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 Q4 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 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. 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 CEO, Joshua Bixby, Chief Architect and Executive Chairperson, Artur Bergman, and CFO, Adriel Lares is with us today. Before they start, I want to remind everyone of the format of our call. We published a shareholder letter on our investor relations website and with the SEC about an hour ago. We hope everyone had a chance to read it. Since the letter provides a lot of details, we will make some brief opening remarks and reserve the rest of the time for your questions. During 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 the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. Also, during this call, we will be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter 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 Artur.
Thank you, Maria. 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 Fastly's 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 nine 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 nine years ago when we started Fastly. Compute@Edge is both a result of my and our CPO, Tyler McMullen's vision nine 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 vision further. The edge should be easy to use, have security integrated, and we need to continue to evolve and develop it. We see so much potential for secure edge computing environments in the market, and we're building the future of our platform closely with our developer community. We have continued to receive positive feedback on Compute@Edge, which is currently in beta. The feedback we'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 modern network to meet the new demands of Compute@Edge. We want to keep being as efficient, if not more, with Compute@Edge as we have been in the past.
I 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 six years. We have built trust together, and I believe that Joshua is the right person to lead Fastly into the future. Joshua knows our business in and out, having spent time running different parts of the business, and also 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 Joshua in his new role, and I'm now turning over to him, and he will go over the results.
Thank you, Artur. It's been amazing to help grow Fastly with you for over six years. It is an incredible honor to lead and serve Fastly. We are on an exciting journey to build a more trustworthy Internet, and I am energized to continue our momentum. 2019 was a great year for Fastly. This quarter brings us to the end of our first calendar year as a public company. We launched several innovative new products and features that excite and benefit our customers and our community. Our customers are motivated to create and build on the Edge. We continue to differentiate from our competitors, and we continue to see growth across our global customer base across all verticals and geographies. As you saw in our shareholder letter, we had a strong Q4 and are excited to share the results.
We generated $59 million in revenue, up 44% year-over-year. Our results reflect increased adoption of our Edge Cloud platform, including our security products, by both new and existing enterprise customers. We are making progress on the path towards profitability and continue to identify opportunities to drive operating leverage as our network scales. We believe over the next decade, developers will move more and more mission-critical functions to the edge, driven by the need for performance, scale, and security as the world around us continues to be digitized. As such, we believe 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@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 in your new role. As Joshua mentioned, we continue to see strong momentum and growth in the top line during the Q4 and calendar year 2019. Q4 2019 revenue was $69 million, up 44% year-over-year. Full year 2019 revenue was $200 million, 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 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. We also continued to drive margin expansion in the Q4 in 2019 as we continue to pursue leverage opportunities in the business. GAAP gross margin was 56.7% for the quarter, up from 56.6% in the year ago period, up from 55.9% for the full year, up from 54.7% in 2018. Non-GAAP gross margin, which excludes stock-based compensation that has increased significantly in 2019 as a public company relative to 2018 while we were private, was 57.6% for the quarter, up from 56.8% the year prior. 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 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 G&A in our first 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 -$60 million, non-GAAP operating loss in the range of $13 -$11 million, and non-GAAP net loss per share in the range of $0.13-$0.11. For the full year 2020, we expect revenue in the range of $255 -$265 million, non-GAAP operating loss in the range of $43 -$33 million, and non-GAAP net loss per share in the range of $0.43-$0.32. I'd also like to take a second to comment on the potential impact of the COVID-19 virus on our business. The situation continues to evolve, and the magnitude of the overall impact on our business cannot be reliably quantified at this time, but we've seen no material effect at this time.
For example, at some point, we might see a negative impact to our supply chain. Again, nothing has yet occurred. Conversely, internet usage may also increase. In closing, we had an excellent quarter. We are pleased to have closed out our first calendar year as a public company with strong execution. With that, I'll turn it back to the operator for some Q&A.
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 a real nice quarter there. First, maybe you can just talk about the pipeline 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. I think we've seen an expansion in that pipeline across all the verticals, all the geographies. I think 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 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.
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 my and Josh Bixby's partnership has been very close, he's taking over larger parts of the business. 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. We decided to explore this change, we executed on it. I'm so excited about the Compute@Edge work, I just want to spend more time with our engineers and our customers, get back out into the field, both learn what they want and tell them what they can do. Kind of what we did eight years ago. That's really the evolution of that.
Great. That's helpful. The last one from me, just maybe this is Adriel. As you look at the annual outlook, how did you approach, obviously, the year with elections, Olympics, some of the seasonal demand? Maybe ask differently, what kind of uplift would it typically bring in a given year, and how variable can that be? What did you bake into the guide for that?
Yeah. Generally, we've 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 got a full year in front of us. The fact that we are usage-based, there is some variability that can occur. I think what you saw there is we just finished a great year, a great quarter. What you see here is just some appropriate conservatism given that we're just this early in the year. 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.
I think you're just sort of seeing appropriately wider band just to make sure that we can account for some of the uncertainties associated with usage.
Okay. Got it. Great. Thanks again. Congrats everybody.
Thanks, Jeff. Thank you.
Your next question comes from William Power of Baird. Please go ahead, your line is open.
Hey, guys, this is Charlie Erlikh on for Will. Thanks for taking the question, congrats on a 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? Could you maybe talk a little bit about your plans in terms of sales and marketing hires into 2020?
Sure. This is Adriel, thanks for the question. 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, 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. 2019 was no different, 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, we're pleased with that. I think what you should see from us going forward is continuing to sort of invest at the current rate we've seen before.
We're still early days into the marketing portion of that sales and marketing spend, we're going to continue to sort of monitor that return on that as we progress into 2020. So far, I want to make sure it looks as though we want to continue to maintain that rate.
Great. No, that's helpful. Just one more from 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? It would seem that Q1 usually should be seasonally weaker than Q4 just due to less traffic leverage. Is there anything that you're calling out that's unique to Q1 2020 that's not necessarily typical normal seasonality?
No, I think you've said it correctly. In Q4, as we've 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 good. There's also great shopping from our e-commerce customers. There's just the general holiday season helps us in Q4. Some of that doesn't repeat itself or carry over into Q1. You should see some differences there, it becomes the same trend follows into 2020, and you'll sort of see that sort of seasonal strength as we enter the Q4 again this year.
Got it. All right. Thanks, Adriel.
Thank you.
Your next question comes from Brad Zelnick of Credit Suisse. Please go ahead. Your line is open.
Excellent. Thanks so much. I echo my congrats all around on a good quarter, and congrats on some of the changes in the leadership organization. If I could follow up on a question on gross margins, I wanted to touch on the live streaming events in the quarter. 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 in past earnings calls and publicly, is we're trying to grow annual overall gross margin incrementally. I think this year we were really aiming for about 100- basis points of it on a year-on-year basis. We were pleased we were able to do that. I think going forward, that should still be the case. In particular in Q4, there were just normal timing-related impacts as we 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. There's nothing, I think, unusual in that regard. 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 when they're growing as fast as they are. I think on our side, we're trying to balance our margin expansion goals with sort of the revenue opportunity that we see in front of us. Hopefully that gives you a little bit more color in terms of sort of the quarter itself. Year-on-year, I still feel good about how we did in 2019, and I feel confident about what we're going to do in 2020.
Thanks, Adriel. That's very helpful. Maybe just a follow-up for whomever wants to take it, I guess. At last year's Altitude, you highlighted real-time ad insertion as an initial use case for Compute@Edge. 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?
Hey, Brad, it's Josh here. It's still too early. We're still in beta with that. I think that the progression has been very positive. This notion that the edge brings the power to do more, and it is very powerful, and I think the ad insertion story is particularly powerful, and we continue to see scenarios where most of that traffic is not being served from the edge and therefore is penalized from a performance, scale, and security perspective. In the case where that could be dynamic, we could see things that are very personalized. We're very bullish about that use case. There are many others that are emerging as we've taken this out. 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 their imagination, and we do that very thoughtfully. I think that's part of what we've seen over the last few months is the excitement around that. As we've talked about previously, and I said in the opening remarks, our goal this year is to bring out Compute@Edge at scale. That remains the case, and I think we are even more excited than when we first brought out the beta with the type of creativity that our customers have. That's one of the wonderful assets of our business is that 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 just hear a little whether you talk about it kind of staying at a little bit of an elevated level above at least 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? I've got a follow-up.
Sure, Rishi. It's Adriel again. We were pleased with the outcome of 2019, where we ended up at about 10% of CapEx from the revenue. 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. 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%-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 prospective deployment of our CapEx. That just gives you some context to that.
Again, I think we outperformed relative to what I thought we would do in 2019.
Okay. Thanks, Adriel. That's helpful. Just in the commentary around revenue in Q4, including some one-time 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, please?
Yeah, I think it was a little bit of strong growth into new live events that we had never been exposed to, not unlike how Super Bowl for this year is our second year doing that. We're getting exposed to greater and greater opportunities as a result of the success we've had in the past. When I say one time, I think it's more of the sense that it's Q4. Typically, it's when those sports are played or when those events are occurring. We are going to continue to compete for them on an annual basis. From a Q4 - 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. Maybe starting out with you, Josh. Now that you're in sort of a new role, can you talk a little bit about maybe what you see as some new opportunities or maybe some things that you can do to drive either changes or improvements?
Sure, Jonathan, thank you. I think Artur said this very well, which is this has been a partnership for over six and a half years. The decisions that we've made in this business, I feel like we have made together. I think as you can see from the quarter and the year, Fastly is thriving. 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 Compute@Edge obviously is the next generation of that. That is a core focus, and I think we just need to continue to augment. Actually, part of the shift is to allow Artur 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. I think that's also an area that Artur's 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. Nothing's broken here. This is a wonderful time and a wonderful place to be for us.
Got it. Just in terms of the DBNER results, that accelerated sequentially. 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. Yeah, with respect to DBNER, that's another one of those that continues to please me in a good way. Even though I've talked in the past how eventually I expect that to meter down a little bit just because of the law of large numbers. In terms of where the main driver is coming from, it really is across the board. I think that'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 adopts and expand strategy with Fastly, is across all of our different customers. It's not any one in particular segment.
Thank you.
Thanks.
Your next question comes from Tim Horan of Oppenheimer. Please go ahead. Your line is open.
Thanks, guys. Can you give a little more color on Compute@Edge, kind of what you're seeing in the marketplace? Are you seeing any competitors trying to adopt this, and how far ahead of your competitors do you think you are? Maybe just some of the conversations you're having on new applications and services that customers really like. 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 on. Thank you.
Yeah. Hi, thank you. Artur here. I don't think there's much to significant to update compared to the last quarter. We see some competitors that are trying to say that they are entering this market, but we're not really seeing that when we're talking to our customers from a scalability and performance, flexibility point of view. We feel really good about the core technology around how the isolation and sandboxes are working, and we are engaging with some very large prospects or existing customers and making sure that it meets all their security compliances. The interesting twist has been around the issues that Intel and AMD have had over the last couple of years with regards to leakage between different memory parts like Spectre and Meltdown and so on.
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 deep conversations with some of our customers about and how to ensure that they are happy in a safe environment for their critical data. On the application side, the same ones we're talking to, and this is a brand new thing for our customers to do. It's taking some time for them to start really evaluating and integrating and adding this to their roadmap. On the security product side, the security products aren't yet based on this technology, but the new security products that we would develop and the ones that we have will be migrating to use this technology over time.
One of the benefits for us as well with Compute@Edge is that not only can our customers innovate on the edge faster and safer, so can we. Means that we can have more flexibility in allowing our product and R&D department in coming up with new products and releasing them quicker and seeing how they work. We will probably have significantly more update around this for Altitude later this year.
Thank you.
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 Artur for 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? Adriel specifically, how are you guys thinking about how those new services could impact the business in terms of the guidance in 2020?
James and Josh, I'll handle the first question, 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 the dominant grower in our business. We do help our customers with everything that they do. As you know, we really focus on the high margin side of that. One of the trends that we are seeing and continue to see in 2019 is the non-media part of our business continues to grow as a percentage of revenue.
We are actually seeing, notwithstanding any of the growth in the media sector, we're continuing to see extended growth and continued growth, in the non-media business, which I think is important overall. I would say there are customers out there who really value high performance and who really value quality. If you look at where Fastly plays, it is in that side of the market. As I say, as a percentage of revenue and overall, that is becoming less of our business over time. I'll hand it over to Adriel for the second part.
Thanks, Joshua, and thanks for the question, Jim. Within that range, which is $5 million up and $5 million down from $260 midpoint, there is some growth in there for the higher end. To Joshua's point, I think strategically, we need to have some mix of media business within our business model, which enables us to build this really fantastic network that allows us to deliver lots of features to many of our non-media enterprise customers. There's some built-in there. Again, we're not counting on that as our core business for growth, but it is an aspect to it. Hopefully that answers your question. It's not a big dependent, so to speak.
No, I think I get what's going on. Just one more for me is the enterprise net adds are consistently in the low to mid-teens here, yet some of your peers are adding multiples more customers at this similar level. I guess, why can't you guys add more? Is the low-hanging fruit hit a wall?
Hey, Jim, it's Adriel again. I'll start, and I think Joshua may want to add onto 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. These are pretty significant and sophisticated customers. 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 it reflects the DBNER and also our overall revenue growth. 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. Ultimately, the Compute@Edge that we're working on as we speak.
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. This is an area that I know Joshua was intimately involved and helped set it up.
Yeah, 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. We're looking back in the past to understand this. We know that other organizations are projecting forward. I think like always, we are going to take a conservative approach and 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. 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 Artur and everybody else and the whole company on a good quarter. Brad, I think, asked about how much you thought there'd be upside it. It seems now you did almost two points this year. I think that Adriel, can I just be clear, were you saying your plan is for over 100- basis points next year? Is that the case? If so, 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?
Let me answer the first part of the question, which is, at least we would want to get 100- basis points on an annual basis. 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. We were really able to drive some really good leverage their 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 hours from human hands. I know that they're really even able to do even greater levels of more complicated work. This allows us to not hire as many in the future as we continue to scale the network. That's something we've experienced in the past.
In terms of what we could have gotten, again, this will move a little bit from quarter to quarter. I'm primarily focused on 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 rebolsters that confidence that we can do so.
Yeah. Thanks. To come back to the question from James regarding the non-live or VOD media services that may have come in as part of the big high-profile launches in December. Were there any one-time fees there? In other words, two of your competitors actually pointed out what ended up looking like reservation fees for capacity that had been paid upfront, but which were very one-time in nature. If so, is that part of why you're guiding to more of a flat quarter-over-quarter 1Q versus what had been double digits in the past year?
Hi, 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 next quarter.
Yeah. From time to time on some of these events, there will be minimums that customers will be required to spend based on the fact that we're, again, in some respects, they're taking up capacity onto our network. Again, the general nature, with the exception of things like Super Bowl, it's not 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 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 head count 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 source changing? Are they the same in terms of gross margins?
Yeah, Walter, this is Adriel. One of the things that grew, in terms of the percentage of COGS in Q4, was bandwidth. 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. Most of the leverage going forward is going to be in areas like I just also talked about, labor, other, then eventually things like co-location. Co-location will sort of blip up a little bit as we expand into different markets. 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. Today, I believe we're at 53 markets around the world, so about halfway there.
I think you'll see as we continue to expand just the overall footprint of Fastly, you'll see leverage in those other areas, whereas bandwidth should just scale as we get bigger over time. Hopefully that's helpful, and I don't know if, Joshua, would you want to add anything?
Yeah. I would just add that 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. As we talked about in the opening remarks, we're seeing that across verticals and across geographies. That's also driving that as well.
Great. Just as it relates to, it's come up a couple of times, the Super Bowl. 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.
Yeah. It's been incorporated. It's already factored into the guidance that we just gave.
Okay. As in there is revenue, or there isn't revenue, or?
Yeah. As in there is revenue because it's now a past event for us, and it's incorporated into the guidance.
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?
I think it'll sort of follow just general the traditional seasonality timeframe. You'll see what likely impacts gross margin is the fact that we're purchasing some of that stuff today as we speak, but it gets deployed and/or hits the cash flow statement and CapEx when we actually put it into action. I think the trend that you saw in 2019 should be similar to the trend in 2020. You saw Q4 being the largest CapEx impact. The overall year timeframe within that 13%-14%, which is what I thought 2019 was going to be, we ended up being a little bit better than that at 10%. I'd see 2020 being in that sort of normal seasonal with Q4 absorbing most of the actual CapEx on the cash flow statement.
Great. Thank you very much.
There are no further questions at this time. I will turn the call over to Joshua Bixby for closing remarks.
Thank you. I want to thank our employees and our families, our customers, our partners, and our investors, without whom we could not have achieved 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 2nd. We are excited for what is ahead and can't wait to share more with you in the quarters to come. Thank you.
This concludes today's conference call. Thank you for your participation. Goodbye. You may now disconnect.