Fastly(FSLY) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record fourth quarter revenue of $140.6 million, exceeding guidance and representing 2% growth year-over-year and quarter-over-quarter [10][35] - Annual revenue for 2024 was $544 million, reflecting a 7% year-over-year growth, although below the previous guidance of $580 million to $590 million [11][36] - Operating loss for the fourth quarter was $4.2 million, within the guidance range [14][50] - Cash from operations increased from $400,000 in 2023 to $16 million in 2024, and cash flow burn was reduced from $59 million to $36 million [16][55] - Gross margin for the fourth quarter was 56.5%, down from 57.7% in Q3 2024 and 59.2% in Q4 2023 [47][50] Business Line Data and Key Metrics Changes - Network services revenue was flat year-over-year at $110.1 million, while security revenue grew 4% to $26.9 million, with a normalized growth of 17% when excluding prior true-up payments [35][36] - Revenue from emerging products grew 63% year-over-year to $3.6 million, driven primarily by compute products [36] - The top 10 customers accounted for 32% of total revenue in Q4 2024, down from 40% a year ago, indicating a diversification in the customer base [12][38] Market Data and Key Metrics Changes - The trailing 12-month net retention rate was 102%, down from 105% in the prior quarter and 113% a year ago [39] - The company anticipates that revenue from top 10 customers will remain in the low to mid-30% range throughout 2025 [38] Company Strategy and Development Direction - The company aims to diversify its revenue base and grow its enterprise customer mix outside of the top 10 [12][31] - A focus on geographic expansion, particularly in Latin America and India, is part of the growth strategy for 2025 [17][31] - The company is investing in sales leadership and restructuring compensation to drive new logo acquisition and cross-selling [20][31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about returning to double-digit growth, with a 7% annual revenue growth guidance for 2025 [32][63] - The company is cautious about potential risks, particularly regarding U.S. traffic from TikTok, which has been excluded from 2025 guidance [59][91] - Management noted that the pricing environment is expected to improve in 2025 due to market changes [97] Other Important Information - The company ended the quarter with approximately $296 million in cash and equivalents, and refinanced a portion of its convertible debt [52][53] - Free cash flow improved by $23 million year-over-year, indicating better financial health [55] Q&A Session Summary Question: Investments needed for Asia Pacific expansion - Management indicated that capital investment would be nominal, with a focus on hiring a dedicated leader for the region [68][70] Question: Changes in sales structure for new logos - The sales team is being refocused with existing resources, and there is a strong emphasis on security specialization [72][74] Question: Insights on business mix and gating factors - Management noted significant revenue diversification efforts, particularly in the mid-market, but acknowledged the need for further improvement [78][81] Question: NRR trajectory and confidence in expansion - Management expects NRR to lag behind revenue growth initially but anticipates acceleration in the second half of 2025 [84][86] Question: TikTok U.S. revenue status - Management confirmed that TikTok's U.S. traffic is still operational but has excluded it from future guidance due to uncertainty [90][91] Question: Impact of Edgio's shutdown - The company saw new logo wins from Edgio's customers and is working to bring that traffic onto its platform [92][95] Question: Stability of top 10 customer revenue - Management is confident in the stabilization of revenue from top customers due to improved engagement and new workloads [100][102] Question: Security business growth expectations - Management believes that security growth can improve in 2025, driven by a more focused go-to-market strategy [104][106]