Earnings Call: Q4 2019

Feb 20, 2020

Good afternoon. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fastly 4th 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. Session. 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 Q4 full year 2019 earnings call. We have Fastly's CEO, Joshua Bixby Chief Architect and Executive Chairperson, Arthur Bergman and CFO, Adriel Alaines with us today. Before they start, I want to remind everyone of the format of our call. We published a shareable 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 the call, we 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 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 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 in 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'll turn the call over to Arthur. Thank you, Marina. Hi, everyone. Welcome. We appreciate you for joining us today to discuss our Q4 and full year 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 asset growth. I have decided to step into the full time role of Chief Architect and Executive Chairperson and Joshua Bixby is Fastly's new CEO. These past 9 years have been an incredible journey. I'm very proud of what we have accomplished. We're at a product inflection point, similar to the inflection point we were at 9 years ago when we started Fastly. ComputeEdge is both a result of my and our CTO, Tyler McMull's vision 9 years ago and the paradigm shift in how apps are built today. Just as we had to show the world where the Edge Cloud was the right way to build better online experiences, we now have to expand that mission further. The Edge should be easy to use, have security integrated and we continue to evolve and develop it. We see so much potential for secure edge computing environments in the market. We're building the future of our platform closely with our developer community. We have continued to receive positive feedback on ComputeEdge, which is currently in beta. The feedback we're receiving enables us to continue iterating, improving the product in order to drive transformation at the edge. We also have to continue adapting our mobile network to meet the new demands of computer edge. We want to keep being as efficient, if not more, with computer edge as we have been in the past. I plan 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 6 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 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. 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 Darshan White in his new role. And I'm now turning over to him, where he'll go over the results. Thank you, Archer. It's been amazing to help grow Fastly with you for over 6 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 1st 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 4th quarter and are excited to share the results. We generated $59,000,000 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 that programmability and security will be paramount. In 2019, we made 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 of providing an edge cloud platform that developers can adopt as their own, which will include delivering a feature rich compute at 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'll 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 in the top line during the Q4 and calendar year 2019. Q4 2019 revenue was $59,000,000 up 44% year over year. Full year 2019 revenue was $200,000,000 up 39% year over year. We also 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 customer spend also increasing to 607,000, 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 based expansion rate was 136%, also up from the previous quarter, which was 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 expand approach, whereby customers adopt Fastly for one particular use case and then incorporate additional Fastly products and features over time. Also continue to drive margin expansion in the Q4 2019 as we continue to pursue leverage opportunities in the business. GAAP gross margin was 56.7 percent 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, has increased significantly in 2019 a public company relative to 2018 while we were private, was 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 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 and D and G and A as our first in our 1st year as a public company, we were also able to deliver operating leverage in the Q4 and in the full year 2019. We are pleased with the 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. For the Q1, we expect revenue in the range of $58,000,000 to $60,000,000 non GAAP operating loss in the range of $13,000,000 to 11,000,000 dollars 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 2.55 dollars to $265,000,000 non GAAP operating loss in the range of $43,000,000 to $33,000,000 and non GAAP net loss per share in the range of $0.43 to $0.32 I'd also like to take a second to comment on the potential impact of the COVID-nineteen 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'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 has yet occurred. Conversely, Internet usage may also increase. In closing, we had an excellent quarter and we are pleased to have closed out our 1st calendar year as a public company with strong execution. And with that, I'll turn it back to the operator for some Q and A. The first question comes from Jeff Van Rhee of Craig Hallum. Please go ahead. Your line is open. Great. Thanks for taking my question guys. Congrats on a real nice quarter there. First, maybe you can just talk about the big line in terms of what you're seeing. How does the forward pipeline look versus what you've 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'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 expansion in that pipeline across all the verticals, all the geographies. I think we are we've 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're both pretty pleased about where it's going to take you. I'm interested just in terms of your thought process and the timing that brought you to this conclusion. I'm sure it didn't just happen right here. How has this evolved? How have you been thinking about this over time? Thank you. I'm very excited and happy. It's evolved over quite a while where Maya and Joshua's partnership has been very close, and he's taking over larger parts of the business. And I kind of felt that as we keep growing, the stuff that I really love to do and that I'm very good at, I will actually have less and less time with. And we decided to explore this change and then we executed on it. I'm so excited about the continued edge work, And I just want to spend more time with our engineers and our customers, get back out into the field and both learn what they want and tell them what they can do, kind of what we did from 8 years ago. And so that's really the evolution of that. Great. That's helpful. The last one for me. Just maybe this is Adriel. As you look at the annual outlook, how did you approach obviously even 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? Yes. 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've ever guided as a public company. So we've got a full year in front of us. And the fact that we are usage based, 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're just this early in the year. But generally, given what you see in terms of the year on year growth rate with the midpoint there, I think I'd still feel generally positive about where we're 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, John. Thank you. Your next question comes from Will Power of Baird. Please go ahead. Your line is open. Hey, guys. This is Charlie Ehrlich 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 you maybe talk a little bit about your plans in terms of sales and marketing hires into 2020? Sure. This is Adriel, 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 a percentage of revenue, and 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. And 2019 was no different than we just affirmed the return on those investments. From a hiring standpoint, we were able to get sort of our 60 revenue generating folks here. So we're pleased with that. And I think what you should see from us going forward is continue to sort of invest at the current rate we've seen before. I think we're continuing to we're still early days into the marketing portion of that sales and marketing spend, and we're going to continue to sort of monitor that return on that as we progress into 2020. But so far, I want to make sure we look since 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're calling out that's unique to Q1 'twenty that's not necessarily typical normal seasonality? No. I think you've you set 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 to compete for a good 4. There's also great shopping for my e commerce customers, which just the general holiday season helps us in Q4. And then some of that doesn't repeat itself or carry over into Q1. So you should see some differences there, but it becomes the same trend follows into 2019. You'll sort of see that seasonal strength as we enter the Q4 again this year. Got it. All right. Thanks, Andrew. 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're thinking about that? Sure. Brad, this is Adriel again. I think the biggest thing we were focused on, we've talked about capacity earnings calls and publicly is we're trying to grow annual overall gross margin incrementally. And I think this year, we're really aiming for about one 100 basis points on a year on year basis. So we were pleased we were 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 for not only live events in Q4, but also in preparation for live events that would have occurred here in Q1. Super Bowl was mainly one of them. So there's nothing I think unusual in that regard. And I think from our standpoint, we're 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 growth, it's a little bit tougher than they're growing as fast as they are. And I think on our side, we're trying to balance our margin expansion goals with sort of revenue opportunities that we see in front of us. 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 in 'nineteen and I feel confident about what we'll do in 2020. Thanks, Adriel. That'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 computed 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 in terms of that use case, has it actually been implemented anywhere into production yet? Or is it still way too early? Brad, it's Joshua here. It's still too early. We're still in beta with that. I think that the progression has been very positive because this notion that the edge brings the power to do more and is very powerful, and 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 is penalized from a performance scale and security perspective. 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 as you've seen in the past, we are 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 their imagination, and we do that very thoughtfully. And I think that's part of what we've seen over the last few months is the excitement around that. And as we've talked about previously and I said in the opening remarks, our goal this year is to bring out computed edge at scale. And that is that remains the case, and I think we are even more excited than when we first brought out the beta, which is the type of creativity that our customers have. That's one of the wonderful assets of our businesses that we build on the people build on the shoulders of others, and we continue to see that momentum. It's beautiful. Awesome. We're 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. Nice to see continued strong results. Maybe first, I wanted to start by the CapEx for next year and the shareholder letter you talked about it kind of staying at a little bit of an elevated level above that was your 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've got a follow-up. Sure, Rishi. It's Adriel again. So we're pleased with the outcome of 2019 where we ended up at about 10% of CapEx expenditures 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 a just in time notion while still providing capacity for our future growth. But as I mentioned earlier, the growth aspect given how fast our customers are growing is a bit of a challenge, which is why I'm giving ourselves a bit of room here with sort of like a 13% to 14% for 2020. Clearly, we'll try to beat that as well and do whatever we can to sort of get just in time with the respect to deployment of our CapEx. But that just gives you some context to that. Again, we I think we outperformed relative to what I thought we would do in 2019. Okay. That's helpful. And then just in the commentary around revenue in Q4, including some onetime live events that aren't expected to carry over. Can you maybe help us understand the magnitude of that or quantify how much of a revenue impact those are? Thanks. Yes. I think it was a little bit of like strong growth into new live events that we have never been exposed to, not unlike how Super Bowl for this year is our 2nd year 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 one time, I think it's more of the sense that it's Q4 typically is when those sports are played or when those events are occurring, and we are 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. 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. Just maybe starting out with you, Josh. Now that you're in sort of the 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 other changes or improvements? Sure, Jonathan. Thank you. I think Archer said this very well, which is this has been a partnership for over 6.5 years. 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 and enhancing all of the areas that we have already talked about. Fastly 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 that security continues to be more important for our customers and we continue to invest heavily there. And 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 wonderful pace. And nothing is broken here. This is a wonderful time 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. Jonathan, it's Adriel. Yes, with respect to Devner, that's another one of those that continues to seize me in a good way. And even though I've talked in the past now, eventually I expect that to meter down a little bit just to sort of blow out large numbers. But in terms of where the main driver is coming from, it really is across the board. I think it's also that in context with the fact that we're releasing on an annual basis, our retention rate that bumped up from an already high 98% to a 99%. I think all that 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. 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 computed edge kind of what you're seeing in the marketplace? Are you seeing any competitors trying to adopt this? And how far ahead of your competitors 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 are based on this architecture. Maybe you can talk about some of those on the security, what you're good at or different now. Hi, thank you. It's Arthur here. I don't think 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're 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 where we are engaging with some very large prospects or existing customers and making sure that it meets all their security compliances. 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 virtual like different memory parts like spectra and meltdown and so on. And this gives us an opportunity to, from ground up, try to avoid and combat those kind of data leakage vulnerabilities. And that's one of the things that we've been in big conversations with some of our product customers about and how to ensure that they are happy in a safe environment for their critical data. And on the application side, the framework we're talking to, this is a brand new thing for our customers to do. So it's taking some time for them to start really evaluating and integrating and adding this to the road map. On the security product side, security products aren't yet based on this technology, but the new security products that we developed or and the launch that we have will be migrating to use this technology over time. One of the benefits for us as well with Computed Edge is that not only can our customers innovate on the edge faster and safer, so can we. So we can have more flexibility in allowing our product and R and D department in coming up with new products and releasing them quicker and seeing how they work. So we'll probably have significantly more update around this for Altitude later this year. Your next question comes from James Fish of Piper Sandler. Please go ahead. Your line is open. Hey, guys. Congrats all around for Josh for the promotion and Archer for the new moving into the 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 did 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? Yes. This is Joshua. I'll handle the first question and then hand it off to Adriel. I think that 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 are not a business that relies on large events and streaming to as a sort of a 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 continue to see in 2019 is our non media the non media part of our business continues to grow as a percentage of revenue. So we are actually seeing notwithstanding any of the growth in the media sector, we're continuing to see extending growth and continued 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 and overall, that is becoming less of our business over time. And I'll hand it over to Andrew for the second part. Thanks, Joshua, and thanks for the question, Jim. I within that range, which is $5,000,000 up and $5,000,000 down from $2.60 midpoint, there is some growth in there for sort of the higher end. But to Joshua's point, I think strategically, we need to 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'm 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 answers your question, so it's not a sort of I'm not a big dependent, so to speak. No, no, I think I get what's going on. And then just one more for me. If 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 add more if the low hanging fruit kind of hit a wall? Jim, it's Adriel again. So I'll start and I think Jeff and I 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 it's now up to 607,000 dollars These are pretty significant and sophisticated customers. And I think from our standpoint, I'm pleased with how much they're utilizing us and how that reflects itself not only in the average spend per customer, but also reflects the DevMIR 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're working on as we speak. So I think 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 is intimately involved in helping set it now. Just one more element. I think people use different calculations for this metric as well. What's important about understanding our metric is it is a backwards looking metric. So we're looking back in the past to understand this. 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. Hey, everybody. Good evening and of course congrats both to Josh and Archer and everybody else and all company had a good quarter. Just to come back to the gross margin question. And Brad, I think, asked about how much you thought there'd be upside. It seems like you did almost 2 points this year. I think, Angel, can I just be clear, what you're 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'd 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'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 over quarter. In particular, that's being helped by internal software that we're delivering internally from the team here at Fastly that helps do a lot of automated tasks that used to require many, many hours from human hands. And I know that there we're even 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's sort of still something we've experienced in the past. And in terms of what we could have gotten, again, this will move a little bit from quarter to quarter. So I'm primarily focused on sort of that sort of LTM or on a year over year basis, how we can drive gross margin. Everything that we've experienced in Q4 just re bolster that confidence that we can do so. And then to come back to the question from James regarding the non live or BOD 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, both and 2 of your competitors actually pointed out what ended up looking like reservation fees for capacity that had been paid upfront, which were very one time in nature. And if so, is that part of why you're guiding to more of a flat quarter over quarter 1Q versus what have been double digits in last year? Michael, it's Joshua. From a general sense, we're not really in the one time fee business. We've always believed that we want to grow with our customers, and we continue to see that as well. I'll hand it over to Adriel to talk about the sort of next quarter. Yes. From time to time on some of these events, there will be minimums that they that we sort of customers will sort of would be required to spend based on the fact that we'll in some respects, they're taking up capacity onto our network. But again, the general nature, with the exception of things like Super Bowl, it's not sort of one time in nature. Okay. Thanks, Adriel. 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 the gross margin side. Could you maybe separate out the benefits you saw and still what's to come from the perspective of just general scale mix of services and you talked about some good account leverage, which sounds like general scale, but we'd love to just hear what drove the 80 basis points? And sort of if you think about this year, how do you think about the sources changing the same in terms of gross margins? Yes. 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 an area 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've 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're at 57 53, excuse me, markets around the world, so about halfway there. So I think you'll see as we continue to sort of expand just the overall footprint of Fastly, you'll see sort of leverage in those other areas whereas bandwidth should just sort of scale as we get bigger over time. Hopefully, that's helpful. And I don't know if, Joshua, do you want to add anything? Yes. I would 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'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 geographies, and that's also driving that as well. Great. And then just as it relates to you've come up a couple of times with 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 had some impact on the number? Yes. It's been incorporated. So it's already factored into the guidance that we just gave. Okay. As in your there is revenue or there isn't revenue or Yes. As in there is revenue, but now it's past events 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 general the traditional seasonality time frame. So you'll see what likely impacts sort of gross margin is the fact that we're purchasing some of that stuff today as we speak, but it gets deployed and also hits the cash flow statement and 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 was in 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 Vixby 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 a 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 2. 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 in Hawaii. You may now disconnect.