Edgio Inc (EGIO) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Limelight Networks quarter four earnings results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions)As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to your host, Mr. Paul Alfieri.Sir, you may begin.

Good afternoon, and thank you for joining the Limelight Networks fourth-quarter and full-year 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 February 14, 2011, and will be archived on our web site for approximately 10 days.

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 of 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. And factors that could cause actual results to differ are included in the Company's periodic filings with the Securities and Exchange Commission.

I would now like to introduce Jeff Lunsford.

Thank you, Paul. Good afternoon.Thank you for joining us. Today Limelight Networks reported record fourth quarter revenue that affirms our strategy is working, and we believe yielding nice market share gains as Internet media becomes increasingly embedded into the fabric of our lives, and as key content providers select their technology partners for the next phase of consumer shift from old to new content delivery channels. Revenue in the quarter surpassed our expectations due to over-performance across our suite of content delivery and cloud-based services. We also over-performed on EBITDA. Approximately half of the incremental revenue led directly to increased EBITDA. And the portion that did not drop to the bottom line was invested in sales, marketing and product activities, as we saw an increasingly attractive business environment heading into 2011.

Our strongest revenue growth driver was cloud-based services, where online businesses looked to Limelight to help improve their bottom lines by helping to enhance the ways their customers interact with online content. When consumers are more engaged with superior experiences, online publishers, commerce providers and enterprises see improved viewing times and improved conversion rates, which yield higher revenue and better bottom line results for their businesses.

To highlight a few of our exciting growth areas in the quarter, in Q4 mobile services revenue grew in excess of 200%, year-over-year. Our Internet mobile platform served over 600 million videos and over 1 billion audio files to over 200 different types of mobile devices in 2010. This team is doing an amazing job and continues to secure design wins within the world's major media companies. In Q4, our site and application acceleration services revenue grew in excess of 150% year-over-year. In Q4, our online video platform revenue grew in excess of 110% year-over-year. And we ended the year with over 200 customers on this platform. In Q4, our cloud storage revenue grew in excess of 40%, year-over-year. We have exciting innovations in store for customers in 2011 in this area, innovations that leverage the fact that we, like few others, have a globally distributed high performance platform upon which to deploy and operate cloud storage.

These are impressive growth metrics, but some of them are still admittedly based on small numbers. The best news in the quarter was that our core content delivery services business itself grew 21% year-over-year. A nice acceleration of growth from 14% year-over-year in Q3. This return to higher growth rates is our core business is attributable to many factors including improved pricing conditions, strong customer retention and the positive effects of combining innovative cloud-based solutions with core content delivery.

Throughout 2010, we continued to expand our suite of solutions. Highlights of these new solutions were, EyeWonder Dynamic Creative Optimization, which helps agencies and advertisers evaluate and optimize the effectiveness of various creative combinations and messages while providing feedback about ads in real time. EyeWonder's EyeOne advertising suite, which is a services oriented architecture platform, which when combined with Limelight Networks' infrastructure, enables customers to collect, process and analyze millions of data points per second, and target online campaigns based on sophisticated logic. EyeWonder's platform, I should mention, delivered over 9 billion impressions in the peak 2010 month of December. Most of which were rich media advertisements which yielded better engagement and better ROI for our advertisers.

Another area of product expansion was the Limelight video platform which added close to 100 new features during the year, including real time analytics and live streaming. And which, as I mentioned, ended the year with 200 customers. Another area is portal accelerator and commerce accelerator. These are web application acceleration services that maximize the delivery of dynamic site content such as transactions and shopping carts, personalized pages, and other highly interactive content. And lastly, our media transcode product, which is a cloud-based service which allows social and traditional media companies to leverage our computing power and forego substantial investments in their own infrastructure.Our transcoding expertise and capabilities are core enables for our mobile, our CDN and our online video platform services.

We also continued in the year on our drive for constant innovation. Advancing our existing services and making over two dozen enhancements for speed and efficiency in the core content delivery platform. We also rolled the next generation cloud storage solution into limited availability. We also expanded our global consulting and technical services organization which helps customers implement our many solutions in support of executing their online business strategies.

In 2010, we also increased the egress capacity of our global computing platform, upon which our CDN and cloud-based services operate, to approximately 5 terabits per second. The size of online events continues to grow rapidly. And we see many multi-terabit events ahead for our customers. We increased the computing capacity of our platform to the equivalent of over 100,000 large instance EC2 virtual machines during the year, according to the Spec INT 2006 computing benchmark. We also were, we believe, the first CDN in 2010 to put Internet protocol version 6 into full production. Two weeks ago, the media reported that one of the last remaining blocks of IPv4 addresses was allocated. By mid 2011, there will no longer be any remaining IP version 4 addresses.Limelight Networks is today helping customers transition their infrastructure to support IPv6. And our engineers have been thought leaders within the industry, helping to drive the new IPv6 standard forward.

We are pleased with the positioning of, and synergies between, our cloud-based services, our CDN and our high performance computing platform. Together, they enable us to change the conversations we have with customers, go deeper into accounts, and work across many different departments inside our customers' organizations. Quantifiable evidence of the value created can be seen in our average CDN selling price, which was approximate 17 absolute percentage points closer to list when bundled with a cloud-based service. Our average annualized revenue per customer has returned to the previous highs set before the 2009 economic collapse, and we believe we have plenty of head room to continue growing ARPC from here in the coming years. Our growth plan going forward is a combination of increasing our customer base and growing ARPC by solving more business problems for our customers, and allowing them to focus on what they are good at while leveraging Limelight's many different cloud-based solutions in a capital-efficient way to scale their businesses.We expect these trends to continue in 2011, and we are guiding to 36% year-over-year revenue growth for Q1, at the midpoint of our range.

Now I would like to give you some examples from Q4 of how customers are using our solutions.Safari Books Online, a book publisher, is a new Limelight Reach mobility customer. With the rise of e-books on tablets, Safari sees adding rich media to their mobile site as a key initiative. And Limelight is helping them get there by delivering properly formatted videos of authors to smartphones, iPads, Android tablets, Windows mobile devices and other Internet connected devices. Other mobility customers we added in the quarter included Walt Disney Internet Group and Sony Pictures Home Entertainment. We also added many new web acceleration customers in the quarter, including AIM Education, a distance learning company that helps teachers effectively integrate math and science in the classroom. Limelight is helping AIM accelerate the delivery of an online portal where teachers use a personalized log-in to download classroom materials. Large files faster. That's what Limelight does.

Prudential, Wake Forest University Medical Center, Elliot Wave International, American General Life, Huntsman, and Covidien Corporation are among the great list of new customers who selected the Limelight video platform in the quarter to help them manage their ever-expanding libraries of corporate video. We are pleased with the strong demand we are seeing for this cloud-based service, not only in the enterprise but also with media publishing customers who are looking for a scalable work flow solution. We continue to believe that this OVP, or online video platform, segment will expand in functionality to the point where we can serve as a comprehensive content management system in the cloud. And we think we have a substantial opportunity in supplanting in-house software solutions for content management by continuing to extend the capabilities of our cloud-based solution.

Old Navy, Hotmail, Alliance of Germany are three examples of Q4 seasonal campaigns run on the EyeWonder platform. The Hotmail campaign leveraged our partnership with Microsoft Atlas, and included a New York Times home page takeover.Old Navy's campaign included an interactive coupon banner that placed in the banner a unique bar code related to the site running the ad. This allowed Old Navy to track off-line and in-store performance of the campaign in addition to online performance.We also ran an Alliance campaign in Germany, one of the largest insurers in the world, which featured video ads that ran both online and on traditional TV, and which generated over 320 million impressions.

As we enter 2011, we continue to see strong momentum in the long-term growth trends that drive increased demand for our services. These trends include the ongoing shift of content and advertising to the online world, the explosive growth of mobile devices, applications and content consumption, and the migration of software, applications, data and IT services into the cloud. We believe Limelight's suite of services is well-positioned to help our customers grow and prosper amidst these trends. We already operate one of the largest ad scale Internet platforms in the world. In fact, Arbor Networks late last year ranked us the top three in terms of percentage of Internet traffic delivered daily, according to a recent report circulated by Google. On top of that platform, we operate high value, high margin cloud-based services, which are not only synergistic with our delivery services, which also helped customers leverage our platform to solve publishing, advertising, mobility and infrastructure work flow challenges.

In conclusion, I would like to call your attention back to the target model we presented last September at our Analyst Day in New York. This model shows Limelight at $400 million in revenue and 33% EBITDA margins. In this pro forma model, one-half of our revenue is from our core content delivery services, and the other half if from our cloud-based services, which leads to expanded gross margins. We also make the straightforward assumption that we will get leverage from our sales and marketing, G&A, and R&D investments as we double our revenue. Our Q4 results and the growth rates we are seeing in core CDN and cloud-based services give us confidence that we are executing well against our strategic plan, and on trajectory to achieve the financial metrics represented in this model.

Now I'll hand the call to Doug for more detail.

Thank you, Jeff. During the fourth quarter Limelight Networks reported record revenue of $55.2 million, up 11% from Q3, and up 64% from the fourth quarter of 2009. For the full year, we reported revenue of $183 million, compared to $132 million in 2009. Our core CDN revenue grew approximately 21% during the fourth quarter compared to the same period last year. And our core non Microsoft CDN revenue grew approximately 27% during the fourth quarter compared to the same period last year. As a reminder, the revenue associated with our contract to license and assist Microsoft build their in-house CDN will cease at the end of February 2011. During the fourth quarter of 2010, revenue recognized specifically from this license and build was approximately $2.2 million. And was approximately $8.1 million for the full year. And will be approximately $1.5 million in Q1, 2011, as we recognize two months of license revenue as opposed to three months in Q4 of 2010.

Our cloud-based and consulting services revenue grew to 36% of total revenue during the fourth quarter, which is up from 34% last quarter. During the fourth quarter, Limelight 's international operations represented 29% of total revenue, which is up from 27% in the same period of 2009. We reported fourth quarter adjusted EBITDA of $8.1 million, compared to $7.1 million for Q3, and $3.3 million for the fourth quarter of 2009. Our adjusted EBITDA increased to 15% of sales during the fourth quarter compared to 10% in the same period of 2009. For the full year, our adjusted EBITDA was approximately $26 million, compared to approximately $20 million in 2009. For the fourth quarter, our GAAP net loss was $6.3 million, or $0.06 per basic share, compared to a GAAP net loss of $9.7 million or $0.11 per basic share in the same period in 2009. Our Q4 GAAP net loss included approximately $1.9 million of income tax expense, to adjust our deferred tax amounts that we originally recorded during Q2 of 2010 that arose from our acquisition of EyeWonder. For the full year, we reported a GAAP net loss of $20 million, or $0.22 per basic share.

We also reported fourth quarter non-GAAP net loss before stock-based compensation, litigation costs, amortization of intangibles, and acquisition related expenses of approximately $350,000, or break even per basic share compared to a non-GAAP loss of approximately $3.1 million, and $0.04 per basic share in Q4 of 2009. Excluding the $1.9 million tax adjustment that I previously mentioned, our non-GAAP net income would have been approximately $1.5 million, or $0.01 per fully diluted share. Our non-GAAP net income for the full year was approximately $4.6 million, or $0.05 per fully diluted share compared to a non-GAAP net loss of $6.3 million, $0.07 per basic share in 2009. Please refer to the tables included in our press release for the reconciliation of GAAP measures to these non-GAAP measures.

GAAP gross margin was 46% during Q4, up from 44% last quarter. For the full year, gross margin was 44%, compared to 35%, in 2009. Gross margin increased in Q4 and for the full year as a result of the growth in our higher margin cloud-based and consulting services from both our internally developed products and our acquisitions during the year. Cash gross margin was 58% for Q4, up from 57% in Q3 and up from 52% in Q4 of 2009. During the fourth quarter our operating expenses were $30.1 million, an increase of approximately $2.5 million from last quarter, and $9.3 million from Q4 of 2009. Our operating expenses increased over Q3 as a result of an extra month of Delve operating expenses, employee compensation costs, additional head count, and bonus accruals for our bonus plan, and a sequential increase in our bad debt expense. In addition, we had higher operating costs than we had forecasted due to additional sales, marketing and product activities.

Total depreciation and amortization for the fourth quarter was $8.3 million, up from $7.9 million in the third quarter, and up from $6 million in the fourth quarter of 2009. The increase in the year-over-year period is related to intangible asset amortization from our acquisitions. Depreciation and amortization in the fourth quarter includes $6.4 million of network related depreciation. Stock-based compensation expenses for the quarter were $4.3 million, compared to $4.6 million last quarter, and $4.3 million in Q4, 2009.

Moving on to the balance sheet, our combined cash and short-term marketable securities balance on December 31, was approximately $69 million, down from approximately $71 million in the third quarter. The decrease in cash and marketable securities is primarily related to cash flow from operations of $6.9 million, offset by capital expenditures of $8.9 million. For the full year, our capital expenditures were approximately $34 million. Day sales outstanding for the quarter were 68 days, down from 71 days the previous quarter and in Q4 of 2009.

Regarding guidance, for the first quarter of 2011, we expect to achieve revenues in the range of $48 million to $49.5 million. Our revenue is expected to climb from the record levels in Q4 as a result of the seasonally strong fourth quarter by EyeWonder, and also due to the reduction in Microsoft revenue that I previously mentioned. Therefore, our cloud-based and consulting services revenue will be approximately 32% to 33% of total revenue in Q1.For this revenue range, we would expect gross margin to be 39% to 40%. The decline in our gross margin from Q4 is related to the reduction in our cloud-based and consulting services revenue that is coming off of the seasonally strong Q4, as well as the reduction of one month of Microsoft license fee revenue. We believe that both our gross margin and EBITDA margin will increase throughout the year, as our cloud-based and consulting services revenue gradually continue to grow as a percentage of revenue. And we believe we will pick up 8 to 10 percentage points of gross margin from Q1 levels by Q4, 2011.

Stock-based compensation expenses for Q1 are expected to be approximately $4.5 million. Capital expenditures expected to be approximately $6 million to $8 million. Finally, we anticipate that our first quarter operating expenses, excluding stock-based comp, litigation, and acquisition related expenses, will be flat to Q4. Our operating expenses are not declining in relation to the sequential decline in revenue, primarily due to the hiring of head count, employee benefit cost increases, and our annual global sales conference that took place in January. Offset by a reduction in professional fees and the impact of our annual bonus accrual that was included in our Q4 operating expenses.

With that, I will turn it back to Jeff.

Thanks, Doug. Summing it up, we feel great about our strategic positioning as we enter 2011, as well as our progress towards our target financial model. We are pleased with the traction our cloud-based services are getting in the market with the truly exciting growth rates we are seeing there, and with the increased growth rates in the core CDN business, which we believe are coming from market share gains, a healthier pricing environment, and the benefits of combining cloud-based services with core content delivery. We have exciting new high growth, high margin products building on top of a stable CDN business that should grow 15%-plus for the next five years given the shift of video content to IP delivery. We have exposure to the amazing proliferation of the mobile Internet through our mobile solutions. And we have innovative disruptive new cloud-based storage solutions, content management, transcoding, and other high growth areas all running on our cloud-based platform. These take advantage of this platform in ways that smaller and more centralized cloud solution providers simply cannot do. Limelight's global footprint is unique and a great asset. This is how we see Limelight Networks entering 2011.

And Operator, at this time we will open the line up for questions.

Thank you, sir. (Operator Instructions)Our first question comes from Katherine Egbert with Jefferies.

Hi, good afternoon.Great job, guys. You're guiding to 31% revenue growth in Q1, even without if you take the $1.5 million from Microsoft out. That's a market acceleration from what you have ever done before in Q1.Can you talk about why that is, particularly pricing versus traffic?

Doug, why don't you take that?

Katherine, let me clarify part of it.Jeff had said it's 36%, and that's a year-over-year calc. And, remember, in Q1 of 2010, we didn't have the EyeWonder business in there. Jeff's reference was for a full year-over-year calculation of what that growth is. That was part of it. He did say 36% not 31%.

Okay. I just took out the $1.5 million for Microsoft to get to 31%, but I got you.

The $1.5 million -- so you are going apples-to-apples, because it was roughly $2 million, so we have two months in this Q1.

Okay.

And then, Katherine, on the stylistic points, we are seeing, as we said, when we sell CDN combined with cloud-based service, we are creating real value there. Our customers subscribe real value to it. So we are able to sell CDN at a higher price point. And that improves the customer relationship, it improves retention, it's just goodness all around. And then I do believe the overall sector, while you still are seeing year-over-year price declines like you've always seen and always will see in this business, it's not nearly what we were going through in '09 and early 2010.

Okay. Because Akamai has said the opposite on their call a couple weeks ago. They said that they did large number media contracts that were reset at lower prices in December that's causing a bit of a divot in Q1. Did that not affect you? Was that more specific to someone else?

I don't want to comment about their business. I think our business is, as we described, doing well, and we are seeing great cross-sell, up-sell, we're seeing great traction in these new cloud-based services, and thus came up with the guidance range that we provided.

Okay. Last question. So if it's, let's call it 30%-plus growth for Q1, you are guiding 15% to 20% for the year. Why is there such a market decline in second half or the last three quarters?

To Doug's point, Q1 closed the EyeWonder transaction on May 1st. So Q1 in April, we didn't have EyeWonder business last year so that makes the number a little higher optically.But year-over-year, again, what we've traditionally done here is given one quarter's guidance but we felt it was important to give you guys some color on the full year just since so much happened in 2010. We wanted to give you some clarity as to what we're looking at from a budget and health of the business environment.

Okay. That's great. Thank you very much.

Our next question comes from Kerry Rice with Wedbush.

Thanks a lot.A couple of questions and maybe a couple of housekeeping. So EyeWonder, is there any sense that you can give us on at least growth rate if not absolute dollar what EyeWonder contributed in Q4. And then maybe what you think that business, should we assume it grows in line with what you are giving for 2011 top line revenue growth? Or can you give us any color on what you expect that business to grow in 2011?

Kerry, we don't break EyeWonder out. You should think of EyeWonder as one of the key components of our cloud-based services revenue line, which we are breaking that out as a percentage of revenue. And if you look at our target model of $400 million, and we believe that the CDN business, as I said, can grow 15% for many years, and that those cloud-based services components will grow faster than that to get you to that $400 million target model. If you extrapolate out current growth rates, at a 2014 timeline, as we talked about on analysts day. What we will say about EyeWonder is we had a great sales kickoff where we have now completely bundled solutions for the EyeWonder sales force to take all of Limelight solutions into the agency channel. Remember, the strategic rationale there, there were two major points. Number one, we wanted to be able to help our publisher customers on the CDN business grow the revenue side of their business. And EyeWonder's rich media advertising capabilities allow them to do that. So that's point one.

Point two, is EyeWonder is a great channel, the agencies are great channels for content delivery, online video platform, mobile services, cloud-based services. And that is also proving out to be a very strong value point. For the EyeWonder folks, they are taking all of the cloud-based services that came from the CDN business to market, and the CDN folks were able to introduce the EyeWonder revenue folks into our customers to help them with monetization. And all that is what's helping fuel the overperform on the top line.

Related to EyeWonder and revenue growth, or Q4, the strength in Q4, how much would you say related, because I think you launched the ad server in Q4, did you think that gave you a good boost to demand for EyeWonder's solutions? Or would you say it was more over-arching EyeWonder as a total solution, that grew in Q4?

It was just the traditional online media spend, tends to flow through the calendar on about a 15% Q1, 20% Q2, 25% Q3, 40% Q4. You tend to see that in online media spend. EyeWonder, that part of our cloud-based services revenue line will have more of a seasonal pop in Q4 and then a seasonal step back in Q1.

Okay. Final question. You guys got to a $0.01 profitability this quarter. I know you don't generally guide on the net income, per share line, but can you give us any sense on expectations for either adjusted EBITDA or a net income number for 2011? Should we expect it to grow faster than the top line, or how should we think about that?

You should expect that we are planning this business as a management team and a board to track towards that $400 million target model. We expect to pick up, to gain ground, each and every year. And so, if you do the math on what Doug gave you for gross margin down to Q1, 39% to 40%, plus to pick up 8 to 10 by year end, we would advance the ball multiple points of gross margin between Q4 of 2010 and Q4 2011. With all that said, Kerry, we are so early in the game here. And we believe there is a great opportunity not just to build a $400 million business but to build a billion dollar business. And so we don't want to give you one quarter or two quarters EPS guidance because if we see an opportunity to do a fantastic partnership, like the one we did with Netflix in Q4, that requires us to invest a little ahead of plan, then we will do that, because that is absolutely the right thing to do. We think this is a scale game, a scale sector.Most technology infrastructure markets tend to solidify around two or three scale leaders. You think about credit card processing, you have First Data and Total Systems. You think about transaction processing, you think about Visa and MasterCard. We believe Limelight and Akamai can be the two primary Internet infrastructure providers from the standpoint of content, web acceleration, commerce transaction acceleration. And that is the future we are building for.

Thank you, I appreciate the explanation. I'll jump out of line here.

Our next question comes from David Hall with FBR Capital Markets.

Thank you. Jeff, you had mentioned that when bundling you're seeing the gap to list prices decline. You quoted 17%. I wanted to ask the question differently. When you look at the gap from when you don't bundle.When you bundle, you are receiving 17% discount to list, when you don't bundle, presumably, it's a greater discount. What has that gap done over the last quarter or two?

What we're saying is if you take, in that example, that a standalone CDN, what we're saying is if a standalone CDN was 25 points off of the list on average, when we sell it bundled it would only be 8 points off the list. There is 17 points less discount off list for CDN when we sell it with a bundle. I'm just trying to give investors some transparency there and that there is real value being created as we launch and grow these cloud-based services.

It was 18% last quarter, is that right?

The delta was an 18 point delta. The point is, it's a big delta and there's real value being created.

Got it. And then I wanted to ask about the sales force. As your business mix shifts, and you continue to add head count, talk to us about the changes within sales both on a quantity as well as maybe structure.

Sure. We have over 100 quota-bearing reps around the globe representing Limelight and EyeWonder. We still have a mix. Limelight used to be about 50-50. 50% inside sales that actually still would sell to non-named accounts. And then we had a field sales force that had 600 to 800, depending on the year, named strategic accounts around the globe. With the addition of EyeWonder their sales force is in the field. So now, if you look at it on a head count basis, you're more like two-thirds in the field calling on those strategic accounts and working with agencies. And then the team, which we call our emerging account team, but which does a fantastic job, and actually wins many deals that become much higher than average customers. That's about one-third of the head count.

What is the growth like for this year?

I think you could expect us to grow sales head count roughly in line with revenue. Then you will see us get leverage over the years off G&A and marketing and then other non head count related sales costs as we track towards that $400 million model.

Okay. Then let me ask about customers. How many net customers were added in the quarter? And any noticeable trend in retention in the quarter?

Our retention in the quarter, and we measure this by dollar, not customer count, but that retention was, really for the last three quarters, has been at historic highs, meaning attrition was at historic lows. And customer count, we have in our investor deck -- which did we publish that, Paul, yet? -- our investor deck, which should be published on the web, ARPC, which has customer count in it, I think ARPC is now back up above $125,000 a year. And, as we said, we believe we can grow that by a lot, let's say 50% over the next three to four years. And so our growth plan is both to add new customers but also to grow and deepen the relationships we have. If you look at other companies in our space who have over $200,000 ARPC that are just more mature, I think it's a pretty safe assumption that we can do the same.

We finished with 1,824 customers, so it was growth of, net of 44 from Q3.

Great, thank you, guys.

Our next question come from Derek Bingham with Goldman Sachs.

Hello, guys. I just wanted to dig in a little bit on the gross margin outlook. The 39% to 40% for March is down year-over-year a few points from what it was in March a year ago. But then by the end of the year you make up 8 to 10 points. It seems like a very steep trajectory, and I wanted to make sure I better understand the dynamics there.

I will give you some color, and then Doug can dig in, if he'd like. In our business, if $5 million of revenue goes away, only about $1 million of expenses go away because the only variable piece of our COGS is transit which is less than 25% of COGS. The only variable other cost is sales commission, or revenue or account management commission. So that's less than 20% of revenue. So when you see the Q4 to Q1 stepdown in revenue, which is driven by the seasonality and one less month of Microsoft, you will see that margin compression. We also, as we talked about publicly last quarter, done a major partnership with Netflix for which we are building out. And I think the combination of the seasonal revenue and we are in build mode is why you see that. That obviously pays off in our business plan, we believe, throughout the year. And we believe we will end the year at a margin profile higher on the gross margin line, and potentially the EBITDA margin line, depending on what we do with OpEx by the end of 2011 than what we did at the end of 2010.

Okay. That's very helpful. Thank you. Related to building out your capacity the $6 million to $8 million in CapEx for q1, is that an approximation of the run rate for this year in terms of the kind of leverage you are expecting to get on the CapEx line?

I think you should think of our long-term model as 15% of revenue. I think you saw a spike, a higher CapEx in Q3 and Q4 last year because you saw us building out. Also make commitments to data center space and connectivity, ISPs and all that kind of stuff, to build up for capacity. But I think long-term you should just model and think about 15% to 16% of revenue from CapEx.

Okay. But there is not anything seasonally depressed or otherwise about the $6 million to $8 million?It's a reasonable pace?

Correct.

Okay.One more, if I could. Just industry traffic volumes, if there is a way to think about that as a whole. There was probably some amount of cyclicality in terms of reacceleration that we saw off the recession. Now that we are through 2010 and a couple of months into the year, is there anything you would add about whether we've hit some kind of a steady state in volume growth, if things are still reaccelerating off the bottom, if things are settling down a little bit off of a big snap back?

We never saw traffic growth slow through the downturn, we just saw business pressures from our customers. Some of them were struggling and we would cut a new deal to help them, and that type of thing. So we see the same kind of consistent 60%, year-over-year Internet traffic growth, and it's driven by consumer pull on the device side plus higher resolution rates. As fast as the last mile providers can lay fiber and lay cable, it gets filled up. That's what we are seeing. We don't see any kind of slowdown or speed up really, it's just a constant growth.

Okay. Super, thanks, Jeff.

Operator, we have time for one more question, today.

Our last question comes from Donna Jaegers with DA Davidson.

Great quarter, guys.On mobile, Jeff, can you give us a little more color, 100% year-over-year when mobile was really teeny tiny last year doesn't really mean a whole lot.What did you see in the quarter on a sequential basis?

We saw nice sequential growth. Again, I think what is really important there is we still are not even sure we've seen the hockey stick. We are getting the design wins for a lot of very major customers. And what you do is you go in and build for that. You have a baseline platform fee, and then as their volume ramps, they build up above that platform fee and you start to see a real nice pickup in revenue. So it looks like growth was in excess of 40% sequentially, if I'm looking at that right. We couldn't be happier with how that team has done.

That's, right, Jeff, over 40.

Great. Akamai made some noise today about working with Ericcson on the carrier side. You are working more closely with the content companies that are looking to stream video mobily. Is that your main customer base?

Yes. We work with publishers and we also work with folks who just have sites and enterprise content that they need to get out to different devices. And the two major solutions we do for mobile are taking video and audio files and transforming them into the many different flavors you need to consume them properly and with a high fidelity experience on the web. And doing handset detection at the edge so we know which file to send them. And forward deploying those pre-transformed files to the edge of our CDN. And the second piece is we blend advertising into those files from the ad serving system. That's what we call Limelight ads and Limelight Reach, just the mobile content transformation product. We are working with folks primarily on the publisher side. But we also, as the mobile web grows, and as volume grows, just like we work with infrastructure folks and we have 900 ISP partners around the globe, and we optimize our interoperability with those customers, we believe we will do the same with mobile networks around the globe.

Great. Just one last question, if I can squeeze in. Are you seeing a trend towards more multi year CDN contracts for just regular volume-based streaming?

No. We've seen some go shorter term, some go longer term. I think it just depends on the particular business and where they are in their growth cycle and how well capitalized they are, and what they are looking for in a CDN partner. The more solutions we have with a customer, the more long-term oriented they are willing to sit down and do something exclusive with us.

Okay. Great, thanks, guys.

Thank you. So that concludes our call today and we appreciate everyone joining. And if you have any further questions you certainly know how to reach us. Thank you, good day.

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