Q4 2020 Fastly Inc Earnings Call
Good afternoon. My name is David and I will be your conference operator today at this time I would like to welcome everyone to the Fastly fourth quarter, 'twenty and 'twenty 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. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question press the pound key.
I would now like to turn the conference over to Maria Lukens, Vice President of Investor Relations. Please go ahead.
Hi, everyone and thank you for joining our fourth quarter and full year 'twenty and 'twenty earnings call. We have Fastly CEO, Joshua Bixby and CFO Adrian Alliance. That's today before we start I want to remind everyone about the usual format of our call. We published a shareholder letter on our Investor Relations website and with that I'll just be about an hour ago since the letter from Baidu wallet.
Details will make some brief opening remarks and reserve the rest of the time for your questions.
During this call we will be making forward looking statements, including statements related to the expected performance of our business future financial results and integration of signal franchise strategy long term growth overall future prospects each day.
Payments are subject to known and unknown.
And certainties 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 'twenty and 'twenty shareholder letter were discussed and other factors that could cause our results to differ on.
And 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 sales except as required by law.
Also during this call and we'll discuss certain 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.
And I'll turn the call over to Joshua.
Thanks Maria.
Hi, everyone and thanks for joining us today, we've had a busy and successful quarter and it's reflected in our results we.
We delivered 40% year over year topline growth with revenue of nearly $83 million.
Last year, our world changed and businesses changed with it we saw many companies invest more heavily and their digital presence than ever before subsequently we've added new customers, while our existing customer base grew these customers include blackboard, a top tier learning management system, UC Davis, our higher education and.
Institutional and enterprise Tech company, and one of the world's largest telecommunications companies among others.
We're also gaining traction in the rapidly growing gaming vertical and one new and additional business with two leading gaming companies.
We've also seen our customers go above and beyond to help their communities. During these challenging times two stories that encourage me year from good net and Doximity.
Gannett, a leading media and publishing company launch support local which allows people to support their neighborhood businesses through gift cards as well as take action, which provides resources to those looking to step up when it comes to social and racial justice and we're proud to have supported them and getting these sites up and running in a matter of days.
Doximity accompany that helps medical professionals virtually connect to patients saw a double digit user growth and a 30 times increase in traffic on their secure calling feature within just a few weeks at the onset of the pandemic.
They turned to our security offerings, which gave them the control they needed to block malicious traffic, all while providing reliable connectivity to patients at a time when it was needed the most.
Our other customers delivered breaking news during the crucial election brought people together through virtual gatherings helped to entertain and educate through gaming and schooling and enabled a busy holiday shopping season online.
On a fastly only basis, we've continued to demonstrate the stickiness of our platform, resulting in dollar based net expansion rate on 143% average enterprise customer spend of $782000 and a very impressive annualized revenue retention rate of 99%.
Like others, we transitioned our cornerstone customer event altitude online for the first time in November the.
And the community around developer impoundment was reflected in the audience, which nearly doubled from previous in person events.
And we heard from leading digital brands, such as USA today, Vocs, Paypal grubhub at around that Ted and the Massachusetts Institute of Technology based in Cambridge.
The event made it clear that edge innovation and security enable their digital transformations and their successes during the challenging year.
Adrian will cover our financial performance for both the fourth quarter and full year in more detail, but before he does and I want to take a moment to provide and update on two core pillars of our comprehensive edge cloud platform compute and security.
As we announced last quarter computed edge in the market running production traffic in multiple verticals.
We've seen some incredibly innovative use cases from developers and I have recently seen and edge native multiplayer version of the popular video game Doom and machine learning product used to identify objects and an image at the edge and the system that automatically simplifies the text on a web site for new language learners one of the most compelling use.
Cases, I've seen as a dynamic AD insertion product focused on personalized video ads based on user specific criteria all done in real time at the edge.
Developers use three key languages to build out these use cases assembly script, which is a great entry point for Javascript and type script developers as well as steep and rust.
We continued our investment and technical talent by hiring several key open source and community leaders, including the co creators of Web Assembly.
And we'll continue working on impactful open source projects, such as <unk> and time, the rust language and the web Assembly standard itself all of which are key technologies for the future of compute at edge.
On the security front I'm very excited about the progress we have made since we closed our transaction with signal Sciences last quarter, the cross sell and up sell of our new security portfolio exceeded our expectations and the quarter and the pipeline is strong.
And there is no security without usability and signal Sciences single intuitive easy to use interface has begun to impress our existing customer base and prospects and was recognized industry wide by Gartner as a visionary and its annual magic quadrant.
We continue to see excellent customer reviews on Gartner peer insights are popular pure driven ratings and review platform.
We have gained momentum with these two pillars and the increased interest and enthusiasm from our customers is very exciting.
The demand for Fastly as platform remains strong as more companies are beginning to realize the tremendous potential at the edge.
Both our compute and secure offerings will continue to be key areas of focus and investment for us going forward.
Before I turn it over to Adrian and I also want to welcome Brett shirt to Fastly as our new Chief revenue officer, He will be starting officially on February 22nd.
And it brings extensive experience and building and scaling revenue organizations at cloud and security companies and has more than 25 years of technology experience, having recently served as CFO at rubric.
Brett is a highly experienced purpose driven executive and as acutely aligned with our values and mission.
We are happy to have him on board.
With that I'll turn it over to Adrian to go over the financials.
Okay.
Thank you Joshua and thank you everyone for joining us today.
We rounded out the year with another strong quarter, driven by robust customer demand, particularly from both new and existing enterprises that are continuing to integrate fastly modern edge platform into their systems.
As I go through the numbers I want to point out as we noted on the shareholder letter that the contribution of signal Sciences. Following the acquisition has been consolidated into our fourth quarter financial information to the revenue and margin numbers I'm about to GAAP include <unk> Sciences.
We have not yet included signal sciences, and most of our key metrics this quarter and intend to report consolidated metrics later in 2021 and.
Order to see the incremental contribution from customer growth from signal Sciences, we are.
Provided their total customer accounts and number of enterprise customers.
Q4, 'twenty and 'twenty.
This quarter, we generated 83 million and revenue net of a 2 million deferred revenue write down related to purchase accounting adjustments from signal Sciences acquisition.
Representing 40% year over year growth for.
For the full year 2020, we generated $291 million and revenue up 45 per cent year over year.
And we're continuing to drive leverage and the business.
GAAP gross margin was 59, 2% for the quarter.
Up from 56, 7% and the same quarter, a year ago and $58 seven per cent for the full year up from 55, 9% for 2019.
Non-GAAP gross margin, which excludes stock based compensation and amortization of acquired intangible assets was 63, 7% per the quota.
Per to 57, 6% and the same quarter last year.
Full year non-GAAP gross margin was 69% compared to 56, 6% for 2019.
While our gross margin will continue to be impacted by the timing of personnel and infrastructure related investments as well as seasonal usage by customers on our platform, we remain confident and our ability to deliver incremental annual gross margin expansion as we have done and the past driven by our continued scale and the acquisition of <unk> Sciences.
We believe the strong gross margin profile of signal Sciences provides us with additional opportunities to invest and accelerate our growth trajectory.
We believe we have a tremendous opportunity to invest and growth in 'twenty and 'twenty, one and plan to do so and a disciplined manner, while keeping long term profitability and market.
In terms of the balance sheet, we ended the quarter with $216 million and cash restricted cash and investments.
As I said on our last call, we used approximately $200 million of cash at the beginning of the quarter upon closing of the signal Sciences acquisition.
As we continue to see strong growth and increased demand for our edge cloud platform. We aim to capitalize on this opportunity to continue investing and initiatives to drive revenue growth network utilization and scale.
Our 2021 outlook reflects our continued ability to deliver strong top line growth.
Our ongoing commitment to annual gross margin expansion, our ongoing investments and cloud computing and security.
And the expense of our expanded team from the <unk>.
<unk> Sciences acquisition.
Similar to last year's approach, we base our revenue guidance on the visibility that we have today.
And given our usage based business model, we expect to gain additional visibility and be.
And for questions.
For the first quarter, we expect revenue and the range of $83 million to $86 million non-GAAP operating loss and the range from negative 14 to negative $10 million non.
Non-GAAP net loss per share and the range of negative <unk> 13 to <unk>.
Negative 19.
For the full year 2021, and we expect revenue and the range of $375 million to $385 million non.
Non-GAAP operating loss and the range of negative 50.
The negative $40 million.
And non-GAAP net loss per share and the range of negative <unk> 44.
To negative 35 sites.
Before we turn the call over to Q&A I want to reiterate Joshua conviction about the future of Fastly, where.
We're extremely excited about the opportunities that lie ahead, as we continue to augment our compute and security offerings and.
We believe we are well positioned for long term growth and success as we help enterprises and innovate to developer empowerment.
The quality of our offerings as well as our team's ability to execute will continue to move US forward as we went to build on more trustworthy internet for our customers.
With that I'll turn it back to the operator to take your questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jonathan Ho with William Blair. Your line is open.
Hi, and congratulations on the strong quarter.
Wanted to start out with maybe your guidance on the Capex side of things and just trying to understand why you have sort of the confidence level to sustain at a higher level.
Given some of the headwinds that you're facing from a capacity standpoint.
From that large customer last year, as well as and maybe some tougher and tougher COVID-19 comparisons.
And Jerry and Joe.
Oh, sorry terrestrial Jonathan are you are you seeing a why is that number not higher or lower I just wanted to understand up to.
And the crux of the cole II.
So in terms of sustaining on.
Above that 10% sort of long term target, but what's giving you the confidence to keep that number higher.
Oh I see got it.
Yeah, I mean I think.
And that's really coming from its just the makeup of other customers that we have brought on board.
And some of the guidance that theyre, giving to us with respect to what they're trying to do what we're seeing.
And the customers themselves and.
And as you've heard from me and the past.
The capex as a percentage of revenue that we have today and it's still meaningfully lower than what you see in some legacy providers that already exist out there and and our long term model. We think we can get to 10% while still growing relatively quickly. So we're in some respects you know keeping and why and what we've seen so far.
Particularly in Q4, but also some other signals with other customers that are currently telling us today, which is built into our guidance.
Got it and then just in terms of a follow up can you give us a little bit on an update on your large customer and maybe what your expectations. At this point are in terms of either a headwind for 2021 or contribution from that customer. Thank you.
Hey, Jonathan it's Joshua here I. Appreciate the question you know as we've talked about throughout this process. They remain an important customer to us.
And they continue to rely on us for important workloads and that Hasnt changed as you know they peaked above 10% for a short period at the start of the pandemic, but we have a number of large customers and a handful who may come in and out of that 10% category as they grow as you know when your services or software based global and infinitely.
<unk> on the edge and Youre dealing with customers who are growing at unprecedented rates on a usage based model youre going to have variations overtime. These customers as you know rely on us for performance security reliability, and we're really proud to continue to be the solution that they trust. So we have modeled in.
On to our guidance the relationship and we have a strong relationship with modeled and exactly what we've heard from that customer and.
And and that's modeled into our guidance so we feel optimistic.
Great. Thank you.
Your next question comes from the line of Robert Magic with Raymond James Your line is open.
Great Great. Thanks, just wondering if you can give us any more color on signal science's revenue contribution and the quarter and what's baked into your guide for next year and then on the expansion metrics understand that you'll give us updated numbers that include single Sciences later in the quarter, but can we just say that signal sciences would have added to the net expansion rate.
Hey drilling on a go those too.
Sure.
And take the second part of your question first it's more likely later in the year.
The challenge for Us and simple sciences and subscription based.
And our products and we're still working through how we want it and continue to offer that as well as the same time continue to offer and the usage based model that are fastly historical.
Historical customers have been used to so I think it's going to take us a little bit of time to sort of make sure. We are thoughtful about how we report those metrics together, especially as they begin to contribute together as we have so far related to.
And you know what the contribution was for sticking scientists and Q4 I think if you recall when we started the quarter, we had about an $8 million deferred revenue.
There was a I think we had that we thought we would.
<unk> recognized over Q4, we took about a $2 million deferred.
Haircut related to a purchase price acquisition related to that should give you some sense of kind of where we ended up and as for the year, we're modeling and.
Clearly, what we've seen from a growth standpoint that we'd seen historically and especially as well as in Q4, and we're trying to build and guidance.
And that into the current guidance today, it's a little bit difficult to kind of ascertain how much of that will exactly be from signal sciences, partially because we're also gonna already beginning to sell and our bundled fashion with them, So where historically that's very similar to what we've done before.
Great. Thanks, and maybe just one more from me voice chat rooms, like clubhouse and Twitter spaces have been getting a lot of attention lately.
While it's widely speculated that a GOR serves the traffic for clubhouse and I'm just wondering if this vertical as a potential opportunity for compute at edge, just given how latency sensitive traffic is.
Yes, it's Joshua here, Robert I think that is.
And we're seeing we're seeing really interesting opportunities and all of these.
Latency sensitive environments I'd call your attention to what we talked about and the and the opening and what we talked about in the letter around gaming right, which for the high value games latency is critical and one of the reasons that we're making really strong inroads in that vertical is because of our performance and reliability that performance, but also.
You mentioned, what edge compute can bring to the table here so.
I would say you know I can't speak specifically about any customers, but I would say I think the advent of this and as.
Medium is.
And good for our business and good for compute.
Thanks, a lot appreciate the color. Thank you.
Your next question comes from the line of Tim Horan with Oppenheimer. Your line is open.
Thanks, guys can you give us at a high level, maybe a sense of how.
Bookings and just total customer interest has been maybe and the second half of this year versus versus last year, and just given the COVID-19 impacts and.
Secondly, can you maybe just give us a little more color around revenue, maybe what percentage of revenue is kind of a tied to application delivery or.
Or maybe the volume versus subscription at this point I know things are moving around a lot and thank you.
Sure.
Let me start on the first on the first question I think that.
Overall, the revenue that the revenue that we have continues to grow as you saw in the quarter and I think that kantar.
<unk> continues to stay and that in that same range. We've talked in the past about about half of our revenue is committed that that remains the same half of it is usage.
And when you look at the bookings and customer interest and the second half of the year versus last year.
Happy and excited and I talked about this and the opening remarks about the strength that we saw on the security side of the business that continues to build on itself. The pipeline continues to build we're also starting to see a lot of interest in the compute capability set the business brings to the table and we.
Been personally talking to customers, where the security of our compute the scale of our compute the performance of our compute those three factors are really really important and purchasing decisions. There are a lot of cross sell opportunities that we're bringing as we start bringing these multiple products to the table and given that we're the cloud on ramp to the three major clouds.
And we sell a full suite of transport security compute at edge products and other services.
We continue to see that growth, so really confident optimistic.
In terms of how we saw that Adrienne I'll turn it to you in terms of percentage of revenue.
And so on.
Sure. Thanks, Joshua so.
So Tim I think.
Purely thinking signals scientists because we do have security revenue outside of that but if you're just thinking simple science and it was it was less than 10% and Q4, primarily just from the standpoint, you could take sort of a top level number.
The amount of deferred and we were going into it and what would actually got recognized.
And if that $2 million, so it's sub 10% to day.
It's clearly growing quickly and again, which we're selling together with signal sciences, So it's gonna be and little bit more difficult as we continue to sort of March 2021, and stuff, but it's too but at least it gives you a good sense of sort of where we're starting from.
Thank you.
Your next question comes from the line of Rishi <unk> with D. A Davidson your line is open.
Hey, guys. Thank you so much for taking my questions and and nice to see it continue to strength strong result.
One of the first ask about the.
Net retention and in the quarter, if we look.
And NR, even if on a 12 trailing 12 on basis.
Did decline.
Sequentially from Q3 I was wondering if you could just give us a little bit more color on.
What's going on and that metric.
Is that driven just by by fewer expansions and then maybe we've historically seen is that the large customer that we've talked about on the call disproportionately responsible for that any color would be helpful. And then I've got a follow up.
Sure Hey, Joe do you want to take a first crack at that.
And certainly a receipt so recall that the N R. R.
And the month.
And in particular last year.
Our denominator that impacts that number for Q4, we did have a decent size and.
On a live event that was nice and it was good for the for the ending quarter and Q4 2019, but it did impact that particular months and Thats why you sort of see a decline it wasn't it wasn't necessarily related directly to sort of agreements and scores largest customer. However.
Two points I'd like to make and addition to that if you look at the LTM and Ara.
And which we also publish which is $136 five per cent. That's still showed good strength over the 2020 over 2019, but as we move further into 2021, there will be some instances if we have especially as we're moving into Q2 Q2 was a particularly strong growth, particularly related to Covid. So you may see some impacts.
In that quarter and on.
And our and Dubner, but I'm trying to sort of give you some sense and some of the index that you may see but at least for Q4, there was nothing there that.
And I saw it and sort of negative and sell them much more optimistically, especially when you consider the LTM version of that.
Got it that's helpful. And then Joshua you you highlighted both on the prepared remarks, and and the shareholder letter from the strength that you saw on gaming.
And believe historically this hasn't been a huge vertical for you, but clearly seem to be getting a lot of real traction there.
Are you thinking about the gaming opportunity long term and and maybe what's changed that it's made it a more attractive and presumably less commoditized opportunity than maybe it historically has been.
Yes. It reached a great question I think and you know this market. It has two sides to it right as the media market does which is there is a commodity side and as you know fastly spend our time and energy certainly on the value side I think what's changed.
Is two things the first is.
Gaming companies are realizing that the performance.
And particularly the low latency aspect of performance, just as more and more important than it ever was and.
So there is an element there where as you are trying to drive latency out reliability up.
You start looking around the market and as you know there.
Not a lot of options to do that at.
And at scale and global scale. So that's one element I think the other element that's really interesting is the opportunities for compute in this market where traditionally we have seen this market.
And do a lot at the server side and in a lot of markets. This one included people now are seeing this incredible opportunity to bring a logic and compute to the edge and that's sparking a real transformation and imagine a Tory process, where people were like what if and what if you know I mentioned, it but I saw on multi.
Play a version of Doom and all running on compute at the edge and when you. When you look at those types of use cases, it really transformed how gaming can work and the future and gaming companies. As you know are always reaching for the future I mean, they often are the trailblazers and this area. So I think theres, a trailblazing element, which is.
And grabbed attention through compute and there's also this need for low latency and high performance, which just continues to amp up those are those are two reasons that were certainly seen and I've seen and the discussions I'm, having its exciting alright.
That's really helpful. Thank you so much guys.
Thank you.
Your next question comes from the line of Jeff Van <unk> with Craig Hallum. Your line is open.
Great. Thanks, a couple of quick questions first I guess, a drill as it relates to 'twenty one if I look at the non-GAAP operating loss. It looks like there's about maybe I don't know 20 million or so more spend and their relative to where the street was just curious if you break that down by line item, where you think that's going to fall what what exactly are you spending more on just a little color there would be helpful and.
And then congrats on the higher obviously, Brett joining the team brings a lot of skills. Just curious any previews in terms of initial areas of focus out of the gate things that might change here.
Sure Hey, Joe why don't you are spending one and I will go take the Brett question after.
Sounds good yes.
Yes.
Primarily the driver for the spend if you look at our Q4 non-GAAP operating.
And it basically gives you a bit of a preview with our expanded acquisition.
And the expense are brought on with the signal science and team, that's really sort of and acceleration of the investment into that that's really driving where we are in 2021 and another way to sort of put this in perspective as well as our non-GAAP operating loss in 2019 was minus 17%. If you look at the year of 2020 was minus.
Sort of nearly 6% about five 8% so there's a little bit of we kind of got a little further ahead and sort of share your preview at scale. What this business can look like but we still want to invest and we're still on a path to eventually get to profitability and I think 'twenty 'twenty, one that's still within that path.
But in terms of sort of how it breaks down and I don't know that the category is going to look all that different than other where historically, we want to spend certainly more into brand and marketing to go after the security Tam there going on and think we're going after as well as compute at edge. So we're putting we've got some spending and there.
The R&D effort that the day engineers and we brought on some signal sciences, and certainly and additional investments went up from one.
Question, two and then I think G&A is an area, where we do want and get some leverage and it's going to take us a little bit longer and 2021 and make some investments there. So that we can continue to scale that area.
But right now and coupled with just our ultimate path and again Q4 was a good sort of a preview for the launching pad for 'twenty and 'twenty one.
Yeah, and on and on Brad I mean, I'm thrilled about that announcement as you know this has been a process for us to really get the right person and in terms of focus areas.
We see just a tremendous opportunity on the security led.
Story arc here I've started to talk to customers, who are not only using us for their web and API security.
Certain of their it applications and workloads I think that's a really interesting area of expansion for us.
If you think about us being the on ramp to the three major clouds and a full suite of transport security compute features and Theres still a lot to do in terms of getting out there and having that message will be heard so.
A really strong focus on landing new customers.
Our continued focus on ensuring that the customer experience that we have and you know that is highlighted by 99% revenue retention rate, which is which is tremendous and that.
And we keep that as we grow so.
As Adrian said, we're going to continue to invest here. We are just over the moon with the signal Sciences team.
And feel so thrilled that day here, there's still work to do in terms of integrating them, but I'm really excited about the security led side and then when we look at the compute side of our business that really allows us to democratize. Some of some of our work so where can we attract more developers at scale and that.
I think those are two areas that he is definitely going to be focused on.
Great very helpful. Thanks, a bunch.
Your next question comes from the line of Brad Zelnick with Credit Suisse. Your line is open.
Great. Thanks, This is ray Mcdonough on for Brad.
Maybe maybe one for Joshua to start and the shareholder letter you briefly mentioned that you've developed methods to leverage the platform to deliver streaming traffic and more scalable and profitable way.
Can you provide some color on what those methods entail and how that might impact if at all the type of traffic you're willing to take on and if that.
Changes the way you think about the price points at which you're willing to take on on various types of traffic.
Yes, it's a great question and I'm really proud of the work that we're doing there. So we talked about a few components of that precision Pac is one of them. So we have since the start of Fastly, you've been asking ourselves. The question how can we deploy the most efficiently how can we get the most value out of our network out of the bandwidth that we have and how can we.
Bring these sort of self healing capabilities into our network. So that we can do this efficiently. If you look at the number of Pops and number of servers. The number of people we have efficiency and optimization has always been front and center. So I think the answer is we are looking to continue to spend our time and our energy focusing on the high value.
Side of this market and.
When you bring value and that's demonstrated by the gross margin leverage that we demonstrated in Q4 with the growth. There's a lot of high value business out there and you know as I talked about earlier on the gaming sector more and more people are realizing net performance really matters and this is a process that is going to take it's going to continue to take hold.
But we're really seen that 2020 was a year, where that became really really and focus. So I would say examples of that would be precision path. We talked about our support of quick all of this is about better faster more reliable and then we're constantly looking at efficiency.
From the first days that the business started how can we get the most out of our hardware. So I don't think it changes.
Our focus it doesn't change the types of customers, where we go after it really doesn't focus on sort of opening up the bottom end of this market are the low value side of this market. We're going to continue focused exactly where we are and as Adrian said, we will continue to show gross margin leverage towards our.
Mid term model of 70% gross margin and and and we're making tracks.
Traction in that regard.
That's helpful and if I could maybe a follow up for a drill and and just to build on on Robert's question around guidance and what's included from a signal Sciences perspective.
Is it fair to grow what seems like a 6 million contribution this quarter to something where we get to something like 30 or $40 million inorganic contribution from signal Sciences and in 'twenty, one and maybe you can kind of comment on that gross margin impact should we expect incremental expansion.
On on the core Fastly business, as we think about 2021 and layering and signal Sciences.
Yes, I would think about it.
Just given that it's early in the year and as you recall last year when I gave guidance.
And for 2020 clearly.
You know I had any idea of what sort of coming up for all of us, but had kind of guided Oh, that's sort of a 38 per thirtyish percent annual range.
And for growth and I think I'm trying to take a similar tack this year for the overall business and that's actually including thermal sciences. So they were growing clearly quite fast when the acquisition was first announced and I think for now just given that it's early and we are trying to really emphasize on the cross sell possibilities here.
I would sort of stick at least from now at a high level, just kind of incorporated and together with US and then as we get a little bit further into the year. We can give you a little bit more perspective in terms of what we're seeing this last quarter was was great in terms of just the initial indications about our ability to sell together with signal sciences, but we're now looking at <unk> and I think it would be for.
For guidance sake, I'd sort of just keeps on where we are today.
Okay, great and and any thoughts on just.
Core core fastly margins and expansion there.
Yes, I think from a from a sort of a core margin standpoint theres certainly.
And as Josh pointed out there is there's reasons for optimism at this point and I think about it from an overall gross margin standpoint, 2021, and I still feel good about and.
Adding somewhere 100 and depth and more.
But again I want to sort of see the mix for us where it really matters, what's the mix both in the type of traffic, we have and now we have signal sciences, which will be.
Incrementals on that and additive to that I want to see how the mix of them are growing with us can possibly accelerate that but we got to wake up a little bit more time as we get further into the year.
Makes sense. Thanks for the color I appreciate it thanks, Mike.
Your next question comes from the line of Willpower with Baird. Your line is open.
Hey, this is Charlie Ehrlich on for will thanks for taking the question.
I was hoping to ask a question about guidance and maybe just what's contemplated in the revenue guide in terms of the macro environment and co.
COVID-19, and in terms of opening up and potentially starting to work from from the office and whatnot.
Maybe talk about some of the assumptions, you're making into 'twenty and 'twenty one guidance.
In terms of those sectors.
Sure Andrew why don't you start.
Sure So I.
I mean, I kind of based on and answer previously that I gave I think we're being conservative just in terms of what we how much visibility we can see at this point.
We've got a bit more visibility into Q1 in terms of what we see so far.
In terms on sort of the macro perspective, I think we do see a we've certainly taken note of what.
Folks such as some other legacy feeding and providers have noted above.
There are assumptions and the world I think the vaccines are rolling out. So I think we hope for a personally I hope for sort of a more normalized here and I think for now we're not assuming anything.
Foster than that at this point.
I think that's why you kind of see the guidance numbers are what they are and again as we get little further into the year, we'll have a little bit more sense of kind of what world are we going into and how much.
And how much of that faster or slower growth rate.
And then what we originally thought.
Okay, Yeah that makes sense and is there any way to maybe think about potential contribution from compute at edge in 'twenty and 'twenty one revenue.
Or is it just mainly ramping in 2021, and then seeing more meaningful impact in 'twenty two how should we think about the contribution from that.
Yeah My perspective on that is that.
We were always at least from my perspective, I'm always thinking about this was a year to learn and 2021 and we certainly have gotten some early learnings so far from some other customers. So.
And there could be some meaningful contribution, but if there would be it would be in the latter half of the year and again I think.
Im thinking about 'twenty 'twenty, one is much more interest in learning what other use cases, what other verticals that we can use to learn as we lean into 2022 and beyond.
Makes sense. Thank you.
Thanks, Charlie.
Your next question comes from the line of James Fish with Piper Sandler Your line is open.
Hey, guys. So it's our understanding there are a few larger media renewals up and Q4 and and actually for the first half of the year.
What have you and are you approaching those renewals and and specifically what are you guys seeing around.
Price and given a lot of noise out there.
Yeah, It's Joshua here I think that we have renewals and all the way through the year, including in Q4, and what you see and Q4, obviously with the increase in gross margin and the increase and usages.
As we.
Feel confident about what we saw in the past I think when we look forward as we've talked about our innovations continue to drive value and.
There is a commoditized delivery business in the market. We have stayed away from that I think that's proven to be a prudent choice and we continue to look for customers, who care deeply about the performance of their content to care about the security of their content and wanted to be reliable. So we've always taken a balanced approach here I don't see.
Thank you.
And that that's going to change going forward, we simply don't do deals that.
And that we think are bad for the business and premium content, and we think demand and that performance and reliability. So nothing.
In the future that would be unusual in that regard and we continue to remain optimistic.
Got it understood.
And then obviously.
Net comes from a good background.
Rubric.
I guess, what what made you guys pick right is it.
Background on sort of the storage and security side as you start to think about edge compute and net services or is it more like the enterprise experience or something else.
Yeah, it's really a combination of all of that plus I mean, if you think about the Vmware.
And experience if you think about the security experience and the rubric experience. What you get is you get that enterprise you understand security infrastructure, you understand compute and you've seen fast charging growth start ups and you've seen around the corner to billions of revenue all of that was really valuable to us. So I think we.
We.
Understand as we grow that we need to continue to invest and optimize that certainly going to be a theme for 2021 and he's the he's the right leader for that so really it's a combination of all of those plus very excited about it.
Thanks Joshua.
Thank you.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Your next question comes from the line of Walter Pritchard with Citi. Your line is open.
Hi, Thanks, just want to make sure we're totally clear here on this signal sciences' contribution so.
You had modeled $8 million coming off the balance sheet and it ended up being.
Six because of the write down right. As you go into Q1 is it fair to say that you have that sort of six rolling off as well at that rate and then I think that probably doesn't include kind of new business that you're signing signals sciences is doing on their own or youre doing on a bundled basis. So I'm just trying to get a sense as to the balance sheet piece and then the new <unk>.
Business that would that would roll into Q1, and then as we proceed throughout the year.
Hey, Walter internal growth, Yeah, you've got that you've got that methodology correct.
You know as anything booked post.
October 1st since the acquisition.
Has no purchase price accounting adjustments. So you get you know clearly full revenue credit moving forward so from our standpoint, it really knowledge.
And how successful are we together.
And sort of bringing on those new bookings.
So that's a good methodologies and at least a good way to think about it.
And so then as we think about Q4 the contribution to revenue I mean, the six plus there was another piece there and then Q1 is there any way you could help us understand kind of what that total picture, if and I think thats really the piece that people are going to try to get out and I understand the underlying growth rate of the fastly pre pre signal sciences.
Yeah, and I think that's the part where it begins to melt and with some of the the combination selling that we do together. So I've tried to give you just on a ballpark general and your methodology is probably ballpark correct.
And I think as we move into Q1 and Q2 of this year those are going to begin to blend together and so it's not going to be distinctively signal sciences are distinctively fastly theyre going to be sold together many of our customers by delivery and security they want us and secure it.
And for example, a WAF and total by sort of one blended rate.
So from our standpoint, we're beginning I wanted to give you sort of a starting point at least a direction to go.
But at least as we begin to move forward, we're not we're not break those out at this time.
Yeah.
And then just on head count I think somebody had asked earlier on the on the spending and any sense as to where head count me in the year, just doing sort of understand kind of that picture and in totality understanding there's a signal scientists be flaring and and and your organic growth as well.
Yeah, we we added about.
In Q4, we added about 150 folks from the signal Sciences team.
Say, given where we ended the year at about 939.
We're going to certainly.
A number of folks I don't think we're gonna Adam at the sort of the same clip as we did in Q4, whether that was a nice bump and we'll probably going to ameliorate that.
But given that the the leverage are sort of the operating burn that we just experienced in Q4 is more indicative for the year will probably grow the rates more similarly, although the idea that by the end of 'twenty.
'twenty, one we're going to sort of reassess where we are at that point, how fast and we're growing what are we getting for those for that investment and head count and if we continue to see great returns on them and we'll we'll sort of reconsider where we are at that point, but hopefully that gives you some sense of kind of how we're thinking about the year.
Great. Thanks, It does okay. Thank you well thanks Walter.
Your next question comes from the line of <unk> with Bank of America. Your line is open.
Hi, guys.
And.
And I wanted to ask about the core growth that a lot of people are already asked and I'm trying to understand if you can quantify the impact of Covid and I don't know I don't know if it's possible at all but I look at your revenues last year.
<unk> was I'm generalizing <unk> was 60 <unk> was 63.
And then it jumps to 75 and and 71 and there was also a destocking and the mix and.
And I'm trying to understand if you saw an increase and post Covid post work from home.
And which would be natural for your kind of business and if that's the case would and the growth rates decline.
This year, just because of the tougher comps so.
So I don't know if you can quantify for us a little bit of the tictoc contribution and kind of throughout the year or something or talk about it just qualitatively. Thanks, yes.
Yeah Tal, it's a great question, obviously, it's hard to know.
Looking at our Crystal ball for next year I think what we've seen is a few phenomenon on the first is that every industry is different but we're seeing more people use the internet and you've seen that.
And we've seen it and and behavior and habits have changed.
I think the first element of this is we believe that there are sustainable changes that have happened to the digital transformers. They will maintain additional market share and continue to grow.
And is there a new normal.
We don't know, we're trying to be conservative and how we look at it but we certainly look at the future optimistically, we believe that those who are digitally transforming our taking a.
Outside share outside share of market and that outsized share continues to grow. So that's one element I think the other element that's important here and we've been talking about it. It's just the role that security place here as we continue to innovate bring fast and reliable digital experiences to all people around the world what we're seeing is.
Additional threats right. So naturally these threats and securities follow the traffic and what we are seeing is that it takes a totally different tool to fight against these attackers attackers are developers to they're not bogged down with the limits of legacy solutions. They are nimble, they're using modern tools modern workflows.
They are digitally transforming too and so theres two elements here, which are driving and.
Our optimistic view of the future. The first is this digital transformation and additional market share. The other element of this that's important.
Is around.
Is there and security and what we're seeing there. So we as Adrian said, we are guiding conservatively and.
And we think that that's prudent.
And we're seeing these tailwind that we're really enthusiastic about.
I don't know if that totally answers your question, but that's how we're looking at it right now.
And can I have a follow up.
Last quarter, there were questions about it throughout the quarter and maybe you can speak about and again I don't know how much you can share with us but the the more your share is a better you can share with us kind of the roll off tick tock or youre, rolling and a network of ticked off meaning.
Is is the traffic gone completely or are there types of traffic that they can remove and types of traffic and it can.
And that has just has to stay on your network. So can you talk about your role.
And the service of a company like ticked off and again.
Sure, Yeah, and and you know they remain an important customer.
We continue to rely on us for important workloads as you know they peaked above 10% for a short period at the start of the pandemic, but we have a large number of large customers and a handful as I said, who may come in and out of this 10% categories as we grow and as they grow so ultimately we have.
Strong relationship we continue to be very close to them and.
We've modeled in.
We've modeled in what we see for the year, but we have in the quarter and over the last few months continue to diversify.
And get more large enterprise customers.
There may be more 10% customers and the future and but our model is really built on a handful of these and and continued growth. So I think as an enterprise business that is that as part of that is part of our growth.
Got it and I'll take it offline because I'm trying to understand what kind of when they go down and what kind of services. They have to keep on your network. Because you provide something unique they cannot find anywhere else and what kind of traffic. They can remove out of your network because it's more of the commodity part. So we can take it off of offline and discuss it. Thanks, Tom I appreciate it.
There are no further questions at this time, Mr. Bixby I turn the call back over to you for closing remarks.
Before we sign off I want to thank our employees customers partners and investors I'm extremely proud of all that our team has accomplished and a year filled with such uniquely challenging circumstances and unexpected road bumps and.
And we're humbled to be both a witness and enabler for how we've supported our customers many of them thriving even under incredibly difficult circumstances.
I look forward to seeing what lies ahead for all of US This year and I hope and connect with many of you at the upcoming Morgan Stanley TMT conference. Thank you.
This concludes today's conference call you may now disconnect.
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