Edgio Inc (EGIO) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Limelight Networks Incorporate fourth quarter 2008 earnings conference call. My name is [Shanelle] and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Paul Alfieri, Senior Director of Corporate Communications. Please go ahead.

Good morning. Thank you for joining the Limelight Networks fourth quarter 2008 financial results conference call. Speaking today will be Jeff Lunsford, Chairman and Chief Executive Officer, and Doug Lindroth, Chief Financial Officer. This conference call is being recorded on February 26th, 2009 and will be archived on our web site for approximately one week.

Some portions of this conference call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are all statements that are not strictly statements of historical facts such as statements regarding future events or future financial performance including but not limited to statements relating to Limelight Networks market opportunity and future business prospects. Guidance on 2009 financial results, and statements concerning anticipated future growth and profitability as well as managements plans, goal, strategies expectations, hopes and beliefs.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those contained, projected of implied in the forward-looking statements and reported results should not be considered an indication of future performance. Factors that could cause actual results to differ are included in the Company's periodic filing with the Securities and Exchange Commission.

I would now like to introduce Jeff Lunsford, Chief Executive Officer. Jeff?

Thank you all for ginning us this morning, the fourth quarter was a stellar quarter for Limelight Networks. We delivered $36 million in revenue, 23% year-over-year growth over Q4 of 2007 and drove multiple points of gross margin expansion in the quarter as the investments we made in capacity and sales resources in the first half of 2008 paid off in the second half. We achieved these results in spite of a very tough business environment in the quarter. Consumers continued to flock to the Internet and perhaps even increase their online activity even while they were scaling back other expenses.

Our over performance in revenue lead to adjusted EBITDA before litigation costs and stock-based compensation of approximately $4.6 million. We exited 2008 with over 25% video CDN market share and looking back we see 2008 as a year where we built a solid financial footing in the first quarter and grew the business from there. We expect the same general pattern to repeat in 2009 although we believe we will see deeper retrenchment during Q1 of '09 than we did in Q1 of '08 given the current business environment.

In Q4, and continuing into Q1 we took the opportunity to proactively adjust some of our major contracts so that they were more reflective of the budgetary pressures being felt by our large customers. We also saw a few emerging market customers scale back their operations. As a result we expect to see a sequential revenue decline from these strong Q4 levels into a more rationalized Q1 base. And from this base, we expect to put together another growth in the year, like 2008, where revenue will build from a Q1 base throughout the year and where we'll pick up a few point of gross margin expansion between Q1 and Q4.

Like most other business, we do not have great visibility at this time, but in general we believe we are operating in a market with a healthy underlying demand driver that should allow us to continue to grow. Internet traffic continues to grow. While we have the good challenges of pricing pressures and operating efficiencies to deal with we also have demand growth unlike me other segments where demand itself is deteriorated. In addition to these high level financial highlights, today I would like to update you on Limelight's customer base, where we continue to grow the quality of our relationships, Limelight's network growth, our ongoing litigation and guidance.

First Limelight's customer base. During the quarter, we added over 30 net new customers and continued to grow the overall value of our customer relationships as AARPC, average annualized revenue per customer, grew from $102,000 last quarter to $107,000 this quarter. At year-end we had over 1,330 active customers.

We previously discussed a proactive shift from number of customers toward building higher quality relationships within our accounts. In the quarter we also worked to diversify the markets in which we do business continuing our expansion into the enterprise and corporate segments, adding customers such as Deutsche Bank and Toyota of Japan. And into the Government and public sector segment adding customers such as the University of Virginia and Florida Institute of Technology.

We also advanced the ball in our channels program, where we announced avery strategic partnership and reseller relationship with Rack Space in which we will provide scalable content delivery and application acceleration services for their innovative cloud files product. This partnership enables us to address the self service, pay as you go market space by leveraging the resources and relationships of Rack Space. We continue to build out the channel in Q1 where we recently signed a large multiyear reseller partnership with Global Crossing, a global telecommunications provider.

In Q4 we also continued to expand our already strong presence in the media and entertainment segment. Winning business and deepening relationships with some of the largest Internet business in the world. And we are pleased to be supporting customers like NetFlix and Amazon as they innovate in direct digital distribution of consumer entertainment to the PC and new Internet connected devices like Blue-ray and IP set-top boxes.

To highlight a high profile event that spanned Q4 and Q, we have received many questions regarding what some are calling the broad band election of 2008. Limelight Networks CDN platform and Live Event services teams were an integral part of making the election and inauguration huge online successes. During election night back in Q4, Limelight Networks delivered live streaming video for five major news networks, including MSNBC. For the Presidential inauguration, which happened in Q1, we delivered over 2.5 million unique simultaneous video streams related to the ceremony. At one point on inauguration day, we had over nine million total unique multimedia streams being delivered by the Limelight Networks.

It is interesting to note that the inauguration occurred at noon on the east and 9:00 a.m. Pacific, when most Americans were sitting in their offices not in the living rooms. As such, the Internet became the most convenient and readily accessible method for watching these historic ceremonies. Companies like Limelight Networks were relied upon by content publishers to deliver a high quality experience to those desk tops. Our network performed well when it was needed most and under extremely stressful conditions. We did not cap the bandwidth of any customer during these heavily trafficked events and we did not place any customer who wanted to watch the ceremonies into a waiting room. We delivered 2.5 million concurrent streams for the five or six customers that needed us to deliver the inauguration. And we continued to support the 1,300 plus other customers that rely on our platform for their online businesses everyday.

We have spoken recently about passing the milestone of broadcast quantity audience delivery capabilities. The significance of our network base CDN architecture and our continued investment in expanding our capacity to meet the ever growing demand for traffic events, like the election and inauguration, provide real world validation of the value of Limelight Network's scale and differentiated architecture.

Regarding network growth, while these are certainly challenging economic times we have not to date seen a slow down in online activity. In the fourth quarter, we continued to see our average traffic levels rise and we set new records for peak traffic through the network a trend that seems to be continuing into Q1. To put things into perspective our traffic has more than tripled since Q4 of 2006. The traffic growth of certain customers has sometimes surprised even us. Our challenge as operators and technologist is to deliver that amount of traffic at the rates the industry can afford and to work to diligently to deliver margin expansion to the investment community.

Given the traffic growth we see ahead expect us to continue to build out our network platform throughout 2009. This is a business where scale and technical innovation win and helps sustain and hopefully deliver that margin expansion. While others may be scaling back their investments we believe the right long term decision is to invest smartly to distance ourselves from our competition in this environment. Given this investment cycle and the Q1 revenue retrenchment mentioned earlier, you should expect to see gross margins compress in the first half of '09 followed by margin expansion in the second half, as we saw last year.

Now regarding litigation. We are very pleased that right after the close of the quarter a federal court jury found that Limelight Networks does not infringe any asserted claims of the patents at issue in the Level3 Communications trial. We believe that this non-infringement verdict affirms that we respect the intellectual property of others and that our ability to fairly compete in the marketplace is due to our own hard work and innovation. Regarding the Akamai litigation, that remains pending before the trial court, our motions relating to certain equitable defenses and a renewed motion for judgement as a matter of law. Following conclusion of the trial court proceeding the case will likely proceed to the appeals process. As of year end we are happy to report that we have concluded we need no longer accrue for potential damages related to alleged infringement on the patent at issue in the Akamai trial. Due to the on going litigation we cannot discuss with you any of the specific factors which lead to this conclusion and we should advise you that this situation could change in the future.

Finally on guidance, we are guiding the year-over-year Q1 revenue growth in the high single digits, due mainly to the factors I mentioned at at the beginning of my remarks this morning. As occurred in 2008, we anticipate that Q1 revenue levels will form a solid base for the year built on revised business terms that are reflective of the current business environment and that help our customers achieve long-term success. If our customers succeed we will benefit over the long term.

Also, as we saw in Q4 of 2007 and carrying into Q1 of '08 when we embarked on a major expansion, we expect gross margin and adjusted EBITDA compression in Q1 and possibly into Q2 followed by margin and adjusted EBITDA expansion later in the year as we fill up our newly added passionately capacity with revenue generating activities.

With that update, I will now turn the call over to Doug Lindroth, who will take you through the financials and specifics on those. Doug?

Thank, Jeff. During the fourth quarter we reported revenue of $36 million, up 23% compared to revenue from the same period last year and up 8% from Q3. For the full year we reported revenue of $130 million compared to $103 million in 2007 representing a 26% year-over-year growth rate. We reported fourth quarter adjusted EBITDA before stock-based compensation, litigation costs, and damage accrual of $4.6 million compared to $5 million for Q3 and $5.6 million for the fourth quarter last year. For the full year our adjusted EBITDA was $15.5 million compared to $24.5 million in 2007.

Our GAAP net loss per basic share for the fourth quarter was $0.17 and for the full year was $0.76. We also reported a fourth quarter non-GAAP net loss, before stock-based compensation, litigation costs and damage accrual of $2.6 million or $0.03 per basic share compared to a non-GAAP net loss of $0.5 million $0.01 per basic share last quarter and to non-GAAP net loss of $0.1 million and break even per basic share for the same period last year. Our non-GAAP net loss for the full year was $6.7 million or $0.08 per basic share compared to a non-GAAP net income of $4.1 million and $0.07 per basic share in 2007. Please refer to the tables included in our press release for the reconciliation of GAAP measures to these non-GAAP measures.

During the fourth quarter, Limelight international revenue represented 18% of total revenue which was two percentage points higher than the previous quarter. For the year international revenue increased by 62% and represented 16% of total revenue compared to 13% in 2007. Gross profit margin, which includes both depreciation and stock-based compensation, increased to 39% during Q4 compared to 35% in Q3 and 37% in Q4 of 2007. Cash gross margin was 60% for Q4 compared to 57% in both Q3 and in Q4 of 2007. Our gross margins increased over Q3 as a result of our over performance on revenue, lower average bandwidth cost, and VAT adjustments on our international subsidiaries.

In the first quarter of 2009, we anticipate a gross margin compression of approximately three to five points from Q4 levels to a trough in Q1 or Q2. We then expect to work diligently to build margins back to Q4 levels around year end. Certain items likely to contribute to the first half decline in gross margins are the forecasted decline in revenue from the record levels we achieved in Q4. The continued expansion of the scale, capacity, and performance of our network, and private fiber optic backbone and the impact of the overall economy and pricing activity within our customer base.

Operating expenses were $27 million in Q4, up $1 million from the third quarter and compared to $18 million for the same period last year. Fourth quarter operating costs exclude the provision we have made for potential damages and interest accrued in the Akamai litigation. Our operating expenses increased during the quarter due to increased head count, stock-based compensation and increase in our provision for doubtful accounts and professional fees, offset by a decline in litigation costs.

During the fourth quarter, we recorded a provision of $1.3 million for additional potential damages and accrued interest associated with Akamai litigation. Approximately 4% of our revenue for the quarter was generated using a delivery method that is alleged to infringe the patent at issues down from approximately 11% for last quarter. As we have previously mentioned, we concluded that as of November 1st we no longer need to accrue for on going potential damages related to the alleged infringing methods, therefore we expect to accrue only for potential interest.

Total depreciation and amortization for the quarter was $7.3 million up from $7 million in the third quarter and up from %5.7 million in the same period last year. Depreciation and amortization in the current quarter, include $6.9 million of network related depreciation. Stock-based compensation expenses for the quarter were $5.5 million compared to $4.3 million last quarter and $3.6 million for the same period last year. The increase in stock-based compensation is primarily related to the departure of our former CFO. Fourth quarter interest earnings were $0.7 million compared to $1.2 million for Q3 and $2 million for the same quarter last year. The reduced interest income is associated with lower market rates and a lower cash balance from both last quarter and the same quarter last year.

Moving to the balance sheet, combined cash and marketable securities balance on December 31st was $175 million down from $177 million in the third quarter. The reduction in cash and marketable securities is related to payments for capital expenditures and we are pleased to report we generated positive cash flow from operations during the fourth quarter. Capital expenditures for the fourth quarter were $5.2 million and for the full year our capital expenditures were $20 million representing approximately 15% of sales.

Days sales outstanding for the quarter were 84 days flat to the previous quarter and up from 65 days in the fourth quarter last year. The increase in the DSO over the prior year is related to the timing of sending out invoices to customers as a result of our implementation of a new billing system during the fourth quarter. Regarding guidance, for Q1 '09 we expect to achieve revenues in the range of $32 million to $33 million. Stock-based compensation expenses for Q1 are expected to be approximately $4.3 million and capital expenditures are expected to be in the range of $6 million to $7 million. We also expect to use an additional $11 million to $12 million of cash for a large contract prepayment and litigation expenses related to the Level3 trial held in January of 2009. We believe litigation related payments will be lower in the future, but cannot provide any color beyond that.

With that, I will turn it back to Jeff.

Thank, Doug. Before we conclude, I want to take a moment to talk about the value that we believe we provide to customers in these economic times. Value that can be measured through real business productivity and not just in the cost of delivering bits across the Internet.

In 2009, businesses of all shapes and sizes are being challenged to do more with less. Decrease cap and OpEx; improve and enrich customer experiences; establish more productive profitable one-on-one relationships with consumers. One of the benefits of working with a network base CDN like Limelight Networks is that customers can off load much of the infrastructure burden to us. Our core asset is a highly scalable, highly efficient network computing platform. It is designed with a goal of 100% up time. It is directly connected via fiber optics to nearly all of the major Internet access networks around the world and links together extremely powerful computing resources, pedabytes of storage, all management by a highly complex and capably software layer for managing and delivering content.

In essence, Limelight Network's is operating and On Demand computing platform in the cloud that can help IT professionals scale their businesses without scaling their own data center, network, and software operations. We are seeing customers want to do business with not just because we can deliver traffic, but because we can save them the cost of building our or adding to their IT infrastructure. This enables customers to have their IT staffs stay focused on what they do beset -0 build products. If members of their IT staff aren't delivery or flash or Silver Light or traffic shaping experts, it is tough for them to build or acquire these skill sets. Whereas by partnering with Limelight they can get all of that, plus our advance delivery platform immediately.

As I have said before only a select group of engineers have the experience and know how to scale events or web applications to reach broadcast quantity audiences. Limelight Networks brings this all together for our customers, the platform, the operational expertise, a continually updated suite of services and support and an ecosystem of integrated partners and third party solutions all at a cost that is much more attractive than building or maintaining these capabilities in house. From our customers perspective, they gain time to market in launching service, reduce infrastructure costs, more focused internal IT resources and of course an unparalleled end user experience.

So as you think about our business in 2009 don't just see as a Company winning business because we can deliver bits, see us as a Company that delivers real ROI by helping customers reduce costs and complexity through a compelling network based on demand computing platform, which is very appealing in this market.

Operator, at this time, we would like to open the line for questions.

(Operator Instructions). All questions must be submitted at this time in order for your question to be registered. We will pause for a moment to compile a list of questions. Your first question comes from David Hilal of FBR.

Great. Thank you. A few questions. First Jeff on the gross margin, we saw a pretty nice sequential jump particularly if I remember last quarter you said you thought it would be down sequentially. So I would assume you guys were surprised by it as well and maybe if you could just talk about what contributed to the sequential jump?

Sure. The bulk of it was the [over performance on] revenue. I believe we guided $33 million to $34 million, and in this business, I think as you and I have discussed before, when you over perform on revenue, you don't have much incremental expense. You do have are some incremental expense but it is pretty much your variable bandwidth cost which is 20% of COGS or 25% of COGS and the rest of your COGS is fixed. So when you do over perform on revenue, as related to where you guide then you're by definition probably going to over perform on gross margin.

Did the Global Crossing partnership contribute to any of it?

No, we announced that partnership as something that we just solidified this quarter.

The other thing as I mentioned during the prepared remarks was some of our VAT adjustments on our international subsidiaries, than had an impact of about a point of gross margin.

Okay. And on the, on the customer additions, we saw a bounce back there on net adds. Can you share some color on churn/growth adds for the quarter?

Churn was we talked I think at the end of Q3 we were seeing a pick up on churn in the small accounts as sort of funding conditions worsened. And I would say we are still seeing that. A lot of the smaller customers, they're less of a focus for us to begin with. We have raised yet again the minimum contract size upon which we pay sales commissions. So we are trying to drive the business up the value chain in deeper into larger strategic enterprise relationships. And you see that this quarter in the AARPC increase is an example.

Alright, okay. And then Jeff, bigger picture, I am sure you saw the merger between CE networks and Panther and wanted to get your take on what that means in the competitive environment?

We don't really think that will impact the competitive situation. This has always been an intensely competitive market segment. And we think that some consolidation in the sector is inevitable because there were multiple smaller guys that were funded in the sort of '07 time frame when valuations were dramatically different. And we think it is going be difficult because this is a very capital intensive business where you have to scale before you can even be roughly cash flow to break even like Limelight is at our scale. So we believe that there will be consolidation, most of the smaller folks will end up having to find a partner.

Okay. And then lastly, on CapEx, why the sequential increase from Q4 to Q1 and can you give us some color on CapEx for the year? Thank you.

Sure. I will talk sequential, Doug can talk year. The sequential as we have spoken before, we, it is a leading indicator of what we expect traffic to be, and also whether we are doing a step function investment in the backbone of the network is an example. So we believe that the level of six to seven is the right level for Q1.

And as I mentioned earlier, we don't have as -- nobody has much visibility right now. So we are, we truly are as a management team and a Board building the business plan and modeling quarter r to quarter and recasting month to month depending on what we see happen. But right now that looks like the right investment. And Doug on the year?

Well, on the year I would say the same. We are going to monitor how each quarter is looking going forward and will be projecting our CapEx based on that. We are going to monitor it based on how we are doing from our bookings, our pipeline, the traffic on our network. So it is a little bit difficult as Jeff said given the visibility to give you a forecast for the year. So I think it is going to really be a quarter by quarter and based on how we are seeing things proceed.

Yes. And I think, David, anticipate over time on a blended basis about 15, 16% of revenues is the CapEx steady state.

Great. Thank you.

Sure.

Your next question comes from the line of Sri Anantha of Oppenheimer.

Yes. Thank you and good morning. Jeff you talked about some of the retrenchment as you look into 1Q. Maybe if you could give some color, is it because of lack of access to capital? Or is it economy related retrenchment that you are seeing in the marketplace? Second one is, what percentage of your revenue today comes from the quote unquote smaller customers you mentioned on the call? Thanks.

Sure, Sri. So the single most material factor on the sequential Q4 to Q1 decline is renegotiations of large contracts with large customers that as I said we think more properly reflect the business environment. So even our healthiest of customers who have great growing traffic, have their own budget challenges in this environment and are turning to us as a partner and saying can you do more, can you do, we will lengthen our relationship with you, give us a lower unit cost. That will allow us to grow and so we consciously in multiple large relationships decided to do those renegotiations and have those take effect in Q1. There are other factors as well, Doug -- I think Doug covered some of those in his script. Do you want to give more color there?

Yes, I mean the other thing I would say, just if you're looking at between large and small our top 60 customers account for roughly 60 to 65% of revenue? So it gives you kind of the perspective of where the large ones versus the smaller ones are. So, I would say that's really how you can separate between the big and the small for us.

And Jeff, one just follow up question, I know you seem to be now focused on some of the larger customers, maybe could you just talk about your pipeline -- we're seeing a number of announcements whether it is NetFlix or some other traditional media company, talking about putting more content on line. Maybe if you could just talk about what is the market opportunity and how has that changed just within the past three to six months? Thanks.

Certainly. The if the growth we are seeing in some of our customers in any indication, with the even limited libraries they have today, the market opportunity is massive. We talked before about we really view this as a shift to where content consumption is going to happen over an IP network primarily in an on demand mode, except in live events. Even then, a lot of those live events will be consumed over hand held devices and on desk tops as we discussed earlier.

So traffic will continue to grow because consumers will continue to access more content online. And libraries will continue to grow, music and video libraries. As the audiences grow, the content producers have to allow their content to be accessed where the audiences want to access them. And there are various monetization strategies. Some subscription, some ad based, some pay per view, all of which are growing and people are experimenting with different business models. But it seems like most of the early businesses that were distributing content and where there were rights issues have worked through those issues. And studios and the labels are now, they have, they're resolved to work with on line entities and they are sort of settled on models to do so.

So, it is a consumer pull phenomenon and there's going to be a lot more content consumed. As long as the monetization is there, people will [be able to fund] over a CDN because it is very clear that a CDN adds quality to and reduces risk and provides [fault towers]. So, we feel great ability the long term market opportunity and great that the trends, that we believe existed two years ago when we brought the business out, that they remain in tact.

Thanks, guys.

Your next question comes from the line of Katherine Egbert of Jefferies.

Hi. Good morning. I was wondering about your success in the corporate and the Government and education markets. What are you offering there and [how did you do] in the market? Thanks.

Sure. So I think Katherine as we have discussed before, this platform was designed and optimized around large object delivery. But in the last 24 months, we have made significant advances to where on the small object side to where we can now, in a performance bake off go toe to toe with the more distributed architecture, sort of small object friendly CDN's. So we are now calling on customers for whole site delivery, for small objective delivery, and those customers in addition also have large object needs.

But the addressable market where in our platform can be competitive has expanded. And if you look at other companies in our business, we are talking about on the order of 40 to 50% of their revenue that we have up until about six months ago not really been pursuing. So we see that, the e-commerce and enterprise sectors and Government sectors as good opportunities for Limelight. It takes a while to penetrate and build the go to market resources, but the platform is there and the platform is ready.

Okay. And then a little bit longer term, Jeff. I mean you said, gross margin EBITDA come down in the first half but then expand in the back half of the year. Can you give us any metrics any profile of when you think you will hilt a steady state for both growth and EBIT? Meaning, like when it does bottom and then you kind of get a sustainable pattern going forward of expansion? Thanks.

Sure. I think part of that is just the scale of the business itself because when we make a major backbone commitment as an example right now, there's a step function up that still does -- you still see it in the numbers. When we invest in a new geography there's a big step function up in OpEx within COGS. So as we get bigger, those investments relative to the overall COGS run rate will be smaller and margins will smooth out.

I think a lot of the gross margin up and down over the last couple of years at Limelight has also been revenue volatility. As I said earlier some times you do more than you anticipated because this business is one where roughly 50% of our revenue is committed and the other 50% is variable above those commit levels. And there's more seasonality in it and you see, then there's obviously all sort of economic fluctuations that have happened the last six months. So, I think the COGS build is reasonably straightforward and predictable.

It is the revenue variability on the top end. But what we believe you don't want to do is react to a one quarter if you have a couple of points of compression just because it is slight less revenue because as we have learned over the years, if you build the capacity with the network that performs the bits will show up because the large content publishers need companies like us when things like the inauguration, like the Olympics come along there are only one or two places they can go.

Sure. Okay. Thanks good quarter.

Thank you.

Your next question comes from the line of Kerry Rice of Wedbush Morgan.

Thanks. Just a couple of questions and it kind of dove tails between the contract adjustments that you spoke of and the operating environment. You are obviously spending more in CapEx. So traffic trends seem to be very strong. Can you talk a little bit, if you, if you kind of take out or exclude your bigger customers coming to you and saying given the business environment can you give us a little break on pricing, we will extend the length of the contract. Taking that out, would you say that pricing in general in the market is fairly stable or do you think it is all coming down so we are seeing compression across the board?

Well, we have always seen unit price compression in the CDN business and we always will see it. It is really just a question of rate of compression. It is the market segment characterized by unit price compression which is out run by unit growth. And like many tech markets. So we would say that in 2008 you might have seen an increase in per unit price compression that was driven by a couple of factor, telco's trying to get in the business and subsidize CDN with teleco services. Smaller CDN's that is have raised money, raised capital and were trying to get to scale and then got a little desperate in their business practices. We think that -- most of that will clean itself up over in next six months.

Then overall -- if you think about a large media company who plans for their Internet traffic to be X and it ends up being 50% higher than X, these guys are used to a fixed delivery cost, because they'er use to a satellite delivery model. They're not use to variable delivery cost and they don't budget for that variable delivery. So, we, we have a dynamic where when online usage grows faster than these folks anticipated which is happening in many cases, they don't have the budget dollars and they turn to us and then we use an opportunity to say let's lengthen the relationship. Because if we can allow them to operate within budgets they can have dollars to advertise which brings more people online and over the long term, it becomes a self fulfilling success.

Would you say with the contract adjustments, I don't know how many obviously were exclusive customers of yours, versus those that used multiple CDN's but would you say, could you characterize it as you got more traffic as well for each contract? Or how would you characterize any other concessions that you -- or benefits that you got by giving a price concession? I mean, is it just length of contract?

Yes. Well usually you will get a higher commit over a longer period of time, and for more bits. And you hope that you are sweeping traffic from either an in-house platform for from other providers, but it is really, I don't think we should get down in the granularity of each one we did in Q4. But that's the general benefit.

Okay. Just a couple of housekeeping, enterprise you guys have obviously been pretty successful there. Can you give us any indication what revenue generation is coming from enterprise today?

We haven't broken that out. I don't think we are ready to. We have broken out international revenue but not enterprise.

Okay. Then on the NetFlix relationship, do you get paid by NetFlix only for that relationship but a lot of that is through Microsoft and the xBox, which they down load which obviously Microsoft is a big customer. Do you then kind of get a secondary benefit as the traffic gets pulled down through Microsoft as well?

So we don't, we can't really get into talking about specific customers. I apologize for that.

Okay. Thank you.

Thank you.

Your next question comes from the line of Michael Turits of Raymond James.

Hi, guys, Quick couple of questions around revenue. First of all the revenue beat on this quarter can you be anymore specific about where the upside came from? Were there any truly one-time events? Was it higher traffic with existing customers, traffic levels? Secondly, just if you could talk a little bit about the mechanics behind the contract resets, were these contracts a lot of them up for renewal or did customers come to you? How did all of that work? And then the third thing is also related is, single digit revenue growth in the first quarter, should we think of this as a high single digit growth pattern for the full year?

So, in reverse order, we are not giving any revenue guidance for the full year. We are going to guide you here quarter to quarter because we think it would be irresponsible to guess what is going to be happening in the second half of 2009. But we can, we did give you some full-year color on margin because we can modulate COGS to where ever revenue ends up up.

On the second part of your question, the mechanics. We have 1300 customers. So, just in general our sort of business posture in Q4 was to think about '09 and set a base, the same way we did in '08 the first half of the year and then build from there. We felt like in the negotiations we were having conversations with our customers to take that stance was the right thing to do. To help -- hopefully position us as a preferred provider for '09 and get the benefit of that growth, throughout the year really. I will let Doug comment on the over performance of revenue for Q4.

Yes, I mean I would say there's a couple of ways to look at it. One is geographically and as I mentioned our international operations had a very good year as well as they had a very strong Q4. So we are real happy to see that our continued expansion, our geographic and global expansion is, is working out really well.

The other way to look at it would be on a segment basis. We did see good across the board activity in all of our segments. I would say one that was really strong in Q4 was the software down load business. So that was really strong.

And then I just had one follow up last quarter I think you said that your gross adds were above 100. Can you give us a rough sense of what the gross adds were this quarter?

Also above be 100.

Same thing. Roughly in that range?

Yes, exactly, Michael. At this time we have time for two more questions. Operator, I think Derek Bingham is next?

Yes. Your next question, your next question is from the line of Derek Bingham of Goldman Sachs.

Hi, thanks for getting me in, Jeff. Got to push hard for that one. The, my first question was you talked a little bit about kind of the enterprise business is a little bit of a new architecture for you. Anything else that you have been really focusing on from kind of a new product or technical advancement point of view you want to highlight in?

I would say that there are always new format types. So flash release, new Silver Light release, there's a constant flow of new capabilities that are pretty granular. When you look at a CDN's road map, and some of it is operational stuff, things like self provisioning allowing customers to be more self-help. So that actually improves the customer experience and drives down our support cost. So it is a win-win. So we are investing in that self provisioning, self support technology, dealing with new media formats and opening new geographies. And then constantly working on enhancing performance. Probably the most stubborn component of COGS is rack costs and the way you win on rack costs is by getting more out of a service. And potentially more out of a lower footprint server. Right? We have a bunch of work going on in R&D constantly in driving performance enhancement.

Related to that, on CapEx, it went down in absolute dollars from 2008 and as a percentage of revenue was 14, I think if I am calculating it right. And it looks like -- or you mentioned kind of the ratio on a steady state basis being more 15 to 16. I kind of had the impression 2008 actually did a lot of investing. So, why should that ratio come back up again?

Well, I think we were at about 15% 2008. So, each quarter, sometimes we will have a little bit more a little bit less. And as Jeff said, some of it is dependent on where we are expanding on our network and the timing of those expansions. So there might be something that we are working on and depending on whether we can actually get that CapEx received and then deployed in the quarter.

So you could have some up and downs but I think where we were for '08 at about 15% and then based on some of the stuff we are working on in the second half of the year and for our expansion plans will be hitting in Q1 and thus the guidance we gave of about $6 million to $7 million. But I think Jeff is right that steady state of about 15 to 16% and it may be lumpy on a quarter to quarter basis, but longer term, that is kind of the range we are targeting.

Okay. Thanks. Congratulations.

Thank you. And we'll see you in a few hours.

Yes, great. Thank you again.

Last question, I think operator comes from Mike Olson.

Yes, sir.

Alright thanks. Good morning. I just want to follow up on what you guys said there on international. I think you said it grew 62% for the year and can you tell us what it was up for Q4? And then also just where is that going to go as a percent of revenue kind of over the next year, do you think? What are kind of the limiting factors for international growth? And then what are the margins look like on international compared to domestic? Thanks.

So the, I don't know that we would guide any differently, beyond the quarter for international than we would for the rest of the world or for the US. There's just not enough visibility. But in general, we would anticipate it would grow as a percentage of Limelight's revenue as we establish more go to market resources in countries, in Asia and in Europe.

On the margin question, what we see is there are certain markets where you've got a telecom duopoly or a large telco that owns over 50% of the last mile connectivity. And it is more difficult to run a profitable business in those markets, but not impossible. And so in some cases you need to wait until you get to a certain scale so go to those duopolis or folks who have control to connectively into a country, once you're big enough and you can strike the right deal with them. But in general when we open a new geography, margins are lower and then as we scale we can drive down costs pretty quickly and then it blends in with the rest of the business.

And your question on the growth in quarter was about 20% from Q3 to Q4?

Okay. Thanks a lot.

Thank you. So operator, at this time we will conclude the call. We thank everyone for joining us today. And look forward to any follow ups.

Ladies and gentlemen, that concludes the presentation. Thank you for for your participation. You may have now disconnect. Have a wonderful week.