Edgio Inc (EGIO) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Limelight Networks 2011 fourth-quarter financial results conference call. At this time, all participants are in a listen only mode. At the end of the prepared remarks, we will provide instructions for those interested in entering the queue for the question-and-answer session. I will now turn the call over to Doug Lindroth, CFO. Please, go ahead, sir.

Good Afternoon, and thank you for joining us for Limelight Networks fourth-quarter 2011 financial results conference call. This call is being recorded on February 13, 2012, and will be archived on our website for approximately 10 days. If you are online, we have updated our standard investor presentation. And, you can find it in PDF format within the Investor Section of our website.

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 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 risk 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 would now like to introduce Jeff Lunsford, Limelight's Chief Executive Officer.

Good Afternoon, thank you for joining us. The fourth quarter of 2011 was a very good quarter for Limelight in multiple ways. We beat our forecast for revenue and earnings, we saw healthy gross margin expansion, we saw 9% sequential growth of core content delivery revenue, we saw content delivery pricing continue to firm up into more healthy historical ranges, we saw value-added services gross 70% year-over-year and approach one third of our revenue. And, we returned cash to our shareholders in the form of a buyback, which has, since inception, repurchased almost 9% of the Company at an average price approximately 36% lower than where LLNW closed today. We are strong believers in Limelight's brilliant future as an innovative provider of high-value, high-performance cloud-based services that will help businesses around the globe more efficiently and more effectively manage their digital presence across Internet, mobile, and social channels.

We are doing something truly unique at Limelight Networks. We are optimizing our integrated suite of high-value software as a service solutions for managing a company's digital presence. These include Limelight Video Platform, Limelight Dynamic Site Platform, Limelight Mobile, and Limelight Accelerate. We are optimizing these with our global high-performance platform as a service solutions, which includes Limelight Deliver, Limelight Stream, and Limelight Agile Storage. Each of these solutions is innovative and competitive on a stand alone basis, and when you blend them together you get a suite for managing a businesses digital presence where the whole is more valuable than the parts.

Just like you get with other successful suites in the software pass, such as Microsoft Office Suite, Adobe's Digital Media Suite, and so forth. Ours is a suite for the digital presence era when a company's image, brand proposition, and customer experience must be managed across a myriad of digital channels. But, the combination of our software as a service solutions, clouds solutions, and our platform, our customers enjoy the benefits of an entirely new one-of-a-kind offering which is differentiated from point solutions and which is delivered with the unparalleled performance for which Limelight is known. Our customer's and prospect's eyes light up when we show them this integrated suite, and our pipeline is growing with opportunities.

Specifics regarding value-added services performance in the quarter included revenue for the Limelight Video Platform grew in excess of 160% year-over-year, and revenue for Limelight Mobile grew in excess of 70% year-over-year. We are seeing these two areas combined as a category and together they more than doubled over Q4 2010. Our talented engineers have developed differentiated and competitive solutions in both of these areas. And, we expect Limelight Video Platform and Limelight Mobile to be big growth drivers for us in 2012. Revenue for Limelight Site Acceleration Solutions grew in excess of 25% year-over-year.

One of our key growth initiatives is to expand into the whole site and small object half of the content delivery market which represents a $1 billion plus market opportunity. We are focused on gaining market share in this area. In the quarter, our engineers delivered a fully integrated Accelerate solution, combining our whole site content delivery solution with the front-end acceleration technology our Limelight Israel team has developed.

We can now deploy and runs these as a combined solution. Or we can sell front-end acceleration to a business using another CDN and still offer them time to action improvement on the order of 30% plus. Front-end acceleration is a large market opportunity with almost zero market penetration. And, it offers even greater improvement on mobile sites than it does on websites. A recurring theme in the user centered design ranks of forward-thinking companies is now mobile first, Web second. With Limelight Mobile and Limelight Accelerate, our customers can design user interaction with this mandate in mind.

Cloud storage revenue grew in excess of 55% year-over-year. In the quarter, we put more customers into production on Limelight Agile Storage, a high-performance differentiated cloud storage offering which leverages our massively provisioned global computing platform which runs in over 70 data centers around the globe, is connected by up to 50 GB per second backbone links, and boasts approximately 8 TB per second of download and upload capacity with last mile providers. We view cloud storage as a multi-billion dollar market opportunity where we are just getting started. And, where we offer much better performance in capital efficiency than in-house solutions chewing up IT budgets today. Forrester Research recently published a study demonstrating that cloud storage costs 74% less than do-it-yourself in-house storage. In their example, 100 TB of cloud storage cost $251,000 per year compared to the approximately $1 million price tag plus ongoing operating and maintenance costs for internal storage.

Revenue for our cloud-based Web content management solution, now called Limelight Dynamic Site, was flat on a pro forma basis. This business was not growing when we acquired it and it takes multiple quarters to see the benefit of our added sales capacity flow into the recurring revenue base of the SaaS business. We are seeing nice pipeline and bookings growth here, though, and believe that our cloud-based Web content management solution will address a large and attractive market opportunity, and that we're just getting established. Bookings in the second half of 2011 for this solution were almost triple what they were in the second half of 2010, which is a good leading indicator.

Consulting revenue was flat from Q3. On a full-year basis, looking forward, we're expecting this consulting business to grow 20% plus per year. And, we also plan on building an ecosystem of distribution partners who will build implementation and business optimization consulting practices around the Limelight Suite.

Now, I would like to review some customer success stories. As mentioned, we are especially pleased with our progress in selling our software as a service and other cloud services to existing customers. The message is resonating in the market, especially within our existing customer base. A great example is Vance Publishing, a leader in business information and communications, who was initially a customer using both our Web Content Management Solution and Limelight Deliver, our content delivery solution. In the past quarter, we expanded the relationship by adding Limelight Video Platform to their suite of Limelight solutions. Vance Publishing sees the benefit of a scalable, comprehensive, and integrated Web content management platform that encompasses video. They have been impressed enough with our service and vision to make us their partner in leveraging the opportunities social, mobile, and Internet are presenting.

Success stories span the globe. Recent customer wins in both Japan, with IMJ Panasonic, and in India with Punjab Kesari Group, encompassed not only core content delivery services but also our software as a service solutions and other value added solutions. IMJ Panasonic leveraged our expertise in building out a live IP to HDTV experience. Punjab Kesari, one of India's leading newspaper groups, turned to Limelight to help them streamline the process of uploading, managing, and delivering their growing video library, as well as to ensure maximum site performance for their expanding global audience.

Q4 was a record quarter for our Limelight Video Platform theme on many fronts, including number of video plays, total traffic served, and total number of visitors. Limelight Video Platform enjoyed a 21% increase in traffic served over Q3. And, while catering to this traffic, still managed to release many new features, notably HLS for delivery to the Apple iOS, analytics for measuring mobile consumption, and APIs for search and modification call-backs.

New Limelight Video Platform customers in the quarter included Sky News Arabia who is using Limelight Video Platform to launch a new site with one of their partners, utilizing our Mobile Limelight Video Platform and Accelerated solutions, Lockers, who is using Limelight Video Platform for delivering syndicated content to help drive membership and revenue growth, 4X Capital Markets who is using Limelight Video Platform to publish analyst commentary for both paid and non paid subscribers. And, Kaspersky Labs who is using Limelight Video Platform to publish product videos internationally. We are proud to be a key enablement partner for these innovative and growing businesses as they work to enhance and optimize their digital presence. New Dynamic Site Platform customers, which is our cloud-based Web content management solution, signed in the quarter include Aero Electronics, which is also utilizing the Limelight Video Platform, and Palo Alto Networks which is using Dynamic Site Platform to support global marketing efforts for their rapid growth.

In 2011, we also continued to see exciting growth on our Limelight Mobile Platform with nearly 1 billion media requests made, which is nearly double the volume served in 2010. At the end of Q4, Limelight had over 300 customers leveraging our mobility capabilities across Limelight Mobile, Limelight Video Platform and Limelight Dynamic Site Platform. Including digital media companies like CBS, QVC, ESPN, HBO, and enterprises like Siena, PR Newswire, and GreyTV. Our Web and application acceleration services also continued to expand in Q4. We believe Limelight Accelerate is currently the only solution on the market that combines browser-based acceleration with a robust delivery platform from a single vendor, decreasing the time it takes for users to interact with a website no matter what connected device they are using. Customers benefit from more completed transactions, more successful conversions, and increased visitor loyalty. Launched in 2010, we continue to see aggressive growth in this -- of this market driven primarily by e-commerce and B to B enterprises.

Wayfarer is a good example of an e-commerce customer. They are a multinational company that sells furniture, home furnishings, luggage, toys, and pet items for over 5,000 brands. Their Web properties generate dynamic content to enable unique and customized experiences for users. Wayfarer required a solution that could optimize dynamic content on the fly. Results with Limelight Accelerate included a 17% increase in page views, 7% increase in conversion rates, and 21% increase in customer satisfaction. Limelight is, to our knowledge, the only CDN to have embedded these patent-pending front-end optimization technologies at the edge of the Internet.

We believe the recent industry interest in the front-end optimization line of services should benefit our customer acquisition efforts. During the quarter we added a number of high-profile customers on our Limelight Accelerate Suite of Services, including Sky News Arabia, the social media site Uzu, and kirstiealley.com. Another tremendous growth opportunity is our cloud storage offering, Limelight Agile Storage. Agile is a high-performance secure cloud storage solution that enables customers to move, share, and archive large amounts of data. As an important extension beyond core content delivery offerings, Agile Storage is a cloud-based solution with global geographic placement, business process management for content, and business policy controls to simplify administrative overhead, reduce long-term IT costs, and ensure compliance to regulatory standards.

We believe Limelight Agile Storage is unique in offering the most robust policy management and performance capability on the market today. And, Agile Storage is backed by our global computing platform, which allows files to be accessible wherever and whenever users need them at blazing fast speeds. Our Agile Storage customers represent a strong cross vertical adoption, including global gaming, entertainment, social media, and publishing organizations. These customers are using the service because storing large amounts of data, applications, media files, video, etc, is difficult and time-consuming to manage, expensive, and slow to move and requires 24/7 availability. We believe a key driver of storage success will continue to be regulatory compliance as companies migrate off of or augment traditional tape-based, on premise legacy solutions with cloud storage enabling them to turn CapEx storage costs into OpEx services costs.

A second key driver will continue to be the booming mobile application market, requiring application vendors and enterprises to deliver globally and take advantage of unique capabilities of different connected device platforms. Agile Storage bundled with our delivery services is a low-cost and easy way to deliver apps to employees, partners, and customers.

Finally, an exciting opportunity and challenge presents itself for network, mobile, and cable operators with the explosion of video-connected devices and over-the-top services. The success of over-the-top services such as Netflix, Hulu, both of which are good Limelight customers, and YouTube and others represent an opportunity and challenge to network operators. The success has driven billions of dollars in additional costs for operators and a desire to develop solutions of their own. Given Limelight's core expertise in building, managing, and scaling a network-centric CDN over the past 11 years, and our integrated cloud-based online video content management and storage platforms, we are uniquely qualified to enable operators and major broadcasters to address their cost challenge and capitalize in this market opportunity with a comprehensive solution.

We recently announced Limelight Deploy as our managed CDN offering designed for network, mobile, and cable operators to deploy within their own infrastructure. And, enable them to more efficiently handle the content congesting their networks while also creating new and compelling value added services revenue for their -- both their business customers and end subscribers. Our Limelight Deploy managed CDN offering, together with our complete stack of software as a service applications and professional services, uniquely qualify us to help operators capitalize on this opportunity.

Companies such as Bell Canada, Middle East Broadcasting Company, and MobiTV, where we recently supported leading mobile carriers successfully delivering broadcast quality live video coverage of a high-profile US sporting event, have all recognized the value of partnering with Limelight for an integrated managed solution that helps them capitalize on this shift from linear programming to on-demand IP based programming. The launch has generated a strong response, and we are currently working with other network providers around the globe to help them seize the opportunity that the exploiting adoption of IP video presents.

As you can see, we have a lot of value we're delivering to our customers beyond our traditional content delivery. We're happy with the progress of integrating these software as a service solutions and other cloud-based services with our distributed computing platform, and with the customer and market adoption for this integrated value proposition. As we go to market, we will continue to focus on three key market segments. Digital media, enterprise, and network operators. And, we'll continue to emphasize selling integrated value added solutions to simplify the growing complexities of delivering brilliant experiences across online, mobile, and social channels for their entire digital presence.

I'll now turn it over to Doug for the financials. Doug?

Thanks, Jeff. Please note the following financial results that I will be discussing are for continuing operations and exclude EyeWonder and Coors from current and prior periods. For more information regarding discontinued operations, please see our third-quarter form 10-Q and our 10-K that we plan to file in the next few weeks.

During the fourth quarter, Limelight Networks recorded total revenue of $46 million, up 7% from the fourth quarter of 2010, and up 9% sequentially from Q3. For the full year, we reported $171 million of revenue from continuing operations, compared to $154 million in 2010. Our value-added services revenue grew 70% on a year-over-year as reported basis, and was 29% of total revenue during the fourth quarter, which was flat compared to Q3 and an increase from 18% in the same period of 2010.

During the fourth quarter, Limelight's international operations represented 30% of total revenue, which was up from 25% in the same period of 2010. For the full year, our international revenue grew 24% from 2010 and we continue to see exciting growth opportunities in Asia-Pacific where we had growth of over 40% from 2010. We reported fourth quarter adjusted EBITDA of $6.5 million, compared to $3.6 million last quarter and $6.3 million for the fourth quarter of 2010. For the full-year, our adjusted EBITDA was approximately $18.4 million compared to $22.4 million in 2010. As a reminder, the revenue associated with our contract to assist Microsoft with building their in-house CDN ended in February 2011.

Revenue recognized specifically from this contract was approximately $8.1 million for the full year in 2010 and approximately $1.8 million in 2011. Our Q4 GAAP loss from continuing operations was $6 million, or $0.06 per basic share, compared to a GAAP loss from continuing operations of $4.3 million, or $0.04 per basic share in the same period in 2010.

For the full-year, we've reported a GAAP net loss from continuing operations of $30.1 million, or $0.28 per basic share, compared to $22.2 million, or $0.24 per basic share in 2010. We also reported fourth-quarter non-GAAP net loss, before stock-based competition litigation costs, amortization of intangibles, acquisition related expenses and discontinued operations of approximately $600,000, or $0.01 per basic share, compared to a non-GAAP net loss of approximately $20,000, or breakeven per basic share in Q4 2010. Our non-GAAP net loss for the year was $9.7 million compared to $2.1 million in 2010. Please refer to the tables included in our press release for the reconciliation of GAAP measures to these non-GAAP measures.

Gross margin was 40% during Q4, up from 36% last quarter. Gross margin increased in Q4 as a result of increased revenue from CDN customers with only a modest increase in our variable bandwidth costs, and also due to higher gross margins from increased revenue in our value-added services. Cash gross margin was 56% for Q4, up from 53% in Q3. For the full-year, cash gross margin was 54% down from 55% in 2010.

During the fourth quarter, our operating expenses were $25 million, an increase of approximately $1.5 million from the last quarter and an increase of $4 million from Q4 2010. Our operating expenses increased over Q3 as a result of an increase in stock-based compensation of $1.2 million, as well as an increase in variable employee compensation related to the increase in revenue and bookings in Q4. Total depreciation and amortization for the fourth quarter was $8.6 million, flat to the third quarter and up from $6.8 million in the fourth quarter of 2010. The increase compared to Q4 of 2010 is related to increased network depreciation and intangible asset amortization from our acquisitions. Depreciation and amortization in the fourth quarter includes $7 million of network related depreciation.

Stock-based compensation expenses for the quarter were $4.2 million compared to $3 million last quarter and $3.9 million in Q4 of 2010. Moving on to the balance sheet, our combined cash and short-term marketable securities balance on December 31 was approximately $140 million, down from approximately $158 million in the third quarter. The decrease in cash and marketable securities is primarily related to the repurchase of shares of our common stock of $15 million, capital expenses of approximately $3.5 million, offset by cash flow from operations of approximately $3.7 million. Day sales outstanding for the quarter were 55 days, down from 59 days the previous quarter and in Q4 2010.

Regarding guidance for the first quarter of 2012, we expect to achieve revenues in the range of $43 million to $45 million. Our value-added services revenue is expected to grow 60% to 70% on a year-over-year basis in Q1. For this revenue range, we would expect gross margin to be 36 % to 37%. The decline in our gross margin from Q4 is related to the reduction in revenue that is coming off of our seasonally strong Q4. We believe that our gross margin will increase throughout the year as value-added services revenue gradually continue to grow as a percentage of total revenue.

Stock-based compensation expenses for Q1 are expected to be approximately $4 million and capital expenditures are expected to be approximately $4 million to $6 million. We anticipate that our first-quarter operating expenses, excluding stock-based compensation, litigation expenses, and acquisition related expenses, to increase by approximately $2 million from Q4 due to an increase in Company-wide employee compensation, related to annual merit increases, FICA costs, increased bonus accrual, additional headcount, and our annual global sales conference that took place in January.

With that, I will turn it back Jeff.

Thanks, Doug. This update hopefully gives you some good insight into how much we've accomplished in transforming Limelight from a pure play video CDN into an innovative provider of high-value, high-performance, integrated, cloud-based services that help businesses more efficiently and more effectively manage their digital presence across Internet, mobile, and social channels. Our strategy is simple. Keep scaling our high-performance, global computing platform, keep advancing our content delivery solutions, which are simply the first application we deployed on that platform, and build adjacent, high-value software as a service and cloud solutions which are complementary to our core content delivery offering. And, which are differentiated from other point solutions through their interoperability and the fact that they run on our global computing platform.

As we have executed on this plan, our bookings mix has shifted to where almost 50% of new bookings are for these value-added services. Investors should note that these value-added services have the business characteristics of software as a service solutions not CDN solutions. Meaning one, we do not expect to experience the kind of year-over-year price pressure you normally see in the CDN sector. And, two, that we are designed into the workflow of our customers and have much deeper and more lasting relationships with them. When we sell content delivery with a value-added service, we see less discounting.

To quantify this for you, on new customer bookings in Q4, when we sold content delivery bundled with a value-added service, we saw nine absolute percentage points less discounting than when we sold content delivery standalone. This is consistent with what we've reported over the last three quarters, where the average value-added services benefit has been 14 absolute points less discounting on content delivery. Value-added services truly add value. And, they are stickier and higher margin so our bookings mix shift -- shifting in their favor, portends future value creation within our business.

What is most important, though, is how we help our customers achieve success in their own businesses. When we can improve an e-commerce or content sites time to action or time to experience by over 30%, we are helping them grow their top lines and improve their bottom lines. When we can empower a customer to manage their entire digital presence with one integrated cloud-based application, that utilizes a common content repository, and common metadata across modules, we are streaming their workflow and improving their efficiency and their ability to collaborate with colleagues across the globe. These are truly valuable solutions and these are just basic examples of what Limelight Networks is now capable of.

In addition to delivering broadcast quality video, streaming games, and software downloads across the globe for the worlds most demanding tech and media titans. We believe we are uniquely positioned to offer our customers high value, integrated cloud-based solutions, because we have already solved some of the hardest problems in cloud computing. Those of delivering broadcast quality video to demanding hyper connected consumers across hundreds of device types across the globe. Once you built a combined software and hardware platform that can accomplish all of that, you have a huge head start and performance advantage in writing software as a service apps up at the workflow layer.

We have done the heavy lifting. Our Video CDN heritage uniquely positions us amongst all of the aspiring participants in the cloud movement. We are excited to execute on the opportunities this positioning presents for us in 2012. Based on the reception we are seeing in the marketplace, we intend to invest heavily in these software as a service and cloud offerings, and are targeting to exit 2012 with our value-added services on a $75 million to $80 million annualized revenue runrate and growing at approximately 40% year-over-year. This group of high-value, high margin, high growth services is an exciting and valuable complement to our content delivery business.

Our content delivery business is the anchor business which fuels and funds the growth of our global platform, upon which our value-added services run and which provides us with differentiated capabilities in each respective value-added service product area. We're going to build a platform, keep growing content delivery, and on top of that, build a high-value software as a service business.

At this time, operator, we will open the line up for questions.

Thank you, Sir.

(Operator Instructions)

David Hilal, FBR.

Great, thank you. Jeff, on the Deploy offering, can you walk us through the pricing a little bit? I guess what I'm trying to get at is, as those operators have success selling that through to their end customers, how does Limelight benefit and monetize that?

Right. So, Deploy is a managed CDN offering. So, we actually will partner with telcos, we will install our CDN software onto the infrastructure provided by the telcos, normally inside their data centers. And, we reaching in and we manage it. And then, they have the ability, they resell those services to their customers. And, we're managing it for them.

And, we can terminate traffic on their network for our customers that aren't on their network. So, it's a Federation of networks, so to speak. And then, the second big benefit of Limelight Deploy is the fact that we bring all of our value-added services to the tables. So, telcos that want to be in the entire game of OTT enablement can take much more than just content delivery to market if they partner with Limelight.

Okay, and then, let me ask you about cloud storage. I think when you guys first introduced that it was obviously targeted at your media-rich customers with big media files. And, I think the goal had been to sell that as a stand-alone solution into enterprises for any type of files. And so, how has that effort gone in selling it to the nontraditional base and into, call it, just the enterprise?

So, we've begun to see -- video is obviously some of the largest files out there. And, we've had big success with videos with customers -- not video content libraries for streaming purposes, but for workflow purposes like digital dailies, as an example. And then, we have game software companies that are -- have globally distributed development teams that have big files that they also need to move around.

And, we are beginning to see early success, in what I'd call, the non-video area with pure enterprises. And, Q4 was, as I said, was a quarter where we put more customers on Limelight Agile. And, will be looking for, David, some publicly announcable proof points of guys who are pure enterprise guys.

You'll know we've really hit the vein when we start basically getting the dollars instead of going to NetApp and EMC they're coming to Limelight. From an OpEx standpoint, then you'll know that we've tapped in to that multi-billion dollar opportunity. So, we have an enterprise sales team that is laser focused on that.

And, Agile is unique and different, because if you are an enterprise and you want to upload content based on a policy and you want to have it in multiple different geographies based on those policies, Agile allows you to do it. And, what's really cool is we have all this bandwidth that most cloud storage providers do not offer.

And, that allows us to have upload, download times, and file movement times that are dramatically faster than what you tend to see. So, that's also one of our competitive advantages. It's the policy driven nature of it, the geographic -- geographically controllable nature of it and the amount of bandwidth that we have at our disposal.

All right, then let me ask finally, I don't think I heard AcceloWeb on the call. And, I don't know if I missed it but, obviously Akamai acquired Blaze which sounds similar to what you guys acquired. I know it was a small acquisition for you guys, but maybe you can just compare and contrast the two and talk about this front-end optimization opportunity? Because clearly, you two guys are more aggressively pursuing it. Thanks.

Sure. I talked about Limelight Israel, that is the old AcceloWeb team that's now Limelight Israel team. And, they did a great job in the quarter of actually delivering full deployed integrated bundled front-end acceleration with whole site CDN capabilities.

And, we can now go into an account and very rapidly enable someone's website, with our without their involvement, to show them very material performance improvements. So, that's the Limelight Israel team. And, we think that FEA, which is what we call front-end acceleration, is a huge opportunity.

The folks at Akamai are obviously very smart folks and they see the same opportunity we do. We think our team and our technology is the best on the market. And, we think it's going to be a greenfield market for many years to come. We're really just getting started. And so, their acquisition of Blaze, I guess, validates the space.

But, we think there are a lot of things that our technology does that theirs doesn't. So, we will be able to continue to differentiate. And, the other interesting thing about FEA is we can go in and sell it to someone using any CDN, doesn't need to use ours, and still show them 30% plus improvement in page load times. And so, it's a great beachhead for us into other CDN's customers.

And, obviously the one with the most customers out there is the one that has the most at risk. So, why we think it's huge market opportunity and it's great value add for anybody who signs up for front-end acceleration, whether they're looking at ours or someone else's, I encourage businesses to look at it. Because it's great technology, very low uptake friction as far as up front costs and implementation.

Great, thank you.

You're welcome

Thank you, Sir. Mike Olson, Piper Jaffray.

Hey, good afternoon. In your investor presentation you talk about 70% to 80% gross margin for VAS in your target model. Is that what the margin is in that segment today? Or is that what you anticipate it will be when you reach that target model or both?

That's what we anticipate it will be when we reach that target model. As we continue to add the value-added services on top of the global computing platform, there is efficiencies that we gain. We're close to it today. We don't fully realize that.

A big piece is from our Web content management acquisition which was the Clickability. That has lower margins today partly because of the deferred revenue haircut that we took when we purchased them. The amount of deferred revenue that we ultimately had to write off and don't recognize on a GAAP basis, so that's a piece of it.

Plus, from a scale standpoint of taking advantage of the scale as that business grows. So, it will really grow to that 70% to 80% as we expand. But, certainly, the VAS does today have higher gross margins then we see on the CDN side.

Okay, and has there been any just competitive landscape changes in DAS over the last 3 to 6 months?

Well, I think you're seeing the OVP category crystallize around Ryko who, I believe, is coming public this week. And, what we hope will be a very well executed transaction for them. And, then you have [Ualo], it's private, and then, you have the Limelight Video Platform and we are going to be one of the market leaders in that space. That is also a greenfield space.

So, a lot of just wide open -- customers that are not using a video platform today. And, to us that expands into Web content management, Michael. So, there are billions of dollars still spent on in-house content management software, running on in-house software, stacked and racked in in-house data centers, maintained by expensive consultants and that is just a huge inefficiency. And so, we think that category grows to become Web content management mobile and online via platform, all in one integrated solution.

And so, we believe that's where everyone will develop to. It's kind of obvious that you should be at a manager entire digital presence on one code-base in the cloud rather than on four. And so, we think we are the leaders there. But, we also think it's greenfield and there are going to be many healthy companies that -- growing in that space for the next couple of years.

Thanks, a lot.

And, the other big material development would have been Akamai's pending acquisition of Cotendo which as we were expanding, as we are expanding, into the small object half of the CDN market, which is $1 billion market opportunity in and of itself with a lot higher margins than the video half of the CDN market, we were competing with Cotendo and Akamai in that space.

And so, we like the idea of just competing with Akamai in that space. It's still a very market that's right for the taking. And, we think our integrated FEA plus site gives us a strategic advantage there. That would be the other material development.

Thank you.

You're welcome.

Donna Jaegers, D.A. Davidson.

Hi, guys good quarter. A bunch of little questions. On the customer count, it looked like it was down sequentially. Is that -- I'm not sure if I'm correct in my numbers for EyeWonder. What are you seeing on the customer count for your CDN and for your value added businesses?

Yes. We don't break it out between the two. But, it was slightly down in the press release schedules. Those are the corrected numbers excluding EyeWonder. So, if you pull them off the press release schedules, let me just pull it up, it was down from 1,602 to 1,565.

That drop was really on small customers. But, what I look at on that is what the attrition is, so the dollar revenue attrition is consistent with what we've seen running around 0.5%. So, very low dollar rate of attrition. So, it is impacting the number of customers. But, not something that we see overly concerning.

What is more positive on it is our average annualized revenue per customer which was up about 10% sequentially. So, we saw that as the positive sign and we are seeing growth, like Jeff talked about in the prepared remarks, of our sales force doing a good job of selling into our existing customer base.

So, that's where we are seeing a lot of good bookings traction and pipeline growth as well is with our existing customer base. But, it is something important to us as well to continue to expand the customer base. But, to where it's going to be customers that are going to drive revenue.

Right. And then, on CapEx, fourth quarter was a lot lower than I was looking for and your guidance was lower than it has been. Should we -- I mean, are you guys now with the value-added services a much less capital intensive kind of company as you go forward? Or, are we just at a stairstep where you've already invested in the core CDN and you can ease off that investment for the time being?

Yes, I would say, Donna, it's a little bit of both. We did do some significant investment towards the end of 2010 and the first part of 2011. And, we had previously talked about that had a lot to do with the buildout that we were doing for Netflix. And, since then we've really been focusing on trying to fill the valleys of the CDN which is higher gross margins, higher profitable customers within the CDN.

And, as a result of filling the valleys, it doesn't require us to expand the peak capacity of the network as much. So, that's how we are looking at it saying we think those prior investments will get us by for some time. And, when you look at that guidance of $4 million to $6 million, call it 10%, 11%, of our revenue guidance we think that's a reasonable rate for this year.

Great, great. And then, any update on the lawsuit as far as timing on when you guys might expect a ruling from the circuit court?

No, Donna, we have -- it's a black box. It to be anywhere from a month to over year from now. So, we just continue to believe that we've won that case twice. And, we -- the case has no merit and we're off and building our business.

Okay. Great, thanks, Jeff.

Thank you.

Aaron Schwartz, Jefferies.

Good Afternoon. I had a follow-up question on the storage business. You talked about the early success there and the enterprise sales team is focused on that. For enterprises to really archive some of their storage needs, do you need to partner more closely with a backup storage company? I know you mentioned EMC and NetApp, but do you need a formal partnership there or can you do that on your own?

Arron, we can do it on our own but we also are very pragmatic as far as how we think about go to market. And, if someone was interested in partnering with us that had great distribution with a lot of active dialogue around cloud storage then we would certainly look at that. But, we do have over 70 -- or around 70 code carrying reps around the globe many of whom are focused on the enterprise now. So, we are certainly capable of taking the product to market ourselves.

If someone came along and it made sense to partner -- and we have one deal in our pipeline where the partner is a big systems integration firm that is doing a lot of work for a global energy company, and that's an example where it would make sense. And, if we have success there, those guys would probably take us into many other accounts. So, hope that answers your question.

It does. That's helpful. And then, secondly, you talked a lot about integrated suites and you talked about the benefit on discounting when you do bundle some of the VAS products with the CDN.

I don't know if you can talk to the renewal cycle here over 2012. But, are there -- as contracts come up for renewal are they more core CDN and you're able to cross sell some of the VAS? Of is there anything where we should think about here as contracts come up with over the next 12 months or so?

No, I think that the dynamic at play is that as -- if we have multiple product relationships with a customer, then we certainly have a better chance of renewing that relationship. And, we have less price pressure on the various products that are renewing within the contract. So, we're just doing a lot of work to cross sell and upsell our customers and make sure we have competitive offerings.

And then, Doug walked through some of the customer attrition metrics. It's a -- the number is higher than we would like. But, as far as revenue contributions it's very low, it's a bunch of smaller customers. Sooner or later, those smaller customers, we need to turn them into larger customers. And, there's some great opportunity there.

Okay, terrific. And, last question for me if I could. in terms of the Limelight Deploy offering, does that require -- you talk about some hiring but does that require more professional services hiring? Or is there any front-end gross margin compression we should think about before the services actually get turned on within the telcos?

No, there is nothing that would front load it where because of doing that type of offering. Then it would really come down to depending on the structure of the arrangement that we enter into is what is going to ultimately be the revenue recognition on it. Because it does have multiple components to it. So each deal, depending on how we negotiate it, will determine what the revenue recognition is. But, there isn't any big upfront investment that will be an inhibitor on gross margin.

Okay, terrific. Thanks for taking my questions.

Thank you

Chad Bartley, Pacific Crest.

Hi, thank you. Curious if you guys can talk about value-added services as a percent of revenue in Q1 just to get a little more color there? And then, similar to the commentary around the value-added services longer-term or beyond Q1 can talk at all about the CDN segment? What kind of growth is realistic there after it fell about 2% in Q4?

So, we had guided to VAS growth of about 60% to 70% year-over-year. So, depending on where you pick within that range, will ultimately determine what is that VAS percentage of revenue. So, I would say we will probably see it in the 30% to 31%ish type percentage of total revenue

Okay. That's helpful. I just want to make sure I have the correct year-over-year comp. So, that's helpful. Then a follow-up on the other segment, the CDN segment. It did decline a bit in Q4. Can you give us any color or commentary on growth rates looking out to 2012?

Yes. We're not giving full-year guidance. Yes, so, what we have seen, and we saw it towards the latter half of 2011 as well, part of it as the impact from the loss of the Microsoft revenue. And then, when you exclude that it's still relatively flat or slightly down. And, some of that has been our conscious decision not to chase the low margin low price CDN business and really focus on filling those valleys.

And, for us, it's investing in that and then really pushing our focus on to the value-added services. We really like seeing that 60% to 70% growth in the VAS that ultimately has higher gross margin. So, that's really where we're pushing the investment. So, on the positive side, and Jeff talked about it, was the CDN pricing.

So, we saw again in Q4, when we look back to when we had the Q1 step down in pricing that was related to the Netflix repricing, so when you talk over the last nine months annualized price declines were around 20% year-over-year. So, it's much healthier than it's been. And so, then it really comes down to if that sticks, those kinds of price declines, what kind of traffic growth are we expecting to see and how much of that then will ultimately be the revenue driver for the CDN.

Okay, that's very helpful. And, can I ask just one follow-up? You talked about traffic. How would you characterize traffic growth in Q4? Was it stable on a year-over-year basis? Did accelerate? I'm curious how you guys would talk about that?

In Q4, I think if you compare Q4 there were traffic versus Q4 traffic the year before, it was probably -- it's our strongest quarter of the year for traffic. And so, they were about similar in terms of what those year-over-year growth rates were when you look at 2010 over '09 and then 2011 over '10. So, very strong quarter from a traffic growth perspective.

Okay, thank you

You're welcome, Chad.

Michael Turits, Raymond James.

Hey, guys. First, just a clarification. So, did you see from, if you think of a year-over-year growth, accounting for seasonality in volume growth rates, did it pick up from third quarter to fourth quarter? Again, optimizing you probably know [Comment] saw a slight pick up?

On a year-over-year?

Yes.

Yes. We did. I mean, we looked at it as from Q3, as we know, going through the middle half of 2011, it was a rough year for all of us in the industry. And then, started to see things trend back more positive. And so, the 9% sequential growth that we saw from Q3 to Q4 was stronger than we had seen in prior years on that same Q3 to Q4.

Okay. And then, last couple quarters you have been giving a metric for value-added services on a pro forma basis. Which should be helpful because I think if the target is 40% plus, I think it's 40% by year-end, what are you at now on a pro forma basis? I think it was 27% last quarter.

Yes. This quarter for Q4 it was just over 25% on a full pro forma. And, as Jeff mentioned during the prepared remarks, that the Web content management from Clickability still running flat. Although, we're really starting to see the nice growth in bookings and pipeline.

If we exclude them from our VAS and just see how is the rest doing on a pro forma year-over-year basis, it's closer to the 40% number. So, we feet good about the Clickability, all the bookings that will then roll into revenue and start getting the growth out that portion of the VAS. So, that's how we get comfortable that exiting the year that we can get up to that 40% type rate.

Let's take another slice of those numbers. If the 25%, suppose you included Web content management, sorry for slicing here, but normalize for the right down that you mentioned on the deferred revenue, does that make up some difference also?

Yes. That would make up a few more percent, but not significant.

Okay, so a couple points for that.

Yes, it was bigger earlier in the year. The amount of that deferred revenue market has been declining each quarter.

Sure.

I think, Michael, you'll see Web content management grow. And, that's a product where the implementation is a little bit longer because we're doing a lot of work flow work with customers. From a signing of a contract to them kicking into revenue can be as long as six months. Because you're going in and doing the discovery and everything. But, once you're in, you're in for 5 to 10 years.

And then, the other piece is the consulting part of our business has been flat for the last two quarters. we're modeling in excess of 20% for that this year. And, once those two start growing, and we're seeing the right activity in the pipeline and right deals that have already closed for WCM that are in implementation to be -- to feel good about the guidance that we gave you on that sort of revenue range for exiting the year and the growth rates.

So, if I could squeeze in one last one. The guidance implies ex-normalized for the Microsoft revenue. You'll still be down year-over-year on CDN revenues in the first quarter at the midpoint of everything. Does that start to go positive? Any thoughts just think maybe second quarter, third quarter, fourth quarter does that then become more like a mid-single digit grower? How should we think of the CDN business the we guys are targeting?

I think you should think of it as, were cautiously optimistic about the pricing trends, as Doug said, over the last nine months. The annualized rates we've seen around 20%. And, if we can pick up 50% traffic growth with those kinds of rates you could see 20% growth there.

If we pick up 40% traffic growth with those kind of rates, you get 12% growth. So, but we're being, as I said, cautiously optimistic. We're also not going after the super high volume, lower margin video accounts that drive a lot of CapEx. We have really good video CDN business. And, have great relationship with big customers.

But, when you look at the kind of growth rates we can get out of the high margin software as a service and cloud solutions, just from a return on capital standpoint, we think that's where we should be focusing more growth dollars then just spending a bunch of CapEx to carry more exciting video. But, there's not a lot of margin there. So, the video CDN is a great platform.

And, it's going to always be a great platform for us. And, then we're going to fill valleys and then launch these higher -- and continue to grow these higher margin services. So, I think that's why -- we can give you revenue growth and traffic growth on CDN, but, as you've seen for the last couple years its used up a lot of CapEx. So, we're trying to be conscious of which levers we turn and which zone we put the throttle in.

Kind of like the lower CapEx, then. Good work. Thanks, guys.

Thank you.

One last question, operator.

Thank you, Sir. Rod Ratliff, CapStone Investments.

Thank you, thank you, very much. Mostly housekeeping here, guys. I've got a couple that are basically one or two word answers. And, I've got a couple that aren't. So, Doug, did you say how much remains authorized on the repo?

I didn't, but it's very little.

Okay.

It's, I forget the exact amount, but it's in the $100 thousand-ish range.

Okay. And, did you set a target, this is purely housekeeping here, did you set a target for shares outstanding for one 1Q and I just missed it?

No, we didn't set the target.

Okay. And, cleaning up -- following up on Donna's question about the customer count metrics. Is the drop off, is that largely rated to count methodological differences? I mean, if you guys see a customer drop below a certain threshold do you drop them out of the customer account, or what?

If the revenue does drop we do take them out of the count. If they drop below $100.

Okay.

So, if we're not seeing revenue from them of at least $100 we pull them out. So, it is really the smaller customers that have not been recording revenue and pulling out. As I said, it's the attrition, the total dollar amount was about 0.5% in Q4, of revenue loss related to the customers that went away. So, it was a really small amount of revenue impact.

Now, one here for Jeff or, I guess, either of you. My experience with reseller agreements, talking about Deploy here, it typically -- there is pretty close to some type of a fixed margin target with -- or a range for reseller agreements.

Either on the resellers end or on your end. Meaning you're going to mark it down a specific amount below low rate card. Is that range bounded? Or is there any sort of a target figure below standard commercial rate card that you have for Deploy?

Yes. So, think of Deploy as a managed service where we're getting paid what's in essence right -- for a right to use our software and have it deployed on their infrastructure. So, we don't have the kind of OpEx margins we would normally have.

But, then we also have people. We're also getting paid for our people that are helping them to manage that platform. So, a CDN is a living dynamic vibrant technical being, that has a global footprint and things are changing everywhere all day long.

So, it's not like install the database software and it will run lights out. It requires a lot of management and we're pushing new code daily. And, handling traffic congestion daily, so on and so forth. So, the service is a combination of our software installed on their hardware and our people managing it.

And, that is what we get paid for. So, I think you're kind of trying to get is that going to be a different gross margin profile than when we sell it. And, it should be higher margin. They won't pay us as much on a unit basis as we would charge directly to a customer. But, we don't have all the, again, the OpEx and CapEx costs that their handling.

And, we've -- this is a newly named product that we've done this in three markets. We've done it in India, South Africa, and Canada to very good success. And, we are looking to replicate that as the other telcos around the globe are feeling pressure in their networks. And, they're all interested in having solutions beyond just transit and transport to sell. It's become very topical in the telco community.

Right. Okay. Great. Thanks, Jeff.

Thank you. You're welcome. Okay, operator, at this time we will conclude the call. Thank you all for your time today. And, we will see you out there in the market.

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