Good afternoon. My name is Julian, and I'll be your conference operator today. At this time, I'd like to welcome everyone to Fastly's First Quarter 2023 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. Thank you. I'd now like to turn the conference over to Vern Essi, Investor Relations at Fastly. Please go ahead.

Thank you, and welcome everyone to our first quarter 2023 earnings conference call. We have Fastly's CEO Todd Nightingale 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 one year. A replay will be available by dialing 800-770-2030 and referencing conference ID number 754-3239, shortly after the conclusion of today's call. A copy of today's earnings press release, related financial tables, and investor supplement 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, 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, please refer to our most recent Form 10-K and Form 10-Q filed with the SEC and our first quarter 2023 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. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. 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 two conferences in the second quarter: William Blair 43rd Annual Growth Conference in Chicago on June 6th, and the BMA Global Technology Conference in San Francisco on June 8th. We will also be hosting our Investor Day on June 22 at the New York Stock Exchange. With that, I'll turn the call over to Todd.

Thanks, Vern. Hi, everyone, and thanks so much for joining us today. First, I'll give a quick summary of our financial results and first quarter highlights and then provide a brief update on our product strategy and go-to-market motion before I hand the call over to Ron to discuss the financial results and guidance in detail. We reported record first-quarter revenue of $117.6 million, which grew 15% year-over-year and declined 1% quarter-over-quarter. I'm pleased that we exceeded our guidance range and were able to maintain healthy revenue during a typically weaker quarter due to seasonality. I'd like to congratulate the Fastly team on closing out a solid Q1. However, as I said last quarter, I believe there remains an opportunity for us to outperform this level in 2023 and beyond. Our customer retention and growth engine remains strong. Our LTM net revenue retention was 116% in the first quarter, down from 119% in Q4, but gaining ground compared to 115% in the year-ago quarter. Our dollar-based net expansion rate was 121% in the first quarter, down from 123% in Q4, but expanding compared to 118% in Q1 of last year. Both of these metrics have shown seasonal headwinds in prior years, and despite the declines, they continue to indicate healthy expansion efforts within our existing customers. To provide more visibility into our current performance, we've changed some of our metrics definitions. Our new total customer count methodology calculates the number of customers based on quarter-end revenue instead of month-end revenue. Our new enterprise customer count is now based on customer spending $25,000 in revenue during the quarter, instead of revenue in excess of $100,000 over the trailing 12 months. Accordingly, our average enterprise spend is based on this newer annualized approach. Ron will have more detail on all of these changes, and we will provide legacy metrics for the next 12 months. Our average enterprise customer spend was $795,000, representing a 3% quarter-over-quarter decline but up 5% from $758,000 compared to Q1 of last year. We've seen continued success expanding our wallet share with customers as we’ve aligned our teams to be more focused on customer success and customer journeys as they grow into our complete product portfolio. Similar to last quarter, we saw continued strong momentum in our Next-Gen WAF portfolio with both upsell success and new logo wins in standalone sales. Of course, we anticipate over time having the opportunity to sell these new customers our network service delivery as well as computed edge and observability modules. I'm excited to share some important new strategic wins and key expansion verticals for us. We saw our first win at Frontier Airlines, continuing our momentum in travel and leisure. The first quarter marked five new logo wins in healthcare and life sciences, highlighted by our first win at CareRev, a staffing platform for healthcare professionals, and also at HealthSherpa, a solution that helps individuals connect with the appropriate healthcare coverage. We're also seeing momentum in the privacy and cybersecurity vertical with four new logo wins, most notably with Google for their private browsing solution. Our total customer count in the first quarter was 3,100, which increased by 38 customers compared to Q4 and 135 year-over-year. Our gross margin was 55.6% for the first quarter, representing a 140 basis point decline quarter-over-quarter, but a 300 basis point increase year-over-year. I'm pleased with this result as a significant amount of our fixed costs need to be sized for our peak traffic. We're continuing to rigorously work on our cost of revenue and finding savings with increased peering network optimization and other initiatives that will continue through 2023. On a quick note regarding our spending pattern, Q1 operating expenses were lower than anticipated by about $2 million. I was pleased to see the effects of rigorous cost control keeping our teams budget-conscious. Of the $2 million underspend, roughly half was due to cost controls and management, while the other half was due to the timing of certain expenses, which we anticipate will push into the second quarter. In Q2, we do expect some operational expense headwinds including merit increases and some seasonal marketing event expenses. However, we also expect a one-time credit to operational expenses from a sales tax refund, a result of the financial rigor and diligence our teams have been applying to our processes over the past few months. Regardless, the first half of 2023 is coming in as expected, as Ron will discuss in detail later on the call. As you will see in the detailed guidance, even excluding our one-time tax benefit, our operational expenses are growing far slower than the top-line, as we reconfigure our business for sustainable long-term growth and we plan to continue that trend into the second half. Now, on to our business highlights. During the quarter, our durable innovation engine shifted into gear, and we expanded our product roadmap and feature set. There were several new technology releases, including our config store that empowers developers to create even more responsive and personalized experiences. I'm excited about how this will help us accelerate our compute-led business. We launched the beta of the Fastly Oblivious HTTP Relay. This component of the Oblivious HTTP architecture allows the receipt of critical request data from end users without any identifying metadata, ensuring user privacy. In the first quarter, we launched a managed security service to protect our enterprise customers from rising web application attacks. This service gives our customers direct access to the security monitoring our teams are already providing to secure our existing infrastructure. We're also anticipating our new simplified packaging launch later this quarter, but have already seen three early customer wins. Moving on to our go-to-market developments, we introduced a new partner program to deliver greater value for customers and partners in our global network and to provide partners access to our entire portfolio. This program features a new tiered model with simplified pricing and discounting that we expect will help streamline our customers' onboarding and greatly simplify our quoting and discounting process. The new program received a CRM 5-star rating. Our first quarter was also exciting at Fastly since we live-streamed the Super Bowl, providing a platform to showcase some of our differentiated capabilities. During the event, our streaming bandwidth peaked at a record 81.9 terabits per second, supported by our automated traffic routing systems, autopilot and precision path. The event was executed with less human involvement and utilized our infrastructure much more efficiently than in previous years. Marquee live events have always been a strength at Fastly, backed by our monitoring service offering real-time observability and telemetry capabilities. We're engaging with significant sporting event opportunities in international markets, thanks to the success of the Super Bowl. As I mentioned earlier, Google selected Fastly as their Oblivious HTTP relay for its privacy sandbox initiative, FLEDGE, designed to enhance online privacy for Chrome users by protecting user privacy against third-party online tracking. To date, we're the only partner in this effort, and we will continue innovating in browser security and privacy spaces. We've implemented structural changes to our processes and realigned our teams into functional groups, yielding success across our strategic initiatives, and most importantly, reflecting success in our financial results. So far, I'm pleased with the progress we're making in 2023. I'm glad to see that our projections have been holding, and our team's diligence in planning is yielding accurate projections. We expect to maintain our annual guidance both above and below the line and hope to find ways to outperform that guidance through strong innovation velocity and strategically lowering friction in our go-to-market efforts. As I mentioned last quarter, I shared the excitement I have for this team and its potential. I believe an enormous opportunity exists to simplify our offerings to make it easier to deploy web technology worldwide, target a larger segment of the mid-market, gain customers at a faster rate with a motivated partner channel, and attract the best talent from the cloud community. Our customers are passionate about Fastly solutions, and our employees are enthusiastic about our mission to enhance the internet experience, making all experiences fast, safe, and engaging. Let me close by saying how excited I am about the road ahead. Of course, there's plenty of work to do, but I believe digital experiences will drive our mission and define the success of organizations everywhere, and Fastly will significantly impact how these digital experiences are created and delivered globally. I look forward to sharing more with you regarding our progress, our focus on fueling growth, customer acquisition, and our velocity of innovation in the upcoming quarters and at our investor conference in June. I’ll now turn the call over to Ron.

Thank you, Todd. And thanks, everyone for joining us today. I will discuss our business metrics and financial results, followed by our forward guidance. Note that unless otherwise stated, all financial results in my discussions are non-GAAP based. Total revenue for the first quarter increased 15% year-over-year to $117.6 million, exceeding the top end of our guidance range of $114 million to $117 million. In the first quarter, revenue from Signal Sciences products comprised 13% of total revenue with a 24% year-over-year increase, or a 20% increase excluding the impact of purchase price adjustments related to deferred revenue. Please note that we calculate growth rates from actual figures, and the percentage of revenue is rounded to the nearest whole percent. We continue to see healthy traffic expansion from our enterprise customers, and as shared in the past, we have relative exposure to smaller market segments where we benefit from share gains during typically seasonally weak quarters relative to the fourth quarter. This, coupled with the launch of our partner program, simplified packaging offerings, and investments in our go-to-market efforts, gives us confidence in our 2023 revenue guidance. Our trailing 12-month net revenue retention rate was 116%, down slightly from 119% in the prior quarter, but up from 115% in the year-ago quarter. We continue to experience very low churn of less than 1%, and our customer retention dynamics remain robust. As Todd stated, we had 3,100 customers at the end of Q1, with 540 classified as enterprises. Let me take a moment to discuss the changes we are implementing in our customer count metrics to provide more real-time visibility to the investment community. Going forward, we will classify a customer as enterprise if they generate $25,000 or more in revenue during the quarter, which equates to $100,000 or more in annual revenue. Previously, we reported our enterprise customer count based on LTM revenue using the trailing 12-month revenue of $100,000 or more to identify enterprise customers. Our new approach provides real-time information on enterprise customer acquisitions in the current quarter, allowing us to gauge our performance more accurately. To provide transparency, we will continue to report both the new and prior methodologies on a trended basis in our periodic reports and our investor supplement for all of our fiscal year 2023 reporting, intending to discontinue the use of the prior methodologies for 2024. Enterprise customers using our new methodology accounted for 91% of total revenue on an annualized basis, down from 92% in Q4. Our average spend per enterprise customer was $795,000, down 3% from $822,000 in the previous quarter, and up 5% from $758,000 compared to Q1 of last year. Our top 10 customers comprised 35% of our total revenues in the first quarter of 2023, a slight decrease from the 37% contribution in Q4 2022. Let me now turn to the rest of our financial results for the first quarter. Our gross margin was 55.6% compared to 57% in the fourth quarter of 2022, excluding the one-time adjustment in the fourth quarter. This sequential decline reflects our prior expectations that it would decline by 100 to 200 basis points due to seasonal impacts from holiday shopping patterns and live sports streaming viewership. As Todd mentioned, most of our fixed costs need to be sized for peak traffic, which results in improving gross margins as traffic ramps up. Operating expenses were $79.5 million in the first quarter, up 11% compared to Q1 2022 but down 1% sequentially from the fourth quarter. We encountered approximately $2 million in unfavorable operating expenses relative to our expectations. Half of this resulted from expense control measures, while the remainder stemmed from marketing expenses that will slip into the second quarter. This alignment combined with revenue above the high-end of our guidance in line with expectations, resulting in an operating loss of $14.1 million, exceeding the high-end of our operating loss guidance range of $18 million to $16 million. Our net loss in the first quarter was $10.8 million, or a $0.09 loss per basic and diluted share, compared to a net loss of $18 million or a $0.15 loss per share in Q1 2022. Our adjusted EBITDA for the first quarter was negative $1.9 million, compared to negative $7.8 million in Q1 2022. Turning to the balance sheet, we ended the quarter with approximately $664 million in cash, cash equivalents, marketable securities, and investments, including long-term classifications. Our free cash flow was negative $25 million, reduced sequentially by $15 million from the fourth quarter's negative $40 million. Most of this improvement was due to a decrease in advanced prepayments for property and equipment commitments. We do not anticipate any material future prepayments for equipment commitments. Our cash capital expenditures were approximately 8% of revenue in the first quarter, at the high-end of our outlook of capital expenditures of 6% to 8% of revenue for 2023. We expect quarterly capital expenditures to vary due to the timing of deployment but remain in line with our outlook for the year. Please remember, our capital expenditures include capitalized internal use software. Now let's discuss our outlook for Q2 and the full year 2023. Please remember that the following statements are based on our current expectations and include forward-looking statements. Actual results may differ materially, and we undertake no obligation to update these forward-looking statements, except as required by law. Our second quarter and full year 2023 outlook reflects our continued ability to deliver strong top-line growth via improved customer acquisition and expansion within our enterprise customers, driven by new and enhanced products. Our revenue guidance is based on the visibility that we have today. We expect expense growth to continue lagging revenue growth and anticipate meaningful improvements in our operating losses in 2023 compared to 2022. We are investing in our go-to-market efforts as part of our revenue growth initiatives to expand within our existing customers and accelerate new customer acquisition. We are also continuing our investments in product and R&D and see opportunities to drive greater efficiencies in our operations, especially across G&A, expecting to achieve meaningful leverage in our G&A costs in 2023 as these costs decrease as a percentage of revenue. Historically, second-quarter revenues are typically flat sequentially with the first quarter. However, in 2023, we expect to see a slightly better revenue trajectory into the second quarter. For Q2, we predict revenue in the range of $117 million to $120 million, reflecting 16% annual growth and 1% sequential growth at the midpoint. As mentioned, we are managing our network capacity for higher traffic and associated revenue anticipated in the second half of 2023. In Q2, we expect our gross margins to align closely with our first-quarter gross margins, within a margin of plus or minus 100 basis points. For the full year, we expect continued gross margin improvement in the second half, exiting the year with gross margins nearing 60%. We didn't observe any meaningful changes, either positive or negative, in our pricing trajectory during the first quarter compared to the prior quarter. We anticipate pricing to be lower in the second quarter than its consistent trajectory over the past four quarters; however, we expect it to return to normal later in 2023. This is due to increased delivery revenue from a major customer, with traffic ramping in the second quarter based on our fixed cost setup for peak traffic. Nonetheless, reductions in bandwidth costs and ongoing network optimizations should offset any pricing changes. As previously mentioned, we expect 2023 gross margins to maintain alignment with our current expectations. We generally experience a significant increase in operating expenses from Q1 to Q2 due to the ongoing impact of employer payroll taxes, annual salary increases at the start of the second quarter, and a concentration of sales and marketing events. Typically, we see significantly smaller increases in the second half of the year as the employer payroll tax impact diminishes in Q3, and the concentration of sales and marketing events decreases. Additionally, our Q1 operating results were approximately $2 million below our earlier projections due to expense control measures and a portion of marketing spend that shifted into Q2. We expect this trend to continue, with operating expenses increasing in Q2 relative to Q1, although partially mitigated by a refund of about $3.4 million related to an overpayment of sales and use taxes in prior years. Excluding this refund impact, Q2 operating expenses are expected to increase year-over-year by less than 10%, trailing our revenue growth. Consequently, in Q2, we expect a non-GAAP operating loss of $18 million to $16 million, and a non-GAAP loss of $0.11 to $0.09 per share. For the fiscal year 2023, we reaffirm our previous guidance, expecting revenue in the range of $495 million to $505 million, representing 16% annual growth. We expect a non-GAAP operating loss between $53 million and $47 million, reflecting a negative operating margin of 10% at the midpoint compared to a negative operating margin of 18% in 2022. Additionally, recent interest rate increases have resulted in a significant uptick in interest income on our cash and investments, which we expect to reach approximately $20 million in 2023. Before we open it for questions, we would like to thank you for your interest and ongoing support in Fastly.

Our first question comes from Fatima Boolani from Citi. Please go ahead. Your line is open.

Hi, good afternoon. Thank you for taking my question. Todd, I'll start with you on the Google win, as it seems like an important beachhead with a marquee customer. I was hoping you could share the contours of this win and the mechanics behind why you are the sole source provider of the private relay in the browser security space? Additionally, can you and Ron provide some insight into what the contract looks like and some of the financial implications both in the near term and medium term? I have a quick follow-up.

Sure. Thanks for the call. Thanks for the question. Yes, this deal results from a robust partnership between the Fastly and Google teams, highlighting our aligned missions to add privacy to the browsing experience—making the web experience faster and safer. The necessary infrastructure was already established, and we had previous experience with private browsing technology through other partnerships. Fastly made the best proposal, establishing itself as the obvious partner for this effort. We have been incredibly focused on security over the past couple of years, and I view this as a landmark win for the team. I'm excited to be the sole source in Google's architecture here, which stems from performance and ease of technology onboarding. Ron?

Yes, regarding the deal, we have initiated a couple of privacy browser engagement instances that leverage our technology well. These are high-margin businesses that contribute positively to the overall revenue. This presents an opportunity to expand within those customers and seek additional growth avenues from what I would consider contributions of nice revenue to potentially meaningful revenue over time with those customers.

Thank you. I think I lost you there. On the pricing commentary, you mentioned a specific transaction that would bring some pricing fluctuations, impacting the interim period. Could you comment on any large renewals within the base that might also face similar downward pressure, especially considering your customer concentration and commentary indicating a slight decline? I'm curious if this is limited to one-off large customer transactions or if there are others on the horizon.

That's a good question. The one we mentioned was unique, stemming from a consolidation of suppliers, leading to a significant increase in our traffic levels. Thus, our pricing was less affected by typical annual renewal price discounts and more by traffic volume from this particular customer. One point to note is that we've recently seen a couple of quarters where our annual rewrites or discounts have decreased compared to historical norms. As we move forward, while I can't identify any specific renewals, I anticipate that market alignment and customer demand for efficiency might change over time.

To follow up, how are you approaching larger deals to be more price disciplined? What is changing in your operations to maintain those margins, and are there any additional capabilities you are offering to customers that you think could benefit larger streaming or web players?

Great question, and something we've been examining closely. As we analyze LTM net revenue retention and growth within existing customers, we are seeing success driven by portfolio expansion with security, compute, and observability. Customers often take the opportunity to explore our offerings during renewal periods. This shift supports a more favorable negotiation stance and strengthens our role as a strategic partner. While the internet continues to provide increased bandwidth at a diminishing cost annually, the expansion of our offerings allows us to maximize customer engagement during renewals.

To add on the renewal cycle, we often see that as an opportunity for significant expansion. These renewals not only provide potential pricing shifts but also correlate with increased product portfolio adoption or rising traffic levels, leading to expansion. Moreover, our network efficiency has significantly enhanced our ability to handle additional traffic without compromising margins.

What are you observing in the macro environment? Are there shifts in either sales cycles or customer commitment that reflect current trends?

We've been actively monitoring the macro effects on our business. Notably, our exposure to financial companies and service providers is minimal, which insulates us from broad market fluctuations. In terms of deal cycles, while there are some variations, we have not observed significant changes. Many of our larger strategic clients are pursuing vendor consolidation, which typically benefits us as a recognized performance leader, especially as customers aim to minimize vendor relationships for operational efficiency.

I would agree with that. Our core service is critical for businesses, and organizations are looking to enhance their efficiency. While deal cycles may have minor variations, we've observed that larger deal closings are progressing quickly.

Regarding the changes to our enterprise customer count and revenue methodology, we were advised by investors that our previous metrics felt very backward-looking. Moving to a real-time perspective allows for better insight into current performances, especially concerning new enterprise customer acquisitions. Starting this quarter, both methodologies will be transparently reported to maintain accuracy.

Can you walk us through how the new packaging differs from the previous approach and provide updates on its adoption along with the existing partner program?

Historically, Fastly operated predominantly on a utility model, where features were purchased separately. This worked for strategic clients who favored detailed tuning and cost analysis. To streamline this process for a broader market, we introduced product-line-based packages that offer comprehensive options in content delivery, security, observability, and edge computing. Each package comes in three tiers, offering customers predictable billing and easing the onboarding process. Feedback has been positive, and we have an exciting launch upcoming this quarter. I’m optimistic about the impact this will have on our channel partners as it simplifies transactions and enhances revenue potential.

Just to clarify, does the new packaging model represent a subscription base rather than a utility-or usage-based model? Will this impact growth in the short term due to this transition?

The impact should be neutral. Most customers adopting this will be new clients, while our larger enterprise customers will likely continue with the existing model. Over time, the transition will reduce revenue volatility and contribute to more predictable revenue streams.

Could you provide insights on how vendor consolidation dialogues proceed? How many vendors do organizations look to streamline, and can new pricing models facilitate these consolidations?

Vendor consolidation discussions often arise for multi-CDN customers. Our new pricing packages are not tailored for that segment, where utility billing is favored. Customers typically measure performance on key metrics and choose to eliminate vendors who fail to meet those metrics or prove too costly. Fastly has succeeded in this context due to our performance-led approach focused on customer satisfaction. As we focus on improving gross margins, we continue to identify efficiencies in our network and negotiate favorable bandwidth prices as our traffic levels rise. We're dedicated to making our infrastructure increasingly efficient, reducing hardware needs and overhead, and reaping immediate benefits for both gross and cash margins.

Could you provide an update on your Next-Gen WAF and observations related to your observability product?

The Next-Gen WAF is a vital component of our security offerings. Its primary differentiator is its accuracy; nearly 90% of clients utilize it in full blocking mode as they trust it to filter out threats without impacting legitimate users. I believe this is an essential area for growth. Regarding observability, we focus specifically on edge observability to provide critical metrics directly from the edge to enhance our customers' performance analysis. We’re seeing nascent customer interest, though it remains early in its development.

Our last question will come from Jeff Van Rhee from Craig Hallum. Please go ahead. Your line is open.

Any quantitative goals you can share on your channel partner push? What would signify success in this endeavor?

While we aren’t disclosing specific channel data, long-term, I aim for over 50% of our business to flow through the channel, integrating expertise from system integrators to enhance customer experiences and streamline onboarding. Achieving that threshold would indicate healthy channel dynamics and collaboration.

Could you comment on customer trends you’re observing for growth? There seems to be a deceleration in recent quarters. What is your outlook on customer additions?

I'm closely monitoring our customer acquisition trends. We believe there's ample opportunity to refine this motion, particularly focusing on deal registration for our partners. I'm confident that our partner program can significantly support customer growth by simplifying onboarding and attracting smaller clients seamlessly.

We have no further questions. I would like to turn the call back over to Todd Nightingale for closing remarks.

Thank you all for your time! I’d like to take this opportunity to thank our employees, customers, partners, and of course, our investors. We remain committed to making the internet a better place, where all experiences are fast, safe, and engaging. Moving forward, we are focused on executing our plans, achieving growth, and delivering value to our shareholders. Thank you so much!

This concludes today's conference call. Thank you for your participation. You may now disconnect.