Fastly, Inc.

Good afternoon. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly first quarter 2025 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.

Thank you, and welcome, everyone, to our first quarter 2025 earnings conference call. We have Fastly CEO Todd Nightingale and CFO Ron Kisling with us today. 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 today. 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. Further information regarding risk factors for our business, please refer to our filings with the SEC. including our most recent annual report filed in Form 10-K and quarterly report filed in Form 10-Q filed with the SEC and our first quarter 2025 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer in particular to the section 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. As discussed last quarter, we have adjusted our non-GAAP treatment of gross margin to exclude the amortization of stock-based compensation and our internal use software costs in cost of revenue. This treatment is reflected in our financial tables in the earnings release, and the eight-quarter historical trended non-GAAP P&L in our investor supplement. Also, unless otherwise noted, all discussions on this call reflect this adjustment. 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 four conferences in the second quarter. the 20th Annual Needham Technology, Media, and Consumer Conference virtually on May 12th, the William Blair 45th Annual Growth Conference in Chicago on June 4th, the B of A Global Technology Conference in San Francisco on June 5th, and the DA Davidson Conference in Nashville on June 10th. Now we'll turn the call over to Todd.

Todd? Thanks, Vern. Hi, everyone, and thanks so much for joining us today. I'm excited to share with you our strong results for the quarter. beating the upper ends of both our revenue and operating loss guidance ranges. As a result, we are raising both our 2025 revenue guidance and operating loss guidance by $10 million and $3 million at their respective midpoints. We also generated $8 million in positive free cash flow, bringing us closer to break even on this benchmark for the year. We made great progress in our go-to-market transformation, capitalizing on product release velocity and growing traffic share with our larger enterprise customers, which yielded upside in our results. Our Q1 revenue was $144.5 million, coming in above the high end of our $136 to $140 million guidance range with a growth rate of 8% year-over-year, an improvement compared to the 2% in the fourth quarter of 2024. Our customer count was 3,035, and enterprise customer count was 595. We brought in 19 new enterprise customers in the $100,000 annual revenue threshold in the first quarter compared to 10 in the fourth quarter. This comparison does not account for declines in the count due to falling below the $100,000 threshold return. Year over year, we grew our enterprise customer count by 18, or 3%. and average enterprise customer spend grew 4% quarter over quarter to $907,000, as we saw solid cross-sell growth bias towards larger customers. Our platform strategy continues to yield results, as now almost half of our customers leverage two or more Fastly product lines, generating three-quarters of our revenue. We are excited about our revenue progress and the team's performance in Q1, accelerating the recovery in our top customers. We drove share gains at some of our largest customers and closed new enterprise accounts. Our top 10 customers represented 33% of revenue, down from 38% in the first quarter of 2024. Revenue outside of the top 10 grew 17% year over year, outpacing overall growth and continuing to drive revenue diversification. Last quarter, we mentioned that we expected this revenue concentration number to stabilize in the low to mid 30s, and that's exactly what we saw in Q1. We consider this a healthy level of concentration in the revenue mix, and our go-to-market strategy will continue to emphasize logo acquisition and growing the enterprise customer mix outside of our top 10. Gross margin for the quarter was 57.3%, slightly better than our projections. We are taking actions to improve our fixed overhead and bandwidth costs across our fleet. We've been focused on software-based fleet efficiency and believe there are significant gains for us to find here throughout the year. This will help us create additional capacity while mitigating supply chain dependencies and additional capital spent. These efforts, combined with our hardware investments purchased pre-tariff, leave us well positioned to deal with the macro uncertainties that may unfold in 2025, And we believe with the actions we've taken, any tariff impact on our CapEx spend will be immaterial. We beat our operating loss guidance coming in at a $6 million loss compared to the guidance range of $11 to $7 million loss. This was due to our gross profit dollar upside on higher revenue and relative cost control on the OpEx line. Continued cost optimizations and rigorous cash management have yielded a better than expected result. and ultimately contributed to our healthy $8 million of positive free cash flow in the quarter. We expect our op loss to improve through 2025 and anticipate delivering operating profit in the second half. In the first quarter, we saw a new level of rigor and momentum from our go-to-market teams. Our new segmented go-to-market efforts have created a higher touch approach with our largest accounts while continuing to drive strong enterprise and mid-market customer acquisition velocity. This is driven by incentivizing cross-sell, optimizing our regional sales approach, and expanding our product portfolio. We continue to focus on the customer acquisition motion and reducing the onboarding friction at Fastly as we strive towards even more simplicity in both pricing and ease of implementation. Our packaging initiatives have been contributing towards that goal, and in the first quarter, packaging deals more than doubled year over year, and those involving new logos grew over 80%. We continue to get great feedback on how much customers love the simplicity of our packaging motion, and we continue to look for ways to improve and simplify the customer experience across the board. As part of our new high-touch customer success motion, we've seen the acceleration of business and also increases in revenue commits across our largest customers. This, combined with the success we're seeing in packaging, has yielded solid results in committed revenue, driving more stability and visibility into our revenue pipeline. You can see these results starting to show up in our RPO, which grew 33% year-over-year and now sits at a record high. In the first quarter, we continued our success in diversifying our logo wins and penetrating new and existing customer verticals. We are particularly seeing momentum in new logo acquisition with enterprise customers in strategic verticals such as travel and leisure, technology, financial services, and retail. These include Valeris, a leading ultra-low-cost airline who selected Fastly's platform for security, network services, and compute. A leading software company's professional network who chose the Fastly platform to leverage our network services offering. A leading credit card issuer and a separate payment processing company in the United States who both selected our platform for security and network services. And a home furnishing company who moved to Fastly's platform for network services, security, and compute. In all of these examples and many more, not only did we win where performance mattered, but also where platform completeness mattered. We are cross-selling an increasing amount of our security, compute, and observability offerings in addition to our best-in-class network services. This is the new Fastly platform, highly performant, positioned for the future, and ensuring best-in-class performance to meet our customers' needs. We're extremely excited about the progress we made in our security portfolio and the expansion of the FASI platform that it represents. Security offers FASI a revenue stream that is predictable, recurring, and sticky. In 2024, we expanded the security portfolio from one offering, our WAF, to three core offerings that deliver synergistic value to our customers, WAF, bot mitigation, and DDoS protection. In the first quarter of 2025, we enhanced our WAF offering with client-side protection, improved our DDoS offering with enhanced visibility and alerting, and expanded our bot solution to include dynamic challenges. We also just recently launched AI bot detection, enhancing our bot solution to allow customers to detect and mitigate unwanted AI bots scraping their data. Today, almost half of Fastly customers now use multiple product lines, but many are just starting to bring online the full power of our security portfolio. With all of this portfolio momentum, we've refocused our go-to-market on the security cross-sell opportunity to help us capture the revenue potential of this portfolio. We're already seeing this transformation resonate in our customer base and feel confident about our portfolio breadth and competitive advantage in building security solutions that are trusted by platform engineering teams and the software engineering teams they serve. A security growth of 7% year-over-year in the first quarter does not yet reflect last year's portfolio expansion. Given our renewed focus in this area, coupled with our go-to-market incentives and strategy, we believe we can outpace the market in the back half of 2025 and be a share gainer. Moreover, we expect our security pipeline and motion will be a major contributor to growth looking out to 2026 and beyond. Revenue from our other segments, which includes our emerging products, saw nice gains in the quarter and grew 64% year over year. Compute represents significant differentiation for our platform in the market, as more and more customers focus on differentiated, dynamic, and personalized user experiences. Our outlook for 2025 continues to improve. And while macro uncertainties continue to persist across the market, we believe we have significantly mitigated any tariff impact to our CapEx, and we have not seen any material change in our buyer behavior or demand patterns. Regardless, we are continuing to take a cautious approach to our guidance for the rest of the year. Our second quarter guidance of 10% year-over-year growth and new 2025 guidance of 9% annual growth raises our prior guide. We are aiming to outperform these numbers and will continue to aggressively pursue gains in profitability and revenue growth. Please note that again, we have removed U.S. TikTok revenue beyond June 19th from our guidance. In summary, we are pleased with our first quarter performance and are seeing signs of progress from last year's efforts. As the Fastly team continues to build momentum across go-to-market and product development velocity, we expect to accelerate customer acquisition, capture more market share, and drive improved financial returns to our shareholders. And now, to discuss the financial details of the quarter and guidance and detail, I will turn the call over to Ron. Ron?