Akamai Technologies Inc ($AKAM) Q1 2026 Earnings Call

Good morning and welcome to the Q1 2026 Akamai Technologies Inc. Earnings Conference Call. All participants will be in the listen-only mode. Should you need assistance, please signal the conference specialist by pressing the star and zero on your touch-tone telephone. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your question, you may press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Mark Stoutenburg. Thank you and over to you.

Good afternoon, everyone, and thank you for joining Akamai's first quarter 2026 earnings call. Speaking today will be Tom Leighton, Akamai's Chief Executive Officer, and Ed McGowan, Akamai's Chief Financial Officer. Please note that today's comments include forward-looking statements that include revenue and earnings guidance. These forward-looking statements are based on current expectations and assumptions that are subject to certain risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied. The factors include, but are not limited to, any impact from macroeconomic trends, the integration of any acquisition, geopolitical developments, and other risk factors identified in our filings with the SEC. The statements included on today's call represent the company's views on May 7th, 2026. And we assume no obligation to update any forward-looking statements. As a reminder, we will be referring to certain non-GAAP financial metrics during today's call. A detailed GAAP to non-GAAP reconciliation is available in the investor relations section of akamai.com under financials. With that, I'll now hand the call off to our CEO, Dr. Tom Leighton.

Thank you, Tom. Before I get started and to build on Tom's remarks, I want to personally underscore my excitement regarding the $1.8 billion new customer win announced today. This is a powerful validation of the Akamai value proposition in the age of AI and a clear indicator of the scale at which we can operate. To fully capitalize on this momentum and support the accelerated growth we anticipate, we will be investing slightly ahead of revenue. You will see this reflected in the updated capital expenditure and operating margin outlook I will discuss during the guidance portion of my remarks. We view these investments in our CIS portfolio as critical to ensure we have the foundation to meet the significant demand we see on the horizon. Also, driven by today's announced $1.8 billion win, the $200 million 4-year CIS deal we announced last quarter, and our rapidly accelerating pipeline, we now expect total company annual top-line revenue growth to reach double digits in 2027. We look forward to sharing more details in the coming quarters. Clearly, this is an incredibly exciting time for Akamai. With that, let's dive into the Q1 results. We delivered strong first quarter results with total revenue of $1.074 billion, which was up 6% year-over-year as reported and 4% in constant currency. Cloud infrastructure services or CIS revenue got off to a robust start to the year with revenue of $95 million, up 40% year-over-year as reported and 39% in constant currency. As Tom noted, we are seeing CIS wins across a wide spectrum of industries, geographies, and use cases. Even more encouraging, the pipeline for AI-specific use cases is building rapidly. We also maintained very strong momentum in security with revenue of $590 million, up 11% year-over-year as reported and 9% in constant currency. The strength in the first quarter continued to be driven by our fast-growing API security and Guardicore segmentation solutions, along with strong growth from our largest product, web application firewall. Moving to delivery and other cloud applications, revenue was $389 million, down 7% year-over-year as reported and down 8% in constant currency. These results were in line with expectations, driven by the wrap-around impact of the Edgeio transaction in 2025. We expect this effect in the rate of decline to moderate throughout the remainder of the year. International revenue was $530 million, up 9% year-over-year or up 5% in constant currency, representing 49% of total revenue in Q1. Foreign exchange fluctuations had a positive impact on revenue of $2 million on a sequential basis and a positive $19 million on a year-over-year basis. Moving to profitability, in Q1, we generated non-GAAP net income of $239 million or $1.61 of earnings per diluted share, down 5% year-over-year as reported and in constant currency. These results include our expanded colocation investments, higher depreciation, and increased headcount costs, all tied to our strategic investment in cloud infrastructure services during the first quarter. Our non-GAAP operating margin for Q1 was 26% in line with our expectations. We expect operating margin to remain in this range for the remainder of this year as we ramp up our investment to capture the exciting growth opportunities ahead of us. Our Q1 CapEx was $206 million or 19% of revenue. First quarter CapEx was slightly below our guidance, primarily driven by timing and favorable pricing. Specifically, some expenditures shifted from Q1 into Q2, and we benefited from some lower than expected component costs. Moving to cash and our capital allocation strategy, during the first quarter, we spent approximately $206 million to buy back approximately 2 million shares. We ended the first quarter with approximately $975 million remaining on our current repurchase authorization. Our intention with capital allocation remains the same, to continue buying back shares to offset dilution from employee equity programs over time, and to be opportunistic in both M&A and share repurchases. As of March 31st, we had approximately $1.7 billion of cash, cash equivalents, and marketable securities. Now, before I provide Q2 and full year 2026 guidance, I want to touch on a few housekeeping items. First, for Q2, CapEx is expected to jump significantly as we start to take delivery of the NVIDIA GPUs we discussed on our last quarterly earnings call and we catch up on some of the CapEx that pushed from Q1 into Q2. Second, we expect to see an increase in operating expenses in the second quarter due primarily to continued investments in go-to-market and the impact of our annual employee merit cycle that went into effect on April 1st. Third, we anticipate revenue from the $1.8 billion customer win to start to ramp in Q4 and we expect to generate approximately $20 to $25 million of revenue in the fourth quarter. Finally, regarding CapEx for this win, we expect to spend a total of approximately $800 to $825 million over the next 12 months to support this customer. We expect to employ roughly $700 million of that total in the second half of 2026 with the remaining balance falling into the first half of 2027. Moving now to guidance, for the second quarter we are projecting revenue in the range of $1.075 to $1.1 billion, up 3 to 5% as reported and in constant currency over Q2 2025. At current spot rates, foreign exchange fluctuations are expected to have no material impact on Q2 revenue compared to Q1 levels and a positive $2 million impact year-over-year. At these revenue levels, we expect cash gross margins of approximately 70 to 71%. Gross margin is impacted by the significant increase in colocation as we accelerate the growth in our CIS business. Q2 non-GAAP operating expenses are projected to be 346 to 357 million dollars. We anticipate Q2 EBITDA margin of approximately 38 to 39%. We expect non-GAAP depreciation expense of 144 to 146 million dollars. We expect non-GAAP operating margin of approximately 25 to 26%. And with the overall revenue and spend configuration I just outlined, we expect Q2 non-GAAP EPS in the range of $1.45 to $1.65. This EPS guidance assumes taxes of 47 to 54 million dollars based on an estimated quarterly non-GAAP tax rate of approximately 18.5%. It also reflects a fully diluted share count of approximately 146 million shares. Moving to CapEx. For the reasons I highlighted earlier, we expect to spend approximately 433 to 453 million dollars in the second quarter. This represents approximately 40 to 41% of total revenue. Looking ahead to the full year 2026, we expect revenue of 4.445 to 4.55 billion dollars, which is up 6 to 8% as reported and up 5 to 8% in constant currency. For cloud infrastructure services, we are raising our outlook to at least 50% year-over-year growth in constant currency. We expect momentum in CIS to continue to build throughout the second half of 2026 driven mainly by the scaling of our AI opportunities and the impact of the two very large transactions we announced in Q4 and today. Also, we continue to expect security revenue growth in the high single digits on a constant currency basis in 2026. And for delivery and other cloud apps, we continue to expect a decline in the mid-single digits year-over-year on a constant currency basis. At constant spot rates, our guidance assumes foreign exchange will have a positive 20 million dollar impact on revenue in 2026 on a year-over-year basis. Moving to operating margin, for 2026 we are estimating a non-GAAP operating margin of approximately 26% as measured in today's FX rates. Turning to CapEx, at this time we anticipate our full year capital expenditures will be approximately 40 to 42% of total revenue including the $700 million impact from the $1.8 billion contract we mentioned earlier. Before I move on, I want to provide some additional color on our CapEx outlook. As Tom noted, the demand we are seeing for CIS including our GPU deployments is exceptional. Our current pipeline for GPUs significantly exceeds our existing and projected inventory, meaning we may place additional GPU orders in the second half of the year to meet this demand. This is not factored into our current annual CapEx guide. We will update CapEx guidance on a subsequent earnings call if we place another GPU order before year-end. Moving to EPS, for full year 2026 we expect non-GAAP earnings per diluted share in the range of $6.40 to $7.15. This EPS guidance includes the impact from the very large win. This non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% and a fully diluted share count of approximately 147 million shares. With that, I'll wrap things up and Tom and I are happy to take your questions. Operator?

Thank you. We will now begin the question-answer session. To ask a question, you may press star and one on your touch-tone telephone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and two. At this time we'll pause momentarily to assemble our roster. We have the first question from the line of Roger Boyd from UBS. Please, go ahead.

A question and congrats on a landmark deal there. Maybe if you can, Tom, just broad strokes about kind of the competitive set to win that deal. Are you going toe-to-toe with other hyper scalers or neo clouds? And anything you can provide on kind of the use cases? Is it inference? Is it agentic workloads? And when you think about your compute-enabled pops, just how is this customer leveraging the Akamai network as a whole? Thanks.

Excellent. And just on security, I wonder if you could unpack what you're seeing from a demand perspective there. And then a nice result in the first quarter. Just what are you seeing around conversion rates, sales cycles? Are you seeing more urgency from organizations that are thinking about ways to limit the blast radius and defend against kind of an AI fueled attack landscape. Thanks.

Very good. Thanks for the call.

Thank you. We have the next question from the line of Patrick Colwell from Scotiabank. Please go ahead.

Thank you so much for taking my question. I mean, this one's for Dr. Tom. I mean, when I think about Akamai, the value prop for the last 30-plus years has been the distributed architecture, 700 cities, 130 countries. When I think about this mega deal, is that a kind of highly distributed use case or should we think about it as being served from a few like sub-10 type data centers?

Yeah, and look, congratulations to you. I guess for the follow-up, please, and you made this kind of subtle point that there's a capex guide that might have to increase capex. And the capex...

Sorry to interrupt you, Patrick. Your voice is breaking. If you could probably go off the speakerphone, we would be able to hear you better.

Oh, thanks for that. I guess this follow-up is for Ed. I mean, Ed, you gave us a capex guide, but then you kind of give us this kind of subtle point that might have to increase capex further. Just help us understand that nuances of why there might be an increase in the capex mid-year, and what that might mean.

Yeah, so thanks for the question, Patrick. So, what I had mentioned was we have a very very strong pipeline for our GPU platform, and we're just starting to get the bulk of those chips up and running now, and we've got a very large pipeline. It exceeds what we have in inventory. So, obviously we want to prosecute that pipeline, start winning all those deals, converting that into contracts, etc. And then yeah, the reason I sort of hedged a little bit is one, we don't obviously fulfill that pipeline, but two, there is some time that it takes to get the chips. So, even if we were to place an order, it may slip into next year. So, what I want to do is just give it another quarter, and if in fact we're in a position to place an order and receive that by year end, we'll certainly do that and let you guys know. I see that as a very bullish comment. And again, I just didn't want to come up and surprise you with another, whatever it is, couple hundred million or whatever that the order may be without at least giving you some color behind that.

Crystal clear. Thank you so much, Tom and Ed.

Thank you. We have the next question on the line of John DiFucci from Guggenheim Securities. Please go ahead.

Thanks for taking my question. My first question is for Ed, and I have a quick follow-up for Tom. Ed, thanks for all the detail on CapEx. But when I think about the CapEx for this mega deal, and I think Patrick was kind of going here. I mean, this is over a long time, right? 7 years. Are you accountable, for example, like right now we're seeing higher memory costs than we would have thought of maybe a year ago? Are you like when you locked in this deal, do you also have the supply locked in, or are you exposed to that if that were to happen, I don't know, 2 years from now. Higher prices again on that.

Yeah, great question. So that, you know, I was fortunate enough to work very closely with the team on both sides of this transaction. So yeah, we've been able to get the supply chain ready. We anticipate receiving all the goods that we need to deliver this service over the seven years within the next 12 months. With obviously, you saw the way the CapEx was broken out with the majority of it this year. So we anticipate receiving a significant portion. Now there's always the potential for some slippage and delays, but we have mechanisms in our contracts to deal with if in fact, say six months from now prices were to go up. So we've taken that into consideration. We've got that taken care of. And the way this, from a revenue perspective, the way to think about this deal is it's a set amount of capacity that we're deploying. And there's no usage to it. It's a straight committed deal over seven years. So as soon as we ramp all the capacity up, we'll start taking the revenue for a full year. I expect, as I said, a little bit this year and then next year we'll get a partial year as we receive the remainder of what's to be deployed. And then from there it'll go on for the...

Okay, so that'll kind of look, even though it's a consumption, it'll kind of look like a subscription. Is that accurate?

Exactly. Yep, that's exactly the way to think about it.

Awesome. Okay, great. Thank you. And Dr. Tom, a component of your delivery business is video streaming. And in March we saw OpenAI, they confirmed they shut down their AI video generation system Sora. I'm just curious, do you expect that to have any effect on your delivery or compute business forecasts?

No. We partner with OpenAI on security vulnerabilities, helping to find them and protecting our customers for the associated attacks, but OpenAI is not and has not been a customer of Akamai. So, yeah, no impact on us at all.

Great. Okay, thanks. Nice job, guys. Thank you.

We have the next question on the line of Jackson Eder from Q Bank Capital Markets. Please go ahead.

Hey guys, this is Aiden Daniels on for Jackson Eder. Thanks for taking our question. With this big deal, you know, as you allocate capacity going forward, how can we kind of think about the impact on any amount of on-demand GPU capacity you're able to offer going forward? Like, how are you kind of balancing what you have committed from this deal with maintaining flexibility for newer incremental demand going forward? Thank you.

No, we support both on-demand, you know, per token or per VM hour access to our platform and also we support large tranche deals. And so, it's not really a matter at this point of trading off and as we need more GPUs, as Ed said, and that may well be the case, that we would purchase more.

Awesome. And then just one quick follow-up on I know you can't really talk too much about the deal, but I guess like how can we kind of think about the proportion of whether it's CPU or more of the GPU inference cloud going forward? Is there kind of like a framework we can think about with this deal?

With this deal, we can't comment on this deal. However, in general, with inference and AI, you need both, really. And part of the value we provide is that we can help provide the computational resource that's most appropriate for the workload that you have, which might be CPU, might be GPU, because you want to be as efficient as possible. And also, you want to have it be as close as possible to the user, so you get the best performance. So, it's a mix, and every application is different in the mix of CPU versus GPU that it needs.

We have the next question from the line of Fatima Bhulani from Citi. Please, go ahead.

Good afternoon. Thank you for taking my questions. Just a higher-level strategic question. You have opted to take more of a dedicated capacity approach in terms of satisfying demand and sort of supply constraints out there. I wanted to sort of dig deeper into why, simply because the spot rates and the market rates for what otherwise could be almost entirely a rental or GPU-as-a-service business are significantly more attractive. So, I just kind of wanted to get the vision and the thought process and the decision-making calculus around steering the network and the platform more towards larger customers, longer commits, and more dedicated capacity. And then, I had a follow-up as well, please.

Well, we do both. And the larger bigger deals with long-term commits are more attractive in many ways. You have the commit. And in the big deals, yeah, the pricing would be lower. But, we also support the on-demand where you can buy it by the token or the hour, and you get a little bit higher pricing, but there can be more expense associated with that, getting the customer on. If you have a rep engaged in the account. But both are attractive and we support both. So, it's not a matter of us doing one or the other.

Yeah, the one thing I would add there is that listen, just for team and just to jump in here for a second, the customers are really driving that. If I look at our pipeline, a lot of our customers want to have dedicated capacity, say a dedicated number of GPUs or whatnot. Because there is a scarcity in the marketplace. So, rather than going on a consumption basis, they can get slightly better pricing and lock in that capacity for themselves. So, it's really a market driven thing more than anything.

I appreciate that. And as since I have you, you telegraphed for us pretty nicely that, should the pipeline continue to grow and positively morph in the way you are seeing, you will be very open to continuing to throw down CapEx and bringing and lighting up metal lots online. But wondering, sources of funds and capital to fund these investments, is that something you feel you can intrinsically do from running the business or should we expect maybe other sources of the capital to be tapped as you build out with the bigger CapEx profile for some of these larger customers and their demand. Thank you.

Yeah, so far no issues as far as financing these build-outs from our own capital today. We're obviously a company that's very profitable, produce a lot of cash. Obviously, in the years we're investing big, cash flow will be a bit lower, but these things have phenomenal free cash flow, after you do the initial deployment. So, that's one of the attractive things. We, from a cash and equivalents, we have a billion seven on the books today. We also have a line of credit of a billion dollars if we need to tap it. And then obviously, we've got excellent credit and have no problem raising money in the capital markets if we need to. Right now, we haven't announced anything there and if we continue to get large deals and need to get capital, we'll certainly go to look to do that, but so far we've been able to use our own funds.

Thank you. We have the next question on the line of Mark Murphy from JP Morgan. Please go ahead.

Hey, this is Ardy Buell from JP Morgan. I'm filling for Mark Murphy. Thanks for taking the question. Great to see the momentum you're having with the large CI deals with companies on the AI technology frontier. You had a large deal last quarter, another one this quarter that dwarfed the one before it. So just at a high level, can you help us understand from your perspective like, it seems like all of a sudden you're getting some of these large deals. Has this been brewing for a while in the pipeline or have these been a little bit faster? What's changed that's brought a lot of this business to your doorstep seemingly pretty quickly from our point of view. And then as a quick follow-up to that, as you're dedicating the financial and operational resources to the CI and these large deals, does it change how you're thinking about other business segments? Thanks.

Well, this has been the strategy all along. So and we're very pleased to be executing against it. The goal has been to be deploying a distributed inference platform, distributed compute platform that would be desired by enterprises, really across the spectrum and with many large customers. And of course, Akamai's customer base does feature many of the world's largest enterprises. And as we've talked about before, they spend 10x or more on compute than they do on our traditional services delivery and security. So, this is exactly what we said we were going to do and now we're delivering those results. The platform is to a point where we can do that and I think you'll see more of this going forward.

We have the next question from line of Sanjit Singh from Morgan Stanley. Please go ahead.

Yeah, thank you for taking the questions and congrats on the biggest deal in company history. On that point, this might be a trivial question, but in terms of this $1.88 billion contract, is that more of a public cloud opportunity because I know part of the public cloud business also has a GPU component or was it specifically for Akamai's inference cloud? That was the first question and I had a follow-up.

Yeah, we really can't talk more about this particular deal, but obviously there are a lot of companies where we have signed contracts that we did talk about across the spectrum and those deals for our inference cloud and our cloud capabilities are for our GPUs and our CPUs. And it really is our ability to bring the right hardware for the particular application and have it located where you get the best benefit for the use of that application.

No, that's fair enough, Tom. My follow-up question is that actually goes to the delivery business and there's a lot of people in the market kind of debating about a potential new lever for growth in CDN and delivery in a world where you have millions, potentially billions of agents running around, calling tools, executing tasks, doing web searches. Has the team internally sort of revisited thesis around the secular growth prospects in delivery or is it still a business that you're mostly looking to harvest for profitability and gross profit dollars to fund the compelling opportunities in security and compute?

Yeah, great question. When you look at what is the proliferation of agents and what's coming, the biggest driver for growth is going to be the compute platform, the cloud platform that supports that and we're really well set up to do that. Next, you have a big security issue. Because AI and the agents are a whole new vulnerability surface that not only do you need your web app firewall, your API security, you need special security for AI. And so we get a real tailwind from STG for our security technology group there. Also, the agents are, you have to interpret what an agent is, who's behind it and what they want to do when you're delivering or protecting an application or a site or another agent. And the response you give is really tailored to what the customer wants you to do when an agent of this flavor comes and interacts with you. And so we developed a lot of capabilities there and they fall generally within our security capabilities. Now, in terms of delivery, yeah, there'll be some traffic that used to be human generated, now agent generated. Okay, that doesn't make a huge swing in the amount of bits you're delivering. That starts to change if you have agents dealing with video, generating video like you go to a commerce site and the user wants to see what do they look like in that sweater they're thinking of buying. And if you generate a video showing them wearing the sweater, that will improve the return for the site, and that generates a lot of traffic. And so, we're just at the very early days of seeing things like that. They're being experimented with now. That could generate more traffic for delivery. But the biggest impact for us is in the cloud business, and then next in the security business. Delivery really important, very synergistic with our whole platform approach. Does generate a lot of cash for us, and we're plowing a lot of that cash into the growth of the cloud business.

We have the next question on the line of Mike Cikos from Needham. Please go ahead.

Great. Thanks for taking the questions, guys, and congratulations on the strong quarter and the customer win. I just wanted to make sure I'm understanding the at least the mechanics of this deal. So, you signed a 7-year $1.8 billion commitment. Can we expect the full $1.8 billion to show up in RPO, or does that include anything as far as potential renewals? Is that all take or pay? Just anything to make sure we're understanding the mechanics of the deal.

Yeah, sure. So, I touched on this a little bit earlier that and there was a follow-up question around this notion of capacity, dedicated capacity versus pay by the hour. This is more of the dedicated capacity. So, as soon as we get the capacity set up, we will take the revenue ratably over the contract. As I said, we'll get some revenue this year, and a little bit not a full year next year, but a partial year next year, as we're still building up and getting the capacity up and live. In terms of the way you account for RPO, we'll see most of that in the next quarter, and then by the time we get everything delivered, it will be all in RPO eventually. There's just some odd mechanics with the first 12 months and how we're dealing with how we're receiving the goods and we talked about a pricing mechanism to handle if prices would go up or down, that sort of thing. So, there's a little bit of nuance in there, but once we get this fully up and running, you'll see it in RPO. There'll be some amount next quarter and then it will build from there.

Thanks for that. I appreciate you spelling out the mechanics there. And then for Dr. Leighton, just to make sure I'm clear as well and it's great to hear that your largest security product here with WAF is seeing some stronger growth, which I wouldn't have expected. Can you just tap into that one more time as far as what's driving that? Is it really this heightened environment that we're in or is there something else behind there?

Yeah, there's real advances in AI and it's getting much better at finding vulnerabilities and helping the attacker take over devices and penetrate enterprises. And you need our defenses now more than ever before. There's billions of devices out there that you can't patch. And now the adversary can find ways into those devices and take them over. And so as a result, we're seeing attacks much bigger than we've seen before. Literally application layer attacks from millions of distributed IPs with millions of attacks on a target per second. And you can't defend against that with just a WAF in a data center or anything close. You need the vast platform that we have to be able to intercept all that traffic and deal with it. Because you got to separate the bad stuff from the good stuff and there's a huge amount of the bad stuff now. So, our platform, the physical infrastructure, is needed more than ever before for our security services and our customers know that. And there is a heightened sense of urgency now because they know the attacks are getting more capable due to AI and larger in size because they can take over all these devices and launch the attacks from many more locations and so that's why we're seeing things like our web app firewall suddenly in a lot more demand. Now AI helps on the defense but doesn't solve that problem and so net net this is a very challenging time for CISOs and that's why they're turning to us to make sure everything that they have is protected by Akamai.

We have the next question in line to Frank Louthan from Raymond James please go ahead.

Yeah just to follow up on the question about the 1.8 billion how that's being booked is all of that going to come in as revenue will any of that be counted as paid for upfront CapEx or something like that and then also wanted to follow up and see how many locations do you have inference cloud built out to currently and what's the plan? Thank you.

So I'll take the first part Tom you can take the second. Yeah it's all revenue there's no offset to CapEx or anything like that so it's going to be all revenue.

Yeah and to the second part of the question we have inference cloud covers all of our 4300 locations. We have functions as a service running in a serverless way in all 4300 locations. We have our managed container service running in well over 100 cities and conceivably could run in all 700 cities, but active in well over 100 today. We've got full IaaS capabilities in several dozen cities, and a couple dozen of those are equipped with the new 6,000 GPUs. And the goal, of course, is to have all this orchestrated so that when there's an application or an agent that needs to be run, it's run on the most computationally efficient resource. If you can do it on an edge server with the existing CPU, fabulous, fast, very low cost. If you can do it on a container in the same city, in a CPU, great. If you need a group of GPUs in one of those couple dozen locations, okay. And again, so you want it to be on the most efficient resource, to be close to the user, and to already be ready to go. You don't want to have to spin it up in response to a request. And that's what our orchestration layer is designed to make possible. And this is how it fits in with the same the vision from Nvidia with the AI grid. You think of AI like you would an electrical grid. And that's what Akamai is building.

Thank you. We have the next question on the line of Will Power from Baird. Please go ahead.

Oh, great. Thank you. And yeah, Ed, I'd like to congratulate you on this massive deal. I just maybe two questions. First, just a clarification, perhaps, Ed, when you talk about needing additional GPUs, do you need more GPUs to satisfy the new deal, or is that more related to the building pipeline? And is there I know the timing is uncertain as to when the GPUs might be available, but is there any framework for what we're talking about in terms of overall cost and then I have a second question.

Yeah, sure. So I sort of but if you listen to the prepared remarks we talked about all the CapEx that we need is in the guidance for satisfying the 1.8 billion. So that's separate from the comment I made around the additional GPU purchase and that was really tied to how we're doing with the pipeline, how quickly we can execute on that and again there's always the question of can you get them delivered in time. So we'll give you more information on that. Really depends on what we're seeing in terms of demand. We're seeing a pipeline that's very very strong, some very large opportunities, some customers that want to start with a couple hundred GPUs, some of them want to start with a thousand or more. So it's really all over the map in terms of opportunities and it's growing every day which is great. So we'll size it up for you. The last one was around 250 million in CapEx. I don't have anything to tell you in terms of how big I think it will be but hopefully I'm telling you it's a really big number because we've got significant demand for it.

Yeah, okay. And then any way to kind of frame how you're thinking about gross margin, operating margin impacts. I know 2027 sounds like it's still a partial year. As you look into 2028, how do we kind of think about how this impacts the overall financial model relative to where you are today?

Yeah, so let me talk about sort of a high level. So if you think about some especially some of these larger deals that are more of that someone who comes to us and says hey I want a thousand GPUs or in this case of this big customer I want a certain amount of capacity over a long period of time. The biggest cost driver there is your depreciation over the period of time. The costs that go into your cash gross margin are much less, right? It's your colocation cost, maybe if there's some bandwidth or networking cost and things like that. And sometimes there's some people cost, but generally speaking these scale pretty well. So, what you would expect over time is, your cash gross margin could improve. Now, obviously there's some push and pull here between lighting up colo for expected demand and you have to light that up first and all that kind of stuff. So, it'll take a bit for this to sort of play out, but you should see your cash gross margin expand a bit, your EBITDA margin expand a bit. And then from an operating margin perspective, it really depends on the mix. We're willing to do some of these deals that are a lot larger, potentially at margins that might be sub the 30% operating margin. If you look at the, certainly the GPU by the service rent a GPU much higher than the company operating margin, you're going to get a lot of scale across the OpEx as we take on certainly larger customers. So, we're going to really focus over the next year or two on really capitalizing on this growth. So, we won't be in a margin expansion point right now, but at some point, that will happen naturally and your free cash flow margins will improve and things like that. So, that's sort of the way we're thinking about it, but we're really excited about going after this growth opportunity. We're going to continue to invest to go get it.

Thank you. We have the next question on the line of James Fish from Piper Sandler. Please go ahead.

Hey guys. Look, given what you've discussed around power in the past, with the large sites having, I think, as you've said, 5 to 10 MW and smaller sites a fraction of that, it puts you above 300 MW, so now you don't have enough revenue that aligns to this. So, how much of that power is for non-compute services? And is that why you need to bring on, from what I can tell, another roughly 40 MW just for this deal alone as it doesn't seem to kind of math and you guys should be able to kind of support this if that power is all allocated to compute. So, can you just walk us through how you guys are in terms of megawatts and kind of what the plan is by the end of '27, then?

Yeah, so I didn't quite follow all that. But let me just start by saying your math isn't right in terms of what would be required to deliver this particular deal. I'll just leave it at that. It's significantly lower than that. In terms of our capacity, the majority of what uses the megawatts of power that we have. The CDN and the security business is a small fraction. You think about that as being kilowatts in some cases, maybe a megawatt or two in some of the big CDN deployments. So, there's not a ton of massive power required to run the CDN business. When it comes to the compute business, it's a lot greater, especially when you get customers who want say a few thousand GPUs in a particular location or they're in say 20, 30 locations and they get a lot of CPU. So, you do tend to see a lot more need for power there. And what I've talked about is our typical deployment for some of our larger locations. We talked about having 40 core compute locations. And those are in the 5 to 10 MW expandable to say 20 to 30. And it really again depends. And we can get a little bit bigger than that, but there's plenty of opportunity for us to get additional colo. We expect to light up a lot more going forward here. So, if the concern is that we don't have access to enough power or can't get colo, that is not a concern of ours right now at all. As Tom talked about earlier, we've got great relationships and we're very attractive client for some of these data center providers. We've got excellent credit. We're not a do-it-yourselfer like a hyper scalar. We've got much better credit than say some of the neo clouds and we do take significant chunks of colo in some cases and actually help some of our colo partners build out. So, I'm not concerned about that at all and the power dynamics for each one of the different products is different. So, GPUs take up more power than CPUs. And so there's math that goes along with that. I've shared that math. The CPU math is much lower and you don't need as much power and then also the type of equipment that you're running can also have a pretty significant impact on power. We're seeing a lot of interesting hardware providers coming out with stuff that's incredibly efficient from a power perspective. So, it's really hard for me to answer that question specifically, but just take it that we're not too concerned at all about getting enough power to run these things and the power requirements are very different, but we factor that in to any deal that we do and ensure that we don't take anything on that's not profitable.

Got it. It makes sense and just add on the security side, normally you give us API and zero trust versus kind of the core. I guess how did that trend and then how did compute in the quarter trend with enterprise? Thanks.

Yeah, so with security we didn't break out API and zero trust. We did say it was the majority of what's driving growth and I would just say the growth rates are similar to what we had last quarter. Just remember last quarter had a fair bit of license revenue, so when you back that out, it's kind of apples-to-apples growing at roughly the same rates when you back out the impact of the license revenue. So, still very, very healthy growth rates there. And then on compute, you asked about enterprise compute. We don't break it out that way. Really, the way to think about enterprise compute is CIS, which is broken out separately, and we do provide what we used to call our application services, which is included inside of the third bucket, the delivering app services. So, that number's broken out for you. So, 40% growth was for CIS year over year, and we expect that to accelerate.

We have the next question from the line of Jonathan Ho from William Blair and Company. Please, go ahead.

Hi, good afternoon, and let me echo my congratulations as well. Just one for me. Just given the types of mega customers that you're bringing onto your platform, is there more opportunity to upsell to them once they are on your platform? Are there potential additional services, or could they come back to the well if they continue to expand their growth as well? Thank you.

Yeah, as you know, the demand for AI is rapidly increasing. We're really early on there. And yeah, I would expect there's plenty of room to grow the existing base, and of course, add other customers of that scale.

We have time for one last question from the line of Jeff Van Ree from Craig-Hallum. Please, go ahead.

Thanks for sneaking me in there. Two quick ones. First, maybe Tom, just you a lot of blowback nationally against AI data centers and the power consumption correlated to them. As you're stepping into deals of this magnitude, how do you think about staying out of the crosshair of some of those community-wide pushback on the broader AI compute environment, if you will.

Yeah, I don't think we're of a profile in the popular press anything like the giant hyperscalers are. So, I don't think that's really an issue for us. So, yeah, we're not worried about that yet. Maybe that's even a problem good to have once we're much much larger than we are today.

Okay. And then second, on the security side, given the comments about AI becoming a tailwind, do you think this year is likely a floor in terms of growth rate? Namely, we should be thinking maybe re-acceleration as we get into '27 and beyond?

We'll see. We gave you guidance for the year. We're obviously very pleased with what we saw in the first quarter. We do like what we see, especially around API security. Still early days, low penetration rate. Our core is growing very very consistently. So, yeah, we'll see how it goes and we'll update you as we go.

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.