Q4 2019 Earnings Call
This time I would like to welcome everyone to the late fourth quarter and full year 2019 earnings conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question. During this time simply put star followed by the number one on your telephone keypad. If he would like to withdraw your question press the pound Keith. Thank you I would now like to turn the conference over 2 million to can vice presidents have investors.
<unk>. Please go ahead.
Hi, everyone. Thanks for joining a fourth quarter full year 2019 earnings call.
Fastly CEO, Josh with ICSI, Chief architect Executive Chairperson Archer Bergman and CFO Adra line is with us today.
Where they start I wondering might every one of the format of recall, we published a shareholder letter on our Investor Relations website and with the FCC about an hour ago. We hope everyone had a chance to read it since the letter provides a lot of detail we will make some brief opening remarks and reserve the rest of the time for your question during the call will make forward looking statements, including statements related to the expected.
Performance of our business future financial results strategy long term growth and 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 her filings with the FCC entered 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 draw.
On this call will be discussing non-GAAP financial measures reconciliations to the most directly comparable GAAP measures are provided in the shareholder letter in our Investor Relations website.
These non-GAAP measures are not intended to be substitute for GAAP results. Finally, this call is being webcast will be archived on our website. Shortly afterwards with that I'll turn the call over the Archer.
Yeah, Hi, everyone. Welcome. We appreciate you for joining us today to discuss our order on full year 19 2019 results.
Before we discuss though I want to talk about some exciting news announced earlier today.
They should also next stage fastest growth.
I have decided to step into full time role of chief architect going executive Chairperson, and Georgia, Bixby as fast as new CEO.
These past nine years I'd be an incredible journey I'm very proud of what we have accomplished.
Product inflection points similar to the inflection 0.9 years ago, when we started its obviously.
Imputed edge, there's both for Salt mine, our CTO tighter mcnichols mission nine years ago, and the paradigm shift in how after built a day.
Just as we had the showed a world where the edge cloud was the right way to build better all my experiences. We now have to expand admissions over the edge should be easy to use have security integrated and Weve continued to bolt on development.
We see so much potential for secure edge computing environments in the market.
We're building the future about talking about front closely in part developer community.
We have continued to received positive feedback the computer the edge, which is currently in beta the feedback we're receiving enables us to continue is writing improving the product you know that drives transformation attach. We also continue adapting our multi network to meet the new demands a computer that we want to keep.
Being as efficient if not more computed edge as we have been in the past.
I plan to spend more time as customers and prospects to understand there needs to educate them on what's possible with edge computing.
The reason I can make the transition was because Josh and I have worked together for over six years and build trust together and I believe that Yorkshire rise the right person to lead soft leads to future.
George on knows our business in and out having spent time running different parts of the business and also has 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.
We'll continue to work very closely to draw and 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 congrats living join in his new role and.
Turning over to him and he will go over false.
Thank you Archer, it's been amazing to help grow faster with you for over six years isn't incredible honor to lead and serve Fastly. We are on an exciting journey to build a more trustworthy internet and I'm energized to continue our momentum 2019 was a great year for Fastly. This quarter brings us to the end of our first call.
Andrew year as a public company, we launched several innovative new products and features that excite and benefit or customers and our community.
Cost of man or 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 and 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're making progress on the path towards profitability and continue to identify opportunities to drive operating leverage as our network skills.
We believe over the next decade developers will move more and more mission critical functions to be edge driven by the need for performance scale and security as the world around us continues to be digitized.
As such we believe the programming Programmability and security will be Paramount.
In 2019, we made significant progress and are excited to carry not momentum into 2020.
As we look forward to this year, we're focusing on furthering our mission of providing an edge cloud platform that developers can adopt has their own which will include deliberately feature rich compute edge offering at scale.
Continuing to invest in our edge security portfolio Fastly isn't great trajectory and we remain poised to do so much more.
With that I'll hand, the call over to eat drill who'll walk through some financial highlights.
Thanks, Josh well congratulations.
I look forward to continuing my partnership with you in her new role.
Sure I mentioned, we continue to see strong momentum and growth in the topline during the fourth quarter in calendar year 2019.
Fourth quarter 2019 revenue was 59 million, 44% year over year.
Full year 2019 revenue was 200 million on 39% year over year.
We also continued 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 customer spend also increased in the 607000.
From 575000, the previous quarter.
This resulted in enterprise customers generating 87% of our trailing 12 month total revenue.
Up from 86% last quarter.
Our dollar basement expansion rate was 136% also up from the previous quarter, which was 135%.
Our annual revenue retention rate also increased over 99%.
In 2020, we are focused on continuing to further strengthen our customer relationships through our land adopt and expand approach whereby customers adopt fastly for one particular use case and then incorporate additional passive products and features over time.
We also continue to drive margin expansion in the fourth quarter and 29 team as we continue to pursue leverage opportunities in the business.
Gross margin was 56.7% for the quarter up from 6.6% 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 and has increased significantly in 2019 as a public company relative to 2018, where private.
[laughter], 7.6% for the quarter up from 56.8% to your prior.
And full year non-GAAP gross margin was 56.6% up from 54.9% in 2019.
As we've said in previous quarters, a gross margin can be impacted by the timing of personnel and infrastructure investments as well as a seasonal ramp of usage and requests 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 DNA 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're pleased with progress we've made so far and look forward to the opportunities ahead.
I'd now like to move to our Q1 and full year 2020 guidance.
But first quarter, we expect revenue in the range of 50 to 60 million.
Non-GAAP operating loss in the range of 13 to 11 million and non-GAAP net loss per share in the range of 13 cents for 11 cents.
For the full year 2020, we expect revenue in the range of 255 to 265 million.
Non-GAAP operating loss in the range of 43 to 33 million and non-GAAP net loss per share in the range of 43 cents to 32 cents.
I'd also like to pick a second to comment on the potential impact of the cobot 19 buyers on our business. The situation continues to evolve in the magnitude of the overall impact on our business cannot be reliably quantified at this time, but we've 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 is that occurred commercially internet usage may also increase.
In closing, we had an excellent quarter and we're pleased to close that are first calendar year as a public company with strong execution.
And with that I'll turn it back to the operator for some couponing.
To ask a question. Please press star one on your telephone keypad. 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 on a real nice quarter there.
First maybe you can just talk about the pipeline in terms of what you're seeing what how does the forward pipeline look versus what you've been closing a with respect to use cases verticals competitors just talk about kind of what's changing at the edge.
Jeff It's Josh Thanks for the question I think that.
As we've talked about in previous calls 2019 was a year of investment on the marketing side and we're starting to see that pay off so I think we've seen an expansion in that pipeline across all the verticals. All the geographies I think we are we've not seen a dramatic change the competitive environment. We continue to see the dominant player and continue to.
I see them quite often.
And the legacy CDN players you know 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 in all geographies and that's pretty universal.
It's a it's a good time right now.
<unk>.
And I guess, just as it relates to the will shift to me congratulations to both it sounds like it if you're both pretty pleased about where it's going to take you Archer and I'm interested.
Just in terms of your thought process and the timing that brought you to this conclusion I'm sure Didnt just happened right here.
How is this evolved have you been thinking about this overtime.
Thank you I'm I'm very excited.
It's.
It's evolved over quite a while.
Were.
My enjoy ourselves partnership has been very.
Very close and he's taken over a larger part so if the business.
And I.
Hi, kind of felt that.
As we keep growing.
Oh, the stuff that I really love to do and I'm very good at.
I will actually have less and less timeless.
And we decided to.
Extraordinary is changing and then we executed on it.
I.
I'm so excited about the computer science work.
I just want to spend more time with our engineers and our customers jumpstart dozens of field and.
Wow.
Huh.
Both learn what they want them held on what they can do kind of what we did eight years ago.
So that's really the evolution of that.
Great. That's that's helpful last one for me just maybe this is they drilled the as you look at the annual outlook.
How did you approach obviously been year with elections Olympics. Some some of the seasonal demand like maybe asked differently, what kind of uplift would it typically bring into given your and how variable can that be what did you bake into the guide for that.
Yeah generally we found historically kind an election years, a good thing I.
I think one thing that impacted.
My sort of guided the fact that this is the earliest we've ever guided as a public company. So we got a full year in front of us.
The fact that we are usage base. There is some variability that can occur and so I think what you saw there as we.
And we just finished a great year great quarter.
And what you see here is just some appropriate conservatism given that we're just this earlier 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're going and I think you just sort of seen 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.
Jeff Thank you.
Your next question comes from will power of Bard. Please go ahead. Your line is open.
Hey, guys. This is Charlie really gone for will thanks for taking my question and congrats on a strong finish to the year.
I was wondering if you could update us just on your marketing and sales hiring progress.
No I love the employees that you hired in the end of 2019 started to ramp.
And could you maybe talk a little bit about your plans in terms of sales and marketing hires into 2020.
Sure. This is a drill and thanks for the question. So overall, we're pleased with the investment that we ended the year with we were sort of targeting that sort of 35% as percentage of revenue. We will likely continue to do that so long as we feel like we're getting the return on investment that we've experienced in the past in 2019 was no different than just affirmed.
The return on those investments from Hereon standpoint, and we were able to get sort of our 60 revenue generating folks here. So we're pleased with that.
And I think what are you should see from us going forward as continued sort of invested the current rate. We've seen before I think we're continuing to we're still early days into the marketing portion of that southern marketing spend and we're going to continue to sort of monitor that return on that as we progressed into 2020, but.
So far I want to make sure we looks as though we want to continue to maintain their 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 you know because it would seem that Q1, you know usually should be seasonally weaker than Q4, just due to less traffic leverage so is there anything.
You're calling out that's unique to Q1 20, that's not necessarily typical normal seasonality.
No I think you.
You are set to correctly you know in Q4, as we talked about in the past seasonally it's probably our strongest quarter there's lots of.
Good life events that we can participate in compete for bid for Theres also great shopping from our ecommerce customers.
Just a general holiday season helps us in Q4, and then you know some of that doesn't repeat itself will carry over into Q1. So you should see some differences there but it becomes.
The same trend falls into 2020, we get sort of so you'll see that feel seasonal strength as we entered the quarter inch.
Got it all right. Thanks Pedro.
Thank you.
Your next question comes from Brad Zelnick of Credit Suisse. Please go ahead, Sir your line is open.
Excellent. Thanks, so much and I Echo my congrats.
All around on a good quarter and and congrats on some of the <unk>.
The changes in.
In in the leadership organization, but.
If I could follow up on a question on gross margins I I wanted to touch on the live streaming events in the quarter. So so you called out the impact to gross margin in the letter.
Was wondering if you could help us quantify the empaque 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're thinking about that.
Sure. This Brad this is really good I think the biggest thing we were focused on we've talked about catastrophes call them publicly is you know we're trying to grow annual overall gross margin incrementally and I think this year, we were being a really aiming for about 100 basis points would have on a year on year basis. So we were pleased we're able to do that.
And I think going forward that should still be the case in particular in Q4.
There were just normal timing related impacts as we built up or not.
I don't we live events in Q4, but also in preparation for life events. It would have occurred here in Q1.
Super Bowl is named one of them.
So there's nothing I think unusual in that regard and I think from our standpoint, we're constantly balancing.
You know investment that we make today in preparation for the growth of our customers as you can see with the 44% you're on your growth. It's it's a little bit Tupper wasn't growing as fast as they are and I think on our side, we're trying to balance our margin expansion.
Hmm goals with sort of the revenue opportunity that we see in front of the so hopefully 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 a 19 and I feel confident about whether the due in 2001.
Thanks, Israel, that's very helpful and maybe just a follow up for.
For whoever wants to take it I guess you know at last year's altitude, you highlighted real time AD insertion as an initial use case for computers 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 progressed and and in terms of that use case has it actually.
Implemented anywhere into production, yet or is it still way too early.
Hey, Brad as Josh we're here.
It's still too early we're still in beta with that.
I think that progression has been very positive. This this notion that the edge brings the power to do more.
And is very powerful when I think the AD insertion story is particularly powerful I mean, we continue to see.
Scenarios, where most of that traffic is not being served from the edge and therefore as penalised from a performance scale and security perspective.
You know in the case, where.
That could be dynamic we could see things that are very personalized. So we're very bullish about that use case, but there are many others that are emerging as we've taken this out and you know.
As you've seen in the past, we're very thoughtful about how we roll these products out given that we are a platform built by developers for developers, we really want.
To capture the power of that they're imagination, and we do not very thoughtfully and I think that's part of what we've seen over the last few months is the is the is the excitement around that and you know as we've talked about previously and I said in the opening remarks are our goal. This year is to bring out you know computed edge at scale.
And that is that remains the case and I think we're even more excited than when we first brought out the debate out with that type of creativity that our customers had that's one of the wonderful assets of our businesses that we built on the show.
People build on the shoulders.
Others, and we continue to see that momentum it's it's beautiful.
Awesome, we're excited for it to thanks, so much for taking my questions.
Thank you.
Your next question comes from Richie Deloria of D.A. Davidson. Please go ahead. Your line is open.
Hey, guys I guess I'm not sure for taking my questions Nice to see continued strength in salt, maybe first I wanted to start by.
But the Capex for next year in the shareholder letter you talk about kind of staying at a little bit of an elevated level above that lease your long term out.
Can you maybe help us understand where do you see that continued capex is going.
And how you look at potential return on that and then I've got a follow up.
Sure appreciate Patriot again.
So we're pleased with the outcome the 2019, where we ended up at about 10%.
Some of the revenue and I think you know 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 future growth.
I mentioned earlier, you know that growth aspect, given how fast because nickel growing is a bit of a challenge which is why I'm, giving.
Ourselves a bit of group here with sort of like a 13% to 14% for 2020, clearly, we'll try to be that as well and do whatever we can sort of get get just in time with respect to deployment of our capex.
But that just gives you some context that again, we think we outperformed relative to what I thought we would do in 2019.
Okay. Thanks Thats helpful.
And then just in the commentary around.
Revenue in Q4, including.
Some onetime why the events that aren't expecting to carry over can you maybe help us understand the magnitude of that or quantify how much of the revenue impact those are thanks.
Yeah, I think it was.
It was a little bit of like a strong growth into two new live events that we had never been exposed to not unlike how.
Super Bowl for this year as our second you're doing that so we're getting exposed to greater and greater opportunities as a result of the success. We've had in the past so when I say a onetime I think it's more of the sense that its Q4.
Typically it's when those sports or play or when those events are occurring and 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 of 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. Yeah, just maybe starting out with you Josh you're now that you're in sort of a new rule can you talk a little bit about you're maybe what you see us some new opportunities or maybe something said you can do to drive other changes there.
Improvements.
Jonathan Thank you.
I think Archer set did very well, which is this has been a partnership for over six and a half year. So the decisions that we've 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 it enhancing all of the areas that we have already talked about you know.
Lastly is a platform for developers and I think computed edge. Obviously is the next generation of that so that is a core focus and I think we just need to continue to augment and actually part of the shift is to allow archer to spend more of his time in that area I think the other thing that I called out.
Is it security continues to be more important for customers and we continue to invest heavily there and then I think that's also an area that archer is going to continue to augment.
Other than that we're very proud of the results and we think that this is just about continuing to grow at a at a at.
Got a wonderful pace and.
You know.
Nothing is broken here. This is the this is a wonderful time and wonderful place to be for us.
Got it got it and then you're just in terms of the DB any are a result that accelerated sequentially and so I just wanted to get a sense from you is there anyway did maybe break down some of the drivers of that DB any our expansion between the different use cases on whether its edge or security or core just to give us a sense.
Maybe what's driving what thank you.
Jonathan Israel.
Yeah with respect to Dubner. That's another one of those that continues to please me in a good way and even though I've talked in the past knowledge eventually I expect that too.
Meter down a little that just what's sort of law of large numbers.
But in terms of where the the so the main driver is coming from it really is across the board.
I think Thats also.
You know that in context. The fact that were released it on an annual basis, our retention rates that.
Bumped up from an already high 98% to a 99% I think all that together really does show that the a sort of this land adopt and expand strategy. It's vastly is across all of our different customers. So there's not any one particular segment.
Thank you.
Your next question comes from Tim Horan Oppenheimer. Please go ahead your line is open.
Thanks, guys can you give a little more color on onto Q today, just kind of what you're seeing in the marketplace are you seeing any.
Competitors trying to adopt this and how far ahead of your competitive as you think you are and maybe just some of the conversations you're having on new applications and services that customers really like and I'm, assuming some of your security services or based on this architecture. Maybe you can talk about some of those on the security what you're good at or different. Thank you.
Hi, Thank is order here.
I think there's much to significant to update compared to last quarter, we Don.
We see a couple.
We see some competitors that are trying to say that they are entering this market, we're not really seeing that.
When we're talking to our customers.
From a scalability and performance flexibility point of view.
So we've we think Joan we feel really good about the core technology around how the isolation and San boxes.
Our working.
And where we are engaging with.
Some very large.
Specs or existing customers.
Making shortly meets older.
Security Compliances.
The the.
Interesting twist stride as being around the.
Issues that Intel and do you have had over last couple of years with regards to leakage between different virtual like different.
Memory parts like spectra, and meltdown and so on and this gives us an opportunity to two from ground up.
Try to avoid them kaambakhsh those kind of.
Data leakage vulnerabilities and that's one of the things that we've been.
In deep conversations or suffer from customers about them and how to ensure that.
They are happy in <unk>.
Safe environment for their critical data.
[noise] Oh on the.
Application side I don't think they marker talking to and this is a brand new thing for our customers to do so it's taking some some time for them to starch.
Oh, really evaluating and integrating and.
I think this is a roadmap.
Oh.
On the security product side.
The.
The security products aren't yet based on this technology, but the new security products. The route but we would have all four ended wants to we have will be.
Migrating to use this technology over time one of the.
Benefit for us as well with compute that answers that not only can our customers innovate on the edge faster and safer. So can we use that we can have more flexibility and allowing our product and R&D department and.
We have with new Oh arts, and releasing them quicker and seeing how they work so.
We will probably have significantly more update around this for altitude later this year.
Thank you.
Your next question comes from James Fish Piper Sandler. Please go ahead. Your line is open.
Hi, guys, Congrats all around for Josh promotion and Dr. for the new moving into a new role and just the overall results in Q4.
I'm a little surprised it hasn't gotten asked at this point, but I guess, how much of an impact of the new streaming services out in Q4 have on the business in the quarter itself and then Adrian specifically how are you guys thinking about how those new services could impact the business in terms of the guidance in 2020.
James as Josh while I'll handle first question that handed off to a drill I think that no. There's been a lot of press around new streaming services. Obviously, we get asked a lot of questions. In this regard one of the things that we've always talked about is we're not a business that relies on large events and streaming to a two at 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 one of the trend that you know we are seen and continued to see in 2019 is our non media nod media part of our business.
Continues to grow as a percentage of revenue. So we are actually see notwithstanding any of the the growth in the a in the media sector, we're continuing to see.
Steady growth and continued growth in the non media business, which I think it is important overall, so I would say well.
There are customers out there, who really value high performance and who really value quality and you if you.
If you look at where fast we played it is in that side of the market, but as I say as a percentage of revenue and overall that is becoming less of our business overtime, Andy Landrover danger over the second part thanks, Russia and thanks for the question Jim I.
You know it within that range, which is.
5 million up and 5 million down from 260 midpoint.
There is some growth in there so it's sort of the higher end, but there is to Josh was point I think strategically either had some mix of I'm sort of media business within our 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 im not we're not sort of counting on that as sort of our core business for growth, but it is an aspect to it hopefully that answered your question. So it's not a.
Big dependent so to speak.
No no I think I get what's going on and then just one more for me as the enterprise net adds 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 have more as if the low hanging fruit kind of hit a wall.
Hey, Jim Seadrill again, so I'll start and I think just certainly want to add on to this which is if you think about the average size of our enterprise customers into those that bill greater than $100000, it's up to 607000.
Some pretty significant and sophisticated customers, but I think from our standpoint, I'm pleased with how much they're utilizing up and how that reflects itself not only in the average spend per customer, but also reflects the depner and also our overall revenue growth. So from our standpoint, we're really are trying to add these more sophisticated higher end enterprise customers that really do take.
Advantage of our edge cloud that we had out there and then ultimately the edge the computer edge that we're working on it 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 Josh was intimately involved we held steady.
Just one more time.
One more element I think people use different calculations for this metric as well what's important about understanding our metric if it has a backwards looking metrics. So we're looking back in the past two understands 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 pick.
Sure what actually happened.
Got it that makes a ton of sounds guys. Thanks, and congrats again.
Thank you.
Your next question comes from Michael Turits of Raymond James. Please go ahead, Sir your line is open.
Very good evening course congrats.
Both the Josh and Archer and everybody else.
Quarter, just to come back to the gross margin question it.
Right I think asked about how much you thought they'd be upside it could it seems like you did almost two points. This year I think it'll just be clear. We say you plan is for over over 100 Bips next year.
That's the case.
And so it still seems you know am I right that it's a little bit less than maybe you thought you'd be getting at this point a few years ago.
So let me answer the first part or the question, which is at least we would want to get 100 bets on sort of an annual basis and one of the areas that I'm, particularly pleased with 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 quarter to quarter in particular, that's being helped by internal software that were that we're delivering internally from the team here at Fastly that helps do a lot of automated task that used to require many many hours from human hands I know that.
There really isn't able to do even greater levels of and more.
Sort of complicated word this allows us to not hire as many in the future.
As we continued scale the network so that sort of look something we've experienced in the past and in terms of what we could've gotten again this will move a little bit from quarter to quarter. So I'm I'm, primarily focused on sort of that sort of LTM or on a on a year over year basis, how we can drive gross margin and everything that we've experienced in Q4.
You know just read bolsters, our confidence that we can do so.
Yeah, Thanks, and then come back to the question.
James regarding that.
The non library.
Media services. It may have come in as part of the big pick high profile launches in December Hum.
There any kind of one time fees there in other words, but both in two of your competitors actually pointed out what does it look like reservation fees for.
Capacity that had been paid upfront with which we're very onetime in nature and if so is that part of why you got into more of a flat quarter over quarter.
Once you versus what had been double digits.
Sure.
Hi, Michael it's Josh what from a general sense, where we're not really in the onetime fee business. We've always believed that we want to grow with our customers and and and and we continue to see that.
As well I'll hand, it over to a drill to talk about the sort of next quarter. Yeah. You know from time to time on some of these events there will be minimums that that they are that we sort of customers will sort of we'd be required to spend based on on the fact that we're getting some respects.
You are taken up its capacity onto our network.
But do you get the general nature with the exception of things like Super Bowl, if it's not it's not sort of onetime in nature.
Okay. Thanks, Daniel Thanks, Josh.
Thanks, Michael.
Your next question comes from Walter Pritchard of Citi. Please go ahead. Your line is open.
Hi, Thanks couple of questions just one on like on the gross margin side could you maybe separate out.
The benefits you saw in instill what's to come from the from the perspective of just general scale.
Services, and you talked about some pin count leverage, which sounds like general scale, but would love to hear what drove 80 basis points uncertain. If you think about you know this year, how do you think about the source changing it in the same in terms of gross margin.
Yeah, we'll turn it seadrill.
I would one of the things that grew.
In terms as a percentage of Cogs in.
Q4 was bandwidth and we had talked previously effect that you know in general bandwidth will be a greater portion of Cogs in the future.
In terms of share so most of the leverage going forward is gonna be in areas like I, just also talked about labor other.
Then eventually things like co location co location will will sort of blip up a little bit as we expand into different markets.
But we've also talked in the past how we believe there's probably about a 100 markets in the world that we need to be into really sort of it.
And today I believe we're at a 57, a 53 excuse me markets around the world we're about halfway there.
So I think you'll see as we continue to sort of expand just the overall footprint fastly, you'll see through leveraging those other areas, whereas bandwidth should just sports scale as we get get bigger overtime. Hopefully that's helpful and I don't have Josh would you add anything I think I would just added on to product on the product side.
Walter we continue to see attach rates from security in the other high margin products certainly driving.
Significant growth in the customer base eastern you're seeing that at the top line in terms of what enterprise customers are seeing and as we talked about in the opening remarks, we're seeing that across verticals and across across geographies and that's that's also driving.
Driving that as well.
Great and then just as it relates to come up a couple times the Super Bowl I mean or is there any specific assumption that you have here in the in Q1 for the for the Super Bowl Your that's.
Path, that's an impact on the number.
Yeah, it's a it's been incorporated so its already factored into the guidance that we just gave.
Okay I didn't you're there is revenue where there isn't revenue or.
Yes, there has been there is there as revenue, but for now the past event for us and it's incorporated.
Into the guidance.
Okay. Okay, all right. Thank you.
Thank you.
A question comes from Brad rather of Stifel. Please go ahead, Sir your line is open.
Great. Thanks, very much Israel, how should we think about the timing of the Capex spend I know last year with little more front end loaded which had gross margin implications.
Any such issues this year.
No I think it'll sort of follow I'm, just general yeah. The traditional seasonality timeframe. So you'll see you know what likely impacts sort of gross margin to the fact that we're purchasing some of that stuff today as we speak but it gets deployed and endorse that hits the cash flow statement in Capex.
You know 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'll turn the call for this crashed what the fee for closing remarks.
Thank you.
I want to thank our employees and our families are customers our partners and our investors without whom we could not have achieved just 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 in March 2nd.
We are excited for what is the head 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.
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