Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fastly Inc (FSLY, Financial) reported revenue of $132.4 million for the second quarter, exceeding the midpoint of their guidance.
- The company achieved an 8% year-over-year revenue growth, driven by a 13% increase in revenue from customers outside the top 10.
- Fastly Inc (FSLY) saw a 4% sequential increase in enterprise customer count, growing from 577 in Q1 to 601 in Q2.
- The company launched new technology innovations, including the AI accelerator and bot mitigation solutions, which have received positive customer responses.
- Fastly Inc (FSLY) has brought on Scott Lovett as the new Chief Revenue Officer, who has a strong background in cybersecurity and network services, expected to drive growth and transformation.
Negative Points
- Fastly Inc (FSLY) reported an operating loss of $12.6 million for the second quarter, although it was favorable to the guidance midpoint.
- The company faces challenges with a small set of its largest customers, leading to a decline in projected growth for these accounts.
- Revenue from the top 10 customers dropped from 38% in Q1 to 34% in Q2, reflecting a significant impact on overall revenue.
- The company anticipates continued headwinds from its largest customers, affecting revenue growth throughout 2024.
- Fastly Inc (FSLY) plans to restructure the company, including potential workforce reductions, to align costs with revenue and invest in future growth.
Q & A Highlights
Q: Hi, good afternoon. And just wanted to start out with a little bit more detail on what happened with regards to these large customers and maybe what caught you off guard on with these sort of declines? Are they continuing or should we expect sort of stabilization at these levels?
A: Yes. We mentioned there's definitely softness in the traffic that those large accounts, primarily media accounts. There's certainly a push to profitability from within those teams, and we're seeing that and trying to react to their needs and business priorities. We've transformed our customer success motion for these large multi-vendor customers, focusing on delivering the kind of differentiation and service they are looking for in a very bespoke way. We believe we've stabilized those accounts at this point.
Q: Can you help us understand how you came up with these parameters on the revised guidance, how derisked you feel at this point? Are there any other large contract renewals coming up in the back half of the year?
A: The correction or the investments we made to our guidance were largely due to softness in the traffic projections in the back half and pushes to profitability from those accounts. We're taking a much more high-touch, bespoke approach in these accounts, which gives us more confidence in our projections. This change in customer engagement and internal analytics is significant and fundamental to how we're operating, giving us a better view for the back half of the year.
Q: I wanted to ask about the restructuring efforts that are going to be underway and crystallize in the back half of this year. Why would sales and marketing be lumped into that down specifically, given the aspirations for driving new customer acquisition?
A: We need to adjust our spend to the top line and maintain discipline on the bottom line. The restructuring is designed to allow us to invest in the go-to-market and the most efficient parts of our go-to-market to help drive customer acquisition and wallet share growth in key accounts. It also focuses on technology innovation that will help drive revenue growth and sales efficiency in the long run, specifically in security, compute, and AI.
Q: Can you clarify what percentage of your sales come from the channel today?
A: We don't disclose the percentage from the channel. We've had pretty good success growing that channel and will continue to invest there. Part of the future success of this transformation is optimizing those channel investments, especially around leveraging that channel to drive deal registration and customer acquisition.
Q: How do you see the go-to-market strategy execution and the magnitude of change expected with the new Chief Revenue Officer onboard?
A: The restructuring is accelerating the changes planned for next year. It's helping us prepare to push hard on the cross-sell and upsell motion around the long tail of enterprise accounts. The restructuring and reconfiguration are designed to make the team more efficient and capable of growing and maturing in the short term.
Q: When you guided in the prior quarter, it sounded like delivery expectations for these largest customers had been dropped down to minimum commitment levels. Was this not the case?
A: Not all of our largest customers have a commit, and in many instances, their commit levels are meaningfully below their expected traffic levels. The commit isn't a good guide. These customers operate on a utility basis with variable traffic. The break in patterns we saw with these largest customers had a significant impact. We now have better visibility into their internal dynamics, translating into a more reliable view of their business for the remainder of the year.
Q: Can you break down roughly how much of the revenue reduction was share loss at media customers versus reduced spend expectations at those customers overall?
A: We don't break down those numbers, but both factors are occurring. We're seeing softness in traffic and less revenue due to repricing in a handful of accounts. We always expect some repricing, but we haven't seen the traffic increase as much as historically, impacting the revenue guide.
Q: If I look at the implied guide for 4Q, it suggests roughly a 1% decline in revenues. How can you help me bridge the gap given the healthy momentum from customers signed a year ago?
A: We expect some continued decline in the concentration of our top 10 customers, but at a slower rate than in the first half. The growth rates of the non-top 10 customers are very healthy. We haven't seen any real change in our outlook outside of the top 10. The customer acquisition efforts will drive more diversified revenue and healthier growth.
Q: Your top 10 were about $45 million of revenue in Q2. What's the floor? Are all of those customers pure utility, or is there any floor against potential further downside?
A: There is a mix; not all customers have a commitment. Some have meaningful commitments, and there are positive dynamics with new customers coming into the top 10. The headwinds are not across all of the top 10. Part of the new customer engagement motion is about driving additional commitments into that space.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
