Akamai Technologies, Inc. (NASDAQ:AKAM) Q4 2023 Earnings Call Transcript

Akamai Technologies, Inc. (NASDAQ:AKAM) Q4 2023 Earnings Call Transcript February 13, 2024

Akamai Technologies, Inc. beats earnings expectations. Reported EPS is $1.69, expectations were $1.59. Akamai Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Akamai Technologies. Inc. Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tom Barth, Head of Investor Relations. Please go ahead.

Tom Barth: Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai’s fourth quarter 2023 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 statements regarding revenue and earnings guidance. These forward-looking statements are subject to risks and uncertainties and involve a number of factors that could cause actual results to differ materially from those expressed or implied by such statements. The factors include any impact from macroeconomic trends, the integration of any acquisitions and any impact from geopolitical developments. Additional information concerning these factors is contained in Akamai’s filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

The forward-looking statements included in this call represent the company’s view on February 13, 2024. Akamai disclaims any obligation to update these statements to reflect new information, future events or circumstances, except as required by law. As a reminder, we will be referring to some non-GAAP financial metrics during today’s call. A detailed reconciliation of GAAP and non-GAAP metrics can be found under the financial portion of the Investor Relations section of akamai.com. Before I turn the call over to Tom, I’d like to let everyone know that I have transitioned to Head of Akamai’s investor roles to Mark Stoutenberg. Many of you have met Mark over the past year, and I’m confident you will find him extremely helpful about all things Akamai.

I’ll be moving into another role internally, and want to thank Tom personally for bringing me into the Akamai culture 10 years ago. It’s been a privilege to work with so many wonderful people, both here at Akamai, and of course, all of you externally. I wish you all happiness and good fortune. And now I’d like to turn the call over to Tom.

Tom Leighton: Thanks, Tom. And thank you very much for the terrific job that you’ve done over the last 10 years at Akamai. It’s truly been a pleasure working with you. And I’d like to join you in welcoming Mark as your successor. Turning now to our Q4 results, I’m pleased to report that ACMI delivered a strong finish to a very successful 2023. Fourth quarter revenue grew to $995 million, and non-GAAP operating margin was 30%. Non-GAAP earnings per share in Q4 was $1.69, up 23% year-over-year, and up 22% in constant currency. For the full year, revenue was $3.81 billion, and non-GAAP operating margin was 30%. Full year non-GAAP earnings per share was $6.20, up 15% year-over-year, and up 16% in constant currency. Security revenue in Q4 grew 17% year-over-year, and was up 18% in constant currency, contributing nearly half of our total revenue in the quarter.

Security growth was driven in part by continued strong demand for our market-leading Guardicore Segmentation Solution, as more enterprises relied on Akamai to defend against malware and ransomware. Customers who purchased Segmentation in Q4 included one of the largest global tech firms in India, and a leading payment systems company based in Hong Kong that handles 15 million transactions a day. We’ve also seen strong interest in our new API Security Solution that we announced in August. Early adopters of this new solution include three major financial institutions, several major retail brands in Europe and North America, and a leading industrial automation company in Europe. Our customers are seeing the value of this new capability with several already paying over half $0.5 million per year for the service.

Akamai’s API Security Solution also earned recognition from industry analysts in Q4. KuppingerCole named Akamai an overall industry leader in their API security and management leadership compass report. And Gartner validated our strong and expanded API capabilities in its market guide for cloud, web application and API protection. Turning now to cloud computing, I’m pleased to say that we accomplished what we set out to achieve last year in terms of infrastructure deployment, product development, jumpstarting our partner ecosystem, onboarding the first mission critical apps from some major enterprise customers, and achieving substantial cost savings as we moved our own applications from hyperscalers to the Akamai Connected Cloud. After launching Akamai Connected Cloud.

After launching Akamai Connected Cloud last year, we rolled out 14 new core computing regions around the world, giving us a total of 25 overall. We also enhanced our cloud compute offering by doubling the capacity of our object storage solution and adding premium instances for large commercial workloads that are designed to deliver consistent performance with predictable resource and cost allocation. Also, our Akamai Global Load Balancer is now live. This integrated service is designed to route traffic requests to the optimal data center to minimize latency and ensure no single point of failure. Last year, we also amplified our go-to-market approach with our cloud computing partner program. The collaborative nature of the program provides a unique model for Akamai to engage with customers at a consultative level to deeply understand their requirements and pain points and to provide a complete solution leveraging the combined strength of the partner’s technology and Akamai’s distributed compute platform.

We’ve already partnered with several leading SaaS and PaaS providers and cloud data and processing platforms. We’re very pleased with the progress that we’ve made thus far and are looking forward to adding more new partnerships in 2024. We’ve also begun to gain traction with some of our largest customers as they migrate mission-critical apps onto our cloud platform. For example, one of the world’s best-known social media platforms spent approximately $5 million on computing services with us last year and they’re already on a run rate to do more than double that this year. Two of the world’s best-known software companies recently signed on and are already spending about a quarter of a million dollars per month on cloud computing with Akamai.

In Q4, we also signed up a major global media measurement and analytics company and we displaced a hyperscaler when we signed Blu TV, the largest VOD streaming company in Turkey. The streaming customer told us that they found our platform to be simple to use, automated and intuitive, cloud agnostic for a smooth multi-cloud migration and affordable with very low egress cost, all backed by a trusted and reliable partner. In addition to exceeding our full-year cloud computing revenue goal of $500 million last year, we also derived significant cost savings by migrating several of our own applications from hyperscalers to Akamai Connected Cloud. Our bot manager and enterprise application access solutions were among the first to migrate. Together, these products are used by over 1,000 customers and they generate over $300 million in annual revenue for Akamai.

But all that is just the beginning. Today, we’re excited to announce the next phase of our multi-year strategy to transform the cloud marketplace, taking cloud computing to the edge by embedding cloud computing capabilities into Akamai’s massively distributed edge network. Akamai’s new initiative, codenamed Gecko which stands for “Generalized Edge Compute”, combines the computing power of our cloud platform with the proximity and efficiency of the edge to put workloads closer to users than any other cloud provider. Traditional cloud providers support virtual machines and containers in a relatively small number of core data centers. Gecko is designed to extend this capability to our edge pops, bringing full stack computing power to hundreds of previously hard-to-reach locations.

Deploying our cloud computing capabilities into Akamai’s worldwide edge platform will also enable us to take advantage of existing operational tools, processes, and observability, enabling developers to innovate across the entire continuum of compute and providing a consistent experience from centralized cloud to distributed edge. Nobody else in the marketplace does this today. In the latest implementation phase that we’re announcing today, Akamai aims to embed compute with support for virtual machines into about 100 cities by the end of the year. We’ve deployed new Gecko-architected regions in four countries already, as well as in cities that lack a concentrated hyperscaler presence. These initial locations are listed in today’s press release.

Following that, we plan to add support for containers. And then, we plan to develop automated workload orchestration to make it easier for developers to build applications across hundreds of distributed locations. We’ve been conducting early trials of Gecko with several of our enterprise customers that are eager to deliver better experiences for their customers by running workloads closer to users, devices, and sources of data. Their early feedback has been very encouraging, as they evaluate Gecko for tasks such as AI inferencing, deep learning for recommendation engines, data analytics, multiplayer gaming, accelerating banking transactions, personalization for e-commerce, and a variety of media workflow applications, such as transcoding. In short, I’m incredibly excited for the prospects of Gecko as we move full stack compute to the edge.

Turning now to content delivery, I’m pleased to report that Akamai remains the market leader by a wide margin, providing the scale and performance required by the world’s top brands as we help them deliver reliable, secure, and near flawless online experiences. Our delivery business continues to be an important generator of profit that we use to develop new products to fuel Akamai’s future growth. And it’s an important driver of our security and cloud computing businesses, as we harvest the competitive and cost advantages of offering delivery, security, and compute on the same platform as a bundle. As we’ve noted in past calls, we’re selective when it comes to less profitable delivery opportunities. And this is a discipline that we intend to maintain, and in some cases, increase in 2024.

To be clear, we still aim to be the best in delivery for our customers. And we believe that our disciplined approach will benefit our business by allowing us to focus more of our investment in security and cloud computing, which are now approaching two thirds of Akamai’s revenue and growing at a rapid rate. In summary, we’re pleased to have accomplished what we said we would do in 2023. Our cloud computing plans are taking shape as we envisioned. Our expanded security portfolio is enabling us to deepen our relationships with customers. And we continue to invest in Akamai’s future growth while also enhancing our profitability. Now I’ll turn the call over to Ed for more on our results and our outlook for Q1 and 2024. Ed?

Ed McGowan: Thank you, Tom. I would also like to thank Tom Barth for his incredible service for 10 years as our head of investor relations. Now moving on to our results, let me start by saying that I’m very pleased with our fiscal 2023 year results, delivering $6.20 of non-GAAP earnings per share, capping off a year of double-digit earnings growth for our shareholders. Today I’ll cover our Q4 results, provide some color regarding 2024, including some items to help investors better understand a few factors that will impact our upcoming results, and then close with our Q1 and full year 2024 guidance, starting with revenue. Q4 revenue was $995 million, up 7% year-over-year as reported and in cost and currency. We saw continued strong growth in our compute and security businesses during the fourth quarter.

Our compute business grew to $135 million, up 20% year-over-year as reported and in constant currency. We continue to be very pleased with the feedback regarding our cloud compute offerings, and we are very optimistic about the early traction we are seeing from enterprise customers. Moving to security, revenue was $471 million, growing 18% year-over-year and up 17% in constant currency. Our security revenue continues to be driven by strong growth in our Guardicore Segmentation Solution, in our industry leading web app firewall, denial of service, and bot management solutions. In addition, and as Tom mentioned, we are encouraged by the early traction of our new API security solution. During the fourth quarter, we signed 17 API security customers, including 4 with annual contract values in excess of $500,000 per year.

Our delivery revenue was $389 million, including approximately $20 million from the contracts we recently acquired from StackPath and Lumen. International revenue was $479 million, up 8% year-over-year, or up 6% in constant currency, representing 48% of total revenue in Q4. Finally, foreign exchange fluctuations had a negative impact on revenue of $4 million on a sequential basis and a positive $6 million benefit on a year-over-year basis. Moving to profitability. In Q4, we generated strong non-GAAP net income of $263 million, or $1.69 of earnings per diluted share, up 23% year-over-year or 22% in constant currency, and $0.07 above the high end of our guidance range. These stronger-than-expected EPS results were driven primarily by continued progress on the cost-saving initiatives we have previously outlined, and approximately $6 million in lower-than-expected transition services, or TSA costs, associated with the StackPath and Lumen contracts, as our services organization migrated the customers onto our platform much faster than we expected.

Q4 CapEx was $143 million, or just below 15% of revenue. We were very pleased with our continued focus on lowering the capital intensity of our delivery business. This effort, along with our very strong profitability, enabled us to deliver very strong free cash flow results in Q4. Moving to our capital allocation strategy, during the fourth quarter, we spent approximately $55 million to buy back approximately 500,000 shares. For the full year, we spent approximately $654 million to buy back approximately 8 million shares. We ended 2023 with approximately $500 million remaining on our current repurchase authorization. Going forward, our intention is 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.

Before I move on to guidance, there are several items that I want to highlight in order to give investors some greater insight into the business. The first relates to our delivery revenue. In the first half of 2024, seven of our top 10 CDN customers’ contracts come up for renewal. As we’ve discussed in the past, this type of renewal generally leads to an initial drop in revenue, and then we typically see revenue grow again as traffic increases over time. We have factored the expected outcome of these renewals into our Q1 and full year 2024 guidance. In addition, as Tom mentioned, we plan to continue to optimize our delivery business by focusing on how we charge certain high-volume traffic customers for their usage on our network, all with an eye on profitability.

For example, we plan to start charging a premium for higher-cost delivery destinations. We expect to continue to optimize the ratio of peak to day-to-day traffic, and we plan to negotiate different pricing for API traffic versus download traffic. Choosing to shed some less profitable traffic will result in a more balanced and profitable approach to pricing, which we believe is the right strategy for the company. Second, OECD member countries continue to work toward the enactment of a 15% global minimum corporate tax rate. And in particular, in December 2023, the Swiss Federal Council declared the rules in effect for Switzerland beginning in 2024. As a result, we anticipate that our non-GAAP effective tax rate will increase by roughly 1.5 to 2 percentage points, to approximately 18.5% to 19%.

We estimate this increase in our tax rate will have a negative impact on Q1 non-GAAP EPS of approximately $0.02 to $0.03 per diluted share, and a negative impact on full year non-GAAP EPS of approximately $0.12 to $0.15 per diluted share. The impact of this tax rate change has been factored into our Q1 and full year 2024 guidance. Third, we expect to generate significantly more free cash flow in 2024 compared to 2023 levels. This is primarily due to much lower capital expenditures in 2024, along with our continued focus on profitability. Please note that the full cost to build out our Gecko compute sites we announced earlier today is included in our Q1 and full year 2024 capital expenditure guidance. Fourth, I want to remind you of the typical seasonality we experience on the top and bottom lines throughout the year.

Regarding revenue, the fourth quarter is usually our strongest quarter. Regarding profitability, in Q1 we incur much higher payroll taxes related to the reset of Social Security taxes for employees who maxed out during 2023, and from stock vesting for employee equity programs, which tend to be more heavily concentrated in the first quarter. It’s also worth noting that in Q3, our annual company-wide merit-based salary increases go into effect, so we tend to see higher operating costs in Q3 compared to Q2 levels. Finally, for 2024, we anticipate heightened volatility in foreign currency markets, driven by the unpredictable timing and magnitude of Federal Reserve policy changes and their impact on interest rates. With this in mind, forecasting the trajectory of FX in the latter part of the year poses a formidable challenge.

Thus, for the full year, we plan to provide annual revenue growth, security and compute revenue growth, non-GAAP EPS growth, non-GAAP operating margin, and CapEx only in constant currency based on 1231-2023 exchange rates. However, for the coming quarter, we will provide both as reported and constant currency guidance. As a reminder, we have approximately $1.2 billion of annual revenue that is generated from foreign currency with the Euro, Yen, and Great British Pound being the largest non-U.S. dollar sources of revenue. In addition, our costs in non-U.S. dollars tend to be significantly lower than our revenue and are primarily in Indian rupee, Israeli shekel, and Polish Zloty. Moving now to guidance. Our guidance for 2024 assumes no material changes, good or bad, in the current macroeconomic landscape.

For the first quarter of 2024, we are projecting revenue in the range of $980 million to $1 billion, or up 7% to 9% as reported, or 8% to 10% in constant currency over Q1 2023. At current spot rates, foreign exchange fluctuations are expected to have a positive $2 million impact on Q1 revenue compared to Q4 levels and a negative $4 million impact year-over-year. At these revenue levels, we expect cash gross margin of approximately 73% as reported and in constant currency. Q1 non-GAAP operating expenses are projected to be $305 million to $310 million. We anticipate Q1 EBITDA margins of approximately 42% to 43% as reported and in constant currency. We expect non-GAAP depreciation expense of $127 million to $129 million. We expect non-GAAP operating margin of approximately 29% to 30% as reported and in constant currency for Q1.

And with the overall revenue and spend configuration I just outlined, we expect Q1 non-GAAP EPS in the range of $1.59 to $1.64, or up 14% to 18% as reported, and 16% to 19% in constant currency. The EPS guidance assumes taxes of $56 million to $58 million based on an estimated quarterly non-GAAP tax rate of approximately 18.5% to 19%. It also reflects a fully diluted share count of approximately 155 million shares. Moving on to CapEx, we expect to spend approximately $146 million to $154 million excluding equity compensation and capitalized interest in the first quarter. This represents approximately 15% of total revenue. Looking ahead to the full year for 2024, we expect revenue growth of 6% to 8% in constant currency. We expect security revenue growth of approximately 14% to 16% in constant currency.

We expect compute revenue growth to be approximately 20% in constant currency. And we’re estimating non-GAAP operating margin of approximately 30% in constant currency. And full year CapEx is expected to be approximately 15% of total constant currency revenue, which again includes the Gecko compute buildup. We expect our CapEx to be roughly broken down as follows. Approximately 3% of revenue for our delivery and security business, approximately 4% of revenue for compute, approximately 7% of revenue for capitalized software, and the remainder for IT and facility related spend. We expect non-GAAP earnings per diluted share growth of 7% to 11% in constant currency. And as we mentioned earlier, this non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 18.5% to 19%, and a fully diluted share count of approximately 155 million shares.

In closing, we are very pleased with a strong finish to 2023. We continue to be excited about our growth prospects and driving profitability across the business. Now Tom and I would like to take your questions. Operator?

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Q&A Session

Operator: [Operator Instructions] And our first question will come from Fatima Boolani of Citi. Please go ahead.

Fatima Boolani: Thank you for taking my questions. Ed, I wanted to drill into the delivery, the segment performance and the guidance and some of the modeling points that you shared with us. I was hoping you could parse out for us some of the organic traffic trends you saw on the platform, parsed away from the traffic, from the acquired contracts between StackPath and Lumen. And then to the extent you can talk about any timeframe you have with regards to absorbing some of this additional acquired traffic from these contracts. And the last piece of the question here is also the guidance that we calculated to be down 6% for delivery in 2024, implied by your guidance, full year guidance. Can you talk to what proportion of that traffic that you would have deemed lower quality being peeled off is maybe the reason why we’re not seeing a more sharper improvement in the delivery franchise. And then I have a quick follow-up. Thank you.

Ed McGowan: All right, sure. Let me see if I can tackle all those for you. I’ll start with the performance in Q4. So I’ll break it down into a couple of buckets. So in Q4, we tend to see a stronger seasonal quarter for us. And we did see some of that. So from the retail customer perspective, we saw bursting roughly to the tune of about half of what we saw last year. And I think that has to do mostly with the zero overage. As that’s become more popular, we are seeing less bursting. If I look back a few years, that’s down above 50%, 22 compared to 21, and again, 23 compared to 22. Some of it could be macro factors, hard to tell. We’re not really the best gauge for folks’ consumption, but more they’re surfing. If I look at gaming, gaming was a better year.

If I look last year, gaming was pretty weak. This year, it was pretty good. Gaming tends to be fairly lower priced delivery, so you don’t get as much upside in revenue. Video was up quarter-over-quarter, but not as much as we saw the prior year. So I would say kind of an okay fourth quarter from delivery. The one area that was probably the weakest was more in sort of high tech. So think about that as new connected devices, maybe it’s connected TV or a new, say an iPad or something like that, printer drivers, that sort of stuff. That was much weaker than what we saw last year. Last year was a pretty good bump up in that category. So that really sort of sums up what the dynamics are in terms of the delivery business in Q4. And I looked at that, not including the acquisition traffic.

The second question you asked, if I wrote it down correctly, was the absorption of the traffic from the acquisitions. We’ve largely done that. The services team did a phenomenal job migrating over the customers. We did it in probably about a third of the time that we had expected to be able to do that. There’s still a few stragglers, but the transition services costs are immaterial. So that’s why we didn’t call that out. But that’s largely been done. In terms of this year, why are we seeing a down 6% if that’s the math you’re using for delivery? A lot of it has to do with the renewals. Unfortunately, these larger customers, as we’ve talked in the past, we only have about eight customers that are greater than 1% of revenue. And unfortunately, seven of them are renewing in the first half of the year.

That does have a bit of an impact on the delivery business. The majority of the revenue from those customers comes from delivery. We’ve seen this in the past. It seems like every two years, we kind of bump into this. Even though we try to sign staggered contracts, what happens often is someone might sign a two or three year deal with a revenue commit. They’ll spend that in a shorter period of time. And we just get a combination of renewals here. And then the other thing was on the shedding of traffic. So let me just get a little bit more specific with what we’re doing. So last year, if you remember, we talked about being a bit more stringent with the peak to average ratios. And we’re going to continue to do that. We did a pretty good job. There’s still a few customers we need to adjust.

And that generally happens where customers will split and they have lots of day-to-day traffic and they might split that among three or four CDNs. And then they’ll have peak events, whether that’s a big video event or a big download event. And we get the disproportionate size of that peak. So you want to make sure you’re compensated for that. So the way to do that is you get a higher percentage of the day-to-day or you just limit the peak. So we’ll continue doing that. And sometimes that may mean we lose a little bit of traffic, but that’s okay because you can see the results in CapEx. The new thing that we’re doing now is we’ve worked with product and IT to enable us to be able to build for very granular level on destinations. In the past, we generally would build based on large geos, say for example, a large geos, say for example, the U.S. or Europe or Asia.

Now we’re able to get one level deeper. And so we can go after some of the areas where our costs are a bit higher to deliver. It’s unclear. We’re assuming that customers have choice. They may decide to take that traffic somewhere else. Some of our competitors don’t really focus as much on profit as we do. If that’s the case, then that’s okay with us. So I think as we tried to factor all that in, those are the two driving factors as to why we’re not seeing a better delivery performance in 2024. I think I hit all your questions.

Fatima Boolani: You did. Super comprehensive. Thank you. And an easy one, just on gross margins, you gave us the guidance for cash gross margins on the first quarter. But just qualitatively, if you can talk to us about some of the puts and takes at a full year level as we think about the mix of business changing, your focus on pricing discipline, and just even a U.S. international mix, any sort of puts and takes in terms of the dynamics we should be thinking about COGS and cash gross margins for the full year. And that’s it for me. Thank you.

Ed McGowan: Sure. No problem. In terms of the cost of goods sold, I’ll start with the good stuff that’s going on in cost of goods sold. Obviously, you touched on the mix. So as we get a higher degree of security business, that obviously helps our gross margin line. And the second thing is the movement of our third-party cloud costs onto our own platform. We did a great job so far this year. Tom talked a bit about that in his prepared remarks. And we have more to go, and we have a roadmap to get that. So that’ll drive some significant savings. The downside or what’s sort of contracting them or not expanding the margins as much, I should say, we could be going a bit higher, is that with the build of the Gecko sites, we’ll incur some additional co-location costs.

So as we start to build out those facilities, you don’t have revenue to go against it. But also, as I talked about last year, when we built out some of the bigger sites, with the accounting rules, when you do long-term Colo commitments or any kind of a commitment for long-term leases, you have to straight line any commitment. So we end up with a bit of a disconnect between what we’re paying in cash and what we’re actually expensing. So we’re able to offset that with the savings we get from the third-party cloud in the mix, but those are the underlying dynamics.

Fatima Boolani: Thank you so much.

Operator: The next question comes from Frank Louthan of Raymond James. Please go ahead.

Frank Louthan: Great. Thank you. How different is Gecko from what you’re doing now with Compute? Is this a new packaging of some of your products, or is it something a little different? And then secondly, of the CDN business that you acquired last year, how much are you expecting that to fall off? I think the goal was to try and get it out to some other services, but what are you factoring in there at that time?

Tom Leighton: Yes, I’ll take the first question. Yeah, Gecko is not packaging. Gecko is a new capability where we’re going to be offering full-stack compute in 100 cities by the end of the year, and ultimately in hundreds of cities. We’re actually taking full-stack compute, the kinds of services you get in Linode or a hyperscaler, and making that available in our edge pops. Now today, the edge pops, we have 4,000, and they run function as a service. We’ll spin up JavaScript apps in 4,000 locations in over 700 cities in milliseconds based on user demand, but that’s not full-stack compute. Now we’re going to be taking virtual machines and containers and supporting those in our Edge platform, and that enables our customers to get much better performance and scalability, also lower cost because of the financial benefits we get from our edge platform.

So it really becomes, I think, a very compelling cloud computing offering that just doesn’t exist in the marketplace today. It’s not a packaging thing at all. This is a new capability, and of course, ultimately, after we get the support for VMs and containers, we want to make it work just as we do function as a service, so that we’ll be spinning up containers and VMs on demand where and when they’re needed, and that capability doesn’t exist today in the market. Ed, you want to take the CDN question, the acquisition?

Ed McGowan: Yes. Sure, happy to do that. Hey, Frank. Yes, I would say, just as a reminder, when we acquired the businesses, we actually acquired selected customers. What we mean by that is we actually went through and we left some customers that we weren’t going to take. For example, if someone violated our acceptable use policy, really small customers, and then, believe it or not, some that had pricing that we just didn’t want to take. So we had already gone through sort of a selection process. If you recall, I had given guidance last quarter of about $18 million to $20 million for this quarter, and we hit the high end of that range, which I’m happy that we did. So we’ve largely been able to migrate over everything that we had hoped to. There’s a few customers that churned, but by and large, we’ve gotten everything out of that acquisition or those acquisitions, I should say. There were two of them that we had hoped to.

Frank Louthan: Okay, great. Thank you very much.

Operator: The next question comes from James Fish of Piper Sandler. Please go ahead.