FSLY Q2 2026 - Post-Call Earnings Update

Event: Quartr Q2 2026 event Retrieved: 2026-08-06T00:02:00Z Comparison mode: maximal Scorecard contract: v1

Consensus scorecard

Management and Q&A

Prepared remarks — CEO Kip Compton:

• Called it "another exceptional quarter," citing a fifth consecutive quarter of improving net retention rate and a sixth consecutive quarter of positive free cash flow.
• Record revenue of $183 million, up 23% year over year and above the high end of guidance; record gross margin of 65.8%; operating income of $27 million, both above the high end of the guided range; fourth consecutive quarter of operating profit at a record 14.7% operating margin.
• Trailing 12-month net retention rate rose to 117%, "the highest level in over three years."
• Described the platform strategy — "we build, sell, and operate a single unified platform" — as producing better consistency for customers, a more efficient network, deeper relationships and greater wallet share.
• Security grew 43% year over year on cross-sell and upsell, with DDoS Protection and Bot Management growing at triple-digit rates. Security and other revenue combined grew 46% year over year, "now at nearly $200 million annual run rate."
• Network services grew 17% year over year: "This is where customers choose Fastly when performance matters."
• Said major global sporting events pushed record traffic through the infrastructure this summer.
• LaLiga case study: illegal streaming costs its clubs an estimated $700 million a year; Fastly built an AI-driven real-time detection system that shuts down pirated streams in the request path.
• Customer wins named: a leading fintech platform serving more than half a million businesses that switched after "a number of catastrophic outages" at its prior provider; a global education technology customer that suffered a data breach affecting millions of user records when its prior WAF failed; a U.K. health and beauty retailer that signed a multi-year, multi-million dollar commitment and replaced a long-time incumbent security vendor; and a European national public broadcaster served through a managed service partner.
• Said AI-generated traffic is growing at roughly six and a half times the rate of human traffic, and that machine requests demand an immediate decision on whether to cache, throttle, monetize or block — positioning Fastly as "that trusted control plane."
• Le Monde uses Content Guard, part of Bot Management, to convert scraping into "controlled, licensed, revenue-generating relationships." A major auto shopping platform added Bot Management and DDoS Protection for visibility and control over automated traffic.
• Announced a partnership with Skyfire, which uses Fastly Compute to embed verified agent identity and payment-backed credentials into the platform.
• Noted he became CEO 14 months ago and that the quarter delivered "the highest revenue growth quarter in almost four years."

Prepared remarks — CFO Rich Wong:

• Marked his one-year anniversary at Fastly, said he has brought on a new head of strategic finance and a new chief accounting officer, and cited re-accelerated growth above 20%, $79 million of positive EBIT over the last four quarters, and six straight quarters of positive free cash flow.
• Revenue of $183.3 million, up 23%, above the high end of the $170-$176 million guidance range.
• Network services revenue of $133.9 million, up 17% and an acceleration from the prior quarter. Security revenue of $41.7 million, up 43% year over year and 8% sequentially, now 23% of revenue against 20% a year ago. Other products revenue of $7.7 million, up 69%, driven primarily by Compute sales supporting AI-related customer requirements.
• Said the revenue upside came from increased traffic at the largest customers and, to a lesser extent, "a couple of live sporting events that were episodic in nature."
• Top 10 customers were 37% of revenue and grew 48% year over year; revenue from customers outside the top 10 grew 12%. No single entity was 10% or more of revenue; a group of entities under common control accounted for 11%.
• Large customer count (more than $100,000 in annualized revenue) was 624.
• Trailing 12-month net retention rate of 117%, up from 113% in the prior quarter and 104% a year ago.
• RPO of $341 million, up 38% year over year, with the current portion at 79% of total and up 44%, benefiting from "improved go-to-market discipline with our customer onboarding, which resulted in larger upfront commitments."
• Gross margin of 65.8%, 180 basis points above the 64% guidance midpoint and up 680 basis points from 59% in Q2 2025, driven by higher revenue relative to infrastructure cost. Said the company believes margins are sustainable at these levels, citing trailing 12-month incremental gross margin flow-through of 96%, up from 47% a year ago.
• Operating expenses of $93.7 million, better than anticipated on disciplined expense management, lower benefits and discretionary spend, and hiring timing biased toward the third quarter.
• Operating income of $27 million against guidance of $12-$16 million; operating margin expanded from −3% to +15%, approximately 1,800 basis points year over year. Trailing 12-month incremental operating margin flow-through of 79%, "significantly above our long-term target of 25%-40%."
• Net profit of $26.2 million, or $0.15 per diluted share, against a $5 million net loss and $(0.03) a year ago. Adjusted EBITDA of $38.1 million, 21% of revenue, against $8.9 million and 6%.
• Ended the quarter with approximately $337 million in cash, marketable securities and investments including long-term, up $7 million sequentially, and a positive net cash balance of $14 million.
• Operating cash flow of $39.3 million against $25.8 million a year ago; free cash flow of $3.6 million, a sixth consecutive positive quarter.
• Infrastructure capital expenditures were approximately 17% of revenue in the quarter, front-loaded to secure equipment given supply chain constraints, and expected to moderate in the second half.
• Said the company continues to monitor supply chain dynamics "particularly regarding memory components," and is implementing server component upgrades to expand capacity efficiently.
• Closed by saying the company is "evaluating ways to better align our financial disclosures to our success," with more at the September Investor Day.

Question and answer:

• Asked by Aidan Day (for Jackson Ader, KeyBanc) whether network services outperformance reflected agentic traffic or share gains, Compton said yes on share — "particularly, as we like to say, where performance matters" — citing third-party research, and said AI and agentic traffic is not broken out but has been identified as the catalyst behind traffic growth at a number of customers. (A technical interruption caused the answer to be repeated.)
• On what drives net retention expansion, Wong pointed to the Web Application Firewall continuing to gain share and grow faster than the market, plus traction in the newer DDoS and Bot Management products; on Compute he said "there is some traction there, but it's still early days."
• Asked by Frank Louthan (Raymond James) about AI workloads and share, Compton said data on the size and composition of the AI traffic market "is somewhat thin," so he would not claim share specifically there, but named increased traffic from AI tools for software development and increased use of the privacy suite for agentic workloads. Wong attributed security growth to traffic complexity and more threat actors, with AI "helping accelerate some of the security adoption." Compton added that customers are consolidating onto Fastly after being unhappy with the effectiveness of incumbent security solutions.
• On top 10 customer product mix, Wong said 73% of revenue overall comes from network services and the top 10 is "pretty close to that, maybe slightly a little bit higher," with cross-sell into security already landed at some top 10 accounts.
• Asked by Peter Levine (Evercore) about co-innovation, Compton described it as the foundation of product development — working with innovative customers on business problems and building solutions that can become market-leading products — citing LaLiga anti-piracy and unnamed AI and agentic projects to be announced "in the coming months."
• On edge Compute investment, Compton said Fastly is focused on "a true edge Compute business," is not building regional data centers, and runs a single consolidated network: "Rich does not have in his spreadsheet a separate line for the capital for Compute," which allows Compute workloads to use resources not fully utilized by network services or security.
• Asked by James Fish (Piper Sandler) to size the World Cup effect, Wong said the $10 million upside to the guidance midpoint was "a little bit less than half" episodic — World Cup, another live event on the White House lawn, and a few one-time customer activities. He said 75% of World Cup games occurred in Q2 and 25% will occur in Q3, with viewership roughly two-thirds in Q2 and one-third in Q3, and that stripping out the episodic revenue leaves "normal seasonality between Q2 and Q3."
• On security penetration and multi-product disclosure, Wong said security at $42 million "still ha[s] rooms to grow" and directed the multi-product question to the September Investor Day.
• Asked by Param Singh (Oppenheimer) how far DDoS and Bot Management have penetrated the installed base, Compton said "maybe second inning."
• On quantifying agentic AI upside per unit of traffic, Compton said he had no quantitative answer, that the effect is larger in Compute and security than network services because request volumes are extremely high while bandwidth per request is lower than for streaming, and that "given the growth rate of that traffic, we believe that over time it becomes significant for the business."
• Asked by Rudy Kessinger (D.A. Davidson) about top 10 concentration rising three points sequentially while growth outside the top 10 decelerated, Compton acknowledged the observation, said the go-to-market transformation under Scott Lovett "is making progress" but "there's more work to be done," and said "we'd like to see more new logos and more growth outside of those top customers." He added that record gross margins show the company serves all customers profitably. Wong said he "wouldn't be surprised if the 37% kind of stays there or maybe ticks up a point or two."
• Asked what percentage of network traffic is AI traffic, Compton said he had no breakout to share and that it is "relatively modest in a lot of parts of our business, but rapidly growing."
• Asked by Fatima Boolani (Citi) about pricing, Wong said Q2 pricing was consistent with Q1 and Q4, describing "a very rational pricing environment with really rational players since the exits." Price erosion remains mid-single digits and traffic growth is "in the low, like, 20% range." He explained that measured erosion partly reflects customers hitting the next volume-discount tier. On competitor surcharges — referencing what "Akamai had announced" — Wong said Fastly will "continue to honor the commitments that we have," has "no plans to do surcharge pricing," and handles renewals case by case rather than by unilateral rules.
• On whether the 117% net retention rate is a high-water mark, Wong declined to guide but flagged that "coming up Q4, it will be a harder comp given the strength of our Q4 2025."
• Asked by Daniel (for Jeff Van Rhee, Craig-Hallum) about the hiring that slipped into Q3, Wong named two areas: APAC go-to-market, where customers were previously served from San Francisco and London across difficult time zones and where Nicola now leads the function, and marketing under Joan with a newly hired CMO, aimed at adding more logos and reaching the next tier of customers below the largest accounts.
• Asked what drives traffic share gains, Compton named reliability and resilience first — "we've certainly had instances where we've picked up business because incumbent solution had issues in terms of an outage" — then performance, and said pricing must be market competitive but "It's not generally the way that we're picking up traffic, by discounting or lowering prices."

Guidance and KPI clarification

Updated neutral analysis

• The call did not change the quarter's scorecard: revenue of $183.3 million beat consensus by 5.4% and non-GAAP diluted EPS of $0.15 beat by 127.6%. The call supplies the composition — revenue was $10 million above the guidance midpoint, of which management says a little less than half was episodic.
• Full-year revenue guidance was raised to $732-$746 million and full-year operating profit to $88-$96 million, while free cash flow guidance of $40-$50 million was left unchanged despite a first half that produced only $3.6 million of free cash flow in Q2. Management attributes the reconciliation to front-loaded capital expenditure moderating in the second half.
• Growth is guided to decelerate materially: 23% delivered in Q2 against 18% guided at the midpoint for both Q3 and the full year. Part of that is the episodic revenue not repeating and 75% of the World Cup falling in Q2, but management did not quantify the underlying rate.
• Profitability inflected on operating leverage rather than pricing. Gross margin of 65.8% is 680 basis points above a year ago, and management's supporting evidence — trailing 12-month incremental gross margin flow-through of 96% against 47% a year ago — indicates almost all incremental revenue is dropping through. Operating margin swung 1,800 basis points to 14.7%.
• Some of the Q2 operating income beat is timing rather than structure: management named lower-than-anticipated benefits and discretionary spend and hiring timing biased toward Q3, and guided operating expenses back to normalized growth for the second half. The Q3 operating profit guide of $20-$24 million against $27 million delivered reflects that.
• Product mix is shifting toward the higher-growth lines: security at 23% of revenue against 20% a year ago, and security plus other growing 46% to nearly a $200 million run rate. Network services, still 73% of revenue, accelerated to 17%.
• Customer concentration increased and management flagged it as an area of unfinished work. Top 10 customers rose three points sequentially to 37% and grew 48%, while the rest of the base grew 12%. Management said it would like to see more new logos, expects concentration to hold or rise "a point or two," and is investing in marketing and APAC go-to-market to address it.
• Net retention of 117% is the fifth consecutive quarterly improvement and the highest in over three years, but management explicitly flagged a harder Q4 comparison against Q4 2025.
• The AI narrative is qualitative rather than quantified. Management disclosed the growth rate of AI traffic (about 6.5x human traffic) but declined to disclose its share of network traffic, its revenue contribution, or the per-unit economics, saying the effect is larger in Compute and security than in network services because request volume is high relative to bandwidth.
• Pricing discipline held. Price erosion remains mid-single digits, and management explicitly declined to follow a competitor's surcharge approach, saying share gains come from reliability, resilience and security effectiveness rather than discounting. Traffic growth in the low 20% range against 17% network services revenue growth is consistent with that erosion rate.
• Balance sheet position improved modestly: approximately $337 million of cash and investments, up $7 million sequentially, and a positive net cash balance of $14 million.
• Two disclosure changes were signposted for the September Investor Day: multi-product security penetration metrics and a broader realignment of financial disclosures. Neither is available now.
• Supply chain remains a live constraint on the capital plan. Management named memory components specifically, said 2026 capital spend was front-loaded because of it, and is mitigating through server component upgrades rather than incremental capacity purchases.

Market context and limitations

• API Ninjas snapshot: FSLY $26.03 on NASDAQ, volume 14,458,585, quote timestamped 2026-08-05T22:41:22Z, retrieved 2026-08-06T00:02:00Z. The release published after the U.S. close on 2026-08-05 and the call was held that afternoon; this is a single quote of unstated session basis captured after the close, not a measured reaction to either the release or the call.
• The consensus scorecard is carried forward unchanged from the preliminary report for this event (reports/preliminary/2026-08-05-fsly-q2-2026.md). No new actual in the call changes it: management stated revenue of $183.3 million and non-GAAP diluted EPS of $0.15, consistent with the $183.317 million and $0.15 in the release.
• Every figure above comes from the Quartr transcript for event 661681, which is complete and not live. The full transcript was read.
• Management stated at the outset that, unless otherwise noted, all numbers discussed on the call other than revenue are on an adjusted non-GAAP basis. Operating income, operating margin, operating expenses, EPS, adjusted EBITDA, and free cash flow above are therefore non-GAAP as the company defines them, reconciled in the release rather than on the call.
• Management stated it does not provide reconciliations of forward-looking non-GAAP measures because the reconciling information is unavailable without unreasonable effort, so the guidance above has no GAAP equivalent.
• Figures management stated on the call are reproduced at the precision used on the call, which is generally rounded to one decimal place and therefore differs slightly from the release's exact figures.
• Prior-year revenue of $149.0 million is implied from the stated $183.3 million and the stated 23% growth; management did not state it on the call.
• Other products revenue of $7.7 million and security revenue of $41.7 million sum to the $49.4 million shown for the combined line; management stated the growth rate and run rate but not the combined dollar figure.
• The share-of-revenue percentages by product line are calculated from the stated dollar figures against the stated $183.3 million; management stated only the security share.
• Prior FY2026 guidance ranges were not restated on the call, so the size of the revenue and operating profit raises cannot be quantified from this transcript.
• Prior-year operating expenses, operating income, large customer count, RPO, cash balance and free cash flow were not stated on the call, so no year-over-year change is computed for those lines.
• The $10 million upside figure management used in the Q&A is measured against the guidance midpoint, not against the guidance range or consensus.
• Episodic revenue was quantified only as "a little bit less than half" of the $10 million upside; no precise figure was given.
• The identity of the group of entities under common control representing 11% of revenue was not disclosed.
• The competitor surcharge reference is management's characterization of a third party's announced approach and was not independently verified.
• Management declined to disclose AI traffic as a share of network traffic, multi-product security attach rates, and the split of agentic traffic economics; those are deferred to the 22 September 2026 Investor Day.
• The investor presentation and supplement furnished with the release were not read for this update.

Source links

• Quartr Q2 2026 event overview
• Quartr Q2 2026 earnings call transcript
• Quartr Q2 2026 earnings release
• Preliminary report for this event