Q2 2020 Fastly Inc Earnings Call
Good afternoon, My name is Josh and I will be a conference operator today.
At this time I would like to welcome everyone to the Fastly second quarter 2020 earnings Conference call.
All lines in place 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.
We'd like to withdraw your question press the pound Keith. Thank you I would now like to turn the conference over to Maria Lukens, Vice President Investor Relations. Please go ahead.
Hi, everyone. Thanks for joining our second quarter 2020 earnings call, Yes, actually CEO, Josh will Dixie Chief architect and executive Chairperson Archer Berkman, and CFO, Israel bars with us today.
I want to remind everyone about the format of our call you publish the shareholder letter on our Investor Relations website and with the FCC about an hour ago. We hope everyone had a chance to read it tends to letter provides a lot of detailed we'll make some brief opening remarks and reserve the rest of the time for your question.
During this call, we'll be making forward looking statements, including statements related to the expected performance of our business.
Your financial results strategy long term growth and overall future prospects. These statements are subject to known and unknown risks uncertainties assumptions that could cause actual results could differ materially from those projected or implied during the call.
Please take a look at our filings with the FCC in particular, the risk factors within those filings and our Q2 2020 shareholder letter for discussion of the factors that could cause our results to differ.
Also note that the forward looking statements on this call are based on information available to US as of today's date, we disclaim any obligation to update any forward looking statements, except as required by law.
Also during this call, we'll discuss certain non-GAAP financial measures reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website <unk>.
These non-GAAP measures are not intended to be a substitute for GAAP results.
Finally, this call is being webcast and will be archived on our website. Shortly afterwards with that I'll turn the call over to Joshua.
Thanks, Maria Hi, everyone and welcome. Thank you for joining US today, we hope that you were all keeping healthy and safe.
Q2, with another exceptionally strong quarter for Fastly in a world continues to change rapidly.
The structural and societal changes, resulting from this pandemic have continued to significantly accelerate the need for organizations to prioritize their digital transformation.
We are in some of the most uncertain times in modern history, but we now see clearly that the major shift to digital will be long lasting.
The need for a trustworthy and modern edge platform has never been greater.
Developers and security operators are at the center of this transformation and they can only drive transformation effectively if they can build quickly and securely.
We believe in developer and security operator empowerment, we partner with them to create simplified frictionless fast and secure solutions at scale to support the evolving needs of billions of users around the world.
The strength of our edge platform continues to show in our results Fastly delivered another quarter of solid execution. Thanks to the team's continued focus and performance.
We delivered exceptional topline growth generating $75 million in revenue, which was up 62% year over year.
Despite these turbulent times, we continued to see robust customer adoption over edge platform and security products by both new and existing customers across multiple verticals and geographies.
We grew our total customer count to 1951 from 1837 in the previous quarter, the largest quarterly increase since going public.
Our enterprise customer count crude 304 up from 297 last quarter. We're pleased with the number of new enterprise customers as well as customers who grew into the enterprise category.
However, this strong growth was offset by some customers falling out of the category in cobot impacted industries.
In addition bike dance, the operator pick talk with our largest customer in the quarter.
And he band of the tick tock app by the U.S. would create uncertainty around our ability to support this customer.
While we believe we're in a position to backfill the majority of this traffic in case, they are no longer able to operate in the U.S. blocks of this customer's traffic would have an impact on our business.
Our average enterprise customer spend increased to 716000 from 642000 in the previous quarter.
Our existing customers are relying on us more and more as reflected in our increased net retention rate of 138% up from 130% last quarter and dollar based net expansion rate of 137% up from 133% last quarter.
Looking ahead developers now more than ever need to build differentiation at the edge and rapidly adopt new architectures.
This is why we continue to invest in our network and offerings, specifically computed edge and security.
Many of our customers are further embracing computer to edge, our real time Serverless architecture for high performance applications.
This quarter, we enhanced our offering with a valuable new observe ability features including logging tracing that granular real time metrics, bringing observe a believes the forefront of the serverless computing environment.
We are on track for and expect to further expand the availability of computed edge. We continue to learn from our customers are inspired by the variety of innovative use cases, we're enabling including new ways, they're thinking about security.
As transformation drives more code and applications to the edge, it's evolving into an increasingly critical placed secure websites and applications. This quarter, we delivered new key security features including Fastly flow control.
Security has always been a key focus for us and we will continue to invest significantly in this area.
We're also continuing to scale and build our network at a record pace to meet today's digital demand. We reached 100 terabits per second of global capacity, an important milestone for us representing 35% growth since the beginning of the year.
Our results and guidance reflect that Fastly is uniquely positioned to empower our customers and we'll continue to drive growth during these uncertain times.
With that I will turn it over to aid real to walk through the financial details.
Thank you Josh and thank you everyone for joining us today.
Definitely had a strong second quarter as reflected in our results and raised 2020 guidance, which I will talk about in more detail shortly.
First I want to briefly touch upon some of the key financial results.
This quarter, we generated 75 million revenue, representing 52% year over year gross.
We also continued to deliver a healthy gross margin as we continue to scale.
GAAP gross margin was 60.2% for the quarter up from 55% in the same quarter last year.
Non-GAAP gross margin was 61.7% for the quarter.
Demonstrating increased leverage of our software defined network, realizing over 600 basis points of operating leverage improvement year over year.
As we've said in previous quarters, our gross margin will continue to be impacted by the timing of personnel and infrastructure investments along with the seasonal fluctuations of platform usage by our customers.
Despite continuing economic uncertainty.
And confident in our ability to deliver incremental annual gross margin expansion as we continue to scale and deliver innovative security and edge computing solutions.
Finally, this quarter marked a significant shifts towards profitability as we delivered our first quarter of positive EBITDA.
Turning to the balance sheet, we bolstered it wasn't successful follow on offering and ended the quarter with 454 million cash restricted cash and investments in marketable securities.
We're pleased to have a strong balance sheet and liquidity as we navigate the current uncertain economic environment.
We remain optimistic about our strong fundamentals the demand for our mission critical services and the underlying growth of our business into Q3 in future periods.
That's why we're raising guidance again for the full year Twentytwenty.
For the third quarter, we expect.
Revenue in the range of 73.5 to 75.5 million.
Non-GAAP operating income in the range of negative 1 million to positive 1 million.
Non-GAAP net income per share and the range of negative one cents per share to positive one cent per share.
For the full year Twentytwenty, we increased our revenue guidance range to 290 to 300 million from 280 to 290 million.
Non-GAAP operating loss range to minus 12 to minus 2 million.
Minus 20 to minus 10 million.
Non-GAAP net loss per share range to minus six cents to minus 1%.
From minus 15 cents to minus eight cents.
In closing we continue to believe we are well positioned to execute further our growth.
Our edge platform and product offerings server diversified customer base that continues to acquire more from fastly to fuel inhibition.
We have a strong balance sheet and we'll continue strategically investing in our network and offerings, including computed edge and security.
Finally, we believe the ongoing pandemic as permanently accelerated the need for businesses to focus on digital transformation.
Definitely is focused on helping developers adaptive business and succeed in the world that emerges by providing a fast secure and reliable edge platform that evolves with their needs.
With that I'll turn it back to the operator to take your questions.
At this time I would like to remind everyone in order to ask the question. Please press Star then the number one on your telephone keypad. If he would like to withdraw your question. Please press the pound Keith.
First question comes from Robert Magic with Raymond James. Please go ahead [laughter].
My questions around the image delivery business part of what you're offering there's personalization at scale can you just elaborate on that driver and then Furthermore, I'm curious if your mix of business is shifting towards image deliver it delivery and if so what impact that might have on revenue growth just given the higher average selling prices.
Hey, Robert Josh So image optimization and the idea of doing personalization at the edge is obviously inherent in the underlying story of Fastly. We started out with hedge program ability. It was key to us in general I O remains a very strong part of the business it it really.
His vertical dependent some verticals absolutely rely on it we're seeing some really innovative use cases around image when it comes to computed edge, but you know we continue to see this when you look at the growth for the for the quarter, we continue to see at wide spread across verticals across geographies and strong we're not seeing.
In a significant shift in our business in any way actually the business mix.
For this quarter was the same as last quarter. So this is just about broad strong growth across all sectors and image optimization included.
And the perhaps just one more from me I know, it's early on a for computed edge, but curious if you could just highlight some of the interesting use cases that customers are exploring today.
Yeah, absolutely I turned to Archer, whose whose whose deepen this archer.
You have some interesting stories in this.
Yes, Hello, everyone. Good to reach I told you again, yes.
I see no more.
Early or a beta customers are very if you'll see some testing and weve seen a couple of used cases come up a one is.
Online retailer to want to migrate availability stock in pricing microservices to the edge. So they can deliver live updates on costs relative to end users.
We have a mother use case about also online retailer.
Where they want to do much smarter waiting rooms of its tokens to purchases so that they can be.
More responsive simplify their own architecture.
And be more failed and how those tokens a hands without.
We have other online retailers and that.
One quick cash way more data at the edge and personalized responses, even when they're origins our overloaded.
Because of Sir just so that is on so they still deliver high enough to best a time.
We have examples of.
In the video space so.
Someone who wants to do significantly smarter.
Hello checking off their origins from each edge. So they can pick the best origin, the best lot encoder.
So theres less buffering first for payback instructions, so it's kind of a little bit all over to place but.
Really.
Some that we expect rather than something but I think our.
More more advanced than we than I would've expected at this point in time.
Great. Thanks, a lot.
Thanks Robert.
Your next question comes from Brad Reback with Stifel. Please go ahead.
Okay.
Great. Thanks very much.
Josh where maybe we can dig a little bit more to take talk can you give us a sense of what percent of the traffic is U.S. versus rest the world and maybe just high level what percent of revenue. It represents for you.
Sure. So over the last six months. It represents just about 12% of revenue trailing six months ending June thirtyth.
Less than 50% of that isn't the U.S.
We continue to.
Monitor the situation closely obviously, you know what's unique about tick tock.
In this in this sector and other apps that are on our system. They are an innovator and like historically with the innovators that we have we are working with them on and with the innovators in the high value areas of the business. So think about 80 ice and other areas not just the delivery video, which is also something we help.
With when it's.
When it is important so you know we have looked at this risk we obviously want to make sure everyone heard about it as I stated in the.
In the prepared remarks, we are very confident because of our strategy on how we've looked at this side of traffic that there is a meaningful amount of traffic that we could.
Pull onto the network and in case something Didnt.
You know move into right direction at short notice, but that's not what we're seeing today.
Great and then I had a drill just following up on this this line of a thought as you look at the back half guidance have you assumed a status quo would tick tock or do you made any changes in the assumptions. Thanks.
Hey, Brad Yes, nothing at this time, a number we were sort of assuming a little bit of sort of the status quo at this at this moment and again, it's just we're sort of mentioned.
You get to sort of loved the latter half of the you're also would give us a lot more time to react.
So that's sort of built into that.
Perfect. Thanks very much.
Thanks, Brad.
Your next question comes from Willpower with Baird. Please go ahead.
Okay, great. Thanks.
I guess, maybe just following up on that a bit April I Wonder if you could just talk about more broadly the factors that are informing Q3 guidance me when I look historically normally you have a pretty good pickup sequentially from Q2 to Q3.
Guidance assume something that's flatter to to may be down slightly at at the midpoint and so just trying to figure out how much less conservatism versus maybe any change in trend and then I guess along those lines are great I get your sense for kind of what you have been seem to traffic trends as you move from May June.
As of July.
Hey will.
Yes, so in general we do see begin to see some pickup from sort of Q2 Q3, I think the thing to keep in mind clearly is Q2 this year.
Relative to previous year seasonally Q2 versus Q1 is actually relatively flat.
Great Thats not what we experienced this year. So I think you have a bit of a comparison challenge and when you think about Q2 to Q3 for the fact that we're still at the midpoint of you're getting some pretty strong year over year growth rates I think is worth noting so from from our standpoint, we had built in.
Last quarter, the idea that folks would begin.
Getting back to sort of a normal alive from a shelter in places to be ever from before and we're beginning to see that's sort of as a mixed bag, it's mostly coming true but.
That's what's a little bit uncertain here is kind of how the rest of the world in some respects the rest of the United States is going to sort of play that out so in some respects and that sort of a normal seasonality as sort of be sort of thought of in sort of Q4, but with respect to Q3, it's somewhat respected military the best buy the comparison to sort of a very very strong Q2.
Okay, if I could just.
Follow ups to go on the financial side. Your gross margins were good deals stronger maybe just maybe talk about some of the benefits to gross margin and how we think about.
The trajectory for that going forward from there.
Yes, we definitely as you note last quarter I did for the first time actually talk about the fact that I was going to be guiding gross margin sequentially upward. So let's please to fee.
We were able to deliver pretty meaningful growth quarter over quarter.
Let alone from year over year.
Think of given that we're sort of more normalizing Q.
Q3 over Q2.
I'm.
Given the mix of traffic I think it's nothing that always makes that challenging the project I do believe that on an annual basis, we're going to still contribute well over 100 basis points year on year. So I feel pretty confident about the leverage we're going to deliver this year I think what we'd go into now the normalized.
Three versus Q2 administered hold before sort of guide and a little bit where gross margins are going to go from here.
Okay, great. Thank you.
Thanks will.
Your next question comes from Jonathan Ho with William Blair. Please go ahead.
Hi, Good afternoon, <unk> I just wanted to maybe start out with maybe if you could quantify for us.
And I know this is challenging but just a rough sense of how much you know covered 19 and stay at home actually contributed to growth this quarter.
Yes, Josh we hear Jonathan it means that is hard to assess in general I mean, we're not projecting as you see in our guidance that this is sort of a onetime event.
And we are you know we are assuming than we are seeing that theres long term.
Sustained improvements here I think you know fastly is in this unique position to be a usage based model with the most innovative companies in the world and so when you stack on.
The most in the largest innovators and you look just at their results, whether it be pentrust or or shop a fire.
The list goes on and on I think what you're seeing is just really strong strength and if you look at the stories that those companies are telling sustained strength. So it's hard to parse out I think this is a factor of the innovators are continuing to gain tremendous momentum and we think these are there's a generational shift in some of the.
These industries, but I think the other thing that is particularly exciting about this quarter from our perspective is looking at the new customer count. So this isn't just about the people on the platform. This is about the largest.
Increase that we've seen in net new customers in the selling environment that is obviously changed and I think seeing the early success, which we talked about in the last earnings call a scene, which would seem to couple of weeks of this I think this quarter demonstrates a much more sustained story arc, which is.
Which is strength going forward in that regard, it's hard to parse out, but we are seeing that sustained strength going forward unquestionably.
Got it and then just in terms of the wins that you highlighted in the quarter and sort of the digital transformations Hydro thing what were some of the main determining factors in terms of why companies.
Jonathan I heard you are just check out there. The question is a drop so your next question comes from Oh actually try to answer that question, because I think I know, where it was going in terms of sort of story ARX of why we're winning I mean I.
John I know, if what you can rejoin or at least here. This in the recording I think that.
You know really strong thematic elements one the story arc program ability continues to be strong with our enterprise customers. We serve we are built by developers.
For developers and that notion is as strong as ever in this world of digital transformation. So digital transformation is this great idea. You know you can write a book about it you can see it in a in an article but ultimately our results are the output of digital transformation. We are the ones that are benefiting from those who have.
Seen this world. So the reality of what we're seeing is people are coming to us because it program ability stronger than ever because they're being forced to build and not by differentiation in their trusting their developers another piece that strong and we're continuing to invest and this is on the security side, which customers are coming to us because our security offerings are.
Strong we're looking to continue to invest and make them stronger, but that is a strong signal as well and one of the areas that we're investing very heavily in as you know is around computed edge, which it continues to very much separate us from the competitive set in the enterprise category, which is people want to continue to be able to do more so.
Lots of reasons.
And were particularly proud of where we're in in that category. So happy to take the next question.
Your next question comes from Brad Zelnick with Credit Suisse. Please go ahead.
Great. Thanks, so much and congrats guys on all the success.
I've got a couple of questions that you know for starters I think I've heard you emphasize the SEC ops audience today more so than ever you also highlighted investments and capabilities like like flow control can you just double click on the security use case, a bit more because quite honestly I think investors had always viewed that side of your business is less mature than others in the market and.
I'd just be curious for you to remind us of how you view the opportunity where we are today and if you look back in three or five years, what percentage of the mix might be.
Yeah, I mean I. That's a great question I do think that people don't understand our security DNA I think people don't understand how in heavily we invest and how deeply we invest in that area. So I think stepping back you know there are number of things, which makes US unique one of course, which we talk a lot about is one secure.
Your network right, where we don't have a network for deed AOS or a network for one application that provides a tremendous amount.
Benefit to us both efficiencies, but for customers visibility and control. So customers are really coming to us when they don't want to have to call for professional services to deal with the real time Battle of security needs, our adversaries, who are in the middle of.
You know changing every second every minute and if you get for example data that's an hour old that's pretty hard I think that one of the other areas and tenants for US is just our own culture I mean, we drive data privacy the customers we pick to put on our platform all of that gets driven down into the culture and I think that's coming.
True and we're getting some really big wins, we talked about some of those in the latter be an education or E commerce or financial services. All of those are coming because we are at our heart seen as a company that that is really strong in that area. We've talked about the portfolio in the past.
From West to denial of service protection Tls and in many of those categories. We are leading this is however, an area that we continue to invest in pretty strongly and you see some of that investment coming through in computer to edge right. The way that we've built computed edge to isolate each of these requests.
And responses, so that we don't reuse the environment.
Allows us to you know.
It's a really haven't enterprise offering that customers would like and one of the areas that I think it's really interesting around computer and just how many use cases were seen.
That our security related.
But you know we continue to look for investment opportunities, both organic and inorganic and we're certainly looking to find both partners in some form of proximity to us that are proven leaders in their space have revenue and really focus on this dev ops SEC intersection where we.
We believe the future is so there we are certainly out in the market looking to find ways to partner with those innovators, but to your point I do think it's a misunderstood part of our story and one that you'll hear a lot more from us about in the future.
Fantastic. Thank you Josh when if I could just squeeze in one more it's nice to see the record the record customer adds in the quarter. What can you tell us about the size and wallet of the customers, you're adding today and as well how would you characterize what you're seeing in the funnel in terms of propensity to spend.
Yes, so I mean, I think you know bread pretty well our strategy on the SMB market, which has to go to market with our with our with our partners I mean Weve I.
I think I think in last few months, we've really seen the strengthened the wisdom of that approach, where instead of going figuring out how we can monetize tens hundreds millions of individual domains and by building a sales machine that does that we have gone to the largest aggregators and the most sophisticated aggregators the shopper.
Hi, guys and the Wickes's and the Adobes and others. That's a strong play for us and it's something that we want to continue to do so if you look at the customers that we we have in that category of new customers. You know they tend to be obviously, the larger enterprise customers, who really will benefit from a direct relationship with us most of the smaller customers we would.
We would work with our partners on which we have done historically, so you're talking about large large wallet sizes. I mean, you know to put our 300 enterprise customers into perspective, our some of our largest competitors in this space have 6000 7000 of the so this is.
We are in the early days of of of this market from our perspective, and I think that only that universe of six to 7000 enterprise customers is very much limited by the lack of program ability in innovation in the traditional sector. So if you sort of catch your eyes wide or to some of these other companies that have 33.
I was under 100000 enterprise customers that certainly where we're looking out. So we are humbled well about where we are at in the journey. It is early but we're really stepping into it and seen that acceleration in the.
Pretty excited about it right now.
Awesome. Thank you so much for taking the questions.
Thank you.
Your next question comes from receive jewelry out with D.A. Davidson. Please go ahead.
Hey, guys. Thanks, so much for taking my questions one for Josh I want to Israel, Josh on the.
In the shareholder letter you talk about some some notable customer wins one of those being in the education vertical which I thought was really interesting where you have a U.S. university using fastly to help transition search online learning look as more universities are going no fully virtual or at least hybrid this semester or even the academic year can you talk a little bit.
About how the education vertical is and how these customers are using fastly to make that that online learning.
Experience better after the students and I've got a halt for Andrew.
Sure Yeah, absolutely that's an exciting sector for US right now and not you know that particular when is particularly excited just given the nature of who they are.
But I think in general what we're seeing is a complete rethink of vegetation and when I think just through the eyes of my three boys you know there you know I walk upstairs and they're learning on Khan Academy, that's delivered through us when I when I look at the educational institutions that they are a party part of those.
Institutions are really struggling with how did they get content to line how do they do it quickly what happens if they have content that isn't right how can they make sure it's personalized.
All these questions. Please beautifully into the story arc that developers are the new decision makers and so at the schools you have some amazing developers that are innovating that innovation is leading to personalize frictionless experiences and they think if there's one thing that's underpinning the gold rush of digital innovation and digital.
Transformation its frictionless scalable secure digital experiences and universities are at the forefront of that so it's a real growth vertical for us very excited about that when and others and I don't think the underlying thesis is different the gold that is coming out of the hills is a modern economy in the threatened.
Golden thread that leads through all of these is actually the same universities face digital the need to accelerate digital transformation by years like everyone else does in order to survive.
Right that that Thats helpful. Adrian.
Nice to see some some some great margin expansion both on a gross margin side as far as just the but the bottom line.
On the cash flow side, though.
Maybe you wanted to.
Well it looks like there was a big increase in a our sequentially and that's the reason cash so it's still negative in the quarter can you talk a little bit about what is going on there is that just customer and covert dynamic and you wanted to be good partners their customers or is there something else going on and maybe.
Looking beyond the quarter, how should we just be thinking about the translation of EBITDA or or non-GAAP operating income to operating cash so thanks.
Yes. Good question recently, and I think you sort of news on the head.
Definitely one of these situations would certainly trying to part with our customers, especially early on in terms of the covered 19 pandemic a lot of customers face a lot of and search here in terms of what's going to happen to them in the future and I think as I've mentioned in the last call most of those partnering and negotiate some customers is really much more on payment terms that I went on rates.
So from from my standpoint, I was pleased to see that the majority of what really swung dsos in Q2, most of that was collected already we've collected here into the first.
The first month quarter. So I was pleased to see that I think in general you'll begin to still see some of that affect folks are trying to be really.
Just on cash, which I understand and one of the primary reasons I went out and sought some additional cash ourselves just to sort of pad the balance sheet, a little bit more after we feel comfortable before and I think which will be more comfortable now.
Okay, great. Thank you guys.
Thank you.
Your next question comes from Tim Horan Oppenheimer. Please go ahead.
Thanks, guys auto can you talk a little bit more about.
You did an edge and maybe just compare and contrast, a little bit to what a w. us and ask for doing I know you talk serverless, how does that kind of.
Compare or contrast that also.
Like the Lamb product, which I guess the biggest serverless product out there and then maybe can you compare and contrast to your competitors that are on a more legacy CDN guys. Let's say they have an edge product like why why is your product basically better than there is at this point. Thank you.
Ah, Yes of course, our yeah the.
It is.
It it will serverless product, but long adopted to run at the edge and.
Deliver the kind of functionality customers either the edge.
Yeah, just probably whose earlier because one of the keeping you really do is how do you.
Way to multi tenancy and security requirements around again, the speed requirements and efficiency requirements that comes from operating in a more constrained environment. They were not in massive data centers in the middle of nowhere so.
Where are we wouldn't be.
At the edge and so.
First of all is the underlying technology that we chose to use based on web Assembly.
And the core notion is the each request rung own isolate the memory environments or somebody else. It kinda like the browser is one page.
As one of your tabs break it doesn't take down the Empire browser.
So same same thing thing here to fly by making that really cheap or.
I don't have time for memory or we can deliver got kind of guarantees safety guarantee you see the enterprises looking at the especially considering the deferring.
Different.
Shared state income taxes, W. human good and we'll keep you will fade sharing attacks.
We can deliver dogs.
At scale efficiently to our customers.
Doug Doug too I.
I think that's.
A key is the core technology differentiation.
It also enables them to make them support multiple languages, we get very efficiently support languages that target rubber fumbling with more lot more environments in line with these targets in assembly that addressable market for people lighting in those languages.
Well, yeah, it will automatically add to care offering.
So I think that diabetes huge difference and that's what I think will allow people to take a lot more what do you normally just could run in the central location.
And move out of the edge and then they will still have access to all the amazing features we have around logging and visibility and because storage.
I do have much more detailed programmatic access from the edge.
That's great color and maybe just one do you think this is really going to start to take off and do you have a certain sense of the size of the market versus what your product suite. It looks like now thank you.
Yes.
Oh fast I want to Georgia, Yeah, we're still on track what we said that this would go through our normal cycle in 20 in hit.
In 21, and we're still on track for that in fact.
As I mentioned in the prepared remarks, we continued to add.
Functionality to that and it continues to be successful I think we've talked about this having some impact and in 21.
But like like with many of our products.
You know, we're going to see customers adopt this is a full package.
So you know, we'll see we'll definitely see impact and 21, that's where that's what we're driving towards.
Thank you.
Your next question comes from Jeff Van Rhee with Craig Hallum Capital Group. Please go ahead.
Hi, guys. This is really on for Jeff. Thanks, Thanks for taking my questions I'm wondering sort out I I know Wolfgang had a left I think back in June and age relative you said last quarter for the time being you would be sort of stepping into his role and overseeing that I guess just what are the plans at this point you know going forward.
Maybe you know hiring a new head of sales or just what do you guys thoughts there at this point.
Hey radius Joshua So that's me I'm I'm stepping in in that role currently.
You know I think that we we only we are we haven't we're looking for a a new leader a will continue to support us and that transition, but and I think importantly, and I think the results peak this quarter to just an excellent group that has been established below Wolf, we have a season degree.
<unk> of sales executives, who are running the business and I think if you know the results speak for themselves.
You know they have a lot of swagger and certainly deserve to have a lot of swagger given the results that they're putting up on the board. So I'm not feeling a sense of urgency in the sense that that's an important role to fill but we're going to fill it with the right person and we have ample time to do that.
Great I got it met you not Hazro and then another one just as a follow up if you think about that.
I'm not sure if you could quantify this but I'm just curious on traffic trends is related to co. But if you just think month to month, you know colds emerges March traffic probably peaked in April just how traffic is trended towards now and if it is still growing now how is traffic growth call. It may to June June July compared to typical.
Typical seasonality you've seen in prior years.
Yeah archers been spent a lot of time in this area. So I'll hand, it off to him to give you. Some some insight that you've done some really brilliant analysis on this.
Yeah, Hi, I mean that you're right like the traffic growth and end of March and April was pretty dramatic.
And then.
In May and then in June and July its being less dramatic.
The issue we have in trying to parse out really is you know that the locker comparisons will seasonality and clearly traffic is.
Grown more in Q2 than it historically house in New York State of the previous Q twos, we've ever had but one of the you know long things that drove.
The biggest.
<unk> increase was most.
Uh huh.
School closures and of course, starting in June schools weren't close, but you know kids were home at school, but no schools were disclosed.
So.
It's really hard to answer exactly how the split as you know its traffic growth went down at the because.
People get started going outside of the usually due in June July or a and how much that compensated how much of that was compensated by the still elevated coded number so I'm afraid I don't really have a great answer.
I'm sure.
We have this call a year from now and I can compare.
You know for years in a row.
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This year being the good one were had the strongest effect I'll be able to have that better.
Got it great. Thanks, guys.
Entry.
As a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone keypad and your next question to come some tell Liani with Bank of America. Please go ahead.
Hi, guys.
I have two questions. One is just from the numbers I'm trying to understand seasonality I'm trying to understand what happened this quarter versus next quarter.
On one hand, you're guiding for flat revenue growth for next quarter why last year.
You had about 8% year before similar but on the other hand. This quarter you grew way more than before so it's kinds of kind of evens out between the two so was there any project or anything that a anything that happened to pull forward demand between threeq you into Q and this is why we see kind of very strong.
To Q3 Q.
That's so that's my first question second question is more technical so maybe we'll take one at the time sure Yeah <unk> Adra why don't you could take the first one that will handle the next one textile.
Sure Thanks restaurant hotel.
Yeah, I think construction just not just for the Orchard, just sort of alluded to earlier that spoke living as well, which is Q2 was definitely I mean, it was 62% year on year the traffic right that we saw.
In terms of the trillions of bits that we were shooting piping through the network was in sort of an unprecedented.
Pace and I think so you mix that with traditionally you normally see Q3 up over Q through as you begin to sort of head into Q4, which is seasonally sort of our strongest quarter. So I think what you're seeing is sort of a comparison.
Balance here, which is really Q2 Q3 and.
Even then if you take sort of the midpoint of our guidance basically implies about a 50% year on your growth. So it's still relatively strong growth I believe.
In Q3.
So from that standpoint, I think that that's probably the biggest thing and then there is just uncertainty as you know just a bit with respect to one of our largest customers as well as with respect to school closures, how things will be deployed in some respects how they will be adhere to regionally Q2 was unique in the sense that effectively the entire world was.
Sort of working in lockstep with respect to shelter in place orders in school closures and I think as we move beyond that period into Q3 into Q4, it's a bit uncertain an uneven how that's all going to plan. So you probably see a little bit of Conservatives in there as well.
Got it.
You said that he can talk was 12% of revenues this quarter.
How much was it the same quarter last year.
Yes, so what we said was it's 12% of revenue for the last six months ending June Thirtyth 2020, Yeah, we have not talked about what it was previous to that.
Got it.
My second question is about your edge cloud are there. So there are competitors and that's cloud, but you talked about your technical.
Advantages.
Are there any applications or any architecture of software that is more favorable to whats your <unk>.
Others I'm trying to understand if there's any segmentation to the market, where one type of applications is more likely to come to you, let's say traditional applications ERP et cetera.
Versus more newer applications. So im just trying to understand kind of the neat you're going after a with your solution.
Sure to join ticket first pass at that.
Sure.
Yeah, I think in general when you think of a that migration to serverless.
A lot about as new development, Oh, new kind of applications.
So if somebody migrating but that.
Really.
I look at it is.
If your processing data that is targeted to one user it makes sense to assemble that data and processes as close to that user as possible.
Yes.
If you're collecting data into a data warehouse and then running large mobiles on it rolled on your behalf belongs Central club. So even though your PC you know ERP application right like the displayed good I am seeing that's the end user pools data from a whole bunch of different sources and pulling that data.
First of all authentication authenticating unsecured decline and making sure that someone has access and then after you've done out of edge going out through the different resources, maybe subtlety. This cash maybe some of that has to go back to central do if another or a few different ones then.
You assemble that information at the edge you still third for what you need a venue handed off to decline and so I think even in a in back kind of application to me it makes tremendous sense to leverage or the edge and so really this if its data on its assembled and personalized for the secure.
Were going up indicated.
One of those things for one specific user is absolutely makes sense to move that logic as close to use your disposable.
Tom I think the one one of the ways that I've thought about this and you know I'm not a technical is archer in any way, but you know edge to edge did not replaced a central cloud completely right and that's not the story that were telling they're going to be compute jobs. One of the ways that I think about it is things like you know machine learning training, if you require enormous datasets really long.
Running training job specialized processes like Gpus like that type of learning and training is very well suited to the central cut. However, once you've trained to model when you're ready to infer from it in the way that Archer talking about that's a great use case for the edge. The other area that I think it's worth calling out is.
When you need tremendous large amounts of large persistent data stores like a database like Oracle.
For example, lots of information this persisted a long period of time. Those are also really good candidates for the central cloud, where it's easier to maintain that consistency. So I I sort of think about it in that in the opposite sense, which is what isn't a good candidate and that's really help me think about where these use cases, where Wi Fi.
Flourish and it sort of a just a slightly different way to think about it.
Got it thank you thanks.
Next question comes from Walter Pritchard with Citi. Please go ahead.
Hi, I'm question for you drill on the revenue sources can you talk about contracted sort of contracted a revenue that's coming in versus overage and how that trended this quarter versus what it's been historically.
Hey, Walter Yes, it's still actually relatively the same so we're still about 50% some quick.
Revenues from could committed and then about 50% usage of over the commit I'd say that probably in Q2 is a bit higher.
But I think from a historical standpoint, we should sort of get back to that sort of level. Because as you know every quarter you are coming up on two new renewals and commitments and whatnot and folks are sort of readjust their spend for what is sort of whether nor are they normally want to be based on their run rates.
And then I guess for for Josh <unk> on just a new customer demand that's come in how would you characterize the consumption of somebody's customers have come on in this current environment in terms of services, they're consuming from your versus what you. Typically seen is is it more of a kind of get online to get basic services or do they tend to take the full a kind of the full offering products as your installed base.
Does yeah, I mean exactly matches the installed base, which isn't it is vertical dependent but for the majority because our customers. They code at the edge. They use our security features they I mean this is all bundled together.
Possibly five years ago, you had somebody come to you and say, hey, I want to deliver my content, but not secure that that conversation doesn't exist anymore. This is this is always together.
You can think about one without the other assets and honestly you can't think about doing this if you're an innovator without having the program.
Program ability visibility control into both security and delivery and so it's it's very widespread.
And it mirrors exactly the core customer base and that's what we're seeing with this really strong net new AD of customers exactly the same thing is we've seen in the past.
Okay, great. Thank you.
Thanks Walter.
No no further questions at this time, Mr. Bixby I turn the call back over to you for closing remarks.
Before we sign off I want to say, thank you to our employees customers partners and investors.
All of you contribute to our ongoing success and growth and we're deeply grateful.
We look forward to connecting with many of you in the near future and hope to virtually see most of you at the upcoming Oppenheimer and Keybanc conferences.
We are confident about our future and look forward to sharing more in the quarters to come.
Thank you.
This concludes today's conference call you may now disconnect.
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