Company Quick10K Filing
Quick10K
Fastly
10-Q 2019-06-30 Quarter: 2019-06-30
S-1 2019-04-19 Public Filing
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-08-05 Officers
8-K 2019-05-21 Amend Bylaw, Exhibits
LYFT Lyft 1,778
XDIV Metaurus Equity Component Trust 36
PBTS Powerbridge Technologies 23
GSPH Geospatial 4
TICK Ticket 0
WESC W&E Source 0
RSRT Realsource Residential 0
DESEO Deseo Swimwear 0
BBRG FoodFirst 0
TLCC Twinlab Consolidated Holdings 0
FSLY 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.3 fsly-10xqexhibit103.htm
EX-31.1 fsly-10qexhibit311.htm
EX-31.2 fsly-10qexhibit312.htm
EX-32.1 fsly-10qexhibit321.htm
EX-32.2 fsly-10qexhibit322.htm

Fastly Earnings 2019-06-30

FSLY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
____________________________

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019

or
 
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to      

Commission File Number: 001-38897
____________________________
FASTLY, INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware
 
27-5411834
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
475 Brannan Street, Suite 300
San Francisco, CA 94107
(Address of principal executive offices) (Zip code)

(844) 432-7859
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address, or former fiscal year, if changed since last report)
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Class A Common Stock, $0.00002 par value
 
FSLY
 
The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 

As of August 7, 2019, 13,036,488 shares of the registrants’ Class A common stock were outstanding and 80,433,917 shares of registrant's Class B common stock were outstanding.


1





TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 


2





SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial condition, business strategy, and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as "anticipate," "believe," "continue," "could," "design," "estimate," "expect," "intend," "may," "plan," "potentially," "predict," "project," "should," "will," or the negative of these terms or other similar expressions.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q, regarding, among other things:
our ability to attract and retain customers;
our ability to increase the usage of our platform by existing customers;
defects, interruptions, security breaches, delays in performance, or similar problems with our platform;
our financial performance, including our revenue, cost of revenue, operating expenses, and our ability to attain and sustain profitability;
our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements, or preferences;
the growth of our relevant markets;
our platform’s functionality, scalability, performance, ease of use, reliability, and cost effectiveness relative to that of our competitors’ products and services;
our ability to compete effectively with existing competitors and new market entrants;
our ability to attract and retain qualified employees and key personnel;
our ability to maintain, protect, and enhance our intellectual property; and
our ability to comply with laws and regulations that currently apply or may become applicable to our business both in the United States and internationally.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.
Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report or to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have

3





filed as exhibits to this report with the understanding that our actual future results, levels of activity, performance, and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (www.investors.fastly.com), our filings with the Securities and Exchange Commission, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with investors and the general public about our company, our products, and other issues. It is possible that the information that we make available on our website may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.



4





PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FASTLY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
 
As of
June 30, 2019
 
As of
December 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
213,463

 
$
36,963

Marketable securities
 
32,156

 
46,679

Accounts receivable, net of allowance for doubtful accounts of $1,525 and $1,679 as of June 30, 2019 and December 31, 2018, respectively
 
28,542

 
24,729

Prepaid expenses and other current assets
 
12,192

 
8,896

Total current assets
 
286,353

 
117,267

Property and equipment, net
 
55,610

 
42,354

Goodwill
 
359

 
360

Intangible assets, net
 
1,198

 
610

Other assets
 
12,856

 
2,163

Total assets
 
$
356,376

 
$
162,754

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
5,753

 
$
2,333

Accrued expenses
 
25,101

 
15,535

Current portion of long-term debt
 
32,822

 
11,370

Other current liabilities
 
1,589

 
2,512

Total current liabilities
 
65,265

 
31,750

Long-term debt, less current portion
 
17,878

 
39,439

Convertible preferred stock warrant liabilities
 

 
3,261

Other long-term liabilities
 
5,911

 
647

Total liabilities
 
89,054

 
75,097

Commitments and contingencies (Note 9)
 

 

Convertible preferred stock
 

 
219,584

Stockholders’ equity (deficit):
 
 
 
 
Class A and Class B common stock
 
2

 
1

Additional paid-in capital
 
435,189

 
16,403

Treasury stock
 
(2,109
)
 
(2,109
)
Accumulated other comprehensive income (loss)
 
13

 
(36
)
Accumulated deficit
 
(165,773
)
 
(146,186
)
Total stockholders’ equity (deficit)
 
267,322

 
(131,927
)
Total liabilities, convertible preferred stock, and stockholders’ equity (deficit)
 
$
356,376

 
$
162,754


See Notes to Condensed Consolidated Financial Statements.

5





FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except per share data)
(unaudited)
 
 
Three months ended
June 30,
 
Six months ended
June 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue
 
$
46,173

 
$
34,448

 
$
91,729

 
$
66,946

Cost of revenue
 
20,784

 
15,695

 
40,502

 
31,079

Gross profit
 
25,389

 
18,753

 
51,227

 
35,867

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
11,244

 
8,099

 
21,420

 
16,078

Sales and marketing
 
16,906

 
11,973

 
31,945

 
24,316

General and administrative
 
8,920

 
4,130

 
17,620

 
9,832

Total operating expenses
 
37,070

 
24,202

 
70,985

 
50,226

Loss from operations
 
(11,681
)
 
(5,449
)
 
(19,758
)
 
(14,359
)
Interest income
 
861

 
147

 
1,277

 
284

Interest expense
 
(2,989
)
 
(359
)
 
(4,224
)
 
(740
)
Other expense, net
 
(1,696
)
 
(140
)
 
(2,472
)
 
(234
)
Loss before income taxes
 
(15,505
)
 
(5,801
)
 
(25,177
)
 
(15,049
)
Income taxes
 
82

 
35

 
137

 
93

Net loss
 
$
(15,587
)
 
$
(5,836
)
 
$
(25,314
)
 
$
(15,142
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
 Foreign currency translation adjustment
 
$
(21
)
 
$
(46
)
 
$
7

 
$
16

Loss on investments in available-for-sale-securities
 
14

 
8

 
42

 
6

Total other comprehensive (loss) income
 
$
(7
)
 
$
(38
)
 
$
49

 
$
22

Comprehensive loss
 
$
(15,594
)
 
$
(5,874
)
 
$
(25,265
)
 
$
(15,120
)
Net loss attributable to common stockholders
 
$
(15,587
)
 
$
(5,836
)
 
$
(25,314
)
 
$
(15,142
)
Net loss per share attributable to common stockholders, basic and diluted
 
$
(0.26
)
 
$
(0.24
)
 
$
(0.59
)
 
$
(0.63
)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted
 
59,781

 
24,127

 
42,599

 
24,034

See Notes to Condensed Consolidated Financial Statements.


6





FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share amounts)
(unaudited)
 
 
Three months ended June 30, 2019
 
 
Convertible
Preferred Shares
 
 
Common Stock—Class A
 
Common Stock—Class B
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of April 1, 2019
 
53,630,213

 
$
219,584

 
 

 
$

 
25,521,408

 
$
1

 
$
18,676

 
$
(2,109
)
 
$
20

 
$
(150,186
)
 
$
(133,598
)
Conversion of convertible preferred stock to Class B common stock
 
(53,630,213
)
 
(219,584
)
 
 

 

 
53,630,213

 
1

 
219,583

 

 

 

 
219,584

Conversion of convertible preferred stock warrants into Class B common stock warrants
 

 

 
 

 

 

 

 
5,665

 

 

 

 
5,665

Issuance of Class A common stock in connection with the IPO, net of underwriting discounts
 

 

 
 
12,937,500

 

 

 

 
186,912

 

 

 

 
186,912

Exercise of stock options
 

 

 
 
57,658

 

 
761,479

 

 
1,893

 

 

 

 
1,893

Exercise of common stock warrants
 

 

 
 

 

 
172,380

 

 

 

 

 

 

Vesting of early exercised stock options
 

 

 
 

 

 
40,530

 

 
155

 

 

 

 
155

Stock-based compensation
 

 

 
 

 

 

 

 
2,243

 

 

 

 
2,243

Repayment of stockholder note
 

 

 
 

 

 
26,642

 

 
62

 

 

 

 
62

Net loss
 

 

 
 

 

 

 

 

 

 
 
 
(15,587
)
 
(15,587
)
Other comprehensive loss
 

 

 
 

 

 

 

 

 

 
(7
)
 

 
(7
)
Balance as of June 30, 2019
 

 
$

 
 
12,995,158

 
$

 
80,152,652

 
$
2

 
$
435,189

 
$
(2,109
)
 
$
13

 
$
(165,773
)
 
$
267,322


 
 
Three months ended June 30, 2018
 
 
Convertible
Preferred Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Deficit
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at April 1, 2018
 
49,718,084

 
$
179,705

 
 
24,035,354

 
$
1

 
$
11,440

 
$
(2,109
)
 
$
36

 
$
(124,557
)
 
$
(115,189
)
Issuance of Series F Preferred stock, net of issuance costs of $121
 
3,832,362

 
39,063

 
 

 

 

 

 

 

 

Exercise of stock options
 

 

 
 
318,377

 

 
517

 

 

 

 
517

Vesting of early exercised stock options
 

 

 
 
11,795

 

 
30

 

 

 

 
30

Stock-based compensation
 

 

 
 

 

 
990

 

 

 

 
990

Repayment of stockholder note
 

 

 
 
8,828

 

 
20

 

 

 

 
20

Net loss
 

 

 
 

 

 

 

 

 
(5,836
)
 
(5,836
)
Other comprehensive loss
 

 

 
 

 

 

 

 
(38
)
 

 
(38
)
Balance as of June 30, 2018
 
53,550,446

 
$
218,768

 
 
24,374,354

 
$
1

 
$
12,997

 
$
(2,109
)
 
$
(2
)
 
$
(130,393
)
 
$
(119,506
)






7





FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)—Continued
(in thousands, except share amounts)
(unaudited)

 
 
Six months ended June 30, 2019
 
 
Convertible
Preferred Shares
 
 
Common Stock—Class A
 
Common Stock—Class B
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Equity
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of January 1, 2019
 
53,630,213

 
$
219,584

 
 

 
$

 
25,025,836

 
$
1

 
$
16,403

 
$
(2,109
)
 
$
(36
)
 
$
(146,186
)
 
$
(131,927
)
Impact of change in accounting policy
 

 

 
 

 

 

 

 

 

 

 
5,727

 
5,727

Conversion of convertible preferred stock to Class B common stock
 
(53,630,213
)
 
(219,584
)
 
 

 

 
53,630,213

 
1

 
219,583

 

 

 

 
219,584

Conversion of convertible preferred stock warrants into Class B common stock warrants
 

 

 
 

 

 

 

 
5,665

 

 

 

 
5,665

Issuance of Class A common stock in connection with the IPO, net of underwriting discounts
 

 

 
 
12,937,500

 

 

 

 
186,912

 

 

 

 
186,912

Exercise of stock options
 

 

 
 
57,658

 

 
1,211,230

 

 
2,532

 

 

 

 
2,532

Exercise of common stock warrants
 

 

 
 

 

 
172,380

 

 

 

 

 

 

Vesting of early exercised stock options
 

 

 
 

 

 
81,054

 

 
310

 

 

 

 
310

Stock-based compensation
 

 

 
 

 

 

 

 
3,710

 

 

 

 
3,710

Repayment of stockholder note
 

 

 
 

 

 
31,939

 

 
74

 

 

 

 
74

Net loss
 

 

 
 

 

 

 

 

 

 

 
(25,314
)
 
(25,314
)
Other comprehensive loss
 

 

 
 

 

 

 

 

 

 
49

 

 
49

Balance as of June 30, 2019
 

 
$

 
 
12,995,158

 
$

 
80,152,652

 
$
2

 
$
435,189

 
$
(2,109
)
 
$
13

 
$
(165,773
)
 
$
267,322

 
 
Six months ended June 30, 2018
 
 
Convertible
Preferred Stock
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Total
Stockholders’
Deficit
 
 
Shares
 
Amount
 
 
Shares
 
Amount
 
Balance at January 1, 2018
 
49,718,084

 
$
179,705

 
 
23,879,074

 
$
1

 
$
10,377

 
$
(2,109
)
 
$
(24
)
 
$
(115,251
)
 
$
(107,006
)
Issuance of Series F Preferred stock, net of issuance costs of $121
 
3,832,362

 
39,063

 
 

 

 

 

 

 

 

Exercise of stock options
 

 

 
 
438,186

 

 
692

 

 

 

 
692

Vesting of early exercised stock options
 

 

 
 
48,266

 

 
70

 

 

 

 
70

Stock-based compensation
 

 

 
 

 

 
1,838

 

 

 

 
1,838

Repayment of stockholder note
 

 

 
 
8,828

 

 
20

 

 

 

 
20

Net loss
 

 

 
 

 

 

 

 

 
(15,142
)
 
(15,142
)
Other comprehensive loss
 

 

 
 

 

 

 

 
22

 

 
22

Balance as of June 30, 2018
 
53,550,446

 
$
218,768

 
 
24,374,354

 
$
1

 
$
12,997

 
$
(2,109
)
 
$
(2
)
 
$
(130,393
)
 
$
(119,506
)
See Notes to Condensed Consolidated Financial Statements.

8





FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Six months ended
June 30,
 
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net loss
 
$
(25,314
)
 
$
(15,142
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
Depreciation and amortization
 
7,624

 
6,295

Amortization of deferred rent
 
3,985

 
(112
)
Amortization of debt issuance costs
 
1,816

 

Stock-based compensation
 
3,710

 
1,838

Provision for doubtful accounts
 
69

 
276

Change in fair value of preferred stock warrant liabilities
 
2,404

 
79

Other non-operating activities
 
(400
)
 
(42
)
Interest paid on capital leases
 
(171
)
 
(116
)
Loss on disposals of property and equipment
 
39

 

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(3,882
)
 
(3,375
)
Prepaid expenses and other current assets
 
(3,209
)
 
(1,504
)
Other assets
 
(4,966
)
 
514

Accounts payable
 
3,270

 
(1,389
)
Accrued expenses
 
287

 
(39
)
Other liabilities
 
(910
)
 
133

Net cash used in operating activities
 
(15,648
)
 
(12,584
)
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(32,662
)
 
(10,657
)
Sales of marketable securities
 
47,634

 
19,927

Purchases of property and equipment
 
(9,229
)
 
(9,834
)
Purchases of intangible assets
 
(636
)
 

Net cash provided by (used in) investing activities
 
5,107

 
(564
)
Cash flows from financing activities:
 
 
 
 
Proceeds from initial public offering, net of underwriting fees
 
192,510

 

Payments of costs related to initial public offering
 
(3,653
)
 

Proceeds from borrowings under notes payable
 

 
4,000

Repayments of notes payable
 
(4,988
)
 

Repayments of capital leases
 
(676
)
 
(585
)
Proceeds from Series F financing
 

 
39,184

Series F issuance costs
 

 
(121
)
Proceeds from Employee Stock Purchase Plan
 
810

 

Proceeds from exercise of vested stock options
 
2,530

 
691

Proceeds from early exercise of stock options
 
520

 

Proceeds from payment of stockholder note
 
74

 
20

Repurchase of early exercised shares
 

 
(13
)
Net cash provided by financing activities
 
187,127

 
43,176

Effects of exchange rate changes on cash, cash equivalents, and restricted cash
 
1

 
9

Net increase in cash, cash equivalents, and restricted cash
 
176,587

 
30,037

Cash, cash equivalents, and restricted cash at beginning of period
 
36,963

 
31,396

Cash, cash equivalents, and restricted cash at end of period
 
$
213,550

 
$
61,433



See Notes to Condensed Consolidated Financial Statements.

9






FASTLY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—Continued
(in thousands)
(unaudited)
 
 
Six months ended
June 30,
 
 
2019
 
2018
Supplemental disclosure of cash flow information:
 
 
 
 
Cash paid for interest
 
$
4,435

 
$
938

Cash paid for income taxes, net of refunds received
 
$
13

 
$
48

Property and equipment additions not yet paid in cash
 
$
8,035

 
$
365

Vesting of early-exercised stock options
 
$
310

 
$
81

Capital lease outstanding from current year addition
 
$
3,740

 
$
458

Change in other assets from change in accounting principle
 
$
5,727

 
$

Conversion of convertible preferred stock warrants to convertible common stock warrants
 
$
5,665

 
$

Costs related to initial public offering, accrued but not yet paid
 
$
1,945

 
$

 
 
 
 
 
Reconciliation of cash, cash equivalents, and restricted cash as shown in the statements of cash flows
 
 
 
 
Cash and cash equivalents
 
$
213,463

 
$
61,433

Restricted cash included in prepaid and other current assets line item of Condensed Consolidated Balance Sheets
 
87

 

Total cash, cash equivalents, and restricted cash
 
$
213,550

 
$
61,433



See Notes to Condensed Consolidated Financial Statements.

10

FASTLY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)


1.     Nature of Business
Fastly, Inc. has built an edge cloud platform that can process, serve, and secure its customer’s applications as close to their end users as possible. Our edge network spans 64 Points-of-Presence ("POPs") around the world, as of June 30, 2019. We were incorporated in Delaware in 2011 and are headquartered in San Francisco, California.
As used herein, "Fastly," "we," "our," "the Company," and similar terms include Fastly, Inc. and its subsidiaries, unless the context indicates otherwise.
Stock Split
On May 3, 2019, we implemented a 1-for-2 reverse stock split of our stock. All shares of Common Stock, stock-based instruments, and per-share data included in these financial statements give effect to the stock split and the changes in authorized shares have been adjusted retroactively for all periods presented.
Initial Public Offering ("IPO")
On May 21, 2019 we completed an IPO in which we sold 12,937,500 shares of our newly authorized Class A common stock, which included 1,687,500 shares sold pursuant to the exercise by the underwriters of an option to purchase additional shares, at the public offering price of $16.00 per share. We received net proceeds of $192.5 million, after deducting underwriting discounts and commissions, from sales of our shares in the IPO. The net proceeds include additional proceeds of $25.1 million, net of underwriters' discounts and commissions, from the exercise of the underwriters' option to purchase an additional 1,687,500 shares of our Class A common stock. Immediately prior to the completion of the IPO, all shares of common stock then outstanding were reclassified as Class B common stock and all shares of convertible preferred stock then outstanding were converted into 53,630,213 shares of common stock on a one-to-one basis, and then reclassified as shares of Class B common stock.
2.     Summary of Significant Accounting Policies
Basis of Presentation
The interim unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") along with instructions to Form 10-Q and Article 10 of Securities and Exchange Commission ("SEC") Regulation S-X.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Unaudited Interim Financial Statements
The accompanying interim condensed consolidated balance sheet as of June 30, 2019, the related interim condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018, the condensed consolidated statements of cash flows, the condensed consolidated statements of convertible preferred stock and stockholders' equity (deficit) for the six months ended June 30, 2019 and 2018, and the related footnote disclosures are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. In management’s opinion, the unaudited financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments necessary for the fair presentation of our financial position as of June 30, 2019, our results of operations and comprehensive income for the three and six months ended June 30, 2019 and 2018, and our statements of cash flows for the six months ended June 30, 2019 and 2018. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
Use of Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. Actual

11

FASTLY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(unaudited)

results and outcomes could differ significantly from our estimates, judgments, and assumptions. Significant estimates, judgments, and assumptions used in these financial statements include, but are not limited to, those related to revenue, accounts receivable and related reserves, useful lives and realizability of long-lived assets, income tax reserves, and accounting for stock-based compensation. Estimates are periodically reviewed in light of changes in circumstances, facts, and experience. The effects of material revisions in estimates are reflected in the condensed consolidated financial statements in the period of change and prospectively from the date of the change in estimate.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The primary focus of our investment strategy is to preserve capital and meet liquidity requirements. Our investment policy addresses the level of credit exposure by limiting the concentration in any one corporate issuer or sector and establishing a minimum allowable credit rating. To manage the risk exposure, we invest cash equivalents and marketable securities in a variety of fixed income securities, including government and investment-grade debt securities, and money market funds. We place our cash primarily in checking and money market accounts with reputable financial institutions. Deposits held with these financial institutions may exceed the amount of insurance provided on such deposits, if any.
Concentrations of credit risk with respect to accounts receivable are primarily limited to certain customers to which we make substantial sales. Our customer base consists of a large number of geographically dispersed customers diversified across several industries. To reduce risk, we routinely assess the financial strength of our customers. Based on such assessments, we believe that our accounts receivable credit risk exposure is limited. No customer accounted for more than 10% of revenue for the three and six months ended June 30, 2019 and 2018 or more than 10% of the total accounts receivable balance as of June 30, 2019 and December 31, 2018.
Significant Accounting Policies
There have been no material changes to our significant accounting policies as compared to those described in the Final Prospectus dated May 16, 2019 relating to our IPO, filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the "Prospectus").
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), which amends the existing accounting standards for revenue recognition, Topic 605, and outlines a single set of comprehensive principles for recognizing revenue under U.S. GAAP. Among other things ASU 2014-09 requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record revenue, which is referred to as a performance obligation. Revenue is recognized when or as control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services. We have adopted ASU 2014-09 as of January 1, 2019 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2019. Revenues and contract assets or liabilities for contracts completed prior to January 1, 2019 are presented under Topic 605, and revenues and contract assets and liabilities from contracts which were not completed or started after December 31, 2018 are presented under Topic 606. We recorded a net increase in stockholders’ equity (retained earnings) of $5.7 million as of January 1, 2019 due to the cumulative impact of adopting Topic 606 and Topic 340, Other Assets and Deferred Costs. Refer to Note 3, "Revenue", in the Notes to the Condensed Consolidated Financial Statements for further information.
In August 2016, FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which clarifies how entities should classify cash receipts and cash payments related to eight specific cash flow matters on the statement of cash flows, with the objective of reducing existing diversity in practice. ASU 2016-15 designates the appropriate class flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing, and financing activities. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018. We adopted this guidance effective January 1, 2019 using the retrospective transition approach for all periods presented. The adoption of ASU 2016-15 did not have a material impact on our condensed consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230) ("ASU 2016-18"), which requires companies to include amounts generally described as restricted cash and restricted cash

12

FASTLY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Continued
(unaudited)

equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted this guidance effective January 1, 2019, using the retrospective transition approach for all periods presented. The adoption of ASU 2016-18 did not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"), which changes the definition of a business to assist entities with evaluating whether transactions should be accounted for as transfers of assets or business combinations. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018. We adopted this guidance effective January 1, 2019, using the prospective approach. The adoption of ASU 2017-01 did not have a material impact on our condensed consolidated financial statements.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which eliminates step two from the goodwill impairment test. Under this guidance, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value up to the amount of goodwill allocated to that reporting unit. The guidance is effective for financial statements issued for fiscal years beginning after December 15, 2020, although ea