Good afternoon. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 second quarter 2025 earnings conference call. We have Fastly's CEO, Kip Compton, 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 by dialing (800) 770-2030 and referencing conference ID number 7543239 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, 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-K and quarterly report filed on Form 10-Q filed with the SEC and our second quarter 2025 earnings release and supplement for a discussion of the factors that could cause our results to differ. Please refer, in particular, to the section entitled Risk Factors. We encourage you to read these documents. Also note that the forward-looking statements on this call are based on the information available to us as of today's date. We undertake no obligation to update any forward-looking statements, except as required by law. Also during this call, we will discuss certain non- GAAP financial measures. Unless otherwise noted, all numbers we 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 2 conferences in the third quarter, the KeyBanc Technology Leadership Forum on August 12 in Park City and the Piper Sandler Fourth Annual Growth Frontiers conference in Nashville on September 10. Now, I'll turn the call over to Kip. Kip?

Thanks, Vern. Hi, everyone, and thank you for joining us today. I'm delighted to join you today in my first earnings call as CEO, and I'm excited about the road ahead for Fastly. We continue to see momentum in the business and have a strong Q2. We look forward to sharing the details of the quarter and our updated view for the year in today's call. In my first 45 days as CEO, my top priority has been building on the momentum we established in the first half of the year as well as looking ahead with a focus on clear execution for the second half. Since joining Fastly about 18 months ago, I've been deeply involved in leading the product organization and working closely with the executive team and the Board in developing and driving our strategy. My role as Chief Product Officer here at Fastly, together with my prior experience running large-scale organizations and growing SaaS businesses is enabled by seamless transition to CEO. Throughout this transition and as we look ahead, we remain committed to delivering long-term value to all of our stakeholders by keeping customers at the center of our decision-making and building products that are responsive to their evolving needs. Going forward, I'm excited to share my vision for Fastly with a keen focus on accelerating our growth rate and driving to profitability in the near term. We will continue to evolve our strategy and sharpen our execution, dedicating significant time to understanding and responding to the needs of our customers. I firmly believe that understanding our customers' business challenges and solving problems together is what Fastly does best. Before we begin a review of the quarter, I want to discuss 2 changes to our leadership team. Earlier today, we announced that our Chief Financial…

Thank you, Kim, and thanks, everyone, for joining us today. I'll discuss our financial results and business metrics before turning to our forward guidance. Note that unless otherwise stated, all financial results in my discussion are non-GAAP based. Revenue for the second quarter increased 12% year-over-year to $148.7 million, coming in above the high end of our guidance range of $143 million to $147 million. Increased new customer acquisition from our go-to-market initiatives and share gains from our competitive takeout strategies, coupled with a favorable pricing environment contributed to this upside. Network Services revenue of $114.9 million grew 10% year-over- year. Security revenue of $29.3 million grew 15% year-over-year, comprising a record 20% of total revenue and our other products revenue of $4.5 million grew 60% year-over-year, driven primarily by sales of our compute products. In the second quarter, our top 10 customers represented 31% of our revenue. We continue to see strength in our broader customer base with revenue from customers outside our top 10 customers growing 17% year-over-year and 6% sequentially. We anticipate revenue from our top 10 customers will remain in the low 30s percent range throughout 2025. Also, no single customer accounted for more than 10% of revenue in the second quarter and affiliated customers that are business units of a single company generated an aggregate of 10% of the company's revenue for the quarter. Our trailing 12-month net retention rate was 104%, up from 100% in the prior quarter and down from 110% in the year ago quarter. The quarter-over-quarter increase was primarily due to revenue increases from a few of our largest customers in prior quarters and closely follows our overall growth rate trends. We exited the second quarter with record RPO of $315 million growing 41% year-over- year. This growth reflects progress in…

[Operator Instructions] Your first question comes from the line of Jonathan Ho with William Blair.

Congratulations on the strong results. Ron, it's really been great to work with you these past few years, and we really wish you the best for the future as well. Welcome on Board, Kip and Rich as well. Just maybe to start out, clearly, there's been significant change at the management level. It seems in many of the key leadership positions, should we view this as a new chapter in the Fastly story? And if it isn't maybe too early, what does that opportunity set maybe look like as you look a little bit longer term, I know you've outlined some of the strategic and tactical opportunities here. But how should we think about the opportunity to unlock that faster growth for Fastly?

Yes, thanks for the question. I think new chapter is probably right. I feel like we have an opportunity to build on what we have achieved including Ron's mini contributions. We've established a strategy that's beginning to show results. And I think this quarter exemplifies that. Of course, we're looking forward to more results to come. But we have an opportunity, I think, to lean into where we've established momentum, particularly in go-to-market and product velocity and really just overall increase our focus and speed in executing our strategy and accelerate results and accelerate towards profitability as soon as possible. And I think longer term, that strategy will open up significant opportunities for us, obviously, in security and compute. And we'll have more to say about that in future calls.

Got it. And just as a quick follow-up, can you talk a little bit about the pricing environment? And what's maybe giving you the optimism that this can hold? Any additional color would be valuable.

Yes. I'll comment, and I'm sure Ron will have a perspective on this as well. I think that we've seen -- we talked about an improving pricing environment I think, for a couple of quarters now. I think one thing that started to kick in for us is the increased discipline and focus that Scott and his leadership team on the go-to-market side have brought where we're being very thoughtful about how we're negotiating discounts with our customers as well as how we're negotiating commitments, committed revenue from those customers. And then that's very important. And I think you can see that in our record RPO.

Yes. And I think the only thing I would add to that, in addition to kind of that internal discipline is kind of what we're seeing in the macro one, I think with the consolidation in the industry that's created some stability. I think we're also seeing just kind of a post 2024, where we did see some acceleration. I think we're seeing stability. We're seeing that not only in the second quarter, but in the negotiations and renewal conversations we're having for Q3 and Q4, where we're seeing stability. And so I think that trend line we see being favorable through at least the end of the year.

Your next question comes from the line of James Fish with Piper Sandler.

Congrats on the new promotion here and Ron, I'll echo Jonathan's comments, but it was great to work with you and best of luck on your next endeavor. I did want to dive into the cross-sell initiative for the '25 comp plan. Anything you guys can share beyond the greater than 50% and greater than 130% metric wise on how this cross-sell, upsell is going, what I'm backing into on the in- period NRR, it looked actually exceptionally strong. So anything else you guys can share? How is productivity of the new security specialists, things like that?

Yes, again, I'll comment, and I'm sure Ron will have a perspective. And I'll just comment maybe qualitatively. I spend a lot of time with customers, and I can kind of share with you what I've seen from customers. Our platform strategy is really starting to have a meaningful impact on the way that they think about us as a partner and as a vendor. And we see more and more situations where our existing customers pick up new products for the -- to enhance the use cases or even to go into new use cases that Fastly wasn't previously involved in. And a lot of the feedback we get is that they're very happy with the performance and the support or opted to call-outs. And they're looking for more opportunities to leverage Fastly. And as we've launched particularly the additional security products over the last year, that's been a little bit of a recurring theme, some of our existing customers expanding into new use cases with us. But Ron may have some other more quantitative thought.

The only thing I would add to that, we've talked about this for a while. I think the industry as a whole has been moving more toward a platform where people do want to buy a platform with their security with compute all on a single platform. That evolving as we continue to do our platform unification making it a lot easier to add those products. And then just to add what Kip said, we've expanded our product portfolio, particularly around security. It's really enabled us to start to kind of gain from those trends in the market and accelerate the number of products that people have. And we certainly built a sales plan around leveraging that capability.

Got it. Makes sense. And look, I was on the higher revenue commitments from the top 10, it looks like it drove a decent acceleration here on the RPO side of things. So how should we think about some of the bookings from them this quarter? And any vertical strength you saw within those top 10, 4 looking at those in commitments. Is it -- I'm trying to understand how much of it is really just the Edgio benefit here of then kind of exiting the market that it's kind of onetime bookings kind of higher commitments there versus you guys seeing more durable tailwinds outside of Edgio.

Yes. I mean I think there's a couple of drivers here, like a lot of things. I think one, certainly, the exit of Edgio does improve kind of the traffic allocation and improve the commitment levels. I think our performance differentiation and a number of customers has sort of solidified our position in terms of traffic allocation where customers are willing to make that commitment. On the heels of, I think, us taking a very position that if you want the bigger discount, you've got to sign up for a bigger commit. And we're seeing success from that.

Yes. I mean I think Edgio clearly, is perhaps a onetime event in terms of capacity shift within the industry. But I think Scott and the team have really shifted the compensation and the focus to where there's a greater emphasis on negotiating commits with those customers. And that obviously helps us stabilize revenue and drive investment in the business to meet those customers' needs. So I think there could be a onetime effect from Edgio, but I think that the focus on commitments is part of the story here, and that's certainly going to continue.

Your next question comes from the line of Frank Louthan with Raymond James.

Great. So maybe walk us through sort of how you're viewing the company coming in and maybe some broader strategic things you think that you needed to change reach more better growth and profitability? And do you think you have the team you need in place now? Or do we expect some more management changes going forward?

Appreciated. Great question. And while I'm new to the CEO role, of course, I'm not new to Fastly, been here for a little while as previously as the Chief Product Officer, and worked very closely with the executive team and the Board on our strategy and other matters across the company. I think the team will continue to evolve. I think as our business changes and grows, we'll expect changes in our leadership teams. And I'm not here to forecast any additional imminent change. But I would just say I view it as a healthy part of the evolution of the company and change always brings an opportunity and so we look at it that way, and I'm focused on building a world-class team that's oriented around executing our strategy. In terms of sort of what's next. I mean I was here to help formulate the strategy, and I believe the results this quarter show elements of the strategy working, I think it's really a matter of leaning in and accelerating the results there. There's an opportunity with the momentum that Scott is building for us to get more results on go-to-market. And I'm working with the leadership team to just increase our focus and velocity as we execute on these things. I think we are making some progress on security. You saw the record revenue there. We certainly have big aspirations going forward. So we'll be continuing to drive that. And I think compute is somewhat partially tapped or even untapped opportunity for the company. And we've got some ideas of how we can grow that business that we'll be able to talk about more in the future. So I'm excited about where the company is at. I played a role in positioning us prior to becoming CEO. And frankly, I've really enjoyed the support I've received from the Board and from our leadership team and our employees as I stepped into the role.

That's great. How long do you think it will be before you replace someone in Scott's position?

How long will it be before I replaced someone in Scott's position?

Well, you've moved I'm sorry, the...

No, I don't think -- I think actually that -- I'm sorry, that's probably not how we're thinking about it. We're elevating Scott and his direct reports will continue reporting to him, and he will -- and he's gaining the marketing function. So I don't anticipate having a President of go-to-market and a Chief Revenue Officer. So Scott's going to be in this position for a long time. We're really excited about this leadership.

Great. All right. And Ron, thank you very much for all your help over the years. I appreciate it.

Your next question comes from the line of Rudy Kessinger with D.A. Davidson.

Congrats over the new roles and Ron similar to everybody else, I miss working with you and best of luck on what's next. On securities revenue, the growth rate has been rather volatile. Last year, it decelerated from 16% Q1 to 4% in Q4. Now, it's accelerated back to 15% over the last 2 quarters. Just any color on what's driving the volatility there? And in particular, what drove the acceleration in Q2 and how should we be modeling or thinking about security growth in the second half of this year and into 2026?

Yes. I think one of the ways to understand the revenue volatility, I think, really has to do with kind of the history of what we saw in 2024. We had -- we went into the year with very high revenue concentration. We saw some big dislocations from what our historical trends were with just a handful of customers that had an outside impact that had a significant adverse impact on 2024. I mean if you kind of look at the breakout that we've shared top 10 versus everyone else, you can really see the impact that, that had while customers outside of the top 10 continue to grow in the mid- to high teens. And so that created a lot of the 2024 volatility. I think what you're seeing this year is a recovery and more stability in the top 10 from some of the efforts we've put in place to engage with those top 10 customers, some of the commitments that we've been able to achieve with those top 10 customers. and the success of the efforts of the go-to-market efforts that Scott's brought into in terms of accelerating new customer acquisition. As you can see that we saw a big acceleration kind of the largest acceleration we've seen in 2023 in new customers. And while it's not going to be a straight line, we expect to continue to see increasing new customers and that will build on our revenue growth rates going forward. So I think that's really kind of the lens that we're looking at. I think when you look at our outlook for the second half with the raise, we brought that number up to where at the midpoint, we're at 10%, grow better than the midpoint. But I think we are starting to see some stability after 2024.

Okay. Got it. And then you guys had called out in the prepared remarks, maybe some competitive displacements on the DDoS with the new DDoS and bot mitigation product. Could you expand on that? Maybe what vendors did you displace? Would be the typical vendors we would think of? Or any more color you can share there?

Yes. I probably won't get into specific deals or competitors, but I think we're seeing 2 patterns and perhaps this is a helpful sort of detail. Often, a customer is using a third-party stand-alone, if you will, bot mitigation vendor. And as we've launched those capabilities on our platform, they've often done a proof of concept and consolidate that into their Fastly relationship. And that gives them a simpler experience and better performance of doing all that processing in one platform at the edge. The other example that I've seen a bunch of times is the presence of our bot capabilities opening up opportunities for us to sell a broader set of the platform capabilities, where perhaps we weren't able to position ourselves before. So in some cases, customers have that as a requirement. And that new product has unlocked broader opportunities for us. So those are 2 patterns we're seeing.

[Operator Instructions] Your next question comes from the line of Jeff Van Rhee with Craig Hallum.

This is Daniel Hibshman on for Jeff Van Rhee. Maybe just opening a question for Kip on your strategic priorities here coming in. You mentioned velocity and product velocity a few times on this call. Maybe you could just expand a little bit on that, what that means to you at Fastly and then I think in the Q&A, you also mentioned accelerating the path towards profitability and OpEx did get guided to be down the back half, your free cash flow was revised up. So seeing some nice movement on profitability already. Maybe just any thoughts on if that changes that were you're already making? Just your thoughts on priorities and with regards to the profitability as well?

Absolutely. No. As the former Chief Product Officer, the product velocity is dear to my heart and one thing we've heard from a lot of our customers, is they like more products and more feature releases from us so that they can do more and take advantage of those. And that's what I'm referring to. And we've had a notable increase particularly over the last 12 months versus the prior periods. In the number of new products and features that we've shipped. In fact, I think today, we launched a new feature in our WAF for account takeover using our deception technology, which a number of customers are pretty excited about. So both in terms of new products and enhancing our current products, we're focused on picking up the pace there and our engineering and product teams are doing a great job and are also focused on how they can find additional ways to get more value to our customers faster. And of course, that is ultimately value that we can capture as a company. In terms of the profitability and just the trajectory we're on longer term. I think we are in a good place. I mean, we have -- we're forecasting lower OpEx. I think there's some seasonal effects there, but we have been -- I think as Todd spoke about and Champion of making our company more efficient and making sure that we're investing where we need to, to grow, but that the investments we're making are ones that do drive growth and a good ROI. And I think that's a journey of continuous improvement. We can always look for ways to be more efficient. But the mindset is kind of almost as an investor, not necessarily minimizing spend, but investing where it's going to make a difference for the company and making sure that, that's done efficiently. We saw improved cash collection. We saw improved gross margins. So I think that our path to profitability is clear that it's been in a long time, certainly since I joined at the beginning of 2024. And I think the team -- the leadership team is very excited about that. That's a major priority of the goal for us. And it's excited, frankly, a lot of excitement at the progress we're making, and we're going to double down on that. And I believe that we can drive to that goal without sacrificing key investments to enable our growth.

That's helpful. And then kind of a follow-up off of that for Ron, again, on the free cash flow. The 2 quarters now where we've gotten the free cash flow guide increased 10 million, so real nice at the midpoint. So it's real nice improvements to the guide on free cash flow. That's getting revised upwards faster than the changes to the operating income guide. So maybe if you can just walk us through some of the mechanics there. Is there any kind of change in sort of the assumptions on, like Kip just mentioned, cash collection, working capital, CapEx and whatever those factors are, do you see that as sustainable going forward?

Yes, it's a good point. I think if you really dig into it, you can see that we have seen improving cash flow from operations. I think that's been what effort we've had in place, making sure we're being disciplined around payment terms, but also really increasing our engagement with customers just to drive timely payment. Similarly, across the purchasing team, we've been very focused on efficient payment terms and cash management. I think those are some of the drivers that I think will be sustainable. It's not going to be a straight line, but overall, we expect to continue to drive efficiency in our cash management and hopefully continue to drive more favorable results across our cash flow relative to the P&L, which as that improves, that's just going to be a contributor to that cash flow.

[Operator Instructions] And there are no further questions at this time, Kip Compton, CEO, I turn it back over to you for closing remarks.

Thank you. As the new CEO, I am honored to be leading Fastly, we're building strong momentum in the business. As you heard today, we reported record security revenue, improving margins and record RPO in Q2 among other highlights. We remain focused on accelerating growth, driving towards profitability and delivering lasting value for all of our stakeholders. I want to thank the Fastly employees, customers and investors for all of their support. Thank you so much for your time today.

Thank you. This does conclude today's presentation. You may now disconnect.