Fastly, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited. Fastly provides an edge cloud platform for network delivery, security, compute and observability. Comparisons are with Q1 2023 unless otherwise noted. Amounts are U.S. dollars.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior period |
|---|---|---|
| Revenue | $133.5 million | $117.6 million; up 14% |
| Gross profit / margin | $73.2 million / 55% | $60.3 million / 51% |
| Operating expenses | $119.5 million | $107.5 million; up 11% |
| Operating loss | $46.3 million | $47.3 million |
| Net loss | $43.4 million | $44.7 million |
| Net loss per share, diluted | $0.32 | $0.36 |
| Operating cash flow | $11.1 million provided | $8.9 million used |
| Cash, cash equivalents and marketable securities | $331.2 million at March 31, 2024 | $328.8 million at December 31, 2023 |
Investing activities provided $33.7 million, largely reflecting net maturities of marketable securities; financing activities used $1.9 million, primarily for finance lease payments. Cash, cash equivalents and restricted cash totaled $151.0 million at quarter-end. Current assets were $460.2 million and current liabilities $120.2 million.
Long-term debt had a carrying value of $343.8 million, representing convertible notes with $346.5 million principal outstanding, due March 2026. No amounts were drawn under the revolving credit facility at quarter-end. Finance and operating lease liabilities were $12.4 million and $69.4 million, respectively.
Business trends and changes
- Network Services revenue rose 12% to $106.0 million; Security rose 16% to $24.6 million; Other rose 43% to $2.9 million, primarily from increased Compute adoption.
- About 95% of Q1 revenue was usage-driven. Management said revenue from new customers contributed less than 10%; growth was primarily from existing customers.
- Enterprise customers generated $122.1 million, or about 91% of revenue. Customer count increased to 3,290 from 3,100; enterprise customer count increased to 577 from 540.
- Trailing-twelve-month net retention rate was 114.0%, down from 116.2%. The 10 largest customers generated 38% of trailing-twelve-month revenue, compared with 35% a year earlier.
- Gross margin improved four percentage points as revenue growth outpaced costs supporting the network. Operating expenses increased, notably sales and marketing (12%) and general and administrative (23%). Stock-based compensation was $31.8 million, versus $28.2 million.
- Shares outstanding were 136.5 million at March 31, up from 133.0 million at December 31, 2023; 1.9 million fully vested RSUs were issued under the 2023 employee bonus program in February.
Outlook, risks and notable items
The filing provides no specific quarterly or full-year revenue or earnings guidance. Management expects operating losses to continue for the foreseeable future as it invests in growth, sales and marketing, product development and network infrastructure. It believes cash, operating cash flows and available facility capacity will cover anticipated working-capital and capital-expenditure needs for at least 12 months.
On April 30, 2024, after quarter-end, Fastly amended its credit facility: maturity was extended to April 30, 2027, and the commitment was reduced from $100 million to $60 million, including letter-of-credit and swingline subfacilities. The facility has financial covenants; Fastly reported compliance as of March 31, 2024.
Key risks include dependence on usage and a concentrated customer base, customer churn or reduced traffic, competition and pricing pressure, service outages and cyberattacks, infrastructure and component availability, and execution of enterprise growth and new products. A group of affiliated streaming customers accounted for 12% of Q1 revenue; one large customer has significant ties to China. International data-transfer rules, geopolitical developments and bandwidth costs may also affect operations. Management stated the Russia-Ukraine and Israel-Hamas conflicts were not expected to have a material impact at the time of filing, while warning that escalation could increase cyber and economic risks.
Fastly reported no legal proceedings expected to have a material adverse effect and no significant loss-contingency accruals. It accrued $4.1 million for sales and use tax exposure. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Investor facts to verify
- Whether usage growth and retention stabilize or weaken, given the 114.0% LTM net retention rate and concentration among large customers.
- Whether improved gross margin and positive operating cash flow are sustained as operating expenses and stock-based compensation remain substantial.
- Cash generation and liquidity relative to the $346.5 million convertible-note principal due in 2026, including possible cash repayment, conversion or dilution.
- Terms, covenant compliance and availability of the amended $60 million credit facility.
- Exposure to major-customer usage changes, China-related developments, platform reliability and cybersecurity events.