Fastly, Inc. Q3 FY2025 earnings call

• Q3 revenue was $158.2 million, exceeding the top end of guidance and a record high. • Gross margin was 62.8%, exceeding guidance and improving 380 basis points sequentially. • Record operating income of $11.6 million and record free cash flow of $18 million. • Revenue growth accelerated to 15% from 12% in Q2, with cross-sell and upsell strategies driving growth, including a major multiproduct win with a top 10 strategic account. • Innovation in security and AI, such as API discovery, deception capabilities in WAF, and AI integration with MCP server. • Focus on platform strategy, international expansion (notably in APJ), and continued go-to-market transformation.

Network Services revenue was $118.8 million, growing 11% year-over-year, accounting for 75.1% of total revenue. Security revenue was $34 million, up 30% year-over-year, making up 21% of total revenue. Other products revenue was $5.4 million, increasing 51% year-over-year, driven primarily by compute product sales.

• Raised full-year 2025 revenue guidance to $610 million to $614 million, reflecting 13% growth at midpoint. • Q4 revenue expected in the range of $159 million to $163 million, representing 15% annual growth at midpoint. • Q4 gross margin anticipated to be 61.5% ± 50 basis points. • Q4 non-GAAP operating profit expected $8 million to $12 million. • Q4 non-GAAP net earnings per diluted share expected $0.04 to $0.08. • 2025 free cash flow expected $25 million to $35 million.

• Trump administration's executive order on TikTok: U.S. traffic from ByteDance (parent of TikTok) represented less than 2% of Q3 revenue, and losses of business due to these actions are perceived as less likely than in prior periods.

Q: James Fish asked about delivery business expansion versus security growth.

A: Rich Wong responded that Network Services had 11% year-over-year growth and was the third quarter of accelerating Network Services revenue.

Q: Frank Louthan inquired about one-time items and seasonal trends in delivery business.

A: Rich Wong said the quarter had a confluence of events including strong cross-sell and good traffic patterns, and seasonality for delivery business in Q4 is normal so far.

Q: Joel (on behalf of Fatima Boolani) asked about international investment, specifically APJ.

A: Kip Compton discussed international expansion as sales coverage-driven, with positive traction in APJ and investments in sales teams there.

Q: Rudy Kessinger asked about top 10 customers and Q4 expectations.

A: Kip Compton said there was no notable out-of-the-ordinary with the top 10 cohort outside security cross-sell, and seasonality for that business looks normal.

Q: Daniel Hibshman asked about seasonality and gross margins.

A: Rich Wong mentioned Q4 guidance considers traffic patterns and is reasonable, and gross margins in Q3 had a tailwind from cost of revenue reversals.

Q: Tomer Zilberman asked about security segment volatility and net retention rate.

A: Kip Compton said security growth was not just from one deal, and Rich Wong noted net retention rate improved and has room to increase in Q4.