Limelight Networks(R) Reports Financial Results for the Third Quarter of 2019

Revenue of $51.3 million, up 4 percent year over year, up 12% sequentially
GAAP basic EPS of $(0.02) and Non-GAAP EPS of $0.01
Confirming accelerated growth in revenue, profitability and free cash flow for Q4 2019
Delivered record traffic, exceeding previous record by approximately 20%

SCOTTSDALE, Ariz.–(BUSINESS WIRE)– Limelight Networks, Inc. (NASDAQ:LLNW, news, filings) (Limelight), a leading provider of edge cloud services, today reported revenue of $51.3 million for the third quarter of 2019, up 4% compared to $49.3 million in the third quarter of 2018. Currency negatively impacted year-over-year comparison by $0.2 million.

Limelight reported a net loss of $2.8 million, or $(0.02) per basic share for the third quarter of 2019, compared to a net loss of $0.3 million, or break-even per basic share, in the third quarter of 2018.

Non-GAAP net income was $0.6 million, or $0.01 per basic share, for the third quarter of 2019, compared to non-GAAP net income of $3.2 million, or $0.03 per basic share, in the third quarter of 2018.

EBITDA was $2.5 million for the third quarter of 2019, compared to $4.3 million for the third quarter of 2018. Adjusted EBITDA was $5.8 million for the third quarter of 2019, compared to $7.7 million for the third quarter of 2018.

Limelight ended the third quarter with 609 employees and employee equivalents, up from 594 at the end of the second quarter of 2019, and up from 551 in the year ago period.

“We are extremely pleased with our third quarter results. Our revenue was the highest third quarter revenue ever and our second highest revenue in any quarter. We also set a new record for traffic in the quarter, continuing the rapid growth that we have demonstrated throughout the year. We achieved these results by accelerating investments in infrastructure and significantly growing capacity, while still maintaining fiscal discipline by controlling expenses,” said Bob Lento, Chief Executive Officer at Limelight.

“We believe the fourth quarter will see year-over-year acceleration in revenue growth and meaningful improvements in gross margin and overall profitability. Even at the low end of our guidance, fourth quarter growth rates exceed 35% year-over-year and in excess of 15% sequentially. These healthy trends validate our strategy to focus on video-based edge services. We believe this positions us for a strong 2020 and beyond and will lead to the creation of tremendous shareholder value,” Mr. Lento added.

Based on current conditions, we expect 2019 revenue to be between $200 and $210 million dollars. GAAP net loss is expected to be approximately $0.10 per share and Non-GAAP earnings per share should be near breakeven. Capital expenditures should be approximately $30 million dollars.

Financial Tables


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


	Three Months Ended													Nine Months Ended

	September 30,			June 30,			Percent		September 30,			Percent		September 30,			September 30,			Percent
		2019			2019		Change			2018		Change			2019			2018		Change

Revenue	$	51,321		$	45,904		12	%	$	49,315		4	%	$	140,505		$	151,678		-7	%
Cost of revenue:
Cost of services (1)		25,602			22,769		12	%		21,519		19	%		71,311			63,779		12	%
Depreciation – network		4,961			4,628		7	%		3,761		32	%		13,905			12,337		13	%
Total cost of revenue		30,563			27,397		12	%		25,280		21	%		85,216			76,116		12	%
Gross profit		20,758			18,507		12	%		24,035		-14	%		55,289			75,562		-27	%
Gross profit percentage		40.4	%		40.3	%				48.7	%				39.4	%		49.8	%
Operating expenses:
General and administrative (1)		7,356			8,340		-12	%		7,851		-6	%		23,231			24,890		-7	%
Sales and marketing (1)		10,713			10,994		-3	%		9,766		10	%		32,679			30,068		9	%
Research & development (1)		5,160			6,013		-14	%		5,882		-12	%		17,075			18,294		-7	%
Depreciation and amortization		172			127		35	%		616		-72	%		545			1,837		-70	%
Total operating expenses		23,401			25,474		-8	%		24,115		-3	%		73,530			75,089		-2	%

Operating (loss) income		(2,643	)		(6,967	)	NM			(80	)	NM			(18,241	)		473		NM

Other income (expense):
Interest expense		(10	)		(10	)	NM			(10	)	NM			(30	)		(76	)	NM
Interest income		81			110		NM			177		NM			402			440		NM
Settlement and patent license income		–			–		NM			–		NM			–			14,900		NM
Other, net		(13	)		(70	)	NM			(246	)	NM			(89	)		(355	)	NM
Total other income (expense)		58			30		NM			(79	)	NM			283			14,909		NM

(Loss) income before income taxes		(2,585	)		(6,937	)	NM			(159	)	NM			(17,958	)		15,382		NM
Income tax expense		166			255		NM			113		NM			544			347		NM

Net (loss) income	$	(2,751	)	$	(7,192	)	NM		$	(272	)	NM		$	(18,502	)	$	15,035		NM

Net (loss) income per share:
Basic	$	(0.02	)	$	(0.06	)			$	(0.00	)			$	(0.16	)	$	0.13
Diluted	$	(0.02	)	$	(0.06	)			$	(0.00	)			$	(0.16	)	$	0.13

Weighted average shares used in per share calculation:
Basic		116,270			115,275					112,760					115,318			111,626
Diluted		116,270			115,275					112,760					115,318			120,025

(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,			June 30,			September 30,		September 30,			September 30,
		2019			2019			2018		2019			2018


Share-based compensation:

Cost of services	$	331		$	377		$	352	$	1,119		$	1,059
General and administrative		2,006			2,140			1,887		6,240			5,666
Sales and marketing		584			598			638		1,666			1,874
Research and development		437			534			544		1,438			1,746

Total share-based compensation	$	3,358		$	3,649		$	3,421	$	10,463		$	10,345

Depreciation and amortization:

Network-related depreciation	$	4,961		$	4,628		$	3,761	$	13,905		$	12,337
Other depreciation and amortization		172			127			616		545			1,837

Total depreciation and amortization	$	5,133		$	4,755		$	4,377	$	14,450		$	14,174


Net increase (decrease) in cash, cash equivalents and marketable securities:	$	(10,872	)	$	(9,719	)	$	7,065	$	(32,416	)	$	3,319


End of period statistics:

Approximate number of active customers		609			621			667		609			667

Number of employees and employee equivalents		609			594			551		609			551


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


		Three Months Ended									Nine Months Ended

		September 30,			June 30,			September 30,			September 30,			September 30,
			2019			2019			2018			2019			2018

Operating activities
	Net (loss) income	$	(2,751	)	$	(7,192	)	$	(272	)	$	(18,502	)	$	15,035

	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization		5,133			4,755			4,377			14,450			14,174
	Share-based compensation		3,358			3,649			3,421			10,463			10,345
	Settlement and patent license income		–			–			–			–			(14,900	)
	Foreign currency remeasurement (gain) loss		21			(135	)		64			(104	)		(97	)
	Deferred income taxes		(61	)		82			(16	)		(30	)		(86	)
	(Gain) loss on sale of property and equipment		(5	)		(21	)		(18	)		(56	)		(131	)
	Accounts receivable charges		580			437			157			1,274			453
	Amortization of premium on marketable securities		9			8			24			29			82
	Changes in operating assets and liabilities:
	Accounts receivable		(5,300	)		(2,031	)		5,558			(11,051	)		5,781
	Prepaid expenses and other current assets		(885	)		582			(2,757	)		(777	)		(2,530	)
	Income taxes receivable		45			–			7			43			(56	)
	Other assets		781			(1,685	)		(192	)		(2,641	)		(759	)
	Accounts payable and other current liabilities		(2,798	)		4,230			3,058			3,675			(2,526	)
	Deferred revenue		(112	)		(148	)		(82	)		(557	)		85
	Income taxes payable		61			81			(113	)		204			(350	)
	Payments related to litigation, net		–			(1,520	)		(1,520	)		(3,040	)		(7,540	)
	Other long term liabilities		16			22			(4	)		(137	)		(173	)
	Net cash (used in) provided by operating activities		(1,908	)		1,114			11,692			(6,757	)		16,807

Investing activities
	Purchases of marketable securities		–			(1,013	)		(15,962	)		(10,279	)		(15,962	)
	Sale and maturities of marketable securities		1,000			18,929			8,850			32,153			20,365
	Purchases of property and equipment		(7,750	)		(11,456	)		(4,214	)		(24,224	)		(10,495	)
	Proceeds from sale of property and equipment		5			17			18			51			131
	Net cash (used in) provided by investing activities		(6,745	)		6,477			(11,308	)		(2,299	)		(5,961	)

Financing activities
	Payment of employee tax withholdings related to restricted stock vesting		(1,015	)		(619	)		(996	)		(2,528	)		(3,808	)
	Cash paid for purchase of common stock		–			–			–			–			(3,800	)
	Proceeds from employee stock plans		13			1,095			737			1,116			4,799
	Net cash (used in) provided by financing activities		(1,002	)		476			(259	)		(1,412	)		(2,809	)
	Effect of exchange rate changes on cash and cash equivalents		(211	)		132			(166	)		(83	)		(271	)
Net (decrease) increase in cash and cash equivalents			(9,866	)		8,199			(41	)		(10,551	)		7,766
Cash and cash equivalents, beginning of period			24,698			16,499			28,719			25,383			20,912
Cash and cash equivalents, end of period		$	14,832		$	24,698		$	28,678		$	14,832		$	28,678

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 (Loss)
(In thousands)
(Unaudited)


	Three Months Ended																		Nine Months Ended

	September 30, 2019						June 30, 2019						September 30, 2018						September 30, 2019						September 30, 2018
	Amount			Per Share			Amount			Per Share			Amount			Per Share			Amount			Per Share			Amount			Per Share

U.S. GAAP net (loss) income	$	(2,751	)	$	(0.02	)	$	(7,192	)	$	(0.06	)	$	(272	)	$	(0.00	)	$	(18,502	)	$	(0.16	)	$	15,035		$	0.13

Settlement and patent license income		–			–			–			–			–			–			–			–			(14,900	)		(0.13	)
Share-based compensation		3,358			0.03			3,649			0.03			3,421			0.03			10,463			0.09			10,345			0.09
Litigation expenses		–			–			–			–			19			0.00			–			–			2,904			0.03

Non-GAAP net income (loss)	$	607		$	0.01		$	(3,543	)	$	(0.03	)	$	3,168		$	0.03		$	(8,039	)	$	(0.07	)	$	13,384		$	0.12


Weighted average basic shares used in per share calculation					116,270						115,275						112,760						115,318						111,626


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,			June 30,			September 30,			September 30,			September 30,
			2019			2019			2018			2019			2018

U.S. GAAP net (loss) income		$	(2,751	)	$	(7,192	)	$	(272	)	$	(18,502	)	$	15,035

	Depreciation and amortization		5,133			4,755			4,377			14,450			14,174
	Interest expense		10			10			10			30			76
	Interest and other (income) expense		(68	)		(40	)		69			(313	)		(85	)
	Income tax expense		166			255			113			544			347

EBITDA		$	2,490		$	(2,212	)	$	4,297		$	(3,791	)	$	29,547

	Settlement and patent license income		–			–			–			–			(14,900	)
	Share-based compensation		3,358			3,649			3,421			10,463			10,345
	Litigation expenses		–			–			19			–			2,904

Adjusted EBITDA		$	5,848		$	1,437		$	7,737		$	6,672		$	27,896

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 16, 2019, 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.