Analyst Conference Summary


conference date: April 29, 2009 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2009 (1st quarter)

Forward-looking statements

Overview: Revenues leveling off, but at a strong cash from operations level.

Basic data (GAAP) :

Revenue was $210.4 million, down 1% sequentially from $212.6 million and up 12% from $187.0 million year-earlier.

Net income was $37.1 million, down 9% sequentially from $40.5 million, but up slightly from $36.9 million year-earlier.

EPS (earnings per share) were $0.20, down 9% sequentially from $0.22, and flat from $0.20 year-earlier.


Taking cautious approach.

Expect $207 to $213 million revenue in Q2. $10 to $11 million negative impact on revenue, y/y, from currency exchange rates.

$0.40 to $0.42 normalized earnings per share. Cash gross margins similar to Q1, but EBITDA and GAAP gross margins down a couple of points.

Will reach full taxpayer status in 2011. Cash tax rate 3% in 2009, 5 to 6% in 2010.

Conference Highlights:

Believes they did well in Q1 after a seasonally strong Q4. Continuing to win in the marketplace and in particular outside North America. Video demand and quality continue to increase. Working with RIM, Apple and others to deliver video to mobile devices.

"Normalized" net income was $80.5 million, or $0.43 per share, up 7% from year earlier, but down 2% from $82.2 million in Q4. Stock based compensation costs for GAAP were $15.1 million.

A share repurchase program of $100 million was authorized, enough to compensate for non-cash equity compensation programs.

Cash from operations was $90.5 million, up 3% y/y. The company held $848.5 million in cash and equivalents at the end of the quarter. There are $200 million in convertible notes outstanding. Capital expenditures were $25.0 million.

Customers with long-term contracts increased to 2,950, up 10% y/y. International sales were 28% of revenue, showing strong growth. Sales through resellers were 17% of revenue.

Cost of revenues was $60.4 million. R&D $10.9 million. Sales and marketing $42.3 million. General and administrative $36.1 million. Amortization $4.2 million. Restructuring $0.5 million. Total operating expenses $154.2 million. Leaving operating income of $56.1 million. Other income negative $5.6 million. Income tax provision $24.7 million.

E-commerce is the fastest growing vertical, but did back off the Q4 numbers, which are seasonally strong.

Media and entertainment was up 8% y/y.

High tech was flat y/y.

Government sector showed strong growth.

Customer churn was near 5%, with smaller customers in particular facing financial challenges.

$23,600 average revenue per customer (RPU).

Currency exchange down side was about $8 million y/y, $1 million from Q4.

Cash gross margins were 81%. GAPP gross margin was 71%.

Over 40% of revenue now comes from value-added solutions, which are software based and have high margins.

$100.3 million adjusted EBITDA.

Tax rate is beginning to rise as state-level net offsetting losses are exhausted. Cash tax rate is now 3%, far below the GAAP tax rate of near 40%.

Patent litigation: plans to appeal the recent ruling.


International strength? Saw strength in both Europe and Asia. They are still addressing Internet market opportunities, particularly for media and dynamic sites.

Is churn higher than average? Close to 5%, with smaller, under $3000 customers.

Pricing? Aggressive pricing for large delivery areas. Still seeing traffic growth, but not as strong as in past years.

Value added services? Growing both in existing accounts and in new accounts. In manufacturing, for instance, they are helping to get new customers. Even with customers who have some value added service, we have other services that we hope to sell to them.

Server count? Yes, it grew more than usual for a quarter. We continue to add capacity, particularly at the edge of the Internet.

Bandwidth pricing? We manage that well, helping move customer data by minimizing our own bandwidth costs.

Investments we made in international are really what is driving our growth in the short term.

74 of 92 customers in the quarter came with Acerno, so 18 new customers net.

Competitors talking about object delivery? We are way ahead of them.

AT&T as competitor? They've been competing for 10 years, they can say they own their own network but the Internet is thousands of different networks. We have a cost and performance advantage for our customers that is measurable.

How do you see churn going forward? Whether the churn of small customers is up or down a percent is not going to be as important as adding new larger customers. We don't expect churn to get worse.

Government trend is to do more business online and to reach more constituents online. We have been focused on this vertical for years.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2009 William P. Meyers