Fastly, Inc.

Ladies and gentlemen, good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly third quarter 2023 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 that time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star won a second time. Thank you. And I would now like to turn the conference over to Vern Essie, Investor Relations at Fastly. Please go ahead.

Thank you. And welcome, everyone, to our third quarter 2023 earnings conference call. We have Fastly's CEO, Todd Nightingale, and CFO, Ron Kisling, with us today. The webcast of this call can be accessed through our website, Fastly.com, and will be archived for one year. Also, a replay will be available by dialing 800-770-2030 and referencing conference ID number 754-3239 shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables, and investor supplement, all of which are furnished in our AK filing today, can be found in the investor relations portion of FASA's website. During this call, we will make forward-looking statements, including statements related to the expected performance of our business future financial results, product sales, strategy, 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. For further information regarding risk factors for our business, please refer to our most recent Form 10-K and Form 10-Q filed with the SEC and our third quarter 2023 earnings release and supplement for discussion of the factors that would cause our results to differ. Please refer, in particular, to the sections entitled Risk Factors. We encourage you to read these documents. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements except as required by law. Also during this call, we will discuss certain non-GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non-GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the Earnings Release and Supplement on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Before we begin our prepared comments, please note that we will be attending three conferences in the fourth quarter, the RBC Capital Markets 2023 TIMT Conference in New York City on November 15th, the DA Davidson Technology Summit in New York City on November 16th, and the UBS Global Technology Conference in Scottsdale, Arizona on November 29th. With that, I'll turn the call over to Todd. Todd?

Thanks, Vern. Hi, everyone, and thanks so much for joining us today. First, I will give a quick summary of our financial results and third quarter highlights, and then I will provide an update on our product strategy, go to market, and internal transformation before I hand the call off to Ron to discuss our third quarter financial results and guidance in detail. We reported record third quarter revenue of $127.8 million, which grew 18% year over year and 4% quarter over quarter. This came in at the very high end of our guidance range driven by strong international traffic. This demonstrates continued momentum in our enterprise customer motion as we continue to benefit from vendor consolidation and seasonal strength in streaming activity. Our customer retention efforts, a hallmark of our customer satisfaction, were favorable in the third quarter. Our LTMNRR was 114% down slightly from Q2. Our debner was 120% in the third quarter, down from 123% in Q2, and also slightly down from 122% in Q3 of last year. Our debner continues to demonstrate healthy wallet share gains in our customers as we continue to cross-sell more functionality and grow with our customers' ongoing edge traffic requirements. We're starting to see some effects of budget tightening by our customers. But we continue to see strength in customer expansion, especially cross-product expansion across the board. Our total customer count in the third quarter was 3,102, which increased by 30 customers compared to Q2 and 63 year-over-year. Enterprise customers totaled 547 in the quarter, a decrease of four from Q2 and an increase of 36 year-over-year. We had four new customers make the enterprise $25,000 threshold in the quarter, number dropped to reflect a sequential decline. As we discussed during our Q1 earnings, our newer enterprise customer count methodology will be slightly more volatile. Our average enterprise customer spend was $858,000, up $40,000 quarter over quarter, representing a 5% increase as well as an 11% increase year over year. These results point to continued wallet share expansion as we've aligned our customer success teams to be more focused on cross-product adoption. Also, as we work towards platform unification, We've begun focusing on our goal of making customer cross-selling and onboarding as simple as a single click for existing customers. This will be a huge shift in the usability and the expandability of our platform and help drive customer retention as well as expansion. I'm excited to share with you that in the third quarter, we acquired Domainer, a real-time DNS API provider. We brought on board a small team of highly respected DNS experts and paired with the general availability of Certainly, our certificate authority, we have the opportunity to greatly simplify onboarding to the Fastly platform with security and simplification. In the third quarter, we landed a key new logo win in highly competitive deals. I'm personally very excited about Wendy's, a true lighthouse account in a new vertical for Fastly that opens up a major market opportunity. As our success in e-commerce grows to include more and more adjacent verticals, such as food delivery, travel and leisure, and consumer brands, we see significant potential to accelerate customer acquisition. Continuing our success in security and privacy proxy implementations, we are excited that Mozilla adopted Fastly's oblivious HTTP relay. Fastly now serves three of the top four internet browsers worldwide. On thought leadership, we published our first threat intelligence report featuring data and insights from Fastly's network learning exchange, as well as continued posts on Fastly's technical leadership in the constantly evolving world of DDoS exploits. As some of you are aware, a couple of CDN providers are in the process of winding down their services and have sold their remaining customer contracts to our competition. This has created a disruptive environment that Fastly is poised to capitalize on, especially as those contracts come up for renewal. Digital Turbine, a leading digital ad provider, is a great example And there are many others already engaged with Fastly to find higher levels of service and performance at competitive rates. We are committed to helping them find their next strategic partner. If anyone listening recently had their contract sold, please feel free to reach out. We're seeing this e-commerce expansion internationally as well, closing a top New Zealand grocer and an omni-channel retail fashion house in the UK. We saw continued customer acquisition in the travel leisure segment and in the healthcare life sciences. We anticipate continued momentum in these expansion verticals as our sales team is now armed with more reference accounts and pre-built use cases. This momentum significantly tilts the win probability to Fastly and gives us a considerable edge with new customers. As these new verticals ramp, a diversified traffic load will provide Fastly with smoother network and compute demand, providing better infrastructure utilization, leading to future margin improvements. Our gross margin was 55.9% for the third quarter, representing a 70 basis point decline quarter over quarter, but a 230 basis point increase year over year. I am pleased with the team's efforts controlling our variable cost of revenue and continuing to get more from our infrastructure footprint. For the second quarter in a row, we saw outsized increases in international traffic, which did cause a short-term margin headwind. As with the last quarter, These will open up opportunities for us to peer more and negotiate our bandwidth costs to lower our total cost of revenue for the future. Our operating expenses were $84 million in the quarter, coming in lower than anticipated. Financial discipline and rigor continue to have behavioral results here. Note this result also reflects heavy sales and marketing spend due to one-time events and fees. I'm also pleased that we posted another positive adjusted EBITDA quarter, making this our second quarter in a row. Positive EBITDA should be a normal occurrence moving forward, but you'll excuse my enthusiasm just this one last time. Ron will explain our outlook and guidance in more detail. But as you can tell from our OPEX spend, we are readying our model to leverage revenue growth and improve our cash flow for next year. During the quarter, we continue to drive our durable innovation engine strategy and have delivered several key pieces of functionality to the market. You can see these in our supplement, including, KD Store shipping GA, which enables more powerful edge applications through very high performance of reads and writes of key data at the edge. GraphQL inspection expands Fastly's API security offering. Certainly, going GA establishes a Fastly certificate authority to provide domain-validated TLS certificates and improve the security and reliability of our customer sites. And our Go compiler SDK provides edge compute developers with a key capability for a highly requested language. During the quarter, we hosted Altitude, our user conference in New York City, drawing hundreds of worldwide attendees. Most attendees were customers and prospects, but there were also industry and investor analysts in attendance. I was extremely pleased with the event. It was very well received. Some of the sessions have been viewed thousands of times online following our social media coverage. One of the highlights was a demo of simplified service creation, our new onboarding workflow and dashboard. This demo was so powerful because it showcased Fastly's new ability to provision a global website for best in class, low latency user experience worldwide, all in 90 seconds. This combination of power and simplicity is near and dear to my heart. And I believe it's key to rapidly increasing customer acquisition of Fastly. Please give it a look if you have a chance. It's bookmarked in our events page and in our supplement. There's also been great progress with our packaging motion. We initiated this motion a little less than a year ago and closed our first handful of packaging customers in the first quarter of 2023. Since then, the growth has accelerated. In the third quarter, the number of customers that signed packaging deals more than doubled quarter over quarter. Almost half the packages sold to date have been computing related with almost a third of the customers buying a standalone compute-only package. In terms of the overall number of packages sold, more than 25% of our package deals are platform wins with multiple product lines included, demonstrating the ability for packaging to help us drive our platform strategy and expand our offerings beyond CDN. This data gives us great insight into where we can steer our efforts, and we plan to continue to drive a single platform cross-selling motion across our customer base. I'm very excited about this opportunity. As Ron will explain in just a moment, this is having a favorable impact on our RPO as well. Moving on to our channel partner development, we are seeing great progress here. Our 2023 deal registration is already triple that of 2022. You'll recall that during our investor day in late June, Brett shared with you that we had 33 partners globally engaged. Today, that number totals 55. Our revenue contribution has grown more than 50% in 2023 year-to-date when compared to all of 2022, and we expect to see this trend continue into 2024. So far, I'm pleased with the progress we're making in 2023, and this is reflected in our updated projections for the year. We raised our annual guidance for both revenue and operating margin and will strive to find ways to outperform that guidance through strong innovation velocity, strategically lowering the friction of our go-to-market efforts and streamlining our employee experience. Fastly partners with our customers to deliver the best possible end user experience. This focus uniquely positions us where these market needs intersect the edge cloud, and there is an enormous opportunity in that intersection. The future user experience is fast, safe, and engaging without compromise. Organizations spend too much time building best-in-class digital experiences only to see the value of that effort lost by having to compromise between performance, safety, and personalization. This represents a clear architectural opportunity for Fastly. The solution has to be built on the edge, and it has to leverage all the benefits of a best-in-class edge cloud platform. Fast, safe, and engaging without compromise. This is Fastly. Thank you so much. And now to discuss the financial details of the quarter and guidance, I'll turn the call over to Ron. Ron?