Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Akamai Technologies, Inc. Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Tom Barth. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai’s third quarter 2020 earnings conference call. Speaking today will be Tom Leighton, Akamai’s Chief Executive Officer; and Ed McGowan, Akamai’s Chief Financial Officer. Before we get started, 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 uncertainty stemming from COVID-19 pandemic and any impact from unexpected 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 October 27, 2020. Akamai disclaims any obligation to update these statements to reflect future events or circumstances. 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. And with that, let me turn the call over to Tom.

Thanks, Tom. And thank you all for joining us today. I'm pleased to report that Akamai achieved excellent results in the third quarter. Revenue was $793 million, up 12% year-over-year and up 11% in constant currency. Non-GAAP operating margin was 32%, up 3 points from Q3 of last year. Non-GAAP EPS was $1.31 per diluted share, up 19% year-over-year, and up 18% in constant currency. These very strong results were driven primarily by the continued strong performance of our security products and high traffic levels on our Edge platform. We're very proud of how Akamai has continued to deliver fast, intelligent and secure online experiences for billions of users around the world as we support our customers during these challenging times. We're also very pleased that our hard work to improve operating efficiency and profitability has put us in an excellent position to exceed our goal of 30% operating margins for the year. Our Media and Carrier business continued to perform very well in Q3, benefiting from high traffic levels for video streaming and gaming software downloads. In fact, one giant video-on-demand service increased the traffic on our platform by a factor of 4 last quarter. As more entertainment moves online, Akamai has continued to prove that our unique Edge platform scales to meet the unprecedented demand for streaming video, popular gaming releases, and complex API transactions. We can do this in part because we’ve positioned more than 325,000 servers in more than 4,000 locations in over 1,000 cities. At Akamai, we’ve positioned content very close to end users, and we make sure it's available when and where it's needed. In addition, our highly advanced Internet mapping algorithms route traffic around congestion to maintain excellent application performance for our customers. Our unique Edge platform also allows our customers to perform a wide variety of computational tasks close to end users, resulting in faster performance, instant scalability and lower cost. For example, a leading social networking company uses Akamai's Edge platform to manage API requests for their recommendation engine, a leading apparel company uses our platform to supply health information to users based on their fitness tracker. Several major companies use Akamai to provide critical weather updates based on local conditions, as well as geographic information such as nearby points of interest, or locations of desired services. Many of the world's largest OTT companies use Akamai to help manage the critical components of their architecture on the edge, including functionality for user authentication, content recommendations, and payment processing. Some of the world's largest credit card companies use our platform to assist with authentication and authorization of payments via digital gateways. Several of the world's largest gaming companies use Akamai's Edge to assist in managing user profiles and registration, as well as event leaderboards. And the ad tech ecosystem uses applications running on the Akamai Edge to assist with ad calls, bidding, and placing consent cookies to remain in compliant with data privacy regulations. It's important to note that while some CDNs are talking about edge computing or serverless computing, as if they're somehow new technologies, Akamai has been providing these services to thousands of customers for well over a decade. And already this year, we've handled well over 100 trillion API requests on our Edge platform. The vast capacity of our platform, combined with our unparalleled security intelligence and machine learning algorithms, has also enabled Akamai to defend many of the world's most important enterprises against the largest and most sophisticated cyber attacks. This capability has proved to be especially important during the recent wave of ransom DDoS attacks. Since August, we've been approached by dozens of major businesses around the world that had received extortion letters threatening them with massive DDoS attacks, if they didn't pay a ransom. In response, our security experts performed emergency integrations of our Prolexic service, which enabled these enterprises to continue or resume business operations without experiencing any service disruptions from the attacks. As a result, we've added many new enterprises to our Prolexic customer base, including several global banks and insurance companies, a leading travel website, and two national stock exchanges. In addition to Prolexic, we also continue to see strong growth from our market leading Kona Site Defender and Bot Manager services. Bot Manager has been especially valuable in stopping account takeover attacks, which have greatly increased in scale and sophistication. In fact, the number of malicious login attempts by bots that we blocked in Q3 was more than double the number we handled in Q2. I'm also pleased to report that our recently launched Page Integrity Manager solution, which is designed to identify and forward Magecart attacks and malware in third-party scripts is off to an excellent start with strong customer interest and bookings. In another sign of our leadership in cyber security, Forrester recently named Akamai as a Leader in Zero Trust, with the highest possible scores for network security, workload security, APIs, zero trust advocacy and market approach. And just last week, Gartner recognized Akamai as a leader in its 2020 Magic Quadrant for Web Application Firewalls for the fourth year in a row. Overall, Q3 revenue from our Cloud Security Solutions was $266 million, up 23% year-over-year in constant currency and accounting for 34% of Akamai’s total revenue. To further build on our growth in security, we were pleased to announce today that Akamai has acquired Asavie, a leader in securing mobile access for enterprises. Asavie partners with some of the world's largest mobile network operators to enable enterprises to connect, manage and secure communication among cellphones, and other IoT devices, without the need for client software on the device. These capabilities are critical for organizations with mobile workforces or large numbers of connected devices. By integrating Asavie solution with Akamai's unique Edge platform, and arming it with Akamai's vast array of real time security data, we plan to enable enterprises to greatly improve the security of their operations, while also improving the performance of their internal applications. Asavie will complement our security product lines with a cellular-specific security offering, which is an important step in our strategy to capture the emerging opportunity in 5G. It is also synergistic with our Enterprise Application Access product, and complements our IoT Edge cloud solution, allowing enterprises to improve the reliability and consistency of real time communications with IoT devices, and to easily secure those endpoints to avoid compromise. As we look to the future, we believe that the deployment of 5G and IoT applications can provide significant opportunities for Akamai. 5G technology improves the performance of the last mile, providing higher throughput and lower latency, and the potential to connect a lot more people and things. And that could spawn the creation of new applications, such as ultra-low latency video, augmented reality, IoT applications and analytics at a massive scale, deep threat intelligence for attack mitigation, and much more that we can't even imagine yet. The impact of 5G on innovation will be similar to the way broadband enabled new social networking apps that few could have imagined before. As 5G networks come online, we believe that end users and connected devices will demand faster performance and greater scale than cloud data centers can provide. Thus, our Edge architecture will become more important than ever. In fact, Gartner estimates that by 2022, more than half of enterprise generated data will be created and processed outside of traditional cloud data centers. The breadth of our Edge platform means that we're incredibly close to billions of end users. And being so close means that Akamai is in a unique position to provide the near instant response times, very high quality video experiences, serverless computing capabilities, and the market-leading security services that our customers are demanding. In summary, we're very pleased with our performance so far this year. We believe that our strong growth, profitability, and cash generation provide us with the financial firepower to continue investing in the innovation, network capacity, novel products, and world-class talent needed to fuel our future growth. Now, I'll turn the call over to Ed for more on Q3, and our outlook for the fourth quarter.

Thank you, Tom. As Tom outlined, Akamai delivered another excellent quarter in Q3. We were very pleased to exceed the high end of our guidance range on revenue, operating margin, and earnings. Q3 revenue was $793 million, up 12% year-over-year for 11% in constant currency, driven by another quarter of robust security growth, continued strong performance from our Media and Carrier Division, and a weaker U.S. dollar. Revenue from our Web Division was $418 million, up 8% year-over-year, or 7% in constant currency. Revenue growth for this group of customers was again led by our security business and, to a lesser extent, we also benefited from lower-than-expected COVID-related credits to customers. Revenue from our Media and Carrier Division was $375 million, up 16% year-over-year. The overachievement in Q3 came from higher-than-expected OTT video and gaming traffic, along with continued momentum in security. We were pleased to see traffic remain at elevated levels, which helped offset the approximately $15 million negative impact from India's ban of 59 Chinese apps that we discussed on our last quarter's call. Revenue from the Internet Platform Customers was $51 million, up 15% from the prior year, and above our expectations due to higher traffic. Security revenue for the third quarter was $266 million, up 23% year-over-year, driven by continued global demand for our Web and Enterprise Security Solutions. As Tom mentioned earlier, we also saw strong demand for DDoS protection from our Prolexic products in Q3. Foreign exchange fluctuations had a positive impact on revenue of $10 million on a sequential basis and a positive $4 million on a year-over-year basis. International revenue was $355 million, up 20% year-over-year or 18% in constant currency. We had strong performance internationally despite the sequential headwinds in India that I previously mentioned. Sales in our international markets represent 45% of total revenue in Q3, up 3 points from Q3 2019 and up 1 point from Q2 levels. Finally, revenue from our U.S. market was $437 million, up 6% year-over-year. Now moving to costs. Cash gross margin was 76%, in line with our expectations. GAAP gross margin, which includes both depreciation and stock-based compensation, was 64%. Non-GAAP cash operating expenses were $252 million, roughly flat with Q2 levels, and in line with our guidance. Now moving on to profitability, adjusted EBITDA was $351 million, up $51 million or 17% from the same period in 2019. Our adjusted EBITDA margin was 44%, up 2 points from Q3 2019. Non-GAAP operating income was $251 million, up $43 million or 20% from the same period last year. Non-GAAP operating margin came in at 32%, up 3 points from Q3 last year. Capital expenditures in Q3, excluding equity compensation and capitalized interest expense, were $200 million, in line with our guidance range. GAAP net income for the third quarter was $159 million or $0.95 of earnings per diluted share. Non-GAAP net income was $216 million, or $1.31 of earnings per diluted share, up 19% year-over-year, up 18% in constant currency, and $0.07 above the high end of our guidance range due to higher-than-expected revenue. Taxes included in our non-GAAP earnings were $37 million based on a Q3 effective tax rate of approximately 15%. Now, I will discuss some balance sheet items. We continue to have a very strong balance sheet. As of September 30th, our cash, cash equivalents and marketable securities totaled approximately $2.6 billion, up approximately $163 million from the end of Q2. After accounting for the $2.3 billion of combined principal amounts of our two convertible notes, net cash was approximately $254 million as of September 30th. This increase was driven by several factors that include an exceptionally strong cash collections quarter. Now, I will review our use of capital. During the third quarter, we spent $13 million to repurchase shares, buying back approximately 120,000 shares. We ended Q3 with approximately $644 million remaining on our previously announced share repurchase authorization. Our long-term plan remains to leverage our share buyback program to offset dilution resulting from equity compensation over time. In summary, we're very pleased with our Q3 results. Before I provide guidance, I wanted to take a moment to remind everyone of several factors that will impact Q4. First, seasonality plays a large role in determining our fourth quarter financial performance. We typically see higher-than-normal traffic for our large media customers and from seasonal online retail activity for our e-commerce customers, which are both difficult to predict, especially in the current economic environment. Also, as Tom mentioned earlier, today, we announced the acquisition of Asavie. In the fourth quarter, we expect the acquisition to add approximately $4 million of revenue and to be dilutive by approximately $0.01 of non-GAAP EPS. It’s also worth noting, as I mentioned earlier, that our Q3 revenue was negatively impacted by approximately $15 million due to the actions taken by the Indian government to ban 59 Chinese based web applications in India. Our Q4 guidance assumes an additional $4 million to $5 million negative impact to revenue sequentially based on the U.S. ban going into effect mid-November. In the unanticipated events, these 59 applications were subject to a total global ban. The total additional negative impact to our revenue would only be approximately 3%. To be clear, this represents an extreme assumption that we do not currently expect to occur, and we are not modeling in our current outlook. However, I wanted to provide you with additional color for added transparency, and to make the point that our customer base remains well-diversified across many customers, industries, products and geographies. Finally, at current spot rates, foreign exchange fluctuations are expected to have a positive $2 million impact on Q4 revenue compared to Q3 levels and a positive $6 million impact year-over-year. Taking all these factors into consideration, we're projecting Q4 revenue in the range of $812 million to $837 million or up 4% to 8% in constant currency over Q4 2019. To frame our guidance further, we would expect to be towards the lower end of the range if we see a more modest quarter for OTT and gaming traffic, if e-commerce activity is weaker than expected, the impact of the COVID pandemic leads to an inability of our customers to pay for our services and the U.S. dollar strengthens and creates foreign exchange headwinds. Conversely, we'd expect to be at the higher end of the range if we see a more robust than normal online holiday shopping season, and we see stronger than expected demand for OTT video and gaming traffic, including potential upside from two highly publicized new game console releases expected later this quarter. At these revenue levels, we expect cash gross margin of approximately 76%. Q4 non-GAAP operating expenses are projected to be $268 million to $279 million, with a sequential increase primarily due to higher commissions-related expenses from sales compensation accelerators kicking in during the fourth quarter, given our very strong performance this year relative to our plan. Factoring in the gross margin and operating expense expectations I just provided, we anticipate Q4 EBITDA margins of approximately 43%. Moving now to depreciation, we expect non-GAAP depreciation expense to be between $106 million to $108 million, reflecting our accelerated server deployment in Q3. Factoring in this guidance, we expect non-GAAP operating margin of approximately 30% for Q4. Moving on to CapEx, we expect to spend approximately $193 million to $199 million excluding equity compensation in the fourth quarter. And with the overall revenue spend configuration I just outlined, we expect Q4 non-GAAP EPS in the range of $1.28 to $1.32, or up 2% to 5% in constant currency. This EPS guidance assumes taxes of $36 million to $37 million, based on an estimated quarterly non-GAAP tax rate of approximately 15%. And it also reflects a fully diluted share count of approximately 165 million shares. In light of the Q4 guidance I've just provided and our strong performance for the third quarter, for the full year 2020, we now expect revenue of $3.164 billion to $3.189 billion, which is up 10% year-over-year in constant currency. We expect non-GAAP operating margins of approximately 31%. And we expect non-GAAP earnings per diluted share of $5.16 to $5.20, which is up 15% to 16% year-over-year. In summary, we are very pleased with how our business has continued to perform during a very challenging time. Thank you. Tom and I would be happy to take your questions.

Our first question comes from the line of Tim Horan with Oppenheimer. Your line is open. Please go ahead.

Can you talk about Edge a little bit more, maybe on how your service offers compare with your peers? And what do you think your win rate is on pitches for Edge?

Well, Edge refers to our platform, which really is unique in the sense that we're in 4,000 locations. We're in 1,000 cities. We are uniquely close to the end users out there, the billions of end users around the world. Other companies talk about edge, and they might be in a couple of dozen locations, a factor of 100 or less. Because we're close, that's really important because we're going to give better performance. If you're closer, the latency is less, and it's going to be faster. Also, if you're close, you got access to the bandwidth and the scale. That's why we have so much more scale than the other CDNs. And that's really important to customers that have a lot of traffic, the big OTT providers and the big software downloaders. And that's why so much of their business comes to Akamai. Also, being in those locations gives us a huge advantage on cost because in a large fraction of those 4,000 locations, we don't pay for bandwidth and colo and power. It's free for us with the infrastructure. We pay for our CapEx. But our competitors aren't there. Our competitors are in big data centers, and that is the most expensive real estate in the world. We're in a position to provide compelling pricing to the major enterprises out there. If our competitors are going to do that, they have to do it at a loss, and that's not sustainable. Now, any one of the many competitors we have out there is generally much, much smaller. At any given time, they could take on some traffic and show some high percentage growth on very small numbers. It's hard to sustain that when you don't really have a sustainable advantage. You see that happen as some of the traffic share moves around among smaller players. In addition, it's not just about CDN and delivering traffic; it's about accelerating the traffic and providing functionality on the edge close to the end user. I talked about many examples where we're doing that today. Of course, processing a lot of the API transactions, which are tied to functionality, over 100 trillion so far this year. Then you have the security aspect, which our CDN competitors, by and large, don't have. They partner with other companies or startups to have some security story. That's now a $1 billion business for Akamai and growing at over 20%. Security is just vital for our customers, and it works in tandem with application acceleration, with Edge computing, all on one service, all on one platform. If you're not on the edge, there's no hope to withstand the large attacks that we're seeing today.

And our next question comes from the line of Colby Synesael with Cowen. Your line is open. Please go ahead.

Just going back to security. I'm just curious, would the security results thus far this year have been much different had COVID-19 not happened? I'm just curious how you would quantify the impact that COVID-19 has had on the security business, whether good or bad? And then secondly, the long-term operating margin of 30%, I think you've messaged that, that should remain flat target. But can you just remind us why that is and why we won't continue to see increased operating margin leverage?

Sure. I think we'd see strong security growth with or without COVID. There are some products that are really helpful for enterprises as they have more of a remote workforce. We did see an uptick in bookings there. So I think there's some help. The attack rates have gone way up, and I do think some of that has tied to COVID. Now whether we see the ransom DDoS attacks that are widespread just in the last couple of months, we might have seen that anyway. There may be an increase because the price is bigger now. You might see more attacks on a commerce company that has a significant portion of its business in brick-and-mortar. They care about the fraction that is online for sure, but when all of their business is online, they care a lot more. There may be a bigger price that could incent attackers to up the level of attacks. I can tell you that we see a lot of attacks in Asia Pacific just like we do here and in Europe. In APJ, COVID is largely under control there, and operations are largely returned to normal, yet the attacks — the ransom DDoS attacks are just as — increasing just as fast over there. One of the national stock exchanges that was taken offline and is now an Akamai customer was in Asia Pacific. In terms of the 30%, we do think that's a good place to operate the company over the longer term. That said, we're going to do everything we can to operate as efficiently as possible, and you see that this year. This year, we've been doing over 30%. If we can do that and continue to make the investments we want to make to achieve long-term growth in the business, then we will. The right way to think about it is that 30% is a good baseline, and when we can overachieve that, we're going to do that.

And I guess just one quick follow-up to the security question. I mean, given what sounds like some upside, arguably, do you think that you're in a position to sustain that 20%-plus growth rate over the next few years?

Certainly, we'd like to do that. We're seeing very strong growth in Kona Site Defender and Prolexic. Kona Site Defender is our web app firewall product. Bot Manager is doing very well, and the next generation of that will be even stronger at preventing account takeover. Our security services business is doing very well. I think with the increase in attacks and the sophistication of attacks, we're seeing even more demand for our security services. It's just too hard for even major enterprises to keep up. We have newer solutions like our enterprise services, Enterprise Application Access, Enterprise Threat Protector, now equipped with the first version of our Secure Web Gateway. We're going into beta with our multifactor authentication service next month. We talked about our Page Integrity Manager, which sits on top of Kona and is off to a great start. Of course, we announced today — and I'm really excited about the Asavie acquisition. I think that opens up a whole new category for us that will see accelerated growth as we get more 5G deployments and as IoT applications grow. What that does is it sends all the cellular traffic safely and directly to Akamai before it gets on to the Internet. In that way, we can really protect enterprises and their cellular devices. I think that's an exciting market for the future.

And our next question comes from the line of Sterling Auty with JPMorgan. Your line is open. Please go ahead.

So wondering, you made the comment that one of the big video providers, you saw a 4x increase in traffic. That would seem to be more than just a COVID-related. I'm just wondering what else you saw in that particular account? Is that something happening in other accounts as well?

Yes. As we talked about, we're continuing to gain share. If you exclude the 59 Chinese apps where obviously government regulation has lessened the traffic we're delivering, that's based on our scale, performance, and ability to offer competitive prices for our customers. You've seen that trend over the last couple of years. We put a lot of effort into continuing to improve performance and our scale on a global basis, which puts us in a great position against the competition. The 4x is not just COVID. COVID increased traffic, but not to that extent.

That's great. And then one follow-up. You touched upon it in your prepared remarks and your guidance, which is e-commerce heading into the holiday season. It's been a little while since you've updated us. Can you give us a sense of where do you sit in terms of your customer base within the 100 largest e-commerce sites and vendors?

Very, very strong. Well north of 90% of the top commerce companies rely on Akamai for application acceleration and, importantly, security. These companies see that since most of their business is online, security really matters now, and we're the go-to supplier.

And our next question comes from the line of James Fish with Piper Sandler. Your line is open. Please go ahead.

Tom, you sound really excited here about these new security solutions again. How are you thinking about the web security gateway market? And do you need more investment in an enterprise security sales team to get this product more penetrated and beyond just the CDN installed base?

Yes. In fact, a lot of our customers for the enterprise products are new to Akamai and hadn't bought our pre-existing product line. Our web products, delivery, and web app firewall were primarily for a subset of the Fortune 500 — maybe a third to half of the verticals. Enterprise security is something that pretty much all the Fortune 500 would need. That has increased our market, and we've put effort into specialist teams that help the sales force. Our sales team is now adept at selling traditional Akamai security products. Most of them are actually pretty good now at the newer products with enterprise security and Page Integrity Manager. The SWG solution is just new out there. So it's very early on. But I think we're in good shape there. Asavie, of course, is sold by carriers as is our SPS solution. Akamai will sell to the world's major carriers and provide a solution they then take to enterprises. That’s a model we're excited about. Our enterprise security products will increasingly be led by channel partners and carriers.

Just as my follow-up, we're starting to see a new wave of applications grow again, like we did last decade with Netflix and YouTube being two examples. What are you guys hearing from customers regarding their CDN build-outs for some of the applications that they have? One customer, for example, hit their 5-year goal within 1 year.

Wait, so are you asking about what we see in terms of DIY? Or are we seeing big OTT players and their market penetration success?

Both. I'll take both.

OTT is certainly increasing, and many of the offers are seeing substantial success. Obviously, some are doing better than others. But I do think OTT is here to stay. It’s got tailwinds from the pandemic. But as people watch more online, that becomes the pattern and will continue past the pandemic. Yes, I think we'd all like to get back to a world when we can go out to the movies, but probably not any time soon in the Americas or in EMEA. More movie watching and TV shows will be watched online. DIY is something where we exist in some of the largest content providers. We haven't seen a huge shift there. Some of the biggest companies do it, but building such an operation on your own is costly and doesn't compare to what Akamai provides in quality. Some customers may do it, but it hasn't fundamentally shifted.

And our next question comes from the line of Ray McDonough with Credit Suisse. Your line is open. Please go ahead.

This is Ray McDonough on for Brad. First, Tom, if I could, I wanted to ask about gaming. As you mentioned, we're approaching a new console cycle with both Sony and Microsoft releasing new consoles. From what I understand, they've made some changes to how games will be downloaded. With the caveat that downloads and gaming files are becoming larger and more ubiquitous, how should investors think about the contribution of gaming? How much does it represent today? And how big of a growth driver do you think it can be into next year?

I'm going to hand that one over to Ed.

Yes. Gaming has changed for us significantly over the last couple of years. Multiplayer gaming led to changes in dynamics. With the consoles coming online, obviously, we've had a major upgrade cycle after 4 or 5 years. This could be a good source of upside for us. While we don’t break it out, I would say it's probably the second largest contributor in our media business next to video. This trend could last into early next year as publishers announce new games and consumers buy the new consoles. It's also a good trend for us, but there's uncertainty whenever you have something large.

Yes. That makes a ton of sense. I appreciate that color. And if I could, just a quick follow-up. Coming out of the first half of the year, there seems to be some supply constraints industry-wide. Understanding that every region is a bit different, how is capacity industry-wide trending? And how should investors think about your capital expenditure plans into next year?

Yes. This year was a huge year for CapEx. We've been increasing our capacity for about 18 months. I'm glad we did, knowing we couldn’t have predicted the pandemic, but we had several launches coming. As we talked about with gaming becoming more challenging to provide simultaneous access to customers, we spent significantly on CapEx and took advantage of bulk purchases. We added a lot to our capacity. I expect next year to return to normal levels of CapEx and down several points from what we're seeing today.

And our next question comes from the line of Will Power with Baird. Your line is open. Please go ahead.

Okay. Great. I'll ask just a couple here. Maybe first, I'd love to get some perspective on what you're seeing in the international arena. And I guess, really, despite the challenges you were facing in India, you continue to see strong growth. So maybe just if you can touch on the sources of the strength outside of India?

Yes, you are right to point out, it’s actually not India that was impacted, it was China because the customers impacted were the 59 Chinese apps. Those were actually customers in China. India was strong. We saw strength in many different countries across regions, including Latin America — Brazil and Mexico, Europe — the UK, Germany, and the Netherlands. We had strength in Australia, Indonesia, and continued strength in Japan in Asia. It’s really across the board, and we’re pleased with international growth, especially losing $15 million in revenue but still growing year-over-year.

Is that international strength concentrated in any particular products or solutions or is it more broad-based?

I'd say it's more broad-based. Initially, it was all about media delivery and application acceleration. The U.S. market first adopted security solutions. Now, security is a robust growth engine internationally.

Yes, great question. We continue to be active in looking at potential deals. Yet we have some restrictions due to the pandemic. So far, the pandemic hasn't impacted market caps very much, but that may change depending on the global economy. It's business as usual right now.

And our next question comes from the line of Keith Weiss with Morgan Stanley. Your line is open. Please go ahead.

A lot of the questions I had were covered. So a couple of detailed questions, if you will. One, on that gaming theme, a lot of what people were talking about for gaming on a go-forward basis is shifting to more streaming to game subscriptions. Can you talk to us about how optimized or positioned you are for that potential shift towards more game streaming? It sounds like something that would be kind of right up your alley.

Yes, it depends on with streaming you're referring to. For gaming tournaments where a lot of people are watching, we support that traffic and it creates a fair amount of traffic. In individual gaming, streaming isn't as economical as it stands. Major gaming companies have worked on that for over a decade without the economics working out. We handle the necessary security, but the individual streaming is not so economical.

And then one detailed question on the security solutions. In particular, Access is a solution that you’ve rolled out. How do you see the competitive environment shaking out for you guys? Where do you see yourselves performing well, and who do you run up against most often?

We compete well with Zscaler there. The majority of competition comes from the traditional CPE vendors and approaches. Our value proposition is that we can do it in the cloud, easier and more secure. Coupled with access, we can layer in Kona Site Defender and our other technologies, which competitors lack. I'm optimistic about our future growth there, and even though we compete with Zscaler, we mainly compete against traditional methods.

And our next question comes from the line of Amit Daryanani with Evercore. Your line is open. Please go ahead.

This is Lexi on for Amit. So, on the December quarter guide, it implies that sales were up around 7% year-over-year, and that's a strong deceleration versus the 12% to 13% range we've seen over the last few quarters. I guess, the India and U.S. account for $20 million or 200 basis points of drag. But beyond that, what do you see as kind of the headwinds there?

Yes. If you look at the last couple of quarters, Q2 had a jump due to the pandemic and additional traffic. The good news is we've maintained the earlier traffic levels, despite the $15 million loss in Q4. Last Q4 was exceptionally strong, and there are factors to consider comparing Q3 to Q4. We had license revenue of about $7 million from our carrier business, and we typically see stronger volumes in Q4. We also introduced a zero-overage offering to our Web Division customers that led to more predictable spending.

And our next question comes from the line of James Breen with William Blair. Your line is open. Please go ahead.

Just one on security. Can you just give us a little color around the 23% growth? How much of that came from existing customers taking new products? Also, when security customers take multiple products, how does that reflect on their relationship or contracts with the company?

Yes. So I’ll start with the second one. The majority of our growth in security is from existing customers. We have about 61% of our customers buying security products from us. New customer acquisition leads but in recurring revenue, new customers contribute less than in a quarterly basis. To add functionality, customers might renew contracts or we sometimes add to existing contracts. Some might want managed options for Bot Manager. We're seeing good early uptake with Page Integrity Manager as an additional service.

And just a follow-up. As you look across your entire revenue base right now, how much is contractual versus volume-driven? What percentage is more contractual?

I'd say a majority of the business is contractual, with some volumetric components to security. In total revenue, it's probably about a quarter to a third that is variable. In strong quarters, like Q4, we could see higher volume-driven revenue. But most of the business is contractual.

And our next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Your line is open. Please go ahead.

Most of what I had has been answered. Just a few on the managed security services. I remember a while back, you had referenced that I believe is 1,000 customers and a $100 million in revenue. I don't know that we've gotten an update. Just curious if you could update that? And then any commentary around verticals that stood out for AKAM in the quarter?

Sure. I don't have a customer number for you. We'll provide a more fulsome update later, but managed security services continue growing at double-digits and remains a key differentiator. We've built tools for customers to manage security, but they often prefer us. Our Bot Manager has high demand, and managing firewall rules on Kona could be complicated for customers.

In terms of the verticals, the financial sector is huge for security, and so is commerce as more businesses move online. Interestingly enough, big media and gaming sites are seeing more attacks, particularly during the election cycle when news sites become bigger targets. Protecting OTT sites and accounts is becoming critical.

And our next question comes from the line of Rishi Jaluria with D.A. Davidson. Your line is open. Please go ahead.

This is Hannah Rudoff on for Rishi. On the Asavie acquisition, could you talk about the overlap in technology and customer bases between you and them?

There isn’t a lot of overlap. Their capability takes traffic from a cellular device and directs it through the carrier, now directing it into the Akamai platform. We can add our enterprise security capabilities, application firewall capabilities, and Secure Web Gateway, ensuring that the traffic is secure. Their technology is beneficial as it doesn't require a client, which is crucial for IoT devices that may not be equipped.

Yes, in the Internet Platform Customers, aside from higher traffic, we did see improved traffic overall. We had modeled for negative impacts from previous deals in this group but exceeded expectations. We had solid revenue from rebound traffic.

And our next question comes from the line of Brandon Nispel with KeyBanc Capital Markets. Your line is open. Please go ahead.

Two, if I could. What are you guys seeing from a traffic perspective thus far in the fourth quarter versus the third quarter? And looking back, how should we think about higher traffic growth in 2020 translating into some contract repricing situations in 2021? Regarding the acquisition, you mentioned $4 million in revenue. Is it safe to assume that this acquisition closed today and it's a 2-month benefit for this year? Can we annualize that for next year with some growth expectation?

Yes. As for the acquisition, yes, you’re right about the math for the quarter. Remember that purchase accounting and integration costs can vary, and we'll provide an update on revenues when we have clearer numbers. Regarding the pricing and volumes, we will have renewals throughout the year. The average contract length is typically 18 months. A strong quarter may lead to contracts with variable contributions, which we monitor closely. Traffic in Q4 shows a slight pickup due to back-to-school and fall seasons, supporting our guidance. Weekend traffic is elevated from sports, contributing to our projections.

And our next question comes from the line of Lee Krowl with B. Riley Securities. Your line is open. Please go ahead.

Two quick questions. I think you mentioned the Web Division saw some upside from customer credits. Can you quantify that upside? Is there a similar contribution for Q4?

Sure. The upside isn’t something I would quantify. We mentioned a negative impact in Q1 estimated at $5 million and $14 million in Q2. Before Q3, we anticipated another negative impact. In the Q3 quarter, the impact was much less than $1 million due to lower expectations. So it was a positive surprise, and we don’t expect any large impacts moving forward. As for managing servers, we added significant capacity in the past years to handle media, which helps maintain margins. Economies of scale help drive down our costs, regardless of any potential decline in traffic. We’ve also gotten better throughput per machine over time, so we expect to maintain margins even with increased server activity.

And our next question comes from the line of Mark Mahaney with RBC. Your line is open. Please go ahead.

Okay, thanks. All my business questions were asked. So I'll just ask, in the event of a change in administration next week, what implications do you see for your business regarding potential changes to tax policies, immigration issues, and corporate tax rates?

I think just settling down the overall environment would be beneficial. Stress levels are high in the country. It could be good to have some clarity post-election. Tax rates may rise, impacting EPS initially, but the fundamental operations of the business are likely unaffected. Ed?

In terms of taxes, a lot of our earnings come from outside the U.S. A potential increase in taxes might come in '21 or '22. Returning interest rates remain a factor as the Fed is keeping rates low. Lastly, potential stimulus could influence foreign exchange. If the dollar weakens, that may benefit us in our international operations.

Well, thank you, everyone. In closing, we will be presenting at several virtual investor conferences and events throughout the remaining of the fourth quarter. Details are available in the Investor Relations section of akamai.com. Thank you for joining us. All of us here at Akamai wish you continued health and a very nice evening.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.