Conference Transcript - FSLY 2026-06-02

Jonathan Ho, Analyst — William Blair

Friends in today's session with Fastly. My name is Jonathan Ho and I'm the cybersecurity analyst for William Blair. Our speaker today is Rich Wong who's the CFO of the company. Before we begin I'm required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at www.williamblair.com. As a reminder the breakout session will be held in this room following the presentation and so yeah with that I'll hand it over to rich to do a brief overview of the company and then we'll follow up with a brief

Rich Wong, CFO

fireside chat thank you great thank you for coming i really appreciate it i think we're the last presentation for the day so really appreciate you sitting through this as mentioned rich wang the chief financial officer i've been with fastly since august of last year i'm very excited to be here i had spent my career in tech and so had been a two-time cfo before this and then had you know done some time across like Wall Street and investment banking and a number of other companies you know before we open I do have kind of the forward-looking statements disclosure I'm not gonna read this here but I just want to make sure that it's available and you guys take the time to read it at your leisure if you want to fall asleep before I began I thought maybe I'd start with a high level about Fastly and what we do so Fastly we are an edge cloud platform company we we serve from the edge our mission is to really make the internet a better place where all experiences for users are fast safe and engaging I just think that like the edge plays a very unique spot in terms of delivering internet traffic across the world and we play this you know in this role at the edge some of the stats about us you know we have last 12 month revenue of 653 million dollars with the most recent quarter growing revenues at 20 percent year on year and this revenue growth and this revenue number is across three different business you know product lines that we disclose we have a delivery services revenue we have security revenue and then we also call other which is a combination of our compute plus observability we play in a very large TAM and so we talked about a $22 billion TAM in 2026 for those three business lines we also have over 600 plus customers that we define as large customers large customers is defined as customers with over a hundred thousand dollars annualized revenue in the quarter and then we have a pretty global employee base of 1,100 employees around the world and then a last 12 month NRR of 113 percent we're very proud of the last box on the bottom this is kind of some of the customer stats around what we do for our customers we do it with a 95% plus CSAT score processing over 5 trillion average daily requested you know request served and then we if you look at performance from a business perspective we outperform our competitors with a 32 percent faster time average time to first bite than other CDN providers we play in you know as mentioned the 22 billion dollar market we believe it's a large and growing addressable market and we have a unified platform so whether we're serving delivery traffic or we're doing security on our network or we're doing compute on our network it's one network that we support and we think that having that unified platform makes us better from a technology perspective it makes our customers have a much better customer experience and then we're seeing some pretty good tailwinds with internet traffic and especially with ai trends that are happening in the industry i think that you know the combination of continued traffic growth more moving to like live streaming you know streaming events as well as more transactions process on the internet as well as kind of the ai tailwinds that we're seeing out there provides a a unique opportunity for the edge. We are mission critical to a lot of our customers. We are very vital for what they do on a day-to-day basis, whether it's their monetization strategy, whether it's their consumer experience or enterprise experience, we are mission critical to our customers. And then I think what's really important is that we have multiple levers for continued growth in our business. And then if you look at us versus our competitors, leaders, we are a clear market leader with a differentiated technology. We win where performance matters. Our customers choose us because of performance requirements, and so definitely something that we're very proud of. I think I mentioned on the kind of tailwinds that are supporting us, I think you started first with the first box here where there is more traffic growing on the internet today, you know, greater coverage, a lot of like service affordability out there, you know, 4K TV dominance. And so you start seeing a lot of more access and more pixels kind of going across the internet. And then you combine it with like what we see around like peak events, downloads, right? Like you see like big gaming platforms doing downloads that are big, massive files, a lot more live events. And then more and more the market and traffic is transitioning from like, you know, what we've seen in the past to more AI generated content, AI queries, et cetera. And so we think this growth plays in our favor. We think that 2025 traffic growth was in the order of 15.4% year over year, and we reached almost like 33 exabytes per day. So definitely good tailwinds on the traffic growth and the reasons why traffic is growing on the internet. For those who are not as familiar with the story, this will help kind of position you know with the edge cloud I mentioned that we are an edge cloud platform company you see us playing in the middle between the central cloud and the end users so think of the central cloud as where the hyperscalers play right they have big massive data centers those big massive data centers are in remote locations where power is cheap and space is cheap and but they're not close to the end users and so for people to hit the internet and hit those hyperscaler data centers they leverage technology that us edge cloud providers provide so we started first with edge you know the content delivery network where we cache big files on the edge and then you know more and more you see security moving to the edge where we're the first points of entry to the traffic and we can block and provide more intelligence to that traffic right and so security plays a big role in that and then more and more compute will happen so if you look at the central cloud and the edge cloud we're kind of synergistic like we partner with the the central cloud players the big hyperscalers because you know those are far remote locations and the customers need a better user experience we also help lower costs for our customers right because those customers save on egress traffic that goes to the central cloud if the central clouds are far away there's a lot of bandwidth costs that end up happening and if we're caching the content or we're providing more security and blocking that traffic to even entering the central cloud we're saving our customers lots of money so the edge cloud plays this unique role that helps improve the user experience from an end user experience and then it also kind of saves the customer a lot of money from egress traffic if you think about what's better done at the edge you know now that you see how the edge plays with the central cloud the first use case of the edge cloud was the content delivery network right content and application delivery you know that was kind of the first use case that was you know where a lot of time was spent years later they've realized that hey all the traffic is going through the edge cloud if we can layer in intelligence and provide security at the edge that's an even better value proposition and so more and more companies have moved from just purely content delivery into security and then I think that with agentic and where things are moving towards compute will also be done at the edge and so I do think that it's still very nascent and very early but it is a good tailwind and another better use of the edge cloud and then because you're managing traffic as it comes into the internet there's a lot of observability tools that can be used as well so I think that you know from a use case perspective these are the four big use cases of the edge this is how we divide up our business and then when we disclose our revenues we disclose it as delivery services security and then we put compute and observability as other the reason why these are really strong use cases for the edge is because you know speed matters a lot customers do not have the patience to wait to load pages and they don't want to make transactions or make purchases where speed is slow i think what else matters is that in this world of like real live news updates um think like new york times and election nights right you need very fast like purging technology which allows you know more personalized dynamic content being displayed um so you know these content delivery networks like us you need really good technology because the content is very dynamic in the world of social media in the world of um you know personalized content across the web you know if you're going on a shopping site you're going to get recommendations on what else to buy and so everyone needs personalized experiences having a edge provider who can provide configurability is really important and then i think that you know the reason the edge is being used is because of resiliency and mission control when you have a central cloud that houses all your data center information back there like you know if you're under a ddos attack or you're under like a different events having multiple pops at the edge and blocking traffic and, you know, providing more resiliency because you're distributing your content across multiple pops is a much better experience. And so people choose the edge for resiliency and mission control. And then, you know, I talked about enforcement and security. Like if you can enforce security at the edge, even better, right? It's a much better experience. You're blocking information or you're letting in the right players. And then I also talked about lower cost. Being at the edge allows a lot of the customers that we have from save save them from egress traffic our footprint today we have 167 pops throughout the world delivering 578 terabits per second if you compare us versus our competitors what you will notice is that we have fewer pops but much more powerful pops and the powerful pops enables us to have better performance and then you know it's you know our pops are very software configurable and very programmable using off-the-shelf products and so it is a very much more capital efficient and you know better way to run the network versus our competitors you know we were formed 15 years ago based on a very modern architecture I think you know we were founded by a chief technology officer so Arthur Bergman you know came as the CTO of Wikia he has always been very focused on the customer experience and on being technology first as a result of that we are recognized by analysts and investors as our customers as one of the better products out there right and so you know we are constantly listed as a leader in the spaces we play in we've won customers choice award seven years in a row and so across the different number of categories we tend to win awards because we do have a you know a higher performance and better product out there so we are recognized by industry analysts and experts when you think about like the product the revenues that we have it cuts across the three kind of circles that you see here where network services is 73% of our revenue that's the content delivery side of the business that's growing 11% year-over-year our security has been kind of the bright spot 22% of our total revenues that's growing 47% year on year. That's also the fifth consecutive quarter of accelerating revenues in our business. You know, 24 18 to 24 months ago, we had one security product. And now you see the five security products we have today. So that's really evolved and definitely helped see continued acceleration across our security products. And then other is a little bit more nascent I mentioned compute and observability. That's about 5% of our business and that's growing the fastest at 67% year over year. That continues to also grow on a year-over-year basis and so we're definitely from me continue to invest in our core business which is network services but we have growth drivers across security and then we have kind of you know areas that we're playing with because in the future we do think that compute will play a bigger part. I mentioned you know some of our growth drivers but being at platform play is definitely very helpful and nice like i think starting with content delivery but then layering in having five security products has helped us gain momentum across our business where you know we are delivering 20 year-over-year growth again um we have accelerated our r d momentum i mentioned 18 to 24 months ago having one security product with a laugh we now have kind of the full suite of five edge security products um you know launching ddos bot management api security and client-side protection you see across our businesses we're growing faster than the market you know in all three of our businesses and you see that because we are doing competitive takeouts with our customers and so you know we are winning where performance matters and we have a better go to market sales execution motion than we've had in the past and then I think with the other area that we're investing is international markets you know I think that if you look at what we've been doing especially in 2026 we've invested a lot in our apac region you know we have a new leader who's in singapore um prior to her joining we were supporting asia from our london office right and so you can imagine that experience being not as where it should be and so now having more feet on the ground in asia pacific region i think that is a definite opportunity to see that we're investing in POPs internationally. And so in that slide around our POPs, you've seen some purple circles where we're investing in, for example, Latin America this year because World Cup is going on, right? And so like we are continuing to invest internationally. You know, I went through some of the financial highlights. Here, you see the same numbers kind of repeated, I would say that if you focus on the bottom box, because the first three we've talked about, our record gross margin last quarter was 65% and so we had record margins in gross margins there if you look at what we've done on the last 12 month basis we've actually had incremental flow through on a gross margin perspective of 89% so every dollar of incremental revenue that we've generated we've flown 89% through to gross margins we are actually we're working really hard to increase customer commitments yes you know delivery services is a consumption-based business but it doesn't mean that we can't have RPO and so you'll see our RPO growing 63% year-on-year the last quarter at the three hundred sixty nine million dollars and then I think the the last one is we had 42 million dollars of last 12 month cash flow positive if you look at the last five quarters we've really turned a corner we've had now five consecutive quarters of free cash flow generation very proud of that if you look at full year 2025 we have had you know record gross margins and operating income so going to this page here you'll see our gross margins at 61% really picking up and then I mentioned last quarter in Q1 we had 65.1% gross margins and so definitely very proud of the momentum not only on the revenue growth that we're seeing but also on the gross margin flow through and the gross margin contribution that we are we are having and then if you look at the OPEX leverage over time we're definitely doing that by making sure that we are judicious you know we're investing in you know r d we talked about r d velocity but yet you know we were able to still reduce costs and still deliver continued product innovation around security products we were able to deliver incremental sales on you know with lower sales and marketing expense um you know for in 2025 and so very proud of the operation operating expense leverage we had and as a result of this what you're seeing is is the blue and dark blue boxes moving positive, right? We've had a full year in 2025 of operating profits, and we had a full year of free cash flow positivity. And if you look at the quarterly box, it's five consecutive quarters of free cash flow generation, and we have continued kind of operating income momentum across the board. So very proud of what we've done as a company and really excited about what's to come going forward, especially in the opportunities around traffic, traffic growth, the agentic opportunity, the compute opportunity, and the security opportunity in front of us.

Jonathan Ho, Analyst — William Blair

So with that, let's go into the fireside chat. Rich, thank you for giving us that overview in quite a bit of depth. One thing I think that investors really want to understand is just the strength that you've seen within the security business. What's maybe driving that and what capabilities have you added to allow Fastly to achieve that that stronger security growth yeah I would

Rich Wong, CFO

say that security growth would probably be a few factors right one is that you know we talked I talked about the product velocity right once you start going from one single security product which is the web application firewall and going to launch the full suite at five right and getting to parity with your competitors I think that R&D velocity opens up doors you know when you only have one product you get shut out of RFPs because you know customers customers will say, like, can I scale with you? And if you only have one product, it's hard to scale with you. So having the five products was very key because across like the edge security, now we are at parity with our peers. I think that's number one. I would say number two is that, you know, we really revamped our go-to-market execution, right? Scott Levitt had joined mid 2024. And, you know, prior to Scott, we didn't really have a security selling motion. You know, Scott came from Akamai, but he also spent time at Imperva, where he was doing security sales. So he brought in sales leaders who knew how to sell security. Selling security is a very different kind of motion than selling content delivery. And so having the know-how and then changing comp plans to be able to do cross-sell opportunities and kickers is really key. So I think that if you couple product velocity with go-to-market changes, that's kind of the two biggest drivers i would say the other big driver is like the proliferation of like the complexity of traffic over the internet right the complexity is happening more ddos attacks more bot management like more bots scraping the traffic um and then so i think just being having the right products at the right time with the right kind of like products is definitely a good tailwind in our favor so i would say two executional one and then a market dynamic has been helpful

Jonathan Ho, Analyst — William Blair

excellent excellent i mean in terms of ai i mean this has clearly been a top of mind discussion area you know where does fastly potentially benefit from agentic ai traffic and where does that maybe show up in the pnl like where which business units do you typically see that in

Rich Wong, CFO

um i mean i'd start first at the highest level which is like you know what how does agentic you know impact traffic flows across the internet is across the edge i would say agentic you know use cases are you know still early but I do think that it's going to increase traffic you know on the internet in general it won't increase on a gigabyte basis because AI traffic is gonna probably be small bits compared to like streaming or video but on a on a request per second basis on a you know like number of times it's getting pinging the internet it's going to be massive if the growth is gonna be so much faster and I think that that's gonna be a big now how does that impact our revenue lines you know starting first with security that's where we're seeing the majority like of the the impact from ai right now you know with the proliferation of ai like you're seeing more ddos attacks more bot management like if you're a customer and you're creating content so let's say you're new york times you know if ai traffic is scraping your your in your content like you're losing eyeballs which means less ad revenues or less subscription revenues so your monetization model is kind of at risk um so there's definitely a need for like bot management like what are good bots what are bad bots fastly help me block the bad bots who are scraping my content but not paying me for it um so with fastly we've adopted what we call it's the rsl the real simple licensing you know standard um and we're actually helping drive a lot of that too um and so i think we're seeing the initial kind of on the security side definitely more of the like ai traffic and how it kind of provides tailwinds I do think that you know compute is very early days I think that you know right now a lot of the AI is more inference inferences going back to the central cloud you know like the hyperscalers are building big massive GPU data centers and a lot of that is actually more about information gathering and information gathering does not require as much workload from the from the edge but as you move to agentic you get go away from information gathering and you give go towards execution and when you go through execution there's going to be orchestration that is required right like you're going to need to have like perhaps ten agents or five agents working on your behalf these agents will sit in different hyperscalers in different locations and orchestrating that work has to be done in a location and I think the edge is perfectly situated to really orchestrate that work across agentic right it's still early days like how many companies really have agentic apps out there right but I do think that when you start saying hey tell me what to do in new york for two days and you're doing information gathering that's not orchestration that's just information gathering that's the language learning models the frontier models but when you get to like hey work with a united agent to book my ticket and work with a uber agent to pick me up like there's going to be agents working on your behalf and doing execution well that orchestration needs to happen somewhere and you know i believe that it should happen at the edge i think the edge is kind of the right place to kind of do it because you need to be efficient about how traffic is kind of moving around the internet and then I think on the last piece we have network services you know like how does agentic impact our network services revenue I think that right now like a lot of us in the space we price on a per gig basis and I do think that there's opportunities to think through how we think about pricing and how we think about like the impacts there you know is that more on a request per second basis is it you know how do we kind of do that I think overall network traffic is going to increase because of agentic but how do we you know take advantage of the opportunity and i think

Jonathan Ho, Analyst — William Blair

that's still kind of you know we're not there yet that makes a ton of sense i mean i think around the ai topic the other major concern here is what's going to happen with mythos in particular and there seems to be a lot of talk about significant increases in known vulnerabilities that are going to be out there not all those vulnerabilities can be patched and so what role can your wap products play in maybe that opportunity um yeah so i think that you know we

Rich Wong, CFO

are big believers on like even like ai and how we can use ai to identify vulnerabilities i do think that um you know we've been very good about making sure that we have internal technology to like identify you know correlation and and traffic flows and figure out like which ones are bad but I think that there's opportunity to continue to leverage AI in that front and so like Mythos would be a great example of like how do we leverage AI to really identify vulnerabilities ahead of time but you have to kind of couple with like the know-how that we also have in seeing traffic flows I think that because we sit at the edge and we see a lot of traffic before it even hits like other places we're in a very good position to combine our know-how with kind of of like the AI and learning models to really identify those vulnerabilities for our customers. And that's part of the reason why our security products continue to win awards, because we're kind of taking the best of both. Like we're seeing the traffic upfront and we're combining our know-how with kind of the tools that are out there.

Jonathan Ho, Analyst — William Blair

Excellent, excellent. Just one last one. So do you need to make more incremental investments in compute or infrastructure, particularly on the GPU capability side and are there opportunities to partner with some of the larger frontier models that are out there

Rich Wong, CFO

um good question i think we get this a lot um in terms of like you know how are we doing compute today right compute is still a pretty nascent market for us it's still i think it's like you know i showed you the compute our other number um we are doing a lot of that compute with our existing cpus right so we have a bunch of servers that are sitting in our pops um they have you know cpu capacity and we're able to process it through the cpus that we have um i think that you know we are continuing to co-innovate with our customers so that co-innovation means like what do you need from a customer perspective like how do we solve that problem and so we're working with them on like you know how do we solve that the best and we find that right now we continue to solve their problems through existing compute resources we are ready to do gpus if our customers need it but not in a position to like want to put gpus in the edge if there's no need for it right because once you start deploying it one they depreciate pretty quickly especially with the the iterations that are kind of launching but if they sit idle like that's a gross margin impact and so i think that co-innovation with our customers is actually really key because you know that co-innovation allows us to have leading views on that now you know the second part of your question is like are there opportunities to kind of partner with the frontier models and i think absolutely right i think that we welcome and we work with you know the different players out there and and depending on the use cases that they see we're always working with a lot of players out there across all different types including the frontier models excellent excellent we can take one question from the

Jonathan Ho, Analyst — William Blair

audience and then uh we'll break for the uh the breakout session anyone all right let's take oh

Rich Wong, CFO

go ahead yeah yeah so the question in the room was that there was an 11 growth rate for delivery services revenue as we see the orchestration layer happening on agentic AI like where should we see that would we see it on the 11 percent pickup on delivery services I think the orchestration layer ends up happening across a number of areas I do think that you know like we should see it on the compute side right on the compute side we're going to need to like be able to orchestrate and do computations around like hey this person is asking me these things these are their three criteria I need to work with like 10 different agents to go out there but you need kind of like that compute to happen so they can send out instructions now I think that every compute needs to have some storage and some caching information and so there might be some pickup in the delivery services as well I do think that having multiple lines of businesses enables us to play together in that orchestration layer that that needs to happen but it's still early days I don't want to get people too excited about it but I do think that you know from a agentic world you know like it's going to change the way the edge plays and we

Jonathan Ho, Analyst — William Blair

need to be ready for that perfect we're gonna take a quick five-minute recess and then we'll continue