What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-26 compared with 2024-02-22 · 133 added, 151 removed, 434 unchanged (40% of the section changed)

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At Fastly, we deliver an edge cloud platform capable of delivering fast, safe, and engaging digital experiences.

By focusing holistically on edge cloud from developer inspiration to end-user experience, we have the opportunity to differentiate with our global footprint, dynamic infrastructure, and security solution.

By focusing holistically on the edge cloud from developer inspiration to end-user experience, we have the opportunity to differentiate with our global footprint, dynamic infrastructure, and security solution.

Performance, security, and building the most engaging applications are paramount to driving mission success for Fastly’s customers.

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For the years ended December 31, 2024 and 2023, our revenue was $543.7 million and $506.0 million, respectively, an increase of 7%.

Our 10 largest customers generated an aggregate of 37% and 35% of our revenue in the trailing 12 months ended December 31, 2023 and 2022, respectively.

No customer accounted for more than 10% of revenue for the years ended December 31, 2023 and 2022.

Affiliated customers that are business units of a single company in the streaming entertainment space generated an aggregate of 12% and 11% of the Company ’ s revenue for the years ended December 31, 2023 and 2022, respectively.

We incurred a net loss of $158.1 million and $133.1 million in the years ended December 31, 2024 and 2023, respectively.

We focus our direct selling efforts on expanding our customer’s use of our platform, which includes companies that are exhibiting significant growth.

Our 10 largest customers generated an aggregate of 33% and 37% of our revenue in the trailing 12 months ended December 31, 2024 and 2023, respectively.

No single customer accounted for more than 10% of revenue for the years ended December 31, 2024 and 2023.

No affiliated customers that are business units of a single company generated more than 10% of revenue for the year ended December 31, 2024.

Affiliated customers that are business units of a single company in the streaming entertainment space generated an aggregate of 12% of the Company’s revenue for the year ended December 31, 2023.

We focus our direct selling efforts on expanding our customers ’ use of our platform, which includes companies that are exhibiting significant growth.

We engage with and support these customers with our field sales representatives, account managers, and technical account managers who focus on customer satisfaction and drive expansion of their usage of our platform and products.

These teams work with technical and business leaders to help our customers’ end users receive the best possible digital experience, while also lowering our customers’ total cost of ownership.

These direct selling efforts are reflected by the revenue generated from our enterprise customers.

Our Dollar-Based Net Expansion Rate (“DBNER”), Net Retention Rate (“NRR”) and Last-Twelve Months Net Retention Rate (“LTM NRR”) metrics also measure the revenue growth from existing customers attributable to increased usage of our platform and features, and purchase of additional products and services.

These direct selling efforts are reflected by the revenue generated by our enterprise customers.

Our Last-Twelve Months Net Retention Rate (“LTM NRR”) metric also measures the revenue growth from existing customers attributable to increased usage of our platform and features, and purchase of additional products and services.

For additional details on our key metrics, refer to the “Key Business Metrics” section.

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Developers within these companies often use and advocate for the adoption of our platform by their companies and promotion across the broader developer community.

We will continue to invest in our products and features and developer outreach, leveraging it as a cost-efficient approach to attracting new customers, and our sales and marketing programs, including various online marketing activities as well as targeted account-based marketing.

We will continue to

invest in our products and features and developer outreach, leveraging it as a cost-efficient approach to attracting new customers, and our sales and marketing programs, including various online marketing activities as well as targeted account-based marketing.

We are continuing to bring a durable, consistent, and predictable pipeline of new innovations to our edge cloud platform and software-defined modern network architecture, and are seeing interest from customers in our existing product lines like Network Services and Security, and newer product lines like Compute and Observability.

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In addition, we cannot be certain what actions the United States or another country’s government may take with respect to certain of our customers that may adversely affect our ability to do business with our customers that operate in China, target China as a market or that have strong business ties to China.

And any such governmental action could have a negative impact on our business.

In April 2024, President Biden signed into law a bill that would effectively ban TikTok in the United States if ByteDance, its China-based parent company, does not sell its stake in TikTok within a set time frame.

President Trump signed an executive order on January 20, 2025 instructing the Attorney General not to enforce the law or impose any penalties against any entity for noncompliance for a period of 75 days and to provide written guidance as to how the law will be implemented.

TikTok was one of our largest customers for the year ended December 31, 2024 and remains a customer of ours.

While the full impact of the legislation is unknown, it could eventually lead to a reduction in this customer’s United States traffic levels which could have a negative impact on our business.

We do not know whether or how ByteDance might restructure its business and how that may impact our traffic levels.

International Expansion

We intend to continue expanding our efforts to attract customers outside of the United States by augmenting our sales teams and strategically increasing our presence in the number of markets in select international locations.

As of both December 31, 2023 and 2022, our edge network spanned across 58 markets and 34 countries that are outside of the United States.

Our international expansion, including our global sales efforts, continues to add increased complexity and cost to our business.

This requires us to expand our sales and marketing capabilities outside of the United States, increase the number of markets we have a presence in around the world to support our customers, and manage the administrative aspects of a global organization, each of which place a strain on our business and culture.

This requires us to continue to expand our sales and marketing capabilities outside of the United States, increase the number of markets we have a presence in around the world to support our customers, and manage the administrative aspects of

a global organization, each of which place a strain on our business and culture.

In addition, our bandwidth costs are higher in markets outside of the United States and Europe, which may impact our gross margins.

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While the conflicts are still evolving and the outcomes remain highly uncertain, we do not believe the Russia-Ukraine or Israel-Hamas conflicts will have a material impact on our business and results of operations.

We do not have POPs or operations in Russia, Ukraine, or Israel.

We do not have Points of Presence (“POPs”) in Russia, Ukraine, or Israel.

However, some threat actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities.

During times of war and other major conflicts, we, the third parties upon which we rely, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-

attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

During times of war and other major conflicts, we, the third parties upon which we rely, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

If either conflict continues or worsens, leading to greater global economic disruptions and uncertainty, our business and results of operations could be materially impacted.

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Our gross margins and operating results are impacted by these investments.

As of December 31, 2023, our global network is located in 79 markets across 35 countries.

As we continue to experience growth, we may face challenges managing adequate server capacity in our POPs due to potential component delays, shortages, price increases, hardware efficiencies gained through internal development, or any potential changes in server architecture, including due to technological advances or obsolescence.

We have in the past needed to, and may need to continue to, write-down or write-off server assets if we have server asset levels in excess of forecasted network capacity needs.

For example, in the year ended December 31, 2023, we recognized computer and networking equipment related write-off charges of $4.3 million.

Conversely, if we underestimate network capacity needs, we may in future periods be unable to meet demand and be required to incur higher costs to secure necessary parts and components of our servers.

If we have server asset levels in excess of forecasted network capacity needs, we have in the past and may need to continue to write-down or write-off server assets.

Conversely, if we underestimate network

capacity needs, we may in future periods be unable to meet demand and be required to incur higher costs to secure necessary parts and components of our servers.

In the event that there are errors in software, failures of hardware, damages to a facility or misconfigurations of any of our services, whether caused by our own error, security breaches, third-party error, or natural disasters, we could experience lengthy interruptions in our platform availability as well as delays and additional expenses in arranging new facilities and services.

In addition, there can be no assurance that we are adequately prepared for unexpected increases in bandwidth demands by our customers, particularly when we or our customers experience cyber-attacks.

The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including service outages, payment disputes, network providers

going out of business, natural disasters, networks imposing traffic limits, or governments adopting regulations that impact network operations.

The bandwidth we have contracted to purchase may become unavailable for a variety of reasons, including service outages, payment disputes, network providers going out of business, natural disasters, networks imposing traffic limits, or governments adopting regulations that impact network operations.

Key Business Metrics

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The calculation of these key metrics below may differ from other similarly titled metrics used by other companies, analysts, or investors.

In the first quarter of 2023, we updated the methodology (“new methodology”) by which we calculate our customer count metrics, including Total Customer Count, Enterprise Customer Count and associated metrics.

We believe that the new methodology more accurately reflects the trends in our business, gives management more insight into these trends, including customer usage of our platform and the seasonality we experience, and reduces lagging indicators inherent in our previous methodology (“prior methodology”).

In conjunction with this update, for comparability purposes we will continue to report our customer count metrics using both the prior and new methodology, for the current and comparative periods presented in our Annual Reports on Form 10-K through the end of the fiscal year ended December 31, 2023.

We will no longer report our customer count metrics using the prior methodology beginning with our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024.

Effective as of the first quarter of 2024, we no longer consider Average Enterprise Customer Spend, Dollar-Based Net Expansion Rate, and Quarterly Net Retention Rate to be key business metrics.

We believe Average Enterprise Customer Spend to be redundant in light of our disclosure of Total Customer Count and Enterprise Customer Count.

Dollar-Based Net Expansion Rate and Quarterly Net Retention Rate were used infrequently by investors and are no longer used by management to manage and monitor the performance of our business.

In lieu of Quarterly Net Retention Rate, a measure that is seasonal and fluctuates frequently throughout the year, management believes LTM Net Retention Rate, which measures the last twelve-month period and removes seasonality, is a more accurate performance metric to monitor the business.

As such, we will no longer report those metrics because we do not believe they are material to an understanding of our business.

As of December 31,

Customer metrics (prior methodology):

Total Customer Count (based on last month revenue) 3,097 2,958

Enterprise Customer Count (based on trailing 12-month revenue) 532 493

Average Enterprise Customer Spend (based on trailing 12-month revenue;

in thousands)

Annual Revenue Retention (“ARR”) Rate

99.1 % 99.2 %

Customer metrics (new methodology):

Customer metrics:

Total Customer Count (based on current quarter revenue) 3,061 3,243

Enterprise Customer Count (based on annualized revenue) 596 578

Average Enterprise Customer Spend (based on annualized current quarter revenues;

in thousands)

Annual Revenue Retention Rate

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Other key metrics:

Dollar-Based Net Expansion Rate (“DBNER”) 119.0 % 122.7 %

Net Retention Rate (“NRR”) 110.1 % 110.7 %

Last-twelve Months Net Retention Rate (“LTM NRR”) 102.3 % 113.4 %

Due to the revisions reflected in the above methodology, the customer count metrics included above calculated using our new methodology are not comparable to the historical customer count metrics included in our previously filed Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Form S-1 and Form S-3 Registration Statements, outside of the data included in the table above.

Total Customer Count

We believe that our total number of customers is an important indicator of the adoption of our platform.

Our definition of a customer consists of identifiable operating entities with which we have a billing relationship in good standing and which we have recognized revenue from.

Our definition of a customer consists of identifiable operating entities with which we have a billing relationship in good standing and which we have recognized revenue from during the reporting period.

An identifiable operating entity is defined as a company, a government entity, or a distinct business unit of a larger company that has a relationship with us through direct sales or through one of our reseller partners where charges are identified on an end-customer basis.

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Our customer groupings may be impacted by changes to our customers’ business, including any impact from acquisition activities, internal business reorganizations leading to operational and decision-making changes, and corporate structure changes such as subsidiary consolidation and reorganization that may arise in the future.

Our prior methodology by which we calculate total customer count, includes identifiable operating entities with which we have a billing relationship in good standing, from which we recognized revenue during the last month of the quarter.

As of December 31, 2023 and 2022, we had 3,097 and 2,958 customers, respectively.

Our new methodology by which we calculate total customer count, includes identifiable operating entities with which we have a billing relationship in good standing, from which we recognized revenue during the quarter.

As of December 31, 2023 and 2022, we had 3,243 and 3,062 customers, respectively.

During the fourth quarter of 2024, we identified an immaterial error in the historical calculation of our total customer count related to our online self-service customers.

Revenue that would have been recorded for these customers was less than $0.1 million for the quarter ended December 31, 2024.

Due to the immateriality, we have not revised prior periods.

In addition to our paying customers, we also have trial, developer, nonprofit and open source programs, and other non-paying accounts that are excluded from our customer count metric.

We operate globally and as a result, the success of our ability to retain our customers is also affected by general economic and market conditions around the world.

As of December 31, 2024 and 2023, we had 3,061 and 3,243 customers, respectively.

Enterprise Customer Count

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We believe that the recruitment and cultivation of enterprise customers is critical to our long-term success.

Under our prior methodology, our enterprise customer count is defined as customers with revenue in excess of $100,000 over the trailing 12-month period.

As of December 31, 2023, we had 532 of such enterprise customers, which generated 90% of our revenue for the trailing 12 months ended December 31, 2023.

As of December 31, 2022, we had 493 of such enterprise customers which generated 89% of our revenue for the trailing 12 months ended December 31, 2022.

Under our new methodology, our enterprise customer count is defined as customers with annualized current quarter revenue in excess of $100,000.

Historically our revenue has been driven primarily by a subset of our customers, our enterprise customers, who have leveraged our platform substantially from a usage standpoint.

We believe that the recruitment and cultivation of enterprise customers is critical to our long-term success.

Our enterprise customer count is defined as customers with annualized current quarter revenue in excess of $100,000.

This is calculated by taking the revenue we recognized for each customer in the current quarter and multiplying it by four.

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As of December 31, 2023, we had 578 of such enterprise customers which generated 92% of the total annualized current quarter revenue for our total customers for the period ended December 31, 2023.

Average Enterprise Customer Spend

Our enterprise customers continue to leverage our platform, increasing their spend on our platform and driving our revenue growth year over year.

The continued retention and growth of our enterprise customer spend is key to our long-term growth strategy.

Under the prior methodology, our average enterprise customer spend is calculated by taking the sum of the trailing 12-month revenue contributed by enterprise customers, as defined under our prior methodology as customers with revenue in excess of $100,000 over the trailing 12-month period, existing as of December 31, 2023, and dividing that by that same number

of enterprise customers as of December 31, 2023.

As of December 31, 2023, our average enterprise customer spend under the prior methodology was $859 thousand, as compared to $782 thousand as of December 31, 2022.

Under the new methodology, our average enterprise customer spend is calculated by taking the annualized current quarter revenue contributed by enterprise customers, as defined under our new methodology as customers with annualized current quarter revenue in excess of $100,000, existing as of December 31, 2023, and dividing that by that same number of enterprise customers as of December 31, 2023.

As of December 31, 2023, our average enterprise customer spend under the new methodology was $880 thousand, as compared to $822 thousand as of December 31, 2022.

Annual Revenue Retention Rate (“ARR”)

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By comparing this amount to actual revenue for the period, we are able to assess our ability to replace terminated revenue by generating revenue from new and continuing customers.

Under the prior methodology, our ARR rate is calculated by subtracting the quotient of the Annual Revenue Churn from all of our Churned Customers from which we recognized revenue during the last month of the prior year divided by our annual revenue of the same calendar year from 100%.

For the years ended December 31, 2023 and 2022 the ARR was 99.1% and 99.2%, respectively.

Under the new methodology, our ARR rate is calculated by subtracting the quotient of the Annual Revenue Churn from all of our Churned Customers from which we recognized revenue during the last quarter of the prior year divided by our annual revenue of the same calendar year from 100%.

Our ARR rate is calculated by subtracting the quotient of the Annual Revenue Churn from all of our Churned Customers from which we recognized revenue during the last quarter of the prior year divided by our annual revenue of the same calendar year from 100%.

For the years ended December 31, 2024 and 2023 the ARR was 99.0% and 99.2%, respectively.

Dollar-Based Net Expansion Rate (“DBNER”)

Our ability to generate and increase our revenue depends on our ability to increase the number of new customers and usage of our edge cloud delivery platform, security, and other products and services by our existing customers.

We track our growth, in part, by measuring DBNER.

Our DBNER increases when customers increase their usage of our platform or purchase additional products, and declines when they reduce their usage, benefit from lower pricing on their existing usage, or curtail their purchases of additional products.

We believe that DBNER is a key metric in measuring the long-term value of our customer relationships and our ability to grow our revenue through increased usage of our edge cloud delivery platform, security, and purchase of additional products and services by our existing customers.

However, our calculation of DBNER indicates only expansion among continuing customers and does not indicate any decrease in revenue attributable to former customers, which may differ from similar metrics of other companies.

We calculate DBNER by dividing the revenue for a given period from customers who remained customers as of the last day of the given period (“current period”) by the revenue from the same customers for the same period measured one year prior (“base period”).

The revenue included in the current period excludes revenue from (i) customers that churned after the end of the base period and (ii) new customers that entered into a customer agreement after the end of the base period.

For example, to calculate our DBNER for the trailing 12 months ended December 31, 2023, we divide (i) revenue, for the trailing 12 months ended December 31, 2023, from customers that entered into a customer agreement on or before December 31, 2023, and that remained customers as of December 31, 2023, by (ii) revenue for the trailing 12 months ended December 31, 2022, from the same set of customers.

For the trailing 12 months ended December 31, 2023 and 2022 our DBNER was 119.0% and 122.7%, respectively.

DBNER may fluctuate from quarter to quarter based on, among other things, the timing associated with new customer accounts.

We expect our DBNER for individual cohorts to decrease once customers in that cohort have used our platform for more than two years and become a larger portion of both our overall customer base and the revenue that we use to calculate DBNER.

Net Retention Rate (“NRR”) and Last-Twelve Months Net Retention Rate (“LTM NRR”)

Last-Twelve Months Net Retention Rate (“LTM NRR”)

Our ability to generate and increase our revenue is also dependent upon our ability to retain our existing customers.

In addition to measuring expansion using DBNER, NRR and LTM NRR also allow us to track customer retention which demonstrates the stickiness of our edge cloud platform.

Our NRR measures the net change in monthly revenue from existing customers in the last month of the period (the “current” period month) compared to the last month of the same period one year prior (the “prior” period month) and includes revenue contraction due to billing decreases or customer churn and revenue expansion due to billing increases, but excludes revenue from new customers.

We calculate Net Retention Rate by dividing the revenue from the current period month by the revenue in the prior period month.

For the last month of the years ended December 31, 2023 and 2022 our NRR was 110.1% and 110.7%, respectively.

LTM NRR allows us to track customer retention which demonstrates the stickiness of our edge cloud platform.

Our LTM NRR removes some of the volatility that is inherent in a usage-based business model from the measurement of the NRR metric.

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As of December 31, 2024, the aggregate amount of the transaction price in our contracts allocated to RPO that were unsatisfied or partially unsatisfied was $244.4 million.

Subsequent to December 31, 2023, we entered into a modification of an existing contract with a total commitment of $9.5 million, which contributed to additional RPO.

Key Components of Statement of Operations

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Our larger customers often enter into contracts that contain minimum billing commitments and reflect discounted pricing associated with such usage levels.

We define United States revenue as revenue from customers that have a billing address in the United States, and we define international revenue as revenue from customers that have a billing address outside of the United States.

We report our revenue by three product lines:

Network Services, Security and Other.

Network Services include solutions designed to improve performance of websites, apps, application programming interfaces (“APIs”) and digital media.

Security includes products designed to protect websites, apps, APIs and users.

Other includes Compute solutions that allow developers to build and deploy modern web applications on our edge cloud platform, and Observability solutions that provide real-time logs, data and metrics streamed from our edge platform for actionable insights.

We define United States revenue (“U.S.

revenue”) as revenue from customers that have a billing address in the United States, and we define international revenue as revenue from customers that have a billing address outside of the United States.

Cost of Revenue and Gross Margin

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Our gross margin has been and will continue to be affected by a number of factors, including utilization of our network, the timing of our investments in the expansion of our network, which can increase depreciation and colocation costs in advance of expected demand, our ability to manage our network service providers and cloud infrastructure-related fees, the timing of amortization of capitalized software development costs, changes in personnel costs to provide customer support and operate the network, and customer pricing.

Over the long term we expect gross margin to increase as we continue to drive efficiencies in our operations and increase in revenue.

Over the long term we expect gross margin to increase as we continue to drive efficiencies in our operations and increase our revenue.

However, our gross margin may fluctuate from period to period.

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Sales and marketing expenses consist primarily of personnel costs, including commissions for our sales employees, salaries, benefits, bonuses, and stock-based compensation.

Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, bandwidth and co-location costs for free trial users, costs related to our customer conferences, including our Altitude conference, professional services fees, amortization of our intangible assets, and an allocation of our general overhead expenses.

Sales and marketing expenses also include expenditures related to advertising, marketing, our brand awareness activities, bandwidth and co-location costs for free trial users, costs related to our customer events, including our customer conferences, professional services fees, amortization of our intangible assets, and an allocation of our general overhead expenses.

We focus our sales and marketing efforts on generating awareness of our platform and products, creating sales leads, and establishing and promoting our brand, both domestically and internationally.

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General and administrative expenses also include costs related to legal and other professional services fees, SaaS costs, an allocation of our general overhead expenses, credit losses and acquisition-related costs.

Our general and administrative expenses also include sales and other tax expenses to which we are subject to based on the manner in which we sell and deliver our products.

Historically, we have not collected such taxes from our customers and have therefore recorded such taxes as general and administrative expenses.

We expect that these expenses will decline in future years as we continue to implement our sales tax collection mechanisms and start collecting these taxes from our customers.

In the near term, we expect to continue to incur costs associated with supporting the growth of our business, including international expansion, but expect these costs to decrease as a percentage of our revenue over the long term as we continue to drive efficiencies in our operations.

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Impairment Expense

Our impairment expense relates to write-off of excess computer and networking equipment including software that we do not expect to use.

Our impairment expense relates to write-off charges for certain long-lived assets.

Restructuring Charges

Our restructuring charges relate to a restructuring plan to reduce expenses including a reduction of our workforce.

The charges incurred consist primarily of employee-related severance and termination benefits.

Net Gain on Extinguishment of Debt

Our net gain on extinguishment of debt relates to the partial repurchases of our outstanding senior convertible notes in May 2022, May 2023, November 2023, and December 2023.

Our net gain on extinguishment of debt relates to the partial retirement of our outstanding senior convertible notes during the years ended December 31, 2024, 2023, and 2022.

Other Income and Expenses

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Our other income (expense), net, consists primarily of foreign currency transaction gains and losses.

Our income tax expense (benefit) consists primarily of income taxes in certain foreign jurisdictions where we conduct business.

The Company currently maintains a full valuation allowance on the Company’s U.S.

Our income tax expense (benefit) consists primarily of income taxes in certain foreign jurisdictions where we conduct business and state minimum income taxes in the United States.

We currently maintain a full valuation allowance on our U.S.

Federal and state net deferred tax assets.

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Impairment expense 4,144 4,316

Restructuring charges 9,720 —

Total operating expenses 463,853 464,356

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Other expense, net

Loss before income tax expense (133,309) (190,680)

(1,028) (1,832)

Loss before income tax expense (benefit) (155,454) (133,309)

Income tax expense (benefit) 2,604 (221)

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Impairment expense 1 1

Restructuring charges 2 —

Total operating expenses 85 92

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Interest expense (1) (1)

Other income (expense), net — —

Loss before income tax expense (26) (43)

Other expense, net — —

Loss before income tax expense (benefit) (29) (26)

Income tax expense (benefit) — —

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(in thousands)

Revenue $ 505,988 $ 432,725 $ 73,263 17 %

Network Services

$ 427,690 $ 405,116 $ 22,574 6 %

103,037 92,864 10,173 11 %

12,949 8,008 4,941 61 %

Total revenue $ 543,676 $ 505,988 $ 37,688 7 %

Percentage of revenue:

Network Services

79 % 80 % (1) %

19 % 18 % 1 %

Revenue was $543.7 million for the year ended December 31, 2024 compared to $506.0 million for the year ended December 31, 2023, an increase of $37.7 million, or 7%.

Revenue growth was driven by a $58.1 million increase in revenue related to further adoption of our modern edge platform and products, as well as a $14.7 million increase in revenue related to products acquired from the acquisition of Signal Sciences.

Revenue growth was driven by a $24.9 million increase in revenue related to further adoption of our modern edge platform and products.

For the years ended December 31, 2024 and 2023, approximately 95% and 95% of our revenue was driven by usage on our platform, respectively.

Revenue was primarily from existing customers, as revenue from new customers contributed less than 10% of our revenue.

The proportion of the revenue contribution between new and existing customers is consistent with prior periods and typical customer behavior as customers tend to contribute more revenue over time as their use of the platform increases.

The remainder of our revenue was generated by our other products and services, including support and professional services.

Under the prior methodology, as defined earlier in the ‘Key Business Metrics’ section, we had 3,097 customers and 532 enterprise customers as of December 31, 2023, compared to 2,958 customers and 493 enterprise customers as of December 31, 2022.

This represents an increase of 139, or 5%, in customers and 39, or 8%, in enterprise customers from December 31, 2022.

Under the new methodology, as defined earlier in the ‘Key Business Metrics’ section, we had 3,243 customers and 578 enterprise customers as of December 31, 2023, compared to 3,062 customers and 533 enterprise customers as of December 31, 2022.

This represents an increase of 181, or 6% in customers and 45, or 8%, in enterprise customers from December 31, 2022.

Network Services revenue was $427.7 million for the year ended December 31, 2024, compared to $405.1 million for the year ended December 31, 2023, an increase of $22.6 million, or 6%.

The increase in Network Services revenue was primarily driven by growth in usage from existing customers.

Security revenue was $103.0 million for the year ended December 31, 2024, compared to $92.9 million for the year ended December 31, 2023, an increase of $10.2 million, or 11%.

The increase in Security revenue was primarily driven by an increase in Next-Gen WAF revenue, partially offset by a decrease in Fastly legacy WAF revenue.

Other revenue was $12.9 million for the year ended December 31, 2024, compared to $8.0 million for the year ended December 31, 2023, an increase of $4.9 million, or 61%.

The increase in Other revenue was primarily driven by further adoption of Compute solutions.

revenue was $407.3 million and 75% of revenue for the year ended December 31, 2024, and $370.4 million and 73% of revenue for the year ended December 31, 2023.

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This represents an increase of $0.8 million, or 1%.

Under the prior methodology, we had 2,028 domestic customers and 1,069 international customers as of December 31, 2023, and 2,074 domestic customers and 884 international customers as of December 31, 2022.

There was a decrease in domestic customers of 46, or 2%, and an increase in international customers of 185, or 21%, compared to December 31, 2022.

Under the new methodology, we had 2,117 domestic customers and 1,126 international customers as of December 31, 2023, and 2,145 domestic customers and 917 international customers as of December 31, 2022.

There was a decrease in domestic customers of 28, or 1%, and an increase in international customers of 209, or 23%, compared to December 31, 2022.

Cost of Revenue

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Cost of revenue was $247.7 million for the year ended December 31, 2024 compared to $239.7 million for the year ended December 31, 2023, an increase of $8.1 million, or 3%.

The increase in cost of revenue is a result of an increase in bandwidth costs of $10.1 million, $7.9 million increase in depreciation expense as a result of increased investments in our platform as well as an increase in repair and maintenance cost of $1.2 million.

There was also a $1.3 million increase in personnel-related costs due to an increase in headcount and equity awards granted to employees supporting the growth of our business.

This increase was partially offset by a decrease of $2.0 million in software and network costs, a $1.1 million decrease in colocation costs as well as a $0.6 million decrease in loss on disposals of fixed assets.

The increase in cost of revenue is a result of an increase in bandwidth costs of $6.3 million, a $2.4 million increase in depreciation expense as a result of increased investments in our platform as well as an increase in repair and maintenance cost of $1.8 million.

There was also a $1.2 million increase in colocation costs, and a $1.1 million increase in personnel-related costs due to an increase in headcount.

This increase was partially offset by a decrease of $3.0 million in stock-based compensation expenses, a decrease of $1.3 million in software costs and a $0.6 million decrease in travel and entertainment expenses.

Gross Profit and Gross Margin

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Gross margin was 54% for the year ended December 31, 2024 compared to 53% for the year ended December 31, 2023, an increase of 2%.

The increase in gross margin was driven by revenue related to further adoption of our modern edge platform and products, as well as an increase in revenue related to products acquired from the acquisition of Signal Sciences.

Our revenue growth during the year ended December 31, 2023 outpaced the increases in the costs incurred to support the growth of our network.

The increase in gross margin was driven by revenue growth during the year ended December 31, 2024 outpacing the increases in the costs incurred to support the growth of our network.

Operating Expenses

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4,144 4,316 (172) (4) %

Restructuring charges

9,720 — 9,720 100 %

Total operating expenses $ 463,853 $ 464,356 $ (503) — %

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Impairment expense 1 % 1 % — %

Restructuring charges

Research and development

Research and development expenses were $138.0 million for the year ended December 31, 2024 compared to $152.2 million for the year ended December 31, 2023, a decrease of $14.2 million, or 9%.

This decrease was primarily due to a decrease of $12.9 million in stock-based compensation expense primarily related to restricted stock awards that fully vested in 2022.

The decrease was also due to a $3.1 million increase in capitalized software from headcount growth as well as a $1.6 million decrease in professional fees related to temporary agency costs.

This decrease was partially offset by an increase of $10.4 million of personnel-related costs, such as salaries and benefits due to an increase in headcount as well as a $2.8 million increase in costs associated with the transition and separation of a former executive.

This decrease was primarily due to a decrease of $12.2 million in stock-based compensation expense, a $6.0 million increase in capitalized software costs, a $2.8 million decrease in executive transition costs, as well as a $0.5 million decrease in colocation costs.

This decrease was partially offset by an increase of $5.8 million of personnel-related costs, such as salaries and benefits as well as a $1.5 million increase in software costs.

Sales and marketing

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This increase was primarily due to a $14.4 million increase in personnel related costs, such as salaries, sales commissions and benefits.

The increase was also due to a $4.4 million increase in marketing spend associated with brand campaign and advertising, as well as $1.0 million increase in travel and entertainment expenses.

The increase was partially offset by a $5.4 million decrease in stock-based compensation expenses primarily due to restricted stock awards that fully vested in 2022.

There was also a $1.0 million decrease in corporate expenses, $0.9 million decrease in professional fees, $0.9 million decrease in amortization expense as well as a $0.6 million decrease of capitalized software.

The increase was also due to a $1.7 million increase in third party commissions as well as a $1.4 million increase in professional fees.

The increase was partially offset by a $4.6 million decrease in stock-based compensation expenses, a $4.4 million decrease in marketing expenses, a $0.8 million decrease in amortization expense as well as a $0.6 million decrease in travel and entertainment expenses.

General and administrative

General and administrative costs were $113.4 million for the year ended December 31, 2024 compared to $116.1 million for the year ended December 31, 2023, a decrease of $2.7 million, or 2%.

The decrease was primarily due to a $6.7 million decrease in professional fees related to temporary agency costs, as well as a $4.1 million decrease due to sales tax refund and changes in sales tax reserve.

The decrease was also due to a $1.9 million decrease in acquisition-related costs, a $1.4 million decrease in impairment of right of use assets, $1.1 million decrease in insurance.

This decrease was partially offset by a $6.9 million increase in stock-based compensation expenses primarily due to new awards granted, a $3.1 million increase in personnel related costs, as well as a $1.1 million increase in travel and entertainment expenses.

The decrease was primarily due a $6.5 million decrease in stock-based compensation expenses as well as a $1.6 million decrease in professional fees.

The decrease was also due to a $0.8 million decrease in insurance expense as well as a $0.8 million increase in capitalized software costs.

This decrease was partially offset by an increase of $4.0 million in uncollected sales taxes, primarily due to a sales tax refund received in the prior year, a $1.8 million increase in bad debt expense and a $0.8 million increase in personnel related costs.

Impairment expense

During the year ended December 31, 2023, the Company recognized an impairment charge of $4.3 million, of which $3.0 million related to property and equipment, net and $1.3 million related to advance payments for the purchase of property and equipment.

The write-off was primarily related to excess computer and networking equipment including software we expect to not be used.

There were no such impairment charges recognized during the year ended December 31, 2022.

During the year ended December 31, 2024, we recognized an impairment charge of $4.1 million related to write-off of certain equipment, an internal-use software project as well as right-of-use assets.

During the year ended December 31, 2023, we recognized an impairment charge of $4.3 million related to property and equipment.

Restructuring charges

During the year ended December 31, 2024, in an effort to streamline our organization, we initiated a restructuring plan to reduce expenses including a reduction of our workforce.

In connection with this plan, we incurred charges of $9.7 million primarily consisting of employee-related severance and termination benefits.

There were no restructuring activities in 2023.

Net Gain on Extinguishment of Debt

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Net gain on extinguishment of debt was $1.4 million for the year ended December 31, 2024 compared to $52.4 million for the year ended December 31, 2023, a decrease of $51.1 million, or 97%.

The decrease was primarily due to a lower repurchase price we paid for the transaction during the year ended December 31, 2022 as compared to the repurchase transactions during the year ended December 31, 2023.

The decrease was primarily due to less convertible notes retired in the year ended December 31, 2024.

Other Income and Expense

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Interest income $ 14,871 $ 18,186 $ (3,315) (18) %

Interest income was $18.2 million for the year ended December 31, 2023 compared to $7.0 million for the year ended December 31, 2022, an increase of $11.1 million, or 158%.

This increase was due to an increase in interest rates on our cash balances and investments portfolio.

Interest income was $14.9 million for the year ended December 31, 2024 compared to $18.2 million for the year ended December 31, 2023, a decrease of $3.3 million, or 18%.

This decrease was due to a decrease in the investment portfolio.

Interest expense

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$ 1,028 $ 1,832 $ (804) (44) %

Other expense, net was $1.8 million for the year ended December 31, 2023 compared to other expense, net, of less than $0.1 million for the year ended December 31, 2022, a decrease of $1.8 million, or 6217%.

Other expense, net was $1.0 million for the year ended December 31, 2024 compared to $1.8 million for the year ended December 31, 2023, a decrease of $0.8 million, or 44%.

The decrease was mainly driven by our foreign currency transaction gains between the periods.

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$ 2,604 $ (221) $ 2,825 1,278 %

Income tax benefit was $0.2 million for the year ended December 31, 2023 and income tax expense of $0.1 million for the year ended December 31, 2022.

Income tax expense was $2.6 million for the year ended December 31, 2024 compared to income tax benefit of $0.2 million for the year ended December 31, 2023.

The Company continues to maintain a full valuation allowance in the U.S.

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As of December 31, 2024, we had cash, cash equivalents, and marketable securities totaling $295.9 million.

Our cash, cash equivalents, and marketable securities primarily consisted of bank deposits, money market funds, investment-grade commercial paper, corporate notes and bonds, U.S.

treasury securities, municipal securities, foreign government and supranational securities and asset-backed securities held at major financial institutions.

As of December 31, 2023, our marketable securities balance includes $6.1 million of marketable securities that were classified as non-current.

Our cash, cash equivalents, and marketable securities primarily consisted of money market funds, investment-grade commercial paper, corporate notes and bonds.

As of December 31, 2024, we did not have any marketable securities classified as non-current.

To date, we have financed our operations primarily through equity issuances, payments received from customers, the net proceeds we received through sales of our debt securities, and proceeds from our convertible notes.

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Senior Secured Credit Facilities Agreement

On February 16, 2021, we entered into a Senior Secured Credit Facilities Agreement (“Credit Agreement”) with the lenders from time to time party thereto (the “Lenders”) and Silicon Valley Bank, as a lender and as administrative agent and collateral agent for the Lenders for an aggregate commitment amount of $100.0 million, with a maturity date of February 16, 2024.

The Credit Agreement originally bore interest at a rate per annum equal to the sum of LIBOR for the applicable interest period plus 1.75% to 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement.

On June 28, 2023, we entered into the First Amendment to Credit Agreement with the Lenders and First-Citizens Bank & Trust Company (successor by purchase to the Federal Deposit Insurance Corporation as Receiver for Silicon Valley Bridge Bank, N.A.

(as successor to Silicon Valley Bank)), as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, amended the interest rate provisions of the Credit Agreement to replace LIBOR with the Secured Overnight Finance Rate (“SOFR”) as the interest rate benchmark.

On February 16, 2024, we entered into the Second Amendment to Credit Agreement with the Lenders and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as a lender and as administrative agent and collateral agent for the Lenders, which, among other things, extended the maturity date of the loans under the Credit Agreement to June 14, 2024.

As amended, the revolving loans bear interest, at the Company’s election, at an annual rate based on SOFR or a base rate.

Loans based on SOFR bear interest at a rate per annum equal to SOFR, plus an adjustment of 0.10%, plus 1.75% to 2.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement.

Loans based on the base rate bear interest at a rate per annual equal to the base rate plus 0.75% to 1.00%, depending on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement.

On February 16, 2021, we entered into a Senior Secured Credit Facilities Agreement (as amended by that certain First Amendment to Credit Agreement, the “Credit Agreement”) with the lenders from time to time party thereto (the “Lenders”) and Silicon Valley Bank, a division of First-Citizens Bank & Trust Company, as administrative agent, issuing lender and swingline lender (“SVB First-Citizens”), which provides for a $100.0 million senior secured revolving credit facility , with a maturity date of February 16, 2024.

Loans under the Credit Agreement bear interest at a rate per annum equal to at our option, the ABR (as defined in the Credit Agreement) or the Adjusted Term SOFR (as defined in the Credit Agreement), in each case, plus a margin based on the average daily outstanding balance of all loans and letters of credit under the Credit Agreement and ranging from 0.75% to 1.00%, in the case of loans bearing interest at ABR, and 1.75% to 2.00%, in the case of loans bearing interest at Adjusted Term SOFR..

On February 16, 2024, we entered into the Second Amendment to Credit Agreement with the Lenders and SVB First-Citizens, which, among other things, extended the maturity date of the loans under the Credit Agreement to June 14, 2024.

On April 30, 2024, we entered into the Third Amendment to Credit Agreement with the Lenders and SVB First-Citizens, pursuant to which, among other things, we (a) reduced the commitments under the Credit Agreement to $60.0 million, (b) set the interest rate for loans bearing interest at ABR at 1.00% and loans bearing interest at Adjusted Term SOFR at 2.00%, and (c) extended the maturity date under the Credit Agreement to the earliest of (i) April 30, 2027, (ii) so long as any permitted convertible debt is outstanding, on January 30, 2027 unless Net Liquidity as of January 30, 2027 is greater than or equal to $200.0 million (or, if the amount of outstanding permitted convertible debt is less than $35.0 million, $120.0 million), January 30, 2027 and (iii) so long as any permitted convertible debt is outstanding after January 30, 2027, if Net Liquidity is less than $200.0 million (or, if the amount of outstanding permitted convertible debt is less than $35.0 million, $120.0 million), on such date.

Interest payments on outstanding borrowings are due on the last day of each interest period.

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Convertible Senior Notes

In March 2021, we issued $948.8 million aggregate principal amount of 0% convertible senior unsecured notes due in 2026 (the “Notes”) in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act.

During the year ended December 31, 2023, we entered into several separate, privately negotiated transactions with certain holders of the Notes to repurchase $367.3 million aggregate principal amount of the Notes for an aggregate repurchase price of $309.1 million and aggregate transaction costs of $2.0 million.

The Repurchases were accounted for as a debt extinguishment that resulted in a net gain of $52.4 million, which was recorded as non-operating income on our consolidated statement of operations for the year ended December 31, 2023.

The remaining Notes will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

In March 2021, we issued approximately $948.8 million aggregate principal amount of 0% convertible senior unsecured notes due in 2026 (the “2026 Notes”) in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act.

On May 25, 2022, we entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to repurchase (the “Repurchases”) $235.0 million aggregate principal amount of the 2026 Notes for an aggregate cash repurchase price of $176.4 million and aggregate transaction costs of $0.7 million.

During the year ended December 31, 2023, we entered into several separate privately negotiated transactions with certain holders of the 2026 Notes to repurchase $367.3 million aggregate principal amount of the 2026 Notes for an aggregate cash repurchase price of $309.1 million and aggregate transaction costs of $2.0 million.

During the year ended December 31, 2024, we entered into separate, privately negotiated transactions with certain holders of the 2026 Notes to exchange $157.9 million aggregate principal amount of the 2026 Notes for $150.0 million aggregate principal amount of 7.75% convertible senior notes due 2028 (the “2028 Notes”) and aggregate transaction costs of $5.8 million.

The remaining 2026 Notes with an aggregate principal balance of $188.6 million will mature on March 15, 2026, unless earlier converted, redeemed or repurchased.

The following table summarizes our cash flows for the period indicated:

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Net cash (used in) provided by operating activities $ 16,406 $ 362 $ (69,632)

Net cash (used in) provided by investing activities 294,940 235,751 (794,511)

Net cash (used in) provided by financing activities (331,380) (189,149) 936,551

Net cash provided by investing activities $ 178,900 $ 294,940 $ 235,751

Net cash used in financing activities $ (17,099) $ (331,380) $ (189,149)

Cash Flows from Operating Activities

For the year ended December 31, 2024, cash provided by operating activities consisted primarily of our net loss of $158.1 million, adjusted for non-cash items of $228.6 million, and net cash flows used in operating assets and liabilities of $54.1 million.

The main drivers of the changes in operating assets and liabilities were an increase in accounts receivable of $32.9 million, primarily due to an increase in revenue and the timing of cash receipts, an increase in other assets of $23.1 million related to deferred contract costs as well as $22.1 million of operating lease payments.

The main drivers of the changes in operating assets and liabilities were $26.5 million of operating lease payments, an increase in other assets of $11.9 million related to deferred contract costs, an increase of $7.6 million in prepaid expenses and other current assets due to pre-payments for hosting services and software licenses, a $6.4 million decrease in other liabilities and a $2.9 million decrease in accrued expenses due to timing of payments.

For the year ended December 31, 2023, cash provided by operating activities consisted primarily of our net loss of $133.1 million, adjusted for non-cash items of $203.3 million, and net cash flows used in operating assets and liabilities of $69.9 million.

The main drivers of the changes in operating assets and liabilities were an increase in accounts receivable of

$32.9 million, primarily due to an increase in revenue and the timing of cash receipts, an increase in other assets of $23.1 million related to deferred contract costs as well as $22.1 million of operating lease payments.

This was partially offset by decreases of $8.7 million in prepaid expenses.

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There were also increases of $8.3 million in accrued expenses and $2.1 million in accounts payable and other liabilities due to timing of payments.

For the year ended December 31, 2021, cash used in operating activities consisted primarily of our net loss of $222.7 million adjusted for non-cash items of $227.3 million.

With respect to changes in operating assets and liabilities, there was an increase in accounts receivable of $14.6 million, primarily due to an increase in revenue and the timing of cash receipts from certain of our larger customers and an increase of $15.2 million in prepaid expenses and other assets due to pre-payments for software licenses.

We also had $26.4 million of operating lease payments.

This was partially offset by increases of $4.3 million in accrued expenses and $8.9 million in other liabilities due to timing of payments.

Cash Flows from Investing Activities

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For the year ended December 31, 2023, cash provided by investing activities was $294.9 million, primarily consisting of $459.4 million of maturities and sales of marketable securities.

This was offset by $132.2 million in purchases of marketable securities, $21.3 million of additions to capitalized internal-use software, and $11.0 million of payments related to purchases of property and equipment to expand our network.

For the year ended December 31, 2022, cash provided by investing activities was $235.8 million, primarily consisting of $697.0 million of maturities and sales of marketable securities.

This was offset by $355.5 million in purchases of marketable securities, $42.2 million of advanced payments and $20.0 million of payments related to purchases of property and equipment to expand our network, $26.0 million related to business acquisitions and $18.1 million of additions to capitalized internal-use software.

For the year ended December 31, 2021, cash used in investing activities was $794.5 million, primarily consisting of $928.2 million in purchases of marketable securities, $34.8 million of payments related to purchases of property and equipment to expand our network, and $13.5 million of additions to capitalized internal-use software.

This was partially offset by $184.6 million of maturities and sales of marketable securities.

Cash Flows from Financing Activities

For the year ended December 31, 2024, cash used in financing activities was $17.1 million, primarily consisting of $15.0 million of finance lease liabilities repayments, $5.7 million payment of debt issuance costs and $3.8 million in payments for deferred consideration for business acquisitions.

This was partially offset by $6.2 million in proceeds from the employee stock purchase plan ( “ ESPP”) and $1.1 million in proceeds from stock option exercises by our employees and directors.

For the year ended December 31, 2023, cash used in financing activities was $331.4 million, primarily consisting of $310.5 million used for the partial repurchase of our convertible debt, $27.2 million of finance lease liabilities repayments and $4.4 million in payments for deferred consideration for business acquisitions.

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This was partially offset by $4.8 million in proceeds from the ESPP and $5.7 million in proceeds from stock option exercises by our employees and directors.

For the year ended December 31, 2021, cash provided by financing activities was $936.6 million, primarily consisting of $930.8 million of proceeds from the issuance of the Notes, net of issuance costs, $8.1 million in proceeds from the ESPP and $12.6 million in proceeds from stock option exercises by our employees and directors.

This was partially offset by $13.6 million of finance lease liabilities repayments.

Contractual Obligations and Other Commitments

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(4) Finance lease obligations represents principal and interest payments under our networking equipment leases.

(5) Debt obligation aggregate principal amount of our 0% convertible senior notes due on March 15, 2026.

(5) Debt obligation aggregate principal amount of our 0% convertible senior notes due on March 15, 2026 as well as our 7.75% convertible senior notes due on June 1, 2028.

These commitments will generally be settled with existing cash on hand, cash generated from operations and our current or any future financing arrangements.

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In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that may include market conditions and other observable inputs.

We typically have more than one SSP for individual products and services due to the stratification of those products and services by customers and circumstances.

We typically have more than one SSP

for individual products and services due to the stratification of those products and services by customers and circumstances.

In these instances, we may use information, such as geographic region and distribution channel, in determining the SSP.

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Determining the fair value of assets acquired and liabilities assumed requires significant judgment and estimates including the selection of valuation methodologies, future expected cash flows, discount rates, and useful lives.

Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may

differ from estimates.

Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates.

During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

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If the carrying value of the goodwill is considered impaired, a loss is measured as the excess of the reporting unit’s carrying value over the fair value.

As of December 31, 2023, we believe the estimated fair value of our one single reporting unit has substantially exceeded its carrying value.

Certain critical assumptions used to estimate the fair value of our reporting unit, including management’s forecasted revenue growth, gross and operating margins and cost of capital, are based on management’s best estimate about our current and future conditions.

These estimates are inherently uncertain and can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, a loss of significant customer revenues or changes in competition.

If our stock price were to trade below book value per share for an extended period of time or we experience adverse effects of a continued downward trend in the overall economic environment, changes in the business itself, including changes in projected earnings and cash flows, we may have to recognize an impairment of all or some portion of our goodwill in subsequent periods.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis