Q2 2025 Fastly Inc Earnings Call
Good afternoon. My name is Bailey and I will be your conference operator today.
At this time I would like to welcome everyone to the fastly second quarter 2025 earnings conference call.
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After the speakers remarks, there will be a question and answer session.
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Thank you. I would now like to turn the conference over to Vern Essie investor relations at fastly. Please go ahead.
Thank you and welcome everyone to our second quarter 2025 earnings conference call. We have fastly CEO KIPP, Compton and CFO Ron cling with us today.
The webcast of this call can be accessed through our website fastly.com and will be archived for 1 year. Also a replay will be available by dialing 800-770-2030 and referencing conference ID number, 754-3239 shortly after the conclusion of today's call,
These earnings press release, related financial tables, and investor supplements, all of which are furnished in our AK filing today, can be found in the investor relations portion of Fastly's website.
During this call, we will make forward-looking statements, including statements related to the expected performance of our business future, financial results, and product sales.
Strategy, long-term growth and overall, future prospects. These statements are in subject to known and unknown risks uncertainties and assumptions. That could cause actual results to differ materially from those projected or employed during a call.
For further information regarding risk factors for our business. Please refer to our filings with the SEC, including our most recent annual report filed on form, 10K in quarterly report filed on form 10q filed with the SEC and our second quarter of 2025 earnings release and supplement for discussion of the factors that could cause our results to differ,
Please refer in particular to the section, entitled risk factors. We encourage you to read these documents.
Also note that the forward-looking statements on this. Call are based on information available to us. As of today's date, we undertake no obligation to update any forward-looking statements except as required by law.
Also, during this call we will discuss certain non-gaap Financial measures unless otherwise noted all numbers we discussed today, other than Revenue will be on an adjusted non-gaap basis.
Reconciliations to the most directly comparable. Gaap Financial measures are provided in the earnings release and supplement on our investor relations website.
These non-gaap measures are not intended to be a substitute for our Gap results.
Before we begin our prepared comments, please note that we will be attending two conferences in the third quarter: the KeyBank Technology Leadership Forum on August 12th in Park City, and the Piper Sandler's Fourth Annual Growth Frontiers Conference in Nashville on September 10th.
I'll turn the call over to KIPP. Yep.
Thanks for. Hi everyone. And thank you for joining us today. I'm delighted to join you today in my first earnings call at CEO and I'm excited about the road ahead for fastly. We continue to see momentum in the business and have a strong Q2. We look forward to sharing the details of the quarter and our updated View for the year in today's call.
In my first 45 days as CEO, my top priority has been building on the momentum. We established in the first half of the year as well as looking ahead with a focus on clear execution for the second half.
Since joining fastly about 18 months ago, I've been deeply involved in leading, the product organization and working closely with the executive team and the board in developing and driving our strategy. My role is Chief product officer here at fastly together with my prior experience, running large-scale organizations and growing fast. Businesses has enabled my seamless transition to CEO
Throughout this transition. And as we look ahead, we remain committed to delivering long-term value. To all of our stakeholders by keeping customers at the center of our decision-making and building products that are responsive to their evolving needs.
Going forward. I'm excited to share my vision for fastly with a keen focus on accelerating our growth rate and driving to profitability in the near term. We will continue to evolve our strategy and sharpen. Our execution dedicating significant time to understanding and responding to the needs of our customers. I firmly believe that understanding our customers business challenges and solving problems. Together is what vastly does best?
Before we begin our review of the quarter, I want to discuss two changes to our leadership team.
Earlier today, we announced that our Chief Financial Officer Ron kisling is stepping down after 4 years, he is moving on to explore new opportunities on behalf of the board, and all of our employees. I want to thank Ron for his dedication commitment, and many contributions to fastly. We wish him all the best.
Ron's departure creates an opportunity to evolve the leadership team. I'm pleased to welcome, Richard Wong to fastly. As our new Chief Financial Officer Rich joins us with 3 Decades of financial leadership experience. He has held a number of senior leadership roles at platform and fast companies, including CFO eventually CFO of house and Senior Finance roles at LinkedIn and Yahoo. Rich has a strong combination of strategic financial planning experience and vision. Combined with a robust foundation in investment banking.
You will be an excellent addition to our leadership team as we grow and scale the business. And I look forward to hearing with our investor Community ritual, join fastly on August 7th as an advisor and officially assumed the CFO role on August 11th.
Separately as we build on our Market momentum and focus on accelerating growth. We must continue to deliver even stronger, go to market, execution, and provide a seamless experience for our customers. With that, in mind, I've asked Scott loved it. Our chief Revenue officer, to expand his responsibility and take on a new role as president. Go to market bringing together all of our Revenue functions and our marketing organization under his leadership.
Resources around customers who value performance. This realignment is increased both our new customer revenue and our cross-sell and upsell results across our existing customer base.
I'm confident that this combined go to market team will better serve new and existing customers and importantly Elevate, fast. Lees visibility in the marketplace. We believe this will also result in Greater internal efficiencies and improved coordination across our product marketing and revenue teams. I'm excited about these changes and believe, rich in Scott, will each have a significant impact in their new roles? Now, let's review our Q2 results and forward guidance.
Our Q2 Revenue was 148.7 Million above the high-end of our guidance range with a growth rate of 12%, year-over-year and Improvement compared to 8% year-over-year in the first quarter. This was the result of new customer. Acquisition share gains due to competitive takeout strategies as well as favorable pricing.
Security revenue reached a record high and accounted for 20% of total revenue. This represents a 15% year-over-year increase. Growth was driven by the increasing adoption of our new security products launched over the last year.
We posted a gross margin of 59%, a 170 basis point gain quarter-over-quarter. As we experience margin leverage on a revenue upside, along with improved network efficiency resulting from technology enhancements and optimized networking.
Additionally, we experienced favorable pricing which we expect to continue into the second half of 2025.
Our operating loss of 4.6 million outperformed the guidance midpoint of a 00 million loss, we achieved notable operating leverage this quarter with Opex up just 2% year-over-year, compared to 12%, Revenue growth continued cost optimizations and cash collection management yielded better than expected results. And contributed to our healthy cash flow from operations of 26 million or 7% of Revenue.
We are raising both our 2025 Revenue, guidance and operating loss guidance by 8 million and 3 million at their respective, midpoints similar to Q2, we anticipate double digit growth rates year-over-year for our third quarter Revenue consistent with prior, commentary, on the 2025 quarterly progression. We expect operating loss to improve through 2025 and to deliver operating profit during the second half,
Moreover, we are now guiding to positive free cash flow for the year and anticipate. The range to be between break even and positive 10 million Ron will review our financial results in guidance. In more detail later in the call,
Total customer account was 3,097 and Enterprise customer account was 622 and increase of 27 from last quarter. Additionally, we saw our LTM nrr increase to 104% from 100% in the first quarter reflecting this recovery momentum.
Our top 10 customers represented 31% of Revenue down from 33% in the first quarter Revenue. Outside the top 10 grew 17% year-over-year outpacing overall Revenue growth and continuing to drive Revenue diversification. This marks the fifth quarter in a row where Revenue outside the top 10 grew faster than overall Revenue.
During the second half of the year, Scott will drive three pillars of expansion in his new role as president of go-to-market.
First, we will continue to target customers where performance matters. This extends beyond delivery and into newer intelligent features within our platform, including adaptive security and observability analytics features that can only exist on the edge.
Our dos attack insights launched. In April, further exemplifies, our Unique Edge, positioning beyond our largest customers. There is a target-rich environment of Fortune 10000 digitally native organizations that are in play. As incumbents have been slow to evolve, We are continuing to gain share and are driving competitive takeouts.
Second, we will continue to cross-sell and upsell within our installed base of customers. This is a high priority for our Revenue team and Scott has driven great results. And expanding wallet, share this year by incentivizing the teams to grow more within our existing base customers, that purchase more than 1 product, from fastly, continue to increase in the second quarter. Almost 50% of our customers Used 2 or more products and those customers generated more than 75% of our Revenue.
Third, we will unlock further Revenue growth via Geographic expansion. Fastly is underexposed to International Revenue. And we see this as an incremental Revenue opportunity to increase our focus. In this area, we've created a new leadership position to drive opportunities in apj. We call it Gerber is now head of our apj region, bringing more than 20 years of experience in networking and cloud services at AWS and Cisco.
In 2026.
All 3 of these pillars of expansion, will be built on a simple customer acquisition motion. We'll continue to drive Simplicity in both pricing and ease of implementation, reducing customer, onboarding friction packages are part of the simplified approach and in the second quarter, the number of packages sold increased more than 50% year-over-year and packaged renewals grew over 130% year-over-year.
Has helped our top 10 cohort, return to year-over-year growth with strong Revenue, commitments across these customers, our recent strength, in RPO, reflects the success, RPO grew 41% year-over-year. And now sits at a record high, while I'm very pleased with this progress. We are continuing to look for ways to improve our customer, acquisition motion and drive. Even greater Simplicity, velocity and success.
In the second quarter, we continue to our momentum and penetrating key industry verticals. Mainly at the expense of incumbents financial services and Healthcare are both security Rich verticals and are often early adopters of advanced threat detection and observability Technologies Omni Channel. Retail continues to be a fastly strength as customers demand, edge-based capabilities, to process secure transactions and enhance their customers digital experiences to drive better business outcomes.
Examples of key wins across these verticals include a leading provider of ambulatory, Healthcare, Technology Solutions, selected fastly for our security offerings.
A premier programmable financial services company, selected fast, leads, dose, technology, and a key cross-selling opportunity expanding the use of our platform.
A cloud native, SAS banking platform, selected, fastly for their security needs replacing a competitor's W with our comprehensive, nextg waap solution.
A leading Global Omni Channel, retailer of sports fashion, and outdoor Brands selected, fastly, for our complete platform, replacing an incumbent's delivery and W offerings as well as a third-party bot detection solution.
And a major International Warehouse Club selected. Fastly full platform to modernize. Its entire technology stack.
The go to market transformation, Scott and his team are driving, is contributed to our favorable results, and we believe that, that momentum will continue. Additionally, our platform strategy remains a core part of our success. We've established momentum in our product releases and feature improvements. This is especially true in security where we launched several new products in the last year.
You can expect to see more releases across the platform in the coming quarters.
and now LS Ron to discuss the financial details of this quarter and our guidance Ron
Thank you, Kip, and thanks everyone for joining us today. I'll discuss our financial results and business metrics before turning to our forward guidance. Note that, unless otherwise stated, all financial results in my discussion are non-GAAP based.
Revenue for the second quarter, increased 12% year-over-year to 148.7. Million coming in above the high end of our guidance range of 143 to 147 million.
Increase new customer acquisition, from our go to market initiatives and share gains from our competitive. Takeout strategies coupled with a favorable pricing environment contributed to this upside Network Services revenue of 114.9 million grew 10% year-over-year.
Revenue of $29.3 million grew 15% year-over-year, comprising a record 20% of total revenue.
And our other products revenue of $4.5 million grew 60% year-over-year, driven primarily by sales of our compute products.
In the second quarter, our top 10 customers represented 31% of our Revenue.
We continue to see strength in our broader customer base, with revenue from customers outside our top 10 growing 17% year-over-year and 6% sequentially.
We anticipate revenue from our top 10 customers will remain in the low 30s percent range throughout 2025. Also no single customer accounted for more than 10% of Revenue in the second quarter and Affiliated customers that are business units of a single company. Generated in aggregate of 10% of the company's revenue for the quarter, our trailing 12-month, net retention rate, was 104% up from 100% in the prior quarter and down from 110% in the year ago quarter.
the quarter over quarter increase was primarily due to revenue, increases from the few of our largest customers in Prior quarters and closely follows our overall growth rate trends,
we exited the second quarter with record RPO of 315 million growing 41% year-over-year.
An increasing share of predictable revenue packages as a proportion of our revenue.
I will now turn to the rest of our financial results for the second quarter.
Our gross margin was 59%. In the second quarter coming in 120 basis points above our implied, guidance and down 40 basis points from 59.4% in Q2 2024.
The upside to our guidance was margin, leverage from the higher revenue, and moderation in price declines.
We are also seeing the benefits of increasing International traffic. Enabling Network efficiencies, including increased Network, period.
We Believe moderation and price declines in network, efficiencies will continue into the second half and coupled with the increase in our Revenue guidance. We expect to maintain these improved gross. Margins through the remainder of 2025,
Operating expenses were 92.3 million in the second quarter coming in as expected relative, to our Revenue upside and reflected 4%, sequential growth, due to the impact of increased payroll related expenses. And it spend
We are continuing our focus on our operating expenses and driving leverage in our operating results.
Due to these efforts and the abating of seasonally High payroll taxes we see in the first half. We expect our operating expenses to decline in the second half, which is reflected in our guidance. I will discuss in a moment.
We reported an operating loss of 4.6 million in the second quarter coming in better than the 00 million, midpoint of our operating loss, guidance range of 8 to 4 million.
In the second quarter, we reported the net loss of 5 million or a 3% loss per basic and diluted share compared to a net loss of 8.1 million or a 6% loss for basic and diluted share in Q2 20224.
Our adjusted Eva was 8.9 billion in the second quarter compared to 2 million dollars in the second quarter of 2024.
Returning to the balance sheet. We ended the quarter with approximately 321 million in cash, cash equivalents marketable, Securities and Investments, including those classified, as long term, a sequential increase of 14 million over q1 2025. As a reminder, our March 2026, 0% coupon convertible notes. Balance of $188 million became current in the first quarter and is now reflected in our current liabilities, we have adequate liquidity to cover our working capital, operating requirements and to pay the March 2026 convertible notes, when they become due,
Our cash flow from operations, was positive. 25.8 million in the second quarter compared to negative 4.9 million in Q2 2024.
Our free cash flow for the second quarter was, 10.9 million representing a, 29.5 million dollar increase from -8.5 million in Q2 2024 quarter.
While cash Capital expenditures were approximately, 12% of Revenue. In the second quarter. We anticipate our cash capex will be in the range of 9 to 10% of revenue for the full year.
With our medium to long-term cash, capital expenditures declining to 6% to 8% of revenues, as a reminder, our cash capital expenditures include capitalized internal use software. I will now discuss our outlook for the third quarter and full year 2025.
I'd like to remind everyone again that the following statements are based on current expectations as of today, and include forward-looking statements actual results. May differ materially, and we undertake no obligation to update these forward-looking statements in the future, except as required by law.
Our Revenue, guidance, reflects these Dynamics in our business and is based on the visibility we have today.
I would like to note that on June 19th, the current administration extended the prior non-enforcement instructions on TikTok's U.S. operations until September 17th.
Globally, ByteDance, the parent company of TikTok, represented less than 10% of our revenue in the second quarter of 2025, and their United States traffic represented less than 2% of our revenue in the same period.
While we do not know the outcome of US policy on Tik Tok to be consistent with our practice in the first half of 2025, we are excluding Tik tok's, us, forecasted Revenue Beyond September 17th. From our guide.
As Kip discussed, we saw revenue strength from new customer acquisition, share gains due to competitive takeout strategies, as well as favorable pricing.
We expect these Dynamics to continue into the second half and as a result, we expect to see modest upside to our typical. Flattish, sequential, seasonal. Growth in the third quarter.
Annual gross at the midpoint, given the ongoing Network efficiency improvements in our cost of Revenue, we anticipate our gross margins. For the third quarter will improve 50 basis points. Relative to the second quarter to 59.5% plus or minus 50 basis points.
Guidance for our third quarter, operating results, reflect the impact of a sequential increase in revenue and gross margin and the benefit of a sequential decrease in operating expenses. As I described earlier, we will benefit from seasonal decline in payroll taxes as well as the seasonal decline in our marketing spend on events and an increase in capitalized. Internal use software related expenses in R&D.
As a result for the third quarter, we expect a non-gaap operating loss of 1 million to a non-gaap profit of $3 million.
We expect a non-GAAP net loss of $0.02 per basic and diluted share to a non-GAAP net profit of $0.02 per diluted share.
Note that for the third quarter, fully diluted shares for positive EPS will increase the approximately 5 million shares over. Our basic share count of 148 million shares
The recent momentum in our business and gains in profitability position us well to achieve profitability on a non-GAAP basis.
For calendar year 2025, we are raising our Revenue guidance to a range of 594 to 602 million reflecting annual growth of 10% at the midpoint.
We anticipate our 2025 gross margins will be approximately flat plus or minus 50 basis points relative to 2024 gross margins of 58.8%.
We are reducing our non-GAAP operating loss expectations to a range of $9 million to $3 million, reflecting an operating margin of negative 1% at the midpoint. This represents an improvement of approximately 73% in dollar terms over 2024's operating loss margin of 4%. For modeling purposes, this implies 2025 operating expenses are approximately $355 million to $360 million.
We expect our non-gaap loss per share to be in the range of 10 to 4 cents. And we expect free cash flow to be in the range of Break, Even deposited 10 million compared to negative -36 million in 2024 and Improvement of 41 million year-over-year at the midpoint. Before we open the line for questions, I'd like to thank Kip the fastly board and all fastly employees for their support. I'm confident and fastly future and thank you for your interest and your support and fasting.
Operator.
This time I would like to remind everyone in order to ask a question press star and the number 1 on your telephone keypad,
Your first line or your first question comes from the line of Jonathan hoe with William Blair your line is open.
Good afternoon and congratulations on the strong results. Um, Ron it's really been great to work with you these past few years and we really wish you the best for the future as well. Uh, welcome on board, uh, Kip and rich as well. Um, just maybe to start out, you know, clearly there's been significant change at the management level. It seems, you know, in many of the key leadership positions, should we view this as a new chapter, in the fastly story and if it isn't, maybe too early, you know, what does that opportunity set? Maybe look like, you know, as you as you look a little bit longer term, I know you've, you've outlined some of the Strategic and, and tactical opportunities here. But, you know, how should we think about the opportunity to unlock, um, you know, that faster growth for fastly?
Good. Thanks for the, um, for the question. I, I think new chapters is probably right. Um, I feel like we've uh, have an opportunity to build on what we have achieved, uh, including, you know, Ron's many contributions. Um, we've established a strategy that's beginning to show results. And I think this quarter, uh, exemplified that, of course, we're looking forward to
More results to come. Um, but we have an opportunity, I think uh to lean in to where we've established momentum particularly in go to market and product velocity.
Uh, and really just overall increase. Our focus and speed and executing our strategy, uh, and accelerate results. And, uh, accelerate towards profitability, uh,
As soon as possible. And, and I think, you know, longer term, uh, that strategy will open up significant opportunities for us, uh, obviously in in security and compute and, and we'll have more to say about that, uh, in future calls.
Got it and just as a quick follow-up. Can you talk a little bit about the pricing environment and you know what's maybe giving you the optimism that uh this can hold uh any additional color would be uh valuable. Thank you.
Yeah, I I'll, I'll comment, and I'm sure Ron will have, um, a prospective on this as well. Um, I, you know, I think that we've seen, um,
You know, we've talked about in improving uh, pricing environment. Uh I think for a couple of quarters now. I I think 1 thing that started to kick in for us is the increased discipline and focus that Scott and his leadership, team on the go to market side, have brought um where we're being very thoughtful um about how we're negotiating discounts with our customers, as well as how we're negotiating. Uh, commitments committed revenue from those customers and and that's, um, that's very important. And I think you can see that in our record. Um, RPO
Yeah. And I think the the only thing I would add to that in addition to kind of that internal discipline is kind of what we're seeing in the macro 1. I think with the consolidation in the industry. Um that's creating some stability. I think we're all also seeing, you know, just kind of a post, you know, 2024 where we did see some acceleration. I think we're seeing stability, we're seeing that, you know, not only in the second quarter, but you know, in the negotiations and, you know, renewal conversations we're having for Q3 and uh, Q4 where we're seeing stability. And so, um, I think that trend line, um, you know, we see I think favorable through, uh, at least the end of the year.
Thank you.
Your next question comes from the line of James fish with Piper Sandler. Your line is open.
Hey uh tip. Congrats on on the new promotion here in Ron. It was all Echo Jonathan's comments that it was great to work with you and best of luck on your next Endeavor um did want to dive into the the cross cell Initiative for the 25th, you know, the the greater than 50% and and greater than 130% um metric-wise on how this cross on upsell is going it. It's what I'm backing into on the in period nrr. It looked actually exceptionally strong. So anything else you guys can share? How is productivity of the new security specialist things like that?
Yeah, I'll um, I'll again, I'll comment, and I'm sure Ron will have a perspective and and I, I'll just comment, maybe qualitatively. Um, I spent a lot of time with customers and I can can kind of share with you what I've I've seen from customers. Um, our platform strategy is, is really starting to have a meaningful impact on the way that they think about us, uh, as a partner. And as a as a vendor, and we've seen more and more situations where our existing customers, pick up new products, uh, for this to enhance the use cases, or, or even to go into new use cases, that fastly wasn't previously involved in
And a lot of the feedback we get is that they're very happy with the performance and the support are often too call outs. Um, and they're looking for, uh, more opportunities to, to leverage, fastly, and as we've launched particularly the additional security products over the last year. That that's been a little bit of a recurring theme, uh, in some of our existing customers, uh, expanding, uh, into new use cases with us. Um, but Ron may have have some other a more quantitative thoughts. Well, the only thing I would add to that, we talked about this for a while. I think in the industry is a whole has been moving more toward a platform where people do want to buy a platform with their security uh, with compute all on a single platform. Uh, I think that's evolving as we've continued to do our platform unification, making it a lot easier to add those products and then just add what kit says. We've expanded our product portfolio particularly around security, uh it's really enabled us to start to uh kind of gain from uh, those Trends in the market. Uh and accelerate, you know, the number of products that people have
Uh, and you know, we certainly build a sales plan around leveraging that capability.
Got, it makes sense. And and look I was you know, on the higher Revenue commitments from from the top 10, it looked like it drove a decent acceleration here on the RPO side of things. So um how should we think about some of the bookings from from them this quarter and any vertical strength you saw within those top 10 for looking at those minimum commitments uh is it
I'm trying to understand how much of it is really just the edgio benefit here of, of them, kind of exiting the market that it's kind of 1 time booking, um, kind of higher commitments. There versus you guys seeing more durable, Tailwind outside of outside of edgio. Thanks, guys.
Yeah, I mean, I think there's a couple drivers here, you know, like a lot of things, I think, 1 certain, you know, the exit of NGO. Um,
Number of customers. Um, has sort of solidified, you know, our position in terms of traffic allocation where customers are are willing to to make that commitment uh, on the heels of, I think us taking a very, uh,
a position that you know, if you want the bigger discounts, you've got to sign up for a bigger uh commit and and we're seeing success from that uh
yeah, I mean, I think a Geo clearly is a
perhaps a 1 time event in terms of of
Capacity shift within the industry, but I think Scott and the team have really shifted the, the compensation, and the focus to where there's a greater emphasis on uh, negotiating commitments with those customers and that, and that obviously helps us, uh, stabilize revenue and and uh, Drive investment in the business to, to meet those customers needs. So, I think that there could be a 1-time effect from edio, but I I think the the, uh, focus on commitments as part of the story here and that's certainly going to continue.
Great, thanks.
Your next question comes from the line of Frank Lewis. And with Raymond James, your line is open.
Great. Thank you. Um, so maybe walk us through sort of how you're viewing the company coming in and and maybe some some broader strategic things, you think, uh, that that you needed to change to to reach you more better growth and profitability and do you think you have the team you need in place now? Or do we expect some some more management changes going forward. Thanks.
No, I appreciate it. Great question. And um, while I'm new to the CEO role, of course, I'm I'm not new uh, to fastly uh, been here uh, for a little while as previously as the chief product officer. Uh, and worked very closely with um, with the executive team in the board on on our strategy and and other matters across the, the company. Um, I I think the team will continue to evolve. Um, you know, I I think as our business changes and and uh, grows, we'll expect changes uh, in our, in our leadership teams and and I, I I'm not here to forecast any additional imminent change, but I would just say I, I view it as a healthy part of the evolution of the company and, you know, change always brings a an opportunity. Um, and so we look at it that way and and, um, I'm focused on building, uh, you know, world-class team that's oriented around executing our strategy, uh, you know, in terms of of sort of what's next.
I mean, I, I was here so help, formulate, the strategy and, and I believe the results this quarter show elements of the strategy working. Um, I think it's really a matter of leaning in, uh, and accelerating, uh, the results there there's an opportunity, um, with the momentum that Scott's building for us to get more, uh, results on, go to market. And, um, I I'm working with the, uh, leadership team to just increase our focus in velocity, as we execute, uh, on these things. I think, uh, we're making some progress on, uh, security. You saw the, the record Revenue there. Uh, we, we certainly have a big aspirations going forward, so we'll be continuing to to drive that, and I think computers is, is a somewhat, uh, partially tapped or even untapped opportunity, uh, for the company. And, and we've got some ideas of, um, how we can grow that business that that, you know, will be able to talk about more, uh, in the future. So, you know, I'm excited about where the company is at. I I, I played a role in, uh, positioning
Us, uh, prior to becoming, uh, CEO. And um, I frankly, I've really enjoyed the, uh, the support I've received from from the board. And, and from our leadership team and our employees as I've stepped into the role,
That's, that's great. Um, how long do you think it'll be before you replace? Um, someone in Scott's position?
How long will it be before I replace someone in Scott's position?
Well, you you've moved know? I I don't, I'm sorry. Yeah. Oh no, I don't think I think actually. That's, I, I'm sorry. That's probably not, uh, how we're thinking about it. We're elevating Scott and his, uh, direct reports will continue reporting to him and he will, uh, and he's gaining the marketing function. So, um, I don't anticipate having a president, go to market and a chief Revenue officer. So, uh, uh Scott, Scott's going to be in this position for a long time. Uh, we're really excited about his leadership.
Great. All right. And, uh, Ron, thank you very much for all your help over the years. I appreciate it.
Thank you.
Your next question comes from the line of Rudy Kissinger with da Davidson your line is open.
Great guys, thanks for taking my questions. Congrats everybody. The new roles in Ron, um,
Miss miss working with you and best of luck on what's next, um, on security Revenue. The growth rate has been rather volatile. Um, you know, last year decelerated from 16% q1 to 4% Q4. Now its accelerated back to 15% over the last 2 quarters.
Just any color on what's driving the volatility there. In particular, what drove the acceleration in Q2? And how should we be modeling or thinking about security growth in the second half of this year and in 2026?
Yeah, I mean, I think 1 of the ways to understand the revenue volatility, I think really has to do with kind of the history and what we saw in 2024
Uh, we had, we went into the year was very high Revenue concentration. We saw some big, you know, dislocations from what our historical Trends were with just a handful of customers that had an outside impact, uh, that had a significant, you know, adverse impact on 2024. I mean if you kind of look at the breakout that you shared of, you know, top 10 versus everyone else, you can really see, you know, the impact that that had while customers outside of the top 10 continue to grow, you know, in the mid to high teams and so that created a lot of the 2024 volatility. I think what you're seeing this year is, you know, a recovery in more stability, in the top, 10 from some of the efforts. We've put in place to engage with those top 10 customers. Uh, some of the commitments that we've uh, been able to do
With those top 10 customers. Uh, and the success of the efforts of the go to market efforts in Scotts, brought into in terms of accelerating new customer acquisition. And you can see that we saw a big acceleration uh you know kind of a large acceleration. We've seen since 2023 in new customers. Uh and while you know it's not going to be a straight line. Uh you know we expect to continue to see, you know increasing new customers uh and that will build on our Revenue growth rates going forward. Uh but I think that's that's really kind of the lens that we're looking at.
And I think when you look at, you know, our outlet for the second half with with the Rays, uh, you know, we brought that number up to where kind of at the midpoint where it 10% of, you know, grow up with better than the midpoint. But, uh, you know, I think we are starting to see some stability after 2024.
Okay. Got it. And then you you guys are called out in the prepared marks, maybe some competitive, displacements on the dose.
With the the new dose and Bot mitigation products should. Could you expand on that? Maybe, you know, what vendors did you just place would be the typical, you know, vendors. We would think of or any more colors, you can share their
Yeah, I probably won't get into to specific. Uh, specific deals or competitors, but um, I think we're seeing 2, 2 patterns and perhaps. This is a, a helpful sort of detail. Um, often, uh, a customer is using a third-party. Uh,
Standalone, if you will bought uh, mitigation vendor and um you know, as we've launched those capabilities on our platform. They they've often done a group of concept and and consolidate that and to their fasty relationship and that and that gives them a simpler experience and better performance of doing all that processing, uh, in in 1 platform and at the edge. Um, the other example that, um, I've seen a bunch of times is, uh, the presence of our bot capabilities, opening up opportunities for us to sell a broader set of the platform capabilities, uh, where perhaps, uh, we were unable to position ourselves before. So, in, in some cases, customers have that as a requirement and, uh, that new product is unlocked broader opportunities for us. So, um, those are, um, those are 2 patterns. We're seeing
Set Rudy.
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On if that changes that we're already, you know, you're already making, just your thoughts on priorities in regard to profitability as well.
Absolutely no. Um, you know, as the, uh, former Chief product officer, the product velocity is near and dear to my heart. Uh, and, you know, 1 thing we we've heard from a lot of our customers is, is they like, you know, more products and more feature releases from us, uh, so that they can and do more and and take advantage of those. Uh, and that's what I'm referring to. And, and we've had a notable increase particularly over the last 12 months versus the prior periods. Uh, in the number of new products and features, uh, that we've shipped, uh, in fact, I I think today, we, uh, launched a new feature in our WAP, uh, for account takeover, uh, using our deception technology, which is a number of customers are pretty excited about. So, uh, both in terms of new products and enhancing our current products, uh, we're focused on picking up the pace there, and our engineering and product teams are doing a great job and, and are also focused on how they can find additional ways to get more value to our customers faster. Uh, and of course, that
It's ultimately value that we can capture as a company, um, in terms of the,
Profitability and just the the trajectory we're on longer term. Uh, you know, I think we are in a good place. I mean we had um we're forecasting, lower Opex. I think there's some seasonal effects there, but we have been I, I think, as Todd
Spoke about and championed uh making our company more efficient and and folks making sure that we're investing where we need to to grow. But that the Investments we're making are ones that that do Drive growth and a good Roi. Um, and I think that's a, a journey of continuous Improvement. You know, we, we can always, uh, look for ways to be more efficient, but the mindset is, is kind of almost as an investor, not not necessarily minimizing spin but investing where it's going to make a difference, uh, for the company and and making sure that that that's done efficiently. Um, you know, we saw uh, improved cash collection, we saw improved, gross margins. Um, so I, I think that our path to profitability is is clear, uh, took that it's been, uh, in a long time. Certainly since I joined in the beginning of 2024 and um, I think the team, the leadership teams, very excited about that. Uh, that's a major priority in the goal uh, for us and um, it's exciting, frankly.
A lot of excitement, uh, at the progress we're making, um, and we're going to double down on that. Uh, and I, I believe that we can, um, drive to that goal, uh, without sacrificing key Investments to, uh, enable our growth
Thanks. That's helpful Kip. And then kind of a follow-up off of that for Ron uh again on on the free cash flow. You know, this is 2 quarters now where we've gotten the free cash flow guide, increased 10 million, so real nice at the midpoint. Um, so so really nice improvements to the guide on free cash flow that's getting revised upward faster than the changes to the operating income guide. So maybe if you could just walk us through some of the mechanics there is, is there any kind of change in sort of the assumptions on like Kip just mentioned cash collection? You know, working capital capex and and whatever those factors are, do you see that as sustainable going forward? Thanks.
Yeah, yeah. I mean it's a good point. I think, you know, if you, if you really dig into it, you can see that we have seen, uh,
You know, improving cash flow from operations. I think that's been, you know, an effort we've had in place, uh, because we're being disciplined around payment terms but also really increasing our engagement with customers just to drive timely payments. Uh, similarly, you know, across the purchasing team we've been very focused on, you know, efficient payment terms, uh, you know, and cash management. Uh I think those are some of the drivers that I think will be sustainable. It's not going to be a straight line. But uh overall we expect to continue to drive efficiency.
See in our cache management, uh, and hopefully continue to drive uh, you know.
More favorable results, across our cash flow relative to the p&l uh, which you know, as that improves, that's just going to be a contributor to that cash flow.
Thanks van. Thank you.
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And there are no further questions at this time, KIPP, Compton, CEO, I turn it back over to you for closing remarks.
Thank you as the new CD I'm honored to be leading fastly.
We're building strong momentum in the business as you heard. Today we reported record security Revenue, improving margins and record RPO in Q2 among other highlights.
We remain focused on accelerating growth driving towards profitability and delivering lasting value. For all of our stakeholders, I want to thank the fastly, employees, customers and investors for all of their support. Thank you so much for your time today.
Thank you. This does conclude today's presentation. You may now disconnect
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