Market Overview

Limelight Networks(R) Reports Strong Financial Results for the Second Quarter of 2018

Share:
  • Revenue of $50.2 million, up 11 percent year over year
  • GAAP gross margin of 49.4%, up 230 basis points, year over year
  • GAAP basic EPS of $0.14 and Non-GAAP EPS of $0.04
  • Cash and marketable securities of $45.6 million
  • Raises revenue guidance for full year 2018, with lower capital
    expenditures

Limelight Networks, Inc. (NASDAQ:LLNW) (Limelight), a global leader in
digital content delivery, today reported revenue of $50.2 million for
the second quarter of 2018, up 11% compared to $45.4 million in the
second quarter of 2017. Currency did not materially impact reported
revenue in the quarter.

Gross margin was 49.4% in the second quarter of 2018, an increase of 230
basis points from 47.1% in the second quarter of 2017.

On a GAAP basis, Limelight reported net income of $15.2 million, or
$0.14 per basic share and $0.13 per fully diluted share, for the second
quarter of 2018, compared to a net loss of $1.6 million, or $0.01 per
basic share, in the second quarter of 2017. Net income in the second
quarter of 2018 included $14.9 million of non-operating income ($0.13
per basic share and $0.12 per fully diluted share) related to a
settlement and patent license agreement.

Non-GAAP net income was $4.0 million, or $0.04 per basic share, for the
second quarter of 2018, compared to $2.9 million, or $0.03 per basic
share, in the second quarter of 2017.

EBITDA was $20.3 million for the second quarter of 2018, compared to
$3.4 million for the second quarter of 2017. Adjusted EBITDA was $9.2
million for the second quarter of 2018, compared to $7.9 million for the
second quarter of 2017.

Limelight ended the second quarter with 549 employees and employee
equivalents, up from 544 at the end of the first quarter of 2018, and up
from 533 in the year ago period.

"Limelight's customers rewarded us once again in the second quarter of
2018, for our commitment to providing them with the best tools, value,
reliability, and customer care. Limelight's revenues grew more than 11%
over the prior year quarter, driven by video delivery services.
Limelight generated strong operating cash flow for the quarter, and
further strengthened its balance sheet. After raising full-year guidance
in April, we remain on track to achieve those results, on even lower
capital expenditures. We're pleased with Limelight's results through the
half-year mark, and owe great thanks to each of our committed employees
for putting us on track to make 2018 our best year yet," said Bob Lento,
Chief Executive Officer, Limelight Networks.

"Financial discipline, along with continued investments in people,
technology, and services, and our deep understanding of the intricacies
of delivering content closer to the consumer, uniquely position
Limelight to capitalize on emerging opportunities in low-latency,
secure, Edge computing, analytics and communications. We continue to
find opportunities to tune our infrastructure for sustained, cost
efficient growth, to fully exploit Limelight's unique Edge-centric
platform, and to generate higher shareholder returns," Lento added.

Based on current conditions, we are raising our previously issued
guidance on April 19, 2018 for revenue, from $198 to $202 million to
$200 to $203 million. Gross margin percentage improvement, GAAP earnings
per share, non-GAAP earnings per share, and adjusted EBITDA remain
unchanged. We now expect capital expenditures to be below $20 million
for the full year, down from our previous expectation of between $20 and
$22 million.

Financial Tables

             
LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
 
June 30, March 31, December 31,
2018 2018 2017
(Unaudited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 28,719 $ 19,863 $ 20,912
Marketable securities 16,851 23,832 28,404
Accounts receivable, net 31,862 32,433 32,381
Income taxes receivable 153 224 98
Prepaid expenses and other current assets   18,147     5,717     5,397  
Total current assets 95,732 82,069 87,192
Property and equipment, net 26,303 27,371 28,991
Marketable securities, less current portion 40 40 40
Deferred income taxes 1,550 1,546 1,506
Goodwill 76,648 77,027 77,054
Other assets   2,235     2,174     1,665  
Total assets $ 202,508   $ 190,227   $ 196,448  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,179 $ 10,376 $ 4,439
Deferred revenue 965 950 1,187
Income taxes payable 219 72 452
Provision for litigation 18,000 18,000 18,000
Other current liabilities   12,269     11,495     18,507  
Total current liabilities 37,632 40,893 42,585
Deferred income taxes 124 159 144
Deferred revenue, less current portion 37 16 16
Provision for litigation, less current portion - 4,500 9,000
Other long-term liabilities   389     411     558  
Total liabilities 38,182 45,979 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; 112,478,
110,657 and 110,824 shares issued and
outstanding at June 30, 2018, March 31, 2018 and December 31, 2017,
respectively
112 111 111
Additional paid-in capital 506,684 500,305 502,312
Accumulated other comprehensive loss (9,324 ) (7,861 ) (8,328 )
Accumulated deficit   (333,146 )   (348,307 )   (349,950 )
Total stockholders' equity   164,326     144,248     144,145  
Total liabilities and stockholders' equity $ 202,508   $ 190,227   $ 196,448  
 
                                   
LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended Six Months Ended
 
June 30, March 31, Percent June 30, Percent June 30, June 30, Percent
2018 2018 Change 2017 Change 2018 2017 Change
 
Revenue $ 50,249   $ 52,114   -4% $ 45,370   11% $ 102,363   $ 90,105   14%
Cost of revenue:
Cost of services (1) 21,206 21,054 1% 19,464 9% 42,260 38,471 10%
Depreciation - network   4,196     4,380   -4%   4,531   -7%   8,576     9,088   -6%
Total cost of revenue   25,402     25,434   0%   23,995   6%   50,836     47,559   7%
Gross profit 24,847 26,680 -7% 21,375 16% 51,527 42,546 21%
Gross profit percentage 49.4 % 51.2 % 47.1 % 50.3 % 47.2 %
Operating expenses:
General and administrative (1) 7,517 9,522 -21% 6,804 10% 17,038 15,319 11%
Sales and marketing (1) 10,022 10,280 -3% 8,997 11% 20,302 18,265 11%
Research & development (1) 6,073 6,339 -4% 6,715 -10% 12,412 12,934 -4%
Depreciation and amortization   633     588   8%   597   6%   1,221     1,186   3%
Total operating expenses   24,245     26,729   -9%   23,113   5%   50,973     47,704   7%
 
Operating income (loss) 602 (49 ) NM (1,738 ) NM 554 (5,158 ) NM
 
Other income (expense):
Interest expense (7 ) (59 ) NM (10 ) NM (66 ) (24 ) NM
Interest income 134 130 3% 121 11% 263 239 10%
Settlement and patent license income 14,900 - NM - NM 14,900 - NM
Other, net   (221 )   112   NM   153   NM   (109 )   241   NM
Total other income   14,806     183   NM   264   NM   14,988     456   NM
 
Income (loss) before income taxes 15,408 134 NM (1,474 ) NM 15,542 (4,702 ) NM
Income tax expense (benefit)   249     (15 ) NM   151   NM   234     260   NM
 
Net income (loss)   15,159     149   NM   (1,625 ) NM   15,308     (4,962 ) NM
 
Net income (loss) per share:
Basic $ 0.14   $ 0.00   $ (0.01 ) $ 0.14   $ (0.05 )
Diluted $ 0.13   $ 0.00   $ (0.01 ) $ 0.13   $ (0.05 )
 
Weighted average shares used in per share calculation:
Basic 111,356 110,761 108,422 111,059 107,893
Diluted 120,033 118,909 108,422 119,454 107,893
 
(1) Includes share-based compensation (see supplemental table for
figures)
 
                       
LIMELIGHT NETWORKS, INC.
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)
 
 
Three Months Ended Six Months Ended
 
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
 
 
Share-based compensation:
 
Cost of services $ 350 $ 357 $ 364 $ 707 $ 723
General and administrative 1,969 1,810 1,674 3,779 3,208
Sales and marketing 633 603 617 1,236 1,237
Research and development   605   597     600     1,202     1,162  
Total share-based compensation $ 3,557 $ 3,367   $ 3,255   $ 6,924   $ 6,330  
 
Depreciation and amortization:
 
Network-related depreciation $ 4,196 $ 4,380 $ 4,531 $ 8,576 $ 9,088
Other depreciation and amortization   633   588     597     1,221     1,186  
Total depreciation and amortization $ 4,829 $ 4,968   $ 5,128   $ 9,797   $ 10,274  
 
 
Net increase (decrease) in cash, cash equivalents and marketable
securities:
$ 1,875 $ (5,621 ) $ (232 ) $ (3,746 ) $ (5,591 )
 
 
End of period statistics:
 
Approximate number of active customers 689 703 779 689 779
 
Number of employees and employee equivalents 549 544 533 549 533
 
                       
LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended Six Months Ended
 
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
 
Operating activities
Net income (loss) $ 15,159 $ 149 $ (1,625 ) $ 15,308 $ (4,962 )
 
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 4,829 4,968 5,128 9,797 10,274
Share-based compensation 3,557 3,367 3,255 6,924 6,330
Settlement and patent license income (14,900 ) - - (14,900 ) -
Foreign currency remeasurement (gain) loss (271 ) 110 290 (161 ) 579
Deferred income taxes (111 ) 41 (94 ) (70 ) (144 )
Gain on sale of property and equipment (97 ) (16 ) (17 ) (113 ) (92 )
Accounts receivable charges (recoveries) 78 218 241 296 490
Amortization of premium on marketable securities 25 33 80 58 163
Changes in operating assets and liabilities:
Accounts receivable 493 (270 ) (2,204 ) 223 (1,226 )
Prepaid expenses and other current assets (655 ) 882 (47 ) 227 867
Income taxes receivable 61 (124 ) (8 ) (63 ) 21
Other assets (72 ) (495 ) 11 (567 ) 8
Accounts payable and other current liabilities (3,298 ) (2,286 ) 3,861 (5,584 ) 2,701
Deferred revenue 37 130 (101 ) 167 (403 )
Income taxes payable 160 (397 ) 138 (237 ) 134
Payments for provision for litigation (1,520 ) (4,500 ) (4,500 ) (6,020 ) (9,000 )
Other long term liabilities   (19 )   (151 )   (185 )   (170 )   (382 )
Net cash provided by operating activities   3,456     1,659     4,223     5,115     5,358  
 
Investing activities
Purchases of marketable securities - - (2,993 ) - (7,519 )
Sale and maturities of marketable securities 7,000 4,515 6,994 11,515 14,244
Purchases of property and equipment (4,291 ) (1,990 ) (4,733 ) (6,281 ) (10,478 )
Proceeds from sale of property and equipment   97     16     22     113     80  
Net cash provided by (used in) investing activities   2,806     2,541     (710 )   5,347     (3,673 )
 
Financing activities
Payment of employee tax withholdings related to restricted stock
vesting
(1,206 ) (1,606 ) (880 ) (2,812 ) (1,916 )
Cash paid for purchase of common stock - (3,800 ) - (3,800 ) -
Proceeds from employee stock plans   4,032     30     1,077     4,062     1,188  
Net cash provided by (used in) financing activities   2,826     (5,376 )   197     (2,550 )   (728 )
Effect of exchange rate changes on cash and cash equivalents   (232 )   127     110     (105 )   281  
Net increase (decrease) in cash and cash equivalents 8,856 (1,049 ) 3,820 7,807 1,238
Cash and cash equivalents, beginning of period   19,863     20,912     19,152     20,912     21,734  
Cash and cash equivalents, end of period $ 28,719   $ 19,863   $ 22,972   $ 28,719   $ 22,972  
 

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 Six Months Ended
June 30, 2018 March 31, 2018 June 30, 2017 June 30, 2018 June 30, 2017
Amount Per Share Amount Per Share Amount Per Share Amount Per Share Amount Per Share
 
U.S. GAAP net income (loss) $ 15,159 $ 0.14 $ 149 $ 0.00 $ (1,625 ) $ (0.01 ) $ 15,308 $ 0.14 $ (4,962 ) $ (0.05 )
 
Settlement and patent license income (14,900 ) (0.13 ) - - - - (14,900 ) (0.13 ) - -
Share-based compensation 3,557 0.03 3,367 0.03 3,255 0.03 6,924 0.06 6,330 0.06
Litigation expenses   215     0.00     2,670   0.02   1,276     0.01     2,885     0.03     3,185     0.03  
 
Non-GAAP net income $ 4,031   $ 0.04   $ 6,186 $ 0.06 $ 2,906   $ 0.03   $ 10,217   $ 0.09   $ 4,553   $ 0.04  
 
 
Weighted average basic shares used in per share calculation 111,356 110,761 108,422 111,059 107,893
                       
LIMELIGHT NETWORKS, INC.
Reconciliation of U.S. GAAP Net Income (Loss) to EBITDA to
Adjusted EBITDA
(In thousands)
(Unaudited)
 
 
Three Months Ended Six Months Ended
 
June 30, March 31, June 30, June 30, June 30,
2018 2018 2017 2018 2017
 
U.S. GAAP net income (loss) $ 15,159 $ 149 $ (1,625 ) $ 15,308 $ (4,962 )
 
Depreciation and amortization 4,829 4,968 5,128 9,797 10,274
Interest expense 7 59 10 66 24
Interest and other (income) expense 87 (242 ) (274 ) (154 ) (480 )
Income tax expense (benefit)   249     (15 )   151     234     260  
 
EBITDA $ 20,331 $ 4,919 $ 3,390 $ 25,251 $ 5,116
 
Settlement and patent license income (14,900 ) - - (14,900 ) -
Share-based compensation 3,557 3,367 3,255 6,924 6,330
Litigation expenses   215     2,670     1,276     2,885     3,185  
 
Adjusted EBITDA $ 9,203   $ 10,956   $ 7,921   $ 20,160   $ 14,631  
 

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.

2018 Guidance Table

             
Limelight Networks, Inc.
2018 Guidance
 
 
July 19, 2018 April 19, 2018 February 7, 2018
Revenue

$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 No change $0.07 to $0.11 $(0.07) to $(0.03)
 
Non-GAAP EPS No change $0.13 to $0.17 $0.11 to $0.15
 
Adjusted EBITDA No change $33 to $37 million $32 to $36 million
 
Capital expenditures Below $20 million $20 to $22 million $22 to $24 million
 

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, litigation, 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
July 19, 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, a global leader in digital content delivery,
empowers customers to better engage online audiences by enabling them
to securely manage and globally deliver digital content, on any device.
The company's Limelight Orchestrate Platform includes a global
infrastructure with a fully-integrated suite of capabilities and
services to help you address all your content delivery needs. The
Orchestrate Platform solves your most important content delivery
challenges so you can deliver the next great digital experience
anywhere. For more information, please visit www.limelight.com and
follow us on TwitterFacebook and LinkedIn.

Copyright (C) 2018 Limelight Networks, Inc. All rights reserved. All
product or service names are the property of their respective owners.

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