Good day. My name is Savannah, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Fastly Fourth Quarter and Full Year 2021 Financial Results Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. Please follow the operator's instructions. And I would now like to turn the conference over to Vernon Essi, Investor Relations at Fastly. Please go ahead.

Thank you, and welcome, everyone, to our fourth quarter and full year 2021 earnings conference call. We have Fastly's CEO, Joshua Bixby; and CFO, Ron Kisling, with us today. The webcast of this call can be accessed through our website, fastly.com, and will be archived for 1 year. Also, a replay will be available 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-K filing today, can be found in the Investor Relations portion of Fastly's website. During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, 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 most recent annual and quarterly reports. We encourage you to read these documents. Note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. Also during this call, we 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. Before we begin our prepared comments, please note that we will be attending Morgan Stanley's Technology, Media and Telecom Conference in San Francisco on March 7. Also, we will be hosting an Analyst Day on May 12 in New York City, and we will be releasing further details regarding this event in the coming weeks. With that, I'll turn the call over to Joshua.

Thank you, Vern. Hi, everyone, and thanks for joining us today. I'm very pleased with our fourth quarter results. We increased our revenue to $97.7 million, a 13% quarter-over-quarter organic increase. This is by far our highest sequential growth since Q2 2020 and represents our third fastest sequential gain since we became a public company. Our customer retention and growth engine is strong. Our Q4 DBNER remains very robust and increased to 121%, while our LTM NRR was 118%, up from 114% in Q3. We closed out the year with an annual revenue churn of less than 1% and an annual revenue retention rate of 99.2%. Fastly's value proposition to our customers is strong, and our execution continues to improve. I'm excited to share with you key developments that will continue to drive our execution, further enhance our product offerings, and differentiate us from our competitors. We've been retooling Fastly for the next chapter of growth, onboarding a number of new key executives in 2021. These include Chief Revenue Officer, Brett Shirk, early in 2021; Chief Financial Officer, Ron Kisling, midyear; and more recently, Chief Product Officer, Lakshmi Sharma; and Chief Marketing Officer, Margaret Arakawa. What all of these executives have in common is experience scaling complex businesses with highly relevant cloud, security, and go-to-market expertise from companies like Microsoft, Google, and VMware. The team is united in our common mission, which is to fuel the next modern digital experience by providing developers with a programmable and reliable edge cloud network that they adopt as their own. One of the best parts of recruiting new executives is to see how excited they are when they realize how truly differentiated our foundational technology is from our competitors and how much opportunity exists in our business for growth. Central to this excitement is the key role developers play in our journey and the new and expanding power of distributed edge compute and security. This all ties into the Fastly vision. We envision a world where all digital experiences are fast, engaging and safe for everyone. This vision sets the tone for everything we do. This is evident in our edge cloud network's core tenets: one, developers must be empowered to innovate; two, our enterprise platform must innovate ahead of market demands while still being reliable, scalable and secure; and three, we must provide exceptional flexibility and support. Fastly empowers developers at the moment of inspiration and ushers them on a journey to see their dreams come to life at the cloud edge with frictionless scale, security, and performance. We literally touch billions of lives every day with our platform. In the fourth quarter, one of the largest publicly traded user review platforms leveraged Fastly's compute network to secure cash APIs to crowdsource reviews about businesses for consumers all over the world. They are now able to deliver great experiences and iterate quickly at the edge to accelerate their time to market with new features. We are relentlessly innovating on our platform to anticipate market demands. Our platform is highly programmable, agile, fast, secure, built on open standards and can scale at lightning speeds. These are very big differentiators relative to our competitors. Our delivery business, which is underpinned by our delivery portfolio, including our content delivery network, or CDN, remains one of the fastest in the world. In the quarter, our worldwide network remains on average 30% faster in the U.S. and Europe than our largest competitor in most countries and regions as measured by independent real user data. Fast delivery is critical, but so is efficient scale. The efficiency of our nearly 200 terabit per second global network is very hard for others to replicate. In the fourth quarter, we signed a Fortune 500 American mass media company for a lighthouse project built on Fastly's edge cloud network. Fastly allowed them to speed up their mobile application by pushing content closer to users and serving images faster from the edge. Fastly's software-defined network, which powers our efficiency, remains a key differentiator. While our network delivers nearly half the traffic of our largest competitor at peak, we are running on 98% fewer servers based on data from their website. We truly are enabling the next technological revolution. You can call it whatever you like; it's all about distributed, fast, scalable, and secure experiences, and we know it's in increasingly higher demand from our customers. This quarter, we would like to share with you some key principles underpinning our high-level product strategy. One, we are built by developers for developers. Two, we have the fastest and most reliable programmable edge. Edge programmability is becoming a key decision-making criteria for enterprise buyers. And third, confidence inspiring security everywhere. Our network is uniquely architected to enable modern security. For example, in the fourth quarter, a global Fortune 500 insurance provider switched to Fastly after having issues with their legacy solution. Migration over to Fastly's Next-Gen WAF gave them the flexibility to deploy the solution both on-premises and in the cloud. This deployment formally completes the integration of Signal Sciences' industry-leading WAF. The customer response has been great. We look to the Next-Gen WAF announcement and customer examples as the first in a string of many in 2022 that will be geared towards product execution and customer success. The team is excited about the opportunity that lies ahead in 2022. I look forward to sharing with you further updates on our success when we meet up at our Analyst Day in May, where we will provide key updates on our long-term goals regarding product and go-to-market strategies.

Thank you, Joshua, and thanks, everyone, for joining us. I'm still relatively new to Fastly, and I'm happy to share our financial results and outlook with you on this, my second earnings call at Fastly. I'm excited about the opportunity here at Fastly, and the opportunities our differentiated technology gives us to drive growth and deliver fast, engaging and safe digital experiences for everyone. We're building a strong team in finance to support Fastly in executing on our goals and the vision Josh has just discussed. Today, I will discuss our financial results and business metrics, and then review our forward guidance. Total revenue for the fourth quarter increased 18% year-over-year to $97.7 million, exceeding our guidance by 7% over our guidance midpoint. In the fourth quarter, revenue from Signal Sciences products was 11% of revenue, an increase of 58% over Q4 2020. For the full year 2021, total revenue was $354 million, up 22% year-over-year. Revenue growth was driven in part by products acquired from the Signal Sciences acquisition and increased adoption of our modern edge network end products. Our dollar-based net expansion rate, or DBNER, increased from 118% to 121% sequentially. We believe DBNER is a key metric in measuring the long-term value of our customer relationships. It is calculated on a trailing 12-month basis. Our trailing 12-month net retention rate increased from 114% to 118% sequentially. Our annual retention rate was 99.2% and is reflective of a very low customer churn of less than 1%. As of December 31, 2021, we had 2,804 customers, of which 445 were classified as enterprise, those customers with revenue exceeding $100,000 over the previous 12 months. Our total customer count grew 21% over December 31, 2020, and we added 56 net new customers and 15 net new enterprise customers in the fourth quarter. Enterprise customers accounted for 88% of total revenue on a trailing 12-month basis, in line with their contribution in Q3 and increased their average spend to $704,000 from $698,000 in the previous quarter. We also saw a reduction in revenue concentration as we grew our customer base, with our top 10 customers comprising 33% of total revenues in 2021 compared to 38% in the previous year. Turning now to gross margin, our gross margin was 55.8% for the fourth quarter compared to 57.5% in the third quarter. We did not see an increase in price compression across our customer segments in Q4. Operating expenses were $66.3 million, up 7.7% over Q4 2020. Our operating loss for the quarter was $11.7 million, driven by higher revenues. Net loss for Q4 2021 was $11.7 million, or a $0.10 loss per basic and diluted share compared to $10.5 million and a $0.09 loss per basic and diluted share in Q4 2020. Turning now to the balance sheet, we ended Q4 2021 with $1.1 billion in cash and cash equivalents. Our capital expenditures were 7% of revenue in the fourth quarter and 14% for the fiscal year 2021. We expect our capital expenditures in 2022 to remain at 12% to 14% of revenue. I will now turn to discuss our outlook for the first quarter and the full year 2022. Our first quarter and full-year 2022 outlook reflects our ability to deliver strong top-line growth via improved customer acquisition and product enhancements. For the first quarter, we expect revenue in the range of $97 million to $100 million, representing 16% annual growth at the midpoint, with a non-GAAP operating loss of $15 million to $18 million and a non-GAAP loss per share of $0.13 to $0.15 per share. For the full year 2022, we expect revenue in the range of $400 million to $410 million, with a non-GAAP operating loss of $60 million to $70 million.

Thank you for taking the question. In reference to Q4, the sequential growth seems to be pretty good. As we look to the full year guide, Ron, you alluded to it in your script that it’s early days. But can you provide some insights on the basic equation of Fastly being traffic growth, minus price erosion, plus share gain or share loss, and I guess we have Signal Sciences on top? What are your starting assumptions across each of those four variables for your 2022 guide?

One, to level set, our business is usage-based, and that is reflected in our results. As we look at it and particularly seeing what came off of Q4 is increasing usage across key customers and growing our customer base over the course of the year. We expect to see growth across all of our segments, particularly in our security business, which has been a significant focus in discussions with customers. I would expect that trend to continue as we add new customers.

Yes. We outlined two operational goals for the Compute@Edge program. The first was transactional volume for 2022 and the second was developer growth. We launched some important programs at the end of Q3, which continued to grow in Q4, such as the credit program we offered to customers, which was very successful. Regarding developers on our platform's trial free tier, that success is critical because developers are the decision-makers. We will provide updates on both of these metrics during the Analyst Day in May.

I wanted to come back to the top line growth. You're showing an 18% top line growth in Q1, and you're guiding below that. You're saying that Signal Sciences will see better growth in the year. Where are you being cautious on the growth rate guiding where you are?

I think more broadly speaking, when we approach guidance, we consider our usage-based business and some volatility. Our Q1 revenue guidance reflects year-over-year growth of about 16% and in the full year kind of at 14%. Seasonal trends indicate that Q2 typically sees flat growth before an uptick, while Q4 is usually mid- to high single digits. We will gain additional visibility as the year progresses.

Maybe I want to build on the last thing you just mentioned regarding new products across security. As you're thinking about new investments for security, are there areas in the portfolio you should be adding to, or do you prefer more partnerships?

What we're hearing is a real focus from our customers on the web and API side of the business. If you think about our portfolio, we are looking at investing in the areas of DDoS protection, TLS, and WAF, plus bots. We're doubling down on that and will focus on the web API mobile application buyer in 2022.

Just trying to understand how much of the capital expenditure is customer-driven versus addressing potential supply constraints? When should we expect to see efficiency flow through the CapEx line?

We generally expect CapEx as a percent of revenue to align with previous years at 12% to 14%. Our accelerated CapEx was necessary to maintain adequate availability of equipment amidst supply constraints. We expect to see some efficiencies from our next-generation architecture driving down operational costs in 2023.

The network capacity side impacts our ability to utilize more bandwidth effectively. We want to drive up utilization, not just expand overall capacity. The demand is high, and we will invest while maintaining a measured approach to our expansion.

Joshua, with respect to the enterprise sales organization build-out under Brett’s leadership, what exactly is being done differently, and how should that manifest in the metrics we monitor?

A significant change we're making is leveraging the channel, shifting towards a partner-based organization. We're making adjustments in territory organization and the skills of our sales team to better sell our full edge network solutions, expecting that will translate into an increase in enterprise customer count. Before we sign off, I want to thank our employees, our customers, our partners and our investors. We remain as committed as ever to fueling and securing digital experiences. Moving forward, we remain focused on execution, bringing lasting growth to our business, and delivering value to our shareholders. We look forward to connecting with many of you and hope to see many of you at the upcoming conference and our Analyst Day in May. Thank you.

This will conclude today's conference. Thank you for your participation, and you may now disconnect.