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Edited Transcript of LLNW earnings conference call or presentation 16-Oct-19 8:30pm GMT

Q3 2019 Limelight Networks Inc Earnings Call

TEMPE Oct 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Limelight Networks Inc earnings conference call or presentation Wednesday, October 16, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel R. Boncel

Limelight Networks, Inc. - VP of Finance & Principal Accounting Officer

* Robert A. Lento

Limelight Networks, Inc. - President, CEO & Director

* Sajid Malhotra

Limelight Networks, Inc. - CFO

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Conference Call Participants

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* Hannah Rudoff

D.A. Davidson & Co., Research Division - Research Associate

* Jonathan David Charbonneau

Cowen and Company, LLC, Research Division - VP

* Lee T. Krowl

B. Riley FBR, Inc., Research Division - Associate Analyst

* Robert S. Majek

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Rudy Grayson Kessinger

Craig-Hallum Capital Group LLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon, everyone, and welcome to Limelight Networks' Q3 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please also note, today's event is being recorded. At this time, I would like to turn the conference call over to Mr. Dan Boncel, Chief Accounting Officer. Sir, please go ahead.

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Daniel R. Boncel, Limelight Networks, Inc. - VP of Finance & Principal Accounting Officer [2]

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Good afternoon, and thank you for joining the Limelight Networks' Third Quarter 2019 Financial Results Conference Call. This call is being recorded on October 16, 2019, and will be archived on our website for approximately 10 days.

Let me start by quickly covering the safe harbor. We would like to remind everyone that we will be making forward-looking statements on this call. Forward-looking statements are all statements that are not strictly statements of historical fact such as our outlook for 2019 and beyond, our priorities, our expectations, our operational plans, business strategies, secular trends, and product and feature functionality announcements. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. For more information, please refer to the risk factors discussed in our periodic filings, including our most recent annual report on Form 10-K. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.

Joining me on the call today are Bob Lento, our Chief Executive Officer; and Sajid Malhotra, our Chief Financial Officer. We will be available during the Q&A session at the end of prepared remarks from Bob and Sajid.

I would now like to turn the call over to Bob Lento.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [3]

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Thanks, Dan, and good afternoon. This was an excellent quarter. We made great progress on multiple priorities during the quarter and set the foundation for a strong second half across many operational and financial measures. Before getting into the third quarter details, I would first like to thank everyone who attended our recent Analyst Day at our new corporate headquarters in Scottsdale as well as those who joined us on the phone or webcast. It was a deeper dive into how we see the industry and how our strategy aligns with industry trends. Based on the feedback received, we believe it was a success. If you missed the event, you can view the presentation, which is posted on our website.

Now on to third quarter results. Revenue was up 4% year-over-year to $51.3 million, which was our highest third quarter revenue ever and our second-highest revenue in any quarter. GAAP net loss was $2.8 million, non-GAAP net income was $600,000 and adjusted EBITDA was $5.8 million. We are very pleased with these results. We made some tough strategic decisions last year, which negatively impacted revenue in the short term but positioned us better for a long-term financial success.

In the third quarter, our financial results began to show the benefits of those decisions as we returned to year-over-year revenue growth. We expect this growth to continue in the coming quarters, with increasing strength in the fourth quarter when many of our new deals and initiatives are expected to have a more substantial impact. During the third quarter, we delivered record traffic, which was almost 20% higher than our previous record set in the second quarter of this year. We're excited about this momentum in our business and expect it to continue in the fourth quarter and beyond.

Customer acquisition accelerated in the third quarter with numerous new logos added across all regions. I'm also pleased that our customer churn count in the third quarter was down 25% from the third quarter 2018 levels. The decline in customer churn is consistent with our high levels of customer satisfaction as evidenced by the results of our recently completed annual customer survey that generates our Net Promoter Score.

As discussed during our Analyst Day, the strong demand we are seeing is a result of a number of factors, including the new sizable OTT offerings on the horizon. As we now know, based on public announcement, Apple is set to launch Apple TV+ on November 1, Disney plans to launch Disney+ on November 12 and others are slated for 2020. These are exciting events for the industry and we are pleased to be part of most, if not all of these major services.

We're also pleased with our progress in edge services, which leverages our infrastructure in software to address our customers' needs at the edge for low latency and connectivity. There are several initiatives that are underway that we believe will add important capabilities that our customers care about. Let me describe a few that I believe are both important to our shareholders and our customers. The first use case is Limelight Realtime Streaming, which is the industry's first global scalable sub-second live video streaming solution that is natively supported by major browsers and devices. Realtime streaming is a long-term opportunity for us, and we are pleased that this new offering clearly establishes Limelight as the industry leader in sub-second global delivery.

Our partnership with Ericsson is another great example where we are the exclusive provider of content delivery capabilities for its global scale edge cloud platform. During the third quarter, we made good progress on executing our plan with Ericsson. We started the quarter with 19 existing Ericsson locations, and we expect that number to double in the next few months. All of these new locations will be next-generation PoPs, which are a new build by Ericsson within a service provider utilizing our software and hardware specs. It is important as it provides Limelight with a low CapEx model for expanding capacity closer to the edge within service provider networks in locations that were previously hard for us to reach. We are very pleased with this accelerating momentum in our Ericsson partnership. The relationship continues to build and we're pleased with the execution and progress we're making together.

Another great example is our new serverless compute capabilities, also known as function as a service. This offering will provide a platform for our customers to deploy their own application functions into our network edge locations and run them on demand. We expect to be able to provide this service in the first half of 2020.

As discussed at length during our Analyst Day, we believe our platform aligns well with the requirements for edge services. We continue to evolve our edge platform through the third quarter, working to expand our ecosystem of partners and build out additional offerings for our customers. In the third quarter, we continued to gain traction in the marketplace as we closed a number of new edge service deals and have a strong and growing pipeline.

Year-to-date, revenue from our edge services related offerings have increased 60% from 2018, and we expect the full year revenue from edge services to approximately double over the prior year. With these new service offerings, we expect to see continued acceleration in terms of dollars and as a percentage of prior period amounts in 2020 and beyond.

In addition to the capacity added through new Ericsson locations, we continue to focus on expanding our capacity through software enhancements and expansion of our network into new locations that are important to our customers and support key initiatives. During the third quarter, we completed the rollout of enhancements to our network software that were designed to drive increased performance and throughput. This project has been in development for the past 2 years, and we're excited about its completion. The new software has increased throughput on our servers by over 30% and added over 12 terabits per second of edge server capacity on our network without any additional CapEx spend.

As reported last quarter, we began 2019 with 28 terabits per second of edge server capacity. As a result of our initiatives, we now believe that we will more than double this capacity by the end of the year to around 60 terabits per second. While we're still in the planning stage for next year, we currently expect to increase our capacity in 2020 by an even higher amount than 2019, while reducing CapEx on a year-over-year basis. We believe this will be important in order to address and serve the strong demand we see in the marketplace. We expect these efforts to have a positive impact on our customers and drive revenue growth in the future.

In summary, this was an excellent quarter for Limelight. We are very pleased that we returned to a growth trajectory in the third quarter with year-over-year and sequential revenue growth. We expect this growth to accelerate and believe our third quarter results are a precursor to a record performance in the fourth quarter, which we are confident we will deliver.

As I look forward, I see an exciting time in our industry. We're focused -- focusing our R&D and investment dollars in video delivery, where a low latency and high quality matter and to further strengthening our edge platform. We believe we are ideally positioned and well-suited to take advantage of the trends in the industry, and we expect this will translate into sustainable above-market returns.

I would like to express my gratitude for the hard work of our global team and momentum they together have generated this year. In addition to all of the initiatives I've already talked about, we also completed the complex project of moving our headquarter location into a new facility that will be our home for the next 10 years. I'm more confident than ever that 2019 will be our best year on many fronts and will serve as a foundation for an even better 2020.

With that, I'll turn the call over to Sajid to discuss the third quarter financial performance in greater detail and our guidance for 2019.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [4]

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Thanks, Bob, and good afternoon. With our third quarter results, we are very pleased to report our return to top line growth and improving profitability. We believe we will show significant year-over-year and sequential growth in the fourth quarter and further improvements in the operating lines.

Revenue in the third quarter is $51.3 million, up 4% year-over-year and up 12% sequentially. On a year-over-year basis, we have sold through the contract renegotiations and our strategic customer decisions from the third quarter of last year. Sequentially, we have reported our highest revenue growth rate in over a decade, and it may be the highest in the industry. At $51.3 million, the third quarter is within $1 million of our highest ever revenue quarter. The business is showing strong momentum.

International customers accounted for 36% of total revenue in Q3 compared to 38% a year ago. This is based on where the customer is billed. On the other hand, international traffic is approximately 47% of total traffic. Approximately 14% of our third quarter revenue was in non-U. S. dollar-denominated currencies. Foreign exchange headwinds in the quarter amounted to approximately $200,000. Our top 20 customers account for approximately 74% of our total revenue.

With the second and third quarters seasonally being the lowest volume, and therefore lower revenue quarters, we are particularly pleased with a reported revenue growth we have seen in each sequential quarter in 2019. During the third quarter, we delivered a record amount of terabytes. Also in the quarter, we had our highest peak traffic and had multiple days with the most terabytes delivered in our history. We believe we will continue to set new traffic delivery records for the foreseeable future as we see healthy demand for our video-based edge services.

Moving on to expenses, we have been deploying capital throughout the year to expand our network capacity in order to deliver against the expectations of a steep ramp in traffic. The increase in collocation and bandwidth cost and depreciation expense is related to the near doubling of our network to almost 50 terabytes per second of capacity. We expect gross margins to continue to improve as traffic ramps in locations where we see higher absorption of our newly deployed capacity. We are in a race to serve the customers, and the timing may not match perfectly, but the trend is healthy and the outcome should show continuous improvement.

Operating expenses decreased $700,000, while sales and marketing expenses increased due to expanded head count. On a GAAP basis, we lost $0.02 per basic share this quarter compared to $0.06 loss last quarter and breakeven last year. Non-GAAP EPS was $0.01 this quarter compared to a loss of $0.03 last quarter and a positive $0.03 last year. Adjusted EBITDA was $5.8 million for the third quarter of 2019.

We had cash and marketable securities of $18.1 million at the end of the third quarter. We used approximately $2 million in cash from operations in the quarter due to timing of payments as accounts receivable increased by over $5 million. We spent $7.7 million in capital expenditures in the third quarter, bringing the total for the year to $24.2 million. Cash usage was also slightly elevated due to capitalized and expense items related to our headquarter move.

At the end of the third quarter, DSO was 55 days compared to 52 days at the end of last year, within our expected range of 50 to 55 days. Our balance sheet remains strong and we remain debt-free. As of September 30, we had approximately 116.5 million shares outstanding. Total employee count at the end of the quarter was 609, up 58 from the end of third quarter last year and up 15 from the end of last quarter.

We believe the third quarter represents a turning point for the business. We have worked through the strategic customer decisions made in 2018 as shown in our year-over-year and sequential revenue gains. We are seeing momentum on multiple fronts that will lead to what we believe will be industry-leading revenue growth in the fourth quarter. The business is more video and edge services-centric than it ever has been and we see this trend continue to grow. We have positioned ourselves to take advantage of the continued creation and adoption of OTT services as well as the entry of new participants in this -- into this market.

As these OTT providers test various vendors, along with our existing customers, we continue to receive feedback that we are performing as well, if not better, than any other vendor. Limelight is increasingly being recognized as a high quality and capable partner and not just a low-price vendor. Our relationship with our partners is another key component of our CDN expansion and edge-compute growth strategies. We continue to work with Ericsson to expand directly into telecom providers and content provider networks. This partnership has now gained some renewed traction and is moving in the right direction.

Our total PoP count is approaching 120. We are also working on ways to expand our product offerings with another partner, Neustar, to help our customers with DDoS protection and an expanding suite of real-time security solutions. Our edge product is growing at a healthy rate and expected to double from prior year amounts. We are experiencing hypergrowth supported by strong pipeline with existing and new customers.

Our security solutions are also growing at a very good rate. Together, these 2 adjacencies, with fractional incremental cost and a lot of use of our existing infrastructure, are adding to our overall growth rate. The organic development of these businesses will serve us well for years to come. With this in mind, we are leaving guidance for our revenue and operating results unchanged. Revenue is expected in the range of $200 million to $210 million. GAAP loss to be around $0.10 per share and non-GAAP EPS to be around breakeven. We are going to deploy more capital to support the demand we see in 2020, and now expect CapEx for the year to be approximately $30 million. Our headquarter move impacted our CapEx and OpEx for the year.

Our cost of adding a terabyte of capacity is amongst the lowest in the industry, and we see more improvements in that arena. Looking at competitive industry analogs, our CapEx is the lowest for the revenue delivered and our profitability far in excess of other companies our size. The business is getting better on multiple fronts. And as we projected at the start of the year, we continue to see significant sequential improvement through 2019.

Ending at the high note in 2019 is also very promising for our 2020 performance. I'm very pleased with the advancements we are making. I believe the deep discount in valuation compared to our industry averages creates a unique opportunity for our shareholders. We are working hard to achieve even higher levels of performance and get closer to our long-term goals.

With that, we'll open the call up for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Robert Majek from Raymond James.

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Robert S. Majek, Raymond James & Associates, Inc., Research Division - Senior Research Associate [2]

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Congrats on the results this quarter. Just wanted to ask you a question about programmability. At the Analyst Day, you highlighted your early progress towards offering a full API configuration and programmability. Can you just give us the latest update where we stand with that initiative? And perhaps more broadly, would love to hear your opinion on how important you think those capabilities are to gain share long term in CDN?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [3]

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This is Bob. Let me take the -- kind of the first part of that. So we think providing opportunities for our customers to have access to our data and also give them the ability to manage their traffic is important. We started building out and improving our suite of APIs earlier this year. It's one of the major initiatives we have for 2020. So we're on a path to providing what we believe will be best-in-class in terms of the extensibility of the network. And we believe that for a lot of our customers, that's becoming increasingly more important as they look for ways to better understand quality and consumer preference. The more data that we can provide to them, the better positioned they are to understand the quality and the experience that their consumers are having with their product and with their service. So we think it's important -- we're making a lot -- we made a lot of progress this year, but there is more to do, and it is one of our top 4 priorities going into next year.

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Robert S. Majek, Raymond James & Associates, Inc., Research Division - Senior Research Associate [4]

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Appreciate it. And just maybe one more for me on OTT. Can you just walk us through the potential size of the incremental near-term opportunity for you there? And then maybe just walk us through what's driving your conviction level that you can win that amount of business and hit your Q4 guide?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [5]

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So look, there's only so much capacity that exists in the world. Obviously, we and our competitors are trying to add more every day. But as new initiatives come into the market, especially those that have incremental content, so not just shifting people watching a title on Netflix to a title on somebody else, that's sort of better for us because Netflix runs their own network and we do not participate in that. And in most of the others, we do. So that is a shift that's good for us.

But in addition to that, the exciting thing is the number of new entrants that are coming to market with new content. So if you look at what Apple's doing and others, it's not only shifting from one viewing experience to the other but bringing fresh new innovative content to market. And so we see the trend for that being very healthy, and we're confident in our ability to participate in delivering for a variety of important customers around the world.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [6]

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And Robert, I would just kind of add, right, on one hand, I mean there is a lot of capacity in the marketplace. But I think that is very different from quality capacity that is required to deliver video-centric solutions. And the choice that we made some time ago to focus our business on video and video-centric solutions, makes that much of a difference today when we get in front of our customers and are really talking about why it's so important for their customer experience to be perfect. Because they've spent a lot of time on content acquisition and customer acquisition comes at a very high premium. And you really don't want to go ahead and have anything less than perfect delivery capability.

And so I think there's only a handful of us that can do well. There's others that have capacity, but just having capacity does not equate well for some of the vendors that are looking for quality. And so we feel very fortunate that we took the steps that we did some time ago to position us well today. And then kind of the next step. I mean listen, I know what we are signed up for, right? So even at the low end of our guidance, we're suggesting 15% higher revenue sequentially. I mean we are talking about a 35% growth rate year-over-year, numbers that we have not seen in our history, right? So we've been 5%, 8%, 10%. And all of a sudden, we're talking about a 35% growth rate, which I think if we deliver and that I'm talking about at the low end of our guidance.

If I'm looking at analyst numbers, I don't think there's anybody else suggesting those kind of numbers. So that happens only 1 of 2 ways, either we are taking share in the market, right? Or we are growing faster. And as the market is growing, we are getting a much larger share of that growth. And I think we are giving you this guidance based on our belief and based on the early conversions we are having and based on the projections we are seeing that we should be able to deliver these results.

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Operator [7]

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Our next question comes from Lee Krowl from B. Riley FBR.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [8]

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Congrats on a well-executed quarter. Real quick, just on gross margin. I can completely appreciate the commentary around building capacity, and then some underutilization related to seasonality but ahead of a nice ramp. But could you maybe just talk kind of the gross margin profile of some of the newer products? And maybe how those either aid in terms of utilization and maybe pricing? And how gross margin will be impacted as you have some new edge and other lines of revenue contributing to the top line?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [9]

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Yes. I think you've seen kind of the worst behind us, right? When we reported our gross margin in the fourth quarter and the first quarter in the mid-, high-30s, I mean that was kind of the low point for the company. Since then, when we began to see the opportunities that we saw and we built ahead of it, and we had capacity and we had network and peering and all the settlements that we had to do with the network providers. The cost is up, you have to build in advance of getting the revenue and you have some underutilized capacity. So we fully expect the base business to see a step-up in its gross margins over the coming quarters.

And again, I like to look at our business and where we are and the progress we are making. But I am also equally riveted in terms of the competitive analogs. And so the profitability profile of the company is much better now that we have at least 2 public companies our size, which report results in terms of where we are. And I think we will see an uptick in our gross margins and, again, suggestions from the analyst community suggest kind of a different trend for our peer group. But there is room over there.

And then the new adjacencies that we are talking about, whether it is the edge services, the video-based services, the margin profile of those businesses is better. And I think that helps the overall corporate margin as we move forward. The security services business, and our partnership with Neustar and the Ericsson-related business and all the edge business, I mean I continue to expect long-term improvement in our gross margin that should show up on a consistent basis. Again, I've said this before, not every quarter, not perfectly, but the trend is intact and I think we should continue to benefit from it.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [10]

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Got it. And then just on CapEx, trying to understand -- obviously, there's a lot of opportunities for you guys, so the incremental bump in $5 million to the $30 million guide, is that a pull forward from 2020, per your comments, that you're expected to be down? Or is there kind of some additional opportunities you saw and just made the decisions to spend the money now as some of the opportunities come to fruition from customers?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [11]

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Yes. So there's really 3 parts to why we believe CapEx will come down next year versus this year. A -- despite putting in more capacity, a, we're not doing another corporate headquarter move. So while we're not saying that, I think Akamai in their last quarter said they were going to spend $100 million. We didn't do that, but we did spend an amount sort of in the $5-ish million range. That's obviously when you're only spending $25 million or $30 million, it's pretty significant. We're not going to repeat that next year, so that's the first thing.

Second thing, yes, we are pulling forward some capacity spend into this year based on what we see happening towards the end of this quarter and into next year. And then lastly, the cost of us adding a terabit of capacity next year will be much lower than it was in the first few quarters this year, for example, before we put in that new software enhancement. And so the throughput that we're getting from the servers is dramatically higher. So you need less servers for a terabit of capacity purchased. And that's a big piece of CapEx. So I think there is several factors there, a little bit of pull forward, a big difference in the cost of adding a terabit. And then no, obviously not a repeatable headquarter move.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [12]

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And we'll see some ongoing benefits from the investments we make in R&D to continue to make the infrastructure we have better and more efficient and push more and make that more productive. And I think CapEx should go down back to the range that we've suggested, it should be in the 10% to 12% of revenue range. And so that's kind of the goal.

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Operator [13]

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Our next question comes from Jon Charbonneau from Cowen and Company.

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Jonathan David Charbonneau, Cowen and Company, LLC, Research Division - VP [14]

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Was the record traffic you saw in the quarter fairly broad-based? Or was it more driven by 1 or 2 larger customers or events? And what do you view as the biggest risk to not hitting at least the low end of 2019 revenue guidance?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [15]

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So in terms of traffic in the quarter, the good news is it was not based on 1 or 2 or even 3 customer's traffic accelerating at an abnormal rate compared to previous amount. It was pretty broad-based. Obviously, we're focused on the largest brands in the world. So most of it came from our top 20 customers, but not a handful for sure. And then in terms of looking at guidance and what's the risk in that, certainly there are things outside of our control, if Apple at the last minute decides it's not April 1, it's December 1, or anything else like that or consumer adoption is dramatically lower, then the estimates that we have been giving could certainly affect that. But as you can imagine, we try to be fairly conservative in our planning of what it would take to get to that low end of the guidance. So while there's certainly things that are risk factors and risk factors outside of our control, we feel fairly comfortable based on everything we know that we can be confident in the numbers.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [16]

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And it is you know kind of platform-as-a-service or infrastructure-as-a-service business. So you know you've got your base business, and your run rate is established pretty much where you're going to be as a baseline. So no changes over there, no material contract negotiations, no noise of all that category. And then all the buildup that you see in the business, plus the seasonality of the fourth quarter. I mean we are sitting over here midmonth in the first month of the 3 that we have to deliver against, and a lot of the revenue is kind of steady-state, already in and accounted for.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [17]

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The good news is, the one risk factor that we can control is performance. And we feel very confident based on the data we get from customers that are willing to share data with us that we are always in the #1 or #2 slot for performance. We're never in the -- to have 5 CDNs that they deal with, we're never in the 4 or 5. We're always in top-performing CDN depending on location. And so obviously we feel very good about our ability to manage that risk factor.

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Operator [18]

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Our next question comes from Rishi Jaluria from D.A. Davidson.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Associate [19]

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This is Hannah on for Rishi today. So with the Ericsson partnership trending back in line with expectations, maybe even a little better, is it still expected to contribute low single digits in millions to revenue in 2019?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [20]

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Correct.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [21]

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Correct. Yes. I mean as you know, in 2019, they had a leadership change that we talked about last quarter. We've been gaining momentum. We're feeling good about the half that we're on, but we're still 2, 3 quarters behind where we thought we would be when we signed the deal last year at this time.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [22]

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I mean in May, we announced that we were up to 100 PoPs, we're approaching 120 mark. If you recall, we were in the mid-80s at the end of the year. So took us 10 years to kind of get to 80 PoPs, and with their help, et cetera, and our own build-outs, we're expanding our presence quite rapidly in the marketplace.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Associate [23]

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All right. And then second question, just talk about the different leverage you see for improving operating margins going forward?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [24]

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Yes. I think we talked about this quite in detail when we had our Analyst Day. So I would -- not much has changed from that about a month ago to today. There are levers that we have, and I would just reference you to the slides because it's detailed and nothing's changed from there. But we talk about it at the gross margin level, what we are doing from a capacity utilization standpoint, efficiency standpoint, attraction of better revenue streams and more stickier revenue streams, down to having leverage in the expense model side and then more effectiveness on the R&D side, more sales generation and better productivity and all the work that Tom is doing in terms of his team. And then on -- all the way downstream, I think that's pretty much the case that we've laid out. And we are executing against it.

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Operator [25]

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(Operator Instructions) Our next question comes from Jeff Van Rhee from Craig-Hallum Capital Group.

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Rudy Grayson Kessinger, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [26]

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This is Rudy on for Jeff. So a couple for me. Starting out, in terms of Ericsson and Tencent. So Ericsson, I know, you just had targeted a couple of million this year. Is it lining up to probably do the original $7 million to $9 million, that full $7 million to $9 million next year that you originally thought was going to come in '19? And then on Tencent, I think last quarter you guys said, it has just become revenue-generating. What do you think that will contribute this year and also potentially next year?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [27]

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So I think, Rudy, here's what I don't want to do, right? Because I think setting ourselves up for that was a huge disappointment for us. And it's a lesson learned.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [28]

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Let's not do that again.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [29]

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So I don't want to kind of break it down. What I would tell you is that first, the Ericsson's small single-digit millions is the full year number, not in fourth quarter. So we have -- it is a growing number for us. We expect it to do well. We are trying very hard to get the business back on track and to catch up on the lost time. So there's momentum in the business. It is getting better with Ericsson. And it's going to be the same for the other opportunities that we talked about. We'll give guidance for 2020 later on this quarter. And when we do, we'll talk about what the basis is for that. But I really don't want to jump ahead and start talking about bifurcating all of that. I'm -- when a dealer stores as much as we can and if more shows up, we'll be happy to report it.

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Rudy Grayson Kessinger, Craig-Hallum Capital Group LLC, Research Division - Research Analyst [30]

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Yes. Fair enough. And then circling back around to the -- I think you said 20% increase in traffic sequentially, and then you said it was broad-based, wasn't a handful of customers that was driving that. Is that more so just overall -- or I guess in the quarter, was it more so overall just industry increases in traffic? Or you guys gaining more share within customers?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [31]

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I think it's probably more to do with us gaining share based on the numbers that are out there. For example, I just recently read a report that Cisco put out that has the Internet traffic growing at 26% per year. And so obviously, on a quarter-to-quarter basis, a lot less than that. And so 20% quarter-to-quarter, certainly far exceeds that. So I think the good news is, we're associated with a group of customers that are very successful in terms of what they do. So they -- the pie might be growing faster than the internet traffic overall. I think that's highly likely. But I also think we're getting a bigger piece of that pie as customers get more sophisticated and better understand the quality of delivery. I think the better the data they have, the more we win.

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Operator [32]

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And ladies and gentlemen, at this point, I'm showing no additional questions. I'd like to turn the conference call back over to management for any closing remarks.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [33]

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Perfect. Thank you very much. All right, well, I mean before I close it, I just want to say thank you to all the shareholders. I think you've been patient. I think we feel very good about where we are and about the second half that we are in. And with that, I'd also just let you know if you want to schedule a visit, just call or write us. We'll be back on the road. As always, thank you again, and we are available to answer any additional questions after the call. And with that, it'll conclude our call. Thank you.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [34]

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Thanks.

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Operator [35]

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Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining. You may now disconnect your lines.