FSLY - Earnings call transcript Q1 2022

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Operator

Good afternoon. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. you. Thank Instructions] [Operator like the now Mr. over to would conference turn to I Essi, Fastly. Relations Vern at Investor ahead, go Please sir.

Vern Essi

and first conference quarter you, XXXX Thank welcome, earnings call. everyone, to our

of of CFO, today. ID of We available Kisling, through press by today’s will referencing one Investor number our will and call Bixby; year. CEO, and website. have our accessed conference Fastly’s copy shortly can call. XXXXXXX, the and and which dialing fastly.com, all found portion archived Fastly’s today, can be in earnings be XXX-XXX-XXXX conclusion related with supplement today’s tables webcast The the furnished financial be be X-K us website, release, filing of Relations of in Also, A this after Joshua investor are replay Ron for a

are During of materially long-term this expected and prospects. the statements, call, from results, forward-looking call. assumptions to unknown strategy, or during that financial those statements cause make the to we related future actual growth differ implied could including to statements results risks, uncertainties will subject our overall known and future projected and business, performance These

encourage These refer the you differ. today’s in supplement based to on non-GAAP discuss regarding discuss the our our required refer our during filed for a business, Investor recent comparable factors measures earnings could factors we further note except Please most to any this information website. are basis. be forward-looking an particular undertake us Factors. GAAP we statements substitute in measures. Relations on intended these to noted, the the today We read as to will on no be for to not entitled documents. We to financial call directly law. results to this financial our forward-looking to sections that and other than quarter XX-Quarter, that Also risk will GAAP and cause date. the on non-GAAP with Risk of available Also release otherwise quarterly release revenue please numbers adjusted report, our SEC a and non-GAAP supplement For most the first information as Unless earnings for XXXX results. by all discussion measures Reconciliations call, statements, obligation are are provided our certain update of

The Before we in We’ll hosting next XXth. note be week June Global we the Exchange our quarter. San on New on Technology the in Stock XXXX Francisco begin Chicago prepared X. three our attending York Investor comments, please the be Growth William Stock in virtual Investor Bank Xst, Day Craig-Hallum will Institutional Conference Thursday, of at June conferences on second June Conference America that on Conference Xth, and May also Blair

With call coming these releasing We weeks. will regarding the over in further be Joshua? I’ll Joshua. events turn the to details that,

Joshua Bixby

Thank us you, Vern. everyone, and Hi, today. thanks for joining

into I announcement want quarter, another made jump we this afternoon. Before the we to address

for search the journey, executing success. we can business. As of successor more is It a enabling from you stepping web, long-term our successor, a of role there The after been will do that down a much and smooth my phase have everything I to seen, whatever I that as including of Fastly proud CEO Sciences and and will for extremely has come to appointed. Board my has be may more achieved much in ourselves the taking but the the and accomplished, best ensure transition. from I public, is to incredible of the positioning next know I acquisition I’m be Signal an have Board begun

where with are else the now time as desires someone leadership my customer we members let through well own a natural take a journey step my and back want this Fastly As and discussions about to the team take large reflect in that where and next to clear the robust Fastly’s future, became reins, and it of fellow roadmap. as business. on in is we I history Fastly phase experienced Board me that base, time has Company and world-class can for product enterprise a someone a through lead the the my

of sounds say, cloud that where differentiated it delivery in are the is business platform reality, but an and edge differentiated Fastly business of with a world, It an in We unrivaled by approach. and simple one is to the security award-winning flexibility is because our fastest programmability.

agile, in and turn, for to our a and highly to translates with built that is secure We developers performance, ease fast, our customers. innovate empowering platform a indicator programmable, This, have scalability. critical

for searches as to leader, I help Board begun, committed we mentioned, candidate that, that process this has next Fastly’s can upon the As a finding a solid build are foundation.

has we one transition. congratulate press I’d million end color With team smooth a the invite seen you also number to range like excess milestone. quarter’s in we the $XX of goal and first been growth. issued million, until outlook. in that success I talk this and we will In organic the exciting Then, which the on results. limited we As role $XXX ensure Ron our on the will some process. million, of my first this guidance top you in quarter-over-quarter revenue exceed from Positioning for Fastly we $XXX have throughout quarter, long-term a record on Not quarter representing time about provide questions, I XXXX, is only did to revenue focus successor was quarter of ask to X% but my this this of to take to will the on our release move due then that, some reported the may results will more to the afternoon, have, brought my of remain $XXX.X Fastly this million.

customer strong. engine remains Our retention growth and

first Our LTM, the quarter. our NRR DBNER was in was XXX%, and XXX%

representing X% $XXX,XXX, a was quarter-over-quarter increase. spend customer enterprise average Our

were first customer which, QX. progress good total Our X,XXX, our XX made We in enterprise from total the customer QX, in customers count adding quarter XX customers. customers XXX count, on of was in up

deployment we undertaken key XXXX in new of initiatives the is for of the architecture have key metro regions. One our

previously greatly of storage unit, sites discussed, into this will does duplication the our This entire merging require regions increase the cutting storage new architecture thus one capabilities with As new by duplication. year. over

One we of gross the leverage where margin on efforts doubling can our gain this areas server new with down efficiency is architecture.

in where a distributed security. modern they’re The left to developers assets centers their or in the short-term team in feel have data have on at types components, in of of underutilized Investor times this together, the With on closely note has are get the which prudent discussed canceled, Fastly steps prebuying and redeploying is ourselves developers not expanding times to drag is orders on. to no capacity common our ahead we markets. have Bergman, Central deploying is gross has to impact experience the differentiator It have side, for scheduled next secure end uncommon with and the get week. to speak as more XX the key prided have always and edge margin. data a It the how network to sight having power us have world. and And in providing and has and lead the will to possible. that capacity and availability adopt believe on our as take the our they mission to next trying reliable Founder in we’re cut by important that the united decision data we hardware common mission, excess some Architect, of remains hardware minimize with previously, long and rely is digital and for compute for we landscape Artur tied to new fuel we We by a key and some weeks to made to in and center Chief it plans hardware into key We our constraints markets. to these had edge This of wait software the programmable, us. journey this key these we we pandemic centers our and own. connected play procurement role cloud Day at by is of the most altered constraints

our use as and retained they and platform, become as announced scale. engaged and in customers platform real-time frictionless scale in them to keeps they that more build reinforce trusted environment As and this interested a streaming late To that its acquired a they Fanout, features creates APIs. QX, we’ve effort,

platform will rapidly technology allows release Fanout technology be into and to it. launching beta integrating We our and acquire Compute@Edge the soon. us Compute@Edge a

the modern our in announced will build top integrations Marketing details help marquee in and the our received product delivery Chief Fastly variety a a of customer first of Arakawa, quarter, our cases. ecosystem and delivery our Reinforcing MarketScape Compute@Edge Partnerships Our We network our due we at IDC was computing validation. these recognized by our services. with which sharing scale, be the strong edge customers to analyst worldwide new efforts network three excellent also include our more Officer, earned as size leader first service portfolio, offerings. network designed Margaret to Day. partner products, part the portfolio, cloud quarter Investor recognition content network use comprehensive are for services providers.

behind compared first reads the unlock origin to seamless we It had Object control With XX encryption which in Fastly’s HTTP/X available for transport HTTP/X modern rights web the base. technology and of in accelerating We’ve QUIC, secure to functions. the deployed reduce now fourth the QUIC, compute Also, performance is in product reliable built-in via are or edge can quarter, customer Store with XXXX. integration. our X low-latency, and and new both to and internet API, We protocol. writes use launched a dependency store, quarter, cash from releases new data offers and total the developers In quarter platform developer we are latency-reducing, global and persistent new our delivery. cases. fast

Each on of base you dashboard, dashboard bring interactive will historical the for performance represents growth. more and Observability revenue another reporting activity with metrics into in opportunity Day. our and our applications next product Product and Officer, the one our on provides second Investor per point dashboard. of a customer week details these Chief The delivery, will single providing developer touch at security Sharma, which be and also visibility application and services roadmap releases launched our and also customizable Strategy our We window. Lakshmi another

data. user lightning of faster than reach in our All remains network. new the as independent largest our year, our these services network network enterprise consistently Since worldwide the our would regions fueled delivery competitor by Europe of measured and countries by fast in the real and our beginning business features never U.S. developers without most

security They Our performance first Fortune lending quarter, business we of in matters performance regulated significant that Performance our customers, ultimately it stringent is up most critical improving is of at who regulated a like closely network highly partners you Fastly basis digital media by why conglomerate us They one maintaining per with our mass for others. our our at configurability with are unique for multi-tenant Latin Google size platform need close signed across to highly America. architecture. authentication metrics with further a validates security us the That advantage Cloud. decision-making Fortune as multinational will requirements. the while our their opportunities demand XXXX financial a for XXX institutions. endpoint for paired while winning customers customers. to speed and The chose see entertainment working opens token In

also The quarter brought first our validation portfolio. product for security strong analyst

and Insights application was web only Peer Choice For as Fastly Fastly’s the the application web the purchased, WAF. and Compute@Edge Gartner deployed platform. received firewall recognized on unified and for vendor Customer Next-Gen Last a customers the overall exceptional named for that WAF first fourth WAF quarter, year, API consecutive among built an only implemented rating protection. used we have solutions by industry’s

are in arm-based scale. We environments the support This security. quarter, for announced at thrilled to momentum our continue we

of and APIs We in only to are apps major any customers combination secure first ARM is environments. step that This using a and and quickly multi-cloud other processors. enables the WAF securing their forward

additional to target also We customized becoming customize and APIs their API a part. out-of-the-box detect, block option will GraphQL inspection. GraphQL out-of-the-box no attacks now frequent introduced this that have wanted the With choose attacks a can we inspect simple on inspection vectors, GraphQL Developers or most and provide can tool attack with that configuration

for of at They Investor Our now A both to the customized guidance, global their and look to wanted publicly to identity our on traded security quarter WAF in XXXX. provide the security with to about details We Day. shine. success I financial with the isolated team Ron? their for business environments. management further presence customers. access continues forward offer us over and a our Ron. the excited ahead its platform adopted updates The ability next-generation application discuss you is sharing opportunity of call lies that to To will turn our and

Ron Kisling

adjustments or and $XXX.X first Today, Sciences price review financial you, to XX% first In end everyone, $XXX quarter and forward products non-GAAP to Thank million. million otherwise top Joshua, revenue a revenue financial our year-over-year unless reflected. then for after results guidance. XX% based. of to revenue, increase us. to thanks and increase I’ll XX% year-over-year $XX revenue Total the of metrics our increased was discuss of related discussion Note results purchase million, are exceeding guidance in my joining Signal from for deferred our the are a the business stated, quarter, all XX% that

Our rate driven was in dollar-based previously quarter. of slightly XXX% was year’s from The XXX%, decline related to last impact XXX%, QX down was by customer, single net from outage down from we DBNER expansion slightly and or majority which the retention net discussed. prior have rate trailing XXX% XX-month a in this our ‘XX,

X%, can strong. from less our low of than a retention As remain see, dynamics you churn very customer

previous were As excess XX, customers which over of of those X,XXX we as XX customers, an months. $XXX,XXX March enterprise, of XXXX, revenue had XXX the of with classified

respectively, more in Brett lead XX% QX the brand new Investor XX-month the acquisition and X%. Accelerating sequential goals increased in Margaret quarter. over customers demonstrated year-ago customer XX is enterprise our XX and XX quarter. Revenue sales our our total continues as customers compared previous customers and of Chief at XX% to Shirk, around for and prior $XXX,XXX generation share the our increase XX activities and spend the their basis, in our plans Our new first and trailing in a quarter, Officer; in growth Chief customer we our retention. on line representing one ramp of our team added our Marketing Enterprise of with the average Arakawa, accounted revenue we key awareness. marketing And new count grew net Officer, of will contribution This strong $XXX,XXX from their also quarter, to total net customer to customers, Day.

in XX contribution comprised the QX of XX% XXXX, in top with customers total quarter first revenues Our line our of in the XXXX.

Turning now to gross margin.

fourth XX.X% Our the first XX.X% quarter in gross margin the was compared to of XXXX. quarter in

will sites the more incur transition address transitioned proactively Difficulty] quarter, transition discussed until QX As the the year [Technical to to a chain due continue costs will growth the investments is points accelerated rollout next-generation basis in the decline couple second and we hundred call, In we anticipated existing investment would several architecture, quarter. the we our network sites to first of XXXX our support in the full margin on earnings and supply our constraints. our to We for continued complete. on gross of sites

to We the by expect the be older duplicate fully year. end sites of decommissioned the

we plans described, Joshua by accelerating purchase network of our the derisked and expansion equipment. deployment As

the volatile we this Given chain a and semiconductor in occurring industry the at the prudent dynamics was large, decision. supply believe

the some gross any XXXX and a In and to in not to margin beyond. new we and our capacity mix be continue tailwind markets compression, quarter, capacity. expect security in product in acceleration support of and invest in offering and to underutilized in see we the growth to locations, continue price customers. and compute We resulted has expand into infrastructure new did this In strong

leverage opportunities We to network. to drive forward very-focused during gross investments our Day. in these details we margins on are our more providing look efficiency the changes and our of the and improve on dynamics Investor are to the network We making

relatively QX Lastly, to flat still gross margins looking with be gross at year by margins basis in of first and XXXX, couple expect improve points we the hundred those quarter year-end. full with a to down

Operating loss QX the increased for our quarter XXXX in were loss in diluted quarter, operating over ‘XX up of XX% net the $XX.X with guidance. per basic Our and share organization. across expenses due were to the line and first first million headcount

of has growth are talent. attracting With expect XXXX new second high-quality difficult, will be talent leadership we with attracting While been in first in in the in place, success lower will pleased our the in growth we expense and higher the half operating expenses half in year. be

and diluted the loss to million per $XX.X diluted $XX.X QX and $X.XX loss basic for was was per million $XX our quarter million, or net compared basic and share $X.XX and loss a in share operating loss a XXXX. Our

Turning balance cash, sheet. We including equivalents, investments, marketable $X the as quarter those classified long with billion ended to cash and the in term. securities,

quarter. X% the first Our cash expenditures capital revenue in of were

Our law. supply now drives capital in the that which to in with next-generation at except Despite materially. future, XX% is year XXXX. on are the include we to to outlook today these leverage everyone of capital based our Actual architecture technology, forward-looking no second and turn chain quarter transition some constraints, capitalized to due expenditures statements a required along We undertake results current software. and include I’d of expectations discuss our to the as like following investments to may XXXX obligation our XX% differ as This, by foundational the forward-looking again and update efficiency our our statements statements. expect of remind and for acceleration full I competitive remain in to network will our revenue. differentiator. expenditures network,

our improved via and customer enhanced part and strong second customers, our acquisition line ability reflects and continued XXXX year products. full outlook in new Our within expansion driven growth top enterprise quarter by deliver to

have to expect that increasing revenues first flat we with our as guidance generally our half today. is and Historically, in usage-based given quarter model, our based revenues to on business gain of year annual the revenue Our second the And guidance additional visibility we year. progresses. the visibility are second the

As of XX% annual growth second a to $XX in result, at midpoint. representing revenue range expect we for million the $XXX million, quarter, the the

non-GAAP million $X.XX $X.XX non-GAAP $XX.X the loss per We of expect share. to per million to $XX.X a operating loss of share and

a the increasing prior are For $XXX million to to $X million. our we million full XXXX, by guidance range of $XXX year

to net non-GAAP and We to expect loss from of our $XX operating guidance. unchanged a $X.XX million prior $XX non-GAAP per a of loss share, million $X.XX

line thank you would support the for for we and and Day. like open interest to look forward your Fastly our questions, you to we Investor Operator? your in Before at seeing

Operator

[Operator will take Instructions] Frank We question our James. Louthan, first from Raymond

Frank Louthan

growth And Are has then, rate and growth a you. that progress Maybe just competitor puts be us you to the of how for secondly, a you trends to you’re Thanks. that Thank recently should the hundred slowed the traffic down basis of like couple gross seeing stated that? What and are points they’re traffic of expect walk that the through couple anything in had that of margins sort takes year? seeing? and seeing. a the Great. we only

Joshua Bixby

Hey Joshua Frank, it’s here.

traffic the I’ll question. side. it take margin hand me Let the Ron over to gross for

I think, happening are rates. the that prints are street, definitely the a we in change across are seeing growth seeing like we on

some, that of lot it’s competitors we’re down thankfully the don’t industries think And For up, for have some industries, it’s are sides for exposure talk to. we’re hearing industries of about to slowing our going In a both I general, it. that exposed us, going down. we

do areas that on the in the in, work areas, high the this you the commodity take exposure. of don’t stream business, as and we lot side, many have streaming areas, know, about don’t are we the we’ve times, we streaming those growth of high-value So a talked

we the been grow There X see board. rarely about the that But we’ve of who a number general, us provider. to across because X in picky, in You’re sort to are or we’ve don’t exceptions. some work of we work we have amount tremendous as number with, going room and been selective

some for of absolutely the been general, of unquestionably, example, So selective of in a as because But industry uptick. trends some those wouldn’t we’re proxy we’ve I industries. in like in the for seeing see overall Fastly travel, industries, in how an good

say, commoditized the So, we of exposure, take coin, the the margin both the generally would of question? speaking what I seeing gross I to don’t sides to. the are other vendors of side a think, lot much you is Ron, we less are business, but which why have

Ron Kisling

Yes.

kind me then we think, and So, let the driving of I see start the I’ll dynamics how year, talk it. with about

half full of as So, I relatively of couple with course QX be we That being to think with the the on quarter. plays of second the to said, really year of flat first margins basis the year end for gross biggest The out we expect hundred driver over And a the is the points. change those then, still we that improvement in in toward the architecture. see the year. in rollout next-generation in the dynamics

we incur talked we on costs to As as of continue part past, the rollout, in about this existing sites. the

half, the the quarter, few into older we second And in transitioned the duplicate several you year. in the the So, transition sites. be more decommissioned the to as a expect first second sites fully of end by then, We’ll we get quarter.

going So, some cost reduction in to in our half. of revenues that that’s second drive

you drives the we an second increase an if of in in just revenue revenue half, driver, our plays other out, acceleration that in typically at historically how see look kind utilization. The

that in so, in an increase an gross margin. And typically drives utilization, network also improvement see we and

So, those are two biggest drivers. the

other seen haven’t in I acceleration any we’ve compression. seen, we said, think that is price the drivers Joshua as

really a then, didn’t in gross margin. quarter-to-quarter. product, from a positive see product change materially mix security or to to continue our tailwind Our we is And strength which our

Operator

Stanley. question a Sanjit from Singh, take we’ll Morgan Next,

Sanjit Singh

to rate maybe improve year-over-year side, versus year, your of the trying improved quarter. decently second I at growth decline I prior the if capacity, guess, I sort starting network wanted some the slowing to improved the sequential sense, On in versus more understand your sequential in on just on topic revenue revisit sense that revenue versus of that’s last that quarter, the the growth I improved net to magnitude of gross the margin growth once the seems last or in if could. the network look the like expansion retention capacity in-quarter side? I’m

me So, capacity. that there’ll sort the seem sort of some absorption utilization it to or more of of like stale more would be of

just the like prior? the to this I’m on trying understand, So, margins versus gross magnitude of quarter

Joshua Bixby

-- me me first Ron, the section take to let first off take the and let hand Sanjit, sorry, I’ll that Sure. Ron.

I think general, as pointing the base growth out, in in is the the the also is customer network the good, growing we’re network. growth you’re but in expansion good,

And can sort racing so, ahead. Ron of speak to those two things,

two As that lucky be main the ahead I use the think about that have have. a But the have sort difference really the faster I or you’re we in comments, just than that race Ron, my is racing industry on But bit of latter of talked saw into ones in that? half in year. think higher things a the in little you the mix, good we come to environment going seeing or good really we’re to don’t the the driver. would general in -- and ahead different. in the sense that position pricing difference We that’s expand a a But access If we that’s other. why

Ron Kisling

we saw in some would we chain architecture addition thing and around Joshua, what I large. Yes. the is volatile some supply dynamics new given the of expand the accelerate on did of equipment, to is at The purchase we deployment thing, that only saw in of kind the

of demand. that so did ahead capacity deployment And the actually we increased that of some

supply as we deployment the a of accelerating did in see of the locations, so, underutilized And some some chain. to capacity in response some result

that the that’s on about So, probably spoke additional earlier. top factor drivers the we of other

Sanjit Singh

or being And line some sort of sense, of sort implies about Understood. customer customer pricing have to growing were you pricing in headwind. the in XX%, that pricing overall expanding sort comment on growth. The think historical is of low trends on XX%. the I sort base XX% of incremental sort base of kind of then with impact, If quantifying no

you’re implies the sort Is of high-single-digit, growth, about XX%, low-double-digit side? sort about kind to right pricing XX% of way a which on headwind. what of pricing posting You’re the think that seeing

Joshua Bixby

number to of And business, I enterprise we’re not in that’s compute important I sort from of a different you Yes. a price meaningful those dynamic way. perspective, our mean, carve market of look security at think in mean, a markets. pricing you out. it’s side When a really the -- I compressing

the has that compression part. where interesting for is changing. it’s I side in streaming traditionally things sat most And think on the market, price are

normally -- we was till we’re Our year. going would this are bit their that little for of own. hardware a of capacity conversation brought to we buy They companies come next that, more the hold we a They in large some and off and also think more that customer all ask if year. a costs understand and back with centers. you’re But we data those inflationary environment the you in work for discount the the pressures components understand there. under. understand in We inherent recent buying with large I

value kinds content, kinds important think actually overall, of up, high-value they would to the revenues us I also of line. about quality, and successful. with, up, whose are with work really in whose going we’re is ones I we say, So, really but what work are want and who the partners organizations they I because going the we very viewership care general, seeing do. But has these the mean, math in see that’s the we strong with is be who are partnerships, partners

the to I’m But under, similar them. trying seeing and are these inflationary environment out dynamics people even change everyone you’ve in overall, the pressure few weeks, field described. get to the what think I components where that the is into are the last So, costs really around the understanding

are said, on I prudent that ahead getting in think this. about I very are you’re and of I on been others a As lot hearing think shortages. the calls chip of we’ve And

all. opposite that we’re saying We’re we’re in category, confident the say, I utilization. at of get sort would not but we’ll

Operator

take up, Sandler. James from we’ll Next Fish, question Piper a

James Fish

XX Ron, it inquire compares prudent, for guideline, it your should saw retention with going XX, only it that grew stuff year-on-year. but despite strength to it macro like implies how in And net base the And really get think customers, to fast? wanted I that lower on with kind about underneath or QX, non-top going year? as flat looks conservative given some compare, of XX non-top of coming, being customer about the we the end top and rate a compared but retention a what tough looks relatively growing enterprise good what’s on rest the we was easier I just X% aren’t net the of like like

Joshua Bixby

why don’t and take guide you Ron, top question? XX Sure. the the

Ron Kisling

Okay. Yes.

think the saw out, count. increase we a previous you did about the as I X.X%, in relatively see We an customer X% increase low. overall was quarter So, customers, point over

I around enterprise customer accelerating overall we both enterprise priority. sort lead at number, number market that of overall think we’re of and across there’s And increasing awareness. look key brand that a and kind is when below acquisition, and I think, doing things that of a gen activities

of Officer; we a the doing of that second Margaret will Shirk, Investor so, customer acquisition little as move into we’re share the our Revenue sort the Brett specific around And and accelerate at bit Chief Day, half. plans to

‘XX. metrics, to guidance, you some the we XX-month I impact second outage point look in continues NRR, DBNER, the June those think -- if what regard are it saw reflect either I at on with from LTM think and to

no that impact came week of within number I them longer see or traffic some reduced a most customers, is So, outage think of those that back the to we’ll a of two. metric. for impact continue within And until

of come metrics out took We about outage continue pre-outage that the drag be impact seen customer really somewhat have We’ve one talked couple of will but quarters in LTM increase back a until kind a the to level. that, that of good large who the of calculation. to on to drops

James Fish

Okay. capabilities. XXXX own cloud media And you as conglomerate? we’ve hyperscalers get -- you public then, to have to the mechanism to meet I now the just your Linode that guys. with acquired their about CDN environment thinking cloud guys and the into hyperscalers, recently you workloads like services really how are promote partnering public well host that Thanks, Fortune to more trying as for Akamai did cloud have need own seen their with delivery own versus guess,

Joshua Bixby

I long edge as cloud Jim. Yes. which is we’ve and the together. seen we world Thanks, to through we continue lens for coexist a hyperscalers the it see same time, mean, the the think

They Our in perimeter of multi-cloud. them to want they’re have to seen approach things what to have cooperation. clouds. customers And is be between balance is lot that we security so asking the of doing, one a the of one And clouds, us. multi-cloud. are to all allow load

looking are types absolutely seeing some are at edge that’s we the hyperscalers caching for And So, think great. workloads, putting that capabilities. certain we of

that other things this world really from customers from well edge us, caching. Our compute driving for are right personalized multi-cloud And is now, it’s decision-making. looking security to as as the

think as So, we competitors of see other so some who has that hyperscalers. competitors see far the this I played the are we cooperative, think seeing unlike don’t themselves We that. to And well.

in have very great and We cooperative relationships regard. that partnerships

Operator

Blair. James question a from William up, Next Breen, have we’ll

James Breen

the as from about you perspective, software quarter forward about to CapEx bit little a was a Thanks. capitalized this was a where of that percentage talk low fairly we line growth? just should in going get How capital revenue? up go and bit. think you spending you Can top It want a of terms little need

Joshua Bixby

Ron, one? why you that don’t take

Ron Kisling

Yes.

little our the in quarter you on low as So, cash our side. pointed bit -- CapEx the out, was a

line and we broadly guidance of year, I to be expect XX%. historical for with the somewhere between our of think kind XX% in

year. investment, to for despite and still we’ll for architecture XX% of the be that some think acceleration historical of I transition to within revenue the the CapEx the of XX%

So, what of terms QX we CapEx that imply in saw increase investment. in would some over

Operator

Instructions] Up Will is Power, next [Operator Baird.

Charlie Erlikh

Will. Erlikh is for Charlie on This

maybe about a get wanted you and gives detail more I acquisition that Fanout bit on what and first, to that? just ask forward little the path Just the on

Joshua Bixby

Sure. an one us. This is exciting for

Our real-time work, customers It’s long for customers a what this. requires a of been lot of development this something for have is it into -- this our for app asking that all is time. and built unlocking

got support or examples of do in This cases, it chat live the time. a gaming this. themselves. most about all to customers our is think So, they’ve do what And

the use And have engineer away positions don’t themselves. acquisition, stacks, us they cases, it to existing support in-house web and can complex with from socket really they really so, to migrate it these

and something for we long in being coming a time that we very they been acquisition priority natural and the and has this doing were just market, saw thought on viewed the list the how top So, was of exciting. was Fanout it when a what us

Charlie Erlikh

on invest could timing And about balancing future, but just So, profitability, I just you if growth guys you that? in, eye the Great. squeeze around in. lot of how an one initiatives How are in course? more also of keeping we think should profitability want thinking about a to the timing

Joshua Bixby

that talk mean, don’t more but going I our Investor you to to what share Day, about Ron, before you I that. Sure. there? Ron, know want certainly we’re at

Ron Kisling

Yes. that. about Sorry

we is I more opportunity drives platform, as margin. there to are the growth believe to I drive and gross that margins. And computing we We’ve talked time think spend accretive grow certainly those growth. long-term managed growth we and see think, an increased security to we’re about that margin see play both investment it. accretion starting And and business to about out in gross

terms getting and profitability, Day. to our of the Investor share at our that on model like long-term long-term view what In looks plan kind to we model of

Joshua Bixby

that there’s Yes. gross We call can high briefly believe margin a a we it’s what is script, side I the us. on just for about priority business. tremendous Charlie, the the and we as of you in that leverage amount across the in talked believe and tell

that Day. it’s about lot and Investor something us you’ll priority, a it’s hear more a from at So

Operator

Markets. Our Capital next is from Philip question RBC Rigby,

Phil Rigby

and on businesses for what Difficulty] all streaming higher-quality you of just to? me, that those up us you’re Like, you following [Technical of in and more increases, commoditized into helpful? is You be there sort about times. max it, lower, of of potential go lower call there utilization? would important the kind kind to how is color to maintain of mix in the one really of a is out video remind higher Any traffic, growth have capacity talked Just that streaming. Can before more utilization sort idea just to traffic business

Joshua Bixby

It’s question. great Sure. a Thanks, Phil.

I we to part long-term important think our which success story, misunderstood is of business. it’s how is the feel a of our video

question, first of side we to intention market any this the of into meaningful have -- part I in going no second think answer the commoditized way. of the the

if a segue We market. extremely sort difficult, profitable are profitable think, lowest the And of off build interested to not of last this just building a business business. impossible, in to comment I it’s off end the

that So to be interesting won’t us.

the deeply of their able you’re that quality, content. Woods it’s as of down recall, And streaming events, I those, you about coming important, actually is Masters revenue or that green Bowl events the has in is Super the in on, years so cares to the question, for is live If who event, sort are care quality. in three transition advertising live to over always saw think is who we with Where the started, the XXth profile, characteristics. monetize high a you traditionally, Tiger walking similar those on part significant the video been had demand us, right? about you’re is last

So, and it reaction when when that And are seen ones that consumer Netflix if the it. or day the ag same case new gets up, the drivers the that. was on a starts launches high that environment blows live. same other the huge Twitter Disney show it may their sign-ups, face. would really all attention, for of Game on and or actually be a whatever talking magnitude it the of shows, and People something everyone much quality, is we’ve show get it has about Thrones show within as those or isn’t some matter, be,

don’t. have where can we dynamics whose monetize those those matters, who those users really the shifted quality have So, deeply who and

shift there’s get is who as that of don’t. upside, we lot not important so lot say, do in why the traffic a can very You’re those us exposure high away remains therefore, those who video is see because area this a But is this. to going I And of from our more to value limited. And critical.

and always has deeply been, we talked efficient. earlier, about goal I when are Our it efficiency

are the junctions is that critical to ships. Those of who network, being future, are has they the bandwidth majority all are content suppliers Those We’re change we on be to need. are serve content those be to the invited going that about dynamics also, the different content And -- to parts suppliers these going the of the think going matter where those into to using invited content, when be into it the that going being And our are in all suppliers the are because side at parts the served of satellites. I when users going be allows to ways, the cruise it’s us our eyeball that consumed. to are servers.

see And think into we no to ever now. plans it’s strategic of critical. go I the to So, We right it but part think as don’t business. this story commodities our

Operator

Kessinger. Our next question D.A. is from Rudy Davidson,

Nima Rad

is I for had update. a Rudy. This just Nima question on on an

quarter last quarter have point? said guys you the at how I are at guys sign-ups paying converted this was on where Compute@Edge. you XX and wondering three credit for customers you You many that had program this guys just to on

Joshua Bixby

here. Joshua it’s Hey Nima,

those, the at going but I you this of growth, share can we’ve had of comprehensive we’ve we’re had Investor we’re nuances One in bit that to things a that that time sort sharing to with I Day. going to conversion, tell little view of of developers those that. happy very be when been more the is walk we including have around many enterprise the platform. how programs, a have through

wait progress, But same the have not growth. opportunities that here we So, all and all I’d I Compute@Edge for the that on a remains, most really to because you give of the one the context significant seen and little exciting, it’s exciting see like if at we’ve most think, time.

Operator

Citi. And now, hear we’ll Fatima from Boolani,

Fatima Boolani

curious that next how just business ventures. you and know Josh, of you it on was luck I’m it your good with spoke around I The a is to but nice momentum. trending. level, your about security question working high is sort at

about power. helping us year-over-year quantify the of of in house momentum specific And had and solve you a and extension, Josh, right? pricing These You compute being are can challenges you’re then, for customers. lot quarter-on-quarter accretive, the you side some have of security sort that portfolio? important an as your very If talked more within pricing

with the enterprise spend up that reconcile help can average X%. you if curious customer only was I So,

side So, share can the of growth maybe larger sort of on wallet some bridge lighter and on enterprise hoping that power from gap security pricing you of vis-à-vis a your customers? the some

Joshua Bixby

Sure.

hand and going those a I’m to Let off of couple those a few me take to Ron. of

think have discussed of contribution portfolio product we of but we way and is beyond line, collected extends published sort entire -- of legacy security the we in the our I together general, yet that. out, zoom because SigSci it not our if well sort what have

a TLS we fast business, business, bot Before we an Signal Science we as bought we emerging have had a WAF, DDoS we business. have have a

business, -- on entirety. the speak that’s Ron but SigSci So, the not to and did the already will

do continues on we I entirety general, you that a as as drive which the we well business. talked in And I to of portfolio, color on gave in margin think compute the that as have the past, business great tremendous growth. have profile about

can you the don’t if Ron, share sort give it? So, wallet you that, why coming I And you of could. then, stats of address and on to think some growth back the question, also

Ron Kisling

Yes.

So, just you give stats. to of a couple

rate. So, was reflecting in the XX.X%, XX.X%, a up Sciences XX% QX, in from about quarter -- Signal growth from was revenue XX.X%

on revenues the was As purchase year-over-year year-over-year on Signal a you if take about on XX% basis. growth basis, call, Sciences price into XX%, account a It the mentioned adjustments. about increased a I

And security security include as add And launch the is time, strong Joshua growth as So, portion does some DDoS products a products, of points the portfolio. such of more there. business, Fastly expect we’re in overall to as the TLS. products Sciences out, only growth our security we more Signal I and over see seeing we in really not think more

of -- growth our long-term of growth you in terms security. goes XXx if we back to I sort of think, about goals substantial earlier, back on this talked go

security opportunities that. And as then see an includes see the I we of portfolio bandwidth. side. Science are around SaaS a delivery sort basis. sold grow use of And the sort we the opportunity, delivery important lot terms on are build substantially conversation part. then as out, of They And most in products today we secondly, the don’t And on on margins gross predominantly, to business higher Every it margin so, Signal think than of of security. that

not less volume-based or bit They’re sales. So, volatile. they’re also little a traffic

other the the And versus so, side product. the in of differentiation of that sort delivery security terms that’s business of

Fatima Boolani

delivery house. enough. I follow-up may a the of the If Fair side ask on you

volumes to think you that’s of a necessarily of across of step sort think your about social your give very on premium commodity, I’m seeing? characterized traffic downloads, back, of not why us of us the maybe maybe are right? in can if understanding peers quality gaming, some streaming you that can estate anything media, the high-end trends the help So the sort to the on your VOD, video, been on platform traffic more isn’t pie it traffic software crisper of traffic of commoditized that if appreciate a help hoping and network of us terms you network, the I has take composition whether the

Joshua Bixby

balance Sure. we’ve it the I that between video about changes, think same. about mean, remains and spoken being it I equal non-video the an in past

Ron quarter-to-quarter. the has stable months. the nothing over remained XX said, mix last relatively As to changed XX And

say, our I -- side it. think not one goals to And I that the we’ve important. as down into really stable. think that’s keep go of that So, We is of commoditized

sort impacts money would because in all lot make And it us different growth. of I and for of of see So, margin line it say business. a to stability. to get all of is We our important has a great the

for, out high-value it’s or of and that to of streamer this that well, an some the sort had who if into is valuable because break that is are constantly large think looking in network pricing that at. we to and then about some it you really to our we would say, very something eyeball a math ways So, have pay hard otherwise us gets business just

of a years. significant not course So over change I or last think, of in the the quarter couple general, the in

Operator

is Blakey, [Operator Capital Markets. up Instructions] KeyBanc Next Tom

Tom Blakey

terms in calculations terms say the a what And we terms of things perspective, impossible utilization, couple seems gross mean, those -- with to a costs. regard would similarly, on identifiable side. on XX peers on term, it XXXX some follow-up. it the And something could number? be points of in to the point have longer you increase, should or have type the significantly for starting of margin? costs that margins, that to like us sort some alleviated like? What’s basis of Is to in track that that of we into speaking term? kind as gross basis flavor go going duplicative Ron, probably new improved But look be what, what ever like in of level network? what gross utilization this It -- of point like expansion expect I gross which pretty line from a Then Have with with margin other release demand. more higher of going of margin of are questions, I I have every give yours, Ron for in to about to longer with

Ron Kisling

Yes.

data So, a couple of points.

and we’ll forecasting a to to expectations. I more XXXX, talk terms to our gross even to of think fall sort higher investment And And drive from doing should traffic higher also things we’re the continue alignment transition expect margins. traffic better as utilization process we Day, investments internally around utilization and Investor tighter and on and which drive those about drive of in number other new away, architecture that of network. headwinds there’s toward across the look we our

margin our and the mix haven’t we of the completion of in as -- gross expect than the the become contributor. driving cost a see improvement of margins from revenue, further those those the efficiencies network. bigger transition security from architecture, other And growth we higher also gross for in better XXXX also the to our a So, the utilization products, the XXXX quantified are and across that of accretion of in say in products, see kind we to

we to So, that what as of quantified but the rate tailwinds play a gross kind going we’ve And accretion should that year, seen end will what the that that. explicitly haven’t year. XXXX drive of over margin off of into accretion we’ve is of lot got out this we get exit as

Tom Blakey

correctly, more versus those cost sort it sounds hearing what to That’s in will it rates if And maybe then. I’m of gross be the of just back like expansion more you XX-plus-percent more of try into -- meaningful.. fair. Is be terms margin it’s the going ‘XX, Ron, ‘XX, identifiable overhang duplicative one it’s going some ‘XX, utilization

Ron Kisling

Yes.

from efficiency I a it’s you there ‘XX, of have the and I network and and way in that by really as to ‘XX, I transition, mix. get ‘XX, is, think efficiency, into headwind product on utilization we going then, be new that did driven the we and And efficiency because this at would build sort look architectures away. the think falls leveraging more driving ‘XX

So, the gross accretion be business will sort in ongoing fundamentals the margin. of that driving of

Tom Blakey

and bandwidth like. That’s and question platform. a kind Great. obviously, what into of around helpful, kind on strategic that ‘XX security, see looks second adding going longer-term and like vision we’ll My that’s your is more related intensive of SaaS on functionality less

going about the forward. profitability see we’ll about, is here question the - given Just

So long-term for kind or capital long-term the organic intermediate of structure cash is Company? kind about terms your what question term more all-in-one of strategic would and the inorganic on businesses, and the be in in of Fastly growth vision of non-delivery-related usage vision that

Joshua Bixby

Thanks, Yes. Tom.

trajectory in said this on view we the this view I I past, think we think an at point. organic our

going that grow, portfolio we the security will set we look scale that we not at There are on are in the the feel how hit growth, particularly of market, few you if we’ve like we that but out. in surface continue side, that’s the to sort inorganic places think we are the long-term terms at. large-scale up, beefing and we’re that of even -- I scratched of bot we goals to haven’t a feel

portfolio go market we And on strong. bot something we teams it’s working to It’s the against you rest our and that in So diligent competitors -- world-class, have the continuing up that. and strong. portfolio win day improve right the and can is is on the with trajectory see growth every working as now, the that of and

team. and side. be portfolio and on in be but on the here things be would the in side there, talent the than There it confident small that may revenue the would really we’re we’re confident now, right So more

Tom Blakey

see be anniversaried excellent would Joshua. basis, I That to an with solid organic agree, you’ve from growth. here And

with forward next to keeping So, look the in in congratulations and endeavor. touch you

Joshua Bixby

great Thank you. Yes, it’s a success. been

Operator

to I does Mr. That or question-and-answer to time, hand any closing our like back conclude Joshua Bixby session. things additional would this for remarks. At

Joshua Bixby

you. Thank Great.

role my ensure in position our I has our focused we off, ever committed want We sign this process. business our fueling one digital have execution, in, we many is delivering you. on brought Thank and throughout XXth. that my forward and Fastly assure been partners to experiences to investors. you our in Day success long-term until and smooth of -- to my to successor to forward that our number on remain thank I look Investor with at security And value a to you remain to transition. want and remain employees, We May for to goal connecting Before customers, our lasting a bringing shareholders. I moving as ever as will our growth

Operator

you all conference. That Thank conclude for today’s participation. does your

You may now disconnect.

Fastly (FSLY) 5 May 222022 Q1 Earnings call transcript