Limelight Networks Reports Financial Results for the Third Quarter of 2020

Rhea-AI Summary

Limelight Networks reported a record revenue of $59.2 million for Q3 2020, reflecting a 15% increase year-over-year from $51.3 million in Q3 2019. The company posted a GAAP net loss of $4.0 million or $(0.03) per share, compared to a net loss of $2.8 million in the same period last year. Non-GAAP figures showed a loss of $1.2 million or $(0.01) per share, down from a profit of $0.6 million in Q3 2019. The company's adjusted EBITDA was $5.6 million. Despite the losses, Limelight remains on track to meet its full-year revenue guidance of $230 to $240 million.

Positive

• Record Q3 revenue of $59.2 million, a 15% YoY increase.
• Adjusted EBITDA of $5.6 million, demonstrating operational stability.
• Continued investment in edge innovation, particularly for video and gaming.

Negative

• GAAP net loss of $4.0 million, worsening from a $2.8 million loss in Q3 2019.
• Non-GAAP net loss of $1.2 million, down from net income of $0.6 million in the previous year.
• Drop in gross profit margin to 36.7% from 40.4% in Q3 2019.

SCOTTSDALE, Ariz.--(BUSINESS WIRE)--Limelight Networks, Inc. (Nasdaq: LLNW) (Limelight), a leading provider of video delivery and edge cloud services, today reported record revenue of $59.2 million for the third quarter of 2020, up 15 percent, compared to $51.3 million in the third quarter of 2019.

Limelight reported a GAAP net loss of $4.0 million, or $(0.03) per basic share for the third quarter of 2020, compared to a net loss of $2.8 million, or $(0.02) per basic share in the third quarter of 2019. GAAP net loss included $1.7 million of interest expense related to our convertible notes issued during the third quarter of 2020.

Non-GAAP net loss was $1.2 million or $(0.01) per basic share for the third quarter of 2020, compared to non-GAAP net income of $0.6 million, or $0.01 per basic share in the third quarter of 2019. Non-GAAP net loss excluded $0.9 million of interest expense related to our convertible notes issued during the third quarter of 2020.

EBITDA was $3.7 million for the third quarter of 2020, compared to $2.5 million for the third quarter of 2019. Adjusted EBITDA was $5.6 million for the third quarter of 2020 compared to $5.8 million for the third quarter of 2019.

Limelight ended the third quarter with 620 employees and employee equivalents, down from 627 at the end of the second quarter of 2020, and up from 609 at the end of the third quarter of 2019.

“Q3 was a very strong quarter for us on a number of fronts as we experienced our second highest quarter of revenue ever and made material progress across our strategic imperatives. Most notable in the quarter was the expansion of our edge capabilities with the launch of Edge Functions and gains in our automated traffic engineering efforts to optimize network performance and customer experience. As we have consistently done all year, we continue to make investments in the business to support our strategy of doubling down on edge innovation with focus on video, media and gaming customers. We are on track to deliver record revenue and revenue growth for 2020, along with meaningful increases across multiple financial and operational metrics. We are well-positioned to continue delivering value for our customers and growth for our shareholders.” said Robert Lento, Chief Executive Officer.

We are leaving our full-year 2020 guidance unchanged, except for the impact of the convertible debt offering interest expense on GAAP and Non-GAAP EPS. The ranges for GAAP and Non-GAAP EPS have been adjusted by $0.03 and $0.02, respectively.

Limelight Networks, Inc.
2020 Guidance
		Current Guidance		Previous Guidance		Actual 2019
Revenue		$230 to $240 million		$230 to $240 million		$200.6 million
GAAP Basic EPS		$(0.13) to $(0.03)		$(0.10) to break-even		$(0.14)
Non-GAAP EPS		$(0.02) to $0.08		Break-even to $0.10		$(0.02)
Adjusted EBITDA		$28 to $35 million		$28 to $35 million		$18.1 million
Capital expenditures		$25 to $30 million		$25 to $30 million		$34.7 million

Financial Tables

LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
		September 30,				June 30,				December 31,
			2020				2020				2019
		(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	75,169			$	18,200			$	18,335
Marketable securities			49,623				-				-
Accounts receivable, net			42,222				45,246				34,476
Income taxes receivable			81				68				82
Prepaid expenses and other current assets			12,561				10,241				9,920
Total current assets			179,656				73,755				62,813
Property and equipment, net			47,493				48,908				46,136
Operating lease right of use assets			10,844				11,449				12,842
Marketable securities, less current portion			40				40				40
Deferred income taxes			1,428				1,328				1,319
Goodwill			77,126				77,113				77,102
Other assets			7,459				7,915				9,117
Total assets		$	324,046			$	220,508			$	209,369
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	12,437			$	17,004			$	12,020
Deferred revenue			797				934				976
Operating lease liability obligations			2,654				2,390				2,056
Income taxes payable			153				169				178
Other current liabilities			17,584				17,028				13,398
Total current liabilities			33,625				37,525				28,628
Convertible senior notes, net			99,937				-				-
Operating lease liability obligations, less current portions			11,745				12,316				13,488
Deferred income taxes			251				283				239
Deferred revenue, less current portion			230				265				161
Other long-term liabilities			579				304				316
Total liabilities			146,367				50,693				42,832
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; 122,824, 121,692 and 118,368 shares issued and
outstanding at September 30, 2020, June 30, 2020 and December 31, 2019, respectively			123				122				118
Additional paid-in capital			552,559				541,363				530,285
Accumulated other comprehensive loss			(9,379	)			(10,031	)			(9,210	)
Accumulated deficit			(365,624	)			(361,639	)			(354,656	)
Total stockholders' equity			177,679				169,815				166,537
Total liabilities and stockholders' equity		$	324,046			$	220,508			$	209,369

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 Change			September 30,				Percent Change			September 30,				September 30,				Percent Change
		2020				2020							2019							2020				2019
Revenue		$	59,243			$	58,546			1	%		$	51,321			15	%		$	174,801			$	140,505			24	%
Cost of revenue:
Cost of services (1)			31,905				29,389			9	%			25,602			25	%			92,406				71,311			30	%
Depreciation - network			5,602				5,360			5	%			4,961			13	%			16,112				13,905			16	%
Total cost of revenue			37,507				34,749			8	%			30,563			23	%			108,518				85,216			27	%
Gross profit			21,736				23,797			-9	%			20,758			5	%			66,283				55,289			20	%
Gross profit percentage			36.7	%			40.6	%						40.4	%						37.9	%			39.4	%
Operating expenses:
General and administrative (1)			7,751				8,187			-5	%			7,356			5	%			23,820				23,231			3	%
Sales and marketing (1)			10,456				10,929			-4	%			10,713			-2	%			33,279				32,679			2	%
Research & development (1)			5,425				5,572			-3	%			5,160			5	%			16,614				17,075			-3	%
Depreciation and amortization			384				323			19	%			172			123	%			1,049				545			92	%
Total operating expenses			24,016				25,011			-4	%			23,401			3	%			74,762				73,530			2	%
Operating loss			(2,280	)			(1,214	)		NM				(2,643	)		NM				(8,479	)			(18,241	)		NM
Other income (expense):
Interest expense			(1,674	)			(71	)		NM				(10	)		NM				(1,756	)			(30	)		NM
Interest income			10				6			NM				81			NM				40				402			NM
Other, net			25				(312	)		NM				(13	)		NM				(396	)			(89	)		NM
Total other (expense) income			(1,639	)			(377	)		NM				58			NM				(2,112	)			283			NM
Loss before income taxes			(3,919	)			(1,591	)		NM				(2,585	)		NM				(10,591	)			(17,958	)		NM
Income tax expense			66				136			NM				166			NM				377				544			NM
Net loss		$	(3,985	)		$	(1,727	)		NM			$	(2,751	)		NM			$	(10,968	)		$	(18,502	)		NM
Net loss per share:
Basic		$	(0.03	)		$	(0.01	)					$	(0.02	)					$	(0.09	)		$	(0.16	)
Diluted		$	(0.03	)		$	(0.01	)					$	(0.02	)					$	(0.09	)		$	(0.16	)
Weighted average shares used in per share calculation:
Basic			122,363				120,230							116,270							120,519				115,318
Diluted			122,363				120,230							116,270							120,519				115,318
(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,
		2020			2020				2019				2020			2019
Share-based compensation:
Cost of services		$	130		$	792			$	331			$	1,685		$	1,119
General and administrative			1,272			2,257				2,006				5,770			6,240
Sales and marketing			206			1,322				584				2,756			1,666
Research and development			315			880				437				2,027			1,438
Total share-based compensation		$	1,923		$	5,251			$	3,358			$	12,238		$	10,463
Depreciation and amortization:
Network-related depreciation		$	5,602		$	5,360			$	4,961			$	16,112		$	13,905
Other depreciation and amortization			384			323				172				1,049			545
Total depreciation and amortization		$	5,986		$	5,683			$	5,133			$	17,161		$	14,450
Net increase (decrease) in cash, cash equivalents and marketable securities:		$	106,592		$	(3,221	)		$	(10,872	)		$	106,457		$	(32,416	)
End of period statistics:
Approximate number of active customers			534			560				609				534			609
Number of employees and employee equivalents			620			627				609				620			609

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,
					2020				2020				2019				2020				2019
Operating activities
	Net loss			$	(3,985	)		$	(1,727	)		$	(2,751	)		$	(10,968	)		$	(18,502	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
		Depreciation and amortization			5,986				5,683				5,133				17,161				14,450
		Share-based compensation			1,923				5,251				3,358				12,238				10,463
		Foreign currency remeasurement loss (gain)			27				257				21				(113	)			(104	)
		Deferred income taxes			(95	)			59				(61	)			(80	)			(30	)
		Gain on sale of property and equipment			(1	)			-				(5	)			(1	)			(56	)
		Accounts receivable charges			163				155				580				476				1,274
		Amortization of premium on marketable securities			87				-				9				87				29
		Noncash interest expense			868				-				-				868				-
		Changes in operating assets and liabilities:
		Accounts receivable			2,862				(10,798	)			(5,300	)			(8,221	)			(11,051	)
		Prepaid expenses and other current assets			(2,232	)			986				(885	)			(2,679	)			(777	)
		Income taxes receivable			(10	)			10				45				3				43
		Other assets			757				1,121				781				2,504				(2,641	)
		Accounts payable and other current liabilities			1,222				1,045				(2,798	)			8,159				3,675
		Deferred revenue			(172	)			313				(112	)			(109	)			(557	)
		Income taxes payable			(17	)			-				61				(15	)			204
		Payments related to litigation, net			-				-				-				-				(3,040	)
		Other long term liabilities			276				(15	)			16				265				(137	)
	Net cash provided by (used in) operating activities				7,659				2,340				(1,908	)			19,575				(6,757	)
Investing activities
		Purchases of marketable securities			(52,690	)			-				-				(52,690	)			(10,279	)
		Sale and maturities of marketable securities			2,900				-				1,000				2,900				32,153
		Purchases of property and equipment			(7,180	)			(8,085	)			(7,750	)			(22,128	)			(24,224	)
		Proceeds from sale of property and equipment			1				-				5				1				51
	Net cash provided by (used in) investing activities				(56,969	)			(8,085	)			(6,745	)			(71,917	)			(2,299	)
Financing activities
		Proceeds from issuance of debt, net			121,600				-				-				121,600				-
		Purchase of capped calls			(16,413	)			-				-				(16,413	)			-
		Payment of debt issuance costs			(784	)			-				-				(784	)			-
		Payment of employee tax withholdings related to restricted stock vesting			(1,041	)			(1,430	)			(1,015	)			(3,987	)			(2,528	)
		Proceeds from employee stock plans			2,598				3,954				13				8,691				1,116
	Net cash provided by (used in) financing activities				105,960				2,524				(1,002	)			109,107				(1,412	)
	Effect of exchange rate changes on cash and cash equivalents				319				-				(211	)			69				(83	)
Net increase (decrease) in cash and cash equivalents					56,969				(3,221	)			(9,866	)			56,834				(10,551	)
Cash and cash equivalents, beginning of period					18,200				21,421				24,698				18,335				25,383
Cash and cash equivalents, end of period				$	75,169			$	18,200			$	14,832			$	75,169			$	14,832

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 share-based compensation and non-cash interest expense. 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 share-based compensation. 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

In accordance with the requirements of Item 10(e) of Regulation S-K, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited 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 Loss to Non-GAAP Net Income (Loss)
(In thousands)
(Unaudited)
		Three Months Ended																								Nine Months Ended
		September 30, 2020								June 30, 2020								September 30, 2019								September 30, 2020								September 30, 2019
		Amount				Per Share				Amount				Per Share				Amount				Per Share				Amount				Per Share				Amount				Per Share
U.S. GAAP net loss		$	(3,985	)		$	(0.03	)		$	(1,727	)		$	(0.01	)		$	(2,751	)		$	(0.02	)		$	(10,968	)		$	(0.09	)		$	(18,502	)		$	(0.16	)
Share-based compensation			1,923				0.02				5,251				0.04				3,358				0.03				12,238				0.10				10,463				0.09
Non-cash interest expense			868				0.01				-				-				-				-				868				0.01				-				-
Non-GAAP net (loss) income		$	(1,194	)		$	(0.01	)		$	3,524			$	0.03			$	607			$	0.01			$	2,138			$	0.02			$	(8,039	)		$	(0.07	)
Weighted average basic shares used in per share calculation							122,363								120,230								116,270								120,519								115,318

LIMELIGHT NETWORKS, INC.
Reconciliation of U.S. GAAP Net 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,
			2020				2020				2019				2020				2019
U.S. GAAP net loss			$	(3,985	)		$	(1,727	)		$	(2,751	)		$	(10,968	)		$	(18,502	)
	Depreciation and amortization			5,986				5,683				5,133				17,161				14,450
	Interest expense			1,674				71				10				1,756				30
	Interest and other (income) expense			(35	)			306				(68	)			356				(313	)
	Income tax expense			66				136				166				377				544
EBITDA			$	3,706			$	4,469			$	2,490			$	8,682			$	(3,791	)
	Share-based compensation			1,923				5,251				3,358				12,238				10,463
Adjusted EBITDA			$	5,629			$	9,720			$	5,848			$	20,920			$	6,672

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. EDT (1:30 p.m. PDT) 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 (loss), 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 22, 2020, 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, and follow us on Twitter, Facebook and LinkedIn.

Copyright (C) 2020 Limelight Networks, Inc. All rights reserved. All product or service names are the property of their respective owners.