Fastly(US:FSLY)2024-02-15 01:06Financial Data and Key Metrics - Revenue for 2023 was $506 million, representing 17% YoY growth, exceeding the original guidance range of $495 million to $505 million [7] - Q4 2023 revenue was $137.8 million, up 15% YoY and 8% QoQ, at the lower end of the guidance range due to weaker international traffic [7] - Operating loss for 2023 was $37 million, less than half of the $76 million loss in 2022, and better than the original guidance of $53 million to $47 million [12] - Q4 2023 operating loss was $2.3 million, better than the guidance range of $10 million to $6 million [12] - Gross margin for 2023 was 56.9%, up 330 basis points from 2022, with Q4 gross margin at 59.2%, a 220 basis point increase YoY [19] - Net income in Q4 2023 was $1.7 million, marking the first positive net income since Q2 2020 [20] Business Line Data and Key Metrics - Signal Sciences products contributed 13% of Q4 revenue, a 25% YoY increase [28] - The company added 31 new enterprise customers in Q4, with 19 being net new to Fastly [8] - Average enterprise customer spend was $880,000, up 7% YoY [15] - The company introduced a bot mitigation solution in limited availability, with positive early feedback [13][121] Market Data and Key Metrics - International revenue accounted for 27% of total revenue in 2023, up from 26% in 2022 [62] - Weaker international traffic in Q4 resulted in lower revenue growth but higher gross margins [33] - The company saw strong growth in live streaming and gaming activity, offsetting weaker international traffic [7] Company Strategy and Industry Competition - Fastly is focusing on unifying its platform, simplifying customer onboarding, and improving cross-selling opportunities [16] - The company is expanding its security offerings to meet growing demand, with 76% of businesses planning to increase cybersecurity budgets in 2024 [11] - Fastly was named a leader in the Forrester Wave Edge Development Platform's Q4 2023 report, with high scores in vision, innovation, and pricing flexibility [11] - The company is leveraging its edge platform to deliver fast, safe, and engaging digital experiences, positioning itself as a key player in the edge cloud market [24] Management Commentary on Operating Environment and Future Outlook - Management expects 2024 revenue to grow 16% YoY, with gross margins improving by approximately 200 basis points and exiting the year at 60% or better [46] - The company anticipates Q1 2024 revenue to be in the range of $131 million to $135 million, with a seasonal decline in gross margins [44] - Management highlighted the importance of new customer acquisition and product innovation in driving future growth [67] - The company is focused on improving operational efficiency and leveraging revenue growth to improve cash flow in 2024 [20] Other Important Information - Fastly will discontinue disclosing quarterly NRR and DBNER metrics starting in Q1 2024, and will instead provide revenue breakdowns by product area (core, growth, and emerging) [26][27] - The company repurchased $367.3 million in principal amount of convertible notes in 2023, reducing its convertible debt balance by more than 50% [39] - Free cash flow improved by $113 million YoY to negative $59 million in 2023, driven by increased cash from operations and reduced equipment payments [41] Q&A Session Summary Question: Backlog Performance and Package Momentum - The sequential decline in RPO was due to the burn-down of multi-year commitments with large customers, with package momentum expected to help stabilize RPO in the future [51][52] Question: Succession Planning for Chief Revenue Officer - The departure of the Chief Revenue Officer late in Q4 did not impact the quarter, and the company is actively seeking a replacement [55] Question: International Traffic Weakness - Weaker international traffic in Q4 was due to a slowdown in one high-cost country, which shifted traffic to other regions, impacting revenue but improving gross margins [62][97] Question: Net Retention and DBNER Trends - New enterprise customers are expected to contribute to improved net retention rates over time, as customers typically ramp up their spend in the first 2.5 to 3 years [77] Question: Gross Margin Improvement and 60% Target - The company has a clear plan to achieve 60% gross margins by the end of 2024, driven by network efficiency, cost control, and improved peering relationships [100] Question: Signal Sciences Growth and Bot Management Feedback - Signal Sciences growth slowed slightly in Q4, but the company remains confident in its security offerings, with positive early feedback on the new bot management product [115][121] Question: Revenue Acceleration and International Assumptions - The company expects revenue growth to accelerate throughout 2024, with international traffic assumptions based on baseline projections and potential tailwinds from new customers or traffic surges [106]