquality,scale,andaffordability;providingnearinstantperformanceforwebsitesandappsonanydeviceanywhere;securingwebsitesanddatacentersfromcyberattacksthataimtodisrupttheironlineoperations,corrupttheirdata,orstealsensitiveinformation;andscalingenterprisenetworkstohandlegrowingcloudworkloadsefficientlyandsecurely.

Webelievethatwewillcontinuetobenefitfromstrongseculartailwindssuchastheincreasingamountofvideobeingconsumedonline,therapidproliferationofmobiledevices,thegrowingneedforcloud-basedsecuritysolutions,andthecontinuedmigrationofenterpriseapplicationstothecloud.Andwe'recontinuingtoinvestinthegrowthofthebusiness.Ibelievethatournewdivisionalstructurewillenableustobeevenmoreresponsivetoourcustomers'needsandtobringnewcapabilitiestomarketatanevenfasterpacethanbefore.

Insummary,Akamaiisofftoastrongstartin2016andI'mveryexcitedaboutthesubstantialopportunitiesforgrowththatlieahead.

IwillnowturnthecallovertoJimtoreviewourQ1financialresultsandtoprovidetheoutlookforQ2.Jim?

JimBenson (CFO):

Thankyou,Tom.Goodafternoon,everyone.AsTomoutlined,andaswepreviewedattheInvestorSummitinMarch,wearenowmanagingthebusinessinournewdivisionstructure.Inanefforttomakethistransitionasclearandtransparentaspossible,inadditiontoprovidingourresultsthroughthisnewdivisionlens,wewillcontinuetoprovideyouwithourfinancialresultsbythesolutioncategorieswe'vehistoricallyshared.

Lookingtotop-lineperformance,Akamaihadastrongfirstquarterandisofftoagoodstartin2016.Q1revenuecameinnearthehighendofourguidancerangeat$568million,up8%yearoveryearorup9%toadjusttheforeignexchangeheadlands.Andgrowthoutsideofourtoptwocustomerscontinuetobestrong,up15%inconstantcurrency.

Turningtooursolutioncategories,revenuefromourperformanceandsecuritysolutionswas$316millioninthequarter,up16%yearoveryearorup17%onaconstantcurrencybasis.Withinthesolutioncategory,wesawsolidgrowthacrossthemajorproductlinesandwecontinuetoseesignificantgrowthanddemandforourcloudsecurityofferings.

First-quarterrevenueforourCloudSecuritySolutionswas$81million,up46%yearoveryearorup47%onaconstantcurrencybasis.Wearepleasedwithhowwellouruniqueanddifferentiatedcloudsecuritycapabilitiesarebeingadoptedbyourcustomersandbeingrecognizedinthemarketplace.OurBotManagerofferingsisthelatestexampleofhowweareinnovatingtoexpandoursecurityportfoliotomeetstrongcustomerdemand.

TurningnowtoourMediaDeliverySolutions,revenuewas$206millioninthequarter,down4%yearoveryearandinlinewithourexpectations.Aswehavepreviouslymentioned,mediarevenuescontinuetobeimpactedbyDIYeffortsintwooflargestmediacustomers.However,therestofourmediabusinessgrewover11%comparedtoaverystrongQ1in2015.




Finally,revenuefromourServicesandSupportSolutionswas$46millioninthequarter,up16%yearoveryear.Wecontinuedtoseestrongnewcustomerattachmentratesforourhigher-endenterpriseclassprofessionalservicesglobally.

Turningtoournewdivisionview,aswesharedinourlastcall,wearenowmanagingtheCompanyinanewdivisionstructurewhichintegratesthedevelopment,productmanagement,marketing,andsalesteamsintothreedivisionstofocusonthecompany'smedia,web,andenterpriseandcarrierproductsandcustomers.

Thisnewcustomeralignedstructureisdesignedtocreatetighteralignmentandintegrationbetweencustomerrequirementsandproductinnovation,whileincreasingtheeaseofleveragingAkamai'sservices,andisintendedtohelpusbetterserveourcustomersandaccelerategrowth.

Underthisnewdivisionconstruct,revenuefromourmediadivisionwas$292millioninthequarter,down1%yearoveryearorflatonaconstantcurrencybasis.ThemediadivisionisimpactedbythecontinuedDIYeffortsofourtwolargestcustomers,themediacustomers,thatImentionedearlier.Revenuegrowthforthemediadivisioncustomersoutsideofthetoptwowasahealthy11%.

Revenuefromthewebdivisionwas$264million,up18%yearoveryear.Wehavecontinuedtoseesolidgrowthinthiscustomerbase,withparticularlystrongsecuritygrowthof51%yearoveryearinconstantcurrency.Lastly,revenuefromtheemergingenterprisingandcarrierdivisionwas$12millioninthequarter,up45%yearoveryear.

Tobehelpful,aswemigratetothisnewdivisionreportinglens,wewillcontinuetoreporttheformersolutioncategoryviewthroughthebalanceof2016.Eventhoughoursecurityrevenuewillnowbeembeddedwithineachofthethreedivisionsrevenueresults,we'llcontinuetobreakouttotalsecurityrevenueseparately.Youwillfindalloftheserevenueresultsdetailedintoday'spressreleaseandonourInvestorRelationswebsite.

Movingontoourgeographies,salesinourinternationalmarketsrepresented30%oftotalrevenueinQ1,up2pointsfromQ4.Internationalrevenuewas$170millioninthequarter,up24%yearoveryearorup27%inconstantcurrency.Foreignexchangefluctuationshadanegativeimpactonrevenueof$4milliononayear-over-yearbasisandwasroughlyneutralonasequentialbasis.WecontinuetoseeverystronggrowthinourAsia-Pacificgeographies.

RevenuefromourUSmarketwas$397million,up2%yearoveryear.Aswehavesharedwithyoupreviously,ourtwomediacustomersresideintheUSandcontinuetoweighheavilyondomesticrevenues.Outsideofthesetwocustomers,revenuegrowthwassolidacrosstherestofthebusiness.

Movingontocost,cashgrossmarginwas77%,consistentwithQ4levels,down1pointfromthesameperiodlastyear,andinlinewithourguidance.GAAPgrossmargin,whichincludesbothdepreciationandstock-basedcompensation,was66%,down1pointfromthepriorquarter,down2pointsfromthesameperiodlastyear,andinlinewithourguidance.GAAPoperatingexpenseswere$259millioninthefirstquarter.

TheseGAAPresultsincludeitemssuchasdepreciation,amortizationofintangibleassets,stock-basedcompensation,acquisition-relatedcharges,andothernonrecurringitems.Ofparticularnoteinthequarter,werecorded$7millioninnonrecurringrestructuringchargesforseveranceandimpairmentsrelatedtotheorganizationrealignment.

Excludingtheseitems,non-GAAPcashoperatingexpenseswere$201million,down$9millionfromQ4levelsandatthelowendofourguidance.Asalways,wewillstrivetobalanceinvestmentsinthebusinesstoalignwiththeexpectednear-termmoderationinrevenuegrowthrates.




AdjustedEBITDAforthefirstquarterwas$234million,down$4millionfromQ4levelsfromtheseasonalrevenuedeclinesQ4toQ1,andup$11millionfromthesameperiodlastyear.OuradjustedEBITDAmargincameinat41%,consistentwithQ4levels,down1pointfromthesameperiodlastyearandinlinewithourguidance.

GAAPdepreciationandamortizationexpenseswere$81millioninthefirstquarter.TheseGAAPresultsincludedepreciationassociatedwithstock-basedcompensation,amortizationofintangibleassets,andamortizationofcapitalizedinterestexpense.Excludingthesecharges,non-GAAPdepreciationwas$70million,consistentwithQ4levelsandslightlybelowourguidanceduetothetimingofnetworkdeployments.

Non-GAAPoperatingincomeforthefirstquarterwas$164million,down$4millionfromQ4andup$1millionfromthesameperiodlastyear.Non-GAAPoperatingmargincameinat29%,consistentwithQ4levelsanddown2pointsfromthesameperiodlastyear,and1pointhigherthanourguidancegiventhestrongrevenueattainmentandcostefficienciesmentionedearlier.

Movingontotheotherincomeandexpenseitems,interestincomeforthefirstquarterwas$3million,consistentwithQ4levels.Non-cashinterestexpenserelatedtoourconvertibledebtwasroughly$5million.Asareminder,thisnon-cashexpenseisexcludedfromournon-GAAPresults.

Movingontoearnings,GAAPnetincomeforthefirstquarterwas$75millionor$0.42ofearningsperdilutedshare.Non-GAAPnetincomewas$118millionor$0.66ofearningsperdilutedshare,$0.02abovethehighendofourguidancerange.Ourbetter-than-expectedearningswerefueledbyhigherrevenuesandcontinuedefficienciesinthebusiness.

Forthequarter,totaltaxesincludedinourGAAPearningswere$38million,basedonaneffectivetaxrateof33.5%.Taxesincludedinournon-GAAPearningswere$49millionbasedonaneffectivetaxrateof29.4%andinlinewithourguidance.Finally,ourweightedaveragedilutedsharecountforthefirstquarterwas178millionshares,down2millionsharesfromQ4levelsfromouropportunisticincreaseinsharebuybackactivity,andinlinewithourguidance.

NowI'llreviewsomebalancesheetitems.Dayssalesoutstandingforthefirstquarterwas60days,up1dayfromQ4levels.CapitalexpendituresinQ1,excludingequitycompensationandcapitalizedinterestexpense,were$85millionandatthelowendofourguidanceforthequarter.Asareminder,thisnumberalsoincludescapitalizedsoftwaredevelopmentactivities.

Cashflowgenerationcontinuedtobestrong.Freecashflowwas$108millioninthefirstquarteror19%ofrevenue,averystrongresultconsideringQ1isourseasonallylowestfreecashflowquarter.

Ourbalancesheetalsoremainsverystrong,withroughly$1.5billionincash,cashequivalents,andmarketablesecuritiesonhandattheendofthequarter.Ifyoufactorinourconvertibledebt,ournetcashisapproximately$800million.

Duringthequarter,wespent$109milliononsharerepurchases,buyingbackroughly2.2millionshares.Aswementionedinourlastearningscall,theBoardauthorizedanew$1billionsharerepurchaseprogramthroughtheendof2018.Wehaveapproximately$960millionremainingonthatauthorization.

Andaswehavediscussedinthepast,ouroverallaimistodeployourcapitaltofavorablereturnsforourinvestorsinamannerthatwebelieveisinthebestlong-terminterestoftheCompanyandourshareholders.Givenourstrongbalancesheetandcashgeneration,thisnewauthorizationisintendedtocontinueourmulti-yearcapitalallocationplantooffsetdilutionfromequitycompensationplansandtoprovideuswiththeflexibilitytoreturnmorecashtoshareholders,dependinguponbusinessandmarketconditions.




Insummary,wearepleasedwithhowthebusinessperformedinQ1andweremainconfidentinthelong-termprospectsofprofitablegrowthfortheCompany.Lookingahead,we'reprojectingrevenuefromourtoptwocustomerstodeclineinQ2andpossiblythesecondhalfoftheyear.Assuch,we'reexpectingslightlylesssequentialgrowthinthesecondquarterthanwehavehistoricallyseen.

WeexpectQ2revenuesintherangeof$566millionto$582million.Atcurrentspotrates,foreignexchangefluctuationsareexpectedtohaveapositiveimpactonQ2revenueofroughly$3millionsequentiallyandlessthan$1millioncomparedtoQ2oflastyear.Attheserevenuelevels,weexpectcashgrossmarginsofroughly76%andGAAPgrossmarginsof65%.

Q2non-GAAPoperatingexpensesareprojectedtobe$206millionto$211million.AsI'vementionedonthepastcouplecalls,wehavepurposelysloweddowntherateandpaceofheadcountadditionsanddiscretionaryspendingtoalignwithournear-termtop-linegrowthexpectations,butwearecontinuingtomakeprudentinvestmentsinthebusinessthatwebelievearenecessarytosupportsustainedlong-termgrowthandscale.

FactoringinalloftheseitemsIjustmentioned,weanticipateQ2EBITDAmarginsof40%.AndasIcontinuethemessage,wewillstrivetooperatetheCompanyinthe40%to41%EBITDArangefortheforeseeablefuture.Ofcourse,ourabilitytomaintainEBITDAmarginsinthisrangewillbeheavilydependentonseveralfactors,includingrevenuevolumes,possibleM&A,andspendingonplatformcapacityinanticipationofgreaterdemandforourover-the-topvideodeliveryservices.

Movingontodepreciation,weexpectnon-GAAPdepreciationexpensetobe$73millionto$75million.Factoringinthisdepreciationguidance,weexpectnon-GAAPoperatingmarginsof27%forQ2.WiththeoverallrevenueandspendconfigurationIjustoutlined,weexpectQ2non-GAAPEPSintherangeof$0.62to$0.65.

ThisEPSguidanceassumestaxesof$46millionto$48millionbasedonanestimatedquarterlynon-GAAPtaxrateof29.5%.Thisguidancealsoreflectsafullydilutedsharecountof176millionshares.OnCapEx,weexpecttospendapproximately$90millionto$98millioninthequarter,excludingequitycompensation.Asalways,wewillstrivetobalancenetworkinvestmentagainstfuturerevenueopportunityandcontinuednetworkefficiencyinitiatives.

Inclosing,Q1wasasolidstartto2016,andweremainconfidentinourstrategyandourabilitytoexecuteonourlong-termplans.Thankyou.

AndTomandIwouldliketotakeyourquestions.Operator?

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

MarkMahaney,RBCCapitalMarkets.

MarkMahaney(Analyst-RBCCapitalMarkets):

Thanks.Youtalkaboutthegrowthinthemediasegmentofabout11%,exthetwolargestcontributors.Couldyoutalkaboutthetrendinthatgrowthexthosetwolargestcontributors?Andhowweshouldthinkaboutthesustainabilityofthatgrowth?Isthatareasonablewaytothinkaboutthatsegmentexthetwolargeplayersgoingforward?Thankyou.

T omLeighton (CEO):




Goodquestion,Mark.Actually,thatgrowthrateisconsistentwiththegrowthratesthatwesawinQ4.We'vebeeninthedouble-digitrangeforawhile.Sometimesit'llbealittlebithigherthanthat.Aswe'vesharedinthepast,thatsometimesgrowthratesinthemediabusinessareaffectedbylargesoftwarereleases,agamingrelease,orthingsofthatnature.ButIthink,generallyspeakingweexpectthatwecouldprobablyoperateinthelowdoubledigitsforthemediadeliveryoutsideofthosetoptwocustomers.

MarkMahaney(Analyst-RBCCapitalMarkets):

Thankyouverymuch.

Operator :

RobSanderson,MKMPartners.

RobSanderson (Analyst-MKMPartners):

Thankyou.Acouple,oneforJim,oneforTom.Tom,aquestiononcostreduction.Manyyearsofhighgrowthintrafficvolumesalongwithpricebreaksthatyou'vebeenpassingalong.HowmuchhastheCompanybeenabletocostreducetrafficdeliveryovertheyears?Isthereawaywecancomparecostperbittodaycomparedto,say,fiveyearsago?Iwouldthinkinthepastit'ssomethinglikeMoore'sLaw,butisthereanywayyoucanattempttoquantifythat?AndhowdoyouthinkthiscomparestosomeofthegenericCDNorsomeofthedo-it-yourselfeffortsthatyou'veseenoverthistimeframe?

AndthenaquickoneforJim.Freecashflow,willQ1betheseasonallowagainthisyear,asithasinthepast,oristheresomethingunusualseasonallythisQ1forcashgeneration?

T omLeighton (CEO):

Tothefirstquestion,weputalotofeffortinR&Dtoreduceourinternalcostperbit,todelivermorebitspersecondperCPU,morebitspersecondpersquarefootofcolo,forakilowattofpower.Andthenwepassonthosesavingstoourcustomers.So,Ithinkasyoulookovertime,everyyearweareabletooffersignificantcostreductionsonaperbitbasistoourcustomers.Sooverfiveyearsthesavingsarereallyquitesubstantial.

Weareverycompetitivewhenitcomestopricingforlargetrafficcustomers.AndIthinkweareverycompetitivewithnotonlytheotherCDNsouttherebutalsothedo-it-yourselfeffortsthatsomeofourlargestcustomershavetriedtoengagein.Andyouseethiswheresomeofourlargecustomershavehaddo-it-yourselfeffortsinthepastandthenafterafewyearsdiscoverthatAkamaiisalotmoreeffectiveatitandchargesthemlessthantheirinternaleffortscostthem.So,thenItrafficroseagain,eventhoughthey'vegotdo-it-yourselfefforts.

JimBenson (CFO):

Onthequestiononfreecashflow,asyouknow,freecashflowreallydependsonthecouplethings.One,wearenotaninventory-centriccompany,sootherthanprofitability,receivablecollectionstendstobethedriverfromquartertoquarterifyouseeupticksordownticks.Also,CapExhappenstohavevariabilityfromquartertoquarter.

Iwouldexpectthatthiswillprobablystillremainourseasonallylowestquarter,butitalldependsuponcapitalexpenditures.And,asIsaidearlier,ifweseedemandthatweneedtodomorenetworkdeployment,we'lldothat.Idon'twanttosignalsomethingandthenlateronifwearemaybealittlebitlowerthanthat.ItreallydependsonCapExinvestments.ButI'dsay,basedonourcurrentlineofsight,it'llprobablybethelowestseasonalquarterthisyear,aswell.




Operator :

VijayBhagavath,DeutscheBank.

VijayBhagavath (Analyst-DeutscheBank):

Yes,hi,Tom,Jim.Thequestionisonyoursecuritybusiness.Wegetthisquestionfromclientsalotsaying,wouldthelawoflargenumbersstartimpactingthesecuritybusiness,becauseit'sprimarilysellingintoDDoSandwebapplicationsecurityversusthebroadersecurityopportunity.I'dliketohearyourthoughtsthere.Thanks.

T omLeighton (CEO):

I'mnotsurewhatyoumeanbythelawoflargenumbers,buttheattacksarecertainlygrowinginsizeandsophistication,tothepointnowwhereanyofthetraditionaldefensessimplydon'twork.Youcan'tdefendyourselfbybuyingboxesandputtingtheminyourdatacenter.Youcan'tevendefendyourselfbybuyingacleanpipefromacarriersimplybecauseofthescaleoftheattacks.

That'swhyAkamaihasbeenuniquelyabletodefendalotoftheworld'smajorenterprisesagainstthelargestattacksoutthere.Inaddition,we'reabletodefendagainsttheattacksthattrytodefaceorcorruptawebsite,changethecontentinawaytoembarrassthewebsiteowner.Andalsowecandefendagainsttheattackswhotrytostealdatafromthewebapplication,likeacreditcardorinformationabouttransaction.

Goingforwardwithourenterpriseandcarrierdivision,wearedevelopingproductsthatwillprotectenterpriseemployees,forexample,fromphishingmalwarekindsofattacksorenterprisedataexfiltrationattacks.So,it's,Ithink,averyexcitingfuturepotentialforusinsecurity.


Aquickfollow-on,Tom.Corporatevideoinbigcompanieshavetheseallhandsmeetings,townhallmeetingswheretremendousvideovolumesgetgeneratedincorporatenetworks,whichisquiteexpensive.WouldAkamaihaveaplaythereinbettermanagingormakingcorporatevideoandenterprisesmoreefficient?Thanks.

T omLeighton (CEO):

Yes,absolutely.Infact,wehaveaproducttodaythroughtheOctoshapeacquisitionthatsupportscorporatevideostooffloadtheirprivatenetworkortheircorporatenetwork.Itgivesaveryhighqualityexperience,verysecure,withoutfloodingthebranchofficenetwork.


Thankyou.

Operator :

ColbySynesael,CowenandCompany.

ColbySynesael(Analyst-CowenandCompany):

Great,thankyou.Twoquestions,ifImay.Thefirstone,Ijusthaveapointofclarificationonguidance.IthoughtIheardyousaythatyouthoughtthatthetoptwocustomerscouldfurtherdeclineinthebackhalfoftheyear.Ithinkthepreviousexpectationwasthattheywoulddropataround6%orgreaterinthesecondquarter.IjustwantedtoclarifywhatIthoughtyoumighthavesaidduringyourcommentson




guidance.AndthenIhaveafollow-upquestion.

T omLeighton (CEO):

Ontheguidance,I'dsaywe'reprobablyappropriatelybeingcautious,tobefrank.Wehavegoodvisibilitywithinthequarterforthesetoptwocustomers.I'dsaythevisibilitybeyondthequarterisless,sowhatwe'retryingtodoisbecautiousinwhatwe'retellingyou,thatwecertainlyexpectfromQ1toQ2,aswetoldyoulasttime,thatrevenuevolumeswoulddeclineforthesetoptwocustomers.

Ithinkwhatwe'resayingisthatwe'renot100%sureonthebackhalfoftheyear,sowe'rebeingalittlecautiousinourprojectionsthatitcoulddeclinefurther.Therearethingsthatcouldstabilizeit.Therearethingsbeyondthat,dependingupondifferentfeaturesandcapabilitiesforthesetwocustomers,thatcouldcauseittogrow,aswell.ButI'dsaywhatwe'retryingtoprovideyouisalevelofconsciousness,andthat'sthewaywe'relookingatitinternally.


Tosomedegree,thatimplies,then,thatthesecustomersareonsomeformofmonth-to-monthorshort-termcontract,thattheyhavetheabilitytoturnonandturnoffservicequartertoquarter.Isthatafairinterpretation?

T omLeighton (CEO):

No,it'snot.Thesecustomersareonlong-termcontracts,butthesecontractsarestructuredinawaythatvolumescanebbandflowfromperiodtoperiod.Thereareminimumsthattheyneedtohit,butvolumescancertainlyfluctuatetoapoint.Butthesecustomersareonlong-termcontracts.They'renotonmonth-to-monthcontract.


Okay,great.Andthenjustmyfollow-upquestion,Ithinkyouhadbeenlookingforaheadofsalesforyourwebdivision.Iwonderedifthereisanyupdateonthat.Thanks.

T omLeighton (CEO):

Weareintheprocessofasearchthere,sonoupdate.


Okay,great.Thankyou.

Operator :

Thankyou.SterlingAuty,JPMorgan.

SterlingAuty(Analyst-JPMorgan):

Thanks,guys.Maybejustfollowinguponthemediaside,takingthetoptwocustomersout,curiousaboutthevisibility.You'veoftentalkedabouttalkingwiththecustomersaroundtimingofsoftwareupdatesanddifferentitemsthatmightmovetheneedleintermsofvolume.Howwouldyousayyourvisibilityintherestofthecustomerbaselooksatthispointoftheyearascomparedtolastyear?

T omLeighton (CEO):

Honestly,it'ssimilartoourtoptwocustomers,aswell.Ourvisibilitywithinthequarteriscertainlyalotbetterthanourvisibilityfortheremainderoftheyear.Thereiscertainlythingsthatweknowthatare




goingtooccur,thingsliketheOlympics,thingslikepresidentialdebates,andthingsofthatnature,thatwillcausevolumes.Therearecertainlystagedrolloutsofsoftwarereleasesandthingsofthatnature.

ButI'dsaywehaveverygoodvisibilitywithinathree-monthwindow.Itjustlessensinthebackhalf.Andit'snotforthetoptwocustomers,it'singeneral.That'sjustthenatureofthemediabusiness.

SterlingAuty(Analyst-JPMorgan):

Gotit.Thankyou.

Operator :

JonathanSchildkrautwithEvercore.

JonathanSchildkraut (Analyst-EvercoreISI):

I'mgoingtotrytosneakintwoquestions,too.First,Iwaswonderingifyoucouldgiveusalittlebitmorecoloroninternational.It'sobviouslybeengrowingreallywellandit'sbecomingamuchmoremeaningfulpieceofyourbusiness.It'shardertohavevisibilityintothecompetitivelandscapedrivers,etcetera,aswelookintosomeoftheinternationalmarkets.Iwashopingyoumightspendasecondtalkingaboutthat.

AndthenI'mcuriousbecausewe'vebeendoingalotofworkonInternetofThings,andthemoreIlookatit,particularlyaroundconnectedcar,driverlesscar,thingsthatrequireperformance-sensitiveinformationtomakeyourwayintothenetwork,theInternetofThingsislookingmoreandmorelikeaDDoS,frommyseat.AndI'mjustwonderingaboutyourperspectivefortheroleofAkamaiinaworldofInternetofThings.Thanks.

JimBenson (CFO):

Letmestart,Tom,onobviouslyyourcommentoninternationalgrowth.Ourinternationalgrowth,you'reright,hasbeenverystrong.Wegrew27%inconstantcurrencyinQ4.It'sgrownparticularlywellinourAsia-Pacificgeographies.We'veseenverystronggrowthacrossourAsia-Pacificmarkets.

Asyouknow,whenwebeganinvestinginincrementingthesalesforce,wewereinvestingmoreinoursalesresourcesoutsidetheUSthanactuallyintheUS.Aswe'vetoldyouinthepast,ittakestimeforareptoramptoproductivity,andsoIthinkyou'restartingtoseethebenefitoftheinvestmentsthatwe'vemade.So,we'reverypleasedwiththat.

Fromacompetitivelandscapeperspective,there'sstillbroadglobalcompetitorsthatyouknowwhotheyare,andthentherearelocalcompetitorsindifferentmarkets.ButI'dsaythatwehavefaredverywellandIthinkthere'sasignificantopportunitytocontinuetogrowinternationallyfasterthanactuallyintheUS.

T omLeighton (CEO):

AndtotheIOTquestion,theproliferationofdevicesandtheInternetofThingsrepresents,really,agreatopportunityforAkamai.Inparticular,youmentionedconnectedcars.Wehavegreatrelationshipswiththeworld'smajorautomotivecompanies.Theyare,obviously,veryinterestedinhavingfastandreliablecommunicationwiththeircarsandthedevices.Andtheyareveryworriedaboutsecurity,asyoucanimagine.Notonlydenialofservicebutapplicationlayerattackswheresomebodymighttrytogaincontrolofthecar,corruptinformationonthecar.Andthat'sawonderfulopportunityforoursecurityservices.

JonathanSchildkraut (Analyst-EvercoreISI):




Great.Thanksfortakingthequestions.

Operator :

JamesBreen,WilliamsBlair.

JamesBreen (Analyst-WilliamBlair&Company):

Thanksfortakingthequestion.Canyoujusttalkaboutthecapitalintensityoverall--youseemtohavespentalotofcapitalin2015inanticipationtosomeoftheOTTbuildout--andhowthat'sflowingthroughthecoststructurenowandhowthatwouldimpactspendinginthefuture.Thanks.

JimBenson (CFO):

Sure.OnCapEx,you'reright,wewereaboveourlong-termmodellastyearin2015.Wesignaledthatwewereabout19%ofrevenue.ItwasalldrivenbyincrementalnetworkCapEx.Aswesawforthequarter,thatIthink$85millionwasabout15%ofrevenue.

We'recertainlygoingtobedialingCapExdowninalignmentwithwhatweareseeinghere,butIexpectwewillbebacktoourlong-termmodelof16%to18%.Again,wesignaledthatifweseedemandinthebackhalfoftheyearthatrequiresustodomorebuildout,we'lldothat.ButIexpectweshouldbeinthe16%to18%withnetworkCapEx,whichisthecomponentthathasthemostvariability,dialingbackfromroughly10percentofrevenueslastyeartoprobablythein8%rangethisyear.

JamesBreen (Analyst-WilliamBlair&Company):

Thankyou.

Operator :

MikeOlson,PiperJaffray.

MikeOlson (Analyst-PiperJaffray&Co.):

Goodafternoon.Iknowyoutypicallysuggestthatnoonemajoreventhasanimpactonrevenue,butisn'ttherelikelytobesomedegreeafavorableimpactfromtheOlympicsinQ3justgiventhefavorabletimezoneandjustincreasedconsumptionofthesetypesofeventsonline?

Andthen,secondly,youtalkedabitaboutcompetitionearlier.There'sbeenincreasingchatterinrecentweeksoncompetitivethreatsfromGoogleandotherplayersinthespace.Canyoujustgiveusyourtakeonwhatwe'reseeingthereandifanythingischanginginyourview?Thanks.

JimBenson (CFO):

Sure.I'lltakethefirstoneandthenTomcancommentonthecompetitivelandscape.Ithinkwe'vedefinitelysaidhistoricallythatthereisn'tanyoneeventthatisasignificantneedlemoveronrevenueinaquarter.We'veneversaidthatwedon'tgarnerrevenuesfromthoseevents.Andcertainlyeventsthatlastovermultipledaysgeneratemorerevenuesthateventsthatlastforadayorafewhours.

So,youwilldefinitelyseerevenuevolumesasaresultoftheOlympicsinourresults.Youwillseethat.But,again,it'snotgoingtobeasignificantneedlemover.Iwouldsayverylargesoftwareupdatestendtobemoreofaneedlemoverthananeventlikethat.

T omLeighton (CEO):

Intermsofcompetition,Idon'tseeanyrealchangeinthelandscapethere.You'reright,andyou




mentionedthere'sbeenchatteraboutGoogleandsoforth.Butthat's,Ithink,whatitis.TheGoogleserviceisdesignedtoprovidedeliveryforapplicationsthatareontheircomputeandstorageinfrastructure.Inthatregard,they'recompetingwithAWSandAzure,forexample,andwereallydon'tseearealimpactfromthat.

Asyouknow,wehavedozensofcompetitorsandalwayshave,andwedifferentiateourselvesbasedonourlevelofperformance.So,ifyouwantyourapplicationstobefaster,whetheryou'reonGoogle,Azure,orAWS,youwoulduseAkamaitoacceleratethoseapplications.Ifyouwantyourapplicationstobesecure,whereveryouhavethemhosted,you'duseAkamaiKonaSiteDefenderandourProlexicRoutedcapabilities,andthatwillprotectyoufromDDoSattacksandapplicationlayerattacks.

Andifyouwantyourvideoandmediadeliveredwithveryhighquality,whetheryou'reusinganyofthosecloudservicestostorethecontentornot,again,you'duseAkamaitodothatdeliveryforyoutogetthehigh-qualityvideoexperience.So,nofundamentalchangeinthecompetitivelandscapeatall.

MikeOlson (Analyst-PiperJaffray&Co.):

Thankyou.

Operator :

SitiPanigrahiwithCreditSuisse.

Sit iPanigrahi(Analyst-CreditSuisse):

Hi,guys.Thanksfortakingmyquestion.Ijustwantedtodigintoyourenterprisesecuritybusiness.Enterprisedivisionaround$12millionrevenue,almostdoubled.YoutalkaboutBotManager.Firstquestionis,whatfeedbackhaveyougottenonBotManager?That'saprettyinterestingproduct.

But,also,what'syourplanstoexpandthisbusiness?Areyouplanningtoacquiremoreofthesetuck-inacquisitions,orareyouplanningtobuildin-houseproducts?

T omLeighton (CEO):

Okay.FirstletmemakeitclearthatBotManagerispartofourwebsecuritybusiness,andthat'sinthewebdivision.Thatproductisbuiltbythewebdivision.Andthecustomerfeedbacktherehasbeenoutstanding.Thecapabilitytoidentifythebottypeandthentailortheresponsebasedonthebottypeisreallyuniqueoutthereandofhighvaluetoourcustomers.Wehavesomecustomersthatseehalfoftheirrequestsareactuallyfrombots.

Andthere'smanydifferenttypesofbots.Somearefriendly,someareverymuchnotfriendly,andthere'sthosethatareinbetween.So,Iwouldsaytheinitialcustomerreactionisverystrong.Thatisawebdivisionproduct.

Now,forourenterprisesecurityproducts,wedon'thaveanyinthemarketplaceyet.OurfirstproductwillbebasedonrecursiveDNS.Thatisthecapabilitythatwedohaveinthemarketthroughourcarrierpartnersforhomeuse,andwewillbebringingtomarketforenterpriseuseforlaterthisyear.Andthat'sdesignedtoprotectanenterprisefrommalware,fromphishingattacks,andfromdataexfiltrationattacks.

Nowintermsofourstrategy,Ithinkyou'llseeusdoalotofdevelopmentorganically,andyou'llalsoseeuscontinuetomakeacquisitions.And,asyouknow,recentlywe'vemadeacquisitionswithXerocoleandBloxx,andtheyareintheenterprisesecurityspace.Also,we'vedoneorganicdevelopment,takingtheXerocolecapabilityforcarriersandnowintheprocessofbringingaproducttomarketforenterprisesecurity.





Thanksforthatcolor.Justaquickhousekeepingquestion.Howmuchwasthe[DSD]revenuethatyoumovedfrommediatoPerformanceandSecuritythisquarter?

JimBenson (CFO):

Yes,Iwanttorecallitwaslike$109million.WesharedthatatourIRSummit.It'sactuallyavailableontheInvestorRelations.


Yes,butdoyouhaveanythingforthisQ1?Howmuchwasthat?

JimBenson (CFO):

No,it'sembeddedinouroverallresults,butyoucangenerallydivideby4.That'sroughlyspeakingwhatthequarterlyaverageis.


Allright,thankyou.

Operator :

MarkKelleher,DADavidson.

MarkKelleher (Analyst-D.A.Davidson&Co.):

Great.Thanksfortakingmyquestion.Justwantedtolookattheover-the-topopportunity.It'sbeenacouplemonthssinceyouranalystday.We'reacouplemonthsfurtherintheyear.Canyougiveusanupdateonwhatyouareseeingthere?Iwouldimplyfromyourguidanceonyourtoptwocustomersthatmaybethat'sstillinlimbo,butjustwonderedifyoucouldgiveusanupdateonwhatyou'reseeingthere.Thanks.

T omLeighton (CEO):

Theguidancefromthetoptwocustomersreallyisn'trelatedtoOTTcapabilities.Ithinkingeneralthere'salotofinterestintheover-the-topspace.ItwasexcitingtodeliverthefirstmajorsportingeventintheUSin4K.Thatbusinessisgrowingnicelyforus.

Idon'tknowofanyparticularfundamentalchangeinthelandscapethatwouldcauseahugeovernightincreaseintraffic.ButIexpecttohavesteadyandsubstantialgrowthovertimewithover-the-top.


So,thetoptwocustomersareunrelatedtoyourexpectationsinOTT,justtobeclearonthat?

T omLeighton (CEO):

Currently,yes.


Okay,thanks.

Operator :




MichaelBowen,PacificCrest.

MichaelBowen (Analyst-PacificCrestSecurities):

Thanksfortakingthequestion.I'msorry,I'vegottobeatthisdeadhorseonemoretime,butI'mgettingquestionsoverthetransomhere.The6%forthetwoDIYcustomersattheendofQ2,wasthata6%exitrateoranaverageforthefirsthalf,andthen,therefore,areyoutalkingaboutpotentialdeclinefromanaverage6%oranexitrate6%?

JimBenson (CFO):

6%,wesharedthatinQ4,thatwhatwehadsaidwasthatthesetwocustomerscombinedusedtobeabout13%ofourrevenues,andtheyhavebeendeclining.Andwesaidthatweexpectedthattheywouldprobablydeclinetoabout6%ofourrevenues.Now,obviously,apercentageimpliesthatyouknowwhatyourotherbusinessesaregoingtodo.So,tosomeextentthere'salittlebitofvariabilityin6%,whetherit's6%,whetherit's5%,whetherit's7%.ButweexpectthattherevenuevolumeswilldeclineinQ2.Andbasedonthisguidancethatwe'veprovidedatthemidpoint,thatisroughly6%oftheirrevenuesinthequarter.


Inthesecondquarter?

JimBenson (CFO):

That'scorrect.


Okay.Andthenthebackhalfcouldbeconservativelyalittlelighterthanthat.

JimBenson (CFO):

That'sright.


Okay,veryclear.Thankyou.

Operator :

MichaelTurtis,RaymondJames.

MichaelT urits (Analyst-RaymondJames&Associates,Inc.):

Hey,guys.Jim,canyoucommentonhowyousaidthatyou'dbelimitinginvestmentsatthispoint?ItdoesseemliketheOpExguideisprettylight,evenwithEBITDAmarginswheretheyare.

JimBenson (CFO):

Wecontinuetomaketheappropriateinvestmentsinthebusinessthatwethinkarenecessary.ButTomandIaremanagingtheCompanyprudently,andwethinkthatwewanttomanagetheCompanyinthelow40sEBITDArange,whichmeansthatwe'rescalingbackinvestments.WearenotscalingbackinvestmentsthatwouldjeopardizefuturegrowthandscalefortheCompany,but,yes,wearescalingbacklittleinvestmentsrelativetowhatweweredoinginprioryears.Andyoucanexpectthatwewillcontinuetodothat.




Again,wearestillmakingverytargetedinvestments.We'remakingtargetedinvestmentsinareastohelpscalethenetwork.We'remakingtargetedinvestmentsinareasofR&Dandthingsofthatnature.So,wearestillmakinginvestmentsinthebusinessbutwe'rejustmakingthemataslowerpace.

T omLeighton (CEO):

Tobeclear,wearegrowingheadcountandgrowingbusiness,it'sjustnotattherapidpacethatyousawoverthelastfewyears.ThereisstillplentyofgrowthatAkamai.


Thereasonforaskingisitseems,especiallywitheverythingyou'redoingwithNAB,justhavingfinished,andtheBOCproducthavingrolledout,itseemsasifthere'salotthatcanbedoneintermsofend-to-endvaluecreationforbroadcastinareasyou'vedabbledin,you'vehadsomeparticipationinthepast,whetherit'singestiontranscoding,digitalrightsmanagement,contentmanagement,areasofthebroadcastsupplychain.Andwonderingwhetherornotit'simportanttoinvesttherenowandifyou'rerampingthatupatall.

T omLeighton (CEO):

Yes,wearecontinuingtomakeinvestments.Thatisoneareathat'sveryimportantforus.Andwebelievethere'saverylargefutureinover-the-topvideo,soitmakesperfectsensetoinvestinthoseareasandwecontinuetodoso.Forexample,theBOCisanareathatwetalkedabout.

Also,obviously,investinginwebsecurity,obviouslyinvestinginenterpriseandcarrierproducts,particularlyenterpriseproductsfornetworkingandsecurity.Andyouwillcontinuetoseetheinvestmentandgrowththere.


Thanksalot,Tom.Thanks,Jim.

Operator :

HeatherBellini,GoldmanSachs.

HeatherBellini(Analyst-GoldmanSachs):

Great.Thankyou.Ihadacouplequestions,aswell.Thefirstoneis,youmentionedsoftwaredownloadsasabigdriver,andI'mjustwondering--wesawsomeoftheverylargesoftwaredownloadslastSeptembergetaboutthree-quarterssmallerthantheywereinthepast,andthereseemstobeabigfocusonpeoplereducingfilesizes,there'sbeenalotofimprovementsinencoding.I'mjustwonderinghowyouthinkaboutthoseinitiativesandhowthatmightimpacttrafficvolumethatyoumightseegoingforwardversuswhenthefilesweremuchlargerinthepast.AndthenIhadafollow-upquestion.

T omLeighton (CEO):

Certainlyfortraffic,softwaredownloadscomeinvaryingsizes.You'reright,thatinsomecasesthey'resmallerforthereasonsyououtlined.Insomecases,theyhappenmorefrequently.Theyaresmallerbuthappenmorefrequently.

Andit'snotjustsoftwareupdatesthataredriversoftrafficvolumes.Videodeliveryisadriveroftrafficvolume.Socialmediaisadriveroftrafficvolume.Gamingisadriveroftrafficvolume.

Softwaredownloadactivityisbutoneofseveralgrowthdriversontraffic.You'llseevariabilityinsoftware




trafficvolumesbasedonfrequencyandsize.Andwhatwasyoursecondquestion?


Justtofollow-uponthat,encodingwastheotherthingImentioned.Facebook'sheadofnetworkengineeringactuallyspokeatF8andmentionedthatbecauseofimprovementsinencoding,they'reactuallyabletoreducethesizeoftheirvideofilesnowby20%.So,thatgetstotheotherthing.There'sfilesizesandsoftwaredownloads,buttherealsoseemstobeimprovementsinencodingthatmightbeimpactingsomeofthefilesizesofvideothatusedtogettransferredversuswhatmaybetheyweretwoyearsago.Sothat'sonethingthatIwonderifyouhaveacommenton.

Andthentheotherwouldbe,clearlyeveryone'saskedaboutthesetoptwocustomersandthetrajectoryinthebackhalfofthegear.WhatI'minterestedinis,12to18monthsagotherewasconcernsoverDIYanditwasalwaystalkedaboutthatyoujustgetabetterexperience,whichyoudo,usingAkamai.So,unlikelythattheseguyswouldmakesuchboldstepstobringasmuchin-house.There'ssomeconcernthatwegetfrompeoplethat,what'stostopthethirdandfourthlargestcustomersthatyouhavenowfromembarkingdownthesamepath?Aretheyjustsofarawayfromhavingtheleveloftrafficatthetoptwothatit'sjustnotaviableopportunityforthem?

T omLeighton (CEO):

Good.Letmetakethosetwoquestions.Thefirstoneis,there'salwaysimprovementsinvideocompressiontechnology.AndIthinktheimportantthingtolookatistheincreaseinbitratebecauseyouneedahigherqualitypicture,combinedwiththedecreaseinbitratebecauseyou'vegotbettercompression.Youmentioneda20%improvementincompression.Thatpalesincomparisontotheincreasingbitratesthatweareseeingbecausepeoplewantahigherqualitypicture.

Infact,ifyoutakethecombinationofstate-of-the-artqualitypicturecombinedwithstate-of-the-artcompression,andtheCAGRofthatnet,foryearsitwasgrowingbutataslowerrate,andnowwe'reseeingitactuallyaccelerateonthecumulativegrowthrate.So,takingthestate-of-the-artcompressioncombinedwithtypicalbitratesthatpeoplearewatching,actuallyit'sgrowingperminuteofvideowatched,andgrowingnowatafasterratethanithasinthepast.

Ontopofthat,youhavepeoplewatchinglongerandmorecontentmovingonline.So,theneteffectisactuallymuchfastergrowthrateinaggregatetrafficbeingconsumedforvideoonline.Youcantakeasanexample,theSuperBowlstatsthatwegave.Weareseeingthatkindofgrowthprettymuchacrosstheboardinvideo.

Now,toyourthirdquestionaboutDIYandcanthatgotothethirdandfourthlargestcustomers.Infact,ourthirdandfourthlargestcustomershavehadDIYforoveradecade.Infact,oneofthemactuallysellsaCDNservice,yettheystilluseustodelivertheircontentfortheirwebsite,andtheyuseustodelivertheirvideos.Theyhaveverylargewebsitesandaverylargevideobusiness,andtheyuseustodeliverthatdespitethefactthattheyactuallyoperateaCDNservice,andhaveforthelastdecade.

Theotherproviderusesus,aswell,despitein-houseeffortsthey'verunovertheyears.Infact,ourshareoftheirbusinesshasincreasedduringthissameperiodbecausetheyseethequalitydifferenceandthecostdifference.DIYcanseemlikeagoodideaatthetime.Maybetheycansavesomemoneybringingitin-house,ortheythinkthat,butthenafterafewyearstheydiscoverthat--oh,mygoodness,Akamaiisdoingitwithalotlesscostandwithalotbetterperformance.So,oursharehasactuallyincreasedinthethirdandfourthlargestcustomers.

There'snottoomanypastthetopfourthatactuallycanevenaffordtothinkaboutdoingtheirowndelivery.Yes,weareexperiencingsomelosstoDIYinourtoptwoaccountsnow.Ithinkthetimeframefor




whenthathappensisbounded,asJimsaid,theimpactitwillhaveonourbusiness.Andthenyou'llseeourcumulativegrowthratesreturntowherethenormoftherestofthebusinessis.


Great.Thankyou.

Operator :

EdMaguire,CLSA.

EdMaguire (Analyst-CLSALimited):

Hi,goodafternoon.I'mintriguedbytherolethatyoursoftwareon100millionendpointsisplayinginyourabilitytoreinincostsacrossthenetwork.Couldyoutalkaboutwhatyouareaccomplishingwiththatfootprintofsoftwareandwhetherthatisactuallyhavingthedesiredimpactofhelpingyoureinincostsofcontentdelivery?

T omLeighton (CEO):

Yes.Whenitisactivelyused,itsubstantiallydecreasesourcosts,andwepassalotofthatsavingsontoourcustomerthat'smakinguseofit.Theusagetodaydependsonthecustomer.Also,ithelpsusalotwithquality.Infact,weuseditinthebroadcastat4K,whichisveryhighqualitylevels.Itreallyhelpstohavetheclientsidesoftwaretoenablethat.So,itmakesqualitybetteranddecreasescost,andwhenweuseit,it'sasubstantialdecreaseincost.

EdMaguire (Analyst-CLSALimited):

Great.Thankyou.

Operator :

WillPower,RobertBaird.

WillPower (Analyst-RobertW.Baird&Company,Inc.):

Great,thanks.Justtofollowuponsomeoftheguidancecommentary,Jim,Ithinkyouhadalludedtolimitedsecond-halfvisibility.Ijustwantedtoclarify.Isthatmorelimitedthisyearoristhatfairlyconsistentwithwhatyou'dnormallyseethistimeofyearasyouthinkaboutthesecondhalf?

JimBenson (CFO):

No,it'sprettyconsistentwithwhatwe'vetoldyouallalong.Ourvisibilitywithinthequarteriscertainlymuchbetterthanourvisibilityoutbeyondthat.AsImentionedearlier,weknowofspecificevents,liketheOlympics,likeapresidentialdebate,andweknowofscheduledactivitiesthatcustomershaveforpotentialgamingreleasesandthingsofthatnature.Thevisibilitywithinathree-monthwindowiscertainlymuchbetterthanbeyondthat,butit'snodifferentthisyearthanitwashistorically.


Okay.That'shelpful.Andthenjustmaybequicklyonthesecuritybusiness,obviously,stronggrowthagain.Anywaytoquantifyhowimportantthenewbotproductwastothatgrowth?Andanyothercoloronthekeydriverswithinthatsegment?

T omLeighton (CEO):




Wehaven'treallyseenrevenuefromityetbecausewejustlaunchedit.Butthereissubstantialcustomerinterestinthatcapability.AndIdoexpectittostartcontributingtoourrevenuesandrevenuegrowthinsecuritygoingforward.Butthe47%year-over-yeargrowth,that'sfromtheproductswehadbefore.AndBotManagerandtheotherproductsintheroadmapwillhelpsustainthatgrowthrategoingforwardandhelpusgrowrevenuesforthesecurityproductsinthefuture.


Okay,thankyou.

Operator :

SameetSinha,B.Riley.

SameetSinha(Analyst-B.Riley&Co.):

Yes.Thankyouverymuch.Acouplequestions.Intermsoftheenterprisebusiness,youjustputaseniorexecutiveinplaceasgeneralmanagerthere.Yourrevenuegrowthisthere,butit'sstillprettysmall.Whatarethekeysuccessmetricsthatyouputinplaceforthisbusiness?Obviously,you'vebeenworkingonitforacoupleofyears.Atleastinmyopinion,itprobablycouldhavebeenbiggerthanwhatwehadthoughtacoupleyearsback.So,ifyoucanelaborateonthat.

Andthesecondquestionis,obviouslyweareseeingtheDIYhappeningatacoupleofcustomers.Whataretheapplicationsthatareeasytobringin-house?AndinthatcontextcanyoutalkaboutOTTanddoesithavecharacteristicsthatmakeitverydifficulttoachievein-house?Thankyou.

T omLeighton (CEO):

Ontheenterprisebusiness,Ithinkthesuccessmetricswouldbearoundtheproductsthatwe'reintheprocessofbringingtomarket.So,forenterprisesecurity,thatwouldbeourrecursiveDNSservice,whichwillbedesignedtoblockmalware,phishingattacks,andblockingexfiltrationofsensitivedatafromtheenterprise.We'llbewatchingthatproductlaterthisyear.So,youwouldlooktosee--andwe'llbelookingtosee--theadoptionrateofthatcapability.

Wewillalsobebringingtomarketearlynextyearourcloudconnectedbranchproduct,whichisenterprisenetworkingcombinedwithasecurewebgatewayfunctionality.Andthat'sdesignedtomaketheenterprisenetworkscaleinamuchbetter-performingway,inamuchmorecost-effectivemanner.So,wewouldbelookingtoseetheadoptionratesthere.Ithinkthepotentialinbothofthoseareasisverylarge.Butyou'reright,we'reattheveryearlystagesandwehavetoseehowsuccessfulwearewiththoseproductsinthemarketnextyear.

IntermsofDIYandthetoptwoaccounts,Ithinkyouwouldlookatthingsthatareeasiertodeliver.Forexample,software,maybevideosondemandbutshortform.It'snotOTT.AndIthinkasyouthinkaboutOTT,Idon'tseethatasaDIYthingtoday.Itismuchhardertodo,particularlyintheliveandlinearformats,particularlyinthehigher-qualitythatyou'llwanttohavewhensubscribersareactuallypayingtoviewthecontent.That'sawholedifferentgame.There'salotyouhavetodo.

TodayAkamaiisinagreatpositiontoprovidethatquality,justoneexamplebeingthefirstbroadcastof4K.Butingeneralsustainingveryhighbitrates,verylowre-bufferratesatscale.That'swhatyouneedforOTTdelivery.Andthat'swhyalotofthecompaniesthataredoingOTTareturningtoAkamaitodoit.

SameetSinha(Analyst-B.Riley&Co.):

Great.Thankyou.




Operator :

GrayPowell,WellsFargoSecurities.

PriyaParasuraman (Analyst-WellsFargoSecurities):

Thanks.ThisisactuallyPriyaParasuramaninforGray.Justaquickone.Couldyoutalkaboutthetractionyou'reseeinginthemobileperformancesolutionset?Thankyou.

T omLeighton (CEO):

Yes,verygoodstrongtraction.Andwewereverypleasedtoseethatwenowhavecrossedthe1,000customerthresholdforourIonproduct,which,ofcourse,deliversthebestpossibleperformanceacrossallofyourwebassetsbutisreallyfocusedonmobileacceleration.So,verystrongtractionthere.

And,ofcourse,that'snotsurprising.Aswetalkedabout,todayalotofourcustomershaveoverhalfoftheirtransactionsgoingtomobiledevices.Itisaparticularlychallengingareaforperformance,particularlywhenthemobiledeviceisusingacellularnetwork.Ironically,that'swhereusersexpecttogetthebestperformance.So,Ithinkthat'swhysomanyenterprisesareturningtoAkamaiandbuyingIonfortheirmobileassets.

PriyaParasuraman (Analyst-WellsFargoSecurities):

Thankyou.

Operator :

JeffVanRheewithCraig-Hallum.

Jef f VanRhee (Analyst-Craig-HallumCapitalGroup):

Great.Onerealquickoneforyou.Salescapacityasyouentertheyear,howareyouthinkingaboutsalescapacityadditionsfor2016?

JimBenson (CFO):

Ithinkwesaidwhenwe'vesharedbeforethatwhenwestartedinvestinginaverysignificantwayinsalesacoupleyearsago,wewereprovidingongoingupdatesaroundhowweweredoing.AndthenIthinkwhatwesaidisit'srunratenowinthebusinessandthatit'snotnoteworthytobetalkingaboutinvestmentsofaspecificamountinanyparticulararea.Youcanexpectthatwewillcontinuetomakeinvestmentsacrossallareasofthebusiness,includinggo-to-marketcapability.

Jef f VanRhee (Analyst-Craig-HallumCapitalGroup):

Okay,thanks.

T omBarth (InvestorRelations):

Thankyou,Jeff.Andthankyou,everyone,foractuallyaverygoodsetofquestionsthisquarter.Inclosing,wewillbepresentingatanumberofinvestorconferencesandeventsinMayandJune,anddetailsofthesecanbefoundontheInvestorRelationssectionofAkamai.com.Thankyouforjoiningus,andhaveagreatevening.

Operator :

Ladiesandgentlemen,thankyouforyourparticipation.Thisdoesconcludetoday'sprogram,andyou




mayalldisconnect.Everyone,haveagreatday.

Allrightsreserved(c)2014TheStreet,Inc.

Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.

THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.

THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.

Documents

Akamai Technologies (AKAM) Earnings Report: Q1 2016 ... · PDF fileAkamai Technologies (AKAM) Earnings Report: Q1 2016 ... Akamai disclaims any obligation to ... I'm also pleased to