Akamai Technologies (AKAM) Q1 2021 Earnings Call Transcript

Akamai Technologies (AKAM 0.39%)
Q1 2021 Earnings Call
May 04, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Akamai Technologies first-quarter 2021 earnings call. [Operator instructions] Please be advised that today's conference may be recorded. [Operator instructions] I'd now like to hand the conference over to your host today, Mr.

Tom Barth, head of investor relations.

Tom Barth -- Head of Investor Relations

Thank you, operator. Good afternoon, everyone, and thank you for joining Akamai's first-quarter 2021 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 in 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 May 4, 2021.

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.

Tom Leighton -- Chief Executive Officer

Thanks, Tom, and thank you all for joining us today. I'm pleased to report that Akamai delivered excellent results in the first quarter. Q1 revenue was $843 million, up 10% year over year and up 8% in constant currency. This strong result was driven by the continued rapid growth of our security business, accelerated growth in our edge applications business, and continued high-traffic levels on our intelligent edge platform.

Non-GAAP operating margin in Q1 was 31% and Q1 non-GAAP EPS was $1.38 per diluted share, up 15% year over year and up 11% in constant currency. With a strong start to 2021, we're proud that Akamai has continued to enable and to protect remote work, homeschooling, e-commerce, and online entertainment for billions of people around the world amid very challenging circumstances. Our security solutions portfolio performed especially well in Q1, generating revenue of $310 million, up 29% year over year and up 27% in constant currency. The very strong growth was experienced across most of our security products, including our new Page Integrity Manager solution.

Page Integrity Manager helps enterprises defend against malware and third-party software and applications. Customers that adopted Page Integrity Manager in Q1 included Maersk, the world's largest container shipping operator; and Groupon, the global e-commerce marketplace. Maersk uses more than 4,000 scripts, half of which are third-party scripts to drive millions of dollars of online business every hour. Managing this complex and dynamic environment had become an increasingly difficult security challenge for Maersk and so they now use Page Integrity Manager to improve visibility into security threats and to prevent the loss of critical data.

Our Bot Manager solution also continued to perform very well in Q1. Bot Manager is designed to mitigate a wide variety of automated attacks, including account stuffing attacks where credentials stolen from one website are checked for validity at thousands of other websites. When valid credentials are found, a manual attack is then often used to extract value from the compromised accounts. Losses from account takeovers and new account fraud are estimated at over $10 billion annually in the U.S.

In order to forge such manual attacks, we launched the beta for our new account protector solution in Q1. Account protector shields organizations from account takeover and other kinds of fraudulent human activity without increasing friction for legitimate customers. Account protector works by detecting in real-time whether a user logging into an application is the legitimate account owner or an impostor in possession of stolen credentials. One of our beta customers for this new solution is a well-known restaurant franchise.

It was under attacked by cybercriminals who were compromising the loyalty accounts of their diners. The criminals were stealing loyalty reward points and then reselling them on the dark web. The digital theft outraged the diners whose points were stolen and angered restaurant owners who unknowingly provided meals to fraudsters. With help from Akamai, the franchise can now identify the situations where humans are impersonating valid diners and take action to stop the illicit transfer of loyalty points, thereby stopping the fraud and enabling the franchise to focus on accelerating sales.

We're also excited about the success of Akamai's fastest-growing security segment, Access Control, which reached an annualized revenue run rate of $100 million in Q1, up more than 170% over Q1 of 2020 and up over 60% organically. Our Access Control segment provides secure connectivity for users, applications, workloads, and IoT systems, regardless of their location. Products in this area include Enterprise Application Access, Enterprise Threat Protector, and our new secure mobile and secure IoT solutions that we acquired from Asavie in October. Our secure mobile and secure IoT products provide security, visibility, and control for mobile devices at the edge.

These services deter malicious activity and support acceptable use policies without needing to install a client on the device. The solutions are sold to our carrier partners such as AT&T, where it forms the basis for their AccessMyLAN solution. These capabilities have been especially important in helping school districts secure student devices during the pandemic so that students can learn from home safely. Our security solutions also continued to gain recognition from the leading analyst firms in Q1.

Our market-leading web application firewall capabilities earned Gartner Peer Insights Customers' Choice distinction. And Forrester named Akamai as a leader in DDoS protection for the third time, saying large enterprise clients that want an experienced trusted vendor to make their DDoS problem go away should look to Akamai. Turning to our CDN portfolio. Q1 marked another quarter of very strong traffic growth for Akamai, led by OTT video services and downloads of e-gaming software.

On March 16, traffic on the Akamai platform reached an all-time high of 200 terabits per second. This is 19% higher than the peak in Q1 of last year and 2.5 times the traffic peak in Q1 of 2019. Daily peaks were also high in Q1, averaging 143 terabits per second. In fact, traffic on our platform exceeded 110 terabits per second, pretty much around the clock in Q1.

Overall, our CDN products and services generated revenue of $532 million in Q1, up 2% year over year and flat in constant currency. The Edge Application segment generated $45 million in revenue last quarter, up more than 30% over Q1 of 2020. As you may recall from the discussion at our Investor Summit in February, this revenue amount includes edge computing solutions, such as EdgeWorkers, that we build discreetly, but does not include the wide array of services that use our computing capabilities at the edge. As we discussed during our recent Investor Summit, we believe that there is the potential for substantial future growth in the area of edge computing, as we anticipate more enterprises moving their compute workloads to our edge platform for offload, improved performance, security, and global scale.

A timely example of such a shift is manifested in our new Vaccine Edge solution, which is enabling over two dozen public health agencies and pharmacy chains around the world to deliver and secure COVID vaccine registration sites in the face of extraordinary flash crowds. In multiple instances, Akamai was called in to rescue government agencies whose websites had crashed under load, resulting in frustrated citizens who waited for long times before getting kicked out without a reservation. In some cases, these websites have been using solutions provided by competitors that were not able to handle the load. We're pleased to partner on Vaccine Edge with salesforce.com, and we're proud that our EdgeWorkers solution has made a real difference to the many millions of citizens trying to get the vaccine as quickly as possible.

Our customers are now using EdgeWorkers for a wide range of applications. For example, a leading theme park operator is using EdgeWorkers to help manage demand as they plan to reopen parks. A publicly traded sports and entertainment company has implemented geofencing using our EdgeKV data store, together with EdgeWorkers, to ensure that users access only relevant broadcast content for their location. A nationwide home improvement retailer and a global credit card company are using A/B testing logic at the edge to deliver fast and personalized user experiences.

We're enabling DevOps workflows for our global sportswear brand by managing canary releases, where only a targeted group of users can see a new experience. And we're enabling a leading global manufacturer of devices to authenticate their users at the edge, which improves performance and reduces their cloud costs. We're also proud of the progress that we're making with our sustainability efforts. In the past year, we doubled our platform capacity with no increase at all in our platform's carbon footprint.

And just two weeks ago, on Earth Day, we announced that by 2030, Akamai intends to power 100% of our global operations with renewable energy, improve the energy efficiency of our platform by an additional 50%, mitigate 100% of our platform emissions and continue to recycle 100% of our electronic waste. These goals reflect Akamai's commitment to be a responsible, efficient, and forward-looking company. In summary, we're very excited about the innovative technology that we're developing, the strong demand from customers for our security and edge computing solutions, and our Q1 financial performance on both the top and bottom lines. The growth strategy and goals that we outlined to you in our Investor Summit on February 25, set our direction for the future, and we believe that our strong Q1 results show that we've been executing according to plan.

Now, I'll turn the call over to Ed to provide further details on our Q1 results and the outlook for next quarter and 2021. Ed?

Ed McGowan -- Chief Financial Officer

Thank you, Tom. Before I provide additional details on our Q1 performance, I'd like to remind everyone that as a result of the reorganization we announced last quarter, we've refocused the company from a vertical-aligned divisional structure to a product-oriented lens. I will therefore be focusing my discussion today on our Security Technology Group and our Edge Technology Group. The Security Group, as you might imagine, encompasses all of our security solution.

The Edge Group includes our media delivery and web performance CDN business, along with our edge compute solutions. We plan to provide additional revenue detail for the different product lines within our Security Technology Group and Edge Technology Group on an annual basis. However, we might highlight specific subgroup details from time to time on our quarterly earnings calls if we feel it will help provide greater context on our results. Finally, as I mentioned on our last call, we will continue to report both Web Division and Media and Carrier division results, along with our Internet platform customer results on our website for the balance of 2021 to assist with this reporting transition.

So with all that said, as Tom outlined, Akamai delivered another excellent quarter in Q1. We were very pleased to exceed the high end of our guidance range on both revenue and earnings. Q1 revenue was $843 million, up 10% year over year or 8% in constant currency, driven by continued strength across most major product areas in our security business, better-than-expected traffic from OTT video and gaming customers, and very strong performance in our edge applications business. Revenue from our Security Technology Group was $310 million, up 29% year over year or 27% in constant currency, driven by broad-based strength across most of our security products.

Revenue from our Edge Technology Group was $532 million, up 2% year over year or flat in constant currency. We benefited from strong traffic growth driven by OTT video and gaming, as well as strong growth in our edge applications business, as Tom mentioned earlier. As expected, foreign exchange fluctuations had a positive impact on revenue of $3 million on a sequential basis and positive $16 million on a year-over-year basis. International revenue was $380 million, up 13% year over year or 8% in constant currency.

Sales in our international markets represented 45% of total revenue in Q1, up 1 point from Q1 2020 and consistent with Q4 levels. Finally, revenue from our U.S. market was $463 million, up 8% year over year. Moving now 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 $267 million, in line with our expectations. Now, moving on to profitability.

Adjusted EBITDA was $375 million, up $49 million or 15% from the same period in 2020. Our adjusted EBITDA margin was 45%, up 2 points from Q1 2020. Non-GAAP operating income was $264 million, up $34 million or 15% from the same period last year. Non-GAAP operating margin came in at 31%, up 1 point from Q1 last year and above our guidance range due to leverage from our revenue outperformance.

Capital expenditures in Q1, excluding equity compensation and capitalized interest expense, were $150 million, consistent with our guidance range. We continue to expect Q1 capex to represent the high watermark for quarterly capex spending in 2021. GAAP net income for the first quarter was $156 million or $0.94 of earnings per diluted share. Our Q1 GAAP results include a $7 million restructuring charge related to the company realignment we announced last quarter, which was in line with our expectations.

Non-GAAP net income was $228 million or $1.38 of earnings per diluted share, up 15% year over year, up 11% in constant currency, and $0.07 above the high end of our guidance range due to our revenue outperformance. Taxes included in our non-GAAP earnings were $38 million, based on a Q1 effective tax rate of approximately 14%. Now, I will discuss some balance sheet items. As of March 31, our cash, cash equivalents, and marketable securities totaled approximately $2.5 billion.

After accounting for the $2.3 billion of combined principal amounts of our two convertible notes, net cash was approximately $154 million as of March 31. Now, I will review our use of capital. During the first quarter, we spent $58 million to repurchase shares, buying back approximately 600,000 shares. We ended Q1 with approximately $514 million remaining on our previously announced share repurchase authorization.

Our plan remains to leverage our share buyback program to offset dilution resulting from equity compensation over time. As a result, based on current market conditions, we expect to spend at least $350 million for the full year 2021. Moving on to Q2 guidance. We are projecting Q2 revenue in the range of $839 million to $853 million or up 6% to 7% as reported or 3% to 5% in constant currency over Q2 2020.

There are two factors to consider as you think about year-over-year comparisons for Q2. First, in 2020, we saw a significant uptick in traffic on our network starting at the end of March and continuing through the remainder of the year as a result of global lockdowns. As our excellent Q1 results demonstrate, traffic has continued to grow on our network this year, but we don't expect to see the same traffic growth rates from a year ago going forward. This creates more challenging year-over-year comparisons for our edge delivery business starting in Q2 and continuing for the remainder of 2021.

Second, the Q2 year-over-year growth comparison also reflects the continuing ban of some Chinese-based apps in India. As a reminder, these apps, which were banned in Q3 of last year, contributed revenue of approximately $15 million in Q2 2020. Foreign exchange fluctuations are expected to have a negative $3 million impact on Q2 revenue compared to Q1 levels and a positive $18 million impact year over year. At these revenue levels, we expect cash gross margins of approximately 76%.

Q2 non-GAAP operating expenses are projected to be $261 million to $266 million. We anticipate Q2 EBITDA margins of approximately 45%. Moving now to depreciation. We expect non-GAAP depreciation expense to be between $116 million to $117 million.

Factoring in this guidance, we expect non-GAAP operating margin of approximately 31% for Q2. Moving on to capex. We expect to spend approximately $133 million to $138 million, excluding equity compensation in the second quarter. And with the overall revenue and spend configuration I just outlined, we expect Q2 non-GAAP EPS in the range of $1.35 to $1.40.

This EPS guidance assumes taxes of $37 million to $39 million based on an estimated quarterly non-GAAP tax rate of approximately $0.14 -- excuse me, 14%. It also reflects a fully diluted share count of approximately 165 million shares. Looking ahead to the full year, we are raising our guidance for both revenue and EPS. We now expect revenue of $3.4 billion to $3.435 billion, which is up 6% to 7% year over year as reported or up 5% to 6% in constant currency.

We now expect security growth to be in the low 20s for the full year 2021. We are estimating non-GAAP operating margin of approximately 30% to 31% and non-GAAP earnings per diluted share of $5.45 to $5.52. And this non-GAAP earnings guidance is based on a non-GAAP effective tax rate of approximately 14% and a fully diluted share count of approximately 164 million shares. Moving on to capex.

Full-year capex is expected to be approximately 16% of revenue, unchanged from our prior outlook. We are very pleased to have delivered such strong results in Q1 and to be able to increase our outlook for the full year. Thank you. Tom and I would be happy to take your questions.

Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Colby Synesael with Cowen. Your line is now open.

Michael Elias -- Cowen and Company -- Analyst

Hi. This is Michael on for Colby. Two questions if I may. First, could you give us an update on your M&A pipeline for security and how the number of opportunities you're seeing compares to this time last year? And secondly, one of your CDN peers flagged that they saw a loss of market share due to performance.

Is there anything that you can flag related to market share gains or potentially losses during the quarter? That would be helpful. Thank you.

Tom Leighton -- Chief Executive Officer

Sure. I would say the M&A pipeline is comparable to last year. There's a lot of companies for sale. And the pricing for typical companies in the security area remains very high.

And I think, in many cases, unrealistic. So I think overall, the dynamics there are pretty comparable to where they were last year. As you know, Akamai is always looking for opportunities. We're also very disciplined in terms of actually -- what we end up buying.

In terms of CDN market share, the very large media companies do compare the CDN vendors in terms of their traffic share. And if a vendor is doing better than others, they tend to get more share. And that's why Akamai has such a large share when it comes to delivery of media traffic. And if a vendor has outages or is performing poorly, which we see a fair amount out there among our competition, they can lose share.

And so that's a very typical dynamic. Nothing new there. It's been that way for several years. And that's why Akamai put such an effort to have the world's best performance.

And it's why we have so much of the traffic.

Michael Elias -- Cowen and Company -- Analyst

Perfect. Thank you very much.

Operator

Our next question comes from James Fish with Piper Sandler.

James Fish -- Piper Sandler -- Analyst

Hey, guys, congrats on the quarter. First, can you just give us more color behind the media CDN business in terms of, especially the gaming vertical specifically, just really trying to understand how fast either revenue or traffic from gaming itself is growing and what the exposure to gaming overall given what we're seeing with the console cycle as well? And then normally, Ed, you don't typically raise in -- following Q1. I guess what gives you the confidence at this point of this -- at this point of the year versus normal?

Ed McGowan -- Chief Financial Officer

Yeah. Hey, Jim. So first, I'll take the first question, which was around the media -- it's the gaming growth in particular. So we don't break out specific growth rates, but I can say that gaming, in particular, was one of the stronger verticals in terms of growth, very pleased with what we saw.

The other thing is, I'd say, the names of the number of customers that we saw growing. It wasn't just your normal handful of gaming customers. So we saw some benefit from the continuation of the gaming console releases we saw in Q4. But we also saw a lot of publishers have some pretty significant releases during the quarter.

So in general, it was a really good gaming quarter. We're off to a pretty good start here in Q2. And as you know, the gaming release can be a bit seasonal, but so far, it's been a pretty good start to the year. And like I said, I'm pretty happy with the performance across many different customers.

In terms of guidance, yes, we just start off having a great year. Traffic has been very strong. You saw the security performance. It's a little bit -- we got a lot of exposure on the FX side.

So having one quarter down and having the first month of the second quarter down gives you a little bit more confidence going into the year. So we felt that we had enough visibility at this point to raise guidance. As you know, the second half of the year is always little bit more challenging, where Q3, you tend to see summer seasonality. We didn't see that last year because of the pandemic.

We'll probably see a little bit of that on the media side. And then Q4, obviously, tends to be our strongest seasonal quarter where you have strong e-commerce and strong media. So we're feeling pretty confident at this point, so we thought it was appropriate to take the guidance up a touch.

James Fish -- Piper Sandler -- Analyst

Thanks. Congrats again.

Operator

Our next question comes from Keith Weiss with Morgan Stanley.

Keith Weiss -- Morgan Stanley -- Analyst

Excellent. Thank you, guys, for taking the question and a very nice quarter. On that last question, and this kind of increased confidence in the year. Is it more on the, like, CDN side or more on the security side? Because it does sound like you feel good about some of those new products ramping pretty nicely on the security portfolio, and you're talking about the low 20s growth for the year.

So I was hoping you could clarify that. And then I have a follow-up question on margins if we have time.

Tom Leighton -- Chief Executive Officer

Yeah. We had a very strong start to the year. It's great to see the security business growing at 29%. And as we talked about, it's really across the board.

It's not a single product doing well, but just strength everywhere in security. And when you see that kind of performance and we look ahead to the back part of the year, we are confident that we're going to do better than we had thought coming into the year, just great performance. There's also a good performance on the CDN side. Happy to see that up 2%.

As Ed talked about, you do worry about FX there and what can happen. But on balance, business, very strong and off to a great start. Ed, do you want to add any color to that?

Ed McGowan -- Chief Financial Officer

No, I think you covered it, Tom. I think, seeing the strength in security and being able to take that up a touch. And last quarter, we were in the 18% to 20% range. Now we're in the low 20s.

And then on the CDN side, we do have some tougher compares, but we're seeing really strong traffic and not seeing any decrease from what we've seen over the last year. So we're feeling pretty good about that.

Keith Weiss -- Morgan Stanley -- Analyst

Got it. That sounds great. And then on the margin side of the equation. We're past the peak in terms of capex, sort of spending -- or capex intensity, but it's going to take some time for that to flow through to gross margin.

So that's probably more of like a calendar '22 impact. But you did come in a little bit ahead on operating margins this quarter. And next quarter, we're looking for 31%, the expectation that you're going to try to sort of kick that up with increased investment in the business. Or is there potential for kind of more flow-through of upside into better margins for the year?

Ed McGowan -- Chief Financial Officer

Yeah. OK. So, Keith, two things to think about there. The first one is, we have our -- biggest expense line is our payroll.

And we have our annual, what we call, our merit increase cycle that kicks in July 1. So you'll see a little bit of an increase in our operating expense just for carrying our current employees, but we will be investing in security. So we've got some planned investments in the back half of the year. But we took the guidance range up from what we said approximately 30 last time, to 31.

So running at 31 here, might be a touch under in Q3 as we go through our merit cycle. And then Q4 is always a little bit of a wildcard in terms of how strong the revenue performance is. But we want to make sure we're investing back in the business. We see really good growth in security but also in our edge applications business as well.

Keith Weiss -- Morgan Stanley -- Analyst

Got it. And is there a potential for gross margins to start to become a little bit of a tailwind into the back half of the year?

Ed McGowan -- Chief Financial Officer

Yeah. I mean, you got to keep in mind the mix there, Keith. Over time, I think as you get into, as we talked about in the Investor Relations Day, where you saw our security margins, gross margins are higher. You've got your -- media margins are lower.

So it really is a mix. And while we're exceeding our plan so far on security, it's going to take a bit for that to really manifest itself in higher gross margins. You just need to get a bigger percentage of the business coming from security. And if you look at the part of the business and media that's growing, it's primarily the high volume, video, high-volume media.

That tends to be where you have probably the most competition and pricing pressure. So you kind of balance those two out and you kind of keep the gross margins flattish year for the year. And then I'd say over time, there's a chance that we could see some expansion there, but we're not going to call that out right now.

Keith Weiss -- Morgan Stanley -- Analyst

Got it. Excellent. Thank you so much for the color, guys.

Operator

Our next question comes from Sterling Auty with JPMorgan.

Sanjit Singh -- Morgan Stanley

Hi. This is Sanjit on for Sterling Auty. Can you give color on the organic growth in the security for the quarter?

Ed McGowan -- Chief Financial Officer

Yeah, sure. This is Ed. We had about $10 million of contribution from Asavie, which would be about 4 percentage points. I would say though that when we acquired Asavie, our plan was to do roughly $30 million in revenue in the first year, and we're obviously exceeding that.

So we've been able to take that asset and really start to scale it. So while it's technically inorganic, I'd say we deserve some credit for being able to significantly accelerate that growth rate. So if you back out the 4%, you'd be -- I said 29%, it'd be 25% and 22% on a constant-currency basis.

Sanjit Singh -- Morgan Stanley

OK. And then just to follow up on that. Like the gross margins and sales and marketing are down seasonally. So can you give colors on that as well?

Ed McGowan -- Chief Financial Officer

Yeah. So on the sales and marketing, what you'll find is, Q4 tends to be our highest quarter for sales and marketing expenses where you have, especially last year when we were exceeding our plan, we get into accelerators. So you get a reset on the compensation, and then you'll see it spike up again in Q4 of this year.

Sanjit Singh -- Morgan Stanley

Good. And on gross margins?

Ed McGowan -- Chief Financial Officer

Yeah. So gross margins were flat quarter over quarter. That's in line with what we expected. So really, there's nothing to call out there.

Sanjit Singh -- Morgan Stanley

Cool. Thanks.

Operator

Our next question comes from Tim Horan with Oppenheimer.

Tim Horan -- Oppenheimer & Co. -- Analyst

Thanks, guys. Great security quarter. Was there any one-time items, any license deals, or anything else that would suggest why the growth would slow down so much after an acceleration like this? And can you comment on how enterprise security is doing? Is it meeting your expectations at this point?

Ed McGowan -- Chief Financial Officer

Yeah. Sure, Tim. I'll take the first one and, Tom, if you want to talk about enterprise afterwards. So yes, there was really nothing to call out in terms of license revenue, but I'm glad you reminded me, because when you guys are building your model if you remember last year in Q2, we did have an unusually strong license quarter.

So as you kind of build your models and look at your compares, just remember, last year, we had $7 million of license revenue in Q2. We don't expect that again in Q2 of this year. And in Q1, there was really nothing unusual. As Tom said, it was really strength across many different products in security.

It'd be easy for us to just call out one thing, but the good news for us is we see strength everywhere. And, Tom, I don't know if you want to talk a bit about enterprise.

Tom Leighton -- Chief Executive Officer

Yeah. The Access segment performed very well. As we noted, we're now at $100 million revenue run rate. So it's great to start the year in Q1 there.

Very strong growth, over 170% over last year. Now, of course, that includes Asavie. If you take that out, organic growth, still over 60% in that segment. So very pleased.

And as Ed noted, we're pretty excited about the Asavie acquisition, especially as you get the emergence of 5G and you get IoT applications, but the ability to secure enterprise devices across the board, I think it's very exciting for the future. And we're really in a unique position to do that, and we have great relationships with the carriers. So we think we'll really be able to scale that business to a global basis.

Tim Horan -- Oppenheimer & Co. -- Analyst

And just following up on the M&A question. With new security products, do you think you can shift more to internal development from your own R&D as opposed to acquisitions? Or how has that been trending the last few years?

Tom Leighton -- Chief Executive Officer

I think it's a good, healthy mix. As you know, we've made several acquisitions, mostly tech tuck-ins, occasionally something a little bit larger. And we do a lot of organic investment in research and development, very active. They're very innovative.

Maybe a good example is Page Integrity Manager, which we launched last year and doing really well in the marketplace. And we did -- that was a blend of a tech tuck-in about seven to 10 employees in the company we acquired and a lot of organic development at the same time, to make a very successful product quickly, bring it to market and very strong adoption in early days.

Tim Horan -- Oppenheimer & Co. -- Analyst

Thank you.

Operator

Our next question comes from Alex Henderson with Needham.

Mike Cikos -- Needham & Company -- Analyst

Hey, guys. You have Mike Cikos on the line here for Alex Henderson. Could you comment on the security growth you're experiencing? I'm just trying to, I guess, think about this demand and the increased expectations you guys have now. Is any of this at all related to, I guess, budget finally coming to market following the headlines that we saw earlier in the year around SolarWinds and the Microsoft Exchange Server hack? And then the second comment on that would be the improved outlook that you have for security.

Is it also expected to be broad-based on a go-forward basis?

Tom Leighton -- Chief Executive Officer

Yeah. Let me take the first question there. And that's a, yes, really good question. The attack landscape is just breathtaking.

You think you've seen it all. And then next week, you read the next headline. And the attackers are very powerful. You have nation states, large-scale organized crime, just -- and what they're doing is, well, pretty scary.

Now the great news for Akamai and our customers is that we have solutions that can protect enterprises for a large majority of those attacks. A great example is the recent exchange server hack, where many thousands of enterprises got hacked, lost their emails, which is really bad. Akamai, our IT department was running an exchange server, just like all those other companies. And the difference is, we didn't get hacked because we use our own enterprise security solutions.

And we had enterprise application access sitting in front of our exchange server. And that meant that the vulnerability couldn't be exploited, because the employee doesn't just get to go contact the exchange server. If they did, then somebody can come in. And before you're authenticated by the exchange server, you can exploit the vulnerability.

Instead, they got to get to -- they come to Akamai's Enterprise Application Access product, we authenticate them, and if it's a bad guy outside trying to do something, no way they get in. And not only that, they don't get directly to the exchange server because they have to pass through our security. So if they're trying to do bad things, we'll stop it. And it's all about our approach to Zero Trust.

And yes, we can protect enterprises from these sorts of things. And even in zero-day attacks, we didn't know about the exchange hack before other enterprises or Microsoft did, and yet we were protected at zero day because of our solutions. So I think as the attacks increase, that does increase awareness, and that does help drive our security business. And I see no end to the attacks coming.

There's more on the way. And we're in a great position to be able to help the leading enterprises stay safe against those attacks.

Mike Cikos -- Needham & Company -- Analyst

Great. And then just following up that broad-based strength that we're talking to in Q1. Is that -- that's expected on a go-forward basis with the updated outlook we have today?

Tom Leighton -- Chief Executive Officer

Yes. It was strong across the board, and we're anticipating that through the rest of this year. And of course, at our Investor Day, we talked about the three- to five-year CAGR goals. And as you go back to that material, you'll see it's pretty strong across the board there in terms of our anticipated growth over the longer term.

Mike Cikos -- Needham & Company -- Analyst

Great. Thank you.

Operator

Our next question comes from James Breen with William Blair.

James Breen -- William Blair & Company -- Analyst

Thanks. Thanks for taking the question. Just wondering if you can give some color on the U.S. versus the international mix.

It seemed like U.S. had a pretty good acceleration on a year-over-year basis this quarter. Is this pandemic-driven? Or is it more around the products that's getting sold? And then just secondly, on the margins thread. EBITDA margin is 45%.

You've guided to that for the next quarter. Given the business mix now, is that sort of the starting point in terms of margin structure given capex coming down and investments, etc.? Thanks.

Ed McGowan -- Chief Financial Officer

Yeah. Hey, Jim. So on the – I'll take the EBITDA margin question first. Yes.

So 45 is a good spot for this quarter. Obviously, we get a little bit of expense coming in Q3. So 44, 45-ish, but I think you're thinking about it in the right range. On the U.S.

versus international, yes, U.S. was pretty strong. We've been having pretty decent U.S. growth.

If you remember, go back in a year or so, a little over a year ago, we were kind of flattish and we started to turn things around there. A lot of it has to do with the strength that we're seeing in media, a lot of the companies are in the U.S. In terms of international, still having very strong growth internationally. We do come up against some tougher compares.

There's pretty strong media business outside the U.S. So you'll see some tougher compares on the media delivery side. And as I called out, from an international perspective, we're still lapping that $15 million of lost revenue associated with the bank apps in India.

James Breen -- William Blair & Company -- Analyst

And then just one other question. Are there any sectors that you're seeing that were particularly hit hard by the pandemic that are maybe starting to come back a little bit more as the vaccines' gotten rolled out? Thanks.

Ed McGowan -- Chief Financial Officer

Yeah. Yeah, it's a good question, Jim. So I would say the hotel and travel is probably stabilizing a little bit. I wouldn't say we're in the growth phase yet.

You're starting to see some early signs. It's probably still a few quarters before we start to see that business return to a growth engine for us. On retail, it's still a mixed bag. You've got some that are doing well, some that aren't doing well.

And just keep in mind that that's 20% of our -- your total business, 40% of your old legacy web business. But it's -- I'd say we're optimistic but still a ways to go before we declare victory there.

James Breen -- William Blair & Company -- Analyst

Great. Thanks.

Operator

Our next question comes from Brandon Nispel with KeyBanc.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Great. Two questions for Ed, one for Tom. Ed, could you just outline how we should be thinking about working capital for the year? And then for the full year '21, what's embedded in your outlook for FX versus your prior expectations? Then for Tom, how should we think about the growth in edge applications sequentially as we move throughout the year? I think you mentioned it was about $45 million this quarter. Thanks.

Ed McGowan -- Chief Financial Officer

Hey, Brandon, yeah, I'll take the second one first. In terms of FX, so the FX rates, what we do is at the beginning of the quarter, we sort of take a look at where the FX rates are, assume that's going to stay for the balance of the year. In terms of how it was relative to the beginning of the last quarter, we gave guidance, some currencies are up, some are down, but it's roughly somewhat in line. I talk about in the prepared remarks that FX sort of came in as expected.

We got a little bit of a headwind here quarter over quarter, mostly weakness in the yen. But I would say just keep an eye on it though. You just -- if you kind of just step back and do the math, we get a little over $1 billion worth of non-U.S.-denominated revenue. So to the extent that you get a 1% swing, that can swing you $10 million on an annual basis.

The major currencies for us are euro, yen, pound, and then it kind of drops off from there. And other currencies aren't as impactful, but those are the three to keep an eye on. And then working capital, I'd say, like any other year, you'll see nothing unusual in terms of working capital. This year, in Q1, you see us from a cash flow perspective, we pay out our bonuses early in Q1.

You see cash flow, the working capital pick up a touch. To call out in terms of collections, they've actually been fantastic. Nothing on the payable side. It's unusual.

And as we talked about, capex is already hit its high point. So nothing really unusual to call on working capital.

Tom Leighton -- Chief Executive Officer

Yeah. And in terms of the edge applications question, you're right, about $45 million in Q1. We don't guide separately on an annual basis for that. You just saw over 30% growth in Q1.

And at IR Day, we did talk about the three- to five-year CAGR. Goal there is over 30%. And so at a high level, I'd expect to see us continue with very strong growth through the rest of the year in edge applications.

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Thanks for taking the questions.

Operator

Our next question comes from Robert Majek with Raymond James.

Robert Majek -- Raymond James -- Analyst

Great. Thanks. Just two questions for me. One, good to see the guide up on the security business to a low 20s rate.

But you did just report security growth of 29%. So just, how should we read into that? Why should we expect that growth rate to decelerate materially? And then two, just what are you seeing on CDN per unit pricing? Is the level of price decline getting more steeper than usual as larger customers renegotiate their now-larger CDN contracts in a clearly boosted traffic environment?

Ed McGowan -- Chief Financial Officer

Yeah. So I'll take both of those. So on the low 20s, the way to think about it is, I just called out when Tim asked the question about license revenue, you've got a tougher compare in Q2 with $7 million of license revenue, we don't anticipate repeating in Q2. You also have the Asavie acquisition that will anniversary in Q4.

So when you take those two factors into consideration, you'll see the growth rate come down a touch as those sort of work themselves out. On the CDN pricing environment, nothing really to call out there. I've been in this business for a little over 20 years and have sort of gotten numb to pricing at this point. And I don't see anything that is unusual.

And also, if there was anything in our top -- in our earnings -- Analyst Day, we called out our top eight customers, anyone who's over 1% as a metric. And if there's anything in that group of customers worth calling out, I'd certainly do that and there's really nothing at this point to call out. And as far as renewals are going, we do a pretty good job of anticipating, what to expect, and there hasn't been negative surprises so far. Thanks, Rob.

Operator

[Operator instructions] Our next question comes from Jeff Van Rhee with Craig-Hallum.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Hey, guys. This is Rudy on for Jeff. Thanks for taking my questions. I know in security, you've said that there's broad-based strength in the quarter and you expect that to continue.

Were there any products in there, maybe one or two that were just a little bit weaker or saw some challenges or slowdowns, just anything you'd call out?

Tom Leighton -- Chief Executive Officer

I don't think there's anything to call out there, just really is outstanding quarter across the board. We're very pleased with how the security business is doing.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Got it. And then with the sustainability goals by 2030, is there any balance you can put around maybe how much expense for those investments there you're factoring in for '21? Or just what the expected impact of margins might be from investments there, maybe on the longer term?

Ed McGowan -- Chief Financial Officer

Yeah. So I tell with the team that went through this, and there's really not any significant expenses that we anticipate for several years. And even then, the cost that the team has rolled up is not all that significant. We've actually been able to do some pretty creative deals, with certain projects on renewable energy that have worked out to be, from a pricing perspective and overall net economics, have been neutral to even favorable in some cases.

So nothing really there to note. Team's doing a fabulous job on it. And as time goes on, if there's anything we need to call out we'll certainly let you know.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Got it. Great. Thank you. That's it for me.

Operator

Your next question comes from Charlie Erlikh with Baird.

Charlie Erlikh -- Baird -- Analyst

Hey, thanks for taking the question. It's Chuck Erlikh on for Will Power. I was hoping to dig in a little bit more into the legacy Web Division. Could you maybe talk a little bit more about maybe the puts and takes in that segment and the declines we're seeing there? And then what it might take to stabilize that segment?

Ed McGowan -- Chief Financial Officer

Yeah. So I would say, similar to what we've talked about in the past, right? You've got obviously strong security growth. You've got -- from a verticals perspective, you have two verticals, retail and travel, which make up 40% of the legacy Web Division vertical -- or division, excuse me. And we're still, like I said on a, a few questions ago, we're not quite out of the woods there yet.

We're starting to see some stability, but we're not seeing the type of growth yet there. So it's going to take a bit for that to recover. We're doing a nice job of dealing with certain pricing pressure in those verticals with opening up other shares of the wallet, whether it's additional security products or really starting to see a lot of interest in our edge computing and edge applications business as well. So we'll see dollars potentially shift delivery into to that category as we go through pricing negotiations, but that's pretty normal.

And once we start to see, probably a couple of quarters hopefully, the travel and retail business get back to normal, if these vaccines hold and life returns to normal, hopefully, start to see that segment of the business growing again.

Charlie Erlikh -- Baird -- Analyst

OK. And then on the Internet platform customers, continuing to see some growth there, which is great. Is there anything specifically that's driving that growth? And what should we expect for the rest of the year from that cohort?

Ed McGowan -- Chief Financial Officer

Yeah. So it's becoming less impactful. So that's why we're kind of going away from that metric, you didn't hear me talk about in our prepared remarks. I think years ago, people were concerned that that may go to zero.

And we talked a couple of years ago about stabilizing that and getting it back to growth. And the team has just done a phenomenal job. So I'd first tip my hat to the team that's managing those accounts. They've done a nice job of finding areas for us to add value to incredibly innovative technology companies that have their own CDNs, and we found a nice spot to pick up business, whether it's adding security or delivering graphics for video and gaming, for big-scale events or for live video or even on-demand video.

We're just finding a nice niche there. And that continues to grow. It's up about $1 million quarter over quarter. Very impressive growth rate.

I'd say stability is probably a good way to think about that going through the year. There's always upside with these accounts. Teams identifying new areas of opportunity all the time. So very pleased with where we are with those customers and expect to see probably similar numbers, what you're seeing now, down a little bit quarter to quarter, depending on certain things that are going on in those accounts.

Charlie Erlikh -- Baird -- Analyst

Got it. Thank you.

Operator

Our next question comes from Alex Henderson with Needham.

Mike Cikos -- Needham & Company -- Analyst

Hey, guys. Mike Cikos here again. I did just want to follow up. Just looking at my model versus where you guys came in, the sales and marketing expense this quarter was much lower than what we had anticipated.

Even if I'm removing the accelerators from 4Q and even just looking at Q1 '21 versus Q1 '20, the amount of leverage in the model. Can you talk to how we should expect the sales and marketing to play out over the course of the year? Are there savings being realized from that realigned division or the reorganization you guys have talked to earlier this year?

Ed McGowan -- Chief Financial Officer

Yeah. That's a good point, Mike. So as part of the reorganization here, some shift between sales and marketing, research, and development, a few million bucks, if I remember correctly. And then there was some savings as we moved from the divisional model to one sales force.

There was some synergy, mostly at the management level. So you'll see some of those costs go away as well.

Mike Cikos -- Needham & Company -- Analyst

Great. Thank you for clarifying that.

Tom Barth -- Head of Investor Relations

OK. Well, thank you, everyone. In closing, we will be presenting at several investor conferences and roadshows throughout the rest of the second quarter. Details of these can be found in the Investor Relations section of akamai.com.

Thank you for joining us, and all of us here at Akamai wish you continued good health to yourself, as well as to your families. Have a nice evening.

Tom Leighton -- Chief Executive Officer

Thank you.

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Tom Barth -- Head of Investor Relations

Tom Leighton -- Chief Executive Officer

Ed McGowan -- Chief Financial Officer

Michael Elias -- Cowen and Company -- Analyst

James Fish -- Piper Sandler -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

Sanjit Singh -- Morgan Stanley

Tim Horan -- Oppenheimer & Co. -- Analyst

Mike Cikos -- Needham & Company -- Analyst

James Breen -- William Blair & Company -- Analyst

Brandon Nispel -- KeyBanc Capital Markets -- Analyst

Robert Majek -- Raymond James -- Analyst

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Charlie Erlikh -- Baird -- Analyst

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