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

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

TEMPE, Ariz.–(BUSINESS WIRE)– 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 Twitter, Facebook and LinkedIn.