Q1 2025 Fastly Inc Earnings Call
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Rebecca: Good afternoon, my name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly First Quarter 2025 earnings conference call.
Rebecca: All lines have been placed on mute to prevent any background noise. [inaudible]
Rebecca: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.
Speaker Change: Thank you and welcome everyone to our first quarter 2025 earnings conference call. We have Fastly CEO Todd Nightingale and CFO Ron Kisling with us today.
Rebecca: Webcast of this call can be accessed through our website, fastly.com, and we'll be archive for one year.
Rebecca: Also, a replay will be available by dialing 800-770-2030, referencing conference ID number 754-3239, shortly after the conclusion of today's call.
Rebecca: The copy of today's earnings press release related financial tables and investor supplement, all of which are furnished and are AK filing today can be found in the investor relations portion of Fatima's website.
Rebecca: During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, product sales, strategy, long-term growth, and overall future prospects.
Rebecca: East statements are subject to known and unknown risks on certainties and assumptions that could cause actual results to different materially from those projected or implied during the call.
Rebecca: Further information regarding risk factors for our business, please refer to our filings with the SEC, including our most recent annual report filed in Form 10K, and quarterly report filed in Form 10Q, filed with the SEC, and our first quarter 2025 earnings release and supplement, for a discussion of the factors that could cause our results to differ.
Rebecca: Pleasure for, in particular, to the section entitled Risk Factors. We encourage you to read these documents.
Rebecca: Also note that the forward-looking statements on this call are based on information available to us as of today's take. We undertake no obligation to update any forward-looking statements except it's required by law.
Rebecca: Also during this call, we will discuss certain non-GAAP financial measures unless otherwise noted all members we discussed today other than revenue will be on an adjusted non-GAAP basis.
Rebecca: As discussed last quarter, we've adjusted our non-GAAP treatment of gross margin to exclude the amortization of stock-based compensation and our internal use software costs in cost of revenue.
Rebecca: The treatment is reflected in our financial tables in the earnings release and the 8-quarter historical trended non-GAAP P&L in our investor supplement.
Rebecca: Also, unless otherwise noted, all discussions on this call reflect this adjustment.
Rebecca: Reconciliation to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our investor relations website. These non-GAAP measures are not intended to be a substitute for our gap results.
Rebecca: Before we begin our prepared comments, please note that we will be attending four conferences in the second quarter.
Rebecca: The 20th Annual Needham Technology Media and Consumer Conference, virtually on May 12th, the William Blair 45th Annual Growth Conference in Chicago on June 4th, the BFA Global Technology Conference of San Francisco on June 5th, and the DA Davidson Conference in Nashville on June 10th.
Now we'll turn the call over to Todd.
Todd? [inaudible]
Rebecca: Thanks, Vern. Hi, everyone, and thanks so much for joining us today.
Vern: I'm excited to share with you our strong results for the quarter, beating the upper ends of both our revenue and operating lost guidance ranges.
Vern: As a result, we are raising both our 2025 revenue guidance and operating off guidance by $10 million and $3 million at their respective midpoints.
Vern: We also generated $8 million in positive Greek cash flow bringing us closer to break even on this benchmark for the year. We made great progress in our go-to-market transformation capitalizing on product release velocity and growing traffic share with our larger enterprise customers, which yielded upside in our results.
Vern: RQ-1 revenue was $144.5 million, coming in above the high end of our $136 to $140 million guidance range with a growth rate of 8% year-over-year and improvement compared to the 2% in the fourth quarter of 2024.
Vern: Our customer count was three thousand and thirty-five and enterprise customer count was five hundred and ninety-five we brought in nineteen new enterprise customers in the one hundred thousand dollar annual revenue threshold in the first quarter compared to ten in the fourth quarter.
Vern: This comparison does not account for declines in the count due to falling below the $100,000 threshold return.
Vern: Year over year, we grew our enterprise customer count by 18 or 3% and average enterprise customers spend grew 4% quarter over quarter to $907,000, as we saw solid cross-sell growth bias towards larger customers.
Vern: Our platform strategy continues to yield results as now almost half of our customers leverage two or more fancy product lines generating three-quarters of our revenue.
Vern: We are excited about our revenue progress and the team's performance in Q1, accelerating the recovery in our top customers.
Vern: We drove share gains at some of our largest customers and closed new enterprise accounts.
Vern: Our top 10 customers represent a 33% of revenue down from 38% in the first quarter of 2024. Revenue outside of the top 10 through 17% year-to-year outpacing overall growth and continuing to drive revenue diversification.
Vern: Last quarter, we mentioned that we expected this revenue concentration number to stabilize in the low to mid-30s and that's exactly what we saw in Q1.
Vern: We consider this a healthy level of concentration in the revenue mix and our go to market strategy will continue to emphasize logo acquisition and growing the enterprise customer mix outside of our top 10.
Vern: Gross margin for the quarter was 57.3% slightly better than our projections.
Vern: We are taking actions to improve our fixed overhead and bandwidth costs across our fleet. We've been focused on software-based fleet efficiency and believe there are significant gains for us to find here throughout the year. This will help us create additional capacity while mitigating supply chain dependencies and additional capital spend.
Vern: These efforts, combined with our hardware investments purchased pre-tariff, leave us well positioned to deal with the macro uncertainties that may unfold in 2025, and we believe with the actions we've taken, any tariff impact on our cap-expend will be immaterial.
Vern: We beat our operating loss guidance coming in at a $6 million loss compared to the guidance range of $11 to $7 million loss.
Vern: This was due to our gross profit dollar upside on higher revenue and relative cost control on the OpEx line.
Vern: Continued cost optimizations and rigorous cash management have yielded a better than expected result.
Vern: and ultimately contributed to our healthy $8 million of positive, free cash flow in the quarter. We expect our off-laws to improve through 2025 and anticipate delivering operating profit in the second half.
Vern: In the first quarter, we saw a new level of rigor and momentum from our go-to-market teams.
Vern: Our new segmented go-to-market efforts have created a higher touch approach with our largest accounts while continuing to drive strong enterprise and mid-market customer acquisition velocity.
Vern: This is driven by incentivizing cross-cell, optimizing our regional sales approach and expanding our product portfolio.
Vern: We continue to focus on the customer acquisition motion and reducing the onboarding friction at Fastly as we strive towards even more simplicity in both pricing and ease of implementation.
Vern: Our packaging initiatives have been contributing towards that goal and in the first quarter packaging deals more than doubled year over year and those involving new logos grew over 80%.
Vern: We continue to get great feedback on how much customers love the simplicity of our packaging motion and we continue to look for ways to improve and simplify the customer experience across the board.
Vern: As part of our new high touch customer success motion, we've seen the acceleration of business and also increases in revenue commits across our largest customers.
Vern: This combined with the success we're seeing in packaging has yielded solid results in committed revenue, driving more stability and visibility into our revenue pipeline. And you can see those results starting to show up in our RPO, which grew 33% year-over-year analysis at a record high.
Vern: In the first quarter, we continued our success in diversifying our logo wins and penetrating new and existing customer verticals.
Vern: We are particularly seeing momentum in new local acquisition with enterprise customers in strategic verticals such as travel and leisure, technology, financial services and retail.
Vern: These include Valaris, a leading ultra-low-cost airline who selected Fastly's platform for security, network services, and compute.
Vern: A leading software company's professional network who chose the Fastly Platform to leverage our network services offering.
Vern: A leading credit card issuer and a separate payment processing company in the United States who both selected our platform for security and network services and a home furnishing company who moved to Fastly's platform for network services, security and compute.
Vern: In all of these examples and many more, not only did we win were performance mattered, but also were platform completeness mattered.
Vern: We are cross-selling an increasing amount of our security, compute, and observability offerings in addition for our best in class network services.
Vern: This is the new Fastly platform, highly performant positions for the future and ensuring best in class performance to meet our customers needs.
Vern: We're extremely excited about the progress we made in our security portfolio and the expansion of the Fastly Platform that it represents.
Vern: Security offers fastly a revenue stream that is predictable, recurring, and sticky.
Vern: In 2024, we expanded the security portfolio from one offering, our WAF, to three core offerings that deliver synergistic value to our customers. WAF, bot mitigation, and DDoS protection.
Vern: In the first quarter of 2025, we enhanced our WAF offering with client-side protection, improved our DDoS offering with enhanced visibility and alerting, and expanded our boss solution to include dynamic challenges.
Vern: We also just recently launched AI Bot Detection, enhancing our bot solution to allow customers to detect and mitigate unwanted AI bots scraping their data.
Vern: Today almost half of fancy customers now use multiple product lines, but many are just starting to bring online the full power of our security portfolio.
Vern: With all of this portfolio momentum, we've refocused our go-to-market on the security cross-cell opportunity to help us capture the revenue potential of this portfolio.
Vern: We're already seeing this transformation resonate in our customer base and feel confident about our portfolio breadth and competitive advantage in building security solutions that are trusted by platform engineering teams and the software engineering teams base serve. [inaudible]
Vern: A security growth of 7% year-over-year in the first quarter does not yet reflect last year's portfolio expansion.
Vern: Given our renewed focus in this area, coupled with our go-to-market incentives and strategy, we believe we can outpace the market in the back half of 2025 and be a share-gainer.
Vern: Moreover, we expect our security pipeline and motion will be a major contributor to growth looking out to 2026 and beyond.
Vern: Revenue from our other segment, which includes our emerging products, saw nice gains in the colder and grew 64 percent year over year. Compute represents significant differentiation for our platform in the market, as more and more customers focus on differentiated, dynamic and personalized user experiences.
Vern: Our outlook for 2025 continues to improve, and while macro uncertainties continue to persist across the market, we believe we have significantly mitigated any tariff impact to our capex.
Vern: and we have not seen any material change in our buyer behavior or demand patterns.
Vern: Regardless, we are continuing to take a cautious approach to our guidance for the rest of the year.
Vern: Our second quarter guidance of 10% year of year growth and new 2025 guidance of 9% annual growth raises our prior guide.
Vern: We are aiming to outperform these numbers and will continue to aggressively pursue gains in profitability and revenue growth. Please note that again, we have removed US TikTok revenue beyond June 19th from our guidance.
Vern: In summary, we are pleased with our first quarter of performance and are seeing signs of progress from last year's efforts.
Vern: As the Fastly team continues to build momentum across, go to market and product development velocity we expect to accelerate customer acquisition capture more market share and drive improved financial returns to our shareholders.
Vern: and now to discuss the financial details of the quarter and guidance and detail, I will turn the call over to Ron.
Blam.
Ron Kisling: Thank you Todd and thanks everyone for joining us today. I'll discuss our financial results and business metrics before turning to our forward guidance.
Ron Kisling: Nothin'less otherwise stated, all financial results in my discussion are non-cap-based.
Ron Kisling: Revenue to the first quarter increased 8% year-over-year through $144.5 million, coming in above the high end of our guidance range of $136 to $140 million.
There were no unusual true-up payments in the first quarter.
Network Services Revenue was $113.2 million in Group 7% year-over-year
Ron Kisling: Security Revenue of $26.4 million also grew 7% year-over-year, and our other products contributed $4.8 million to revenue, growing 64% year-over-year, driven primarily by our compute product.
Ron Kisling: Traditionally, our first quarter experience is seasonally flat to modest sequential revenue decline over the fourth quarter. However, in our first quarter of 2025, we saw better than expected seasonal traffic demands and share gains, which contributed to the 3% sequential revenue growth.
Ron Kisling: Consistent with what we shared on our year-end earnings call, we anticipate the revenue contribution of our cotton customers will remain in the low to mid 30% range throughout 2025.
Ron Kisling: We consider this a healthy level of concentration in our revenue mix. Also, as was the case for every quarter in 2024, no customer accounted for more than 10% of revenue in the first quarter.
Ron Kisling: Our family 12-month networking rate was 100% down from 102% in the prior quarter and down from 114% in the year ago quarter. The client is primarily due to the revenue declines for a few of our largest customers in prior quarter and closely follows our overall revenue growth rate trend.
Ron Kisling: We anticipate our LTN net retention rate will remain flatish, near-term, followed by expansion in the second half of 2025, as we begin to see the benefit of revenue growth from customers acquired in 2024.
Ron Kisling: We exited the first quarter with an RPO of $303 million, growing 33% year over year. This growth is a result of increasing number of our customers with revenue commitment.
Ron Kisling: and higher commitments that are largest customers coupled with the success of our packaging strategy.
Ron Kisling: I will now turn to the rest of our financial results for the first quarter.
Speaker Change: As Vernon mentioned earlier, we adjusted our non-GAAP treatment in gross margins to exclude the amortization of spot-based compensation and our capitalized internal use software.
Ron Kisling: This treatment is reflected in our financial tables and it might prepare comments for all prior period comparisons and forward guidance.
Ron Kisling: Our gross margin was 57.3% in the first quarter, coming in 50 basis points above our implied guidance, and down 230 basis points from 59.6% in Q1, 20, 24.
Ron Kisling: The upsides of guidance was due to the efficiency improvements Todd mentioned, better network utilization and continued cross-control.
Ron Kisling: The year-over-year decline was primarily due to the pricing dynamics we saw in 2024, where we experienced price per gigabit declines from the low 20% relative to our usual, high teens percent decline trend.
Ron Kisling: We see these pricing dynamics stabilizing back to the high teams across the remainder of 2025.
Ron Kisling: Operating expenses were $88.7 million in the first quarter, coming in as expected, registered to our revenue upside, and reflecting 6% sequential growth due to the seasonal impact of payroll taxes, while coming in flat on a year-over-year basis compared to Q1 2024.
Ron Kisling: Operating expense discipline combined with better than expected gross profit resulted in the operating loss of $5.8 million in the first quarter coming in ahead of the lower end of our operating loss guidance range of $11 to $7 million.
Ron Kisling: In the first quarter, we reported the net loss of $6.6 million or a five cent loss per basic and deluded share compared to a net loss of $5.3 million or a four cent loss per basic and deluded share in C-1 2024.
Ron Kisling: Our adjusted EBITDA increased to $7.8 million in the first quarter compared to $4.9 million in Q1 2024.
Ron Kisling: Turning to the balance sheet, we ended the quarter with approximately $307 million in cash, cash equivalence, marketable securities and investments, including those classified as long-term.
Ron Kisling: This is the sequential increase of $11 million from our fourth quarter.
Ron Kisling: R. March, 2026, Nero Pupon Convertible Notes became current in the first quarter and are now reflected in our current liability.
Ron Kisling: We have adequate liquidity to cover our working capital operating requirements and pay this balance when the notes become due.
Ron Kisling: Cash from Operations through 55% year-over-year to $17.3 million in the first quarter from $11.1 million in 2-1 2024.
Ron Kisling: Our free cash flow for the first quarter was $8.2 million, turning positive for the first time in eight quarters and representing a $10.4 million increase from negative $2.2 million in Q1, 2024.
Ron Kisling: This increase was primarily driven by improved cash from operations, lower purchases of property and equipment, lower capitalization of internal use software, and lower repayment on finance, leisure, liability.
Ron Kisling: Our cash capital expenditures were approximately 8% in the first quarter, coming in below our 2025 annual guidance of 9% to 10% of revenue we shared on our Q4 call.
Ron Kisling: As a reminder, our cash capital expenditures include capitalized internally used software.
Ron Kisling: For 2025, we anticipate our cash capex will again be in a range of 90% of revenue, with our medium to long-term cash capex declining to 68% of revenue.
Ron Kisling: I will now discuss our outlook to the second quarter and full year 2025.
Ron Kisling: I'd like to remind everyone again that the following statements are based on current expectations as of today and include forward-looking statements.
Ron Kisling: Actual results may differ materially, and we undertake no obligation to update these forward looking statements in the future, except as required by law.
Ron Kisling: Our revenue guidance reflects the dynamics in our business based on the visibility that we have today. I'd like to note that TikTok, one of our largest customers, continues to be the subject of much scrutiny given the current B19 deadline with respect to their US operations.
Ron Kisling: Globally, by Dan, a parent company at TikTok, represented less than 10% of our revenue in the first quarter of 2025, and their United States traffic represented less than 2% of revenue in the same period.
Ron Kisling: We do not know the full outcome of the U.S. policy on TikTok. So as a prudent measure, our 2025 guidance excludes revenue from their U.S. traffic after June 19th.
Ron Kisling: Here to improve revenue at some of our largest customers and incremental traffic ramps coming from our new customers, we expect to see modest upside to our typical flatish, sequential seasonal growth in the second quarter.
Ron Kisling: As a result, for the second quarter, we expect revenue in the range of $143 to $147 million, representing 10% annual growth at the midpoint.
Ron Kisling: Given our recent efforts to lower our network costs and drive overall cost of revenue improvement, for the second quarter we anticipate our gross margins will increase approximately 50 basis points relative to the first quarter plus or minus 50 basis points.
Ron Kisling: Guidance for a second-quarter operating result reflects the impact of this equitual increase in gross profit and the impact of the increase in operating expenses I described. As we shared previously, we experienced higher wage costs to be the seasonally higher payroll factors and sales and marketing events in the first half of the year.
Ron Kisling: As a result, for the second quarter, we expect a non-GAAP operating loss of $8.4 million and a non-GAAP net loss of $8.4 for share.
Ron Kisling: For Caller to your 2025, we are raising our revenue guidance to the range of $585 to $595 million, reflecting annual growth of 9% at the midpoint. We anticipate our 2025 gross margins will be approximately 58% plus or minus 50 basis points.
Ron Kisling: As a result, we expect our non-dap operating loss to be in the range of 12 to 6 million dollars, reflecting an operating margin of negative 2% at the midpoint, an improvement of approximately 59% in dollar term, over 2024's operating loss margin of 4%.
Ron Kisling: Additionally, we anticipate to achieve operating profit for the second half of 2025.
Ron Kisling: As mentioned earlier, given the seasonally heavier off-expend in the first half of the year, we anticipate our operating expenses to be lower in the second half. For modeling purposes, this implies 2020 high-boppering expenses are roughly $350 million.
Ron Kisling: We expect our non-GAAP net loss per share to be in the range of 13 to 7 cents.
Ron Kisling: And we expect our free cash flow to be in the range of negative 10 million to break even compared to negative 36 million in 2024.
Ron Kisling: Before we open the line for questions, we'd like to thank you for your interest and your support in Fastly.
Operator.
Speaker Change: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad will pause for a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Param Singh with Oppenheimer.
Thanks for watching!
Parum Singh: Hiya, thank you for taking my question. Really good job on the quarter. I wanted to firstly dive into your network side and the drivers for the upside. What's really driving incremental customer demand and then I had a follow up on the security. Thank you.
Speaker Change: I think that the sales team's ability to execute not just the customer acquisition, but the cross cell has been enhanced, for sure, under Scott's leadership.
Speaker Change: and under a new incentive plan there. And we've also certainly accelerated our recovery in the largest in our largest media accounts. And by doing so, posted a bit of an expected result in that in that top 10 cohort as well.
Thanks for watching!
Thank God. No, thanks so much for the insight.
and then moving to security.
Speaker Change: You know, what percentage would you say if you're install based, or customers are using...
Speaker Change: Waff, and then how would you categorize both DDoS and Watt mitigation in terms of the adoption and where it could go to by the end of the year?
Yeah, you know, we don't.
Speaker Change: Disclosed exactly the last number, but we mentioned, you know, about half or almost half of our customers are using more than one product line.
Speaker Change: Smaller number than that, that's using security and WAP is going to be smaller than that. So I think there's an enormous amount of opportunity we have to penetrate with to penetrate our existing network service customers with WAP.
It's still very early days on Reactivity Dust and Bot.
Speaker Change: and the percent penetration there is going to be single digits, percent for sure, there's tons and tons.
Speaker Change: of Opportunity. And that's why I mentioned, you know, enriching the security portfolio, now having three like fully fledged kind of flagship products give us enormous opportunity to drive real momentum in the security business, especially in the back half of the year.
Speaker Change: Your next question comes to the line of Jonathan Ho with William Blair.
Jonathan Ho: Hi, good afternoon and congratulations on the strong results. I wanted to start out with your compute and observability business just given the 64% growth there. You give us some additional detail into maybe what products drove that and what the demand drivers were and how we should think about that business growth for the rest of the year.
Yeah, absolutely.
Jonathan Ho: The biggest chunk of that growth is in compute, for sure, and-
Jonathan Ho: really the ability to take compute and leverage it everywhere across our network and drive some real innovation. So it's both in the stories and innovative storage side of the house and that dynamic user experience.
Speaker Change: Got it. And then just in terms of what you're seeing from a macro perspective, can you give us a sense of, you know, I think you mentioned there was some positional conservatism in the guidance. I can talk about what you're seeing from customers. Is there any sort of extensions or elongation of deals? Just don't understand, you know, what that is. Thank you. And then just in terms of what you're seeing from a macro perspective, can you give us a sense of, you know, what that is.
Speaker Change: Yeah, it's interesting, you know, we haven't seen change in the demand pattern or the buyer behavior yet and
Speaker Change: I think that's a good sign. Generally, we try to take a lot, a lot of precaution to make sure that we were set up on the CapEx side regarding any kind of tariff impact.
Speaker Change: But as far as the demand side goes, we haven't seen anything yet, but we're still taking a fairly conservative view in the outlook for the rest of the year, just to hedge there.
Thank you.
Sanjit Singh: Your next question comes with line of Sanjit Singh with Morgan Stanley .
https://www.youtube.com
Speaker Change: The largest in some, I mean, a few sort of unpack the drivers there whether it was sort of the packaging motion and is there any sort of additional sales incentives to the field people to sign up these larger commitment contracts just want to understand the dynamics behind the strong RPO graces quarter. [inaudible]
Speaker Change: Yeah, and I think you mentioned a lot of the drivers there, so there's really three drivers we had strategic renewal that large accounts, which is great, helps us maintain the predictability of that large customer cohort for the long term.
Speaker Change: We have an incentive program that is driving our sales team to negotiate for better and better commits and that's across our entire sales force and that's certainly
Speaker Change: Helping us drive that number and the packaging solution which is becoming more and more kind of the default motion that we're using in the mid market and commercial accounts, that drives RPF by its very nature and all three of those.
Speaker Change: are contributing factors, and I'm certain that that's why we saw a record.
Speaker Change: A record number on the RPO, on the RPO side of the house and why we're seeing good growth year over year.
Speaker Change: Anything you'd add? The only thing I would add, last year we put in an effort to just improve our engagement at more senior levels across our largest accounts.
Speaker Change: And I think we've also seen some benefit from that engagement in driving larger commits as a percent of their traffic when we see renewals. So I think that's an additional impact that's driving some success we're seeing in RPL.
Speaker Change: Understood, and then toggling back to the Network Services business, you guys mentioned in the script about signs of market share gains. Is that?
In terms of what's driving that, is that...
Speaker Change: You know, EGEO Convergence is it just a lot more favorable pricing environment so that you know, fastly can can more effectively compete on just the performance advantage you have. Just sort of the drivers of the market share gains that you guys expect to continue going forward. [inaudible]
Speaker Change: Yeah, I think the first market share gains ago, we are seeing some EGEO customers coming to the Fatima platform and we're seeing some of the traffic from existing accounts that were on EGEO increasing the traffic share. Those are both nice to see.
But I do think that...
Speaker Change: The ability of the team to expand into new logos is feeling this as well. And there's no doubt that that is delivering a healthy result. It's why we're seeing 17% growth outside of us, not kind of out.
Speaker Change: and as more and more as we start to index on that larger tail of customers, we're going to start to see the growth rate index closer to that 17%.
Thanks for watching!
Ritchie Delaria: Your next question comes from the line of Reggie Thaleria with RBC.
Ritchie Delaria: Oh, wonderful. Thanks so much for taking my questions and nice to see continued progress and acceleration here.
Ritchie Delaria: Maybe I wanted to start with TikTok. So I appreciate the conservatism and not including US TikTok revenue kind of after the deadline. Maybe can you walk us through the non-USP's and maybe how we should be benchmarking the potential geopolitical risk that TikTok may try to bring kind of all of it in-house or to Chinese carriers given obviously all the trade tensions between the US and China. Just how are we thinking about that?
Ritchie Delaria: and maybe alongside that, is your inability to offset some of the potential loss of US traffic with other products, including computing security, and then I've got a quick follow-up.
Ritchie Delaria: Yeah, it's a good question, and I want to make sure not to overshare too much about a single customer and that engagement, but it's been a very strong relationship, it continues to grow. We have a lot of optimism that we're going to be able to.
Ritchie Delaria: continue to operate in the US but more importantly grow that overall account globally because we've had such a strong partnership there. And as you said, that includes not only more use cases within network services but across the portfolio.
Speaker Change: Donald, no thanks, that was helpful. And then maybe just to piggyback on Sanjit's question, you know, with as you are in the market, and you know, a few others kind of having access to the space.
Speaker Change: What are you seeing in terms of the pricing environment, you know, as you work through renewals? How do you really think about that going forward? You know, is there some level of maybe not pricing stability, but at least maybe more favorable pricing or less of your pricing declines than we've been seeing over the past couple years? And you know, where is there your opportunity to kind of use that to your advantage? Thanks.
Ron Kisling: Ron can give a good color here for sure because we are seeing that pricing environment getting better, which I think is.
Ron Kisling: Definitely giving us optimism for the next quarter and even few years on how healthy this part of the market is going to be.
But, you know, we-
Ron Kisling: Wardsley are strategies based around acquiring new customers and driving market share gains and I think the biggest the biggest upside we have is accelerating that motion across the board, but there's no doubt that the pricing environment can be a can be a tailwind in the near and midterm.
Speaker Change: Yeah, do anything I would add, I think what we saw last year, particularly amongst our largest
Speaker Change: Customers with an acceleration and kind of the price doubts to kind of the low 20s.
Speaker Change: Above kind of what we've seen that longer term trend be kind of in the high teens.
Speaker Change: What we've seen this year is kind of a return to kind of that normal trend line and from what we've seen expect that trend line to stabilize back into the high teens with the changes we've seen in the macro market.
Speaker Change: Your next question comes to the line of James Fish with Piper Sandler.
Thank you very much. Bye.
Speaker Change: Hey guys, one of the circle back on shockingly edgy, I was surprised to tip that long we talked about it because that's on the LinkedIn win. But can you just parse through how much of the tailwinds you're seeing today between new accounts to fastly?
versus the existing overlapping accounts and any color there.
Thanks for watching!
Um. Um.
Speaker Change: I'd say the first thing I would mention is that we're not done, the commits.
Speaker Change: that we're part of the EGO platform are still active and they still haven't all settled out. So we're still in the middle, probably halfway through this, this motion and we're pushing hard to make sure we're acquiring as much business as possible. [inaudible]
Speaker Change: As far as accounts that are new to Fastly and traffic upside, I'd say there's more opportunity and there's been more business in terms of traffic increases than new logos, but it's been healthy on both sides for sure.
Thanks for watching!
Got it.
Speaker Change: How are you guys thinking about the opportunity with AI Accelerator and why Fastly sort of has the right to win that workload or if there is required more caching at the edge or interesting?
Speaker Change: Yeah, I think AI Accelerator and more and more, we're looking at the opportunity to expand that into more sophisticated use cases.
Speaker Change: I think Fastly absolutely has the right to win. The core usage, the core value, it's delivering a more human, a more, you know, lower latency experience.
Speaker Change: for LLM interaction, and we absolutely have the performance leader in this space and our Caching Technology, and in this case, the Semantic.
Speaker Change: matching, caching technology is really best in class. I think we absolutely have the right to win there. And we've also seen some real traction in deploying AI solutions in other parts of business, especially security. We just launched. [inaudible]
Speaker Change: The AI scraper, fought mitigation, which has gotten a ton of interest, especially at RSA last week.
Speaker Change: and we're leveraging AI and our reactive dose product as well now and really delivering a pretty different solution here. I think there's opportunity on the AI side across the portfolio and for sure I think we have the right to win.
Madeline Brooks: Your next question comes to the line of Madeline Brooks with Bank of America.
Hey team, thanks so much for taking me a question.
Madeline Brooks: This one, broader one, I guess, kind of a multi-part one though, but if they think about...
Madeline Brooks: The Comparing your comments on one being a little bit more conservative for the years in general with the macro backdrop in geopolitical.
Madeline Brooks: But then I look at the guide being raised by I think from my calculation roughly 3 million more than the beat and there's strong commentary on expectations for second half. I just want to know how we kind of marry those two things just because if I also look at some...
Madeline Brooks: of course trailing metrics, but still with NRR doesn't give a lot of cushion right now where we are for any further due deceleration or contraction so it just seems like
Madeline Brooks: Second half, there's a lot of optimism behind it and I just would like to know where that's coming from and if there's any early science you've seen that can help us get comfortable with your level of optimism. Thanks.
Madeline Brooks: We've got pretty good feasibility into the pipeline right now, and I do think we're being fairly conservative on that guy.
Madeline Brooks: There's opportunity for us to see a policy adjustment on TikTok. Again, that would drive revenue into the projection. And we've got, I think, an opportunity to get upside on the NGO.
Madeline Brooks: Traffic Transformation here, which again would deliver upside to our projection bears.
Madeline Brooks: You can see that with 17% growth outside the top 10, our top 10 is still in negative growth. We've got an opportunity to turn that around and end.
Madeline Brooks: Really, I think turning that around faster and driving a better result sooner gives us an opportunity not just to get to that to the new raised guide but to beat that as well.
Speaker Change: Again, if you would like to ask a question, press star one on your telephone keypad, and your next question comes from the line of Rob Pelsine, no with Raymond James.
Rob Palsino: Hey guys, but congratulations on the quarter. So sticking with the elevated full-year guide.
Rob Palsino: Do you expect to be EBITOPHOD for the rest of this year? And was also wondering just in terms of what you're seeing with respect to the pace of new deals that are coming in and whether you're seeing any improvement in your sales cycles.
Rob Palsino: Davis. I think with respect to, you know, Justin E. Badaw, you know, we would expect to continue to see, you know, positive E. Badaw, you know, for the year and across the year. And particularly as we talked about, you know, in the second half as a whole, we would see, you know, operating profit given the trajectory in our revenue outlook and impacts for the year.
Rob Palsino: As far as the sales cycles go, you know, I mentioned we haven't seen a change in the buyer behavior. What we have seen I think is a change in the...
Rob Palsino: In the rigor, in the operational rigor that our sales team is operating with Scott and his new leadership and because of that our pipeline conversion is getting better and our ability to project and predict those deals has been in cleaner. I think we're seeing some efficiency gains.
Rob Palsino: On the go-to-market side, we've got opportunity to double down on that efficiency as well. So I see improved the execution for sure. No doubt about it.
Thanks for watching!
Hey, great. Thanks for taking my questions.
Todd or Ron, I guess on security, just...
Speaker Change: Why is the brush so slow? You know, it's considered business class few quarters.
Should we think of the way?
Speaker Change: You know, Mark is just being a single digit growth marker from here and out and then secondly, only, um,
Speaker Change: You know, when should we start to see some acceleration from botical data? So I think the bot management product was launched about a year ago now. And so if you just talk about, you know, how the pipeline is shaping up to those products and where maybe security growth could be, you know, by year end.
Thanks for watching!
Speaker Change: Yeah, we don't publish the projection by product line or for individual product, but I will say it.
Speaker Change: I don't think we're yet seeing the impact of bot or reactive detox in those numbers. I believe that security, as you mentioned, I believe the security growth.
Speaker Change: How quickly we get there, I think we'll remain to be seen, but as far as bought and deed us, we are I think really right at the beginning of the growth curve there.
Thanks for watching!
Speaker Change: It looks like about 70% of the quarter of a quarter of revenue growth in dollars was from the top 10 customers. How much of that, to talk about share gains?
Speaker Change: Last couple years, you have gains, you have losses, the kind of ebbs and flows. How much of that feels like permanent? Chairgains, or at least semi-permanent Chairgains versus, you know, were there any kind of one-time events that surprised you or temporary traffic shifts with those customers that benefited Q1? [inaudible]
Thank you.
Speaker Change: You know, those top ten media customers, there's a lot of seasonality but
Speaker Change: No one-time events I can think of and I think to be honest the share games here are continuing to increase with the effect of the EGEO change and I think some a lot better at execution with
Speaker Change: What we've now deployed, a much higher touch, customer success and customer engagement model for our top media accounts, but
Speaker Change: Again, like, revenue diversification is important to us. We saw 17% growth outside that top 10 and we are going to continue to aggressively pursue not just growth in the top 10 but across the customer base to continue to diversify our revenue and sort of strengthen the portfolio growth outside of networks and outside of network services as well.
Yo, what's up, Rudy?
Yes, yeah, good, thanks, guys. Thank you.
Speaker Change: Again, if you would like to ask a question, press star one on your telephone keypad.
Speaker Change: And at this time, there are no further questions. I will now turn the call back over to Todd for closing remarks.
Speaker Change: Excuse me, I'm sorry, it looks like we do have one more, Rebecca.
Speaker Change: And we do have a question that is coming to queue. It is Param Singh with Oppenheimer.
Param Singh: What do you think is needed in the market to rationalize pricing here? Obviously, getting to high 18-20% decline is definitely it.
Param Singh: and incremental improvement. But the idea was that once some of the bad actors in the market go away, you could probably get down to maybe low double digits, price decline and hopefully, you know, improve from there on. So what's really missing in the market, what's really needed to, you know, for the customers to actually. [inaudible]
Except for a better pricing environment, thank you.
Speaker Change: I think strong tailed execution was a part of that from our team and we are starting to see that but I think this...
The, like, a healthy market here looks like mid-teens.
Speaker Change: And we're going to be pushing hard, at least to do our part to drive the market towards that direction. And I do think that with the current competitors in the space.
Speaker Change: The market for sure supports that. And that would be a nice tailwind to the business, both on the gross margin and the top line side for the next few years.
Thank you so much.
Thank you.
Thank you.
Speaker Change: And I will now turn it back over to Todd for closing remarks.
Speaker Change: Thanks so much. I want to thank our employees, customers, partners, and investors. We remain focused on execution bringing lasting growth to our business and delivering value to all of our shareholders. Thank you so much for your time today.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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Speaker Change: Rishi Jaluria, Thomas Blakey, Thomas Blakey, Rishi Jaluria, Thomas Blakey,
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