NYSE:FSLY Fastly Q3 2024 Earnings Report $12.36 +0.49 (+4.09%) As of 09:45 AM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Inhibrx EPS ResultsActual EPS$0.02Consensus EPS -$0.06Beat/MissBeat by +$0.08One Year Ago EPS-$0.33Inhibrx Revenue ResultsActual Revenue$137.21 millionExpected Revenue$131.86 millionBeat/MissBeat by +$5.35 millionYoY Revenue Growth+7.30%Inhibrx Announcement DetailsQuarterQ3 2024Date11/6/2024TimeAfter Market ClosesConference Call DateWednesday, November 6, 2024Conference Call Time4:30PM ETUpcoming EarningsInhibrx's Q4 2024 earnings is scheduled for Monday, June 16, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Inhibrx Q3 2024 Earnings Call TranscriptProvided by QuartrNovember 6, 2024 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Third Quarter 20 24 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:30I will now hand today's call over to Vern Essey, Investor Relations at Fastly. Please go ahead, sir. Speaker 100:00:41Thank you, and welcome everyone to our Q3 2024 earnings conference call. We have Fastly's CEO, Todd Nightingale and CFO, Ron Kissling with us today. The webcast of this call can be accessed through our website fasta.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 3,239 shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables and investor supplement, all of which are furnished in our 8 ks filing today, can be found in the Investor Relations portion of FASU's website. Speaker 100:01:21During this call, we will make forward looking statements, including statements related to the expected performance of our business, future financial results, product sales, strategy, long term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. 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 10 ks and quarterly reports filed on Form 10 Q filed with the SEC and our Q3 2024 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer in particular to the sections entitled Risk Factors. We encourage you to read these documents. Speaker 100:02:11Also note that the forward looking statements on this call are based on information available to us as of today's date, and we undertake no obligation to update any forward looking statements except as required by law. Also during this call, we will discuss certain non GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our Investor Relations website. These non GAAP measures are not intended to be a substitute for our GAAP results. Speaker 100:02:45Before we begin our prepared comments, please note that during the Q4, we will be attending the RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference in New York on November 19th and the UBS Global Technology and AI Conference in Scottsdale, Arizona on December 4th. Now I'll turn the call over to Todd. Todd? Speaker 200:03:04Thanks, Vern. Hi, everyone, and thank you so much for joining us. Today, I will cover our Q3 results and the progress we've made, especially in growing revenue outside of our largest customers and in continuing to improve the profitability of Fastly. I will also discuss our go to market and technology initiatives. I will then hand the call over to Ron to discuss our Q3 financial results and our guidance in detail. Speaker 200:03:29We reported 3rd quarter revenue of $137,200,000 coming in above the high end of our guidance range due to better than expected strength in some of our larger media customers and a balanced mix of share gains outside of our top 10 customers. We reported an operating loss of $520,000 the best result we have achieved in more than 4 years and materially better than the guidance range. This was the result of higher revenue and gross margins coupled with the cost benefits from a faster than projected execution of our restructuring. I'm also excited to share with you that Fastly reported a net profit $2,400,000 and positive adjusted EBITDA of $13,300,000 in the 3rd quarter, both record levels for the company. I'm pleased to share with you the progress we made in diversifying our revenue. Speaker 200:04:21This resulted in a more diverse revenue mix in the Q3 as we grew our top line 7% year over year. In the Q3, our top ten customers represented 33% of revenue, down from 40% last year and down from 34% quarter over quarter. This is a good indicator of continued progress in diversifying our revenue and strengthening our business. Revenue outside of our top 10 accounts, which is key to our strategy and goals for the long term success and growth rate of Fastly grew 20% year over year, significant improvement from last quarter's 13%. Last quarter, we called this an inflection point and a moment of transition for Fastly. Speaker 200:05:02While the transition doesn't happen in a single moment, we are already experiencing the benefits of a more focused investment in product, customer success and go to market. Specifically, we released a major expansion to our security portfolio, onboarded new sales leadership, pivoted to a more bespoke engagement model with our largest multi vendor customers and launched a new self-service demand gen motion. We are seeing early progress in our revenue diversification, customer acquisition growth and renewed focus on our largest enterprise customers. There is more to come. These changes will drive revenue diversification and faster more reliable growth for Fastly. Speaker 200:05:45Our customer acquisition efforts showed solid gains year over year in the Q3. Our enterprise customer count was 576 compared to 547 representing a 5% growth rate year over year. Quarter over quarter enterprise customer count actually declined 4%. We saw more customers dip just below our $100,000 run rate enterprise definition this quarter. We do see quarterly volatility in our enterprise customer count methodology, but we'll be tracking this very carefully and looking to drive growth in all of our midsized accounts. Speaker 200:06:19We experienced normal churn levels with churn flat quarter over quarter and while we saw 5% year over year growth rate in enterprise customer count, we aren't satisfied with this result and hope to accelerate our growth in enterprise customers in 2025. We had 3,638 customers at the end of Q3 and a net increase of 343 quarter over quarter for a growth rate of 10%. We believe this is the result of our new self-service sales motions, which I will discuss in a moment. Our transition leans heavily into our technology innovation heritage and we believe it is key to the continued success in customer acquisition and wallet share growth. Fastly's platform is a software driven edge network that offers best in class delivery, network services, security, compute and observability. Speaker 200:07:10We continue to focus investment in leading technology and innovation that not only solidifies our platform, but also extends its features for the future of web application development. The functionality we offer allows our customers to bring their applications to life around the world. We believe that our unified platform approach will significantly enhance our customer retention and create efficiencies for FASET in supporting our customer success. Let me share with you some important developments taking place in our security offerings in particular. We continue to experience a favorable customer response from bot mitigation since its release in the Q1. Speaker 200:07:45Our bot mitigation solution wholly developed within Fastly attracts customers looking for simple onboarding and ease of use, opening the door for continued opportunities for cross sell and up sell. Fast following on the heels of our successful launch of bot mitigation, we announced the general availability of Fastly's adaptive DDoS protection on the platform. This solution provides automatic protection from Layer 7 and other application level DDoS attacks. Our platform enables frictionless onboarding and implementation of this solution with just the click of a button. We've had a long heritage of DDoS protection at Fastly partnering with some of the largest most sophisticated customers in the industry. Speaker 200:08:25We are tapping into this intellectual property and productizing it to address the entire market so that our broader customer base can benefit. Additionally, this solution allows us to layer proprietary auto adaptive response intelligence within the offer. We believe this innovative DDoS release is a new enterprise customer acquisition vector for Fastly in addition to driving customer growth and cross sell opportunities. Last quarter, I shared with you that we launched the beta version of our AI accelerator, an AI proxy capable of delivering performance and cost savings to application builders leveraging large language models. The interest and response has been very favorable from our customers and we've added LLM support beyond OpenAI to include Google Gemini as well. Speaker 200:09:12We expect AI Accelerator will be generally available for purchase by the end of the year and I'm excited to make this announcement as it demonstrates the increase of innovation velocity at Fastly and I look forward to announcing more product launches before year end. I'll now discuss the transition taking place within our go to market efforts. Since joining us in the Q2, our new CRO, Scott Lovett, has taken the first steps towards driving transformation within the sales order to close more new enterprise logos. He's particularly focused on driving wins in security with new and existing customers. And with our new security offerings and deep experience in this space, we're excited about the opportunities ahead. Speaker 200:09:53Beyond sales, our go to market success is also the culmination of branding, messaging and sharing our expertise with subject matter experts. In the Q3, we released the Fastly Threat Insights Report providing the latest attack trends across the web application and API security landscape. The report found that 91% of cyber attacks targeted multiple customers using mass scanning techniques to exploit vulnerabilities. We also released the results of our new survey, How Bad Bots Are Hurting Businesses, which revealed 59% of IT professionals reported an increase in bot attacks over the past year with significant incidents costing companies an average of $2,900,000 These results seem closely in line with the interest we're seeing in our security portfolio and our new security offers. We are now in the 2nd year of our packaging efforts, which truly demonstrates our focus on simplicity, not just in our product, but in pricing and our ease of implementation. Speaker 200:10:52Our new self-service model with mix and match packages was rolled out last quarter, kicking off our initial PLG efforts at Fastly. These efforts have resulted in growing our overall customer count while also attracting critical developers to the Fastly platform. In the Q3, our packaging efforts demonstrated strong growth and we more than doubled the number of packages sold year over year. Our new logo packages tripled and represented 43% of the packages sold in the Q3 compared to 16% a year ago. Lastly, our channel partners rounded out our go to market efforts. Speaker 200:11:26In the Q3, our deal registrations grew 33% year over year and our year to date bookings grew 46% year over year. We anticipate more opportunities to leverage our channel and drive top line growth as we move forward. Now let me conclude with a discussion on our outlook as we close out the year. Looking back 1 year ago, we did not foresee all the challenges we faced. In 2024, we suffered revenue declines from our largest customers and this in turn prompted us to realign our growth strategy and our investment strategy. Speaker 200:12:02Ultimately, we implemented a workforce reduction and overall transition that impacted every department at Fastly. I believe we are pulling through these difficult times and we are turning a corner. The cost discipline and financial rigor on our drive towards profitability growth has never been better. We've shown signs of progress this quarter that should make the team proud. And though there's more work on the horizon, I'm pleased with the efforts across the board over these past 3 months. Speaker 200:12:30Heading into the Q4, typically very seasonally strong, we do not believe we will be benefiting from as much of the typical sequential lift we've experienced in prior years. And this is reflected in our 4th quarter revenue guidance. While this could be dismissed as conservatism on our part, it is more the result of what we have shared over the past 3 quarters with the dynamics we are seeing taking place at some of these largest accounts. We do believe that we've moved past the worst of these impacts and have a strategy in place to keep our strong position at these very large accounts, while also focusing heavily on healthy revenue growth outside of our largest customers driving important revenue diversification. I'm very optimistic on Fastly's prospects in 2025 and continue to believe our inherent platform advantages affords the opportunity to capture more share of the world's web application workloads. Speaker 200:13:26And now to discuss the financial details of the quarter and guidance in detail, I will turn the call over to Ronny. Speaker 300:13:32Thank you, Todd, 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 Q3 increased 7% year over year to $137,200,000 Speaker 400:13:52coming in well ahead of Speaker 300:13:53the midpoint of our guidance of $130,000,000 to $134,000,000 Network services revenue grew 5% year over year to $107,400,000 and security revenue grew 12% year over year to $26,200,000 Lastly, our other segment, which represents our emerging products category grew 85% year over year to $3,600,000 driven primarily by compute. In the Q3, we saw better than expected strength in live sports and gaming with a balanced mix of share gains outside of our top 10 customers offsetting traffic headwinds at certain of our largest customers that we've previously discussed. Our top 10 customers comprised 33% of our total revenues in the Q3 of 2024 compared to 34% in Q2 2024, reflecting the impact of the revenue declines from some of our largest customers and our strategy of targeting a more diverse customer base. Also, no customer accounted for more than 10% of revenue in the Q3. Revenue from customers outside of our top 10 customers grew 20% year over year. Speaker 300:15:04Our continued focus on customer acquisition has resulted in revenue expansion outside of our top 10 customers, expanding our wallet share into the broader enterprise customer segment. Our trailing 12 month net retention rate was 105%, down from 110% in the prior quarter and down from 114% in the year ago quarter. This decline is primarily due to the revenue declines in some of our largest customers and we anticipate this will continue to be a headwind to our LTM NRR through the remainder of 2024. At the end of the Q3, our RPO was $235,000,000 up 6% from $223,000,000 in the Q2 of 2024 and down 5% from $248,000,000 in the Q3 of 2023. This increase is primarily due to contract renewals with our larger customers and increasing adoption of our packaging products, which are sold on a subscription or SaaS basis. Speaker 300:16:03This was offset by other larger customers working through their remaining obligations over their contract terms. As Todd mentioned, we had 576 enterprise customers at the end of Q3, a net decrease of 25 compared to an increase of 24 in the 2nd quarter. On a year over year basis, enterprise customer count increased 5%. Enterprise customers accounted for 92% of total revenue on an annualized basis in Q3 compared to 91% in Q2. Enterprise customer average spend was $880,000 up 9% from $804,000 in the previous quarter and up 3% from $858,000 in Q3 of last year. Speaker 300:16:46I will now turn to the rest of our financial results for the Q3. Our gross margin was 57.7% compared to 58.5 in the Q2 of 2024 and up 180 basis points from 55.9% in Q3 2023 as we benefited from better utilization on our fixed costs on higher than expected revenue offset to a lesser extent by increased bandwidth and transit costs on higher traffic. Our incremental gross margin hit a record 79% on a trailing 12 month basis compared to 73% in the Q3 of 2023, reflecting continued efforts on reducing our cost of revenue in an otherwise challenging top line environment. Operating expenses were $79,600,000 in the Q3, better than our expectations. Lower employee costs related to the recent restructuring and a reduction in hiring accounted for a majority of the upside. Speaker 300:17:45This represents a 5% decrease in operating expenses compared to Q3 2023 and a decrease of 12% sequentially from the Q2. This better than expected favorability in our operating expenses combined with better than expected gross profit resulted in an operating loss of $500,000 in the 3rd quarter beating our operating loss guidance range of $12,000,000 to $8,000,000 In the 3rd quarter, we reported a net income of $2,400,000 or income of $0.02 per diluted share compared to a net loss of $8,000,000 or a loss of $0.06 per basic and diluted share in Q3 2023. Our adjusted EBITDA was positive in the 3rd quarter coming into $13,300,000 compared to $700,000 in Q3 2023. As Todd mentioned, I'm pleased to highlight that both net income and adjusted EBITDA set quarterly records for Fastly. Turning to our balance sheet, we ended the quarter with approximately $308,000,000 in cash, cash equivalents, marketable securities and investments, including those classified as long term. Speaker 300:18:55Our free cash flow for the quarter was negative $7,100,000 on an $11,400,000 sequential improvement from negative $18,500,000 in the 2nd quarter. This improvement was primarily driven by an increase in our cash from operations to positive $5,000,000 compared to negative $4,900,000 in the second quarter. Our cash capital expenditures were approximately 9% of revenue in the 3rd quarter coming in at the lower end of our guidance of 9% to 10% of revenue we shared on our Q2 call. As a reminder, our cash capital expenditures include capitalized internal use software. For 2024, we anticipate our cash CapEx will be approximately 9% to 10% of revenue. Speaker 300:19:40I will now discuss our outlook for the Q4 and full year 2024. 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. As Todd shared in his remarks, while we are seeing growth in new customer acquisition, which we believe will lead to further revenue expansion longer term, we are facing an unexpectedly challenging environment of revenue declines from some of our largest customers continuing throughout the course of 2024 adversely impacting our revenue growth. Our revenue guidance reflects these dynamics in our business and is based on the visibility we have today. Speaker 300:20:29We expect somewhat flat to modest sequential growth in Q4 revenues compared to Q3 due to lower revenue at some of our largest customers. For the Q4, we expect revenue in the range of $136,000,000 to $140,000,000 representing flattish annual growth. Note, we do not expect to experience any one time revenue true ups in the Q4 compared to the one time $2,800,000 $3,300,000 revenue amounts we recorded in the Q4 of 2023 2022 respectively. We continue to be very disciplined in our network investment and cost of revenues, which contributed to our Q3 gross margins being approximately 70 basis points better than we initially expected. For the Q4, we anticipate our gross margin will decrease approximately 150 basis points relative to the Q3, plus or minus 50 basis points. Speaker 300:21:24This sequential decline in gross margin is primarily due to increased bandwidth and colocation deployment costs associated with increased traffic in international regions. We anticipate our 4th quarter operating expenses will be flat to modestly up from 3rd quarter level. Guidance for our 4th quarter operating results reflects the impact of the sequential decrease in gross margin and the beneficial impact of lower operating expenses. As a result, for the Q4, we expect a non GAAP operating loss of $5,000,000 to $1,000,000 and a non GAAP net loss of $0.02 per share to a non GAAP net income of $0.02 per share. For calendar year 2024, we expect revenue in the range of 539 dollars to $543,000,000 reflecting annual growth of 7% at the midpoint. Speaker 300:22:20We expect to continue to see gross margin improvement in 2024 compared to 2023 as we leverage costs on the incremental yet lower revenue growth. We anticipate our 2024 gross margins will improve by approximately 70 basis points, plus or minus 50 basis points relative to 2023. As a result, we expect our non GAAP operating loss to be in the range of $28,000,000 to $24,000,000 reflecting an operating margin of negative 4.8% at the midpoint, an improvement of approximately 29% in dollar terms over 2023 operating loss margin of 7.2%. We expect our non GAAP net loss per share to improve to $0.12 to $0.08 reflecting the improvement in our operating loss expectations and we expect free cash flow to be in the range of negative $40,000,000 to $30,000,000 in 2024 compared to negative $59,000,000 in 2023. Before we open the line for questions, we'd like to thank you for your interest and your support in Fastly. Speaker 300:23:23Operator? Operator00:23:45Your first question is from the line of James Fish with Piper Sandler. Speaker 500:23:51Hey guys, congrats on getting the business here to net income profitability and the quarter overall. Look, I think everybody's wondering here about the competitive environment with Speaker 600:24:03one Speaker 500:24:03of your competitors going bankrupt. And Todd, you and I talked about that at our conference. But what are you guys seeing in terms of that opportunity in particular especially given that entity had very large customers even some overlapping customers. What programs are you putting in place to try to gain further wallet share with that Peggio bankruptcy? Speaker 200:24:27Yes, I think it's making the market like a super interesting place right now and there's definitely potential upside here. We've seen some accounts that have in fact shifted traffic towards Fastly and that's largely the overlapping accounts where the transition is straightforward. But largely I think of this as a significant opportunity, in 2025. I think that's where we're going to see big shifts, in that area in particular. Maybe just on a slightly wider lens. Speaker 200:25:04I think it also underscores the importance of a platform strategy here of building a very complete offering with strength, not just in network services, but security and compute and observability as well. And that's where we're seeing a lot of the momentum in our business. And I think it's going to help us transition these customers over to a more complete offer. So for us, we've seen a little bit of that so far, but I think the majority of the upside opportunity for us is probably in 2025. Got it. Speaker 200:25:39And then maybe Speaker 500:25:40on the packaging side and security piece specifically, what's the penetration or attach rate of security to customers generally at this point and specifically as well within your web delivery customers where that may be a little bit easier to cross sell? What's the low hanging fruit that Scott has here? Thanks guys. Speaker 200:26:03Yes, it's super top of mind. We don't disclose a particular number here, but I would tell you, I think our cross sell penetration is still very low. I think there's a lot of opportunity and that's exactly why we've focused the security innovation and I'm sure you see there's certainly a surge here with 2 big releases in the last few quarters. We focused that not just on security efficacy, but an ease of deployment and true simplicity in the platforms that customers who are existing content delivery customers can onboard best in class DDoS or bot mitigation, or our WAF even with a click of a button. And we're really targeting the product and platform innovation area here to drive this cross sell where I believe we are far, far, we have far too little penetration on the cross sell opportunity. Operator00:27:06Your next question is from the line of Frank Louth with Raymond James. Speaker 700:27:12Great. Thank you. So it seems like the bump in the business here was a little bit more one time in nature. You're a little cautious that it was. Can you give us an idea of Speaker 100:27:21what was kind of Speaker 700:27:22driving that Media business in the quarter? And any thoughts about what possibly could be replicable? And then on the efforts you've made on the restructuring, can you walk us through where you've seen success there early on? Are you tracking to the same overall cost savings or you found some new is it going to be a little bit higher or we just capture that a little sooner than we thought? Thanks. Speaker 800:27:51Sure. Speaker 200:27:53We saw some better than projected revenue in those top accounts. And I think you're right to say, we are we're being very careful not to project too much from those results into the out quarters. And I think that's important. We know there's volatility there and we want to be really sure that we are projecting the correct that we're giving you the correct revenue projection moving forward. But I think the like the part of the growth rate and the revenue result in Q3 that's really important is that we saw 20% year over year growth outside of the top ten. Speaker 200:28:37We're seeing momentum starting to build in this transition towards approaching the larger market, acquiring customers outside of media and driving a more diversified, more reliable business and therefore more projectable and reliable growth rate moving forward on that diversified business. And there's no doubt that this transition has a lot to do with that focus on diversification and focus on long term reliable growth. As far as the cost savings, largely we've been pushing cost control and operational efficiency and rigor for a long time. And we've had pretty consistent results in making improvements there. But our restructuring, we were able to do a little bit earlier a little bit faster and more efficiently than we believed and we believe possible. Speaker 200:29:32And that drove a big chunk of the beat on the OpEx side to our projection. Ron, do you think you have? Speaker 300:29:40No, I think that's a good increase on the traffic. And again, we saw some paper bully in the spending just based on the execution of the restructuring that basically is going to drive about a $14,000,000 savings versus our original plan in 2024. Speaker 700:29:59Great. And when you mentioned getting business outside of media, can you characterize what are some of those workloads and what does that data look like that you're getting? Is it more software based? And then what is it are these new opportunities that you think have a long growth rate? Or is it just where you just happen to be buying some business? Speaker 200:30:21Yes, for sure. I think number 1, it's a lot of new logo acquisition and that drives very, very healthy growth rate in the couple of years as there is a more accelerated land and expand motion or I should say expand motion in the 1st 24 months on the platform. It's definitely business that is more diversified across the portfolio than the media business. Outside of media, there's much more spend in security, compute observability across the board. And we're starting to see those results outside of media, which I think is really, really healthy for the business. Speaker 200:30:58It will help us drive margins. It will help us balance workloads across our infrastructure. And a multi portfolio customer is stickier. They enjoy platform leverage. It makes their teams and their developers more loyal to the platform and more powerful within their own organization. Speaker 200:31:15So we are really excited about that. Operator00:31:19Your next question is from the line of Sanjit Singh with Morgan Stanley. Speaker 800:31:25Yes. Thank you for taking the question. Nice to see getting back to a nice speed cadence. I guess my overarching question, Todd, is, is there like a mix between top 10 and not top 10 that would essentially signal growth returning to the business? It sounds like the top 10 doesn't seem to be getting worse. Speaker 800:31:48But as I look at your Q4 guide, we're looking for about flat year over year growth. So probably more sort of your growth headwinds on the come. And so is it like sort of getting that mix down to 25%, 20% because it looks like your non top ten customers are growing healthily in the double digits. So any thoughts there on like where those kind of two lines cross where that sort of spits out reasonable growth? Speaker 200:32:16Yes. I think it's a good question, something we think about a lot. I believe that the growth rate at Sassy overall is going to be more and more dominated by this longer tail of customers. And it's why I'm tracking so carefully the non media growth rate and in the public disclosures, the non top ten growth rate. And as that concentration reduces, then we're going to index more and more on it. Speaker 200:32:47I think getting to 30% is going to be a pretty significant moment in time for us. And I think that really will be a healthy place to be. But to be honest, I think it's only upside and diversification. We've seen so much success in diversifying our business and we're going to keep at this, not just in diversifying our revenue across the customer base, but increasingly in 2025, you're going to see us pushing really hard on the security side of our portfolio as well. Speaker 800:33:22Maybe you can just follow-up there on the security side. So more updates to next generation WAF, more updates to the bot management capabilities. Where are we in sort of driving that stronger sort of security sales motion? I'm sure sort of interplays with the momentum you're seeing with partners, but what is sort of your outlook for security growth over the next couple of quarters? Speaker 200:33:53Yes, it's certainly top of mind, not just for myself, but for Scott, our new CRO comes from a security background. And as we look to the restructuring, that we just did and really the path forward, especially as we start 2025, we are deeply focused on sort of pairing this R and D investment with real go to market focus in security. And so I really, I believe 2025 secondurity is going to be a very, very top of mind area, not just in the R and D side, not just in the product launch side, but across the board. I think there's a ton of upside here. We've got and it was mentioned in the first question. Speaker 200:34:36We have a lot of untapped potential in the cross sell. I'm seeing really good momentum in our security sales motion when it comes to new logo acquisition. And we have with, especially with the recent product developments, we have a really amazing opportunity to use security more and more as a way to onboard new customers to the platform for the first time and start to actually land and expand those customers into delivery and network services. Operator00:35:05Your next question is from the line of Will Power with Baird. Speaker 900:35:10Okay, great. Thanks. Todd, maybe just come back to the media side just to clarify a bit for me. I mean, it looked like in Q3, your top ten customers were actually pretty stable with Q2, which at the surface seemed encouraging. I'm sure there are probably some maybe some crosscurrents within that. Speaker 900:35:26And yet it sounds like you're still spending some headwinds seasonally in Q4. And maybe there's some conservatism in there, but still some questions. So I guess I'm just but it also sounded like you kind of think you got the worst behind you. And so I'm just trying to understand what underpins the confidence around the visibility that the worst is behind you given some of these headwinds in Q4. Maybe you can just help triangulate that for me. Speaker 200:35:50Yes. I mean, I think we have now a strategy that is certainly more and more dependent on the business outside of media and we've seen this big shift from 40% all the way down to now 33% in just a few quarters. That's certainly helping us build a better projection, have more confidence in the growth rate and in the fullness of time help us build a better and more higher and more reliable growth rate for the company. As far as the media business goes, we did see our higher touch customer engagement model that we put in place when we started to see these headwinds a few quarters ago. We have seen really 2, I think significant benefits here. Speaker 200:36:37One is we've been able to serve these customers better by demonstrating better performance than the rest of the market, more reliability, better ease of doing business, which is so important. And with that better customer engagement, better executive engagement, I think we have better projection for that business. But that business has changed a little bit. We're hoping that things like the NGO situation will help fuel that business, that part of our business back to growth. And we think we've never been in a better position, but we don't have visibility to a big return to growth in Q4. Speaker 200:37:16And that's what's baked into our projection. That being said, this higher touch customer success motion has also given us, I think a much better projection of that business, a better way to predict it and measure it and get telemetry from across the system, the business, the Internet, etcetera, on what's happening here. And so this sort of better engagement and hopefully a faster return to growth for our media business, but also a better projection and better building of our revenue model moving forward. Speaker 900:37:49Okay. And then maybe just I guess one other follow on. I mean, you touched on this a bit, but nice to see that actually even improved growth, I guess, in your customers outside the top 10. Any common variables to call out there, either particular verticals you're doing well in or particular use cases that are helping drive the success there, both in terms of revenue and in terms of new customer adds, which the enterprise number is down, the overall adds looked good? Speaker 200:38:19Yes. I think the biggest trend I've seen, I might, this is a little anecdotal, but the biggest trend I've seen is certainly that new customers are coming to Fastly out, especially outside of media, looking for a complete edge solution, network services and delivery, security, observability and edge compute. And as we've filled out the last couple of pieces in our security portfolio, we're starting to see I think a lot more serious engagement on those new logos and finding more success in bringing them on board. So to me, the big trend I've seen here is finishing out security portfolio has helped us build a more complete portfolio and these new customers, that's what they're looking for. They're looking for a complete edge solution. Operator00:39:09Your next question is from the line of Timothy Horan with Oppenheimer. Timothy, your line is open. Speaker 300:39:23Sorry, guys. I think you said large customers Speaker 1000:39:25are working through their obligations. I mean, do you have much visibility when those obligations are over, where you're at on relative pricing basis? And will those customers or timeline on that? And maybe what's the visibility? I know you've been answering this a bit on retaining of customers. Speaker 1000:39:44And I guess related to this, the whole CDN space has been under a lot of pressure. Is it volumes are coming in lower than expected or are there are the hyperscalers gaining share or other new entrants? Where is the kind of why is the revenue been so disappointing for the whole industry? And I guess with your large customers, I know you've been talking about it, but just a little bit more color on those obligations they have? Speaker 300:40:11Yes. In terms of the obligations, we have really good visibility to when the contracts come up for renewal. And particularly with our largest customers with our increased engagement at senior levels, we have much better visibility into what their pricing expectations are, what drives their decisions around care. What I would say is we've sort of shared in the past is that we don't have a concentration of renewals in any particular quarter. They generally are kind of spread out across the year. Speaker 300:40:44So we have renewals in each of those quarters that results in a little less sort of a single impact from when we see those contracts renew at new pricing. But I think we have much better visibility in terms of what those adjustments might be at contract dates. We certainly have good visibility to win those contracts come up for renewal. Speaker 200:41:09Yeah. And just looking at it through the lens of the whole market, I think we are seeing a little bit of a change here. There's been consolidations and there's fewer players in the space and even fewer if you look at it from really full service edge platform players. And I think that has the opportunity to make the pricing environment healthier in 2025 than we saw in 2024. And I guess I'm a little optimistic that that's exactly what we're going to see. Speaker 1000:41:44That's good. And then just one question on the AI Accelerator. Can you talk about how much you improve latency on your platform and reduce costs or any color around that and what you've experienced so far? Speaker 200:41:56Yeah. AI Accelerator basically brings the power of the Fastly platform, to LLM style solutions. And the I think there's a video of me doing this demo. But the reality there is, using a public LLM cloud, the latency on a relatively trivial question can be 5 or 6 seconds or more. And that doesn't always feel like the most human experience. Speaker 200:42:31The, there's no reason that every single one of those requests has go all the way back to that central cloud and we can provide fast speed of response here and bring those request times well below a second while at the same time lowering the total cost of the solution to the development teams building that type of LLM based use case. And the most common one is like a support chatbot use case with very, very easy developer onboarding, a single line of code, Customers can leverage the power of our semantic match, the power of the Fastly cash and at the same time lower their total cost of living the solution. It's awesome. I've gotten great response from customers in the beta and I'm really excited to launch in the general availability this quarter. Operator00:43:29Your next question is from the line of Jeff Van Rhee with Craig Hallum. Speaker 1000:43:35Great. Thanks for taking the questions. I've got several. Maybe on the enterprise customer account, just a little clarification. I know the non top 10 was up 20% year over year. Speaker 1000:43:42So generally, other than the top 10, very good quarter. The overall sequential drop, can you talk about the pattern of that drop? I would have expected given the strength of the non top 10 that you wouldn't have that many fall below your 100 ks threshold in the quarter. Any other color there you can share? Speaker 200:44:03Yes, I'll tell you, I shared that concern. So I did dig into those numbers quite a bit. It did not what I was trying to be very sensitive to is if we saw any sort of increase in customer churn, which I did not see even customers on their way to churn. But we do have a lot of customers that will swing above or below the number. When you look at in the disclosures, when you look at the average dollar spent by enterprise customers and the total amount spent by all of the non top ten customers, I think it tells the same story. Speaker 200:44:39We saw some folks drift below that 25 ks per quarter threshold and that's what showed up in the numbers. It's not a result that I love to be honest and we're going to be pushing very, very hard to make sure that we are driving growth in every single account including those mid sized commercialenterprise accounts to make sure that that number is really reliably growing every quarter. Speaker 1000:45:06That's helpful. And then I guess, Ron, on the financials, I think the guide for FCF last quarter was minus 10 to 20. And I think if I heard it right, you said -30 to 40 here. So pretty much the message across the board was stability and sort of in line with what you thought coming into the quarter, but that one ticked lower. Just talk about what happened there? Speaker 900:45:27Yes. I think Speaker 500:45:30in the quarter, Speaker 300:45:31we did see a little better cash flow from operations. We did also as we know from CapEx was around 9% in the quarter. And so a lot of those puts and takes. The other thing that we did have relative to free cash flow impact was the impact of sort of restructuring in the quarter, which when we prior to the restructuring didn't have that in our calculations, but we'll save more than that by the time we wrap up the year with the $14,000,000 of the OpEx savings. Speaker 1000:46:09Okay. And maybe just last for me then. The conclusion to not count on a seasonal uptick here in Q4, can you just talk about anecdotally or quantitatively just how you came to that conclusion? Just curious what evidence built you to assume that other than I know you guys just want to keep the expectations down in conservatism, but any color there would be great. Speaker 900:46:34Yes. I mean, I think a Speaker 400:46:35couple of things. I think as Speaker 300:46:36we go into Q4, we did see some increased strength in our largest customers across gaming and some live sports. I think as we go into Q4, some of those largest customers we're going to see somewhat lower revenue. We also see an absence of some of the true ups that we saw in the last couple of years that contributed to that seasonal uptick in the Q4. And so when we bring those 2 together on top of the higher revenue we saw in Q3, we end up with relatively flattish Q3 to Q4 revenue outlook. Speaker 100:47:13And note that those true ups impact not only revenue, but also gross margin, Jeff. Operator00:47:20Your next question is from the line of Rishi Jaluria with RBC Capital Markets. Speaker 400:47:27Hi, this is Chris Stone on for Rishi Jaluria. Thanks for taking my question. I was wondering if you could give us an update on the efforts to diversify revenue within the top 10 customer cohort, but from the standpoint of mix shift and selling more security and other services into those customers, so that way you aren't as reliant on the delivery business? Thanks. Speaker 200:47:50It's top of mind. And as we look at how we are approaching the approaching those top 10 customers in a new way, we have everything on the table. The portfolio expansion is certainly a big one, but we do know that their spend is primarily going to be in delivery by the very nature of their business. That doesn't mean that the stickiness can't come from bespoke compute offering and we saw pretty good results there across the business on the compute side and certainly on the security side. We are seeing a lot of security event activity in the media space. Speaker 200:48:34And so I think there is more opportunity for us to gain that stickiness from security even if the bulk of our revenue continues to come from media. But I tell you, I think we are still at the beginning of that journey largely. Like I don't think we've reached every, we haven't reached our full capacity and diversifying the portfolio there. And again, in 2025, security is going to be a huge part of our focus. And I think that will include the media accounts Speaker 1100:49:05for sure. Speaker 400:49:08Got it. Thank you. Just one other one. How should we think about the mix of security revenue increasing and what is embedded into Q4 guidance? Speaker 200:49:20The yes, as far as the security, mix went in Q3, I think we can do a lot better than that to be honest. I wasn't super pleased with that result. And of course the effects of these product launches that came in this quarter during Q3 and in Q2, we haven't seen that start to show up in the revenue yet. And certainly we haven't seen the full effect of our new sales leadership here. I think we can do significantly better than that and it will be a big, big focus for the company in 2025. Speaker 600:49:56Yes. Speaker 300:49:56The only thing I'd add, I think as well, I think to Todd's point, I think you'll really see the bigger impact as we get into 2025 with recent releases and the efforts that Scott is putting into the go to market efforts. Operator00:50:14Your next question is from the line of Madeline Brooks with Bank of America. Speaker 600:50:20Hi, yes. This is Calv Nedaprum on for Madeline Brooks with Bank of America. I have two questions for you, but I'll start with the first one. My first question is, what's the strength in 3Q expected or unexpected, especially with the recovery you noted in the few large customers? And then can you talk about the sustainability of these trends? Speaker 600:50:39Were there any one offs, such as the Olympics that contributed to this outperformance? Speaker 300:50:47Yes. I think we did see better than expected results in the Q3 as we work through the quarter. I think where we saw strength was we did see some strength from live sporting events, including global events where they end up medallion. But we also saw strength in gaming, a lot of that's tied to release timings. And so we saw better strength there than we anticipated going into the quarter. Speaker 300:51:15And then as Todd mentioned earlier, share gains outside of the top ten, that growth was we expected to see an acceleration. We mentioned that on the Q2 call, but that acceleration was a little stronger than we had anticipated going into the quarter. Speaker 200:51:31Yes. And we posted 13% year over year growth outside the top 10 in Q2 and shifting that to 20% in Q3. Again, this transformation and real focus on diversification of our revenue, I think we're starting to see results there and that's going to lead to more long term sustainable growth of the company. Speaker 600:51:53Perfect. Thank you. And then just looking at you guys are breaking out your network service, security and other revenue, which is basically compute. And I know you talked about this in the last few questions, but could you maybe talk about and possibly quantify what we will see with this mix and revenue shift over time? We see like network services has gone from like 81% to now 78%. Speaker 600:52:16Will we start to see more of that deceleration there with an increase in security? Or how should we be thinking about this a year from now or going into 2025? Speaker 200:52:29Yes. Look, I believe I don't want any of our business growth to decelerate. I want every product line to accelerate for sure. But I think the pattern of further diversification of the revenue across the product lines is exactly what you're going to see. And I certainly believe in the fullness of time we'll see that network services revenue come well below 70% and even lower than 2 thirds. Speaker 200:52:57That is certainly possible in this market and I think as the as time goes on, we're going to see more and more diversification and perhaps more and more product lines as well. Operator00:53:13Your next question is from the line of Rudy Kessler with D. A. Davidson. Speaker 1100:53:19Hey guys, thanks for taking my questions. Ron, I'm curious in Q4, if you could maybe just on the revenue guide, maybe break it out a bit between the top 10 and non top 10. I know last quarter, like you said, you expected the non top 10 to accelerate. It looks like they accelerated a bit more. I guess the prior commentary suggested in my head top 10 customer revenue declines were about 30% in Q4. Speaker 1100:53:44Is that still the expectation or is it a bit lower, a bit higher just based on what you saw in Q3? Speaker 300:53:51Yes. I mean, without specifically quantifying, I think we do expect to see some additional headwinds with certain of our largest customers going into Q4. It's reflected in our guidance. That likely will bring down that concentration a little bit below what we saw in the Q3. And I think what we will see is continued strong growth relative to maybe what we've seen in Q2 and Q3 continue into the Q4. Speaker 1100:54:26Okay. And at this point in time, I guess, do you feel like Q4 is the likely last contraction in the top ten revenue or maybe potentially some more in the first half next year? And then on gross margins, even if I adjust for the 90 basis point benefit that you had in Q4 last year, still you're guiding to about 200 basis points of a decline or compression in your gross margins in Q4 this year. Could you just maybe unpack that a bit, what's driving it and just how should we think about gross margins into 2025? Speaker 300:55:02Yes. I think in your first question, I think we do believe we've moved past kind of the worst of some of the impacts from our largest customers. We certainly dramatically improved our visibility to their behavior, but there's still going to be some headwinds going into Q4. But I think we're nearing the end of those headwinds and declines we've seen amongst a subset of our largest customers. I think we've got a good strategy to keep a very strong position, which we have with those customers, and continue to see healthy growth outside of these largest customers. Speaker 300:55:37On gross margin, I think to your point, the other dynamic on top of some of those one time benefits is really the investment that we're seeing to drive increased bandwidth and colo deployments really associated with increased international traffic is one of the headwinds. And then we're seeing increased international traffic, which today typically has lower gross margins because our volumes are lower there. Although as we continue to grow that, there's an opportunity for us to bring those international gross margins more in line with what we see in our major markets. Operator00:56:17Your next question is from the line of Fatima Bawani with Citi. Speaker 1200:56:24Good afternoon. Thank you for taking my questions. Tom, can you speak to the composition of the top 10 customers today versus a year ago? I can appreciate that you've been very, very hard at work to diversify away from this group and have done a good job kind of growing outside of that. But just curious if you can give us some color on what the composition of that top 10 today is versus a year ago? Speaker 1200:56:46And then I have a follow-up as well. Speaker 200:56:50Sure. It tends to be very media heavy. That doesn't just mean streaming video, but it could mean folks in the gaming space and the bulk download space of one kind or another. And some of those organizations have additional business as well, attached that might look more like traditional web business, but of course it's all from the same account. Speaker 1200:57:18Got it. Ronny, you're kind of alluding to this and you've kind of discussed a number of factors around ongoing headwinds, but the magnitude of some of those headwinds maybe shrinking as we progress through into Q4 and maybe the start of next year. But when I specifically think about the net retention rate compression, when and where should we see this troughing out as it relates to what type of visibility you have in the business? If you can give us some kind of clues or some help or some guardrails on when we should trough out on the net retention rate compression trends? Thank you. Speaker 800:58:00Yes. I mean Speaker 300:58:01Yes, it's a good question. I think as we move into next year, and as I said, I think a lot of the headwinds from the large customers are behind us. Given that the NRR is done on an LTM basis, that's going to mute or slow kind of the growth out of where we see LTE and NRR. So I would expect that we would see some expansion as you move into sort of middle of the year and second half as you see some of the headwinds that we saw in 2024 drop off of the LTM calculation. Operator00:58:39Our final question will come from the line of Jonathan Ho with William Blair. Speaker 400:58:46Hi, this is Garrett Berkman on for Jonathan Ho. And thanks for taking my question. I'd like to go back to the security business, and just to get some additional color on where you're maybe seeing, some more success? And then on the flip side, where are you think things potentially slow just in terms of type of customer or any specific products? Thanks. Speaker 200:59:08Yes, I think the there's been a lot of success especially around the last part of our security portfolio where I really believe we have a technology advantage across the board. The efficacy of that product is really a cut above and it leads our users to be able to run it in full blocking mode and get really the full value, not just the alerting in the platform. We've seen a lot of loyalty there. And over the last year or so, we've really moved all of that technology to be fully enabled on the Fastly platform so that the power of our edge and infrastructure is now deployed there along with DDoS and Bot, we have very complete solutions. So I think that unification of the platform is driving a lot of our confidence here and then the way I see customers engaging with that WAF technology and now the add on of bot and adaptive DDoS prevention. Speaker 201:00:07I feel really good. I think it has the biggest upside outside of media, especially in places like e commerce, hospitality, travel, logistics, etcetera, fintech. And it has a real potential for us is this untapped penetration to our existing delivery customers. And so I think there's just a ton of upside and security. That's why it's going to be such an important focus for us in 2025. Speaker 801:00:40Thank you. Thanks. Operator01:00:45I will now hand the call back over to CEO, Tom Nightingale. Speaker 201:00:51Thanks so much. I want to thank our employees, customers, partners and our investors. We remain focused on execution and bringing long lasting growth to our business and delivering value to all of our shareholders. Thank you so much for your time and your attention today. Operator01:01:11This concludes today's call. Thank you for joining. You may now disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallInhibrx Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Inhibrx Earnings HeadlinesHead to Head Analysis: Heyu Biological Technology (OTCMKTS:HYBT) vs. CONMED (NYSE:CNMD)April 24 at 2:23 AM | americanbankingnews.comCONMED (CNMD) Projected to Post Earnings on WednesdayApril 23 at 1:31 AM | americanbankingnews.comWhat President Trump’s Executive Order 14154 means for your moneyNearly $3 trillion disappeared from the stock market on Thursday morning. According to Whitney Tilson - a former hedge fund manager who predicted the dotcom crash, the housing crisis, and the 2022 tech stock bloodbath - a little-known executive order from the President's first day in office could spark a paradigm-shift that will likely catch millions of Americans off guard.April 24, 2025 | Stansberry Research (Ad)CONMED Insiders Placed Bullish Bets Worth US$544.1kApril 20, 2025 | finance.yahoo.com3 Reasons to Sell CNMD and 1 Stock to Buy InsteadApril 14, 2025 | finance.yahoo.comCONMED Corporation to Announce First Quarter 2025 Financial Results on April 30, 2025April 2, 2025 | businesswire.comSee More CONMED Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Inhibrx? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Inhibrx and other key companies, straight to your email. Email Address About InhibrxInhibrx (NASDAQ:INBX), a clinical-stage biopharmaceutical company, develops a pipeline of novel biologic therapeutic candidates. The company's therapeutic candidate includes INBRX-101, an alpha-1 antitrypsin (AAT)-Fc fusion protein therapeutic candidate, which is in Phase 1 clinical trials for use in the treatment of patients with AAT deficiency. It also develops INBRX-109, a tetravalent therapeutic candidate targeting death receptor 5, which is in Phase 2 clinical trials to treat cancers, such as chondrosarcoma, mesothelioma, colorectal cancer, ewing sarcoma, and pancreatic adenocarcinoma; and INBRX-106, a hexavalent agonist of OX40 for a range of oncology indications. The company has license and collaboration agreements with 2seventy bio, Inc. and Bristol-Myers Squibb Company. 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There are 13 speakers on the call. Operator00:00:00Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Third Quarter 20 24 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Operator00:00:30I will now hand today's call over to Vern Essey, Investor Relations at Fastly. Please go ahead, sir. Speaker 100:00:41Thank you, and welcome everyone to our Q3 2024 earnings conference call. We have Fastly's CEO, Todd Nightingale and CFO, Ron Kissling with us today. The webcast of this call can be accessed through our website fasta.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 3,239 shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables and investor supplement, all of which are furnished in our 8 ks filing today, can be found in the Investor Relations portion of FASU's website. Speaker 100:01:21During this call, we will make forward looking statements, including statements related to the expected performance of our business, future financial results, product sales, strategy, long term growth and overall future prospects. These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. 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 10 ks and quarterly reports filed on Form 10 Q filed with the SEC and our Q3 2024 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer in particular to the sections entitled Risk Factors. We encourage you to read these documents. Speaker 100:02:11Also note that the forward looking statements on this call are based on information available to us as of today's date, and we undertake no obligation to update any forward looking statements except as required by law. Also during this call, we will discuss certain non GAAP financial measures. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non GAAP basis. Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement on our Investor Relations website. These non GAAP measures are not intended to be a substitute for our GAAP results. Speaker 100:02:45Before we begin our prepared comments, please note that during the Q4, we will be attending the RBC Capital Markets Global Technology, Internet, Media and Telecommunications Conference in New York on November 19th and the UBS Global Technology and AI Conference in Scottsdale, Arizona on December 4th. Now I'll turn the call over to Todd. Todd? Speaker 200:03:04Thanks, Vern. Hi, everyone, and thank you so much for joining us. Today, I will cover our Q3 results and the progress we've made, especially in growing revenue outside of our largest customers and in continuing to improve the profitability of Fastly. I will also discuss our go to market and technology initiatives. I will then hand the call over to Ron to discuss our Q3 financial results and our guidance in detail. Speaker 200:03:29We reported 3rd quarter revenue of $137,200,000 coming in above the high end of our guidance range due to better than expected strength in some of our larger media customers and a balanced mix of share gains outside of our top 10 customers. We reported an operating loss of $520,000 the best result we have achieved in more than 4 years and materially better than the guidance range. This was the result of higher revenue and gross margins coupled with the cost benefits from a faster than projected execution of our restructuring. I'm also excited to share with you that Fastly reported a net profit $2,400,000 and positive adjusted EBITDA of $13,300,000 in the 3rd quarter, both record levels for the company. I'm pleased to share with you the progress we made in diversifying our revenue. Speaker 200:04:21This resulted in a more diverse revenue mix in the Q3 as we grew our top line 7% year over year. In the Q3, our top ten customers represented 33% of revenue, down from 40% last year and down from 34% quarter over quarter. This is a good indicator of continued progress in diversifying our revenue and strengthening our business. Revenue outside of our top 10 accounts, which is key to our strategy and goals for the long term success and growth rate of Fastly grew 20% year over year, significant improvement from last quarter's 13%. Last quarter, we called this an inflection point and a moment of transition for Fastly. Speaker 200:05:02While the transition doesn't happen in a single moment, we are already experiencing the benefits of a more focused investment in product, customer success and go to market. Specifically, we released a major expansion to our security portfolio, onboarded new sales leadership, pivoted to a more bespoke engagement model with our largest multi vendor customers and launched a new self-service demand gen motion. We are seeing early progress in our revenue diversification, customer acquisition growth and renewed focus on our largest enterprise customers. There is more to come. These changes will drive revenue diversification and faster more reliable growth for Fastly. Speaker 200:05:45Our customer acquisition efforts showed solid gains year over year in the Q3. Our enterprise customer count was 576 compared to 547 representing a 5% growth rate year over year. Quarter over quarter enterprise customer count actually declined 4%. We saw more customers dip just below our $100,000 run rate enterprise definition this quarter. We do see quarterly volatility in our enterprise customer count methodology, but we'll be tracking this very carefully and looking to drive growth in all of our midsized accounts. Speaker 200:06:19We experienced normal churn levels with churn flat quarter over quarter and while we saw 5% year over year growth rate in enterprise customer count, we aren't satisfied with this result and hope to accelerate our growth in enterprise customers in 2025. We had 3,638 customers at the end of Q3 and a net increase of 343 quarter over quarter for a growth rate of 10%. We believe this is the result of our new self-service sales motions, which I will discuss in a moment. Our transition leans heavily into our technology innovation heritage and we believe it is key to the continued success in customer acquisition and wallet share growth. Fastly's platform is a software driven edge network that offers best in class delivery, network services, security, compute and observability. Speaker 200:07:10We continue to focus investment in leading technology and innovation that not only solidifies our platform, but also extends its features for the future of web application development. The functionality we offer allows our customers to bring their applications to life around the world. We believe that our unified platform approach will significantly enhance our customer retention and create efficiencies for FASET in supporting our customer success. Let me share with you some important developments taking place in our security offerings in particular. We continue to experience a favorable customer response from bot mitigation since its release in the Q1. Speaker 200:07:45Our bot mitigation solution wholly developed within Fastly attracts customers looking for simple onboarding and ease of use, opening the door for continued opportunities for cross sell and up sell. Fast following on the heels of our successful launch of bot mitigation, we announced the general availability of Fastly's adaptive DDoS protection on the platform. This solution provides automatic protection from Layer 7 and other application level DDoS attacks. Our platform enables frictionless onboarding and implementation of this solution with just the click of a button. We've had a long heritage of DDoS protection at Fastly partnering with some of the largest most sophisticated customers in the industry. Speaker 200:08:25We are tapping into this intellectual property and productizing it to address the entire market so that our broader customer base can benefit. Additionally, this solution allows us to layer proprietary auto adaptive response intelligence within the offer. We believe this innovative DDoS release is a new enterprise customer acquisition vector for Fastly in addition to driving customer growth and cross sell opportunities. Last quarter, I shared with you that we launched the beta version of our AI accelerator, an AI proxy capable of delivering performance and cost savings to application builders leveraging large language models. The interest and response has been very favorable from our customers and we've added LLM support beyond OpenAI to include Google Gemini as well. Speaker 200:09:12We expect AI Accelerator will be generally available for purchase by the end of the year and I'm excited to make this announcement as it demonstrates the increase of innovation velocity at Fastly and I look forward to announcing more product launches before year end. I'll now discuss the transition taking place within our go to market efforts. Since joining us in the Q2, our new CRO, Scott Lovett, has taken the first steps towards driving transformation within the sales order to close more new enterprise logos. He's particularly focused on driving wins in security with new and existing customers. And with our new security offerings and deep experience in this space, we're excited about the opportunities ahead. Speaker 200:09:53Beyond sales, our go to market success is also the culmination of branding, messaging and sharing our expertise with subject matter experts. In the Q3, we released the Fastly Threat Insights Report providing the latest attack trends across the web application and API security landscape. The report found that 91% of cyber attacks targeted multiple customers using mass scanning techniques to exploit vulnerabilities. We also released the results of our new survey, How Bad Bots Are Hurting Businesses, which revealed 59% of IT professionals reported an increase in bot attacks over the past year with significant incidents costing companies an average of $2,900,000 These results seem closely in line with the interest we're seeing in our security portfolio and our new security offers. We are now in the 2nd year of our packaging efforts, which truly demonstrates our focus on simplicity, not just in our product, but in pricing and our ease of implementation. Speaker 200:10:52Our new self-service model with mix and match packages was rolled out last quarter, kicking off our initial PLG efforts at Fastly. These efforts have resulted in growing our overall customer count while also attracting critical developers to the Fastly platform. In the Q3, our packaging efforts demonstrated strong growth and we more than doubled the number of packages sold year over year. Our new logo packages tripled and represented 43% of the packages sold in the Q3 compared to 16% a year ago. Lastly, our channel partners rounded out our go to market efforts. Speaker 200:11:26In the Q3, our deal registrations grew 33% year over year and our year to date bookings grew 46% year over year. We anticipate more opportunities to leverage our channel and drive top line growth as we move forward. Now let me conclude with a discussion on our outlook as we close out the year. Looking back 1 year ago, we did not foresee all the challenges we faced. In 2024, we suffered revenue declines from our largest customers and this in turn prompted us to realign our growth strategy and our investment strategy. Speaker 200:12:02Ultimately, we implemented a workforce reduction and overall transition that impacted every department at Fastly. I believe we are pulling through these difficult times and we are turning a corner. The cost discipline and financial rigor on our drive towards profitability growth has never been better. We've shown signs of progress this quarter that should make the team proud. And though there's more work on the horizon, I'm pleased with the efforts across the board over these past 3 months. Speaker 200:12:30Heading into the Q4, typically very seasonally strong, we do not believe we will be benefiting from as much of the typical sequential lift we've experienced in prior years. And this is reflected in our 4th quarter revenue guidance. While this could be dismissed as conservatism on our part, it is more the result of what we have shared over the past 3 quarters with the dynamics we are seeing taking place at some of these largest accounts. We do believe that we've moved past the worst of these impacts and have a strategy in place to keep our strong position at these very large accounts, while also focusing heavily on healthy revenue growth outside of our largest customers driving important revenue diversification. I'm very optimistic on Fastly's prospects in 2025 and continue to believe our inherent platform advantages affords the opportunity to capture more share of the world's web application workloads. Speaker 200:13:26And now to discuss the financial details of the quarter and guidance in detail, I will turn the call over to Ronny. Speaker 300:13:32Thank you, Todd, 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 Q3 increased 7% year over year to $137,200,000 Speaker 400:13:52coming in well ahead of Speaker 300:13:53the midpoint of our guidance of $130,000,000 to $134,000,000 Network services revenue grew 5% year over year to $107,400,000 and security revenue grew 12% year over year to $26,200,000 Lastly, our other segment, which represents our emerging products category grew 85% year over year to $3,600,000 driven primarily by compute. In the Q3, we saw better than expected strength in live sports and gaming with a balanced mix of share gains outside of our top 10 customers offsetting traffic headwinds at certain of our largest customers that we've previously discussed. Our top 10 customers comprised 33% of our total revenues in the Q3 of 2024 compared to 34% in Q2 2024, reflecting the impact of the revenue declines from some of our largest customers and our strategy of targeting a more diverse customer base. Also, no customer accounted for more than 10% of revenue in the Q3. Revenue from customers outside of our top 10 customers grew 20% year over year. Speaker 300:15:04Our continued focus on customer acquisition has resulted in revenue expansion outside of our top 10 customers, expanding our wallet share into the broader enterprise customer segment. Our trailing 12 month net retention rate was 105%, down from 110% in the prior quarter and down from 114% in the year ago quarter. This decline is primarily due to the revenue declines in some of our largest customers and we anticipate this will continue to be a headwind to our LTM NRR through the remainder of 2024. At the end of the Q3, our RPO was $235,000,000 up 6% from $223,000,000 in the Q2 of 2024 and down 5% from $248,000,000 in the Q3 of 2023. This increase is primarily due to contract renewals with our larger customers and increasing adoption of our packaging products, which are sold on a subscription or SaaS basis. Speaker 300:16:03This was offset by other larger customers working through their remaining obligations over their contract terms. As Todd mentioned, we had 576 enterprise customers at the end of Q3, a net decrease of 25 compared to an increase of 24 in the 2nd quarter. On a year over year basis, enterprise customer count increased 5%. Enterprise customers accounted for 92% of total revenue on an annualized basis in Q3 compared to 91% in Q2. Enterprise customer average spend was $880,000 up 9% from $804,000 in the previous quarter and up 3% from $858,000 in Q3 of last year. Speaker 300:16:46I will now turn to the rest of our financial results for the Q3. Our gross margin was 57.7% compared to 58.5 in the Q2 of 2024 and up 180 basis points from 55.9% in Q3 2023 as we benefited from better utilization on our fixed costs on higher than expected revenue offset to a lesser extent by increased bandwidth and transit costs on higher traffic. Our incremental gross margin hit a record 79% on a trailing 12 month basis compared to 73% in the Q3 of 2023, reflecting continued efforts on reducing our cost of revenue in an otherwise challenging top line environment. Operating expenses were $79,600,000 in the Q3, better than our expectations. Lower employee costs related to the recent restructuring and a reduction in hiring accounted for a majority of the upside. Speaker 300:17:45This represents a 5% decrease in operating expenses compared to Q3 2023 and a decrease of 12% sequentially from the Q2. This better than expected favorability in our operating expenses combined with better than expected gross profit resulted in an operating loss of $500,000 in the 3rd quarter beating our operating loss guidance range of $12,000,000 to $8,000,000 In the 3rd quarter, we reported a net income of $2,400,000 or income of $0.02 per diluted share compared to a net loss of $8,000,000 or a loss of $0.06 per basic and diluted share in Q3 2023. Our adjusted EBITDA was positive in the 3rd quarter coming into $13,300,000 compared to $700,000 in Q3 2023. As Todd mentioned, I'm pleased to highlight that both net income and adjusted EBITDA set quarterly records for Fastly. Turning to our balance sheet, we ended the quarter with approximately $308,000,000 in cash, cash equivalents, marketable securities and investments, including those classified as long term. Speaker 300:18:55Our free cash flow for the quarter was negative $7,100,000 on an $11,400,000 sequential improvement from negative $18,500,000 in the 2nd quarter. This improvement was primarily driven by an increase in our cash from operations to positive $5,000,000 compared to negative $4,900,000 in the second quarter. Our cash capital expenditures were approximately 9% of revenue in the 3rd quarter coming in at the lower end of our guidance of 9% to 10% of revenue we shared on our Q2 call. As a reminder, our cash capital expenditures include capitalized internal use software. For 2024, we anticipate our cash CapEx will be approximately 9% to 10% of revenue. Speaker 300:19:40I will now discuss our outlook for the Q4 and full year 2024. 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. As Todd shared in his remarks, while we are seeing growth in new customer acquisition, which we believe will lead to further revenue expansion longer term, we are facing an unexpectedly challenging environment of revenue declines from some of our largest customers continuing throughout the course of 2024 adversely impacting our revenue growth. Our revenue guidance reflects these dynamics in our business and is based on the visibility we have today. Speaker 300:20:29We expect somewhat flat to modest sequential growth in Q4 revenues compared to Q3 due to lower revenue at some of our largest customers. For the Q4, we expect revenue in the range of $136,000,000 to $140,000,000 representing flattish annual growth. Note, we do not expect to experience any one time revenue true ups in the Q4 compared to the one time $2,800,000 $3,300,000 revenue amounts we recorded in the Q4 of 2023 2022 respectively. We continue to be very disciplined in our network investment and cost of revenues, which contributed to our Q3 gross margins being approximately 70 basis points better than we initially expected. For the Q4, we anticipate our gross margin will decrease approximately 150 basis points relative to the Q3, plus or minus 50 basis points. Speaker 300:21:24This sequential decline in gross margin is primarily due to increased bandwidth and colocation deployment costs associated with increased traffic in international regions. We anticipate our 4th quarter operating expenses will be flat to modestly up from 3rd quarter level. Guidance for our 4th quarter operating results reflects the impact of the sequential decrease in gross margin and the beneficial impact of lower operating expenses. As a result, for the Q4, we expect a non GAAP operating loss of $5,000,000 to $1,000,000 and a non GAAP net loss of $0.02 per share to a non GAAP net income of $0.02 per share. For calendar year 2024, we expect revenue in the range of 539 dollars to $543,000,000 reflecting annual growth of 7% at the midpoint. Speaker 300:22:20We expect to continue to see gross margin improvement in 2024 compared to 2023 as we leverage costs on the incremental yet lower revenue growth. We anticipate our 2024 gross margins will improve by approximately 70 basis points, plus or minus 50 basis points relative to 2023. As a result, we expect our non GAAP operating loss to be in the range of $28,000,000 to $24,000,000 reflecting an operating margin of negative 4.8% at the midpoint, an improvement of approximately 29% in dollar terms over 2023 operating loss margin of 7.2%. We expect our non GAAP net loss per share to improve to $0.12 to $0.08 reflecting the improvement in our operating loss expectations and we expect free cash flow to be in the range of negative $40,000,000 to $30,000,000 in 2024 compared to negative $59,000,000 in 2023. Before we open the line for questions, we'd like to thank you for your interest and your support in Fastly. Speaker 300:23:23Operator? Operator00:23:45Your first question is from the line of James Fish with Piper Sandler. Speaker 500:23:51Hey guys, congrats on getting the business here to net income profitability and the quarter overall. Look, I think everybody's wondering here about the competitive environment with Speaker 600:24:03one Speaker 500:24:03of your competitors going bankrupt. And Todd, you and I talked about that at our conference. But what are you guys seeing in terms of that opportunity in particular especially given that entity had very large customers even some overlapping customers. What programs are you putting in place to try to gain further wallet share with that Peggio bankruptcy? Speaker 200:24:27Yes, I think it's making the market like a super interesting place right now and there's definitely potential upside here. We've seen some accounts that have in fact shifted traffic towards Fastly and that's largely the overlapping accounts where the transition is straightforward. But largely I think of this as a significant opportunity, in 2025. I think that's where we're going to see big shifts, in that area in particular. Maybe just on a slightly wider lens. Speaker 200:25:04I think it also underscores the importance of a platform strategy here of building a very complete offering with strength, not just in network services, but security and compute and observability as well. And that's where we're seeing a lot of the momentum in our business. And I think it's going to help us transition these customers over to a more complete offer. So for us, we've seen a little bit of that so far, but I think the majority of the upside opportunity for us is probably in 2025. Got it. Speaker 200:25:39And then maybe Speaker 500:25:40on the packaging side and security piece specifically, what's the penetration or attach rate of security to customers generally at this point and specifically as well within your web delivery customers where that may be a little bit easier to cross sell? What's the low hanging fruit that Scott has here? Thanks guys. Speaker 200:26:03Yes, it's super top of mind. We don't disclose a particular number here, but I would tell you, I think our cross sell penetration is still very low. I think there's a lot of opportunity and that's exactly why we've focused the security innovation and I'm sure you see there's certainly a surge here with 2 big releases in the last few quarters. We focused that not just on security efficacy, but an ease of deployment and true simplicity in the platforms that customers who are existing content delivery customers can onboard best in class DDoS or bot mitigation, or our WAF even with a click of a button. And we're really targeting the product and platform innovation area here to drive this cross sell where I believe we are far, far, we have far too little penetration on the cross sell opportunity. Operator00:27:06Your next question is from the line of Frank Louth with Raymond James. Speaker 700:27:12Great. Thank you. So it seems like the bump in the business here was a little bit more one time in nature. You're a little cautious that it was. Can you give us an idea of Speaker 100:27:21what was kind of Speaker 700:27:22driving that Media business in the quarter? And any thoughts about what possibly could be replicable? And then on the efforts you've made on the restructuring, can you walk us through where you've seen success there early on? Are you tracking to the same overall cost savings or you found some new is it going to be a little bit higher or we just capture that a little sooner than we thought? Thanks. Speaker 800:27:51Sure. Speaker 200:27:53We saw some better than projected revenue in those top accounts. And I think you're right to say, we are we're being very careful not to project too much from those results into the out quarters. And I think that's important. We know there's volatility there and we want to be really sure that we are projecting the correct that we're giving you the correct revenue projection moving forward. But I think the like the part of the growth rate and the revenue result in Q3 that's really important is that we saw 20% year over year growth outside of the top ten. Speaker 200:28:37We're seeing momentum starting to build in this transition towards approaching the larger market, acquiring customers outside of media and driving a more diversified, more reliable business and therefore more projectable and reliable growth rate moving forward on that diversified business. And there's no doubt that this transition has a lot to do with that focus on diversification and focus on long term reliable growth. As far as the cost savings, largely we've been pushing cost control and operational efficiency and rigor for a long time. And we've had pretty consistent results in making improvements there. But our restructuring, we were able to do a little bit earlier a little bit faster and more efficiently than we believed and we believe possible. Speaker 200:29:32And that drove a big chunk of the beat on the OpEx side to our projection. Ron, do you think you have? Speaker 300:29:40No, I think that's a good increase on the traffic. And again, we saw some paper bully in the spending just based on the execution of the restructuring that basically is going to drive about a $14,000,000 savings versus our original plan in 2024. Speaker 700:29:59Great. And when you mentioned getting business outside of media, can you characterize what are some of those workloads and what does that data look like that you're getting? Is it more software based? And then what is it are these new opportunities that you think have a long growth rate? Or is it just where you just happen to be buying some business? Speaker 200:30:21Yes, for sure. I think number 1, it's a lot of new logo acquisition and that drives very, very healthy growth rate in the couple of years as there is a more accelerated land and expand motion or I should say expand motion in the 1st 24 months on the platform. It's definitely business that is more diversified across the portfolio than the media business. Outside of media, there's much more spend in security, compute observability across the board. And we're starting to see those results outside of media, which I think is really, really healthy for the business. Speaker 200:30:58It will help us drive margins. It will help us balance workloads across our infrastructure. And a multi portfolio customer is stickier. They enjoy platform leverage. It makes their teams and their developers more loyal to the platform and more powerful within their own organization. Speaker 200:31:15So we are really excited about that. Operator00:31:19Your next question is from the line of Sanjit Singh with Morgan Stanley. Speaker 800:31:25Yes. Thank you for taking the question. Nice to see getting back to a nice speed cadence. I guess my overarching question, Todd, is, is there like a mix between top 10 and not top 10 that would essentially signal growth returning to the business? It sounds like the top 10 doesn't seem to be getting worse. Speaker 800:31:48But as I look at your Q4 guide, we're looking for about flat year over year growth. So probably more sort of your growth headwinds on the come. And so is it like sort of getting that mix down to 25%, 20% because it looks like your non top ten customers are growing healthily in the double digits. So any thoughts there on like where those kind of two lines cross where that sort of spits out reasonable growth? Speaker 200:32:16Yes. I think it's a good question, something we think about a lot. I believe that the growth rate at Sassy overall is going to be more and more dominated by this longer tail of customers. And it's why I'm tracking so carefully the non media growth rate and in the public disclosures, the non top ten growth rate. And as that concentration reduces, then we're going to index more and more on it. Speaker 200:32:47I think getting to 30% is going to be a pretty significant moment in time for us. And I think that really will be a healthy place to be. But to be honest, I think it's only upside and diversification. We've seen so much success in diversifying our business and we're going to keep at this, not just in diversifying our revenue across the customer base, but increasingly in 2025, you're going to see us pushing really hard on the security side of our portfolio as well. Speaker 800:33:22Maybe you can just follow-up there on the security side. So more updates to next generation WAF, more updates to the bot management capabilities. Where are we in sort of driving that stronger sort of security sales motion? I'm sure sort of interplays with the momentum you're seeing with partners, but what is sort of your outlook for security growth over the next couple of quarters? Speaker 200:33:53Yes, it's certainly top of mind, not just for myself, but for Scott, our new CRO comes from a security background. And as we look to the restructuring, that we just did and really the path forward, especially as we start 2025, we are deeply focused on sort of pairing this R and D investment with real go to market focus in security. And so I really, I believe 2025 secondurity is going to be a very, very top of mind area, not just in the R and D side, not just in the product launch side, but across the board. I think there's a ton of upside here. We've got and it was mentioned in the first question. Speaker 200:34:36We have a lot of untapped potential in the cross sell. I'm seeing really good momentum in our security sales motion when it comes to new logo acquisition. And we have with, especially with the recent product developments, we have a really amazing opportunity to use security more and more as a way to onboard new customers to the platform for the first time and start to actually land and expand those customers into delivery and network services. Operator00:35:05Your next question is from the line of Will Power with Baird. Speaker 900:35:10Okay, great. Thanks. Todd, maybe just come back to the media side just to clarify a bit for me. I mean, it looked like in Q3, your top ten customers were actually pretty stable with Q2, which at the surface seemed encouraging. I'm sure there are probably some maybe some crosscurrents within that. Speaker 900:35:26And yet it sounds like you're still spending some headwinds seasonally in Q4. And maybe there's some conservatism in there, but still some questions. So I guess I'm just but it also sounded like you kind of think you got the worst behind you. And so I'm just trying to understand what underpins the confidence around the visibility that the worst is behind you given some of these headwinds in Q4. Maybe you can just help triangulate that for me. Speaker 200:35:50Yes. I mean, I think we have now a strategy that is certainly more and more dependent on the business outside of media and we've seen this big shift from 40% all the way down to now 33% in just a few quarters. That's certainly helping us build a better projection, have more confidence in the growth rate and in the fullness of time help us build a better and more higher and more reliable growth rate for the company. As far as the media business goes, we did see our higher touch customer engagement model that we put in place when we started to see these headwinds a few quarters ago. We have seen really 2, I think significant benefits here. Speaker 200:36:37One is we've been able to serve these customers better by demonstrating better performance than the rest of the market, more reliability, better ease of doing business, which is so important. And with that better customer engagement, better executive engagement, I think we have better projection for that business. But that business has changed a little bit. We're hoping that things like the NGO situation will help fuel that business, that part of our business back to growth. And we think we've never been in a better position, but we don't have visibility to a big return to growth in Q4. Speaker 200:37:16And that's what's baked into our projection. That being said, this higher touch customer success motion has also given us, I think a much better projection of that business, a better way to predict it and measure it and get telemetry from across the system, the business, the Internet, etcetera, on what's happening here. And so this sort of better engagement and hopefully a faster return to growth for our media business, but also a better projection and better building of our revenue model moving forward. Speaker 900:37:49Okay. And then maybe just I guess one other follow on. I mean, you touched on this a bit, but nice to see that actually even improved growth, I guess, in your customers outside the top 10. Any common variables to call out there, either particular verticals you're doing well in or particular use cases that are helping drive the success there, both in terms of revenue and in terms of new customer adds, which the enterprise number is down, the overall adds looked good? Speaker 200:38:19Yes. I think the biggest trend I've seen, I might, this is a little anecdotal, but the biggest trend I've seen is certainly that new customers are coming to Fastly out, especially outside of media, looking for a complete edge solution, network services and delivery, security, observability and edge compute. And as we've filled out the last couple of pieces in our security portfolio, we're starting to see I think a lot more serious engagement on those new logos and finding more success in bringing them on board. So to me, the big trend I've seen here is finishing out security portfolio has helped us build a more complete portfolio and these new customers, that's what they're looking for. They're looking for a complete edge solution. Operator00:39:09Your next question is from the line of Timothy Horan with Oppenheimer. Timothy, your line is open. Speaker 300:39:23Sorry, guys. I think you said large customers Speaker 1000:39:25are working through their obligations. I mean, do you have much visibility when those obligations are over, where you're at on relative pricing basis? And will those customers or timeline on that? And maybe what's the visibility? I know you've been answering this a bit on retaining of customers. Speaker 1000:39:44And I guess related to this, the whole CDN space has been under a lot of pressure. Is it volumes are coming in lower than expected or are there are the hyperscalers gaining share or other new entrants? Where is the kind of why is the revenue been so disappointing for the whole industry? And I guess with your large customers, I know you've been talking about it, but just a little bit more color on those obligations they have? Speaker 300:40:11Yes. In terms of the obligations, we have really good visibility to when the contracts come up for renewal. And particularly with our largest customers with our increased engagement at senior levels, we have much better visibility into what their pricing expectations are, what drives their decisions around care. What I would say is we've sort of shared in the past is that we don't have a concentration of renewals in any particular quarter. They generally are kind of spread out across the year. Speaker 300:40:44So we have renewals in each of those quarters that results in a little less sort of a single impact from when we see those contracts renew at new pricing. But I think we have much better visibility in terms of what those adjustments might be at contract dates. We certainly have good visibility to win those contracts come up for renewal. Speaker 200:41:09Yeah. And just looking at it through the lens of the whole market, I think we are seeing a little bit of a change here. There's been consolidations and there's fewer players in the space and even fewer if you look at it from really full service edge platform players. And I think that has the opportunity to make the pricing environment healthier in 2025 than we saw in 2024. And I guess I'm a little optimistic that that's exactly what we're going to see. Speaker 1000:41:44That's good. And then just one question on the AI Accelerator. Can you talk about how much you improve latency on your platform and reduce costs or any color around that and what you've experienced so far? Speaker 200:41:56Yeah. AI Accelerator basically brings the power of the Fastly platform, to LLM style solutions. And the I think there's a video of me doing this demo. But the reality there is, using a public LLM cloud, the latency on a relatively trivial question can be 5 or 6 seconds or more. And that doesn't always feel like the most human experience. Speaker 200:42:31The, there's no reason that every single one of those requests has go all the way back to that central cloud and we can provide fast speed of response here and bring those request times well below a second while at the same time lowering the total cost of the solution to the development teams building that type of LLM based use case. And the most common one is like a support chatbot use case with very, very easy developer onboarding, a single line of code, Customers can leverage the power of our semantic match, the power of the Fastly cash and at the same time lower their total cost of living the solution. It's awesome. I've gotten great response from customers in the beta and I'm really excited to launch in the general availability this quarter. Operator00:43:29Your next question is from the line of Jeff Van Rhee with Craig Hallum. Speaker 1000:43:35Great. Thanks for taking the questions. I've got several. Maybe on the enterprise customer account, just a little clarification. I know the non top 10 was up 20% year over year. Speaker 1000:43:42So generally, other than the top 10, very good quarter. The overall sequential drop, can you talk about the pattern of that drop? I would have expected given the strength of the non top 10 that you wouldn't have that many fall below your 100 ks threshold in the quarter. Any other color there you can share? Speaker 200:44:03Yes, I'll tell you, I shared that concern. So I did dig into those numbers quite a bit. It did not what I was trying to be very sensitive to is if we saw any sort of increase in customer churn, which I did not see even customers on their way to churn. But we do have a lot of customers that will swing above or below the number. When you look at in the disclosures, when you look at the average dollar spent by enterprise customers and the total amount spent by all of the non top ten customers, I think it tells the same story. Speaker 200:44:39We saw some folks drift below that 25 ks per quarter threshold and that's what showed up in the numbers. It's not a result that I love to be honest and we're going to be pushing very, very hard to make sure that we are driving growth in every single account including those mid sized commercialenterprise accounts to make sure that that number is really reliably growing every quarter. Speaker 1000:45:06That's helpful. And then I guess, Ron, on the financials, I think the guide for FCF last quarter was minus 10 to 20. And I think if I heard it right, you said -30 to 40 here. So pretty much the message across the board was stability and sort of in line with what you thought coming into the quarter, but that one ticked lower. Just talk about what happened there? Speaker 900:45:27Yes. I think Speaker 500:45:30in the quarter, Speaker 300:45:31we did see a little better cash flow from operations. We did also as we know from CapEx was around 9% in the quarter. And so a lot of those puts and takes. The other thing that we did have relative to free cash flow impact was the impact of sort of restructuring in the quarter, which when we prior to the restructuring didn't have that in our calculations, but we'll save more than that by the time we wrap up the year with the $14,000,000 of the OpEx savings. Speaker 1000:46:09Okay. And maybe just last for me then. The conclusion to not count on a seasonal uptick here in Q4, can you just talk about anecdotally or quantitatively just how you came to that conclusion? Just curious what evidence built you to assume that other than I know you guys just want to keep the expectations down in conservatism, but any color there would be great. Speaker 900:46:34Yes. I mean, I think a Speaker 400:46:35couple of things. I think as Speaker 300:46:36we go into Q4, we did see some increased strength in our largest customers across gaming and some live sports. I think as we go into Q4, some of those largest customers we're going to see somewhat lower revenue. We also see an absence of some of the true ups that we saw in the last couple of years that contributed to that seasonal uptick in the Q4. And so when we bring those 2 together on top of the higher revenue we saw in Q3, we end up with relatively flattish Q3 to Q4 revenue outlook. Speaker 100:47:13And note that those true ups impact not only revenue, but also gross margin, Jeff. Operator00:47:20Your next question is from the line of Rishi Jaluria with RBC Capital Markets. Speaker 400:47:27Hi, this is Chris Stone on for Rishi Jaluria. Thanks for taking my question. I was wondering if you could give us an update on the efforts to diversify revenue within the top 10 customer cohort, but from the standpoint of mix shift and selling more security and other services into those customers, so that way you aren't as reliant on the delivery business? Thanks. Speaker 200:47:50It's top of mind. And as we look at how we are approaching the approaching those top 10 customers in a new way, we have everything on the table. The portfolio expansion is certainly a big one, but we do know that their spend is primarily going to be in delivery by the very nature of their business. That doesn't mean that the stickiness can't come from bespoke compute offering and we saw pretty good results there across the business on the compute side and certainly on the security side. We are seeing a lot of security event activity in the media space. Speaker 200:48:34And so I think there is more opportunity for us to gain that stickiness from security even if the bulk of our revenue continues to come from media. But I tell you, I think we are still at the beginning of that journey largely. Like I don't think we've reached every, we haven't reached our full capacity and diversifying the portfolio there. And again, in 2025, security is going to be a huge part of our focus. And I think that will include the media accounts Speaker 1100:49:05for sure. Speaker 400:49:08Got it. Thank you. Just one other one. How should we think about the mix of security revenue increasing and what is embedded into Q4 guidance? Speaker 200:49:20The yes, as far as the security, mix went in Q3, I think we can do a lot better than that to be honest. I wasn't super pleased with that result. And of course the effects of these product launches that came in this quarter during Q3 and in Q2, we haven't seen that start to show up in the revenue yet. And certainly we haven't seen the full effect of our new sales leadership here. I think we can do significantly better than that and it will be a big, big focus for the company in 2025. Speaker 600:49:56Yes. Speaker 300:49:56The only thing I'd add, I think as well, I think to Todd's point, I think you'll really see the bigger impact as we get into 2025 with recent releases and the efforts that Scott is putting into the go to market efforts. Operator00:50:14Your next question is from the line of Madeline Brooks with Bank of America. Speaker 600:50:20Hi, yes. This is Calv Nedaprum on for Madeline Brooks with Bank of America. I have two questions for you, but I'll start with the first one. My first question is, what's the strength in 3Q expected or unexpected, especially with the recovery you noted in the few large customers? And then can you talk about the sustainability of these trends? Speaker 600:50:39Were there any one offs, such as the Olympics that contributed to this outperformance? Speaker 300:50:47Yes. I think we did see better than expected results in the Q3 as we work through the quarter. I think where we saw strength was we did see some strength from live sporting events, including global events where they end up medallion. But we also saw strength in gaming, a lot of that's tied to release timings. And so we saw better strength there than we anticipated going into the quarter. Speaker 300:51:15And then as Todd mentioned earlier, share gains outside of the top ten, that growth was we expected to see an acceleration. We mentioned that on the Q2 call, but that acceleration was a little stronger than we had anticipated going into the quarter. Speaker 200:51:31Yes. And we posted 13% year over year growth outside the top 10 in Q2 and shifting that to 20% in Q3. Again, this transformation and real focus on diversification of our revenue, I think we're starting to see results there and that's going to lead to more long term sustainable growth of the company. Speaker 600:51:53Perfect. Thank you. And then just looking at you guys are breaking out your network service, security and other revenue, which is basically compute. And I know you talked about this in the last few questions, but could you maybe talk about and possibly quantify what we will see with this mix and revenue shift over time? We see like network services has gone from like 81% to now 78%. Speaker 600:52:16Will we start to see more of that deceleration there with an increase in security? Or how should we be thinking about this a year from now or going into 2025? Speaker 200:52:29Yes. Look, I believe I don't want any of our business growth to decelerate. I want every product line to accelerate for sure. But I think the pattern of further diversification of the revenue across the product lines is exactly what you're going to see. And I certainly believe in the fullness of time we'll see that network services revenue come well below 70% and even lower than 2 thirds. Speaker 200:52:57That is certainly possible in this market and I think as the as time goes on, we're going to see more and more diversification and perhaps more and more product lines as well. Operator00:53:13Your next question is from the line of Rudy Kessler with D. A. Davidson. Speaker 1100:53:19Hey guys, thanks for taking my questions. Ron, I'm curious in Q4, if you could maybe just on the revenue guide, maybe break it out a bit between the top 10 and non top 10. I know last quarter, like you said, you expected the non top 10 to accelerate. It looks like they accelerated a bit more. I guess the prior commentary suggested in my head top 10 customer revenue declines were about 30% in Q4. Speaker 1100:53:44Is that still the expectation or is it a bit lower, a bit higher just based on what you saw in Q3? Speaker 300:53:51Yes. I mean, without specifically quantifying, I think we do expect to see some additional headwinds with certain of our largest customers going into Q4. It's reflected in our guidance. That likely will bring down that concentration a little bit below what we saw in the Q3. And I think what we will see is continued strong growth relative to maybe what we've seen in Q2 and Q3 continue into the Q4. Speaker 1100:54:26Okay. And at this point in time, I guess, do you feel like Q4 is the likely last contraction in the top ten revenue or maybe potentially some more in the first half next year? And then on gross margins, even if I adjust for the 90 basis point benefit that you had in Q4 last year, still you're guiding to about 200 basis points of a decline or compression in your gross margins in Q4 this year. Could you just maybe unpack that a bit, what's driving it and just how should we think about gross margins into 2025? Speaker 300:55:02Yes. I think in your first question, I think we do believe we've moved past kind of the worst of some of the impacts from our largest customers. We certainly dramatically improved our visibility to their behavior, but there's still going to be some headwinds going into Q4. But I think we're nearing the end of those headwinds and declines we've seen amongst a subset of our largest customers. I think we've got a good strategy to keep a very strong position, which we have with those customers, and continue to see healthy growth outside of these largest customers. Speaker 300:55:37On gross margin, I think to your point, the other dynamic on top of some of those one time benefits is really the investment that we're seeing to drive increased bandwidth and colo deployments really associated with increased international traffic is one of the headwinds. And then we're seeing increased international traffic, which today typically has lower gross margins because our volumes are lower there. Although as we continue to grow that, there's an opportunity for us to bring those international gross margins more in line with what we see in our major markets. Operator00:56:17Your next question is from the line of Fatima Bawani with Citi. Speaker 1200:56:24Good afternoon. Thank you for taking my questions. Tom, can you speak to the composition of the top 10 customers today versus a year ago? I can appreciate that you've been very, very hard at work to diversify away from this group and have done a good job kind of growing outside of that. But just curious if you can give us some color on what the composition of that top 10 today is versus a year ago? Speaker 1200:56:46And then I have a follow-up as well. Speaker 200:56:50Sure. It tends to be very media heavy. That doesn't just mean streaming video, but it could mean folks in the gaming space and the bulk download space of one kind or another. And some of those organizations have additional business as well, attached that might look more like traditional web business, but of course it's all from the same account. Speaker 1200:57:18Got it. Ronny, you're kind of alluding to this and you've kind of discussed a number of factors around ongoing headwinds, but the magnitude of some of those headwinds maybe shrinking as we progress through into Q4 and maybe the start of next year. But when I specifically think about the net retention rate compression, when and where should we see this troughing out as it relates to what type of visibility you have in the business? If you can give us some kind of clues or some help or some guardrails on when we should trough out on the net retention rate compression trends? Thank you. Speaker 800:58:00Yes. I mean Speaker 300:58:01Yes, it's a good question. I think as we move into next year, and as I said, I think a lot of the headwinds from the large customers are behind us. Given that the NRR is done on an LTM basis, that's going to mute or slow kind of the growth out of where we see LTE and NRR. So I would expect that we would see some expansion as you move into sort of middle of the year and second half as you see some of the headwinds that we saw in 2024 drop off of the LTM calculation. Operator00:58:39Our final question will come from the line of Jonathan Ho with William Blair. Speaker 400:58:46Hi, this is Garrett Berkman on for Jonathan Ho. And thanks for taking my question. I'd like to go back to the security business, and just to get some additional color on where you're maybe seeing, some more success? And then on the flip side, where are you think things potentially slow just in terms of type of customer or any specific products? Thanks. Speaker 200:59:08Yes, I think the there's been a lot of success especially around the last part of our security portfolio where I really believe we have a technology advantage across the board. The efficacy of that product is really a cut above and it leads our users to be able to run it in full blocking mode and get really the full value, not just the alerting in the platform. We've seen a lot of loyalty there. And over the last year or so, we've really moved all of that technology to be fully enabled on the Fastly platform so that the power of our edge and infrastructure is now deployed there along with DDoS and Bot, we have very complete solutions. So I think that unification of the platform is driving a lot of our confidence here and then the way I see customers engaging with that WAF technology and now the add on of bot and adaptive DDoS prevention. Speaker 201:00:07I feel really good. I think it has the biggest upside outside of media, especially in places like e commerce, hospitality, travel, logistics, etcetera, fintech. And it has a real potential for us is this untapped penetration to our existing delivery customers. And so I think there's just a ton of upside and security. That's why it's going to be such an important focus for us in 2025. Speaker 801:00:40Thank you. Thanks. Operator01:00:45I will now hand the call back over to CEO, Tom Nightingale. Speaker 201:00:51Thanks so much. I want to thank our employees, customers, partners and our investors. We remain focused on execution and bringing long lasting growth to our business and delivering value to all of our shareholders. Thank you so much for your time and your attention today. Operator01:01:11This concludes today's call. Thank you for joining. You may now disconnect your lines.Read morePowered by