Good evening. My name is Sherrill, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly Fourth Quarter and Full Year 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Thank you. I would now like to turn the conference over to Maria Lukens, Vice President of Investor Relations. Please go ahead..

Hi, everyone. Thank you for joining our fourth quarter full year 2019 earnings call. We have Fastly’s CEO, Joshua Bixby; Chief Architect and Executive Chairperson, Artur Bergman; and CFO, Adriel Lares with us today. Before they start, I want to remind everyone about the format of our call.

We published a Shareholder Letter on our Investor Relations website and with the SEC about an hour ago. We hope everyone had a chance to read it. Since the letter provides a lot of details, we will make some brief opening remarks and reserve the rest of the time for your questions.

During this call, we will make forward-looking statements including statements related to the expected performance of our business, future financial results, strategy, long-term growthand overall future prospects.

These statements are subject to known and unknown risks, uncertainties and assumptions that could cause actual results to differ materially from those projected or implied during the call. Please take a look at our filings with the SEC and our Q4 2019 Shareholder Letter for a discussion of the factors that could cause our results to differ.

Also note that the forward-looking statements on this call are based on information available to us as of today’s date. We disclaim any obligation to update any forward-looking statements except as required by law. Also during this call, we will be discussing non-GAAP financial measures.

Reconciliations to the most directly comparable GAAP financial measures are provided in the Shareholder Letter on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call is being webcast and will be archived on our website shortly afterwards.

With that, I will turn the call over to Artur..

Thank you, Maria. Hi, everyone and welcome. We appreciate you joining us today to discuss our fourth quarter and full year ’19 -- 2019 results. Before we discuss those I want to talk about some exciting news announced earlier today that will position us for the next stage of fastest growth.

I have decided to step into the fulltime role of Chief Architect and Executive Chairperson and Joshua Bixby as Fastly’s new CEO. These past nine years, I have been on incredible journey. I am very proud of what we have accomplished we are the product inflection point. Similar to the inflection point we were at nine years ago when we started Fastly.

Compute@Edge is both a result of my and our CTO, Tyler McMullen vision nine years ago and the paradigm shift in how apps are built today. Just as we had to show the world that the Edge cloud was the right way to build better online experiences.

We now have to expand that vision further, the Edge should be easily used have security integrated and we have continued to evolve and develop it. We see so much potential for secure Edge computing environments in the market and we are building the future of our platform closely with our developer community.

We have continued to receive positive feedback on Compute@Edge which is currently in beta. The feedback we are receiving enables us to continue iterating improving the product in order to drive transformation of the Edge. We also have to continue adapting our modern network to meet the new demands of Compute@Edge.

We want to keep being as efficient if not more with Compute@Edge as we have been in the past. I have planned to spend more time with customers and prospects to understand their needs and to educate them on what's possible with Edge computing. The reason I can make this transition is because Joshua and I have worked together for over six years.

We have built trust together and I believe that Joshua is the right person to lead Fastly into the future. Joshua knows our business in and out. Having spent time running different parts of the business and also a unique ability to know what type of people, systems and organization are needed for us to grow.

He cares deeply about our employees, partners, customers and investors. I will continue to work very closely with Joshua and the rest of the leadership team helping support the long term strategic direction of the company and I look forward to keep interacting with you all about the Fastly future.

Please join me in congratulating Joshua in his new role and I am now turning over to him, so that he will go over the call..

Thank you, Arthur. It's been amazing to help grow Fastly with you for over six years. It is an incredible honor to lead and serve Fastly. We are on an exciting journey to build a more trustworthy Internet and I am energized to continue our momentum. 2019 was a great year for Fastly.

This quarter brings us to the end of our first calendar year as a public company. We launched several innovative new products and features that excite and benefit our customers and our community. Our customers are motivated to create and build on the Edge.

We continue to differentiate from our competitors and we continue to see growth across our global customer base, across all verticals and geographies. As you saw in our Shareholder Letter, we had a strong fourth quarter and are excited to share the results. We generated $59 million in revenue, up 44% year over year.

Our results reflect increased adoption of our Edge cloud platform including our security products by both new and existing enterprise customers. We are making progress on the path towards profitability and continue to identify opportunities to drive operating leverage as our network scales.

We believe over the next decade developers will move more and more mission critical functions to the Edge, driven by the need for performance scale and security as the world around us continues to be digitized. As such we believe the programmability and security will be paramount.

In 2019 we make significant progress and are excited to carry that momentum into 2020.

As we look forward to this year, we are focusing on furthering our mission and providing an edge cloud platform that developers can adopt as their own, which will include delivering a feature rich Compute@Edge offering at scale and continuing to invest in our edge security portfolio.

Fastly is on a great trajectory and we remain poised to do so much more. With that, I will hand the call over to Adriel, who will walk through some financial highlights..

Thanks, Joshua, and congratulations. I look forward to continuing my partnership with you and your new role. As Joshua mentioned, we continue to see strong momentum in growth and the top line during the fourth quarter and calendar year 2015. Fourth quarter 2019 revenue was $59 million, up 44% year-over-year.

Full year 2019 revenue was $200 million, up 39% year-over-year. We all continue to experience strong customer growth among both new and existing customers. Enterprise customer count grew to 288, up from 274 in Q3 with average enterprise customers spend also increased in the 670,000, up from 575,000 in the previous quarter.

This resulted in enterprise customers generating 87% of our trailing 12-month total revenue, up from 86% last quarter. Our dollar-base net expansion rate was a 136%, also up from the previous quarter of 135%. Our annual revenue retention rate also increased to over 99%.

In 2020 we are focused on continuing to further strengthen our customer relationships through our land, adopt and extend approach whereby customers adopt Fastly for one particular use case and then incorporate additional Fastly products and features over time.

We also continue to drive margin expansion in the fourth quarter and 2019 as we continue to pursue leverage opportunities in the business. GAAP gross margin was 56.7% for the quarter up from 56.6% in the year ago period and 55.9% for the full year up from 54.7% in 2018.

Non-GAAP gross margin, which excludes stock-based compensation that has increased significantly in 2019 as a public company relative to 2018 while we were private with 57.6% for the quarter up from 56.8% the year prior. And full year non-GAAP gross margin was 56.6% up from 54.9% in 2018.

As we have said in previous quarters, our gross margin can be impacted by the timing of personnel and infrastructure investments, as well as the seasonal ramp up usage and request by our customers on our platform. All that being said, we still remain confident that we can continue to drive gross margin expansion over time.

Lastly, despite ramping investments across sales, R&D and G&A as our first -- in our first year as a public company we were also able to deliver operating leverage in the fourth quarter and in the full year 2019. We are pleased with the progress we have made so far and I look forward to the opportunities ahead.

I'd now like to move to our Q1 and full year 2020 guidance. For the first quarter we expect revenue in the range of $58 million to $60 million, non-GAAP operating loss in the range of $13 million to $11 million and non-GAAP net loss per share in the range of $0.13 to $0.11.

For the full year 2020, we expect revenue in the range of $255 million to $265 million, non-GAAP operating loss in the range of $43 million to $33 million and non-GAAP net loss per share in the range of $0.43 cents to $0.32 cents. I'd also like to take a second to comment on the impact of the Covid-19 virus on our business.

The situation continues to evolve and the magnitude of the overall impact on our business cannot be reliably quantified at this time. But we have seen no material effect at this time. For example at some point we might see a negative impact to our supply chain but again nothing has yet occurred. Conversely internet usage may also increase.

In closing, we had an excellent quarter and we are pleased to have close that our first calendar year as a public company with strong execution. And with that, I will turn it back to the operator for some Q&A..

[Operator Instructions] The first question comes from Jeff Van Rhee of Craig-Hallum. Please go ahead. Your line is open..

Great. Thanks for taking my questions, guys, congrats on real nice quarter there. First, maybe you can just talk about the pipeline in terms of what you are seeing. How does the forward pipeline look versus what you have been closing with respect to use cases, verticals, competitors, just talk about kind of what's changing at the Edge..

Hey. Jeff, it's Joshua. Thanks for the question. I think that, as we talked about in previous calls, 2019 was a year of investment on the marketing side and we are starting to see that pay off. So I think we have seen an expansion in that pipeline across all the verticals, all the geographies.

I think we are -- we have not seen a dramatic change to the competitive environment. We continue to see the dominant player continue to see them quite often and the legacy CDN players. From a geographical and vertical perspective, it really remains the same.

I think we --I would add that we continue to see strong growth across all verticals and all geographies and that’s pretty universal. It's a good time right now..

And I guess just as it relates to the role shift, I mean congratulations to both. It sounds like you are both pretty pleased about where it's going to take you Artur. I am interested just in terms of your thought process and the timing that brought you to this conclusion, I am sure it didn't just happen right here.

How has this evolved, how have you been thinking about this over time?.

Thank you. I am very excited and happy. It’s evolved over quite a while where my and Joshua’s partnership has been very close.

And he's taken over large parts of the business and I felt that as we keep growing the stuff that I really love to do and that I am very good at well I will actually have less and less time with and because I love to explore this change and then we executed on it.

I -- I am so excited about the complete branch work and I just want to spend more time with our engineers and our customers, get back out into the field and those who learn what they want and tell them what they can do. I know what we did eight years ago and so that's really the evolution of that..

Great. That’s helpful. Last one for me, just maybe this is to Adriel be.

As you look at the annual outlook, how did you approach obviously in your elections, Olympics, some of the seasonal demand, maybe ask differently what kind of uplift would it typically bring in a given year and how variable can that be, what did you bake into the guide for that?.

Yeah. Generally, we found historically an election year is a good thing. I think one thing that impacted my sort of guide is the fact that this is the earliest we have ever guided as a public company. So we have got a full year in front of us.

The fact that we are a usage base, there is some variability that can occur and so I think what you saw there is, we just finished a great year, a great quarter and what you see here is just some appropriate conservatism given that we are just this early in the year.

But generally given what you see in terms of the year on your growth rate with the midpoint there, I think it's still feel generally positive about where we are going and I think you just sort of see an appropriately wider band just to make sure that we can account for some of the uncertainties associated with usage..

Okay. Got it. Great. Thanks again. Congrats everybody..

Thanks, Jeff..

Thank you..

Your next question comes from Will Power of Baird. Please go ahead. Your line is open..

Hey, guys. This is Charlie Erlikh on for Will. Thanks for taking the question and congrats on strong finish to the year. I was wondering if you could update us just on your marketing and sales hiring progress.

How have the employees that you hired in the end of 2019 started to ramp and could you maybe talk little about your plans in terms of sales and marketing hires into 2020?.

Sure. This is Adriel, and thanks for the question. So, overall, we are pleased with the investment that we ended the year where we were sort of targeting that sort of 35% as a percentage of revenue and we will likely continue to do that.

So long as we feel like we are getting the return on investment that we have experienced in the past and 2019 there was no different than you just affirmed the return on those investments.

From hiring standpoint and we really get sort of a 60 revenue generating folks here, so we are pleased with that and I think what you should see from us going forward is continued sort of invest at the current rate we have seen before.

I think we are continuing to we are still early days into the marketing portion of that sales and marketing spend and we were going to continue to monitor that return on that as we progress into 2020, but so far I want to make sure we get looks as though we want to continue to maintain that rate..

Great. That’s helpful. And then just one more for me, I wanted to clarify the comments you made in the Shareholder Letter about the cadence of gross margins through the year.

Is there anything out of the ordinary there, because it would seem that Q1 usually should be seasonally weaker than Q4 just due to less traffic leverage? So is there anything that you are calling out that's unique to Q1 2020 that's not necessarily typical normal seasonality?.

No. I think you have -- you said it correctly. In Q4, as we talked about in the past seasonally it's probably our strongest quarter. There's lots of good live events that we can participate in compete for it before.

There's also great shopping from our e-commerce customers just the general holiday season helps us in Q4 and then some of that doesn't repeat itself will carry over into Q1 but you should see some differences there. But it becomes that the same trend follow them to 2020.

we sort of see that sort of seasonal strength as we enter the fourth quarter again this year..

Got it. All right. Thanks, Adriel..

Thank you..

Your next question comes from Brad Zelnick of Credit Suisse. Please go ahead. Your line is open..

Excellent. Thanks so much and I echo my congrats all around on a good quarter and congrats on some of the changes in the leadership organization. But if I could follow up on a question on gross margins, I wanted to touch on the live streaming events in the quarter.

So you called out the impact to gross margin in the letter but I was wondering if you could help us quantify the impact and how we should think about the pace of expansion into 2020 with multiple live events ahead from the Olympics to various political events and how you are thinking about that?.

Sure. Brad this is Adriel again. I think the biggest thing we were focused on we have talked about in past earnings call and publicly is we are trying to grow annual overall gross margin incrementally and I think this year we were really aiming for about 100 basis points sort of on a year-on-year basis so we are pleased we are able to do that.

I think going forward that should still be the case in particular in Q4, there were just normal timing related impacts as we build up or not only live events in Q4, but also in preparation for live events that would have occurred here in Q1. Super Bowl was named in one of them and so there's nothing.

I think unusual in that regard and I think from our standpoint we are constantly balancing investments that we make today in preparation for the growth of our customers.

As you can see with the 44% year-on-year, it's a little bit tougher when the growing as fast as they are and I think on our side we are trying to balance our margin expansion goals with sort of the revenue opportunity that we see in front of us.

So, I hope that gives you a little bit more color in terms of sort of the quarter itself but year on year I still feel good about how we did in 2019 and I feel confident about what we are going to do in 2020..

Thanks, Adriel. It’s very helpful and maybe just a follow-up for whomever wants to take it, I guess.

At last year’s Altitude, you highlighted real time ad insertion as an initial use case for Compute@Edge and as we move into the rest of this year and I know it's still early, right? But how have conversations around the technology progress then in terms of that use case, has it actually been implemented anywhere into production yet or is it still way too early?.

Hey. Brad, it’s Joshua here. It’s still too early. We are still in beta with that. I think that the progression has been very positive.

This notion that the Edge brings the power to do more and it is very powerful and I think the ad insertion story is particularly powerful and we continue to see scenarios where most of that traffic is not being served from the Edge and therefore is analyzed form and scale and security perspective.

In the case where that would be dynamic we could see things that are very personalized and we are very bullish about that use case, but there are many others that are emerging as we have taken this out. And as you have seen in the past, we were very thoughtful about how we roll these products out, given that we are built by developers for developers.

We really want to capture the power of that bare imagination and we do that very thoughtfully and I think that's part of what we have seen over the last few months is that -- is the excitement around that.

And as we have talked about previously and I have said in the opening remarks, our goal this year is to bring out Compute@Edge at scale and that is -- that remains a case and I think we are even more excited than when we first brought out the beta with the types of creativity that our customers have.

That’s one of the wonderful assets of our businesses that we built on the show -- people build on the shoulders of others and we continue to see that momentum, it’s beautiful..

Awesome. We are excited for it too. Thanks so much for taking my questions..

Thank you..

Your next question comes from Rishi Jaluria of D.A. Davidson. Please go ahead. Your line is open..

Hey, guys. Thank you so much for taking my questions and I actually to see continued strong results. Maybe first I wanted to start by the CapEx for next year in the Shareholder Letter you talk about kind of staying at a little bit of an elevated level of above that which through a long-term outlook.

Can you maybe help us understand where do you see that continued CapEx going and how you look at the potential return on that and then I have got a follow-up..

Sure. Rishi, it’s Adriel again. So we are pleased with the outcome of 2019, where we ended up at about 10% of CapEx in term of revenue. And I think from our standpoint here internally we work on different ways to finance and also to plan when we bring in CapEx and sort of the just in time notion, while still providing capacity for our future growth.

But as I have mentioned earlier you know the growth aspect given how faster your customers are going is a bit of a challenge which is why I am giving ourselves a bit of room here with sort of like 13% to 14% for 2020.

Clearly, we will try to be beat that as well and do whatever we can to sort of get just in time, but with respect to deployment of our CapEx. But that just give you some context of that. Again we -- I think we outperformed relative to what I thought when we do in 2019..

Okay. Thanks Adriel. That's helpful. And then just in the commentary around the revenue in Q4 including some one-time live events and aren't expected to carry over. Can you help us understand the magnitude of that or on as how much of a revenue impact those were? Thanks..

Yeah. I think it was a little bit of like strong growth into new live events that we had never been exposed to not unlike how Super Bowl for this year is our second year doing that. So we are getting exposed to greater and greater opportunities as a result of the success we have had in the past.

So when I say one-time I think it's more the sense that it's Q4 typically when those sports are played or when those events are occurring we were going to continue to compete for them on an annual basis. But from a Q4 to Q1 I mean that from sort of a seasonal standpoint..

Okay. That's helpful. Thank you so much..

Your next question comes from Jonathan Ho from William Blair. Please go ahead. Your line is open..

Hi. Let me echo my congratulations to both of you as well in the new roles.

Just maybe starting out with you Josh, now that you are in sort of a new role, can you talk a little bit about, maybe what you see as some new opportunities or maybe some things that you can do to drive either changes or improvements?.

Jonathan. Thank you. I think Artur said that very well which is this has been a partnership for over six and a half years. So the decisions that we have made in this business I feel like we have made together and I think as you can see from the quarter and the year Fastly is thriving. So I don't -- this is not about change.

I think this is about augmenting and an enhancing all of the areas that we have already talked about.

Fastly is a platform for developers and I think Compute@Edge obviously is the next-generation of that so that is our core focus and I think we just need to continue to augment and actually part of this shift is to allow Artur to spend more at this time in that area.

I think the other thing that I called out is that security continues to be more important for our customers and we continue to invest heavily there and I think that’s also in area that Artur is going to continue the augment.

Other than that we are very proud of the results and we think that this is just about continuing to grow at a wonderful phase and nothing is broken here this is a wonderful and a wonderful place to be for us..

Got it. Got it. And then just in terms of the DBNER results that accelerated sequentially. And so I just wanted to get a sense from you, is there any way to maybe break down some of the drivers of that DBNER expansion between the different use cases whether it's Edge or security or core. Just to give us a sense of maybe what's driving what? Thank you..

Hey, Jonathan. It’s Adriel. Yeah. With respect to DBNER that's another one of those that continues to please me in a good way. And even though I have talked in the past now that eventually I expect that to meter down a little bit just what sort of large numbers. But in terms of where the main driver is coming in from it really is across the Board.

I think it's also that in context with the fact that we are releasing on an annual basis or retention rate that you know bumped up from an already high 98% to 99%. I think all of us together really does show that the sort of this land adopt and expand strategy with Fastly is across all of our different customers.

So it's not any one particular segment..

Thank you..

Thank you..

Your next question comes from Tim Horan of Oppenheimer. Please go ahead. Your line is open..

Thanks guys. Can you give a little more color on Compute@Edge kind of what you are seeing in the marketplace? Are you seeing any competitors trying to adopt this and how far ahead of your competitors you think you are in.

Maybe just some of the competitions you are having on new applications and services are customers really liking? And I am assuming some of your security services are based on this architecture maybe you can talk about some of those on the security what you are good at or different at? Thank you..

Hi. Thank you. It’s Artur here. I mean, there's much to significant to update compared to the last quarter. We don't -- we see a couple of -- we see some competitors that are trying to say that they are entering this market. We are not really seeing that when we are talking to our customers from a scalability and performance flexibility point of view.

So we think -- we feel really good about the core technology around how the isolation and sandboxes are working and we are engaging with some very large prospects or existing customers and making sure of the needs older security compliances.

Now the interesting twist right has been around the issues that Intel and AMD have had over the last couple of years with regards to leakage between different -- like different memory parts like specter and meltdown and so on and this gives this an opportunity to from the ground up you know try to avoid and combat those kind of data leakage vulnerabilities and that's one of the things that we have been in deep conversations with some of our customers about and how to ensure that they are happy and have safe environment for their critical data.

And on the application side, the same I have been talking to, I mean, this is a brand our customers to do. So it's taking some time for them to start really evaluating and integrating and adding this to the roadmap. On the security product side, the security products aren’t yet based on the technology.

But the new security products that we would develop or and the ones that we have will be migrating to use this technology over time. One of the benefit for us as well with Compute@Edge is that not only can our customers innovate on the Edge faster and safer so can we.

And so we can have more flexibility in allowing our product and R&D department in coming up with new products and releasing them quicker and seeing how they work. So we will probably have significantly more update around this for how to achieve later this year..

Thank you..

Your next question comes from James Fish of Piper Sandler. Please go ahead. Your line is open..

Hi, guys. Congrats all around for Josh for the promotion and Artur for the new -- moving into the new role and just the overall results in Q4.

I am a little surprised it hasn't gotten mass at this point, but I guess how much of an impact with the new streaming services out in Q4 have on the business in the quarter itself? And then, Adriel, specifically, how are you guys thinking about how those new services could impact the business in terms of the guidance in 2020?.

James, it’s Joshua. I will handle your first question and hand it off to Adriel. I think that there’s been a lot of press around new streaming services, obviously, and we get as so much questions in this regard.

One of the things that we have always talked about, we are not a business that relies on large events and streaming to as the sort of the dominant grower in our business. We do help our customers with everything that they do. But as you know we really focus on the high margin side of that.

And one of the trends that we are seeing and continued to see in 2019 is our non-media -- the non-media part of our business, which continues grow as a percentage of revenue. So we are actually you see notwithstanding any of the growth in the media sector.

We are continuing to see a extending growth and continue growth in the non-media business, which I think is important overall. So I would say there are customers out there who really value high performance and who really value quality and if you look at where Fastly plays it is in that side of the market.

But as I say as a percentage of revenue in overall that is becoming less of our business overtime. And I will hand it over to Adriel for the second part..

Thanks, Joshua, and thanks for the question Jim. I you know within that range which is $5 million up and $5 million down from 250 midpoint. There is some growth in there some sort of the higher end.

But there is -- to Josh was point I think strategically either have some mix of sort of media business within our business model, which enables us to build this really fantastic network that allows us to sort of deliver lots of features to many of our non-media enterprise customers. So there's some built in there.

Again, I am not -- we are not sort of counting on that as sort of our core business for growth, but it is an aspect to it. Hopefully, that answers your questions if not a sort of I am not big dependence so to speak..

Got it. No. No. I think I get what's going on. And then just one more for me is the enterprise net ads are consistently in the low-to-mid teens here, yet some of your peers are adding kind of multiples more customers at this kind of similar level.

I guess why can't you guys add more, is the low hanging fruit kind of hit a wall?.

Hey. Jim, it’s Adriel again. So I will start and I think Joshua maybe want to add on to this, which is, if you think about the average size of our enterprise customers, those that bill greater than $100,000 that's now up to $607,000.

These are pretty significant and sophisticated customers and I think from our standpoint, I am pleased with how much they are utilizing now and how that could flex itself not only in the average spend per customer but also it reflects DBNER and also our overall revenue growth.

So from our standpoint, we really are trying to add these more sophisticated higher end enterprise customers that really do take advantage of our edge cloud that we have out there and then ultimately the Edge -- the Compute@Edge that we are working on as we speak.

So I think there's a there's a bit of time it takes to get these customers, but we are continuing to invest into the marketing side of the house, which is relatively new and this is an area that I know Joshua was intimately involved with setting up..

Yeah. Just one more, one more element, I think, people use different calculations with this metric as well. What's important about understanding our metric as it is a backwards looking metric.

So we are looking back in the past to understand as we know that other organizations are sort of projecting forward and I think like always we are going to take a conservative approach not try to predict the future, but to give you a picture of what's actually happened..

Got it. That makes a ton of sense, guys. Thanks and congrats again..

Thank you..

Your next question comes from Michael Turits of Raymond James. Please go ahead. Your line is open..

Hi, everybody. Good evening, and of course, congrats both to Josh and Adriel and everybody else and the whole company for the good quarter. Just to come back to the gross margin question. Brad I think asked about how much you thought that the upside is. It seems that you did almost 2 points this year.

I think, Adriel, can I just be clear what you are saying your plan is for over 100 bps next year, is that the case.

And if so, it still seems, am I right that it's a little bit less than maybe you thought you would be getting at this point a few years ago?.

So let me answer the first part of the question which is at least we would want to get 100 bps on sort of an annual basis.

And one of the areas that I am particularly pleased that the most recent quarter in terms of its progress is actually on the labor line and we were really able to sort of drive some really good leverage there on quarter-on-quarter.

In particular that's being helped by internal software that we are delivering internally from the team here at Fastly that helps you a lot of automated tasks that used to require many, many hours from human hand and I know that there really isn't able to do even greater levels of more sort of complicated work.

This allows us to not hire as many in the future as we continue to scale the network. So that sort of was something we have experienced in the past. And in terms of what we could have done, again this will move a little bit from quarter-to-quarter.

But I am primarily focused on sort of that sort of LTM or on a year over year basis how we can drive gross margin and everything that we have experienced in Q4 just rebolster that confidence that we can do so..

Yeah. Thanks.

And then to come back to the question, James, regarding the non-live or VOD media services that may have come in as part of the big high profile launches in December, were there any one-time fees there, in other words, what both -- two of your competitors actually pointed out well doesn’t look like reservation fees for capacity that that had been paid upfront with which were very one-time in nature.

And if so, is that part of why you are guiding to more of a flat quarter-over-quarter 1Q versus would have been double digits in last year?.

Hey, Michael. It’s Joshua. From a general sense, we are not really in the one-time fee business. We have always believed that we want to grow with our customers and we continue to see that as well. I will hand it over to Adriel to talk about the sort of next quarter..

Yeah. From time to time on some of these events, there will be minimums that they -- that we sort of customers will sort of be required to spend based on the fact that we are again some respects they are taking up a capacity on to our network.

But again, the general nature with the exception of things like Super Bowl ads, it's not sort of one-time in nature..

Okay. Thanks, Adriel. Thanks, Josh..

Thanks, Michel..

Your next question comes from Walter Pritchard with Citi. Please go ahead. Your line is open..

Hi. Thanks. A couple of questions, just one on the gross margin side.

Could you maybe separate out the benefits you saw and still what's to come from that from the perspective of just general scale, mix of services and can you talk about some [inaudible] levers which sounds like general scale, but we would love to just hear what drove the 80 basis points and sort of do you think about -- this year how do you think about the sort of change that same in terms of gross margins?.

Yeah. Walter, it's Adriel. I would -- one of the things that grew in terms of the percentage of COGS in Q4 was bandwidth and we had talked previously of the fact that in general bandwidth will be a greater portion of COGS in the future in terms of the share.

So most of the leverage going forward is going to be in areas like I just also talked about labor other then eventually things like co-location, co-location will sort of blip up a little bit as we expand into different markets.

But we have also talked in the past how we believe there's probably about 100 markets in the world that we need to be in to really serve it and today I believe we are at 57 -- 53, excuse me, markets around the world so we are about halfway there.

So I think you will see as we continue to sort of expand just the overall footprint of Fastly, you will see sort leverage in those other areas or as Ben was -- just scale as we just get bigger over time. Hopefully that's helpful and I don’t if Josh would you want to add anything..

Yeah. I think I will just add on the product side. Walter, we continue to see attach rates from security and the other high margin products certainly driving significant growth in the customer base.

You are seeing that at the topline in terms of what enterprise customers are seeing and as we talked about in the opening remarks we are seeing that across verticals and across geographies and that's also driving that as well..

Great.

And then just as is it relates to come up with a couple times the Super Bowl, I mean, are you -- is there any specific assumption that you have here in Q1 for the Super Bowl, I know that's in the past have had some impact on the number?.

Yeah. It's been incorporated. So it's already factored into the guidance that we just gave..

Okay.

As in -- there is revenue or there isn't revenue or?.

Yes. There-- I mean there is revenue, but now a past event for us and it's incorporated into the guidance..

Okay. Okay. All right. Thank you..

Thank you..

Your next question comes from Brad Reback of Stifel. Please go ahead. Your line is open..

Great. Thanks very much. Adriel, how should we think about the timing of the CapEx spend.

I know last year was a little more front end loaded, which had some gross margin implications, any such issues this year?.

No. I think it will sort of follow just in general the traditional seasonality timeframe. So you will see -- what likely impacts sort of gross margin is the fact that we are purchasing some of that stuff today, as we speak. But it gets deployed and or so, the cash flow statement in CapEx when we actually put it into action.

So I think the trend that you saw in 2019 should be similar to the trend in 2020. And so you saw Q4 being the largest sort of CapEx impact. But the overall year timeframe within that sort of 13%, 14%, which is what I thought 2019 was going to be, we ended up being a little bit better than that at 10%.

But I see 2020 being in that sort of normal seasonal with Q4 absorbing most of the actual CapEx on the cash flow statement..

Great. Thank you very much..

There are no further questions at this time. I will turn the call over to Joshua Bixby for closing remarks..

Thank you. I want to thank our employees and our families, our customers, our partners and our investors, without whom we could not have achieved this strong quarter and our success over the years.

We look forward to connecting with many of you in the near future and hope to see many of you at the Morgan Stanley TMT Conference in San Francisco on March 2nd. We are excited for what is ahead and can't wait to share more with you in the quarters to come. Thank you..

This concludes today’s conference call. Thank you for your participation. You may now disconnect..