Fastly, Inc.

Good afternoon. My name is David, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Third Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the conference over to Maria Lukens, Vice President of Investor Relations. Please go ahead.

Hi, everyone. Thank you for joining our third quarter 2020 earnings call. We have Fastly CEO Joshua Bixby, Chief Architect and Executive Chairperson Archer Bergman, and CFO Adria Larraz with us today. Before they start, I want to remind everybody about the usual format of our call. We published a shareholder letter on our Investor Relations website and with the SEC about an hour ago. We hope everyone's had a chance to read it. Since the letter provides a lot of details, we'll make some brief opening remarks and reserve the rest of the time for your questions. During the call, we will be making forward-looking statements, including statements related to the expected performance of our business, future financial results, strategies, long-term growth, and overall future prospects. These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. Please take a look at our filings with the SEC, particularly the risk factors within those filings and our Q3 2020 shareholder letter for discussion of the factors that could cause our results to differ. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. Also, during the call, we will discuss certain non-GAAP financial measures. reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our investor relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call is being webcast and will be archived on our website shortly afterwards. With that, I'll turn the call over to Joshua.

Thanks, Maria. Hi, everyone, and thanks for joining us today. We hope that you're all staying healthy as we continue to navigate through 2020. As we disclosed earlier this month, our third quarter results were impacted by certain customer specific factors that we had not foreseen when we reported our second quarter results and therefore we did not meet the expectations we set. However, despite these challenges, which I will talk about in detail shortly, our underlying business remains strong as demonstrated by our 42% year over year top line growth. Customer demand remains strong. We are proud to have achieved the second highest quarter of new customer ads in our history of being a public company, demonstrating the strength of our business and the continued acceleration of digital transformation. We saw customer wins across multiple verticals, including e-commerce, media and high tech. These companies include one of the largest sportswear and footwear retailers in the U.S. and a national U.S. automotive parts provider. Customer expansion and retention also remained strong with 147% dollar-based net expansion rate and 141% net retention rate on a last 12-month basis, up from 137% and 136% last quarter respectively. In the third quarter, we also saw our highest quarterly new booking attainment this year, which we believe bodes well for future growth. We are thrilled to have closed the acquisition of Signal Sciences which we believe will further bolster our world-class security offerings at a time when security at the edge has never been more critical. And today, as promised, we launched Computed Edge to production. Now, I want to provide some more details on the factors that impacted our results. Outside of a few customers, the business performed as we had forecasted. Certain macro trends over the past two quarters have created extraordinary and, we think, lasting demand for our platform. Our usage-based business model is sensitive to variations in our customers' businesses, which drive us to be customer-focused to help drive stability and increase usage on the platform. At the same time, in Q3, we experienced two distinct challenges that impacted a few key customers, which caused us to miss our original third quarter forecast. One of those was the uncertain regulatory environment surrounding our previously disclosed largest customer, and the other was customer timing impacts. Starting with the regulatory environment, our previously disclosed largest customer, which accounts for 10.8% of our revenue for the nine months ending September 30th, removed a majority of their US and non-US traffic from our platform by the end of the quarter. Based on publicly available information, We believe this global reduction was in response to the potential of a prohibition of US companies being able to work with this customer in any fashion. This clearly impacted Q3, and based on the continued turbulence of the situation, we anticipate the traffic group reduction to continue into Q4 as reflected in our guidance. One of our core values is to focus on our customer, and we intend to fully support this customer unless and until we are prohibited from doing so. We are prepared to accept additional traffic from this customer if conditions enable it to return. However, if it becomes clear that we should no longer support this customer, we believe the reserve capacity for this customer can be reallocated over the medium to long term with a traffic mix that is consistent with our gross margin objectives. Now, moving to the customer timing impacts. In the latter part of Q3, our forecast for new traffic coming onto our network from a few existing customers did not meet our expectations. I'm happy to report that a majority of these timing issues were resolved, and we have now seen this traffic come onto the network. There have been instances, however, where isolated timing issues have persisted due to certain factors, including our evolving understanding of both COVID-19-related travel and data restrictions, In South Asia, the delayed build-outs beyond our expectations and the timing of customer code freezes. We anticipate this traffic to come onto the network and not have a negative impact beyond Q4. Aside from these few customers, positive customer trends drove the quarter's otherwise strong results as highlighted earlier. In addition to these two factors, our Q4 guidance now includes the revenue contribution from Signal Sciences. Specifically, we saw strong renewals expanded market share, and healthy traffic growth. Looking ahead, we remain confident in the future of Fastly, both in the short and long term, while also accounting for the unique uncertainties we face in supporting our previously disclosed largest customer. Before I turn it over to Adriel to discuss the financials and our guidance, I want to provide more details on our product enhancements. We continue to enhance our offering to meet the needs of customers and developers as they shift more components to the edge. As I mentioned at the beginning of the call, we successfully completed our acquisition of Signal Sciences on October 1st, and the integration of their stellar team and products is well underway. Their technology, combined with ours, will form the basis of our upcoming modern unified web application API protection solution, which will power and protect companies at a time when security at the edge has never been more critical. Our customers have already expressed great enthusiasm for this offering, and we are very optimistic about the immediate cross-sell and up-sell opportunities within our combined customer base. In addition to these developments on the security front, with Computed Edge in production, we have already heard from customers that our investments are paying off. We are providing customers serverless compute environments with rock-solid performance and features, allowing developers to create with enhanced speed, agility, and security. With these two core pillars, security and compute, squarely in place and complementing our delivery business, we are now fully executing on our platform vision of providing the most complete edge cloud solution in the market. We are supplying enterprise builders of all kinds, from developers to security operators, with the speed and confidence they need to continue expanding and differentiating. With that, we believe we are exceptionally well positioned in the current enterprise technology environments. delivering multiple powerful solutions tuned for the evolving DevOps workflow at the edge, opening up much broader enterprise customer opportunities. Now, I'll turn it over to Adriel to go over the financials.