Akamai (AKAM) Q4 FY2025 Earnings Call Transcript

Date: February 19, 2026 | Source: VectorShift / Akamai IR (verbatim transcript)

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Mark Stoutenberg (Head of Investor Relations, Akamai): Good afternoon, everyone, and thank you for joining Akamai's fourth quarter 2025 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 those regarding revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on February 19th, 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 reconciliation of GAAP to non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Tom Leighton (CEO, Akamai): Thanks, Mark. I'm pleased to report that Akamai delivered strong fourth quarter results as we continued to make major progress in positioning Akamai for the future. Revenue grew to $1.095 billion, up 7% year-over-year as reported, and up 6% in constant currency. Non-GAAP operating margin was 29%, and non-GAAP earnings per share was $1.84, up 11% year-over-year as reported and in constant currency. Q4 revenue for cloud infrastructure services, or CIS, was $94 million, up 45% year-over-year as reported and up 44% in constant currency. That's an acceleration from the 39% growth rate we achieved in Q3.

The rapid growth was broad-based within CIS, driven by our ISV solutions, by infrastructure as a service and storage customers, and by customers leveraging EdgeWorkers and WebAssembly, which offer improved performance and lower costs for edge-native applications. In each of these areas, we're starting to benefit from AI-related tailwinds as customers make greater use of AI applications and agents across their businesses. Last quarter, Akamai took a major step toward the future with the launch of Akamai Inference Cloud, our platform to support the growing demand to scale AI inference on the internet. Akamai's architecture uniquely positions us to power and protect AI the way we power and protect the web, by bringing AI physically close to users, enabling the faster performance and global scale needed to unlock AI's full potential.

We believe the AI market is entering a critical transition point, the first inning of a long game to come, where inference or the execution of queries against a trained model is the new frontier. This requires purpose-built infrastructure to enable distributed, low latency, globally scalable AI at the edge, with response times measured in a few tens of milliseconds. Akamai Inference Cloud does just that by incorporating NVIDIA Blackwell GPUs into Akamai's distributed cloud infrastructure, with its unparalleled global reach and security at the edge. This enables intelligence to run instantly, securely, and exactly where it's needed, right next to the user, agent, or device. As evidence of our strong momentum, we're delighted to announce that we recently signed a four-year, $200 million commitment for our cloud infrastructure services with a major U.S. tech company at the forefront of the AI revolution.

I've had the privilege to work at Akamai for many years, and I have to say that it's really exciting to see such a pivotal player in the AI ecosystem choosing Akamai Inference Cloud for such a large AI use case. We also signed many other new and expanded contracts for our cloud infrastructure services in Q4. An AI chatbot platform based in India signed a three-year contract for our IaaS and Enhanced Compute Support solutions and saved 45% on compute costs they would have paid to a hyperscaler. A very well-known antivirus software company chose Akamai's cloud for their VPN service, telling us they liked our performance and support better than what they previously got from two of our cloud competitors.

A leading social networking platform that was using us on a pay-as-you-go basis committed to consolidate their multi-vendor stack onto Akamai's cloud platform, providing us with another takeaway from a hyperscaler. Two ad tech companies in China chose us for our significantly lower latency and dramatically reduced egress costs. One of the world's largest retail companies expanded their use of our edge compute platform to improve their digital shopping experience and increase conversion rates. As a result of the strong customer demand that we're seeing and the strong AI tailwinds across the marketplace, we anticipate that the very rapid growth rate for our cloud infrastructure services will accelerate further in 2026. Our security solutions also performed well in Q4, led by continued strong demand for our market-leading API Security and Guardicore Segmentation solutions.

Revenue from these high-growth security products grew 36% year-over-year as reported, and 34% in constant currency. Last month, Akamai was recognized as a Customers' Choice for network security micro-segmentation in the Gartner Peer Insights Report for 2026. Akamai earned a 99% recommendation rate, scoring above market norms for both user adoption and overall experience. Last quarter, we saw continued strong demand for our Guardicore Segmentation platform with both new and existing customers. One of North America's largest financial institutions purchased our segmentation solution to gain visibility and protection across all of their network assets as part of a four-year, $40 million contract. South Korea's largest mobile operator selected Akamai following the well-publicized BPFDoor security incident, which exposed gaps in east-west security and zero trust maturity. The customer chose our solution for workload-level segmentation, deep visibility, and resilient enforcement across hybrid environments.

We also signed deals for segmentation in Q4 with one of the largest carriers in the U.K., a major branch of the U.S. Armed Services, and multinational banks in North and South America and Scandinavia. In Q4, we also saw increased demand for our API Security solution, signing new customers across multiple verticals, including financial services, technology, healthcare, real estate, retail, and travel. Customers who chose Akamai API Security in Q4 included a major European automaker, a telco in the Middle East, as well as airlines serving Asia Pacific and Latin America. We also signed a five-year, $47 million commitment from one of the largest hardware companies in the world in a contract that included API Security and cloud infrastructure services, along with other Akamai offerings.

We had many other customers in Q4 who purchased multiple security products across our portfolio, including one of Asia's largest airlines, which signed a $10 million contract for multilayered protection over five years, and a three-year, $45 million renewal with one of the world's largest financial institutions to migrate nearly 100 critical applications away from hyperscaler security and onto the Akamai platform to ensure best-in-class DDoS and web application protection, high availability, and robust security support from Akamai Security Operations Command Center. Earning the trust of customers is imperative for Akamai. The world's biggest brands trust us to keep their apps performing well, even under peak traffic conditions. They trust us to protect them from myriad attacks and to keep their data safe, and they trust us for our reliability.

We saw how much this trust mattered to customers who relied on us during the recent holiday season, a time when one of our competitors took down their customers with multiple multi-hour outages. Major enterprises know who they can trust, and we're grateful for the trust that our customers place in Akamai. Last quarter, we were honored to be named by Forbes in their list of America's Most Trusted Companies and in their list of America's Best Companies for 2026. We were also honored by The Wall Street Journal, naming Akamai to its list of America's Best Managed Companies, the Management Top 250.

Before I hand off to Ed, I want to thank our employees and our management team for their achievements in 2025. Together, we're successfully executing on our ongoing transformation of Akamai into the cybersecurity and cloud company that powers and protects business online. We believe that the investments we're making today are enabling Akamai to do for cloud and AI what we've done for security and CDN, and enabling Akamai to grow even faster as a result. Now I'll turn the call over to Ed to say more about our results and our outlook for Q1 and the year. Ed?

Ed McGowan (CFO, Akamai): Thank you, Tom. I'm pleased to report that we delivered excellent fourth quarter results, with total revenue of $1.095 billion, up 7% year-over-year as reported, and up 6% in constant currency. We also delivered strong bottom line results, with non-GAAP EPS of $1.84, up 11% year-over-year as reported and in constant currency. Moving now to revenue. Compute revenue, which is comprised of the high-growth cloud infrastructure services, or CIS solutions, and our other cloud applications, or OCA, was $191 million, up 14% year-over-year as reported and in constant currency. For Q4, CIS revenue was $94 million, accelerating to 45% growth year-over-year as reported, and 44% in constant currency, a nice jump from 39% growth last quarter. CIS now represents approximately 50% of total compute revenue.

Moving to security. Revenue is $592 million, up 11% year-over-year as reported, and 9% in constant currency. Revenue from API Security and Zero Trust enterprise security combined was $90 million, an increase of 36% year-over-year and 34% in constant currency. Notably, API Security grew by more than 100% year-over-year, exiting the year with a revenue run rate exceeding $100 million. Security revenue was driven by strength of our high-growth product suites and a favorable tailwind from term license revenue. For the fourth quarter, license revenue rose to $18 million, up from $12 million in the same period last year. As a reminder, our term license agreements are generally for one to three years, and we continue to maintain exceptionally high renewal rates in our term license business.

Moving to delivery. Revenue is $311 million, down 2% year-over-year as reported, and down 3% in constant currency. These results highlight the continued steadying trends we have seen in our delivery business throughout 2025. International revenue was $542 million, up 11% year-over-year or up 8% in constant currency, representing 50% of total revenue in Q4. U.S. foreign exchange fluctuations had a negative impact on revenue of $5 million on a sequential basis, and a $12 million positive impact on a year-over-year basis. Moving to profitability. In Q4, we generated non-GAAP net income of $270 million, or $1.84 of earnings per diluted share, up 11% year-over-year as reported and in constant currency. This better-than-expected performance was primarily driven by higher-than-expected top-line revenue in the fourth quarter.

Finally, our Q4 CapEx was $154 million, or 14% of revenue. Moving to cash and our capital allocation strategy. As of December 31st, our cash, cash equivalents, and marketable securities totaled approximately $1.9 billion. During the fourth quarter, we did not repurchase any shares. For the full year of 2025, we spent $800 million to buy back approximately 10 million shares, marking the largest annual buyback in our history. As it relates to the use of capital, our intentions remain the same, to continue buying back shares over time to offset dilution from employee equity programs and to be opportunistic in both M&A and share repurchases. Now, before I provide Q1 and full year 2026 guidance, I want to touch on some housekeeping items. First, as Tom pointed out, we recently signed our largest compute customer contract.

We're very excited that this technology company has committed to a minimum four-year spend of approximately $200 million on our cloud infrastructure services, with a large majority of that spend for our AI inference cloud. We expect to start recognizing revenue from this contract in the fourth quarter of 2026. Second, to capitalize on this transaction and the AI inference cloud pipeline, we intend to invest approximately $250 million of CapEx this year to augment AI inference cloud. Third, we have recently observed significant inflationary pressure within the computer hardware market due to unprecedented industry investment in AI. Specifically, we are seeing a dramatic increase in the price of memory chips, which is driving up the cost of servers. This supply constraint has necessitated an upward adjustment to our CapEx forecast of approximately $200 million for 2026.

Next, I want to remind you of some typical seasonality we experience in operating expenses throughout the year. First, we recently completed a targeted reduction in our workforce to better align our talent with our long-term growth priorities. While this action streamlined certain areas and reduced our OpEx, we do not anticipate it generating net savings for the full year. Instead, we are reinvesting those savings directly back into the business, specifically to scale our go-to-market efforts and to support our colocation and CIS infrastructure requirements to maximize our growth opportunities. In Q4, we took a $55 million restructuring charge that was primarily comprised of severance costs and impairments of certain intangible assets. Second, looking at the first quarter, we typically see a seasonal increase in expense. This is driven by higher payroll costs resulting from the reset of Social Security taxes for employees who maxed out in 2025, and stock vesting from employee equity programs, which tend to be more heavily concentrated in the first quarter.

Third, as we look to the second quarter, we expect operating expenses to remain relatively flat on a sequential basis. The savings realized from our restructuring and the roll-off of the higher Q1 payroll taxes will be offset by our annual merit cycle, which takes effect on April 1st. Moving to FX. Foreign currency markets are expected to remain volatile throughout 2026. As a reminder, we have approximately $1.3 billion in revenue that is denominated in foreign currency. Largest currency exposure on revenue includes the euro, the yen, and the Great British Pound. Finally, as previously noted, cloud infrastructure services now accounts for approximately 50% of our total compute revenue and is growing rapidly. Recognizing CIS as a primary growth engine and a significant focus of our investments for the compute business, we will begin reporting it as a standalone revenue category effective in the first quarter of 2026. For simplicity, we will consolidate delivery and other cloud apps into a single reporting category starting in Q1. To assist with your year-over-year analysis and financial modeling, we have published eight quarters of revenue history for these revenue categories and the supplemental schedules as part of today's reporting package on our Investor Relations website. In addition, for added transparency, we will disclose quarterly revenue for OCA independently for the remainder of 2026.

Now moving on to guidance. For the first quarter of 2026, we are projecting revenue in the range of $1.06 billion-$1.085 billion, up 4%-7% as reported, or 2%-5% in constant currency over Q1 2025. We expect Q1 revenue to be lower sequentially from Q4, driven by the following factors. First, reduced one-time license revenue in Q1 from Q4 levels. Second, two fewer calendar days in Q1 compared to Q4, thus two less days of usage revenue. And finally, less seasonal traffic in Q1 compared to Q4. The current spot rates, foreign exchange fluctuations, are expected to have a +$4 million impact on Q1 revenue compared to Q4 levels and a +$22 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 71%-72%.

Q1 non-GAAP operating expenses are projected to be $339 million-$348 million. We anticipate Q1 EBITDA margin of approximately 39%-41%. We expect non-GAAP depreciation expense of $145 million-$147 million, and we expect non-GAAP operating margin of approximately 26%-27%. With the overall revenues and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.50-$1.67. The EPS guidance assumes taxes of $57 million-$60 million, based on an estimated quarterly non-GAAP tax rate of approximately 19%. It also reflects a fully diluted share count of approximately 148 million shares.

Moving on to CapEx. For the reasons I highlighted earlier, we expect to spend approximately $254 million-$264 million in the first quarter. This represents approximately 23%-25% of revenue. Looking ahead to the full year for 2026, we expect revenue of $4.4 billion-$4.5 billion, which is up 5%-8% as reported, and 4%-7% in constant currency. Moving on to security. We expect security revenue to grow in the high single digits on a constant currency basis in 2026. For cloud infrastructure services, or CIS, we project revenue growth to accelerate to 45%-50% year-over-year. We expect this momentum to build throughout the second half of 2026, driven mainly by the scaling of AI inference cloud business.

For delivery and other cloud apps, we expect both will decline in the mid-single digits year-over-year. Specific to delivery, we expect the revenue to decline in mid-single digits for the year, with Q1 being slightly higher due to the wraparound impact of the Edgio transaction from last year. By way of comparison, and for consistency with 2025, using our former compute reporting methodology, we expect the combined growth of CIS and OCA to be at least 20% year-over-year. At current spot rates, our guidance assumes foreign exchange will have a +$36 million impact on revenue in 2026 on a year-over-year basis. Moving on to operating margins for 2026, we are estimating non-GAAP operating margin of approximately 26%-28%, as measured in today's FX rates.

Questions & Answers

Sanjit Singh (Morgan Stanley): Thank you for taking the questions, and congrats on a very strong Q4 results. Ed, you provided a lot of great detail on the dynamics around CapEx as well as the momentum you're seeing within the CIS business. When I look at the increase in CapEx, and it's roughly coming up by, I think, $270 million. Going back to the discussion that we've had in prior quarters, that roughly a dollar of CapEx equals a dollar of revenue, does that still hold? And as we think about this increase in CapEx, how should we think about that translating into revenue from a timing perspective, both this year and then maybe going beyond 2026?

Ed McGowan (CFO, Akamai): Yeah. Hey, Sanjit, thanks for the question. Obviously I talked about having some inflation in memory chips. Hopefully, that is something that doesn't last for a long time. So that obviously skews your CapEx a bit, and as I talked about, most of that is affecting your compute because there's a lot more memory in those servers. So $1 of CapEx for $1 of revenue would not hold true for this particular buying CapEx, but it's not that far off. Generally speaking, we're seeing something roughly like that. Obviously, for larger deals with longer commitments, we will offer volume discounts, but for some stuff, you might get a slightly better return. Like, for example, we'll be launching a rental service where you can rent GPU by the hour, starting sometime later this quarter, where the list price for that's $250, so that would work out a little bit higher. But generally speaking, it's a decent number to work with. I'd model it a little bit lower for this year, just given that we've seen higher CapEx costs associated with the memory prices.

Sanjit Singh (Morgan Stanley): Understood. And then just one follow-up on the Akamai Inference Cloud opportunity. Really encouraging to see that four-year deal with a major tech company. Can you speak a little bit about the pipeline? I know we have some really big customers looking at the opportunity, but just in terms of the breadth of interest, pipeline, any color you can provide there on potential more customers signing up for the service?

Tom Leighton (CEO, Akamai): Yeah, pipeline, very strong. In fact, the inference cloud offering we announced in the fall, where we deployed the GPUs into 20 cities, that's already sold out, even though it's not generally available yet, just from the beta customers. Now we're ramping up the investment there, as Ed mentioned, and very strong pipeline. In fact, with the large customer we talked about already committing to take over a substantial portion of that. The areas of interest are broad. At a high level, obviously, inference applications, also post-model training, but specifically, things like transcoding, real-time translation, generative media, to generate images and video on the fly. The new Blackwell GPU is very good at doing that with much lower latencies. Vision processing, customer support bots, all sorts of gaming applications, streaming, rendering. In commerce, virtual fitting room kinds of applications. A lot of robotics and autonomous vehicle kinds of applications — areas that these folks might not traditionally be Akamai customers, now potentially large compute customers. Generally, the field of local LLMs is great because that's the kind of thing you'd wanna do on inference cloud and have it done close to where your employees are. So we're very enthused about what we're seeing so far, and a lot of potential for growth for us.

Mike Cikos (Needham): Hey, team. Thanks for the questions here, and congrats on the strong end to 2025. The first question I had for you, on that major U.S. tech customer, can you help us think about how this came together? We're talking four years and the $200 million minimum commitment. Was this a new logo to Akamai, or were they a previously existing customer within CIS or another portion of the Akamai portfolio?

Ed McGowan (CFO, Akamai): Sure, I'll take this one, Tom. The good news, it was an existing customer. It wasn't one of our largest customers, though. This was somebody who was using us for CDN and security, and then had discussions with them going for several months now on a pretty exciting workload. We're not at liberty to disclose who it is, but the good news is, existing customer who has dramatically increased their spend, and we hope there's a lot more business to do with them.

Mike Cikos (Needham): That's excellent, and I appreciate that, Ed. I guess the follow-up on Sanjit's final question. But when thinking about the capital intensity here, and I really appreciate the disclosure. How do we think about the level of CapEx you guys are deploying here? Are you changing in any way how you're sourcing servers or buying hardware versus where we've been previously, just given the heightened price components that we're seeing out there on the market?

Ed McGowan (CFO, Akamai): The capital intensity isn't necessarily increasing for any other reason than we're seeing significant demand for CIS. So that's the major driver. And making that purchase of $250 million for the inference cloud is very well informed. As Tom mentioned, it's great to have one customer who's taking a good chunk of that, and having that committed is just a great opportunity for us to put that capital to use. In terms of the complexity of what we're doing or what we're buying changing, no, not really. We're buying mostly servers and networking equipment and things like that. We are looking at trying to reduce the impact of the memory chip increase in cost, so we're looking at sourcing things differently from different sources. But generally speaking, there isn't really any significant change. As far as our co-location posture, we're still using third-party colo providers. Hopefully, as I broke out the different components, if you take out the $200 million for the price increases, and then if you look at that purchase of the AI inference cloud as something that we did that was a little different than last year, the normalized CapEx is kind of at the lower end of what our range typically would have been. So this is a good kind of capital intensity increase when you have a chance to fuel a business that's growing as fast as CIS is.

Rishi Jaluria (RBC): Oh, wonderful. Thanks so much for taking my questions. Nice to see the acceleration in the CIS business at scale. Maybe two questions, if I may. Number one, if I start to think about some of the success that you're having on CIS, it sounds like you're having that with existing Akamai customers that may have used you for delivery and or security or a combination above. Maybe can you help us understand whether the total ACV with those customers is growing meaningfully as a result of this? In other words, is this actually being additive to those customers' total bills?

Ed McGowan (CFO, Akamai): It's certainly additive. We're not horse trading any delivery for compute or anything like that. As a matter of fact, this particular large customer was done out of cycle, so it wasn't even done as part of a renewal, so it's all 100% additive. We're having good success with existing customers, but also with new customers. Tom talked about the pipeline. What's interesting with that pipeline is we are starting to see verticals we don't typically are strong in from a legacy perspective as far as CDN goes. We see partners bringing us new business, and there's really a mix in that pipeline of new and existing customers. I've actually seen total new customer count pick up over the last year and a half or so, and I think a lot of that has to do with having CIS as an offering that's more broad.

Rishi Jaluria (RBC): Got it. That's helpful. And then, maybe I'd be a little remiss if I didn't ask about some of the one-time factors going on in calendar year 2026. As you think about your guide for the year, can you help us understand what are your assumptions in terms of the major events happening between the Winter Olympics going on right now, the FIFA World Cup in the summer, some big AAA gaming releases?

Ed McGowan (CFO, Akamai): If you think about events, they come in different flavors. Small events like a live concert or a Super Bowl tend to be very small revenue — maybe a root capacity reservation fee of $500,000-$1 million. Something like the Olympics, three weeks long, is a few million dollars, depending on how many rights holders you have. It's not a huge jump, and doing $1 billion+ a quarter, it's fairly insignificant to the quarter. It's good business, so we'll take it. Something like the World Cup is a little bit longer, so you'll probably see maybe 5-6 [million]. But again, nothing overly material. And then things like an NFL season, much better — you generate a lot more revenue there from a number of different customers. It really depends on the length of time and the number of people that have rights. If you see a new console refresh cycle, that's a much bigger impact for us because you're talking now about hundreds of millions of consoles getting firmware updates. So it's nice to have them, but it's not overly material for the year.

Roger Boyd (UBS): Great. Thanks for taking the questions and congrats on a good end of the year. I wanted to ask about the handful of larger CIS deals that you had noted last year as being delayed out of the back half of the year. Can you just update us on how those are progressing and maybe how those are embedded into the 2026 guide? I think you mentioned the $200 million deal you signed this quarter will start to ramp in the fourth quarter. At a high level, can you just talk about the typical ramps you're seeing in compute? Is any part of this a result of capacity constraints, and do you expect to see these ramps on the compute deals get shorter over time?

Ed McGowan (CFO, Akamai): It really depends. Some we can get up and running pretty quickly. It really just depends on the size of the transaction, and if there's any specific geo where we may need to get some additional colocation. The colocation market is tight, but we've got — we're a big buyer of colocation, so we're doing pretty well there. We did see some of the larger workloads ramp up at the end of last year, and we've modeled in what we think those will do. This particular really large deal will start ramping in Q4. Part of that is we have to order all the chips, put them in place, get some space, so it just takes a bit to ramp that up. GPUs are a pretty tight supply chain, but we're able to get those out and launched here. So we've modeled in a variety of different outcomes in terms of our guidance range. If the bigger the deal, usually takes a little bit longer to ramp, and in some cases, people can get up and running very shortly.

[Remaining Q&A continues with security/AI attack-landscape, delivery/scraper-bot, and CIS reporting-category discussions.]

Vijay Homan (Craig-Hallum): Got it. Very helpful. Thank you.