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DATE

Wednesday, Aug. 5, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Investor Relations - Vernon Essi Jr.
• Chief Executive Officer - Charles Compton
• Chief Financial Officer - Richard H. Wong

TAKEAWAYS

• Revenue -- $183.3 million, up 23% year over year and exceeding the guidance range of $170 million to $176 million.
• Non-GAAP Gross Margin -- 65.8%, representing a record high for the company driven by higher revenue relative to infrastructure costs and continued financial discipline.
• LTM Net Retention Rate -- 117%, increasing from 113% in the prior quarter and reaching its highest level in over three years as customers standardized more of their stack on the platform.
• Security Revenue -- $41.7 million, growing 43% year over year and representing 23% of total revenue compared to 20% in the prior-year period.
• Network Services Revenue -- $103.9 million, increasing 17% year over year, supported by underlying traffic growth at large customers and episodic sporting events.
• Other Products Revenue -- $7.7 million, growing 69% year over year primarily driven by sales of compute products supporting new customer requirements in AI.
• Non-GAAP Operating Income -- $27 million, marking the fourth consecutive quarter of operating profit and a record operating margin of 14.7%.
• Adjusted EBITDA -- $38.1 million, or 21% of revenue, compared to $8.9 million or 6% of revenue in the second quarter of 2025.
• Remaining Performance Obligations -- $341 million, up 38% year over year, benefiting from improved go-to-market discipline and larger upfront commitments during customer onboarding.
• Top 10 Customer Concentration -- 37% of revenue, with this group growing 48% year over year while revenue from customers outside the top 10 grew 12%.
• Non-GAAP Net Income Per Diluted Share -- $0.15, which excludes stock-based compensation and related taxes, compared to a reported GAAP net loss per share of $0.10.
• Free Cash Flow -- $3.6 million, representing the sixth consecutive quarter of positive free cash flow despite front-loaded capital investments.
• Cash and Investments -- $337 million, including cash, equivalents, and marketable securities, reflecting a sequential increase of $7 million from the first quarter.
• Net Cash Balance -- $14 million, as the company ended the period with total cash and marketable securities exceeding its total debt.
• Infrastructure Capital Expenditures -- 17% of revenue in the second quarter, as the company front-loaded spending to ensure adequate equipment availability amid supply chain constraints.
• Full-Year 2026 Revenue Guidance -- $732 million to $746 million, raised from previous expectations to reflect 18% annual growth at the midpoint.
• Full-Year 2026 Non-GAAP Operating Profit Guidance -- $88 million to $96 million, reflecting an expected operating margin of 12% compared to 4% in 2025.
• Full-Year 2026 Non-GAAP Net Income Guidance -- $0.50 to $0.54 per diluted share, up from previous projections due to operational leverage.
• Third Quarter 2026 Revenue Guidance -- $184 million to $190 million, anticipating 18% growth at the midpoint as traffic patterns normalize following second-quarter episodic events.
• AI Traffic Growth -- 6.5 times the rate of human traffic growth, serving as a tailwind for security and compute governance products.
• Operating Expense -- $93.7 million, which came in lower than anticipated due to disciplined management and the timing of new hires shifting into the third quarter.
• Current RPO -- 79% of total RPO, representing $269 million in committed revenue expected to be recognized over the next 12 months.
• Full-Year 2026 Free Cash Flow Guidance -- $40 million to $50 million, maintained as the company balances higher operating profits with increased infrastructure investments.
• Full-Year 2026 CapEx Guidance -- 10% to 12% of revenue, an increase from 5% in 2025 to support global capacity expansion.

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RISKS

• Wong stated, "We continue to closely monitor supply chain dynamics particularly regarding memory components and have taken strategic actions to mitigate potential impact," noting that capital expenditures were front-loaded to manage these risks.

SUMMARY

**Fastly, Inc.** (FSLY -0.87%) reported record financial performance driven by customer consolidation onto its unified edge platform and the acceleration of AI-related traffic. Management reported that revenue growth was supported by both underlying platform expansion and episodic global sporting events, while record gross margins reflected increased network efficiency and disciplined infrastructure spending. The company stated it is currently executing a go-to-market transformation focused on improving new logo acquisition and expanding its international presence, particularly in the Asia-Pacific region. Strategic investments remain focused on high-growth security and compute offerings as enterprise requirements shift toward real-time edge governance.

• CEO Compton stated that as the market evolves, the technical requirement "is shifting from centralized AI platforms to real time edge decisions."
• Management noted that machine-based agents do not follow human browsing patterns and instead focus on querying or scraping, which necessitates the use of tools that distinguish "wanted traffic from unwanted traffic."
• CFO Wong indicated that price erosion remained in the mid-single digits and was primarily driven by customers hitting higher volume discount tiers rather than a shift in competitive pricing.
• The company highlighted a partnership with Skyfire to integrate "verified agent identity and payment backed credentials" directly into the platform to monetize automated agent traffic.
• CFO Wong reported that 75% of World Cup games and two-thirds of the associated viewership occurred in the second quarter, contributing to a $10 million revenue upside against the guidance midpoint.
• The go-to-market strategy has shifted under a new Chief Marketing Officer to prioritize adding new logos and creating "value for that next set of customers" beyond the top 10 accounts.

INDUSTRY GLOSSARY

• Compute@Edge: Fastly's serverless computing environment that allows developers to run code at the edge of the internet.
• Next-Gen WAF: A web application firewall that protects against web-based attacks by analyzing application-layer traffic.
• RPO: Remaining Performance Obligations, representing the total value of contracted revenue that has not yet been recognized.
• LTM NRR: Last Twelve-Month Net Retention Rate, a measure of revenue growth from existing customers over the preceding year.
• Agentic Traffic: Automated internet traffic generated by AI agents or bots acting on behalf of users or systems.
• DDoS: Distributed Denial of Service, a cyberattack that attempts to overwhelm a network with a flood of traffic to disrupt service.

Full Conference Call Transcript

Operator: Good afternoon. My name is Corey, I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 again. Please be advised today's conference is being recorded. I would now like to turn the conference over to Vernon Essi, Investor Relations at Fastly. Please go ahead.

Vernon Essi Jr.: Thank you, and welcome, everyone, to our second quarter 26 earnings conference call. We have Fastly's CEO, Charles Compton, and CFO, Richard H. Wong with us today. The webcast of this call can be accessed through our website fastly.com, and will be archived for 1 quarter. A copy of today's earnings press release related financial tables, and supplement, all of which are furnished in our 8-K filing today, can be found in the investor relations portion of Fastly's website. Along with the investor presentation. During this call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, product and services sales and growth, strategy, long term growth, overall future prospects.

These statements are subject to known and unknown risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected or implied during the call. For further information regarding risk factors for our business, please refer to our filings with the SEC. Including our most recent annual report filed on Form 10 k quarterly reports on Form 10-Q filed with the SEC and our second quarter 26 earnings press release and supplement for a discussion of the factors that could cause our results to differ. Please refer, in particular, to the sections entitled risk factors. We encourage you to read these documents.

Also note that the forward-looking statements on this call are based on information available to us as of today's date. We undertake no obligation to update any forward-looking statements except as required by law. Also, during this call, we will discuss certain non GAAP financial measures and certain key performance indicators. Unless otherwise noted, all numbers we discuss today other than revenue will be on an adjusted non GAAP basis. We do not provide reconciliations of forward looking non GAAP measures because quantitative reconciling of information for these measures is unavailable without unreasonable effort.

Reconciliations to the most directly comparable GAAP financial measures are provided in the earnings release and supplement in our Investor Relations website and filed with the SEC. These non GAAP measures are not intended to be a substitute for our GAAP results. Before we begin our prepared comments, please note that during the third quarter, we will be attending the KeyBanc Capital Markets Technology Leadership Forum in Park City on August 10th the Citi 26 Global TMT Conference on September 9 in New York, and the Piper Sandler Growth Frontiers Conference in Nashville on September 15th. And we will also be hosting our Investor Day on September 22nd at the NASDAQ market site in New York.

Now I will turn the call over to Charles.

Charles Compton: Good afternoon, everyone, and thank you for joining us today. Fastly delivered another exceptional quarter, demonstrating the success of our platform strategy efforts, as customers continue to adopt more products on our platform, we posted our fifth consecutive quarter of improving net retention rate and our 6th consecutive quarter of positive free cash flow. Revenue reached a record $183 million, up 23% year over year, exceeding the high end of our guidance. Gross margin hit a record 65.8%, and operating income came in at $27 million, both above the high end of our guidance range. These results marked the fourth consecutive quarter of operating profit capped by a record operating margin of 14.7%.

Our Q2 results continue a clear trend. delivering growth and profitability together. These results reflect operational discipline and a continued investment in our highest value growth opportunities. Our trailing 12 month net retention rate rose again to 117%, the highest level in over 3 years, as customers look to our platform to support their infrastructure needs and standardize more of their stack on Fastly. Our platform strategy is foundational to our success. We build, sell, and operate a single unified platform which means better consistency and performance for our customers. And a more efficient network for us to run.

It also means that when customers face a new threat, or business opportunity, they do not need to bolt on another tool. Fastly enables them to solve their problems on 1 flexible platform. This results in deeper customer relationships, greater wallet share, and a more durable revenue model over time. You can see that strategy working in the numbers. Security grew 43% year over year, driven by cross sell and upsell. The demand for edge threat defense intelligence, and governance is driving rapid adoption of our security products. Solutions like DDoS protection and bot management grew at triple digit rates year over year. Over time, we expect our differentiated security capabilities to represent a larger portion of the business.

We integrate these newer features with our capabilities and industry leading Next-Gen WAF broadening the customer footprint and wallet share with Fastly. Our platform strategy in action. Leveraging targeted capabilities in 1 product category to deepen relationships and drive overall platform expansion across categories. We continue to see AI driven traffic as a tailwind, with our compute offering emerging as an expansion engine. As customers face increasing scale and complexity, they are buying more of our platform to handle these demands, weaving custom edge functions directly into their traffic flows alongside our industry leading Next-Gen WAF. Additionally, as machine traffic and automated agents grow, tools that distinguish wanted traffic from unwanted traffic become essential.

These trends contributed to our security and other revenue growth of 46% year-over-year on a combined basis, now at nearly $200 million annual run rate. We continued to win our network services business, which posted strong 17% year-over-year growth. This is where customers choose Fastly when performance matters. This summer, our platform strength showed up on the biggest stage in the world. Major global sporting events pushed record breaking traffic through our infrastructure. Vastly delivered, reliably, at scale, and without missing a beat. But performance is only part of the story. The same platform that delivered that traffic also governed it, making real time stream by stream decisions about what should flow and what should not.

LaLiga, Spain's top football league, is a good example. Illegal streaming costs its clubs an estimated $700 million a year. Working directly with LaLiga, we built an AI driven real time detection system that identifies and shuts down pirated streams as they happen in the moment, right in a request path. As the market evolves, the need is shifting from centralized AI platforms to real time edge decisions. This kind of value add for our customers alongside our market leading performance is why so many of the world's top brands rely on the Fastly platform to deliver their mission critical content. And you can see the power of our platform and other key customer wins this quarter.

Let me share a few examples. A leading fintech platform serving more than 500 thousand businesses chose Fastly following a rigorous competitive evaluation. Last year, a number of catastrophic outages put their critical partnerships at risk. The deciding factors including increased security capabilities, platform flexibility, and resilience. A global education technology customer, a significant data breach affecting millions of user records when their prior WAF failed to adequately mitigate attacks. They chose Fastly's Next-Gen WAF, managed security service, and network services handle their application traffic without disrupting their large active user base. A leading UK health and beauty retailer expanded their use of Fastly's platform with a multiyear, multimillion dollar commitment.

The customer replaced a long time incumbent security vendor, part of a broader platform modernization and consolidated all of their edge services on Fastly. And working through a managed service partner, Fastly now powers live and on demand streaming delivery for a national public broadcaster in Europe. I mentioned AI is a tailwind behind our fastest growing product a moment ago. But it is showing up well beyond that. How we think about our network, our compute platform, and where we are investing next. We shared in Q2 that AI generated traffic is growing at roughly 6.5x the rate of human traffic. Machines do not browse the way people do.

They query, scrape, or act on someone else's behalf, and that makes every request more complicated. This means every request requires an immediate decision. Is this an authorized agent? Should it be cached, throttled, monetized, and or blocked? that is why we see our security and compute products accelerating right alongside this machine traffic. Fastly was built to be that trusted control plane for those decisions. In an AI powered world, our customers are moving from reactive blocking to active governance. Le Monde is a good example. They use ContentGuard, part of our bot management solution, to set the terms for how their content gets accessed. Turning what used to be a scraping problem into controlled, licensed, revenue generating relationships.

A major auto shopping platform saw AI based traffic as both an existential challenge and an opportunity for their business. They added Fastly's bot management and DDoS protection to gain visibility and control over the automated traffic hitting their platform, giving them the governance capabilities they need to run their business. We also announced a partnership with Skyfire. Leveraging the structural shift towards authentic traffic at the edge Skyfire uses Fastly compute and integrates their verified agent identity and payment backed credentials directly into our platform. Transforming agent traffic from anonymous automation into accountable economic activity.

I look forward to sharing more about the evolving needs of the market how our platform meets those needs and how that translates into momentum in our business strategy at our Investor Day in September. When I became CEO 14 months ago, I outlined our commitment to accelerating growth driving profitability, and delivering lasting value for our shareholders. Thanks to the trust of our customers, partners and the exceptional dedication of our team, we are delivering on those priorities as demonstrated by delivering the highest revenue growth quarter in almost 4 years. We remain focused on our customers and on disciplined execution. The results this quarter record margins alongside strong growth, show that discipline compounding.

We have fine tuned our innovation engine and are co innovating with partners across the entire platform driving a new level of customer value and engagement. I am proud of this team and as optimistic as ever about the future of Fastly. And now I am going to hand it over to Richard to walk us through the numbers and quarter in detail. Richard?

Richard H. Wong: Thank you, Charles, and thank you everyone for joining us today. This month is my 1 year anniversary since joining Fastly in August 2025. Reflecting upon my first year, I am very proud of the progress we have made as a company. 1 year ago, I chose to join Fastly because I was excited by our leading technology and superior performance. With the belief that we are positioned at the right place at the edge cloud at the right time as we see workloads shifting to the edge to complement central clouds. I also saw an opportunity to unlock value for our customers and shareholders by mobilizing the finance team to be true strategic partners to the business.

There is no doubt that our position has improved over the last year as we continue to partner with our large customer base and expand our platform. I have deepened the executive strength of our finance team, bringing on a new head of strategic finance and a new chief accounting officer. They in turn have filled up their talent bench, resulting in many improvements to the business, from accelerated close times to providing greater financial and strategic insights to our business. These provide cross functional financial discipline and leverage to Fastly's performance, enabling investment and optimizing the return to our shareholders. This has been reflected in our results over the last year.

We have reaccelerated growth to north of 20%, have generated $79 million in positive EBIT over the last 4 quarters, and have maintained 6 straight quarters of positive free cash flow. Now on to our Q2 results. I would like to remind you that unless otherwise stated, financial results in my discussion are non GAAP based. Revenue for the second quarter increased 23% year over year, to $183.3 million exceeding the high end of our guidance range $170 million to $176 million This result was a record high for Fastly and was driven by continued success in our go-to-market upsell and cross-sell motions, as we see customers adopt more products within our platform.

In the second quarter, network services revenue of $103.9 million grew 17% year over year, an acceleration from the prior quarter. Security revenue was $41.7 million which represented growth of 43% year over year and 8% sequentially, Security now represents 23% of revenue compared to 20% in the year ago quarter. This increased mix supports our long term objective of building a diversified, higher value business. Our other products revenue of $7.7 million grew 69% year over year driven primarily by sales of our compute products supporting new customer requirements in AI, and related areas.

Our revenue upside in the quarter was driven by increased traffic at our largest customers and to a lesser extent, a couple of live sporting events that were episodic in nature. In the second quarter, our Top 10 customers represented 37% of revenue, Revenues from our top 10 grew 48% year over year, Revenue from customers outside our top 10 grew 12% year over year. Also, no single entity accounted for 10% or more of revenue in the second quarter, A group of entities under common control of the single customer accounted for 11% of the company's revenue for the quarter.

Our large customer count, which represents customers with more than $100 thousand in annualized revenue in the quarter, adding 24 customers. Our trailing 12 month net retention rate was 117%, up from 113% in the prior quarter and up from 104% in the year-ago quarter. The quarter over quarter and year over year increases were due to revenue increases across a broader range of customers as they expand their use of our platform. We exited the second quarter with RPO of $341 million growing 38% year over year, The current portion of RPO was 79% of total RPO, and grew 44% year over year.

Our improved RPO continues to benefit from improved go-to-market discipline with our customer onboarding, which resulted in larger upfront commitments. I will now turn to the rest of our financial results for the second quarter. Our gross margin was 65.8% in the second quarter, a record high for Fastly. Gross margin was 180 basis points above our guidance midpoint of 64%, and up 680 basis points from 59% in Q2 25. The upside in our gross margin was driven by higher revenue relative to our infrastructure costs. Combined with our continued financial discipline in our cost of revenue, we believe our gross margins are sustainable at these levels.

This is further substantiated by our incremental gross margin through on a trailing 12 month basis, increasing to 96% in the second quarter, up from 47% a year ago. Operating expenses were $93.7 million in the second quarter coming in better than anticipated due to disciplined expense management and less than anticipated benefits and discretionary spend, as well as the timing of new hires being biased towards the third quarter which I will touch upon later in the call.

We had operating income of $27 million in the second quarter, exceeding the high end of our operating income guidance range of $12 million to $16 million As mentioned, this upside was a combination of higher revenue and resulting gross margin flow through as well as less than anticipated operating expenses. This reflects inherent operating leverage in our business model. This is demonstrated by our operating margin expanding from -3% to +15% in the second quarter an expansion of approximately 1.8 thousand basis points year over year. This is underscored by our incremental operating margin flow through of 79%, of revenue on a trailing 12 month basis significantly above our long term target of 25% to 40%.

In the second quarter, we reported a net profit of $26.2 million or $0.05 per diluted share compared to a net loss of $5 million or negative $0.03 per diluted share in Q2 25. Our adjusted EBITDA was $38.1 million or 21% of revenues, in the second quarter compared to $8.9 million or 6% of revenues in the second quarter of 25. Turning to the balance sheet, we ended the quarter with approximately $337 million in cash equivalents, marketable securities and investments, including those classified as long term, a sequential increase of $7 million over Q1 26.

We also ended the quarter with a positive net cash balance of $14 million Our cash flow from operations was positive $39.3 million in the second quarter, compared to positive $25.8 million in Q2 25. Our free cash flow for the second quarter was $3.6 million representing our 6th consecutive quarter of positive free cash flow. Our infrastructure capital expenditures were approximately 17% of revenue in the second quarter. As we discussed in prior quarters, we front loaded our 2026 CapEx to ensure we had adequate equipment given supply chain constraints. We anticipate our CapEx spend will moderate in the back half of 26 as I will discuss in a moment.

In summary, the first half of the year demonstrates that disciplined execution and platform adoption continue to strengthen our financial model give us higher conviction on our 2026 guidance. I will now discuss our outlook for the third quarter and full year 2026. I would like to remind everyone again that the following statements are based on current expectations as of today, and include forward-looking statements. Actual results may differ materially, and we undertake no obligation to update these forward looking statements in the future. Except as required by law. Our revenue model is primarily based on customer consumption, which can lead to variability in our quarterly results.

Our revenue guidance reflects these dynamics in our business and is based on the visibility that we have today. As Charles discussed, our platform strategy is foundational to our success, enabling customers to solve their problems on 1 flexible platform. This results in deeper customer relationships, greater wallet share, and a more durable revenue model over time. The strategy is working, and providing a stronger assurance in our value proposition and growth opportunities with customers. In the third quarter, we expect revenue in the range of $184 million to $190 million representing 18% annual growth at the midpoint. We anticipate our gross margins for the third quarter will be 65% plus or minus 50 basis points.

As a reminder, our gross margin performance is highly dependent upon incremental revenue increases or declines relative to infrastructure costs. For the third quarter, we expect a non GAAP operating profit of $20 million to $24 million reflecting an operating margin of 12% at midpoint. As I mentioned earlier, we expect headcount additions along with discretionary spend to bring OpEx back to normalized growth levels to the third and fourth quarters. We expect a non GAAP net earnings per diluted share of $0.11 to $0.13 For calendar year 2026, we are raising our revenue guidance to a range of $732 million to $746 million reflecting annual growth of 18% at the midpoint.

We anticipate our 2026 gross margins will be 65% plus or minus 50 basis points. We are increasing our non GAAP operating profit expectations to a range of $88 million to $96 million reflecting an operating margin of 12% at the midpoint. And highlighting our improved profitability compared to 2025's operating margin of 4%. We expect our non GAAP net earnings per diluted share to be in the range of $0.50 to $0.54 We continue to closely monitor supply chain dynamics particularly regarding memory components and have taken strategic actions to mitigate potential impact. Our software defined infrastructure is continuously improving, typically with lower capital requirements for expansion than legacy competitors.

We are also implementing server component upgrades in our fleet to efficiently expand our capacity. This structural efficiency underpins our expanding gross margins. Positioning us to stay ahead of global traffic trends while maintaining strict capital discipline. For 2026, we continue to anticipate our infrastructure capital spend will be in the range of 10% to 12% of revenue, compared to 5% in 2025, as we ramp up capacity to meet our growth objectives. As discussed, this 2026 spend is front loaded in the first half to ensure we have adequate equipment given recent supply chain constraints. We have a rigorous planning process to ensure that our capital investments align with demand.

As a result, we will maintain our 2026 free cash flow guidance in the range of $40 million to $50 million To recap, we are seeing continued evidence that disciplined execution growing platform adoption, a richer mix of security and compute are translating into stronger financial performance. Our refined strategy to focus on the power of our platform is working, and we are evaluating ways to better align our financial disclosures to our success. I look forward to sharing more at our Investor Day in September. Before we open the line for questions, we would like to thank you for your interest and your support in Fastly. Operator?

Operator: Thank you very much. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please standby while we compile the Q&A roster. Our first question comes from the line of Jackson Ader of KeyBanc Capital Markets. Jackson, your line is open.

Jackson Ader: Hey. This is Ader Daniels on for Jackson. Thanks for taking my question. On the network services jump in the corner, we would love to just dig a little deeper here. Q2 seasonally has not been the best quarter in the past for CDN revenues. You mentioned some increased traffic from the largest customers. Was there a positive impact from agentic traffic driving this outperformance? And then did you experience any share gains from competitors And just a follow-up. 1 moment, please.

Charles Compton: Hey. Keep going, Charles. Sorry. I am sorry. We were interrupted there. In terms of agentic traffic, we do not necessarily break that out. However, we have seen signs of traffic driven by AI tool usage. Among some of our fastest growing accounts. And so we do believe that AI remains a tailwind for the business and is showing up most predominantly in security and compute, but also in network services. And then just wanted to follow-up on, your NRR expansion. I am sorry. Can we-- I think we might have a technical difficulty Did you hear the whole answer to that question? Maybe we could, yeah, start from the beginning. I think we had a lapse there.

Operator: Thank you. Charles.

Charles Compton: Alright. Can you hear us now? Alright. Yep. All good. Great. So I think there are 2 parts to the question. was whether or not we thought we are gaining share in the network services segment, and second was whether we were seeing, signs of AI or agentic traffic helping drive that growth. On the first question, yes, we do believe that we are gaining share, particularly as we like to say where performance matters. And I think there was some third party research that is come out in the last few months that agreed with that assessment. On the AI agentic question, we do not necessarily break that out as a distinct set of traffic.

It drives demand in our existing products and across our platform. However, looking at the traffic patterns among our customers, we have identified a number of customers where AI tools and use of AI seem to be the catalyst behind traffic growth. So we continue to see AI agentic traffic as a tailwind for the business across our existing products. As well as products like bot management and DDoS that help mitigate that. As well as some additional products that we will announce in the coming months.

Jackson Ader: Thanks, Charles. Good to hear both parts. I appreciate the repeat. And then just following up, on the NRR expansion, I know it is all up to 117%. You mentioned customers standardizing more of their full stack on Fastly. Could you unpack maybe a little more of what is driving the most expansion there? Is it security and compute cross sell into existing accounts? Better renewal pricing on CDN, or anything else maybe to highlight there? Thanks, guys.

Richard H. Wong: Yeah. When we think about our products, Jackson, it is it is kind of a broad, you know, portfolio that cuts across multiple products in network services as well as multiple products in the security. I would say that the cross sells and upsells, tend to be you know, I think that know, we have had a WAF, the web application firewall, and that is been doing really well. Our WAF continues to, you know, gain share and continue to grow faster than the market. And so I think that is a pretty big driver. it is also the new products that we have launched You know, I think I would not say new, but newer.

With the DDoS and bot management. I think those 2 are also picking up a lot of traction. And so I would say security is doing a lot. I think that, on the compute side, you know, there is some traction there, but it is still early days. I think Kim had mentioned on the call that we are doing a lot of co innovation with our customers on compute and compute at the edge. Thank you very much.

Operator: Our next question comes from the line of Frank Louthan of Raymond James. Frank, your line is open.

Frank Louthan: Great. Thank you. So as far as some of the AI related traffic, what is some of the nature of the workflows that you are having success there? And do you think you are taking share in that market? Or are you just seeing sort of an overall lift in demand And then similarly, for security, what are some of the things that are driving that success? In security? Thanks.

Charles Compton: Hey, Frank. I do not know if I can comment on whether we are taking share or not specifically with respect to AI traffic. Because I think the data on the size of that market and the competition of it is somewhat thin. But we do see that traffic is growing in the markets that we participate in, and we certainly believe that we are taking share in those markets. In terms of workloads, there is really a variety of things across our platform. You know, we have seen some increase in traffic related to the use of AI tools for software development. We have also seen increase in our privacy suite of products related to agentic workloads.

And so it is really across the board. So, of course, we have seen increasing adoption of bot and DDoS as our customers look to manage the agentic and bot traffic as well. So it is really across the board. I will let Richard comment on the second part of your question.

Richard H. Wong: Yeah. I think the second part is, you know, what is driving security? I would say, you know, what is driving security really is just the you know, the complexity and the complications of traffic. As traffic gets harder and more complex, there are more and more threat actors that come along. We do have some really good products leveraging our total network to really do amazing things with it. I think that, you know, we have a lot of different features that allow our customers to be able to either block the traffic or rate limited traffic. As well as kind of even, like, use AI to detect, you know, whether the traffic is good or bad.

So I think I would say that AI is helping accelerate some of the security adoption, but I would also say just the prevalence of more threat actors out there.

Charles Compton: Yeah and I will comment. I mean, I mentioned it in a couple of the customer examples in my prepared remarks, but you know, we are seeing customers looking to simplify and consolidate And in a lot of cases, they are very happy with the performance and the resilience that they get from Fastly. And they look at the effectiveness of our WAF products. And as I think you heard in my comments, so the number of cases we picked up significant business from customers who were not happy with the effectiveness of their existing security solutions and decided to consolidate on Fastly for the performance and resiliency and then the effectiveness of those security solutions.

So that is certainly a trend as well. Thanks.

Frank Louthan: And if we if we look at the breakdown of your Top 10 customers, is it generally representative of your breakdown between the network service and security? Or are they more over underweighted to those? Is there some opportunity there? Thanks.

Richard H. Wong: Yeah. I mean, if you look at the top 10, I mean, 73% of our revenues today come from network services. And so I would say that it is pretty close to that. Maybe slightly a little bit higher, but it is a you know, it top 10 does buy multiple products. You know, I think we have mentioned in prior earnings calls. That we have done a good job landing, cross sell opportunities into security with some of our Top 10 customers as well. Thank you very much.

Operator: Our next question comes from the line of Peter Levine of Evercore. Peter, your line is open.

Analyst: Great. Thank you, gentlemen, for taking my call. Maybe I want to follow-up with the prior question that was asked, your commentary around co innovation, on the Edge or within the other revenue line item. But maybe can you give me walk us through like what does that entail? Like, what are customers coming to you and asking for? What does that co innovation look like? And, you know, when could we see products come to market?

Charles Compton: Sure. I mean, I think that co innovation takes a lot of forms, and it is something that we have had as sort of the foundation of our product development process is working with some of our more innovative customers on their business problems and building sustainable solutions that we believe have the potential that then become market leading products. You know, I mentioned I think, a couple of examples during my prepared remarks. The Liga perhaps is a good example where we co innovated with them on a way of dealing with some pretty thorny piracy problems using AI technologies.

And the tricky situations where pirates are going to great lengths, to hide their streams and deliver content illegally through our platform. And using some AI technologies, we were able to identify and stop those. And that antipiracy type technology, as you can imagine, is of great interest to many of our customers. We are also engaged in a number of co innovation projects with different customers around AI and agentic traffic. You know, we will say more about that in the coming months. But suffice to say that, you know, we really think that we are at our best when we are working shoulder to shoulder with our customers on business problems.

And applying the capabilities of our platform to solve them and then taking those to market.

Richard H. Wong: Yeah. The only thing I would add on that is that, you know, I think if you think about where we have won in the past we have always won where performance matters. You know, our technology, given where it is at, you know, we are a very good co innovation partner to these customers because these are the more complex technical customers who need you know, massive amounts of support and innovation with them. And so I think those are the opportunities that are really in the future. Thanks.

Analyst: And maybe, Richard, a follow-up there is you think about some of your CDN competitors and the investments they are making, around their infrastructure, maybe help us understand, if we look out over the next 1, 2, 3 years, how do you envision the edge compute business? What does it look like And what how much of an investment do you guys need to put forth to kind of maybe keep up with some of this demand that potentially you see in the pipeline today?

Charles Compton: Yeah. I will start and comment a little bit about on the trajectory of the compute business, and Richard can comment on how we are thinking about the investment needs there. You know, we are we are focused on a what I will call a true edge compute business. We are not building regional data centers or spending a lot of money on capital outside of our world class, you know, high performance global edge network. And we are really focused on the use cases where, being able to process that information or run that workload at the edge really makes a difference.

So I think that is 1 of the things you see is maybe a difference between us and some of our competitors. We also run a single network. So Rich does not have in a spreadsheet a separate line for the capital for compute. We run everything on a consolidated platform, on a global basis. And that means that we are able to use compute resources For instance, it may not be fully utilized by network services or compute workloads or, excuse me, security workloads, to drive compute workloads. And so I think that is 1 of the reasons why we have been able to be a little bit more capital efficient.

That said, we are committed to driving growth in the business. And, where we need to make investments, we will. And I think you saw, our CapEx, tick up this, quarter as we said it would. For our front loaded approach to capital this year. But we will make the investments we need to drive growth in the business.

Operator: Thank you very much. Our next call comes from the line of James Fish of Piper Sandler. James, your line is open.

James Fish: Hey, guys. James Fish getting in a question here, and in terms of, obviously, you guys, did a phenomenal job at the World Cup. I wish our US team would have done a little bit better. But, you know, can you walk us through what the impact of World Cup was to Q2 and on the Q3 guide, just kind of given its split as well as that. We had that seasonality shift of Prime Day into Q2 here. Just can you walk us through some of those events that you saw that really helped traffic?

Richard H. Wong: Yes. James, thank you for asking that question. I would say that, for Q2, with our prepared remarks, we had $10 million upside to the guide, midpoint that we had. I think a little bit less than half was given to driven by the episodic nature of the business. Episodic meaning partly World Cup. We also had a few you know, another live event on the White House Lawn. We also had a few other customers have a 1 time activities. And so think of that as a little bit less than half as driving the episodic activity.

I would say that, you know, our you strip that out and you say, look at the Q3 guide and the Q3 guide being up sequentially, and you let you take that into account, I think it is Back to kind of normal seasonality between Q2 and Q3. The only other thing to note is that when you look at World Cup, you know, 75% of the games happened in Q2. And only 25% will happen in Q3. And so that kinda goes into the forecast that we have. And then on a view viewership perspective, about 2 thirds of the games Are viewed in Q2 and about a third in Q3. Perfect. Thanks for that extra detail there, Richard.

James Fish: And maybe just as we think about security penetration, you guys have done a good job here in terms of the packaging. But any update as to how we should think about penetration on security with more than 1 product as well as north of 2 products as it seems like you guys are benefiting off consolidation? Thanks, guys.

Richard H. Wong: Thanks, James. Yeah. Mean, security is still, you know, you can tell with the numbers. it is you know, it is $42 million, you know, Q2 number. We still have rooms to grow, know, given that $42 million. I we will continue to be mark market share takers. You know, our WAF is you know, I think been updated over the last 2 years. And I think with the launch of, DDoS and bot management, I think that we are gonna continue to be big market share takers in security. You know, I think the multiproduct disclosure question is a interesting 1.

And I think that, without saying too much, you know, stay tuned for our investor day coming up in September. Thank you very much.

Operator: Our next question comes from the line of Paramveer Singh of Oppenheimer. Param, your line is open.

Paramveer Singh: Yes. Hi. Thanks for taking my questions. So first, really good to see the strength in security. I wanted to understand how much of your installed base already uses your DDoS and bot management And, you know, if you could quantify that in terms of an innings and how much upside you see just from cross sell versus selling into new opportunities. Then I have a follow-up.

Charles Compton: Great questions. DDoS and bot are newer products. For us. So I would say maybe second inning. In terms of the penetration there, we are seeing I think we I mentioned in my prepared remarks, we are seeing triple digit growth in those 2 products. So right now. So we are excited about the increasing penetration of those and our customers are finding them directly responsive to some of the AI traffic opportunities and challenges that they are finding.

Paramveer Singh: that is great. Second question, you know, what I understand a way to think about agentic AI traffic. Richard, I mean, it benefits you across entire platform. there is compute. there is different security modules, including API Obviously, network traffic also benefits. There a way to quantify or think about how much upside we could see per unit traffic on agentic AI versus, let's say, you know, your traditional bot traffic or human traffic. Thank you.

Charles Compton: Yeah. I mean, it is hard to say. I wish I had a quantitative answer for you there. You know, what we are seeing is probably a bigger impact in the compute and security businesses, the network services business at the moment. That is partially driven, I think, by the fact that the well, the request per second or volume of request can be extremely high. We talked about the growing 6.5x faster than human traffic. The bandwidth which network services tends to have as a billing component, it is a little bit lower than streaming events. And so we are seeing greater effects in security and compute although we are absolutely also seeing effects in network services.

And, you know, just given the growth rate of that traffic, we believe that over time, it becomes significant for the business.

Operator: Our next question comes from the line of Rudy Kessinger of D. A. Davidson.

Rudy Kessinger: Hey, guys. Great. Thanks for taking my questions. The Top 10 customers is a percentage of revenue. Increased 3 points versus Q1. I know, obviously, some of the you know, World Cup live events contributed to that. But, you know, they were 87% of your quarter over quarter revenue growth. While at the same time, the growth in your all other customers' revenue decelerated about 6 points year-over-year versus Q1. So I guess I am interested on both fronts. Just as you look to the second half of the year, you know, what kind of concentration are you expecting from Top 10 customers in Q3 and Q4?

And then on the flip side, the growth in all other customers are expecting that to bounce back up in the second half or what is your expectation there?

Charles Compton: So it is a good observation. I mean, I think we clearly had we are really pleased with the growth overall. This quarter. With 23%, the fastest in 4 years, and we think that shows that the go to market transformation, that Scott Lovett and his team have been driving and that we have been talking about for a bunch of quarters now is making progress. That said, there is more work to be done there.

We are not done with our go to market, and you saw us bring on for instance, the new chief marketing officer about a quarter ago, and Scott and his leadership team continue to make changes and improvements in various parts of the organization and the process and how we are structuring our go to market investments. And I think it is fair to say that, you know, we would like to see more new logos and, more growth outside of those top customers. To complement the robust growth that we are seeing with the top customers. Last thing I will say is you know, sometimes there is some confusion about the large customers and economics.

I think our record gross margins this quarter shows that we are able to serve all of our customers very profitably.

Operator: Rudy, I think the second part of your question was around, you know, where do we see it going in the second half of the year.

Richard H. Wong: I would say that, you know, 37% in this current quarter, I think the impact that Joan and Scott have had, that transformation is still going on. And we do think that it take, you know, a little bit of time. I would not be surprised given the strength of our Top 10 customers and even the top 20 customers, who really love the performance that we have been giving them. I would not be surprised if the 37% kinda stays there or maybe picks up a point or 2.

Rudy Kessinger: Okay. Got it. Super helpful. And then just on AI traffic, I mean, look. You guys are obviously tracking it. It said it is growing 6.5x faster than all other traffic. So, I mean, what percent of the traffic on your network today is coming from AI traffic?

Charles Compton: Yeah. We do not have I mean, we track the growth of it. I do not have a breakout. That I can share with you at this time. We do believe it is relatively modest in a lot of parts of our business. But rapidly growing.

Operator: Our next question comes from the line of Fatima Boolani of Citi. Fatima, your line is open.

Fatima Boolani: Good afternoon. Thank you for taking my questions. Charles or Richard, jump ball for either 1 of you. You have talked about the pricing vector and the volume vector. In a pretty explicit detail for the last several quarters. So I was hoping to revisit what you are seeing from a traffic, so non AI traffic growth perspective, and also the realization from a pricing perspective. A lot of your peers have either dissipated and or are raising prices. So I wanted to understand, what your response to that, externality is. Are you raising prices as well? Has that been a contributing factor to the gross profit accretion?

I would love to get maybe more of a granular update on how you are thinking about those 2 vectors and how to internalize that in that acceleration you saw in the network services business, understanding that about half of that was more episodic, but would love to get a little bit more detail on kind of the structural inputs there. And then I have a follow-up please.

Richard H. Wong: Sure. So pricing in Q2, I would say it was very consistent with Q1 and even the prior year Q4. We are in a very kind of rational pricing environment with really rational players, you know, since the exits. Price erosion, I would say, would still be in the kind of the mid single digits consistent with last quarter. I think our traffic growth continues to be in the low, like, 20% range. Just wanna also remind you that, like, when we talk about price erosion, this is network services divided by the total traffic served.

And what tends to happen with that is because it is an aggregate number, it is kind of like depends on the customer mix and how it is going. Know, the price erosion that you see is kind of based on a also volume discounts that we get as long as, you know, these customers continue to add volume to our network. They actually might hit next pricing tier discount that we give them. So even though we are saying there is a mid single digit price erosion, a lot of it is due to hitting the next volume tier.

In terms of, like, what we are doing about pricing given, you know, what our competitors are doing or what Akamai had announced that they were doing, we feel like it is really important to continue to honor the commitments that we have. We have no plans to do kind of surcharge pricing on that. You know, when we look at renewals, and when the renewals come up, we do not make unilateral rules around it.

We actually look at the customer the customer value that we provide to them as well as what they are buying from us, with the goal of really unlocking more value and getting you know, and doing that on the on the base case by case basis. So the conversations tend to be more about how we help our customers using the full suite of our products and less about, like, you know, you know, unilateral rules that we set around, you know, where the prices go.

Fatima Boolani: Thank you. And just to follow-up on net retention rate. Obviously, strong in the quarter. I am curious to get your thoughts on the trends from here. Is this a high watermark? Can we push the envelope? And see a better yield on this continuing to expand, especially as you lapse them? Very strong revenue performance from last year and appreciating net retention rate metric is a trailing 12 plus month metric. So how should we think about the this watermark continuing to increase if at all. Thank you.

Richard H. Wong: Yeah. Thank you for that. Yes. This is our fifth consecutive quarter of increasing. We are really proud of the progress that we have made here. I think Scott and the go to market transformation that Kim mentioned that Scott's doing in his organization has really helped. And it is helped not just with, you know, the metrics, but also the customer love that they are showing us. We do not necessarily guide where NRR is going to be. But I will say that our customers continue to grow with us.

And we are really pleased with our improvement that we are seeing You are absolutely right to call out that coming up in Q4 it will be a harder comp. Given the strength of our Q4 25. And so definitely something to kinda factor in as you think about building your model out. But I would say that customers continue to grow with us because they are happy with what we are providing them.

Operator: Thank you very much. As a reminder, to ask a question, please press star 1 on your phone. And you will be advised when your line is up. Our next question comes from Jeff Van Rhee of Craig-Hallum Capital Group.

Jeff Van Rhee: Hey, guys. This is Daniel on for Jeff. Just 1 on the hiring that you mentioned, Richard, that it slipped from Q2 into Q3. And maybe some other expenses there. Maybe if you could just expand a little bit on what those functions, what those investments are that you are planning on making.

Richard H. Wong: Yeah. The you know, from a hiring perspective, the areas that we have highlighted in the past on our earnings call have been around the APAC go to market. I think a year ago, we serving, you know, serving a lot of our APAC customers from Sanjit Francisco and London, you know, our office in London, and so the time zones were just way off. I think that we really want to improve that quality of the relationship with our customers and have more on the ground there. And so we announced that we hired Nikola who kinda leads up our APAC function.

I think that we are also talking about, you know, more recent investments this year around our marketing efforts with Joan and bringing on CMO. With Joan and the CMO, I think the focus, on our go-to-market transformation has been how do we maximize the value we create for some of our largest customers. And what you are gonna see with the shift with Joan is, how do we continue to add more logos, and how do we continue to, like, go down, and create value for that next set of customers. And so I would say those are the 2 kind of big, you know, areas of investment that we are making.

Jeff Van Rhee: And then that is helpful, Richard. And then Kim, on the top customers and some traffic share shifting toward you, just any thoughts on what is driving that You know, if to Fatima's question that has to do with pricing or any other factors that have to do with traffic shifting. This is specifically share gain. Thanks.

Charles Compton: Yeah. Thanks for the question. I think there is a few things. The 2 that come up most frequently are reliability or resilience. We certainly have instance where we have picked up business because the incumbent solution had issues in terms of an outage or other reliability issues. The other area is performance. So we you know, consistently hear from our customers who are adding traffic that our performance is better than our competitors. I would say that with respect to pricing, obviously, that is a factor. You have to be market competitive in terms of pricing. But it is not generally the way that we are picking up traffic by discounting or lowering prices.

We believe that the effectiveness of our security products and the performance and resilience of our overall platform is the dominant thing driving people to switch.

Operator: Thank you. At this time, I am showing no further questions, and I would like to turn it back to Charles Compton for closing remarks.

Charles Compton: Thank you for your questions and your interest in Fastly. Looking forward to seeing you at our investor day. On September 22 at the Nasdaq MarketSite in New York. I want to thank our Fastly employees for all their contributions our customers for their trust and partnership, and our investors for their continued support. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude our program. You may now disconnect.