This quarterly report on Form 10-Q, particularly Management's Discussion and Analysis of Financial Condition and Results of Operations set forth below, and notes to our unaudited consolidated financial statements included herein contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of our management as of the date hereof based on information currently available to our management. Use of words such as "believes," "expects," "anticipates," "intends," "plans," "estimates," "should," "forecasts," "if," "continues," "goal," "likely" or similar expressions indicates a forward-looking statement. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions. Actual results may differ materially from the forward-looking statements we make. See "Risk Factors" elsewhere in this quarterly report on Form 10-Q for a discussion of certain risks associated with our business. We disclaim any obligation to update forward-looking statements as a result of new information, future events or otherwise.

We provide services for accelerating and improving the delivery of content and applications over the Internet. We primarily derive income from the sale of services to customers executing contracts with terms of one year or longer, which we refer to as recurring revenue contracts or long-term contracts. These contracts generally commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum. In recent years, however, we have entered into increasing numbers of customer contracts that have minimum usage commitments that are based on quarterly, twelve-month or longer periods. Our goal of having a consistent and predictable base level of income is important to our financial success. Accordingly, to be successful, we must maintain our base of recurring revenue contracts by eliminating or reducing lost monthly, quarterly or annual recurring revenue due to customer cancellations or terminations and build on that base by adding new customers and increasing the number of services, features and functionalities that our existing customers purchase. At the same time, we must ensure that our expenses do not increase faster than, or at the same rate as, our revenues. Accomplishing these goals requires that we compete effectively in the marketplace on the basis of quality, price and the attractiveness of our services and technology.

Overview of Financial Results

The following sets forth, as a percentage of revenues, consolidated statements
of operations data, for the periods indicated:



                                                      For the                     For the
                                                 Three Months Ended          Nine Months Ended
                                                   September 30,               September 30,
                                                2009           2008          2009          2008
Revenues                                         100.0 %        100.0 %       100.0 %      100.0 %

Cost of revenues                                  30.0           28.7          29.3         28.0
Research and development expense                   5.3            5.0           5.0          5.0
Sales and marketing expense                       21.4           21.3          20.6         20.6
General and administrative expense                16.8           17.2          17.0         17.4
Amortization of other intangible assets            2.0            1.6           2.0          1.8
Restructuring charge                                -              -            0.1           -

Total cost and operating expenses                 75.5           73.8          74.0         72.8

Income from operations                            24.5           26.2          26.0         27.2
Interest income                                    1.7            2.9           1.9          3.3
Interest expense                                  (0.3 )         (0.4 )        (0.3 )       (0.3 )
Other (expense) income, net                       (0.2 )          0.1           0.1         (0.1 )
Gain (loss) on investments, net                     -              -            0.1           -

Income before provision for income taxes          25.7           28.8          27.8         30.1
Provision for income taxes                         9.8           11.9          10.8         12.1

Net income                                        15.9 %         16.9 %        17.0 %       18.0 %

We were profitable for the fiscal year 2008 and for the nine months ended September 30, 2009; however, we cannot guarantee continued profitability or profitability for any period in the future at the levels we have recently experienced, or at all. We have observed the following trends and events that are likely to have an impact on our financial condition and results of operations in the foreseeable future:

• During each quarter of 2008 and each of the first three quarters of 2009, we were able to offset lost monthly or recurring revenue due to customer cancellations or terminations by adding new customers and increasing the number of services, features and functionalities that our existing customers purchase. A continuation of this trend, in conjunction with increased revenues from non-recurring revenue contracts, could lead to increased revenues; however, any such increased revenues could be offset if lower traffic reduces the revenues we earn on a non-committed basis or as a result of declines in the prices we charge.

• During each of the first three quarters of 2009, unit prices offered to some new and existing customers declined, primarily as a result of increased competition from new and established competitors that are willing to use low unit prices as a method of differentiation. These price reductions primarily impacted customers, such as digital media companies, for which we deliver high volumes of traffic over our network. Budgetary constraints facing our customers due to current economic conditions also contributed to pricing pressure on certain services. If we continue to experience decreases in unit prices for new and existing customers and we are unable to offset such reductions with increased traffic over our network, our revenues and profit margins could decrease.

• We have experienced seasonal variations in our quarterly revenues attributable to e-commerce services used by our retail customers, with higher revenues in the fourth quarter of the year and lower revenues during the summer months. In each of the first three quarters of 2009, our total revenues were lower than our total revenues in the fourth quarter of 2008.

• During each of the first three quarters of 2009, we reduced our network bandwidth costs per unit by entering into new supplier contracts with lower pricing and amending existing contracts to take advantage of price reductions offered by our existing suppliers. Additionally, we continued to invest in internal-use software development to improve the performance and efficiency of our network. Even with increased traffic delivered over our network, our total bandwidth costs decreased during each of the first three quarters of 2009 as compared to the fourth quarter of 2008. We believe that our overall bandwidth costs will increase in the fourth quarter as compared to each of the first three quarters of 2009 as a result of expected higher traffic levels, partially offset by anticipated continued reductions in bandwidth costs per unit. If we do not experience lower per unit bandwidth pricing or we are unsuccessful at effectively routing traffic over our network through lower cost providers, total network bandwidth costs could increase more than expected during the fourth quarter of 2009 and in 2010.

• During each of the first three quarters of 2009, no customer accounted for 10% or more of our total revenues. We expect that customer concentration levels will continue to remain low if our customer base continues to grow.

• During each of the first three quarters of 2009, revenues derived from customers outside the United States accounted for 28% of our total revenues, an increase over prior quarters. We expect revenues from such customers as a percentage of our total revenues to be between 25% and 30% for fiscal 2009.

• Depreciation and amortization expense related to our network equipment and internal-use software development costs increased during each of the first three quarters of 2009 as compared to the same quarters in 2008. Due to expected purchases of network equipment during the fourth quarter of 2009, we believe that depreciation expense related to our network equipment will increase in the fourth quarter 2009 as compared to each of the first three quarters of 2009. We expect to continue to enhance and add functionality to our service offerings and capitalize stock-based compensation expense attributable to employees working on such projects, which would increase the amount of capitalized internal-use software costs. As a result, we believe that the amortization of internal-use software

• For the three and nine months ended September 30, 2009, our stock-based compensation expense was $13.6 million and $42.0 million, respectively, as compared to $14.1 million and $42.4 million, respectively, for the three and nine months ended September 30, 2008. We expect that stock-based compensation expense will remain relatively flat for the fourth quarter of 2009 as compared to the third quarter of 2009. As of September 30, 2009, our total pre-tax unrecognized compensation costs for stock-based awards were $83.6 million, which we expect to recognize as expense over a weighted average period of 1.2 years through 2013.

• As of September 30, 2009, we have recorded a pre-tax net cumulative unrealized loss in stockholders' equity of $17.9 million related to the temporary impairment of some of our marketable security investments. For the nine months ended September 30, 2009, we recorded an unrealized gain of $3.2 million in our statement of operations related to a decrease in the other-than-temporary impairment of our investments in auction rate securities, or ARS. For the nine months ended September 30, 2009, we also recorded an unrealized loss of $2.7 million in our statement of operations related to a decrease in the net unrealized gain from a put option we recorded in connection with an agreement we entered into with one our investment advisors. Under the terms of the agreement, the investment advisor agreed to repurchase, in June 2010, the ARS it previously sold to us. The loss represented by the put option incorporated into this agreement was included in gain on investments, net in our statement of operations. Based upon our cash, cash equivalents and marketable securities balance of $973.3 million at September 30, 2009 and expected operating cash flows, we do not anticipate that the lack of liquidity associated with our ARS will adversely affect our ability to conduct business during the remainder of 2009 or 2010. We believe we have the ability to hold these ARS until a recovery of the auction process, a buyer is found outside the auction process, the securities are called or refinanced by the issuer, or until maturity.

• During the nine months ended September 30, 2009, our effective income tax rate, including discrete items, was 38.7%. We expect our effective income tax rate to remain relatively consistent in the fourth quarter of 2009. In addition, we do not expect to make significant cash tax payments due to the continued utilization of our deferred tax assets during the remainder of 2009.

Based on our analysis of, among other things, the aforementioned trends and events, as of the date of this quarterly report on Form 10-Q, we expect to continue to generate net income on a quarterly and annual basis during 2009 and 2010; however, our future results are likely to be affected by many factors identified in the section captioned "Risk Factors" and elsewhere in this quarterly report on Form 10-Q, including our ability to:

• increase our revenue by adding customers through long-term contracts and limiting customer cancellations and terminations;

• offset unit price declines for our services with higher volumes of traffic delivered on our network as well as increased sales of our value-added solutions;

• prevent disruptions to our services and network due to accidents or intentional attacks; and

• maintain our network bandwidth costs and other operating expenses consistent with our revenues.

As a result, there is no assurance that we will achieve our expected financial objectives, including generating positive net income, in any future period.

Our management's discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements included elsewhere in this quarterly report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States

of America, or GAAP, for interim periods and with Regulation S-X promulgated under the Exchange Act. The preparation of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related items, including, but not limited to, revenue recognition, accounts receivable and related reserves, valuation and impairment of investments and marketable securities, goodwill and other intangible assets, capitalized internal-use software costs, impairment and useful lives of long-lived assets, tax reserves, loss contingencies and stock-based compensation costs. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time they were made. Actual results may differ from our estimates. See the section entitled "Application of Critical Accounting Policies and Estimates" in our annual report on Form 10-K for the year ended December 31, 2008 for further discussion of our critical accounting policies and estimates.

Recent Accounting Pronouncements

In February 2008, the Financial Accounting Standards Board, or the FASB, issued authoritative guidance for fair value measurement for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). We adopted this guidance on January 1, 2009, and it did not have a material impact on our consolidated financial statements.

In June 2008, the FASB issued authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities. We adopted this guidance on January 1, 2009. This guidance provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Upon adoption, a company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform with the provisions in this guidance. The adoption of the guidance for determining whether instruments granted in share-based payment transactions are participating securities did not have a material impact on our consolidated financial statements.

In December 2007, the FASB issued authoritative guidance on accounting for business combinations. We adopted this guidance on January 1, 2009. The standard significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, in-process research and development and restructuring costs. In addition, under the standard, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination that occur after the measurement period will impact income tax expense. The standard may have a material impact on our consolidated financial statements if or when we enter into any business combinations in the future.

In April 2009, the FASB issued authoritative guidance for interim disclosures about fair value of financial instruments, which amended previous guidance to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This guidance also amends previous guidance for financial reporting to require those disclosures in all interim financial statements. The guidance for interim disclosures about fair value of financial instruments is effective for periods ending after June 15, 2009. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued authoritative guidance clarifying how companies should determine fair value measurements when the level of market activity for an asset or liability has significantly decreased. The authoritative guidance is effective for periods ending after June 15, 2009. The adoption of the guidance did not have a material impact on our consolidated financial statements.

In April 2009, the FASB issued authoritative guidance for recognition and presentation of other-than-temporary impairments. The authoritative guidance requires an entity to recognize the credit component of an

other-than-temporary impairment of a debt security in earnings and the non-credit component in other comprehensive loss when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery. The guidance is effective for periods ending after June 15, 2009. As of September 30, 2009, we did not have any debt securities that had other-than-temporary impairments that contained both a credit and non-credit component. Accordingly, adoption of this guidance did not have an impact on our consolidated financial statements.

In May 2009, the FASB issued authoritative guidance related to subsequent events. The standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard is effective for interim or annual financial reporting periods ending after June 15, 2009. We adopted this standard as of June 30, 2009, the required effective date. We evaluated our September 30, 2009 consolidated financial statements for subsequent events through November 9, 2009, the date the financial statements were issued. We are not aware of any subsequent events that would require recognition or disclosure in the financial statements.

In June 2009, the FASB issued the FASB Accounting Standards Codification, or the Codification. The Codification became the single source for all authoritative accounting principles recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and did not have an effect on our financial position, results of operations or liquidity.

In September 2009, the FASB's Emerging Issues Task Force issued authoritative guidance on revenue arrangements with multiple deliverables. This guidance provides another alternative for establishing fair value for a deliverable. When vendor-specific objective evidence or third-party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price for separate deliverables and allocate arrangement consideration using the relative selling price method. This guidance is effective January 1, 2011, and early adoption is permitted. We are currently evaluating the impact of this guidance on our financial position and results of operations.

Results of Operations

Revenues. Total revenues increased 5%, or $9.2 million, to $206.5 million for the three months ended September 30, 2009 as compared to $197.3 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, revenues increased 7%, or $43.1 million, to $621.5 million as compared to $578.4 million for the nine months ended September 30, 2008. The increase in revenues for the three and nine months ended September 30, 2009 as compared to the same period in the prior year was primarily attributable to an increase in the number of customers under recurring revenue contracts, as well as increases in traffic and additional services sold to new and existing customers. Increased sales to existing customers contributed to increases in the average revenue per customer during the period, partially offset by reduced unit prices offered to new and certain existing customers. We believe that the continued growth in the use of the Internet by businesses and consumers was the principal factor driving increased purchases of our services. As of September 30, 2009, we had 3,031 customers under recurring revenue contracts as compared to 2,808 as of September 30, 2008.

For the three months ended September 30, 2009 and 2008, 28% and 26%, respectively, of our revenues were derived from our operations located outside of the United States, including 17% derived from Europe during each of these periods. For the nine months ended September 30, 2009 and 2008, 28% and 25%, respectively, of our revenues were derived from our operations located outside of the United States, including 17% and 18%, respectively, derived from Europe during those periods. No single country outside of the United States accounted for 10% or more of revenues during these periods. For the three and nine months ended September 30, 2009, resellers accounted for 19% and 18%, respectively, of revenues, as compared to 17% and 16% of total revenues for the three and nine months ended September 30, 2008. For each of the three- and nine-month periods ended September 30, 2009 and 2008, no customer accounted for 10% or more of revenues.

Cost of Revenues. Cost of revenues includes fees paid to network providers for bandwidth and co-location of our network equipment. Cost of revenues also includes payroll and payroll-related costs and stock-based compensation expense for network operations personnel, cost of software licenses, depreciation of network equipment used to deliver our services and amortization of internal-use software.

Cost of revenues was comprised of the following (in millions):

                                                       For the                     For the
                                                 Three Months Ended           Nine Months Ended
                                                    September 30,               September 30,
                                                 2009           2008           2009        2008
Bandwidth, co-location and storage fees       $     35.0     $     34.7     $    106.5    $  99.6
Payroll and related costs of network
operations personnel                                 2.9            2.9            8.4        8.1
Stock-based compensation                             2.3            1.7            6.2        4.8
Depreciation and impairment of network
equipment                                           16.1           13.9           47.1       39.9
Amortization of internal-use software                5.7            3.5           14.2        9.5

Total cost of revenues                        $     62.0     $     56.7     $    182.4    $ 161.9

Cost of revenues increased 9%, or $5.3 million, to $62.0 million for the three months ended September 30, 2009 as compared to $56.7 million for the three months ended September 30, 2008. For the nine months ended September 30, 2009, cost of revenues increased 13%, or $20.4 million, to $182.4 million as compared to $161.9 million for the nine months ended September 30, 2008. These increases were primarily due to an increase in amounts paid to network providers for bandwidth due to higher traffic levels, partially offset by reduced bandwidth costs per unit, and an increase in depreciation expense of network equipment and amortization of internal-use software as we continued to invest in our infrastructure.

Cost of revenues during the three and nine months ended September 30, 2009 also included credits received of approximately $0.9 million and $2.2 million, respectively, from settlements and renegotiated contracts entered into in connection with billing disputes related to bandwidth contracts. During the three and nine months ended September 30, 2008, cost of revenues included similar credits of approximately $1.6 million and $2.5 million, respectively. Credits of this nature may occur in the future; however, the timing and amount of future credits, if any, is unpredictable.

We have long-term purchase commitments for bandwidth usage and co-location services with various network and Internet service providers. For the fourth quarter of 2009 and for the years ending December 31, 2010 and 2011, we estimate that the minimum commitments related to bandwidth usage and co-location services under agreements currently in effect are approximately $21.2 million, $24.6 million and $0.6 million, respectively.

We expect that cost of revenues will increase during the fourth quarter of 2009 as compared to each of the first three quarters of 2009. We expect to deliver more traffic on our network, which would result in higher expenses associated with the increased traffic; such costs are likely to be partially offset by lower bandwidth costs per unit. There is no guarantee, however, that bandwidth costs per unit will continue to decline. Additionally, during the fourth quarter of 2009, as we continue to make investments in our network, we anticipate an increase in depreciation expense related to our network equipment and amortization of internal-use software development costs as compared to the corresponding periods in 2008.

Research and Development. Research and development expenses consist primarily of payroll and related costs and stock-based compensation expense for research and development personnel who design, develop, test and enhance our services and our network. Research and development costs are expensed as incurred, except certain internal-use software development costs eligible for capitalization. During the three and nine months

ended September 30, 2009, we capitalized software development costs of $6.4 million and $20.1 million, respectively, net of impairments. During the three and nine months ended September 30, 2008, we capitalized software development costs of $5.9 million and $17.9 million, respectively, net of impairments. These development costs consisted of external consulting expenses and payroll and payroll-related costs for personnel involved in the development of internal-use software used to deliver our services and operate our network. Additionally, . . .