Limelight Networks® Reports Financial Results for the Third Quarter of 2018

Oct 18, 2018 04:01 pm

TEMPE, Ariz. --

Limelight Networks, Inc. (Nasdaq:LLNW) (Limelight), a leading provider of edge cloud services, today reported revenue of $49.3 million for the third quarter of 2018, up 7% compared to $46.1 million in the third quarter of 2017. Currency negatively impacted year-over-year comparison by $0.2 million, or less than one percent.

Gross margin was 48.7% in the third quarter of 2018, an increase of 30 basis points from 48.4% in the third quarter of 2017.

On a GAAP basis, Limelight reported a net loss of $0.3 million, or break-even per basic share for the third quarter of 2018, compared to a net loss of $1.8 million, or $0.02 per basic share, in the third quarter of 2017.

Non-GAAP net income was $3.2 million, or $0.03 per basic share, for the third quarter of 2018, compared to non-GAAP net income of $2.2 million, or $0.02 per basic share, in the third quarter of 2017.

EBITDA was $4.3 million for the third quarter of 2018, compared to $3.4 million for the third quarter of 2017. Adjusted EBITDA was $7.7 million for the third quarter of 2018, compared to $7.4 million for the third quarter of 2017.

Limelight ended the third quarter with 551 employees and employee equivalents, up from 549 at the end of the second quarter of 2018, and up from 535 in the year ago period.

“We are pleased with Limelight’s third quarter results that showed year over year improvements even in a seasonally weak quarter, and marked record achievements across multiple key financial and non-financial metrics. Customers continue to reward Limelight’s performance gains by sending us more business, and we believe we are continuing to take market share. Pricing discipline and operational efficiencies are driving gains in gross margin and overall profitability, and at the same time, the continuing improvement in an already strong Net Promoter Score confirms our customer’s growing satisfaction with the value they obtain from Limelight,” said Bob Lento, Chief Executive Officer at Limelight.

“In light of the strength of our results, we are confident we will finish 2018 ahead of the expectations we set at the start of the year and within the range of outcomes we laid out last quarter. Importantly, our focus on new initiatives is yielding results. The two-way partnership with Tencent is exciting for the near term. The Ericsson initiative and the Realtime streaming opportunities should drive revenue and margin growth in the medium-term and our strategic focus on edge services will contribute to meaningful growth and profitability in the long-term. While there is opportunity to do even better, we are very pleased with our performance on multiple fronts. Our talented and dedicated employees continue to enhance our strategic focus while driving ever-higher operating discipline. Altogether, we believe we are building a better Limelight for all stakeholders and remain acutely focused on delivering exceptional shareholder returns,” Mr. Lento added.

Based on current conditions, for the full-year 2018, we are providing the following updates to our previously announced guidance:

Limelight Networks, Inc.
2018 Guidance

October 18, 2018

July 19, 2018

April 19, 2018

February 7, 2018

Revenue

No change

$200 to $203 million

$198 to $202 million

$196 to $200 million

Gross margin percentage

No change

Expansion of 150 basis
points over 2017

Expansion of more than 100 basis
points over 2017

GAAP EPS

$0.12 to $0.14

No change

$0.07 to $0.11

$(0.07) to $(0.03)

Non-GAAP EPS

$0.14 to $0.17

No change

$0.13 to $0.17

$0.11 to $0.15

Adjusted EBITDA

$35 to $37 million

No change

$33 to $37 million

$32 to $36 million

Capital expenditures

Below $18 million

Below $20 million

$20 to $22 million

$22 to $24 million

Financial Tables


LIMELIGHT NETWORKS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)

	September 30, 2018			June 30, 2018			December 31, 2017
	(Unaudited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	28,678		$	28,719		$	20,912
Marketable securities		23,957			16,851			28,404
Accounts receivable, net		26,147			31,862			32,381
Income taxes receivable		154			153			98
Prepaid expenses and other current assets		17,859			18,147			5,397
Total current assets		96,795			95,732			87,192
Property and equipment, net		27,392			26,303			28,991
Marketable securities, less current portion		40			40			40
Deferred income taxes		1,590			1,550			1,506
Goodwill		76,683			76,648			77,054
Other assets		2,434			2,235			1,665
Total assets	$	204,934		$	202,508		$	196,448

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	8,976		$	6,179		$	4,439
Deferred revenue		853			965			1,187
Income taxes payable		111			219			452
Provision for litigation		13,500			18,000			18,000
Other current liabilities		13,804			12,269			18,507
Total current liabilities		37,244			37,632			42,585
Deferred income taxes		174			124			144
Deferred revenue, less current portion		68			37			16
Provision for litigation, less current portion		-			-			9,000
Other long-term liabilities		385			389			558
Total liabilities		37,871			38,182			52,303
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 7,500 shares authorized; no shares issued and outstanding		-			-			-
Common stock, $0.001 par value; 300,000 shares authorized; 113,198, 112,478 and 110,824 shares issued and
outstanding at September 30, 2018, June 30, 2018 and December 31, 2017, respectively		113			112			111
Additional paid-in capital		509,846			506,684			502,312
Accumulated other comprehensive loss		(9,477	)		(9,324	)		(8,328	)
Accumulated deficit		(333,419	)		(333,146	)		(349,950	)
Total stockholders' equity		167,063			164,326			144,145
Total liabilities and stockholders' equity	$	204,934		$	202,508		$	196,448


LIMELIGHT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)


	Three Months Ended													Nine Months Ended

	September 30, 2018			June 30, 2018			Percent Change		September 30, 2017			Percent Change		September 30, 2018			September 30, 2017			Percent Change

Revenue	$	49,315		$	50,249		-2	%	$	46,069		7	%	$	151,678		$	136,173		11	%
Cost of revenue:
Cost of services (1)		21,519			21,206		1	%		19,287		12	%		63,779			57,758		10	%
Depreciation - network		3,761			4,196		-10	%		4,506		-17	%		12,337			13,594		-9	%
Total cost of revenue		25,280			25,402		0	%		23,793		6	%		76,116			71,352		7	%
Gross profit		24,035			24,847		-3	%		22,276		8	%		75,562			64,821		17	%
Gross profit percentage		48.7	%		49.4	%				48.4	%				49.8	%		47.6	%
Operating expenses:
General and administrative (1)		7,851			7,517		4	%		8,079		-3	%		24,890			23,397		6	%
Sales and marketing (1)		9,766			10,022		-3	%		8,836		11	%		30,068			27,100		11	%
Research & development (1)		5,882			6,073		-3	%		6,443		-9	%		18,294			19,377		-6	%
Depreciation and amortization		616			633		-3	%		603		2	%		1,837			1,789		3	%
Total operating expenses		24,115			24,245		-1	%		23,961		1	%		75,089			71,663		5	%

Operating (loss) income		(80	)		602		-113	%		(1,685	)	-95	%		473			(6,842	)	-107	%

Other income (expense):
Interest expense		(10	)		(7	)	NM			(18	)	NM			(76	)		(42	)	NM
Interest income		177			134		32	%		127		39	%		440			365		21	%
Settlement and patent license income		-			14,900		NM			-		NM			14,900			-		NM
Other, net		(246	)		(221	)	NM			8		NM			(355	)		249		NM
Total other (expense) income		(79	)		14,806		NM			117		NM			14,909			572		NM

(Loss) income before income taxes		(159	)		15,408		NM			(1,568	)	NM			15,382			(6,270	)	NM
Income tax expense		113			249		NM			188		NM			347			448		NM

Net (loss) income		(272	)		15,159		NM			(1,756	)	NM			15,035			(6,718	)	NM

Net income (loss) per share:
Basic	$	(0.00	)	$	0.14				$	(0.02	)			$	0.13		$	(0.06	)
Diluted	$	(0.00	)	$	0.13				$	(0.02	)			$	0.13		$	(0.06	)

Weighted average shares used in per share calculation:
Basic		112,760			111,356					109,342					111,626			108,376
Diluted		112,760			120,033					109,342					120,025			108,376

(1) Includes share-based compensation (see supplemental table for figures)


LIMELIGHT NETWORKS, INC. SUPPLEMENTAL FINANCIAL DATA (In thousands) (Unaudited)


	Three Months Ended							Nine Months Ended

	September 30, 2018		June 30, 2018		September 30, 2017			September 30, 2018		September 30, 2017


Share-based compensation:

Cost of services	$	352	$	350	$	352		$	1,059	$	1,075
General and administrative		1,887		1,969		1,565			5,666		4,773
Sales and marketing		638		633		611			1,874		1,848
Research and development		544		605		584			1,746		1,746

Total share-based compensation	$	3,421	$	3,557	$	3,112		$	10,345	$	9,442

Depreciation and amortization:

Network-related depreciation	$	3,761	$	4,196	$	4,506		$	12,337	$	13,594
Other depreciation and amortization		616		633		603			1,837		1,789

Total depreciation and amortization	$	4,377	$	4,829	$	5,109		$	14,174	$	15,383


Net increase (decrease) in cash, cash equivalents and marketable securities:	$	7,065	$	1,875	$	(2,904	)	$	3,319	$	(8,495	)


End of period statistics:

Approximate number of active customers		667		689		753			667		753

Number of employees and employee equivalents		551		549		535			551		535


LIMELIGHT NETWORKS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)


	Three Months Ended									Nine Months Ended

	September 30, 2018			June 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017

Operating activities
Net (loss) income	$	(272	)	$	15,159		$	(1,756	)	$	15,035		$	(6,718	)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		4,377			4,829			5,109			14,174			15,383
Share-based compensation		3,421			3,557			3,112			10,345			9,442
Settlement and patent license income		-			(14,900	)		-			(14,900	)		-
Foreign currency remeasurement (gain) loss		64			(271	)		79			(97	)		658
Deferred income taxes		(16	)		(111	)		(73	)		(86	)		(217	)
Gain on sale of property and equipment		(18	)		(97	)		(2	)		(131	)		(94	)
Accounts receivable charges		157			78			242			453			732
Amortization of premium on marketable securities		24			25			65			82			228
Changes in operating assets and liabilities:
Accounts receivable		5,558			493			(800	)		5,781			(2,026	)
Prepaid expenses and other current assets		(2,757	)		(655	)		(322	)		(2,530	)		545
Income taxes receivable		7			61			13			(56	)		34
Other assets		(192	)		(72	)		13			(759	)		21
Accounts payable and other current liabilities		3,058			(3,298	)		2,048			(2,526	)		4,749
Deferred revenue		(82	)		37			(47	)		85			(450	)
Income taxes payable		(113	)		160			46			(350	)		180
Payments related to litigation, net		(1,520	)		(1,520	)		(4,500	)		(7,540	)		(13,500	)
Other long term liabilities		(4	)		(19	)		(202	)		(173	)		(584	)
Net cash provided by operating activities		11,692			3,456			3,025			16,807			8,383

Investing activities
Purchases of marketable securities		(15,962	)		-			(2,864	)		(15,962	)		(10,383	)
Sale and maturities of marketable securities		8,850			7,000			3,500			20,365			17,744
Purchases of property and equipment		(4,214	)		(4,291	)		(5,328	)		(10,495	)		(15,806	)
Proceeds from sale of property and equipment		18			97			3			131			83
Net cash (used in) provided by investing activities		(11,308	)		2,806			(4,689	)		(5,961	)		(8,362	)

Financing activities
Payment of employee tax withholdings related to restricted stock vesting		(996	)		(1,206	)		(655	)		(3,808	)		(2,571	)
Cash paid for purchase of common stock		-			-			-			(3,800	)		-
Proceeds from employee stock plans		737			4,032			12			4,799			1,200
Net cash (used in) provided by financing activities		(259	)		2,826			(643	)		(2,809	)		(1,371	)
Effect of exchange rate changes on cash and cash equivalents		(166	)		(232	)		79			(271	)		360
Net increase (decrease) in cash and cash equivalents		(41	)		8,856			(2,228	)		7,766			(990	)
Cash and cash equivalents, beginning of period		28,719			19,863			22,972			20,912			21,734
Cash and cash equivalents, end of period	$	28,678		$	28,719		$	20,744		$	28,678		$	20,744

Use of Non-GAAP Financial Measures

To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net income (loss), EBITDA and Adjusted EBITDA as supplemental measures of operating performance. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income (loss) to be an important indicator of overall business performance. We define Non-GAAP net income (loss) to be U.S. GAAP net income (loss) adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We believe that EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries. We define EBITDA as U.S. GAAP net income (loss) adjusted to exclude depreciation and amortization, interest expense, interest and other (income) expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. Our management uses these Non-GAAP financial measures because, collectively, they provide valuable information on the performance of our on-going operations, excluding non-cash charges, taxes and non-core activities (including interest payments related to financing activities). These measures also enable our management to compare the results of our on-going operations from period to period, and allow management to review the performance of our on-going operations against our peer companies and against other companies in our industry and adjacent industries. We believe these measures also provide similar insights to investors, and enable investors to review our results of operations “through the eyes of management.”

Furthermore, our management uses these Non-GAAP financial measures to assist them in making decisions regarding our strategic priorities and areas for future investment and focus.

The terms Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are not defined under U.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Non-GAAP net income (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income (loss), EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
these measures do not reflect changes in, or cash requirements for, our working capital needs;
Non-GAAP net income (loss) and Adjusted EBITDA do not reflect the cash requirements necessary for litigation costs, including provision for litigation and litigation expenses;
these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
these measures do not reflect income taxes or the cash requirements for any tax payments;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
other companies may calculate Non-GAAP net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management's analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented in thousands:

Reconciliation of Non-GAAP Financial Measures

Limelight is presenting the most directly comparable U.S. GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable U.S. GAAP measures. Per share amounts may not foot due to rounding.


LIMELIGHT NETWORKS, INC. Reconciliation of U.S. GAAP Net Income (Loss) to Non-GAAP Net Income (In thousands) (Unaudited)


	Three Months Ended																		Nine Months Ended

	September 30, 2018						June 30, 2018						September 30, 2017						September 30, 2018						September 30, 2017
	Amount			Per Share			Amount			Per Share			Amount			Per Share			Amount			Per Share			Amount			Per Share

U.S. GAAP net (loss) income	$	(272	)	$	(0.00	)	$	15,159		$	0.14		$	(1,756	)	$	(0.02	)	$	15,035		$	0.13		$	(6,718	)	$	(0.06	)

Settlement and patent license income		-			-			(14,900	)		(0.13	)		-			-			(14,900	)		(0.13	)		-			-
Share-based compensation		3,421			0.03			3,557			0.03			3,112			0.03			10,345			0.09			9,442			0.09
Litigation expenses		19			0.00			215			0.00			863			0.01			2,904			0.03			4,048			0.04

Non-GAAP net income	$	3,168		$	0.03		$	4,031		$	0.04		$	2,219		$	0.02		$	13,384		$	0.12		$	6,772		$	0.06


Weighted average basic shares used in per share calculation					112,760						111,356						109,342						111,626						108,376


LIMELIGHT NETWORKS, INC. Reconciliation of U.S. GAAP Net Income (Loss) to EBITDA to Adjusted EBITDA (In thousands) (Unaudited)


	Three Months Ended									Nine Months Ended

	September 30, 2018			June 30, 2018			September 30, 2017			September 30, 2018			September 30, 2017

U.S. GAAP net (loss) income	$	(272	)	$	15,159		$	(1,756	)	$	15,035		$	(6,718	)

Depreciation and amortization		4,377			4,829			5,109			14,174			15,383
Interest expense		10			7			18			76			42
Interest and other (income) expense		69			87			(135	)		(85	)		(614	)
Income tax expense		113			249			188			347			448

EBITDA	$	4,297		$	20,331		$	3,424		$	29,547		$	8,541

Settlement and patent license income		-			(14,900	)		-			(14,900	)		-
Share-based compensation		3,421			3,557			3,112			10,345			9,442
Litigation expenses		19			215			863			2,904			4,048

Adjusted EBITDA	$	7,737		$	9,203		$	7,399		$	27,896		$	22,031

For future periods, we are unable to provide a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) as a result of the uncertainty regarding, and the potential variability of, the amounts of depreciation and amortization, interest expense, interest and other (income) expense and income tax expense, that may be incurred in the future.

Conference Call

At approximately 4:30 p.m. EST (1:30 p.m. PST) today, management will host a quarterly conference call for investors. Investors can access this call toll-free at 877-296-5190 within the United States or +1 412-317-5233 outside of the U.S. The conference call will also be audio cast live from http://www.limelight.com and a replay will be available following the call from the Limelight website.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These statements include, among others, statements regarding our expectations regarding revenue, gross margin, non-GAAP net income, capital expenditures, and our future prospects. Our expectations and beliefs regarding these matters may not materialize. The potential risks and uncertainties that could cause actual results or outcomes to differ materially from the results or outcomes predicted include, among other things, reduction of demand for our services from new or existing customers, unforeseen changes in our hiring patterns, adverse outcomes in litigation, and experiencing expenses that exceed our expectations. A detailed discussion of these factors and other risks that affect our business is contained in our SEC filings, including our most recent reports on Forms 10-K and 10-Q, particularly under the heading “Risk Factors.” Copies of these filings are available online on our investor relations website at investors.limelightnetworks.com and on the SEC website at www.SEC.gov. All information provided in this release and in the attachments is as of October 18, 2018, and we undertake no duty to update this information in light of new information or future events, unless required by law.

About Limelight

Limelight Networks Inc., (NASDAQ: LLNW), a leading provider of digital content delivery, video, cloud security, and edge computing services, empowers customers to provide exceptional digital experiences. Limelight’s edge services platform includes a unique combination of global private infrastructure, intelligent software, and expert support services that enable current and future workflows. For more information, visit www.limelight.com, follow us on Twitter, Facebook, and LinkedIn.

View source version on businesswire.com: https://www.businesswire.com/news/home/20181018005777/en/

Limelight Networks, Inc.
Sajid Malhotra, 602-850-5778
[email protected]

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Limelight Networks® Reports Financial Results for the Third Quarter of 2018