Edgio Inc (EGIO) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Limelight Networks Q3 earning results conference call. My name is Veronica and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a Q&A session towards the end of today's conference. (Operator Instructions). I would now like to turn the conference over to your host for today's call, Mr. Paul Alfieri, Vice President, Corporate Communications. Please proceed.

Good morning and thank you for joining the Limelight Networks third quarter 2010 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 November 5, 2010, and will be archived on our website 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 fact, 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 financial results, statements concerning anticipated future growth and profitability, as well as management's plans, goals, strategies, expectations, hopes and beliefs, and statements concerning the anticipated effects as pending or completed business combinations or other strategic transactions.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those contained, projected, or implied in the forward-looking statements including the inherent risks associated with litigation, particularly intellectual property-based litigation. 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 filings with the Securities and Exchange Commission. I'd now like to introduce Jeff Lunsford.

Thank you, Paul. Thank you for joining us today. Limelight Networks continued gaining momentum in the third quarter of 2010. The company generated $49.8 million of revenue, which exceeded our forecast as our value-added services continued to show increased contribution contributing approximately 34% of revenue in the quarter, up from 28% in the second quarter.

Additionally, value-added services drove improve customer retention and account growth and contributed to less price compression in our core business. We were pleased to see legacy Limelight revenue, which includes all of our offerings before the EyeWonder and Delve acquisitions, grow in excess of 20% on a year-on-year basis.

These strong quarterly results represent good progress in our strategy of diversifying Limelight's business from pure CDN to one that compliments CDN with high value, high margin cloud-based services in multiple growth areas. As a reminder, our value-added services are comprised of solutions such as EyeWonder's interactive advertising solutions, video content management, mobility and monetization solutions, cloud storage, web acceleration services, web infrastructure services including cloud-based transcoding and other data center services, and consulting and technical services.

These solutions leverage our global computing infrastructure to solve business and workflow related challenges for customers. They help Limelight's sales team move further up the value chain in customer conversations. They reduce customers' CapEx requirements and we believe will ultimately serve to generate higher margins for Limelight's consolidated business.

Many of you attended our Analyst Day, held at the beginning of September. During that meeting we described three long-term sustainable trends fueling the growth of Limelight. Number one, the ongoing shift of content, and its accompanying advertising dollars to the online world. Number two, the explosive growth of mobile devices, mobile applications, and mobile content consumption. And number three, the migration of software applications, data, and IT services into the cloud.

If you were not able to attend Analyst Day or listen to the webcast, I encourage you to visit our website to see the replay of this important overview of our business and current strategy. Today, I'd like to review Q3 developments within Limelight and the industry in the context of these three trends.

On the first trend, the ongoing shift of content and advertising dollars online, we continue to see healthy year-over-year increases in the amount of traffic our customers are delivering and our CDN revenue grew 9% sequentially in the quarter. During the quarter we powered online advertising for the Social Network movie, Toyota, Sony electronics, Banc of America, Fox Broadcasting, and AT&T amongst others.

We also expanded our [Houston] relationship for video streaming and transcoding. We are seeing increasing demand for our dynamic creative optimization product and as we look ahead to early Q1, we expect to bring to market our own ad-serving technology as we continue to expand our offerings in the interactive advertising space.

In September, comScore Video Metrix reported that US Internet users engaged in more than 5.2 billion viewing sessions during the course of just one month, averaging more than 14.4 hours per month of viewing time. Additionally, Sandvine reported that Netflix is driving one-fifth of all Internet traffic at the time of day that the largest numbers of Americans are on the web. While both are US statistics, we are seeing the same trends in other countries. These are good growth trends that support our delivery and interactive advertising businesses.

On the growth of all things mobile, we continue to experience promising traction from our mobile and monetization products. Mobile requests were up approximately 20% sequentially in the quarter, setting a new overall record. And we had yet another record booking quarter for these solutions. We signed MTV International, How Stuff Works, and Safari Books Online, as new mobile customers. And we added support for the Samsung Galaxy Pad, and new Android-based tablets with varying screen sizes to Limelight REACH.

We also announced a comprehensive mobile add offering, which includes full support for HTML5-based ads and all MMA recommended rich media, video and standard ad formats. EyeWonder technology is currently powering multiple mobile campaigns on sites such as AccuWeather and Pandora.com. According to Strategy Analytics, global smartphone shipments grew 78% year-over-year to 77 million units in Q3 2010 alone. And that number doesn't include the five million tablets like the iPad that Gartner estimates are shipped every month.

And according to the BuzzCity global mobile advertising index, mobile ad impressions were up 65% worldwide in the quarter. These are strong quarterly indicators that validate our investment thesis in the mobile sector.

On the migration of IT services into the cloud, we continue to see good traction for our web acceleration cloud-based storage and cloud-based transcoding solutions as more IT departments migrate their existing in-house applications to cloud-based infrastructure in order to reduce CapEx, increase scalability of performance, and broaden the availability of their services to new devices and geographies.

We have over 50 customers specifically using our site accelerator solutions and we are winning performance trials against more established competitors and signing up world-class organizations such as Groupon, Gucci, Swatch, and the University of Rhode Island. During the quarter we expanded our portfolio of accelerators products and introduced Commerce Accelerator and Portal Accelerator. Commerce Accelerator helps business to consumer enterprises maximize the delivery of dynamic site content such as transactions and shopping carts, personalized pages, and other highly interactive content.

Portal Accelerator speeds the performance of web and extranet applications using Limelight's global infrastructure to increase application availability, response times, and security by seamlessly extending the reach of customer-owned infrastructure.

Both services take advantage of an enhanced version of Limelight's origin-direct routing technology. Origin-direct bypasses middle-mile Internet bottlenecks by routing requests over Limelight's multiple fiber optic routes that are private instead of sending requests over the often-congested public Internet. The new enhanced version enables priority routing of commerce and portal accelerator customer traffic.

Additionally, we are extremely encouraged by the early traction we have seen with our new Limelight video platform solution acquired in July. We are very pleased with the conversations we have had with customers about their need to solve workflow related issues and from these conversations, believe that the OVP category has the potential to become a billion dollar category in its own right. By combining the strength of Limelight's brand, sales team, and scalable infrastructure with the former Delve Networks already robust software platform, we believe we are poised to be one of the two or three major players in the growing OVP market.

In an upgrade to the video platform released this quarter, we introduced an online video editing tool that helps customers create clips and segments from a master video file. We also enhanced our analytics and reporting with new engagement reports that provide detailed viewing metrics for each video such as drop-offs, attention span, and viewership by geography.

In conclusion, Limelight Networks continues to execute on our strategic plan. We have invested in high value, high margin value-added services that are synergistic with our core CDN services and that are fueled by three long-term trends. As content consumption continues to grow, connected devices continue to proliferate, applications move to the cloud, and enterprises move their advertising activities online, we believe Limelight and its shareholders are well positioned to benefit from our investments.

I will now turn it over to, Doug, who will take you through the financial results.

Thanks, Jeff. During the third quarter we reported record revenue of $49.8 million, up 18% compared to Q2 and up 53% from the third quarter of 2009. Our legacy Limelight revenue grew approximately 22% during the third quarter, compared to the same period last year and our non-Microsoft revenue grew approximately 32% during the third quarter compared to the same period last year.

As a reminder the revenue associated with our contract to license and help Microsoft build their in-house CDN will come to an end in February of 2011. During 2010 the revenue recognized specifically from this license and build project will be approximately $8 million.

Our value-added services revenue grew to 34% of total revenue during the third quarter, which included an entire quarter of revenue from the acquisition of EyeWonder, as well as two months from our video platform solutions. During the third quarter Limelight's international operations represented 30% of total revenue, which was flat from Q2 and an increase from 22% in the same period of 2009.

We thought today it would be constructive to give you some color on pricing dynamics in the sector and how our value-added services strategy is improving things from Limelight's perspective. In the first quarter of 2010 our average discount from list price for new customers was approximately 35%. In the second quarter, with no material price list reductions, it was 28%. In the third quarter, again with no material price list reductions, it was 24%.

Additionally, our core CDN price was 18 absolute percentage points closer to list when CDN was bundled with one or more value-added services. Lastly, our blended year-over-year core CDN unit price reduction was approximately 10 absolute percentage points less on a year-over-year basis than it was in Q2. These metrics indicate to us that our value-added services strategy is working.

For the third quarter we reported adjusted EBITDA of $7.1 million, compared to $5.6 million for Q2 and $5.8 million for the third quarter of 2009. Our adjusted EBITDA increased to 14% of sales from 13% in Q2 of 2010. Please refer to the tables included in our press release for the reconciliation of GAAP measures to these non-GAAP measures.

Our Q3 GAAP net loss was $6 million, or $0.06 per basic share, compared to a GAAP net loss of $5.2 million, or $0.06 per basic share, in the same period in 2009. Our net loss included approximately $345,000 of acquisition-related expenses, and approximately $1.4 million in intangible asset amortization related to our acquisitions. We also reported a third quarter non-GAAP net income before stock-based compensation, litigation costs, amortization of intangibles, and acquisition-related expenses of approximately $300,000 or break-even per fully diluted share, compared to a non-GAAP net loss of approximately $520,000 or $0.01 per basic share for the same period of 2009.

GAAP gross margin was 44% during Q3, up from 36% in the same quarter last year. Cash gross margin was 57% for Q3, up from 56% compared to Q3 of 2009. Gross margins' increase primarily is the result of the increase in revenue and our higher margin value-added services.

During the third quarter our operating expenses were $27.6 million, an increase of $1.6 million from Q2 2010, and an increase of $10.5 million from Q3 of 2009. Our operating expenses increased over Q2 due to an additional month of operating expenses and amortization of intangibles from our EyeWonder acquisition, as well as two months of operating expenses from our Delve acquisition, also an increase in employee compensation costs and an increase in accounting and tax related fees.

These items were offset by decreases litigation-related expenses and bad debt expense as customer quality continued to improve. We anticipate that fourth quarter operating expenses excluding stock-based compensation, litigation expenses, amortization, and acquisition-related expenses will increase by approximately $2 million. The forecasted increase compared to Q3 is primarily the result of an extra month of Delve operating expenses, employee compensation, and a sequential increase in our bad debt expense.

Total depreciation and amortization for the third quarter was $7.9 million, up from $6.6 million in the third quarter of 2009. The increase is related to intangible asset amortization from the EyeWonder acquisition. Depreciation and amortization in the third quarter includes $5.9 million in network-related depreciation.

Stock-based compensation expenses for the quarter were $4.6 million, up from $4.4 million in Q3 of 2009. Moving on to the balance sheet, our combined cash and short-term marketable securities balance on September 30th was approximately $71 million, down from approximately $83 million in the second quarter. The decrease in cash and marketable securities is primarily related to capital expenditures of $11.7 million as well as payments related to the Delve acquisition, net of cash acquired.

These were offset by cash flow from operations of approximately $1.4 million. Day sales outstanding for the quarter were 71 days, up from 69 days the previous quarter, and down from 77 days in Q3 2009.

Regarding guidance, for the fourth quarter of 2010 we expect to achieve revenues in the range of $51.5 million to $53.5 million. We estimate that value-added services will be approximately 35% of revenue in Q4. Stock-based comp expenses for Q4 are expected to be approximately $4.5 million. Capital expenditures are expected to be approximately $7.5 million to $9.5 million. For this revenue range we would expect gross margins to be 43.5% to 44.5% and operating expenses, excluding stock-based comp, litigation, amortization, and acquisition-related expenses to increase by approximately $2 million.

Based on these amounts we expect our fourth quarter adjusted EBITDA to be approximately flat with Q3. Given the strong growth opportunities we see ahead in 2011 and beyond, we believe this is the right balance of growth and investment in the fourth quarter in order to maximize long-term value creation.

With that, I will turn it back to Jeff.

Thanks, Doug. Finally, in a recent development, before we get into Q&A, we are pleased to announce today that earlier this week Limelight Networks extended our contract with Netflix as one of their core digital content delivery providers, adding three years to take us through the end of 2013. As part of this contract, our role will expand in 2011. We are excited about continuing to support the growth of this innovative industry leader.

At this time, Operator, we'd like to begin Q&A.

(Operator Instructions). And your first question comes from the line of David Hilal, from FBR. Please proceed.

Great, thank you, a few questions. First going back, Doug, on the color you gave us around discounting. Just so I'm clear, those discounting off a list are you referring to the normal discounting required in competitive bids or does that also include volume discounting?

Well, David, our -- that is essentially irrespective of volume -- what is the discount off of list price for a new customer's contract was the statistic that Doug gave you particularly. Our price list in the industry is laddered on volume. So, higher volume customers get a lower unit price but this was kind of irrespective of volume, the average discount for new customer contracts over the last three quarters.

Okay. Got that. With any value-added services, obviously it's a higher margin business there, but you guys now have kind of a suite of value-added services and within those offerings is there a noticeable delta in margins within those value-added services and if so, can you share maybe which ones are the higher margin ones versus those that are relatively lower.

If I was going to just pick the two who would most likely have the lower margin profile, it would be the strategic consulting group, and you're familiar with that. Those businesses and those generally run at more like a 50% gross margin with technology companies. And in cloud-based storage, and that's not a Limelight margin I just quoted. That's just a general industry margin. And in Limelight storage, which is more infrastructure heavy, cloud storage solution, and then when you -- margin profiles expand as you get into things like rich media ad serving, the whole EyeWonder solution set, which is the more software based solution that rides on the CDN video platform solution. Which is again a software-based solution that runs on the CDN. And site, which is pure software, which runs on the CDN.

Okay, and then, Doug, on the increase of bad debt expense in Q4, is that kind of truing up for the year or is there -- or are you're expecting receivables to have a greater challenge going forward?

No, it was more of looking at where Q3 was. So, the way we do our bad debt allowance analysis is looking at what our aged receivables look like compared to what kind of reserve we have. And that analysis in Q3 showed that we didn't need additional bad debt expense and I'm forecasting for Q4 that we will need some. So, it's really going from having a negative expense slightly in Q3 to having a real expense in Q4.

Okay. And then my last question is on the Netflix. I guess congrats on that. When you talk about an expanded role, Jeff, is this simply to cater to more of their traffic as they're growing or do you have an expanded role at the expense of another vendor?

We have an expanded role vis-a-vis their -- the role that we had in the past and how they are working with multiple CDN providers. So, Limelight in 2011 is going to take on more of Netflix traffic and be a more prominent -- even though we're already a very prominent and one of their core providers, we'll have a larger role in 2011.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Derek Bingham, from Goldman Sachs. Please proceed.

Hi, this is [Jules] on behalf of Derek Bingham, there's been a lot of talk regarding connected devices such as the Xbox for local and streaming online video through that, as well as streaming traffic through a mobile device. Could you give us some numbers, if you have the numbers, the percentage of traffic that you are seeing that are being delivered to online-connected devices or mobile devices?

I'm sorry, the question was metrics around the volume of streaming to devices? Is that the question?

Do you have the metrics? Yes.

Well, we talked about, in the script, the growth of just general mobile impressions. I don't have ready at hand specific metrics around the number of streaming sessions. I think you're probably aware that, in the mobile universe today video files are downloaded not streamed the way they are through an Internet browser. But of course as the mobile universe expands, we do believe you will begin to see streaming. But a file is downloaded to a handset, different than a way a webpage is created on the fly. A handset, when it looks at a video file pulls down the entire file.

So, our mobile solution actually interleaves advertising content into the same file and then we pre transcode that for the various handset flavors and then push those files to the edge and then we do an intelligent device detection when someone logs in. We know geographically where they are and we give them the appropriate pre-transcoded optimized file for the handset from a server file that's forward deployed out in the field near where they are so that you get a broadcast quality experience.

Just to bring it down to a number, would it be greater than 10%. I doubt mobile is greater than 10% of all the streaming traffic that you send out.

Yes, it is less than 10%. So, you have two things going on there. Mobile, the growth of mobile activity is impressive right now. However, it's small and it's growing. And the Internet traffic is growing rapidly as well. So, relative to overall Internet it's, I'd say it's sub-5%, if you want to look at it on a traffic load percentage basis. If you want to look at it on a number of user sessions basis, it would be a higher percentage. The reason traffic is lower than sessions on a percentage basis is because the files are smaller because you have a smaller file that you can download on the handset than if you're using an online streaming service like a Netflix and they sense that you have a nice connection to the home and they give you their highest resolution file. It's a much larger file.

Okay. Great. Regarding the Netflix contract and congrats again on getting the extended deal--

Thank you.

--Could you give some color on the pricing that you signed on the new deal as compared to the previous deal? Was it in line with the reductions that would have happened for any other contract? Could you just give some color on that?

Well, we don't get into specific pricing dynamics around any specific customer relationship. We collaborated very closely with the Netflix team. They are obviously on an impressive growth run, which we believe will continue for many years to come. They are obviously one of the most innovative companies in the sector and a standout with respect to their growth and so we worked with them on their three year projections as we extended our relationship through 2013, and are very pleased to be involved, as we said, in an expanded role as one of their core providers for the next three years.

Great. Thank you.

You're welcome.

Your next question comes from the line of Kerry Rice, from Wedbush. Please proceed.

Thanks a lot. Nice quarter, guys. Just a few questions here. Can you talk a little bit about EyeWonder and if it's on track with what you were expecting for the quarter, seeing the growth that you were expecting there? And then the other question I have regarding Netflix, can we -- do you think we'll be able to consider you guys the primary CDN for Netflix going forward? And then I just have a quick housekeeping question on guidance.

Sure, Kerry. In reverse order we are not going to characterize, sort of beyond what we've already stated publicly, the partnership with Netflix and certainly they may or may not want to give you more. But we try to steer clear from giving specifics because we're under confidentiality with all of our customers. But as we said in 2011 it'll be an expanded role over what we have done in 2010 and years past.

With respect to EyeWonder, so, we're reporting on value-added services as a bundle. EyeWonder is doing quite well from our original estimates nine months ago, really, yes, nine months ago. They are behind the original estimates. The business however is exactly on track from a strategic standpoint as far, as we said at the very beginning, changing the complexion of the conversations that we have with our customers. We are now sitting with the senior leadership of our customers talking about driving revenue growth in their businesses not just delivering broadcast quality content online.

And we are rapidly expanding the solution set that EyeWonder has. As we've stated publicly we launched dynamic creative optimization and are seeing traction there, as we mentioned earlier. And in Q1 we expect to launch ad serving and we think that in sort of head-to-head comparisons with other solutions that EyeWonder competes with, the introduction of ad serving will be we think transformative in that now we will be able to go to all advertisers and not just pitch for their rich media advertising but for their overall advertising and increase our share of wallet. So, we're excited about that.

Thanks. And then just a question on the GAAP or non-GAAP gross margins for Q4, what was the guidance for that?

We got it to GAAP margins of 43.5% to 44.5%.

And what would be the non-GAAP?

We didn't guide on non-GAAP. I don't have that in front of me here.

Okay. Thanks.

You're welcome.

(Operator Instructions). And your next question comes from the line of Sri Anantha, from Oppenheimer. Please proceed.

Yes, good morning. Thank you. Doug, I wondered if, could you guys actually give the contribution from EyeWonder and Delve Networks on the revenue front this quarter?

Again, Sri, we don't break out contribution. We look at it by a particular value-added service. We have the value-added services as a whole, which was about 34%, Doug?

Correct.

For the quarter and then Doug gave you some color on Q4 guidance for that.

Got it. I'm just trying to reconcile with your basic core business, is that still under pressure, which has been in the earlier part of the year and have trends improved there given that you're seeing some growth with the non-Microsoft related business?

The core business, the discounting metrics that Doug gave you are related to the core business and so, the core business is ahead of our original plan for 2010. And the -- so what we're trying to give you earlier with those pricing metrics is some color about the value-added services strategy really is working and how when a core CDN service is sold with a value-added service, there's -- on an absolute basis -- 18 absolute points less of price compression and how for our new customers, we're seeing a decreasing discount off of list with no price list reduction.

So, the core business and the entire sector in that area is ahead of our original plans for 2010.

Got it. And Jeff, on Netflix contract, is it safe to assume given your expanded role that you're getting a higher share of the traffic or is that something that's not part of the agreement?

It is safe to assume that an expanded role also infers a higher percentage of traffic for 2011.

Got it. And when I look at your EBITDA margins, despite your high penetration of value-added services today, they are still down from a year ago period. So, I'm just trying to understand where the operating leverage in the business model is going to kick in going forward. Your value-added services penetration has meaningfully improved from what it was a year ago but we are still seeing your EBITDA margins not improving.

Yes, I think what you saw was an uptick in earlier in the year from sort of the historical run rate and with value-added services just like everything else, you do need to reach a certain level of scale. And at the 34% of a $50 million quarter you're still not quite at scale. But we talked at our Analyst Day about a $400 million run rate level where we believe we'd be getting a much higher margin contribution from those value-added services. And are still, based on what we're seeing, quite confident that we're tracking towards that.

Got it. And just one last question on the guidance, despite seasonally being a pretty strong quarter and getting additional one month of Delve Networks, you're still guiding to sequentially, even at the midpoint, just $2 million revenues increment from 3Q. I'm not sure what's -- could you just give us a little more color on that?

Well, sure. So, Q3 was higher than our both consensus and our -- the high end of our guidance last quarter. So, first of all just on a comparative basis you have to look at that and this business is not complete recurring revenue. It still can be spiky based on how many campaigns we do in the online advertising business or how much -- how many major events there are in a quarter for content delivery or mobile delivery.

And so we certainly feel like Q4, we will see some of that seasonality but we also over-performed in Q3. So, it's kind of more I think about it on a relative basis to what would we have done if we were back in our guidance range for Q3.

As well as too, if you look at it on a year-over-year basis the legacy Limelight business will be growing over 20% on a year-over-year basis from last Q4.

Got it. Thanks, Jeff. Thanks, Doug.

Thank you.

Your next question comes from the line of Donna Jaegers, from D.A. Davidson. Please proceed.

Hi, guys. Good quarter. One clarification first of all, the CDN revenue for Q3, I heard at one point was up 9% sequentially and then I heard it's up flat sequentially. My coffee hasn't kicked in yet so can you clarify?

Yes, the 9% had to do with CDN itself. So, all value-added services stripped out. So, if you take Limelight had legacy value-added services, our own cloud professional services, strategic consulting, as Jeff talked about. So, when you strip all that and say what is just core? That was the 9% number that we referenced.

Okay. Great. So, I misheard. As far as the flat sequentially, that was--I just missed it. (inaudible -- multiple speakers)

I'm not sure what that flat was. We said the legacy business, which is if you exclude the recent acquisitions, the Delve and the EyeWonder, that we are up 22%.

Okay. Great. And then on EyeWonder seasonality are you seeing something different with the seasonality in the fourth quarter because it's usually 40% of their revenue was fourth quarter based on ad campaigns. So, are you seeing indications that they're not getting those ad campaigns?

Well, we only have one month of Q4 so it's a little tricky. That business is harder to forecast than CDN business as an example. And as we set guidance we do not want to assume some massive uptick in campaigns. We have some forward-looking indicators in the business like pipelines of campaigns that agencies have told us we're going to run and they give us the anticipated number of impressions. But at the end of the day those campaigns deliver as many impressions as they are able to place based on how much inventory is available on the web.

So, it's kind of a complex answer to your question but based on what we are seeing so far, we felt like this was the right sort of level to guide to.

Okay. And then on the new ad serving product that you're talking about early next year, there's a lot of competition in that space. Can you talk a little about who you would compete with and how you'd -- I don't know if you can talk a little about how your product would be differentiated.

Well, sure. So, EyeWonder competes with MediaMind, which is the former Eyeblaster, with PointRoll primarily in the rich media space, and those are sort of the three companies that folks think of when they think about rich media advertising. And what's happened is all of those folks who focused on rich media have expanded their solution set because they all compete with Google -- DoubleClick from Google -- which has static banner ad serving plus rich media ads with their Motif solution.

And we have competed with Google in the web analytics space when they were giving away free web analytics. We compete with them now in the online advertising space and the way that we do -- we are successful in that competitive venue is by innovating, by delivering solutions and features that they do not have and also by delivering enterprise-level, high-touch type of service that they do not offer.

So, the addition of the ad server is catching up to where you'd see a MediaMind or PointRoll, we were ahead of them in certain areas when we acquired the business and needed to add ad serving to our solution set to meet them in other areas.

Okay. Great. Thanks, Jeff.

Thank you.

Your next question comes from the line of Chad Bartley, from Pacific Crest. Please proceed.

Hi, thanks. The only question I had left was around your value-added services business all in. Can you give us a sense where that might go in 2011 or potentially where that would be exiting 2011 just to kind of get -- help us get a little bit more comfortable with the growth and margin outlook?

Sure, Chad. We can give you our current thinking, which is that value-added services will increase as a percentage of revenue for 2011. However, the interesting thing is this last quarter we just saw very nice growth rates in what you'd call legacy Limelight, sort of the pre-Delve, pre-EyeWonder acquisition, which is primarily CDN and the growth rates in that business are back up above 20%.

So, at Analyst Day we talked about our long-term expectation was that the CDN business would grow about 15% a year and value-added services would grow 25% to 30% a year. So, I can't give you specifics for 2011 but I can tell you that we are investing in the business so that value-added services will be 50% of revenue as we hit a $400 million run rate, which based on the projections we talked about at Analyst Day, that's around a 2014 timeframe.

Okay. And just -- that's helpful. And just so I make sure I heard you correctly, so it's about 15% growth in that core high-volume business and about 25% to 30% growth in the value-added?

Correct. Those are the assumptions that lead into the $400 million target model that you see in our investor deck and everything we saw in Q3 supported those assumptions so we feel like we're tracking quite nicely towards that model.

Okay. Thanks, Jeff.

You're welcome.

Your next question comes from the line of Ignatius Njoku, from Jefferies. Please proceed.

Hi. Thank you for taking my question. Just had a quick question on 2011 pricing discounts. Do you think they'll be the same for this year versus next year? Thank you.

Well, what we're seeing is a sequential decrease in the level of discount for new customers, Ignatius, so, again I don't want to go off and make predictions about 2011, when this is a dynamic market segment, and we feel like we're doing decent job of just forecasting one quarter in advance.

But overall what we're seeing is that business conditions have improved and the strategy of value-added services, when you see those improving trends it's a little hard to specifically identify whether it's because the sector has stabilizing price or business conditions are improving or whether it's your value-added services strategy, which is working. And the fact is it's probably a blend of those three.

Alright, Operator, thank you. We appreciate you joining the call today and we will see you all out in the industry. Thank you very much for your time.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.