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FASTLY (NYSE:FSLY)
Q4 2019 Earnings Call
Feb 20, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 Fourth Quarter and Full-Year 2019 Earnings Conference Call. [Operator Instructions] Thank you.

I would now like to turn the conference over to Maria Lukens, Vice President of Investor Relations. Please go ahead.

Maria Lukens -- Vice President, Investor Relations

Hey, everyone. Thank you for joining our fourth quarter and full-year 2019 earnings call. We have Fastly's CEO, Joshua Bixby; Chief Architect and Executive Chairperson, Artur Bergman; and CFO, Adriel Lares with us today.

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

During 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.

Artur Bergman -- Chief Architect and Executive Chairperson

Thank you, Maria. Hi, everyone, and welcome. We appreciate you for joining us today to discuss our fourth quarter and full-year of '19 -- 2019 results.

Before we discuss those, I want to talk about some exciting news announced earlier today that will position us for the next stage of fastest growth. I have decided to step into the full-time role of Chief Architect and Executive Chairperson and Joshua Bixby is Fastly's new CEO. These past nine years, having an incredible journey, I'm very proud of what we have accomplished. We are at the product inflection point, similar to the inflection point we were at nine years ago when we started Fastly.

Compute@Edge is both a result of my and our CTO, Tyler McMullen's vision nine years ago and the paradigm shift in how apps are built today. Just as we had to show the world that the edge cloud was the right way to build better online experiences. We now have to expand that vision further, the edge should be easily used, have security integrated and we have continued to evolve and develop it.

We see so much potential for secure edge computing environments in the market and we are building the future of our platform closely with our developer community. We have continued to receive positive feedback on Compute@Edge which is currently in beta. The feedback we are receiving enables us to continue iterating improving the product in order to drive transformation at edge. We also have to continue adapting our modern network to meet the new demands of Compute@Edge. We want to keep -- being as efficient, if not, more with Compute@Edge as we have been in the past.

I have planned to spend more time with customers and prospects to understand their needs and to educate them on what's possible with edge computing. The reason I can make this transition is because Joshua and I have worked together for over six years. We have built trust together and I believe that Joshua is the right person to lead Fastly into the future. Joshua knows our business in and out. Having spent time running different parts of the business, and also a unique ability to know what type of people, systems and organization are needed for us to grow. He cares deeply about our employees, partners, customers and investors. I will continue to work very closely with Joshua and the rest of the leadership team helping support the long-term strategic direction of the Company, and I look forward to keep interacting with you all about the Fastly future.

Please join me in congratulating Joshua in his new role. And I'm now turning over to him, so that he'll go over the results.

Joshua Bixby -- Chief Executive Officer

Thank you, Arthur. It's been amazing to help grow Fastly with you for over six years. It is an incredible honor to lead and serve Fastly. We are on an exciting journey to build a more trustworthy Internet and I am energized to continue our momentum. 2019 was a great year for Fastly. This quarter brings us to the end of our first calendar year as a public company. We launched several innovative new products and features that excite and benefit our customers and our community. Our customers are motivated to create and build on the edge. We continue to differentiate from our competitors and we continue to see growth across our global customer base, across all verticals and geographies.

As you saw in our Shareholder Letter, we had a strong fourth quarter and are excited to share the results. We generated $59 million in revenue, up 44% year-over-year. Our results reflect increased adoption of our edge cloud platform, including our security products by both new and existing enterprise customers. We are making progress on the path toward profitability and continue to identify opportunities to drive operating leverage as our network scales. We believe over the next decade developers will move more and more mission critical functions to the edge, driven by the need for performance, scale and security, as the world around us continues to be digitized. As such, we believe the programmability and security will be paramount.

In 2019, we 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 and providing an edge cloud platform that developers can adopt as their own, which will include delivering a feature rich Compute@Edge offering at scale and continuing to invest in our edge security portfolio. Fastly is on a great trajectory and we remain poised to do so much more.

With that, I'll hand the call over to Adriel, who will walk through some financial highlights.

Adriel Lares -- Chief Financial Officer

Thanks, Joshua, and congratulations. I look forward to continuing my partnership with you and your new role. As Joshua mentioned, we continue to see strong momentum in growth and the top line during the fourth quarter and calendar year 2019. Fourth quarter 2019 revenue was $59 million, up 44% year-over-year. Full-year 2019 revenue was $200 million, up 39% year-over-year. We 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 customers spend also increased in the $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 net expansion rate was a 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 continue to drive margin expansion in the fourth quarter and 2019 as we continue to pursue leverage opportunities in the business. GAAP gross margin was 56.7% for the quarter, up from 56.6% in the year ago period and 55.9% for the full year, up from 54.7% in 2018. Non-GAAP gross margin, which excludes stock-based compensation that has increased significantly in 2019 as a public company relative to 2018 while we were private, 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 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 as our first -- in our first year as a public company, we were also able to deliver operating leverage in the fourth quarter and in the full-year of 2019. We are pleased with the progress we have 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 first quarter, we expect revenue in the range of $58 million to $60 million, non-GAAP operating loss in the range of $13 million to $11 million and non-GAAP net loss per share in the range of $0.13 to $0.11.

For the full-year 2020, we expect revenue in the range of $255 million to $265 million, non-GAAP operating loss in the range of $43 million to $33 million and non-GAAP net loss per share in the range of $0.43 to $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 have seen no material effect at this time. For example, at some point we might see a negative impact to our supply chain, but again, nothing has yet occurred. Conversely, Internet usage may also increase.

In closing, we had an excellent quarter and we are pleased to have close out our first calendar year as a public company with strong execution.

And with that, I'll turn it back to the operator for some Q&A.

Questions and Answers:

Operator

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

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

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

Joshua Bixby -- Chief Executive Officer

Hey, Jeff, it's Joshua. Thanks for the question. I think that, as we talked about in previous calls, 2019 was a year of investment on the marketing side and we are starting to see that pay off. So I think we have seen an expansion in that pipeline across all the verticals, all the geographies. I think we are -- we have not seen a dramatic change to the competitive environment. We continue to see the dominant player continue to see them quite often and the legacy CDN players.

From a geographical and vertical perspective, it really remains the same. I think we -- I would add that we continue to see strong growth across all verticals and all geographies and that's pretty universal. It's a good time right now.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

And, I guess, just as it relates to the role shift, I mean, congratulations to both. It sounds like it -- you're both pretty pleased about where it's going to take you. Artur, 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?

Artur Bergman -- Chief Architect and Executive Chairperson

Thank you. I'm very excited and happy. It's evolved over quite a while where my and Joshua's partnership has been very close. And he's taken over 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 because I love to explore this change and then we executed on it. I'm so excited about the Compute@Edge and I just want to spend more time with our engineers and our customers, get back out into the field. And those who learn what they want and tell them what they can do, kind of what we did eight years ago. And so, that's really the evolution of that.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great. That's helpful. Last one for me, just maybe this is for Adriel. As you look at the annual outlook, how did you approach, obviously, in your elections, Olympics, some of the seasonal demand, maybe ask differently what kind of uplift would it typically bring in a given year and how variable can that be, what did you bake into the guide for that?

Adriel Lares -- Chief Financial Officer

Yeah. Generally, we found historically an election year is a good thing. I think one thing that impacted my sort of guide is the fact that this is the earliest we have ever guided as a public company. So we got a full year in front of us. And the fact that we are a usage base, there is some variability that can occur. And so, I think what you saw there is, we just finished a great year, a great quarter and what you see here is just some appropriate conservatism given that we are just this early in the year. But generally, given what you see in terms of the year on your growth rate with the midpoint there, I think it's still feel generally positive about where we are going. And I think you just sort of see an appropriately wider band just to make sure that we can account for some of the uncertainties associated with usage.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

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

Joshua Bixby -- Chief Executive Officer

Thanks, Jeff.

Artur Bergman -- Chief Architect and Executive Chairperson

Thank you.

Operator

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

Charles Erlikh -- Robert W. Baird & Co. -- Analyst

Hey, guys. This is Charlie Erlikh on for Will. Thanks for taking the question and congrats on strong finish to the year. I was wondering if you could update us just on your marketing and sales hiring progress. How have the employees that you hired in the end of 2019 started to ramp? And could you maybe talk a little bit about your plans in terms of sales and marketing hires into 2020?

Adriel Lares -- Chief Financial Officer

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 are getting the return on investment that we have experienced in the past and 2019 was no different and just affirmed the return on those investments.

From a hiring standpoint, and we were able to get sort of our 60 revenue generating folks here, so we are pleased with that. And I think what you should see from us going forward is continued sort of invest at the current rate we have seen before. I think we are continuing to -- we are still early days into the marketing portion of that sales and marketing spend, and we were going to continue to monitor that return on that as we progress into 2020. But so far I want to make sure we -- looks as though we want to continue to maintain that rate.

Charles Erlikh -- Robert W. Baird & Co. -- Analyst

Great. That's helpful. And then just one more for me, I wanted to clarify the comments you made in the Shareholder Letter about the cadence of gross margins through the year. Is there anything out of the ordinary there? Because it would seem that Q1 usually should be seasonally weaker than Q4 just due to less traffic leverage. So, is there anything that you are calling out that's unique to Q1 '20 that's not necessarily typical normal seasonality?

Adriel Lares -- Chief Financial Officer

No. I think you've said it correctly. In Q4, as we talked about in the past, seasonally it's probably our strongest quarter. There's lots of good live events that we can participate in to compete for and bid for. There's also great shopping from our e-commerce customers, there's just the general holiday season helps us in Q4 and then some of that doesn't repeat itself, it will carry over into Q1, so you should see some differences there. But it becomes that the same trend follows into 2020. We sort of see that sort of seasonal strength as we enter the fourth quarter again this year.

Charles Erlikh -- Robert W. Baird & Co. -- Analyst

Got it. All right. Thanks, Adriel.

Adriel Lares -- Chief Financial Officer

Thank you.

Operator

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

Brad Zelnick -- Credit Suisse -- Analyst

Excellent. Thanks so much and I echo my congrats all around on a good quarter and congrats on some of the changes in the leadership organization. But if I could follow-up on a question on gross margins, I wanted to touch on the live streaming events in the quarter. So you called out the impact to gross margin in the letter, but I was wondering if you could help us quantify the impact and how we should think about the pace of expansion into 2020 with multiple live events ahead from the Olympics to various political events and how you are thinking about that.

Adriel Lares -- Chief Financial Officer

Sure. This -- 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 and I think this year we were really aiming for about 100 basis points sort of on a year-on-year basis so we are pleased we are able to do that. And I think going forward that should still be the case.

In particular, in Q4, there were just normal timing-related impacts as we build up or not only live events in Q4, but also in preparation for live events that would have occurred here in Q1. Super Bowl was namely one of them. And 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, it's a little bit tougher when you're growing as fast as they are. And I think on our side we are trying to balance our margin expansion goals with sort of the revenue opportunity that we see in front of us.

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

Brad Zelnick -- Credit Suisse -- Analyst

Thanks, Adriel. It's very helpful. And maybe just a follow-up for whomever wants to take it, I guess. At last year's Altitude, you highlighted real time ad insertion as an initial use case for Compute@Edge. And as we move into the rest of this year and I know it's still early, right. But how have conversations around the technology progress then -- and in terms of that use case, has it actually been implemented anywhere into production yet or is it still way too early?

Joshua Bixby -- Chief Executive Officer

Hey, 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. 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. 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 would be dynamic, we could see things that are very personalized. And we are very bullish about that use case, but there are many others that are emerging as we'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 have seen over the last few months is the excitement around that.

And as we have talked about previously and I have said in the opening remarks, our goal this year is to bring out Compute@Edge at scale, and that is -- that remains 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 businesses that we built on the -- people build on the shoulders of others and we continue to see that momentum, it's beautiful.

Brad Zelnick -- Credit Suisse -- Analyst

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

Adriel Lares -- Chief Financial Officer

Thank you.

Operator

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

Rishi Jaluria -- D.A. Davidson & Co. -- Analyst

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, in the Shareholder Letter you talk about it kind of staying at a little bit of an elevated level above that 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.

Adriel Lares -- Chief Financial Officer

Sure. Rishi, it's Adriel again. So, we are pleased with the outcome of 2019, where we ended up at about 10% of capex turn [Phonetic] of revenue. And I think from our standpoint, here internally we work on different ways to finance and also to plan when we bring in capex and sort of the just in time notion, while still providing capacity for our future growth. But as I have mentioned earlier, the growth aspect, given how faster customers are going, is a bit of a challenge, which is why I'm giving ourselves a bit of room here with sort of like 13% to 14% for 2020. Clearly, we will try to be beat that as well and do whatever we can to sort of get just in time, with respect to deployment of our capex. But that just gives you some context of that. Again, we -- I think we outperformed relative to what I thought we would do in 2019.

Rishi Jaluria -- D.A. Davidson & Co. -- Analyst

Okay. Thanks, Adriel. That's helpful. And then just in the commentary around the revenue in Q4, including some one-time live events 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 were? Thanks.

Adriel Lares -- Chief Financial Officer

Yeah. I think it was a little bit of like strong growth into new live events that we had never been exposed to, not unlike how Super Bowl for this year is our second year doing that. So we are getting exposed to greater and greater opportunities as a result of the success we'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, we were going to continue to compete for them on an annual basis. But from a Q4 to Q1, I mean, that from sort of a seasonal standpoint.

Rishi Jaluria -- D.A. Davidson & Co. -- Analyst

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

Operator

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

Jonathan Ho -- William Blair & Company -- Analyst

Hi. Let me echo my congratulations to both of you as well in the new roles. Just maybe starting out with you Josh, now that you are in sort of 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 either changes or improvements?

Joshua Bixby -- Chief Executive Officer

Jonathan. Thank you. I think Artur said this very well, which is, this has been a partnership for over six and a half 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 Compute@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 this 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. And I think that's also in area that Artur is going to continue to augment. Other than that we are very proud of the results and we think that this is just about continuing to grow at a wonderful phase, and nothing is broken here, this is a wonderful time and a wonderful place to be for us.

Jonathan Ho -- William Blair & Company -- Analyst

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.

Adriel Lares -- Chief Financial Officer

Hey, Jonathan. It's Adriel. Yeah. With respect to DBNER, that's another one of those that continues to please me in a good way. And even though I've talked in the past how eventually I expect that to meter down a little bit just with sort of 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 are releasing on an annual basis or retention rate that bumped up from an already high 98% to 99%. I think all of 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.

Jonathan Ho -- William Blair & Company -- Analyst

Thank you.

Adriel Lares -- Chief Financial Officer

Thanks.

Operator

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

Timothy Horan -- Oppenheimer & Co. -- Analyst

Thanks, guys. Can you give a little more color on Compute@Edge kind of what you are seeing in the marketplace? Are you seeing any competitors trying to adopt this and how far ahead of your competitors you think you are? And maybe just some of the competitions you are 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 are good at or different at? Thank you.

Artur Bergman -- Chief Architect and Executive Chairperson

Yeah. Hi. Thank you. It's Artur here. I mean, there's much to significant to update compared to the last quarter. We don't -- we see a couple of -- we see some competitors that are trying to say that they are entering this market. We are not really seeing that when we are talking to our customers from a scalability and performance flexibility point of view. So we think -- we feel really good about the core technology around how the isolation and sandboxes are working, and we are engaging with some very large prospects or existing customers and making sure that they meets older security compliances.

Now, the interesting twist right has been around the issues that Intel and AMD have had over the last couple of years with regards to leakage between different -- like different memory parts like Spectre and Meltdown and so on. And this gives this 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 have been in deep conversations with some of our customers about and how to ensure that they are happy and have safe environment for their critical data.

And on the application side, it's the same I was talking to, I mean, 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 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 or -- and the ones that we have will be migrating to use this technology over time. One of the benefit for us as well with Compute@Edge is that, not only can our customers innovate on the edge faster and safer, so can we. And so, we can have more flexibility in allowing our product and R&D department in coming up with new products and releasing them quicker and seeing how they work. So, we will probably have significantly more update around this for Altitude later this year.

Timothy Horan -- Oppenheimer & Co. -- Analyst

Thank you.

Operator

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

James Fish -- Piper Sandler -- Analyst

Hi, guys. Congrats all around for Josh for the promotion and Artur for the new -- moving into the new role and just the overall results in Q4. I'm a little surprised, it hasn't gotten mass at this point, but I guess, how much of an impact with the new streaming services out in Q4 have on the business in the quarter itself? And then, Adriel, specifically, how are you guys thinking about how those new services could impact the business in terms of the guidance in 2020?

Joshua Bixby -- Chief Executive Officer

James, it's Joshua. I'll handle the first question and hand it off to Adriel. I think that there has been a lot of press around new streaming services, obviously, and 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 sort of the dominant grower in our business. We do help our customers with everything that they do. But as you know, we really focus on the high-margin side of that. And one of the trends that we are seeing and continued to see in 2019 is our non-media -- the non-media part of our business, which continues to grow as a percentage of revenue. So we are actually seeing notwithstanding any of the growth in the media sector. We are 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 overtime.

And Adriel -- I'll hand it over to Adriel for the second part.

Adriel Lares -- Chief Financial Officer

Thanks, Joshua, and thanks for the question, Jim. I -- within that range, which is $5 million up and $5 million down from $250 million [Phonetic] midpoint. There is some growth in there some sort of the higher end. But there -- as to Josh was point, I think strategically either have some mix of sort of media business within our business model, which enables us to build this really fantastic network that allows us to sort of deliver lots of features to many of our non-media enterprise customers. So there's some built in there. Again, I'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 questions, if not, a sort of a big dependence so to speak.

James Fish -- Piper Sandler -- Analyst

Got it. No. No. I think I get what's going on. And then just one more for me is the enterprise net ads are consistently in the low- to mid-teens here, yet some of your peers are adding kind of multiples more customers at this kind of similar level. I guess, why can't you guys add more, is the low hanging fruit kind of hit a wall?

Adriel Lares -- Chief Financial Officer

Hey, Jim. It's Adriel again. So I'll start and I think Joshua may want to add on to this, which is, if you think about the average size of our enterprise customers, those that bill greater than $100,000, that's now up to $607,000. These are pretty significant and sophisticated customers. And I think from our standpoint, I'm pleased with how much they are utilizing now and how that flex itself, not only in the average spend per customer, but also it reflects the DBNER and also our overall revenue growth.

So from our standpoint, we really are trying to add these more sophisticated higher end enterprise customers that really do take advantage of our edge cloud that we have out there and then ultimately the edge -- the Compute@Edge that we are working on as we speak. So I think there's a bit of time that 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 with help setting up.

Joshua Bixby -- Chief Executive Officer

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

James Fish -- Piper Sandler -- Analyst

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

Joshua Bixby -- Chief Executive Officer

Thank you.

Operator

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

Michael Turits -- Raymond James -- Analyst

Hey, everybody. Good evening, and of course, congrats both to Josh and Artur and everybody else and the whole Company on a good quarter. Just to come back to the gross margin question. Brad I think asked about how much you thought there would be upside is. It seems that you did almost 2 points this year. I think, Adriel, can I just be clear, what you are saying your plan is for over 100 bps next year, is that the case? And if so, it still seems -- am I right that it's a little bit less than maybe you thought you would be getting at this point a few years ago?

Adriel Lares -- Chief Financial Officer

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-on-quarter. In particular, that's being helped by internal software that we are delivering internally from the team here at Fastly that helps you a lot of automated tasks that used to require many, many hours from human hand and I know that there really isn't able to do even greater levels of more sort of complicated work. This allows us to not hire as many in the future as we continue to scale the network. So that sort of something we have 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 and everything that we have experienced in Q4 just rebolster that confidence that we can do so.

Michael Turits -- Raymond James -- Analyst

Yeah. Thanks. And then to come back to the question, James, regarding the non-live or VOD media services that may have come in as part of the big high-profile launches in December. Were there any kind of one-time fees there? In other words, what both -- two of your competitors actually pointed out, it doesn't look like reservation fees for capacity that that had been paid upfront with, which were very one-time in nature. And if so, is that part of why you are guiding to more of a flat quarter-over-quarter 1Q versus would have been double digits in last year?

Joshua Bixby -- Chief Executive Officer

Hey, 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.

Adriel Lares -- Chief Financial Officer

Yeah. From time to time on some of these events, there will be minimums that they -- that we sort of customers will sort of be required to spend based on the fact that we are -- again some respects they are taking up a capacity on to our network. But again, the general nature with the exception of things like Super Bowl, it's not sort of one-time in nature.

Michael Turits -- Raymond James -- Analyst

Okay. Thanks, Adriel. Thanks, Josh.

Joshua Bixby -- Chief Executive Officer

Thanks, Michael.

Operator

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

Walter Pritchard -- Citigroup -- Analyst

Hi. Thanks. A couple of questions, just one on the gross margin side. Could you maybe separate out the benefits you saw and still what's to come from the perspective of just general scale, mix of services and you talked about some [Indecipherable] leverage, which sounds like general scale, but we would love to just hear what drove the 80 basis points and sort of do you think about this year how do you think about the sort of change that same in terms of gross margins?

Adriel Lares -- Chief Financial Officer

Yeah. Walter, it's Adriel. I would -- one of the things that grew in terms of as a 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 have also talked in the past how we believe there's probably about 100 markets in the world that we need to be in to really serve it. And today, I believe we're at 57 -- 53, excuse me, markets around the world, so we are 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 leverage in those other areas or as bandwidth just scale as we just get bigger over time. Hopefully, that's helpful and I don't if Josh, would you want to add anything?

Joshua Bixby -- Chief Executive Officer

Yeah. I think I will just add on the product side. Walter, we continue to see attach rates from security and the other high-margin products, certainly, driving significant growth in the customer base. You are seeing that at the top line in terms of what enterprise customers are seeing and as we talked about in the opening remarks, we are seeing that across verticals and across geographies and that's also driving that as well.

Walter Pritchard -- Citigroup -- Analyst

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

Adriel Lares -- Chief Financial Officer

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

Walter Pritchard -- Citigroup -- Analyst

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

Adriel Lares -- Chief Financial Officer

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

Walter Pritchard -- Citigroup -- Analyst

Okay. Okay. All right. Thank you.

Adriel Lares -- Chief Financial Officer

Thank you.

Operator

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

Brad Reback -- Stifel, Nicolaus & Company -- Analyst

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?

Adriel Lares -- Chief Financial Officer

No. I think it will sort of follow just general, the traditional seasonality timeframe. So you will see -- what likely impacts sort of gross margin is the fact that we are purchasing some of that stuff today, as we speak. But it gets deployed and/or 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 within that sort of 13%, 14%, which is what I thought 2019 was going to be, we ended up being a little bit better than that at 10%. But I see 2020 being in that sort of normal seasonal with Q4 absorbing most of the actual capex on the cash flow statement.

Brad Reback -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you very much.

Operator

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

Joshua Bixby -- Chief Executive Officer

Thank you. I want to thank our employees and our families, our customers, our partners and our investors, without whom we could not have achieved this strong quarter and our success over the years. We look forward to connecting with many of you in the near future and hope to see many of you at the Morgan Stanley TMT Conference in San Francisco on March 2. We are excited for what is ahead and can't wait to share more with you in the quarters to come. Thank you.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Maria Lukens -- Vice President, Investor Relations

Artur Bergman -- Chief Architect and Executive Chairperson

Joshua Bixby -- Chief Executive Officer

Adriel Lares -- Chief Financial Officer

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Charles Erlikh -- Robert W. Baird & Co. -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

Rishi Jaluria -- D.A. Davidson & Co. -- Analyst

Jonathan Ho -- William Blair & Company -- Analyst

Timothy Horan -- Oppenheimer & Co. -- Analyst

James Fish -- Piper Sandler -- Analyst

Michael Turits -- Raymond James -- Analyst

Walter Pritchard -- Citigroup -- Analyst

Brad Reback -- Stifel, Nicolaus & Company -- Analyst

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