Fastly raises 2025 revenue outlook to $614M amid 15% quarterly growth and security momentum

Earnings Call Insights: Fastly, Inc. (FSLY) Q3 2025

MANAGEMENT VIEW

* CEO Kip Compton stated that "We had an outstanding third quarter, and I'm pleased to share our results. These results reflect our disciplined execution, exceeding the high end of our guidance on revenue and operating profit as well as achieving record free cash flow." He emphasized that "This quarter marks the next step in Fastly's transformation, accelerating growth and innovation with operational rigor and discipline. As a result, we are raising our full year guidance for revenue, profitability and free cash flow." Compton highlighted record performance across all three product lines, and specifically pointed to 15% revenue growth, a 62.8% gross margin, and record operating income and free cash flow.
* Compton detailed that "Our platform expansion and cross-sell strategies were major contributors driving our security revenue growth to 30% year-over-year." He also highlighted a significant multiproduct win with a top 10 strategic account and the launch of new security and AI enhancements for the Fastly platform.
* He introduced Rich Wong as the new CFO, noting his immediate impact: "We are incredibly excited to have Rich on the leadership team. He has hit the ground running, focusing on scaling the business and maintaining strong cost discipline."
* CFO Rich Wong stated, "Since coming on board, I have seen many opportunities in finance where we can influence better outcomes with our customers as well as our financial performance with our investors. For example, as we move into year-end 2025 and looking ahead to 2026, we are implementing a rigorous budgeting process across the company, and we are building more discipline around the ROI of our spend with a focus towards growth and scale."

OUTLOOK

* Fastly expects Q4 2025 revenue in the range of $159 million to $163 million, representing 15% annual growth at the midpoint.
* The company anticipates Q4 gross margins of 61.5% plus or minus 50 basis points.
* Non-GAAP operating profit for Q4 is expected to be $8 million to $12 million, with non-GAAP net earnings per diluted share of $0.04 to $0.08.
* For the full year 2025, Fastly raised its revenue guidance to a range of $610 million to $614 million, with annual growth of 13% at the midpoint. Full-year gross margins are projected between 60% and 61%.
* Non-GAAP operating profit expectations have increased to a range of $9 million to $13 million, and free cash flow is expected between $25 million and $35 million.

FINANCIAL RESULTS

* Fastly reported Q3 revenue of $158.2 million, a 15% year-over-year increase.
* Gross margin reached 62.8%, improving 380 basis points sequentially.
* Operating income was $11.6 million, and net profit was $11.1 million or $0.07 per diluted share.
* Adjusted EBITDA was $25.7 million for the quarter.
* Network Services revenue was $118.8 million (up 11% year-over-year), security revenue was $34 million (up 30%), and other products revenue was $5.4 million (up 51%).
* Trailing 12-month net retention rate was 106%, up from 104% in the prior quarter.
* The company exited Q3 with $343 million in cash, cash equivalents, marketable securities, and investments.
* Free cash flow for the quarter was $18.1 million.

Q&A

* James Fish, Piper Sandler: Asked about delivery business expansion versus security growth. CFO Wong explained, "from a net revenue retention perspective, we look at it in aggregate, across all 3 business lines... we've delivered about 11% year-over-year growth on the Network Services side, and that was our third quarter of accelerating Network Services revenue."
* Fish followed up on competitive dynamics, specifically Quill. CEO Compton responded, "we've not been running into Quill very often... any opportunity with Quill would obviously be significantly smaller than the Edgio tailwinds that you referenced."
* Frank Louthan, Raymond James: Asked about any one-time items in the quarter and seasonal trends. CFO Wong noted, "we just had a very good cross-sell quarter" and highlighted strong bookings linearity. Regarding guidance, "traffic... continue in Q4, which is why we felt really good about raising the guidance."
* Jonathan Ho, William Blair: Inquired about security portfolio demand and competitor displacement. CEO Compton stated the strength is "fairly broad-based" and cited performance and support as key reasons for customer wins.
* Rudy Kessinger, D.A. Davidson: Queried about the sustainability of security revenue. CFO Wong confirmed that the revenue from large deals is recurring: "That's fully ratable revenue that will repeat again in Q4 for a full quarter."
* Daniel Hibshman, Craig-Hallum: Asked about seasonality and margin dynamics. CFO Wong attributed strong margins to platform scale and engineering investments, not just a one-time tailwind.
* Tomer Zilberman, BofA: Asked about security segment volatility and net retention rate prospects. CEO Compton noted accelerating growth in security even excluding the large deal; CFO Wong expects NRR improvement in Q4.

SENTIMENT ANALYSIS

* Analysts pressed for clarity on delivery business trends, the durability of security revenue, and sustainability of margin improvements, with a neutral to slightly positive tone, often congratulating the team on results but probing for risks and sustainability.
* Management's tone was confident and upbeat during prepared remarks and remained composed and transparent during analyst exchanges. CEO Compton and CFO Wong provided detailed explanations, emphasizing recurring revenue and operational discipline.
* Compared to the previous quarter, analysts were less concerned about management turnover and more focused on segment growth and sustainability, while management maintained a slightly more confident and assertive posture.

QUARTER-OVER-QUARTER COMPARISON

* Guidance was raised for both revenue and profitability compared to Q2 2025, with Q4 revenue guidance notably higher.
* Strategic focus shifted towards platform cross-sell, security expansion, and international growth, with more tangible results versus prior commentary.
* Analysts in Q2 focused on management changes and the implications for strategy; in Q3, the focus shifted to business segment growth and the durability of recent gains.
* Key metrics such as gross margin, net retention rate, and free cash flow all improved sequentially. The tone from management was more confident, with clear evidence of operating leverage and successful cross-sell initiatives.

RISKS AND CONCERNS

* Management referenced the potential impact of U.S. policy on ByteDance/TikTok, but noted that U.S. traffic for ByteDance represented less than 2% of revenue in Q3, and perceived losses are now seen as less likely.
* CFO Wong disclosed a historical error in RPO calculation, now recast, but emphasized it does not impact focus on customer commitments.
* Analysts raised questions about the repeatability of security revenue, seasonality, and the potential for volatility in the security business, which management addressed by clarifying the recurring nature of the revenue and expectation of stability in top customer cohorts.

FINAL TAKEAWAY

Fastly’s third quarter underscored the company’s progress in driving operational discipline, accelerating growth, and delivering record results across key financial metrics. Management’s focus on platform cross-sell and security expansion yielded tangible gains, leading to raised guidance for both revenue and profitability for the remainder of 2025. With recurring revenue from major customer wins, a strengthened go-to-market organization, and improving net retention rates, Fastly signals confidence in its ability to sustain momentum and capitalize on strategic initiatives heading into the next year.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fsly/earnings/transcripts]

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