Fastly, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue Growth: Fourth quarter revenue was $172.6 million, up 23% year-over-year, a record high, exceeding guidance. Annual revenue for 2025 was $624 million, up 15% from 2024.
• Profitability: Record gross margins of 64% in Q4 2025, operating income at all-time high, and fourth straight quarter of positive free cash flow. 2025 was the first profitable fiscal year.
• Product Launches: Key launches included API inventory, custom dashboards/alerts, AI assistant in beta, and recognition from Gartner for cloud web application and API protection.
• Go-to-Market: Focus on customer acquisition, upsell/cross-sell, and targeting verticals aligned with platform strength. Notable customer expansions include a Fortune 500 restaurant chain and home retailer.
• AI Impact: AI driving traffic growth, including agent-related traffic, AI workloads, and AI bot mitigation, with edge platform playing a crucial role.

Segment Performance

• Network Services: Fourth quarter revenue was $130.8 million, up 19% year-over-year, contributing a significant portion of total revenue.
• Security: Fourth quarter revenue was $35.4 million, up 32% year-over-year, comprising 21% of total revenue. Driven by expansion of security portfolio and cross-sell motion.
• Other Products: Fourth quarter revenue was $6.4 million, up 78% year-over-year, primarily from compute products.

Guidance

• First Quarter 2026: Revenue expected to be $168 million to $174 million (18% growth), gross margin 64% ±50bps, non-GAAP operating profit $14M to $18M, non-GAAP net earnings per diluted share $0.07 to $0.10.
• Full Year 2026: Revenue expected $700M to $720M (14% growth), gross margin 63% ±50bps, non-GAAP operating profit $50M to $60M, non-GAAP net earnings per diluted share $0.23 to $0.29, free cash flow $40M to $50M. Infrastructure CapEx expected 10% to 12% of revenue.

Risks

• Macroeconomic and Geopolitical Uncertainty: Potential impact on international customers' purchasing patterns.
• Supply Chain Dynamics: Concerns regarding memory components and potential shortages, though efforts are in place to mitigate.

Question and Answer

Q: Expand on AI impact at the edge A: We're seeing a lot with respect to AI on our platform, including increased traffic related to agents, AI workloads, and AI bot mitigation. For example, AI tools generate more traffic processed through our network, and we have AI bot mitigation technology and support for protocols like RSL to manage content rights agreements.

Q: What drove performance gap vs peers A: We've maintained a performance edge, and recent industry focus on resiliency has drawn customers to us. We've taken architectural steps to deliver a more resilient platform.

Q: Confidence in 2026 guidance A: Confidence from momentum in 2025, go-to-market transformation, but cautious due to macroeconomic and geopolitical risks. We're focused on growth while being mindful of uncertainties.

Q: CapEx and supply chain impact A: CapEx increase due to growth and component price increases, with memory components seeing 25%-75% year-on-year price hikes. We're investing in infrastructure to meet growth objectives.

Q: Security business and coupling with Network Services A: Security revenue is growing, with coupling as customers consume both, but our security portfolio is also driving demand independently. We're seeing strong interest in API security and related use cases.