Fastly, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the figures below are full-year results, not standalone fourth-quarter results.
Business context
Fastly operates a usage-based edge cloud platform for content delivery, edge computing, and security. Signal Sciences, acquired October 1, 2020, was included for all of 2021 but only the fourth quarter of 2020, limiting year-over-year comparability. Fastly reported 2,804 customers, including 445 enterprise customers, at year-end. Enterprise customers generated 88% of 2021 revenue.
Financial and operating results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $354.3 million | $290.9 million | +22% |
| Gross profit / margin | $187.3 million / 53% | $170.9 million / 59% | Profit +10%; margin down 6 percentage points |
| Operating expenses | $406.3 million | $278.1 million | +46% |
| Operating loss | $(219.0) million | $(107.2) million | Loss widened |
| Net loss | $(222.7) million | $(95.9) million | Loss widened |
| Cash used in operating activities | $(38.5) million | $(19.9) million | Cash use increased |
Revenue growth reflected a full year of Signal Sciences contribution, further adoption of Fastly’s platform, and customer growth. Cost of revenue rose 39%, faster than revenue, contributing to lower gross margin. Management attributed the margin decline to lower network utilization than in 2020, capacity investments made ahead of demand, and Signal Sciences purchase-accounting effects and acquired-intangible amortization. Operating expense increases included higher staffing and stock-based compensation; FY2021 stock-based compensation was $140.5 million.
Customer expansion metrics weakened: DBNER was 120.9% versus 143.6%; NRR was 106.6% versus 116.3%; and LTM NRR was 117.6% versus 137.4%. Annual revenue retention was 99.2% versus 99.3%. The top ten customers generated approximately 33% of revenue, down from 38% in 2020; the top five generated approximately 22% in 2021.
Liquidity, debt, and cash flow
At December 31, 2021, cash, cash equivalents, and marketable securities totaled $1.057 billion, including $528.9 million classified as long-term investments. Current assets were $624.6 million and current liabilities were $131.9 million. Fastly reported total liabilities of $1.145 billion.
Fastly issued $948.8 million of 0% convertible senior notes due 2026, receiving approximately $930.0 million net proceeds. The year-end carrying value was $933.2 million. Notes were not yet convertible under their conditions at year-end. The company also had a $100 million revolving credit facility, with no amount drawn and reported covenant compliance at year-end; finance lease liabilities totaled $43.4 million. Cash provided by financing activities was $936.6 million, primarily from the notes. Investing activities used $794.5 million, largely reflecting purchases of marketable securities. Management stated available cash, investments, credit facilities, and expected operating cash flows should meet working-capital and capital-expenditure needs for at least 12 months, while also expecting operating losses to continue for the foreseeable future.
Outlook, risks, and unusual items
- The filing describes continued investment in sales and marketing, product development, security, international expansion, and network capacity. Management expected operating expenses to rise as these efforts continue and cautioned that infrastructure investment could weigh on margins. Specific 2022 guidance figures are not provided in the filing text. It notes that February 2022 guidance disappointed analysts.
- Fastly cited the January and June 2021 platform interruptions, particularly the June 8 global outage caused by a software bug triggered by a valid customer configuration change. Some customer traffic had not returned to pre-outage levels, and service-level credits and customer usage reductions affected the business.
- Other material risks include customer and industry concentration, usage volatility and limited long-term commitments, intense competition and pricing pressure, component shortages, cybersecurity threats, COVID-19-related disruption, and evolving privacy and data-transfer regulation.
- Management and the auditor identified three material weaknesses in internal control over financial reporting: insufficient qualified accounting resources, controls over capitalization of internal-use software costs, and stock-plan system implementation controls that failed to prevent sales of unvested shares. Management said disclosure controls and internal control over financial reporting were ineffective at year-end. The auditor gave an adverse opinion on internal control, but an unqualified opinion on the financial statements.
- After the February 16, 2022 earnings release, Fastly recorded a $6.9 million increase to property and equipment and other current liabilities for assets received but not yet paid for or financed. It also recorded a $10.7 million year-end receivable for proceeds related to unvested founder shares; the cash was received in January 2022.
- Two shareholder lawsuits were dismissed: the securities class action with prejudice in December 2021 and the consolidated derivative action without prejudice in January 2022. Fastly recorded a $7.5 million liability for estimated sales and use taxes; actual exposure could differ.
Important facts for investors to verify
- Whether customer traffic and usage recovered following the June outage, and whether customer expansion and retention metrics stabilize.
- Whether revenue growth can outpace operating expenses and support recovery in gross margin; also assess the significance of stock-based compensation.
- Cash burn, network investment needs, and the company’s ability to manage the $948.8 million notes due 2026 and associated conversion or repayment terms.
- Progress in remediating all three material weaknesses and whether subsequent filings report effective controls.
- The impact of the $6.9 million post-earnings adjustment, the $10.7 million receivable and related share arrangements, and potential indirect-tax exposure.
- Any 2022 guidance and subsequent operating updates, since the 10-K does not state specific guidance amounts.