Tom Leighton: Yes. Good question. I would say, I think there’s a lot of companies that are being cautious. We have seen a slight uptick in bankruptcies as you typically would see in cycle like this. But we’re not seeing a significant impact certainly in our security business. If anything, we’ve seen better-than-expected results there. So I think security is not as impacted, at least at the moment. Obviously, there’s a lot of speculation out there that we’re heading towards a recession and things can change pretty quickly. But so far, we fared very well. And also, if you think about our messaging around compute, one of the biggest challenges a lot of companies have is the runaway cost of compute, and we offer a very compelling option for people to look to save money and increase their performance by moving to us. So I think that will play into our favor in an environment like this.
Operator: Next question is from Mark Murphy of JPMorgan.
Mark Murphy: Ed, how noticeable or how sudden is the increase that you’re seeing and the sophistication of all these mallware and ransomware attacks. The part of why I was asking is we noticed that you’re launching some scrubbing centers in Canada. And I’m wondering if that’s driving CapEx a little higher to help make sure that you’re able to address all these attacks. And then I have a quick follow-up.
Tom Leighton: Yes, let me just start on the product side, and then Ed will pick up your questions. So ransomware isn’t related to scrubbing centers. scrubbing centers are just restricting the flow of packets and screening out or scrubbing out the packets that are trying to flood any particular resource. And that’s nothing really per se to do with malware and ransomware to filter that out, you need application layer defenses where the scrubbing centers are routing layer defenses. And putting the scrubbing centers in Canada, and we’re actually putting scrubbing centers in many more cities around the world and greatly increasing our capacity so that with local customers there, we can do the scrubbing for them locally. And that gives them better performance while we’re giving them the defense against the volumetric attacks.
For ransomware, you need Gardicor for malware, you need app and API security. And those are different products where they’re done at our edge network in the 4,000 POPs, EdgePops we have around the world. And then, Ed, do you want to pick up the other part of that?
Tom Leighton: Yes, sure. Usually, the — as Tom mentioned, the building of the scrubbing center generally will follow where we see significant demand from customers. And one of the other reasons security is up a bit this year as we have seen an increase in some of these volumetric attacks in the health care sector, a little bit in the financial sector as well. So this is pretty ordinary course for us. So in terms of like the CapEx needs or builds going forward, I’d say this is just ordinary course — there’s really nothing unusual to call out there, but we have seen a bit of a pickup in DDoS, in particular, tends to be a bit more episodic as you see big headline grabbing attacks. We do tend to see a pickup in business. And oftentimes, that will include a scrubbing center build. But they’re pretty well informed with where we’re seeing increased demand.
Mark Murphy: Okay. Understood. And then, Ed, just as a follow-up, did you mention what was the total consideration paid for the acquired contracts from StackPath in Lumin? I’m wondering, I believe those are expected to contribute something like $60 million to $70 million next year in aggregate. Is that — are you taking — like are you assuming a similar ongoing run rate that those contracts had with the prior providers and extrapolating that into next year? Or are you contemplating into that any kind of expansion, contraction, right, or pricing that up or pricing that lower?
Tom Leighton: Sure. Let me start — I’ll take it in different pieces here. So in terms of anticipating any upsell or anything like that with the 200-plus customers, I haven’t factored anything in for that. So that would be upside to the extent that we can do that. Remember, we purchased selected contracts. There are certain contracts that we did not take. There’s, for example, adult content and some of the small medium business customer contracts we didn’t take. So that’s not included. So if you’re looking at other numbers that you may have heard about these companies are private, I’d just caution anybody with private company numbers and other is accurate. We just looked at the contracts that we’re acquiring, what we think will — how many will onboard, what will happen with pricing, how much traffic we’ll keep some of these customers are splitters, so we anticipate some of that traffic may go away.
But we’ve tried to factor all that in. So what we’re trying to do effectively is look at the other side of the integration in terms of the contracts that we acquired, what is that run rate of business that we acquired taking into consideration the best we can, volume and pricing dynamics. In terms of consideration, we’ll file our 10-Q tomorrow, and you’ll see that for STACK PAT, that contract has got an upfront fee of about $35 million, and there’s a small earnout. Also with the TSA agreement, a little wonky accounting here for you, but you have to fair value the TSA and to the extent that there’s excess cost there that goes to the purchase price. So when you see the final 10-K once it’s filed and the cash flow, the numbers may be slightly higher.
On the lumen, it’s about $75 million. There is no earnout there. Same comments on the TSA. There is a fair value analysis you do in purchase accounting. So that might be slightly higher. But that’s the extent of the agreements.
Operator: The next question is from Rishi Jaluria of RBC.
Rishi Jaluria: One wanted to follow up on 2 earlier questions that were asked, one on AI and then one on the contracts. Thinking specifically around AI, Tom, I appreciate your answer earlier. If we think about the opportunity to do inferencing at the edge, especially for cases like connecting devices or med tech or financial services now that people are increasingly worried about data and data residency. Can you speak to a little bit of your opportunity for that? And maybe alongside that, what investments do you need to make both in the software stack as well as in hardware infrastructure, be it GPUs or anything else to really capitalize and get your fair share of that opportunity? And then I’ve got a quick follow-up.
Tom Leighton: Great. Yes, the data residency, data sovereignty issues are increasingly important, as I imagine you know, — and that’s where Akamai has a great opportunity because we’re in 130 different countries with our infrastructure. And as we move compute into our edge pops, that enables us to do the work locally, keep the data local, which is an exciting opportunity for us. And I think in the not-too-distant future, we’ll be in locations and countries that even the hyperscalers aren’t there. Now in terms of the work on the software stack to be able to do that, that is ongoing work now. We are actually already in beta with a few customers — so we’re pretty far along. And then next year, as I mentioned, there’ll be relatively small amount of CapEx as we do build out in a nontrivial number of our edge pops to be able to support compute.
