Fastly, Inc.

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 fourth quarter 2024 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 8K 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 filings with the SEC, including our most recent annual report filed on Form 10-K and quarterly reports filed on Form 10-Q filed with the SEC and our fourth quarter 2024 earnings release and supplement for discussion of the factors that could 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 during the fourth quarter, we will be attending the Oppenheimer 10th Annual Emerging Growth Conference held virtually on February 25th the Raymond James 46th Annual Institutional Investors Conference in Orlando on March 3rd, and the Morgan Stanley Technology, Media, and Telecom Conference in San Francisco on March 4th. Now I'll turn the call over to Todd.

Todd? Thanks, Vern. Hi, everyone, and thank you so much for joining us. Today, I will cover our four-quarter results and recap 2024, and then move on to our strategy for 2025. I will then hand the call over to Ron to discuss our fourth quarter results and our guidance in detail. We closed out 2024 reporting record fourth quarter revenue of $140.6 million. This exceeded our guidance range of $136 to $140 million and represented 2% growth both year over year and quarter over quarter. Revenue strength was attributed to better than expected seasonal traffic coupled with share gains at the year end. We closed out 2024 with revenue of $544 million, representing 7% year-over-year growth. As we have discussed in prior quarters, we faced demand headwinds with a few of our largest customers. I'm happy to say we persevered and resumed strength with these larger customers into year-end, as we will discuss today. We were also able to grow in other areas to offset these headwinds, and we look to build momentum as we head into 2025. A key component to building lasting, predictable growth at Fastly is diversifying our revenue base. Fastly's top 10 customers dropped from 33% of our revenue in the third quarter to 32% in the fourth. This is down from 40% at the end of 2023. Moreover, the revenue outside of our top 10 customers grew 16% year over year in the fourth quarter. We are now approaching a healthy mix of our largest customers relative to the rest of our business. Our go-to-market strategy will continue to emphasize logo acquisition to grow the enterprise customer mix outside of our top 10. We'll talk more about this in a minute, but the opportunity to drive a greater cross-sell motion through the long tail of our customer base gives us potentially much more upside with our existing customers, and the broadening and unification of our platform gives us the opportunity to bring on a significant number of new enterprise customers. We reported an operating loss of $4.2 million in the fourth quarter within the guidance range of $1 to $5 million. We continued our financial rigor through 2024 and made opportunistic investments when appropriate as seen in fourth quarter operating expenses. This opportunistic spend was mostly in sales and marketing as we brought on new seasoned leaders and ramped up new sales incentives and compensation plans for our business. And we've been continuing to find savings in the R&D and G&A lines as seen in the quarter and throughout 2024. This discipline produced respectable bottom line annual results despite the revenue headwinds in prior quarters. In 2024, our cash from operations increased from $400,000 in 2023 to $16 million in 2024, and we reduced our cash flow burn from $59 million in 2023 to $36 million in 2024. Along with our convertible debt refinancing, which Ron will discuss in detail, these efforts have set a strong financial foundation at year end to drive growth for Fastly in 2025. Our enterprise customer count returned to growth in the fourth quarter with 596 enterprise customers growing 3% year over year and quarter over quarter. I'm especially excited about the new customer pipeline momentum we saw in the fourth quarter. Our growth strategy in 2025 is grounded in our ability to introduce new products and features to the platform, but is driven by our go-to-market efforts. Under the leadership of our new CRO, Scott Lovett, we're transforming our sales and go-to-market motions to drive efficient customer acquisition and long-term revenue growth. First, we are expanding our geographic presence with a focus on Latin America and India while we remain committed to the EMEA market and see opportunities to expand our presence there long-term. Additionally, we are making our first move to hire a leader, a dedicated leader, for the APAC region, as we expect to strengthen our presence in those markets as well. Cross-selling remains a key lever, particularly by offering our entire portfolio, such as security solutions, object storage, and bot protection, to our existing customer base. To support this, we are investing in specialized resources, strengthening the SE community, and building a technology specialist organization. We continue to refine our segmentation strategy, further segmenting mid-market velocity motions from the enterprise segment. Two dedicated leaders in North America will help streamline this approach. Simultaneously, our media and gaming segment has been successful in serving high touch accounts in the U.S. and is being globalized to drive a more unified, industry-specific motion for media worldwide. To support these growth initiatives, we are evolving our compensation and incentive structures. We're making significant investments in sales leadership, including hiring a new global lead for pre-sales engineering and a dedicated VP for North American Enterprise. We're also evolving our compensation and incentive structures designed to encourage both new logo acquisition and cross-selling motions. Additionally, our focus on segmentation aims to enhance efficiency and cost of sale gains through more self-service options, dedicated mid-market motions and support, and a new team of hunting-only resources designed to drive new logo acquisition. We won several new streaming delivery logos in the fourth quarter, including Deezer, a music streaming service, and Mediaset Italia, a leading mass media company. We also won other logos in the insurance, healthcare, and related fields, including insurance auto auctions, which selected Fastly's network service offerings. Both Instructure, an educational technology company, and Hakamono, a management system for wellness services, selected Fastly's next-gen WAF. Our biggest logo win was with a global Fortune 25 financial institution who we are extremely excited to work with and with whom we hope to expand our business for years to come. We continue our focus on the customer acquisition motion and reducing the onboarding friction at Fastly. Our packaging strategy, which focuses on the simplicity in pricing and ease of implementation, underscores this effort. In the fourth quarter, customer package sales grew over 60% year over year, and those involving new logos grew 70%. Package sales grew over 150% in 2024, with 40% of those sales to new logos. As we look to 2025, we can expect continued growth and penetration of predictable package revenue, as demonstrated by our RPO, coming off its lows about a year ago and growing 4% quarter over quarter. We've continued to build our channel presence and our 2024 deal registrations grew 28% year over year. I believe that we have far more opportunity here to drive a greater outcome, especially in customer acquisition through deal registration, And we plan to do exactly that with greater focus in 2025. Moving to technology, Fastly's software-driven edge cloud platform provides top-tier delivery, network services, security, compute, and observability. Our ongoing investment in leading technology and innovation not only strengthens our edge platform, but also continues to expand its feature set to support the future of edge computing. By offering this functionality, we enable our customers to globally deploy their applications closest to their users, providing exceptional, resilient user experiences. We are confident that our unified platform approach will build upon our leadership and customer satisfaction and continue to drive customer retention and success. Underscoring this effort in the fourth quarter, FASI was, once again, aimed a leader in the IDC marketscape worldwide edge delivery services. Throughout 2024, we made further investments to improve our development processes and organization to accelerate our roadmap. I've been pleased to see an increase in feature velocity, especially in security and compute. In the third quarter, we rounded out our security offering with the general availability of DDoS protection in addition to our next-gen WAP and bot mitigation solutions. We've capitalized on our long heritage of DDoS protection at Fastly, coupled with unparalleled ease of use, partnering with some of the largest most sophisticated customers, and productizing this technology to address the entire market so that our broader customer base can benefit. In the fourth quarter, I was excited that we announced the general availability of AI Accelerator, a semantic caching solution created to address the critical performance and cost challenges with LLM generative AI applications. By employing semantic caching of common queries on our edge network, We deliver up to a 9x faster response time while offering substantial cost savings to our customers. Our solution also drives improvements in our customer sustainability efforts, addressing common consumer concerns about AI's environmental impacts. We now support chat GPT and additional platforms like Google Gemini, Microsoft Azure Foundry, and of course, we're always looking to expand. In the fourth quarter, we also unveiled Fastly's Object Storage, which allows direct access to all of our customers' data at the edge with zero egress fees. This solution is designed to reduce our customers' origin costs and drive performance to their users. I'm very excited about our product development initiatives resulting in improved feature velocity and improved time to value for our customers. We are optimistic that this product roadmap will drive accelerated revenue growth, especially in cross-selling opportunities. Now, let me discuss our 2025 outlook. We've taken measures as 2024 came to a close to ensure that FASA has a solid financial foundation and growth strategy. This strategy includes increased revenue diversity, which mitigates our concentration risk, improvements to our go-to-market team and motions to drive faster revenue growth, and a unified platform fueling increased product velocity designed to drive more customer value. This has resulted in a strong customer acquisition pipeline, and this momentum positions us well to return the business to double digit growth. While we are optimistic regarding our prospects, our 7% annual revenue growth guidance for 2025 reflects our visibility today and incorporates the potential risks we've seen over the last year. I want to be clear that our goal is to outperform this guidance. However, we need to see how our new strategic motions are evolving and allow us room to maneuver as 2025 progresses. I appreciate the support of our employees and of all of our investors as we move into 2025 well-prepared and ready to execute. And now, to discuss the financial details of the quarter and guidance, I will turn the call over to Ron.