Key Highlights

● Record quarterly Revenue and free cash flow

● Security grew faster than delivery

● Loss narrowed from the prior-year quarter

● Contracted Backlog expanded

Fastly, Inc. (NASDAQ:FSLY), among the technology stocks tied to internet infrastructure, reported results for the quarter that ended in late September, describing both revenue and free Cash Flow as records. The San Francisco edge cloud company said total revenue climbed from the prior-year quarter, its net loss shrank substantially, and adjusted Operating Income expanded to well above the level of a year earlier.

Chief Executive Kip Compton attributed the performance to "strong execution" as customers adopted more of the company's products and used its platform more deeply. He also linked the record figures to the company's value proposition, saying that it was helping customers achieve "critical Business outcomes" and "build for AI scale." The remarks framed the quarter less as a story about new logos and more as one about existing accounts expanding what they purchase.

The numbers published alongside those comments broadly support that framing. The count of large customers rose only slightly, yet retention, multi-product adoption and contracted backlog all improved. At the same time, the release and an accompanying investor supplement showed a higher share of revenue coming from the company's largest accounts, a detail that adds a qualification to the otherwise upbeat picture.

Security Outpaces Delivery in the Revenue Mix

Fastly splits revenue into network services, security and a smaller other category covering compute and observability. Network services remained by far the largest line and rose at a mid-teens rate compared with the prior-year quarter, a pace below the company as a whole. Security expanded considerably faster and accounted for roughly a quarter of total revenue. The other category, though small, posted the quickest growth of the group.

That mix matters because it describes a company whose historical core, moving content quickly across a global network, is being joined by products with a different buying rationale. Security revenue comes from tools such as web application firewalls, bot management and protection against denial-of-service attacks, all of which feature in the customer activity the company described for the quarter.

A comparison with the prior quarter gives useful context. In September, Fastly's second-quarter revenue had risen at a somewhat faster year-over-year rate than the latest figure, and that security had grown at a markedly quicker pace then as well. Measured sequentially, total revenue, network services and security each still increased from that second-quarter level. Growth therefore continued in absolute terms, while the year-over-year rate moderated across the headline measure and, more noticeably, in security.

Margins Improve on Both Reported and Adjusted Measures

Gross Margin widened from the prior-year quarter, as reported and also on an adjusted basis, with the reported measure showing the larger improvement. For a business that runs its own globally distributed network, gross margin is a closely followed indicator of how efficiently added traffic and new products are being served.

Below that line, the improvement was also visible. The reported loss from operations narrowed sharply as a share of revenue. Adjusted operating income moved to a mid-teens share of revenue, more than double the proportion recorded a year earlier in the supplement's comparison. Adjusted EBITDA also rose well above the prior-year figure.

The gap between reported and adjusted results remains substantial, and stock-based compensation is the main reason. That expense edged up from the prior-year quarter and made up the largest part of the difference between the reported operating loss and the adjusted operating profit. The company also recorded a modest Impairment expense. The supplement noted that, beginning in the first quarter of this year, adjusted measures exclude employer payroll taxes related to stock-based compensation, with earlier periods left unchanged because the amounts were described as immaterial.

The reported net loss per share narrowed from the prior-year quarter, while adjusted Diluted Earnings per Share rose. The reported Bottom Line therefore remained in negative territory despite the record revenue, a distinction that separates the company's adjusted profitability from its results under standard accounting rules.

Cash Generation and the Balance Sheet at Fastly

Operating cash flow increased from the prior-year quarter, and free cash flow also rose, reaching what management called a record. Capital spending in the period included purchases of property and equipment as well as capitalized internal-use software, and a small intangible asset purchase was also listed in the supplement.

The year-to-date view is less uniform. Year-to-date Operating Cash Flow was well ahead of the comparable period, yet free cash flow over the same stretch came in slightly below the prior-year figure. The contrast implies that heavier Investment absorbed the additional operating cash over the course of the year, even though the latest quarter produced a stronger result.

At the end of September, the company held cash and cash equivalents together with a larger balance of marketable securities. Combined, those holdings exceeded long-term debt, which stood at a meaningful level on a balance sheet that also carried substantial stockholders' equity. Deferred revenue and Accounts Receivable were also disclosed in the supplement, offering further detail on how billing and collections sat at quarter end.

The Customer Metrics Behind the Headline

Several customer measures improved at once. Fastly defines large customers as those generating more than a set annualized revenue threshold, and that group increased modestly against both the prior-year quarter and the second quarter. Those accounts produced nearly all of the company's revenue, a share that edged higher from a year earlier.

Product adoption among large customers moved more decisively. The portion using more than a single product suite rose from a clear majority to an even larger majority. The portion using a much broader set of suites increased by a wider margin, reaching about a third of the group after standing at less than a fifth a year earlier. Those shifts align with the chief executive's description of customers deepening their use of the platform.

Trailing net retention, which measures how spending by existing customers changes over time, improved from the second quarter and stood well above the year-ago reading. The release described it as the highest level since the early part of the decade. A retention figure above the break-even mark indicates that existing customers, taken as a group, are spending more than they did previously.

Remaining performance obligations, the value of contracted revenue yet to be recognized, grew faster than revenue itself in the quarter. The current portion, which covers amounts expected to be recognized in the nearer term, also rose as a share of the total. The supplement noted that prior-period figures for this measure had been recast in the third quarter of last year to correct an error involving contracts with termination-for-convenience clauses, a caveat relevant to longer historical comparisons.

A Heavier Reliance on the Largest Accounts

The less flattering figure in the customer data concerned concentration. The group of largest customers, as the company measures it, generated a noticeably larger share of revenue than a year earlier, climbing by several percentage points. The improvement in total revenue was therefore partly driven by a narrow set of buyers.

Concentration of that kind can cut both ways. Larger commitments from major customers can support growth and retention, as the quarter's metrics suggest, but a business with a greater dependence on a small group of accounts is also more exposed to changes in any one customer's traffic, pricing or vendor strategy. The company's release did not attribute the shift to a specific customer, so the available documents do not identify who drove it.

Comcast Partnership Pushes the Platform Deeper Into Networks

Among the quarter's business highlights, Fastly pointed to its work with Comcast (NASDAQ:CMCSA), which integrates Fastly software into the cable operator's nationwide network. The company said the arrangement supports hyper-local content delivery, low-latency streaming, edge AI and capacity for peak events for Xfinity members.

Market commentary described the technical design in a September report. It said Fastly's software would run on Comcast's virtual cable modem termination systems, forming a programmable layer in which traffic could be optimized, protected and processed in real time. The publication reported that Comcast's hub sites would act as content-caching servers, reducing reliance on a small number of centralized origin locations, a change intended to ease bottlenecks and bandwidth problems.

Executives from both companies offered reasons for the move in that report. Elad Nafshi, Chief Network Officer at Comcast, said that "the stakes will never be higher than during this upcoming fall football season," pointing to the pressure live sports place on networks. Compton said that "extending Fastly's platform into Comcast's network brings more local performance." The publication also cited large game downloads as an example, with local caching intended to speed delivery and reduce duplicate traffic.

The sector backdrop described by market data helps explain the appeal. Live streaming, large game downloads and AI workloads are increasing Demand on networks, encouraging operators to adopt Edge Computing and distributed caching. The same report characterized virtualized access equipment as a platform for programmable services rather than only a means of providing connectivity, which is the kind of opening an edge software provider would seek.

New Tools Aimed at AI Applications and Agents

Fastly also expanded the portfolio it markets as Fastly for AI. The additions named in the release are AI Runtime Control, AI Firewall and new API Security features. The investor supplement described them as providing real-time visibility and control for AI applications and agents.

The customer examples in the supplement show how the company is positioning those capabilities alongside its established products, though the customers were not named. A major electronics maker chose Fastly to protect privacy for new AI services and to improve the reliability of software updates. A large US restaurant chain replaced its existing security vendor to protect online checkout. A global marketplace with a very large membership added delivery, web application firewall and bot management services.

Taken together, those examples span AI-related demand and more traditional needs such as checkout protection and software distribution. The documents do not disclose how much revenue the AI-specific products generated, so the contribution of that category to the quarter cannot be determined from the published material.

Partners, Recognition and a Leadership Appointment

Other developments listed by the company extended beyond product launches. Fastly partnered with Ingram Micro in Singapore to help enterprises build and protect AI-ready applications and APIs. It also described a partnership with a digital experience platform provider, an unnamed managed service partner that is integrating Fastly's delivery, web application firewall, bot management and denial-of-service protection.

The company was named a Customers' Choice for Edge Distribution Platforms in the latest Gartner Peer Insights recognition, reporting a strong overall rating from reviewers. It also became the first edge cloud platform provider to join DIMPACT, an initiative focused on helping media and publishing companies measure their digital carbon footprints. On the leadership side, Fastly appointed Tricia Yankovich as Chief People Officer.

Outlook Points to Further Sequential Growth

For the fourth quarter, Fastly guided to revenue above the level just reported, with the entire forecast range sitting higher than the third-quarter result. Its forecast for adjusted operating income brackets the level achieved in the latest quarter, and the adjusted earnings per share range also surrounds the most recent figure. The company therefore projects higher revenue with adjusted profitability that is broadly similar in dollar terms, on a somewhat larger diluted share count.

The company also provided full-year ranges for revenue, adjusted operating income and adjusted earnings per share. Year-to-date revenue, already well above the prior-year period, accounts for most of the full-year forecast, leaving the fourth quarter to Supply the remainder. Forecasts of this kind are subject to the risks described in the company's filings and are not assurances of future performance.

A Listing Change and the Points Ahead

The release identifies the shares as trading on Nasdaq under the ticker FSLY. A record of the company's filings on Quantisnow shows a current report covering a transfer of listing, published in late November of last year alongside a headline announcing the move to Nasdaq.

From the published figures, several items stand out for observers of the edge cloud market: whether security growth stabilizes after easing from the prior quarter, whether the concentration among the largest customers continues to rise, how the Comcast integration develops through peak viewing periods, and whether the distance between adjusted profit and reported loss continues to narrow. Each of those measures appears regularly in the company's disclosures, which allows them to be followed from quarter to quarter.