Edgio Inc (EGIO) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Limelight Networks 2012 Third 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 question and answer session.

I will now turn the call over to Gillian Reckler, Limelight's Director of Investor Relations.

Good afternoon and thank you for joining the Limelight Network's third quarter 2012 financial results conference call. This all is being recorded on November 1st, 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 regarding 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 result to materially differ from those contained, projected or implied in the forward looking statements. Including the inherent risks associated with litigation, particularly intellectual property based litigation. Reported results should not be considered an indication of future performance, factors that could cause actual result to differ are included in the company's periodic filings with the securities and exchange commissions.

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

Thanks, Gillian. Good afternoon. The digital world grows in importance with every passing day. Every company desiring to achieve success in this new world must now operate with two faces, a physical presence and a digital presence. Increasingly, buying decisions are being influenced by information buyers learn about a company through its digital presence.

By the time a prospect walks into a store or calls a sales rep, they've already usually formed an opinion of a company and its offerings based on what they experienced in the digital realm. Reviewing website content, mobile content, product and service reviews through social channels, etc.

As a result, the stewardship of an organization's digital presence has become a critical success factor worth of executive suite attention. In response to these trends, Limelight has developed Orchestrate, the industry's first integrated digital presence management platform. We are unique in our approach to solving this critical problem and we are seeing great traction in the market with 28% year over year growth of our value added services.

Revenue in the third quarter was $45 million, of which 35% was generated by these value added services. The value proposition for the integrated suite of digital presence management services within Orchestrate is resonating and we saw new customers purchase an average of 2.2 products in queue as they established their initial relationship with Limelight.

We also continued to see traction in up sells into our base, especially with Limelight video platform. Core content delivery revenue in the quarter declined 2% on a year over year basis and Doug will give you -- will provide further information on that momentarily.

Limelight is proud to be at the forefront of the burgeoning digital presence management movement. Let's expand further on what we mean by digital presence, because this is important, simply put digital presence is the sum of every digital touch point a company has with its audience, across every type of online channel, mobile, social, web, a living room and all other digitally delivered points of customer interaction.

Pressures are growing quickly on organizations to optimize their digital presence. A recent study commissioned by Google found that 90% of us now us multiple screens, PCs, tables, smart phones, smart TVs to research or buy online. Business to business buyers are no exception. In a recent survey by McCallum Leighton, 71% of business buyers reported routinely researching vendor websites and industry press websites and downloading online white papers during their buying processes.

Organizations are just now beginning to take advantage of the power of an optimized online digital presence and they need help from solutions like orchestrate, which take advantage of the opportunity presented by this multi-screen, multi-channel world and we believe this creates opportunity for Limelight.

Users are coming to expect richly, dynamic content delivered with fast, reliable performance to any type of device they choose. We saw a very creative multi-screen campaigns emerge during this summer's Olympic games and are now seeing advertisers, creative agencies and increasingly business to business marketing organizations acting on the new imperative to offer a consistent integrated digital presence across all digital touch points.

To accomplish this goal, organizations have a choice, they can cobble together a variety of standalone technologies to manage their digital presence by working with four to six different content management publishing processing systems and infrastructure services providers seems an expensive and inefficient proposition, likely leading to suboptimal digital presence experiences, higher costs and lower customer conversion rates.

Instead, leading companies continue to move to the integrated Orchestrate digital presence platform that Limelight has brought to market, adding new service solutions to their existing contracts with us. Some of the many positive endorsements of our digital presence management solutions, both as an integrated offering and as highly competitive stand alone products include companies like Frontier Communications and Toyota Financial Services who now use Limelight video platform, our end to end video solution for publishing content online.

Pet 360, the online distributor of pet food, who now uses Limelight video platform in addition to our web content management solution to offer rich, fresh and personalized service to their customers. Standard and Poors and a leading global electronics manufacturer who both expanded their relationships with us by adding web content management to existing Limelight relationships.

Tasty Trade and Interactive Media Mix, who are now harnessing three or more Orchestrate services to help them manage and optimize their digital presence.

We are excited to be thought leaders in the digital presence management movement. We are helping define the category and are unique in providing a comprehensive solution to a problem that so clearly needs to be solved.

Let's review some performance highlights. Combined revenue for the Limelight video platform and Limelight mobile which are key components of Orchestrate -- of the Orchestrate digital presence platform grew 44% year over year.

In Q3 last year, we had a few large sporting events that generated very large mobile traffic spikes, and this group grew 44% in spite of that year over year comp.

Limelight video platform and Limelight mobile enable companies to mange, publish and monetize high quality video on the web. Our LDP service is differentiated from other online video services through its integration with our other SaaS services and through the efficiencies and advantages our customers enjoy through our global high performance network.

Limelight video platform has intuitive browser based management tools for uploading and organizing media, a customizable player that can be skinned to fit the look and feel of our customer's websites, control through policy based publishing, analytics for fine tuning delivery and understanding customer engagement and mobile delivery capabilities.

The Limelight video platforms customers can monetize their video content through integrations with third party ad servers and networks and through the Limelight video platforms proprietary ad server. We continue to see good up sell traction with Limelight video platform into our customer base as previously mentioned with logos like Pet 360 and Scholastic Corporation.

IDC estimates that online video platform revenue will grow at a compounded annual growth rate of 27% form over $400 million in 2011 to over $1 billion in 2015. This is a high growth market, with very exciting potential.

Dynamic site platform, which is Limelight's software as a service web content management solution grew approximately 30% year over year, when revenues adjusted for deferred revenue write downs caused by M&A accounting.

Our end to end solution enables companies to publish corporate websites and manage multiple properties whether micro sites, multiband sites or multilingual properties. Its ease of use empowers marketing teams to publish and make website changes themselves without burdening corporate IT teams, because it all runs in the cloud on Limelight's high performance platform.

The dynamic site platform combines web content management with website marketing acceleration and personalization tools, mobile publishing options, social media integration, search engine optimization and reporting and analytics. Together, these tools accelerate engagement, lead generation, conversion and qualification for sales.

Dynamic site platform is the web content management solution of choice for leading brands across a range of industries from communications powerhouse, PR Newswire, to Relay Health who renewed during Q3 to a leading global electronics manufacturer who recently added dynamic site platform to their Limelight solutions set. Gartner estimates that the web content management market was over $1.2 billion in 2011 and that it will grow at a compounded annual growth rate of 14% year over year.

Revenue for Limelight Accelerate services grew 39% year over year. This accelerate family of services decreases the time it takes for users to interact with company's websites, regardless of what connected device they are using, improving what we call time to action.

The time to action for users to access your website is a key element of digital presence because the speed and performance of an end users experience leads to more completed transactions, more successful conversions and increased visitor loyalty. Limelight's web acceleration services combine front end optimization which works at the browser level with content caching through our robust network platform.

Customer wins during the quarter for accelerate included Houghton Mifflin Harcourt who added Accelerate to their existing Limelight services and [Aviesta], one of the largest bilingual private retail discount sites in the world.

In the quarter, we also continued to migrate new and existing customer to Limelight agile storage, our high performance differentiated cloud storage offering which leverages our massively provisioned global computing platform.

Agile storage offers unique global geographic placement, business process management and business logic controls to simplify administrative overhead, reduce long term IT costs and insure compliance to regulatory standards.

Agile's benefits include fast upload via localized ingest points, flexible replication policy, support for large object libraries and a wide variety of upload protocols. Agile can accommodate our customer's growing libraries and goes hand in hand with the other solutions in our Orchestrate digital presence platform.

Overall, storage revenue grew approximately 6% year over year, this is slower than the rest of our value added service suite, because it is still largely tied to CD and origin services, but we are beginning to see more exciting use cases emerge where customers want to use Agile for things beyond content delivery and we expect it to grow faster than content delivery going forward.

Consulting services grew 22% on a year over year basis. Our services team is driving into higher value services helping customers access, design, plan and implement their digital presence strategies. The new team we put in place in Q2 is gaining traction and we think they can grow services 25% or higher next year.

In the content delivery area, we continue to focus on signing only financially attractive smart business, overall, we believe our strategy of moving into higher growth, higher value solutions that leverage our unique technology and infrastructure resources, expanding our traditional customer segments and opening up longer term, more strategic customer relationships will propel us forward and accelerate our bottom line.

Our value added services of SaaS like gross margins and are less capital intensive. CapEx last year was $30.4 million and this year CapEx will be less than $20 million. Next year, we anticipate that it will be even lower as a percentage of revenue.

As we've discussed before, we operate one of the three largest digital video delivery platforms in the world and this is a scale game. The optimality is ours as to whether grow here or just hold the line and grow the value added services portion of our business.

Regarding intellectual property, we are continuing to develop differentiated and relevant intellectual property so that we can take full advantage of both the software as a service and content delivery and cloud storage market opportunities in front of us. We now have 45 patents issued and have dozens more in the works. We are pleased with our intellectual property velocity and in the innovations that our talented employees are developing.

On August 31st, the United States Court of Appeals for the Federal Circuit issued an opinion in Akamai's patent infringement case against Limelight. The court held that Limelight did not directly infringe Akamai's patent, which was the only issue before it. And as such, it upheld the district court's decision to vacate the original jury award of damages to Akamai.

A slim majority in this three way divided opinion also announced a revised legal theory of induced infringement that gave Akamai the opportunity to go back to the district court of a new trial to attempt to prove that Limelight induced its customers to infringe Akamai's patent.

Just as we have successfully shown that Limelight does not directly infringe Akamai's patent, we firmly believe that we ultimately will be successful in showing that Limelight does not infringe Akamai's patent under the minority's newly stated inducement infringement theory. And w will continue to vigorously defend against the allegation.

Limelight will file a petition to appeal this sharply divided court of appeals decision to the supreme court and will seek to stay any proceedings in the district court until the supreme court rules on its appeal. Just to be clear, the original jury verdict form 2008, which was subsequently overturned and all damage assessments associated with that verdict are no longer applicable.

We ended the quarter with $130 million in cash in marketable securities and no debt. We are well capitalized to invest in the already successful digital presence strategy I've just described. I'll now hand the call to Doug to review our financials in more detail.

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 the discontinued operations, please see our earnings press release that we issued today and our form 10Q that we will file in the next few days.

During the third quarter, Limelight Networks recorded total revenue of $45 million, up 6% from the third quarter 2011 and up 1% from Q2 of 2012. Our CDN revenue declined approximately 2% on a year over year basis, due to the expiration of our reseller contract with Global Crossing, who was acquired by level three and a reduction in on traffic related revenue.

In addition, we saw the rate of traffic growth accelerate in the quarter, however, we also saw an increase in price compression. The stronger US dollar also had a negative impact on our revenue on a year over year basis. Overall, our value added services continued to demonstrate traction in the market.

Value added services revenue grew 28% year over year on an as reported basis. Value added services revenue was 35% of total revenue during the third quarter compared to 29% in the same period of 2011 and up 32% from Q2 of 2012.

We had another strong quarter of year over year growth from the combined online video platform and mobile group and from accelerate.

In addition, as we indicated on our last few earnings calls, we saw strong growth of approximately 30% in dynamic site platform on a pro forma basis and we saw a nice turn around in our professional services that had revenue growth of 22% on a year over year basis.

During the third quarter, Limelight's international operations represented 32% of total revenue, up from 31% in Q2 and flat to the same period of 2011. We reported third quarter adjusted EBITDA of $2.8 million compared to $3.6 million for the third quarter of 2011 and $2.5 million last quarter.

Our Q3 GAAP loss from continuing operations was $0.6 million or $0.01 per basic share compared to a GAAP loss from continuing operations, a $6.4 million or $0.06 per basic share in the same period in 2011 and compared to $9.4 million or $0.10 per basic share last quarter. Our Q3 results included a $9.4 million gain, which we recognized on the sale of our investment in Gaikai Inc. who was acquired by Sony.

We also reported third quarter, non GAAP net loss before stock based compensation, litigation costs, amortization of intangibles, acquisition related expenses, gain on sale of Gaikai and discontinued operations of approximately $5.5 million or $0.05 per basic share compared to a non GAAP net loss of approximately $2.2 million or $0.02 per basic share in Q3 of 2011.

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 37% during Q3, compared to 36% in Q3 of last year and down from 38% in Q2 of 2012.

Gross margins increased over last year, due primarily to the increased contribution of revenue from our value added services. Gross margin declined from the second quarter as a result of a decrease in reseller revenue, as I previously mentioned, a decrease in non traffic related content delivery revenue, an increase in bandwidth and collocation costs to support growing traffic on our network and an increase in stock based compensation offset by higher revenue contribution from our value added services.

Cash gross margin was 54% for Q3, compared to 53% in the same period last year. During the third quarter, our operating expenses were $26.2 million, a slight decrease from last quarter and an increase of $2.8 million from Q3 2011.

Total depreciation and amortization for the second quarter was $8.5 million, down from $8.6 million last quarter and flat to the third quarter of 2011. Depreciation and amortization in the third quarter includes $7 million of network related depreciation. Stock based compensation expenses for the quarter were $3.7 million, compared to $3.2 million last quarter and $3 million in Q3 of 2011.

Moving on to the balance sheet, our combined cash and short term marketable securities balance on September 30th was approximately $130 million, up from $125 million in the second quarter of 2012. We repurchased approximately $3.2 million of our common stock and spent approximately $7.4 million on capital expenditures. Our cash flow from operations was approximately $5.3 million and we received $10.2 million in proceeds from the sale of our investment in Gaikai. Day sales outstanding for the quarter were 57 days, flat to the previous quarter, and down from 59 days in Q3 2011.

Regarding guidance for the fourth quarter of 2012, we expect to achieve revenues in the range of $45.5 million to $46.5 million. Our value added services revenue will be approximately 33% to 35% of total revenue in Q4. And for this revenue range, we'd expect gross margin to be 37% to 38%.

Stock based compensation expenses for Q4 are expected to be approximately $3.6 million. Capital expenditures are expected to be approximately $1 million to $2 million.

We anticipate fourth quarter operating expenses, excluding stock based compensation, litigation expenses and acquisition related expenses to be flat to Q3. With that, I'll turn it back to Jeff.

Thank you, Doug. This update provides insight into how much we've accomplished in transforming Limelight 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 web, mobile, social and large screen channels.

Our strategy is simple, keep scaling our high performance global digital presence delivery solutions with lower capital requirements, while building a complementary high value suite of software as service and cloud based solutions for digital presence management, which are differentiated from other point solutions through their interoperability and the fact that they run on our global platform.

We are excited to execute on the opportunities this positioning presents for us for the remainder of 2012 and beyond. Factoring in Q3 run rate, we are targeting to enter 2013 with our value added services on an approximate annualized run rate of $70 million and expect to be able to grow them at 25 to 30% next year.

In addition to the financial and operating highlights discussed above, I'm also announcing today that we've engaged an executive search firm to find a successor to me as CEO of Limelight. At almost $200 million in revenue scale, Limelight is the largest company I've ever run, and I believe, the right thing to do, given the massive opportunities before us and the richness of our digital presence management and delivery suite is to recruit a CEO who has scaled businesses from $200 million to $500 million and beyond.

My plan is to remain active, involved as a member of Limelight's board of directors. And my timing expectation for leaving day to day is mid January, 2013.

I'm delighted to have worked with the Limelight team over the last six years and during that period we have tripled our revenue, grown our traffic by 1500%, expanded our footprint into European and Asia pacific markets, dramatically expanded our solution set to now include market leading software as a service solutions for managing a company's digital presence, and properly capitalize the company with over $130 million in cash and no debt.

I look forward to continuing to work with Limelight's new CEO and the talented management team and entire Limelight team as a member of the board as we continue to grow this business and capitalize on the massive market opportunities before us.

Finally, we announced today that our board of directors had approved a new $10 million stock repurchase program. During the third quarter, we completed the $15 million share repurchase program that was authorized in May 2012. At this time., we will open up the line for questions.

Thank you. (Operator instructions). And our first question, comes from David Hilal. Your line is open.

Great. Thank you. I'll wish you good luck in your future endeavors, Jeff. On that topic. I was wondering what are you looking for in the CEO search? You obviously mentioned somebody that's had experience scaling. Are you going to try to find somebody from this industry? From tech more broadly defined? But what are the other characteristics you're trying to find in this candidate?

Sure. So, if you look at where we have been investing and where we are generating the high growth of the higher margin services. It's in cloud based services. It's in the software as a service solutions. So we would love to find someone who has internet infrastructure experience, but also experience in the software world and in software as a services the scale -- the size is important.

Someone who understands how to lead a company from the $200 million revenue range we're at today to $500 million and beyond, preferably at a high growth rate. So, I think David, those are probably the highlights.

All right, then let me ask on the balance sheet, obviously a new $10 million buyback. What -- what threshold are you comfortable from a cash balance standpoint?

When we think about the legal thing back and forth, and I know it's probably going to be some time before something happens, but initially remember there was $60 plus millions of a potential fine so to speak against you guys, which obviously you didn't have to pay, but I'm just wondering, just given the limbo nature of all this, does that influence what level of cash you're willing -- you want to keep, which indirectly is going to affect your aggressiveness on buybacks going forward?

Well, I think David, we should talk about buy backs, kind of one step at a time. Each quarter the board sits and looks at our capital structure and the investment opportunities we have and where the stock price is quite frankly and if we see the stock at levels where it is these days, we believe it's a fantastic buying opportunity for us and the share holders that remain long ter.

But I think we -- I don't want to make comments about how much we might buy when, I think surely each quarter we'll give you guys and update. We've obviously purchased back almost 15% of them carry over the last nine months and this new $10 million buy back will continue to do so.

And then, on pricing, I think Doug had mentioned pricing compression a little greater than what you had seen, can you help quantify that for us?

Sure, Doug?

Like I'd said in the prepared remarks, we did see traffic growth accelerate so we -- you were seeing traffic in the mid 40% on the upside, but we did see price compression come in to around the low 30s. So the combination there was -- is really what made our traffic revenue within the CDM portion relatively flat. So it's the combination of the two. The good news was the traffic growth, the not so good news was a little bit higher price compression than we'd seen.

Okay, and then I'll -- finally, and I'll pass it along here. The CapEx -- your guidance of 4 to 5, it came in 7.4, CapEx guidance for Q4 looks pretty low, which is good to see, but was it just an acceleration of some of that spending this quarter? Or why was it above where you thought you'd come in?

Yeah, it's an acceleration. There was some things we ended up doing in Q3. Sometimes our CapEx is going to be based on availability of products, our negotiations that we have with our venders and determinations when we're going to take that down and then deploy it. So, that's really what it was, our -- where we thought we would end the year in CapEx hasn't really changed.

So we think the levels that Jeff talked about in the script as well as what we've been saying all year are about the same. So it was really more pulling into Q3 and the full year looks about the same as what we've been planning all year.

Okay, I understand. Thank you guys,

You're welcome.

You're welcome.

Our next question comes from [James Westman]. Your line is open.

Couple things. First, Doug, on that price compression. Any thoughts on why you saw that create a price compression?

Yeah, I mean we had -- even through we've really been focusing on the value added services, we are still in a big portion of our business, 65% of our business is in the CDN. So we are going through contract renewals with customers and there were a few larger customers that drove it.

If I look at the customer base and pull the larger customers and the smaller customers, it was really driven by a couple of the larger customers, their traffic as a percentage of our total traffic. So, it's not something to me that I felt was alarming, but it is a couple customers that we choose to renew that did have that impact on our pricing, our average selling price in the quarter.

There's also other traffic that we've looked at said we don't want to take it because of those prices and we're going to manage what we take, what we renew and what we decline very carefully as we look towards the future and decide what kind of capital investment do we want to make, whether it's in the CDN or whether that's back in the value added services.

Was there any change in the competitive environment? I mean would you be if those renewals, those situations were tougher competitive dynamic was the issue?

Not necessarily. I think the -- who the competitors are and that dynamic has been relatively constant for several quarters. You're going to have some quarter that your pricing maybe impacted more than others and -- but I don't see it as there was significantly difference in competition in the market.

And then, just on the guide, if I just go to the midpoint of 46 million, its only 2% sequentially. It's been a long time since you've done, I think if ever, that level of -- that low level of sequential growth in the fourth quarter. And I understand that pressures -- so what are the ongoing pressures in CDN obviously that would create that.

But I guess, more importantly, if I just take the midpoint of your guidance of 33% to 35% value added services and back into that it's still a pretty light number in terms of 4% sequential growth in -- actually down 1% sequentially in terms of value added services. So I was kind of curious what's going on with that.

I think yours -- yours and our numbers are off a little bit on the sequential for VaaS. We have a slight growing, there is -- with our DSP the web content management business, they did lose within that group one of their larger customers. They're part of the larger affiliated government group that had an internal system.

So, they're moving this division off of our platform to theirs. So, that's impacting the sequential. Is also part of the value add services group as a whole, where that growth rate is slowing a little bit on a year over year basis at the midpoint to about 19%.

So, it's nothing alarming. We don't have a churn issue within that group, overall churn in web content management is really low at less than half of 1% per month. So, that's a component of what's really driving on the VaaS on the sequential basis.

Okay. Great. Thanks very much, appreciate it.

Welcome.

Thank you. Our next question comes from Aaron Schwartz. Your line is open.

Hi, just maybe a follow up on that last question because you sounded like your numbers were a little different. I get the same math as the last question. If we just take the mid points of the guidance you provided, it does look like the VaaS is sort of flat to down, sequentially, relative to the 35% of total contribution in September.

So, could you just go over those numbers just so we're sure here. Because obviously the VaaS is from what we understand more of a SaaS business where you should have some visibility into the sequential move there.

Well, I think it's -- rather than debate it, I think the point is that it's roughly flat consequential. I think the differences really is is it 35 from Q3 it's 34.something, that gets you there. So, it's within the margin of what we're talking about. It's roughly saying it's going to be flat on the sequential basis and the real drive of that, as I said, was within the DSP portion of our business is the primary thing that's influencing what's happening on that.

Okay. And then you had mentioned Global Crossing here in the quarter. If you look at the CDN business, is there any way you can help us or are there any other sort of expected resellers or larger customers that you do not expect to renew either next quarter into next year? It's just -- you're making some -- certainly some decisions on the way you're managing that business and any sort of words of wisdom in terms of how we should be thinking about the modeling and growth going forward would be helpful.

I mean there's nothing like that from a reseller standpoint that we would say today that we've made a decision or something like the Global Crossing level three acquisition would tell us that that relationship is not going to continue. The only other thing I would say is what's been talked about in the market is with Netflix and that contract as we've talked about, will be ending at the end of 2013. So, it's not impacting next quarter or next year, necessarily, but it will be something that we'll be talking about as we go into next year, what happens after that.

Okay, and can I --

And I also think, Aaron, within VaaS, as you pointed out, it's very -- its much higher quality revenue both form a margin standpoint, but also on the CDN business, half your revenue is uncommitted and it varies based on volumes and traffics in the VaaS stack, that's not the case at all.

So, we said we should exit this year somewhere around $70 million -- or enter next year somewhere around $70 million run rate and that we believe we'll be able to grow that 25% to 30% and that's a -- a forward looking statement of course, but it's based on all of our pipeline information, our 2013 go to market, the current kind of sales productivity and the current quality of revenue there.

So the -- I wouldn't take the question form Q3 to Q4 and take the midpoint of the guidance in the midpoint of the percentage and conclude that VaaS -- the VaaS strategy isn't working, that's not all the case. I mean it is being incredibly well received in the market, it's almost half of our bookings now and the revenue quality there is a) higher margin and b) much more predictable.

So, we felt confident reaching out into 2013 and at least giving you kind of a run rate entering 2013 and an estimated growth rate for next year within that part of the business.

And how do you define that $70 million? Is that just sort of your last month -- business here in '12 or what is it, your definition of the exit rate there. Because if we look at Q4 it doesn't seem to be reconciling with that $70 million.

It's entering 2013, so it's kind of like what -- entering the year of 2013, what will the run rate be?

Yes, so it's really coming out of December.

Okay.

Not the quarter.

And the last question, for me if I could, just sort of a follow up to the -- I think it was David that asked the question on the buyback, I mean you're moving to a less capital intensive model, your stock price is lower than it was when we had the call last quarter. It seems like you believe it's a very good use of cash.

What's the message here that the buy back is less than the last authorization? Any other color you can give on maybe sort of the board dialogue would be helpful. It just seems to be sending a little bit different of a message.

No, there's no -- there's no signal there. I mean we did a $10 million, then we did a $15 million, now we're doing a $10 million. I think we're just looking at it, as I said, each quarter and at other potential uses of capital. So, I don't think you should read much into that.

Just to clarify, we did $25 million, $15 million, $10 million.

Okay, $25 million, $15 million, $10 million.

Yes.

So, yes, so we purchased back $40 million, this $10 million will round it up to $50 million and you can't time price exactly and there's all sorts of volume limitations as you know, so we're just look at trading volumes, look at the current capital we have on hand in this -- for this quarter seemed to be right and then if this one gets used up, then we'll sit around and look at it again.

Okay, thanks for taking my questions.

You're welcome.

Thank you. (Operator instructions). Our next question comes from Donna Jaegers. Your line is open.

Can you talk a little about sales force growth or turn over? What you're seeing there.

The sales force has been around 70, quota bearing heads, and that could either be a revenue quota or an ACV -- an (inaudible) contract value new bookings quota, Donna. And for the last couple quarters it's been generally steady there.

Yes, I mean overall, within our combined sales and marketing organization, we did have a little bit of a drop and that was primary calling non performers towards the end of the quarter. So that's why you see in our press release schedules, our total headcount did drop by 11 from Q2 to Q3, but we are in process of increasing those positions.

We did add more positions in our professional services organization in the quarter and we saw the results of that with the nice year over year growth return back into professional services. So, we are hiring -- once again continued to hire and expect our Q4 ending headcount to be above where we were in Q3.

Okay, and then on -- I'm sorry, Jeff, go ahead.

Donna, the profile -- we talked about this in the past, the profile sales rep has changed and so we -- over the last two years turned over a good number coming from the -- sort of infrastructure telco type of sales where price and volume matter into the more value oriented sales where our reps can sit down and have a consultative conversation with all these value added services.

So, the roughly 70 folks we have in the field today we think positions us very well with our products we added in the 2013.

Okay, and then on the Global Crossing reseller arrangement, can you give us -- did that come off in the middle of the quarter or at the end of the quarter and any sort of revenue color you can give around that so we can know modeling going forward?

Yes, it was completely out in Q3, so it ended in Q2. It's impacting Q4 from a year over year basis when you look at it by about $1 million.

Great. Thanks.

You're welcome.

Thank you. We have a follow up question from James Westman. Your line is open.

Just a similar sort of thing on that DSP loss. Can you quantify how much that was in terms of run rate revenues there, quarterly run rate and then should we see value added services start to grow off of that. On Global Crossing, did you anticipate that when you gave the last guidance? And then, anything you can tell us about what Netflix would eventually -- how that might impact you.

Yes, so the first one, I don't want to go into -- within the VaaS customer loss, that's not nearly as significant as the Global Crossing arrangement. So, I think where we guided to, the Q4 VaaS is the level that you should build off of because that is more of the recurring type revenue business. So, I would build models off of the guidance level that we gave for Q4 and what we also said where we expect to see value added services grow 25% to 30% in the 2013.

Global Crossing, yes, we had known about it, we had known about it for quite some time when level three acquired them that that contract would end. I think several quarters ago the question came up as to when that contract ended and we did say it ended in Q2 of 2012. So, we did know that was ending and expected that to end. And then, your last question was on --

Jeff, just if you could start to talk a little bit about what the impact might be from the roll up of Netflix.

Well, I think we talked about this last quarter, Netflix has contracted at very substantial levels through all calendar year 2013, and they've sort of announced that they're building this CDN out there for proprietary use and we are continuing to serve their content.

We have a great relationship with them their business, as you just heard, continues to grow and our -- since they have announced that they are building the CDN, we just want to provide transparency. It does not mean necessarily that we don't work with Netflix in 2014, but we're just sort of giving folks -- because they're a 10% customer, kind of the transparency they need.

As we discussed last time, there is plenty of business to be had at prices better than we get form Netflix to fill that capacity. If and when they leave, they are the largest buyer of our services and therefore get the best unit price and we could go replace that traffic with three or four other customers, and most likely generate higher revenue. But they are the anchor tenant right now and, or we can go find another anchor tenant, if that anchor tenant moves out.

Okay, thanks Jeff and good luck on the future stuff.

Appreciate it. Operator, it looks like at this time we have no further questions, so we will conclude the call. Thank you all for your time and we'll talk on any follow ups as scheduled.

Thank you. Thank you for participating in today's Limelight Network conference call. You may now disconnect.