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Edited Transcript of LLNW earnings conference call or presentation 29-Jan-20 9:30pm GMT

Q4 2019 Limelight Networks Inc Earnings Call

TEMPE Feb 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Limelight Networks Inc earnings conference call or presentation Wednesday, January 29, 2020 at 9:30:00pm 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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* Colby Alexander Synesael

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Jeffrey Lee Van Rhee

Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst

* Lee T. Krowl

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

* Rishi Nitya Jaluria

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Timothy Kelly Horan

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Good afternoon. And welcome to the Limelight Networks' Fourth Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I'd now like to turn the conference over to Dan Boncel, Limelight's Chief Accounting Officer. 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' Fourth Quarter and Full Year 2019 Financial Results Conference Call. This call is being recorded on January 29, 2020, 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 2020 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. As you can tell from my voice, I'm fighting a bit of a cold here, so let me apologize upfront. I will do the best I can. The good news is, it is not the flu, but I definitely have a sore throat.

Today, we announced our fourth quarter and full year results. This was a great quarter, capping a year of hard work that resulted in strong business momentum and strengthening financial and operational performance.

Revenue in the fourth quarter was $60.1 million, up 37% year-over-year, and was our highest quarterly revenue ever. I'm very pleased that we were profitable this quarter, generating GAAP net income of $2.5 million, non-GAAP net income was $5.8 million, and adjusted EBITDA was a record $11.4 million and more than double the prior year amount.

We are extremely proud of this quarter's results, which were a strong finish to 2019. This time last year, we said we would generate steady, sequential revenue growth throughout 2019, and I'm proud to report today that we did just that. Building revenue from $43 million in the first quarter of 2019 to $46 million in Q2, to $51 million in Q3, and finally, a record $60 million in the fourth quarter.

For the full year 2019, revenue was $200.6 million, up 3% year-over-year. Non-GAAP loss for 2019 was $2.3 million, and adjusted EBITDA was $18.1 million.

These results are an indication that our customer-focused strategy is working. We made great progress on multiple priorities during 2019 and set a solid foundation for a strong performance across many operational and financial measures in 2020 and beyond.

Customer acquisition accelerated in the fourth quarter as the number of new customers signed increased over 20% year-over-year and sequentially, with numerous logos added across all regions. Customer churn in the fourth quarter continued to decline, reaching the lowest level on record. We are pleased that both new and existing customers are recognizing our high-quality services and trust us to deliver the best experience for their customers.

Traffic continued to accelerate in the fourth quarter and reached record levels again, which were over 25% higher than our previous record set in the third quarter of 2019. In fact, we set a new record for traffic every quarter of 2019. We're excited about this momentum in our business and expect it to continue in 2020 and beyond.

The strong demand we experienced during the fourth quarter was primarily due to our significant participation in multiple live and on-demand OTT launches by some of the largest media companies in the world. These companies look to us as a trusted partner in these launches based on the performance of our network, global scale and strong value proposition. For example, both Disney and Apple launched their OTT offerings in the fourth quarter as scheduled. We worked hard in 2019 to help make these sizable launches successful, and we are very pleased that our performance resulted in us continuing to serve their traffic. We also supported Amazon's streaming of the English Premier League, which was the first time a major sporting event was available only through Internet streaming devices.

Given the importance of this event to Amazon and the industry, I joined Amazon and our team in the war room in London, and personally witnessed the hard work of our team, both inside that room and globally to support this important event. I was delighted to witness firsthand the quality of services being delivered and the cooperation and cohesive interaction between our teams internally and together with Amazon, which resulted in a great outcome for both companies. These new launches and events are very exciting for our industry, and again, I'm very proud that these and other iconic media companies trusted and continue to trust Limelight.

In the fourth quarter, we made good progress in edge services, which leverages our infrastructure and software to address our customers' needs at the edge for low latency, compute and connectivity. We continue to gain traction in the marketplace as we closed a number of new edge services deals in the fourth quarter, and we have a strong and growing pipeline. I'm particularly pleased with the growing revenue contribution from our edge services offerings as its revenue in 2019 more than doubled over the prior year. We expect to see continued acceleration in edge services revenue in 2020 and beyond.

We believe our platform aligns well with the requirements for edge services, and we continue to focus our efforts on video-centric opportunities and applications where low latency and global scale matter, including security, data analytics and media workflows. We continue to evolve our edge platform in the fourth quarter, working to build out additional offerings that we believe add important capabilities that our customers care about.

Let me take a few minutes to describe a couple of initiatives that are currently underway. One initiative is our work on Limelight Realtime Streaming. Later this year, we expect to launch a second major release, which will build on our existing offering of the industry's first global, scalable, subsecond live video streaming solution by adding greater functionality and scalability to better meet the significant demand we see in the marketplace. We also expect this new version will allow us to capture a greater share of the sizable revenue opportunity for subsecond global video delivery.

Another initiative is our serverless compute capabilities, also known as EdgeFunctions. We expect this offering to provide a platform for our customers to deploy their own application functions into our network edge locations and run them on demand. We are planning to bring EdgeFunctions to market with functions specifically aimed at supporting the requirements of our video delivery customers. We are scheduled to begin beta customer trials this quarter and expect to launch general availability in the second quarter of this year. We are seeing a tremendous amount of customer interest in EdgeFunctions, and we are very excited about this new offering.

As I look forward at 2020, I see an exciting time in our industry. Additional OTT offerings are expected, demand is accelerating, excess capacity seems relatively limited and the competitive landscape appears stable. We anticipated these market dynamics and made the strategic decision in early 2018 to double down on providing the best quality video delivery in the world. Now, the expected market trends are working in our favor as we look forward to Disney+ continuing to launch in additional countries and other large OTT launches announced for 2020, including HBO Max and NBC's Peacock offering, among others. We are working closely with these customers to ensure the successful launch of these services.

In order to build on our lead and video delivery, we've identified 4 strategic imperatives for this year. The first is capacity. After doubling capacity in 2019 to over 60 terabits per second, we expect to add at least another 30 terabits per second of capacity in 2020. We expect to take full advantage of the cost efficiency initiatives completed in 2019, which should allow us to reduce CapEx on a year-over-year basis. We believe these efforts will position us well to serve the strong demand we see from our customers and drive revenue growth in the future.

The second is expanding our proactive management of the network. We believe the implementation of new next-generation network management tools will allow us to handle the increasing traffic loads with greater efficiency and drive higher quality.

Third is placing more control in the hands of our customers. We plan to accomplish this by continuing to build out our suite of APIs, which will allow our customers to ingest and analyze critical data that will allow them to make better business decisions and improve their end-user experiences.

And lastly, but most importantly, is driving innovation. EdgeFunctions and Limelight Realtime Streaming are just 2 specific offerings we are developing to satisfy customer needs and help differentiate us from the competition. We expect the successful implementation of these initiatives will demonstrate to our customers that we are listening to their feedback, while facilitating continued revenue growth for years to come.

I'm very pleased that our strategic decision to focus on online video delivery capabilities is starting to pay off for our customers and for our stakeholders. We believe our strategy and resulting 2020 strategic imperatives will drive customer satisfaction, revenue growth and sustainable above-market returns.

In summary, this was an excellent quarter, concluding a great year. I'd like to thank our global workforce for all their hard work in making 2019 one of the best years in Limelight's history, and I'm confident it will serve as a foundation for an even better 2020.

With that, I'll turn the call over to Sajid to discuss the fourth quarter financial performance in greater detail and our guidance for 2020.

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

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Thanks, Bob, and good afternoon. I'm very pleased with the quarter we just reported and the business momentum we are seeing entering 2020. We established new record highs on several financial metrics this quarter, including beating our best quarter by almost $8 million. We feel confident that the growth we are delivering is amongst the highest, if not the highest, in the industry, and also believe our profitability is much, much higher than the profitability of other companies comparably sized in our industry.

We are leaving 2019 much stronger than where we started, and confident that we are well positioned for an even better 2020. Let me discuss the quarter in greater detail.

As you just heard from Bob, revenue in the fourth quarter was $60.1 million, up 37% year-over-year. $60.1 million is our highest reported quarterly revenue in our company's history, beating the previous record by over 15%. Sequential revenue growth at 17% is also the best on record.

While it took a little bit longer than initially expected to return to revenue growth, after cutting loose some unprofitable business in 2018, our results this quarter are exactly why we made the decisions we made. Full year revenue of $200.6 million increased 3% year-over-year. International customers accounted for 36% of total revenue in Q4 compared to 41% a year ago. Approximately 11% of our fourth quarter revenue was in non-U. S. dollar-denominated currencies.

Foreign exchange tailwinds in the quarter amounted to approximately $200,000 due to fluctuations in the pound. Average revenue per customer jumped to $100,000, up from $83,000 last quarter, and $67,000 a year ago. This is our entire revenue divided by our entire customer base, and we believe it is the best in the industry.

Again, based on analyst's estimates for the quarter, we believe we delivered the highest sequential and year-over-year revenue growth among our competitors.

Moving on to expenses. During the fourth quarter, we delivered a record amount of traffic. We accomplished this by doubling our network capacity in 2019 to almost 60 terabits per second of capacity enabled by software enhancements and significant capital deployment. As a result, our bandwidth, peering and colocation costs increased $5.3 million year-over-year. Depreciation expense also increased $1.3 million year-over-year due to the increased amount of network equipment added to support these increased traffic levels.

As we leveraged the infrastructure and gained more efficiencies, our gross margin improved. We increased margin by a very impressive 300 basis points quarter-over-quarter.

Operating expenses increased $500,000, primarily due to increased headcount in sales and marketing. We reported GAAP income of $2.5 million in the fourth quarter, or $0.02 per basic share, compared to a $0.05 loss in Q4 last year. Non-GAAP income was $5.8 million or $0.05 per basic share compared to breakeven non-GAAP EPS last year. Our GAAP net income has been higher only on a couple of instances when we had non-operating or onetime items in the quarter. Our non-GAAP income was the second highest in the company history.

Adjusted EBITDA was $11.4 million for the fourth quarter 2019, a record for the company. We had cash and cash equivalents of $18.3 million at the end of the fourth quarter. Strong operating cash inflow in the quarter of $8.5 million allowed for capital expenditures of $10.5 million, which was higher than previously expected to ensure high-quality delivery of the tremendous levels of traffic demand we were seeing.

Additionally, accounts payable and other current liabilities decreased $2.4 million in the quarter. At the end of the fourth quarter, DSO was down to 48 days compared to 52 days at the end of last year. We expect DSO to be in the range of 50 to 55 days.

So if I look at the overall position, the accounts receivable dollars were up, as expected, and associated with the revenue growth. Accounts payable dollars were down, CapEx was higher, and yet cash was up slightly. I believe this is a good outcome, and it shows we are funding our own growth.

Our balance sheet remains strong, and we remain debt free. As of December 31, we had approximately 118.4 million shares outstanding. Total employee count at the end of the quarter was 610, up 47 from the end of last year, and up 1 from the end of last quarter.

This past December, we issued our 2020 guidance. Based on current conditions, we are narrowing the range by raising the lower end of the midpoint of our 2020 annual revenue guidance. We currently expect revenue to be between $223 million and $235 million. Like 2019, we expect sequential quarterly revenue growth throughout 2020, and we expect first half growth in excess of 20% over 2019.

Other elements of our guidance remain unchanged. We continue to expect capital expenditures at reduced levels and between $25 million and $30 million for the year.

2019 has been a tremendous year for Limelight. While the full year headline revenue shows only moderate growth, I would remind everyone this is a run rate business. Throughout 2018, revenues were in sequential decline. We started 2019 with Q1 lower than Q4 2018. We had placed a huge bet, set a clear strategy on video delivery, purged our revenue base of unprofitable businesses, brought in new members to the leadership team, started to deploy additional capacity even as we had some excess capacity, hired even more sales and marketing associates and sent a clear message to our customers and the industry, we would be ready to deliver higher quality performance than Limelight ever has and be true partners in their global growth.

As the year progressed, revenue grew every quarter, gross margin improved every quarter, profitability improved every quarter, GAAP and non-GAAP net income improved every quarter, and EBITDA and adjusted EBITDA improved every quarter. The rate of change accelerated in the second half and ended with a very strong fourth quarter. There were many nonbelievers as evidenced by the 5x increase in our short position, and there were many things that could go wrong. At the same time, we had endorsement from our long-term shareholders and the analyst community, the encouragement of our Board, the commitment of our employees, the collaboration with our customers and an undeniable belief that we had the right strategy at the right time and we were determined. We are sincerely thankful to you all for this confidence. This is a great time for the industry as massive amounts of traffic is moving from satellite, cable and broadcast industry to Internet-based delivery. Edge services and low latency are in broad demand. With double-digit growth and improving profitability, we believe we have set the path to generate shareholder returns in excess of the market and our competitors.

With that, let's 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) The first question is from Lee Krowl with B. Riley FBR.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [2]

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Great. Congrats on a record quarter.

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

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Thanks.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [4]

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So just wanted to start out on the revenue guidance. I think you kind of alluded to it in your commentary around the investments throughout 2019. But you guys took up revenue guidance from the December outlook slightly, but EBITDA kind of stayed flat. Curious if there's kind of some implied reinvestment there or some sort of utilization around margins that is implied? Any commentary would be great.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [5]

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No, I think the range of outcomes in the EBITDA, Lee, is wide enough. To move that by a little amount, I didn't think made sense. At the same time, revenue, we were feeling better about. And as we do, and if we continue to feel better over the course of the year, we'll continue to give guidance accordingly.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [6]

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Got it. And then you guys kind of alluded to solid customer pipeline building in Q4. Curious kind of the composition of the customer pipeline? Is it skewed towards kind of the video streaming offering? Or is it kind of new deployments in edge and serverless?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [7]

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So the pipeline is pretty strong right now. We feel good about the mix as well. We're very focused on video, and within those video customers, the use of our edge services capabilities for those customers. So a lot of it is one and the same. There are some edge service deals that are not video related, but the majority of the pipeline is video delivery and video-based edge services that we're providing.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [8]

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And, Lee, what I would say is, we expect the video-based pipeline to be strong, right? This is our core business. This is the largest volume. You want to constantly have that. But I think in terms of the delta or the change or the incremental additions that are getting added, the rate of change in the edge business is quite remarkable. And we are very pleased with the traction that we are seeing there. So I think this is a really good thing. We focused on video. I think that is happening. We believe that, for our video customers, we can provide them with add-on edge-like services or edge services that complement the video services that we provide to them. We feel very good about what's happening there. And then there are some stand-alone opportunities for some edge services, and we feel very good about what we see there.

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Lee T. Krowl, B. Riley FBR, Inc., Research Division - Associate Analyst [9]

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Got it. And then last one for me. Just curious if you guys could provide some updated thoughts on the Ericsson relationship and the UDN build out?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [10]

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Yes, I'll take that one, Lee. So as you know, we entered into the Ericsson relationship late in 2018. 2019 really didn't go as planned. They had some leadership changes, which in the end, we're excited about, but took a little of the momentum. And so we didn't accomplish as much in 2019 as we had hoped to. As we do our planning for 2020, we are assuming that we will get more capacity through the build-out that we're doing with EDGE GRAVITY. So today, we have about 30 PoPs with them. I think we'll add 30 or more PoPs this year. And the PoPs will be, on average, larger in size. And we have a pretty conservative view of revenue, because there's 2 sides to that relationship, right? One is them providing capacity to us directly with the operators. And the other is revenue from the use of that capacity by the -- Ericsson or the operator. So we have a fairly conservative view this year on both the capacity that we will implement and the revenue that we'll gain. I still believe that it is an important long-term strategic relationship for us and an important part of building out our edge services capabilities. But we're -- we've got a more conservative view of what we'll accomplish this year than we had this time last year.

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Operator [11]

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The next question is from Jeff Van Rhee with Craig-Hallum.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [12]

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A couple for -- several for me. I wanted to just -- Sajid, if I could start with the margins on the GAAP front, 44% on the gross margin line in Q4. How should we think about that behaving as we progress through '20?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [13]

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I think that the way I think about this is, I'm focused on the operating margin, first of all, and the movement of all of the work that we do into cash and EBITDA. And we get into opportunities where you have some low-cost, low-OpEx items, you have some opportunities with some high-cost, high-OpEx items. We look at it on a deal-by-deal basis. The business is changing enough, but I feel confident that as the business grows, there is margin improvement. I mean, you see it in going from third quarter to fourth quarter with a 300 basis point improvement on an $8 million movement in terms of revenue from 51 and change to 60 and change, right? So that is the kind of leverage that we hope to see. I think there is room for us to improve on our cost lines. I think there is absolute leverage and productivity improvements that we can make in our infrastructure that further help the margin. And I think those items compensate for the price compression that we go ahead and instill into the marketplace, right? So we are drivers of all of those things in a very managed basis and feel very good about the profile of the business and as it's developing. I mean, I was very pleased with an $8 million increase in the revenue sequentially and the drop in EBITDA at the rate it did. And if you see in next year's numbers, I mean, at the midpoint, we are suggesting something close to 65%, 66% growth in EBITDA on a 15%-like growth in revenue. So that is the flow-through that I care about most. And then I do care about the geography of the numbers, but I think we have opportunity everywhere.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [14]

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Yes. Definitely helpful. And then if I could maybe put a little finer point on the progression through the year. The variability from Q4 to Q1 sequentially in the past 5 years has been all over the place, is far down is down 3% sequentially and as good as up 8% sequentially. I'm sure there's a lot of variables into that. I know you don't guide the quarter, but what would you guide us to think about in terms of how Q4 to Q1 behaves here? I know you had partial quarters and some ramps, you maybe had some onetimers, just how to think about that?

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

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Let me comment on it and then I'll pass it over to Sajid. So I mean, this -- generally speaking, Q4 is a seasonally high quarter in the CDN industry. There are certain events and things that can happen, that can make Q1 stronger from year-to-year. But as we look at the movement from the last quarter to this quarter, we certainly see seasonality taking place. Anytime there is initial launches, like you saw with Apple and Disney, there's always sort of this flurry of activity to begin with and then things tend to stabilize. Things like the Amazon EPL games, they happened last quarter and will not happen this quarter, although they will happen again in the fourth quarter of next year. And so all things being considered, we see Q4 truly being a seasonably high quarter, and nothing happening event-wise in Q1 that can sort of make Q1 different than it would normally be.

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

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We are suggesting growth like we have not seen Q1 over Q1 last year and following that along with Q2, right? So the first half growth implied of 20-plus percent suggests that we are looking at numbers that are pretty strong for us. And I'm just being cautious, right? I mean it is easy to apologize for numbers that get better, but I don't want to be standing here and regretting the fact that we gave guidance that was ahead of what we could achieve. So one step at a time.

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Jeffrey Lee Van Rhee, Craig-Hallum Capital Group LLC, Research Division - Partner & Senior Research Analyst [17]

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Yes, yes, yes, fair enough. And last one for me, maybe. If you'd focus back on sales and pipeline, you gave some snippets there about some of the edge and other meaningful improvements. Maybe if you could comment on 2 things. One, just the value of the pipeline, sort of late-stage pipeline now versus a quarter ago, 2, 3, 4 quarters ago? So you have a trend of the total value of pipe. And then obviously, you made some changes leadership-wise on the sales side going back a little ways. And maybe just talk about where you are in terms of the changes that were implemented alongside that new leadership sort of coming to fruition. How is that playing itself through in the pipeline?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [18]

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Yes. So let me start by saying we're very pleased with the progress that Tom and his team have made. As you remember, it was about this time last year that we announced that Tom Marth had joined our team to run sales, and Mike Palackdharry had joined to run our strategic edge initiatives. And I would say, as we sit here a year later, we've done a very good job of bringing focus and discipline to the sales force. We've added more coverage from a sales perspective. And so while those people were added through the year, we're going into this year with those people fully trained and starting to build pipeline and that was a progression through last year. So I'm really pleased with the work that Tom and his management team have done. The pipeline, generally speaking, from a qualified pipeline, is not only up, but there are higher quality opportunities in there in terms of being aligned with our strategy. It's not perfect yet, but there's still work to be done, and there's probably opportunities in the market that we're not covering. So I wouldn't say our sales force is big enough to ensure that we're getting every at-bat that the industry has to offer, but I'm very pleased with the progress that Tom and his team have made, and feel much better about where we are in sales and in our strategy on edge than we felt a year ago.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [19]

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Yes. And Jeff, you've heard me say this, and I've spoken to many of you on the call before, what Tom brought to the table was a process orientation around the function, and we are very pleased. I mean the organization today is more data-driven than it ever has been. The processes are better than they had been before. We are looking at monitoring -- at every stage of the deal, I would give you -- like, last week was the sales kickoff where we bring our global sales team in for the start of the year. And in most businesses I have been, you kind of draw down at the end of the year and then build back over the course of the year. And then at the end of the quarter, again, you draw down and then build again. I thought that we had done a great job of closing some really, really good business down to the wire on the last days of December. And then when we looked at the pipeline starting this year and what is happening and where we are, there is just a ton of good activity. And I think there's plenty to be pleased about. I mean we are very happy about the state of that business.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [20]

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And it's global. We just got an e-mail a couple of days ago from our team in India. They just closed a very big opportunity there. That was a takeaway from one of our competitors. And so we not only feel good about the quality of that pipeline, but also the geographic diversity of it as well. And there's maybe more information than you want to hear or that I'm supposed to give on a call like this. But the theme for our SKO was, we sweat the details, and what we're really trying to instill in every Limelight employee is that this is a detailed business. And when we sweat the details, we perform better for our customers, we perform better for our shareholders and we provide opportunity for each other. And we're really carrying kind of that theme forward and injecting that into everything we do, whether it's inspection of sales pipeline to how we build out the network and how we manage it every day to how we bill, every aspect of the company. We're really trying to drive a -- it's the details that will be a competitive differentiation for us.

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Operator [21]

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The next question is from Colby Synesael with Cowen & Company.

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [22]

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Two questions, if I might. First off, just curious, can you give us a sense what you think your market share has been with these new video launches relative to your overall market share in the industry? Said differently, do you think you're outpunching your weight? And is there more opportunity to take more share? And then secondly, any big price renewal risk that we should be thinking about throughout 2020, maybe more in the first half, second half, just to kind of point us in the right direction? And as it relates to these bigger video deals that you're signing now, what's the structure of those look like? Are those 1-year deals? And we should assume that there'll be some bigger renewals happening in the fourth quarter of 2020? Or just any color on that as well.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [23]

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Okay. Well, that's a lot to remember. So hopefully, I'll get it all. Remind me if I miss anything. In terms of contracts, they're typically 1-year, but even when they're multiyear, we either build into a multiyear contract, a predetermined price compression on an annual basis. But whether the contract is multiyear or not, we find ourselves in price discussions on an annual basis. So you should assume that we are trying to put ourselves in a position, where on an annual basis, as we achieve efficiencies throughout our business, whether it's increasing throughput of our servers or better pricing on bandwidth, or better utilization of our space and power, that we are trying to find ways to pass that to our customers to enable them to grow their businesses faster. So nothing unusual about this year versus any other year. But yes, we will basically renegotiate almost every contract, and they're spread throughout the year. And so yes, that will happen.

In terms of our market share, I mean, if you look at the CDN industry in general, I'm very confident that our market share is much higher in video delivery than it is in the industry, in general. Our customers don't really -- I mean, I've got a pretty good idea in lots of places, but our customers really don't share with us our exact percentage of the total. We can tell, for example, if we're in a customer where they have 5 CDNs, and we know what our volume is versus their total, we can obviously do that math and know that we're getting more or less than the average of 20, if they're 5. But really, we don't have very good data on that, but I'm very confident that our market share in video delivery is higher than it is in general.

And yes, we're punching above our weight. When you think about the fact that -- look, there's not 10 people that can do what we do, but there are a handful, and they're very strong, backed by very, very strong companies, whether it's Akamai or Verizon or CenturyLink or Amazon Web Services, I mean, they are very strong -- strongly backed competitors. And our advantage at Limelight is, we invest 100% of our attention on CDN and the surrounding products, whether that's security or storage or edge services, but highly optimizing everything we do for video delivery. And we're not distracted by trying to become a security-only play or web performance, e-commerce play and do media, security and do media, compute and media. We are very focused on video delivery. And so I do think we punch above our weight, to use your analogy. And then you started by asking a question on -- what was that?

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

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Market share price compression and just deal terms.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [25]

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So deal, yes, I mean, deal terms vary from company to company, but basically, it's a transaction-oriented business, where the more traffic we deliver, the more revenue we get. And in many cases, as traffic increases, price will decrease as part of the pricing structure without any renegotiation needed. Is that helpful?

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Colby Alexander Synesael, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [26]

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Just to sum it up, I mean, as it relates then to your revenue range of the $223 million to $235 million, the big delta there then is really just a function of what is that traffic growth more so than it is concern or debate around pricing or repricing events that you know are going to be taking place in 2020?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [27]

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Yes. I'd say the -- there's always some risk on pricing, but we don't see anything that would be abnormal there as we look forward. But obviously, as Disney, for example, launches in other countries, how successful will the launch be, right? Some of that has to do with how good is the quality provided, but most of it has to do with their marketing and their acceptance. From a product standpoint, will NBC Peacock -- you've listened to the same calls from Comcast talking about that as I have. Does it launch on time? I've got a high degree of confidence that it will. And how quickly does it build a customer base? Same thing for other launches around the world. How much viewership shifts as we go into Super Bowl, Olympics, World Cup, all of the different events around the world? How much growth is there on Internet-enabled devices that comes from broadcast? So there's a lot of variability, and a lot of that we don't control. What we do control is our performance, and we are laser-focused on that.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [28]

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Yes. And Colby, let me -- I -- because I'm trying to read into your question. And I think you and others have concern because in 2018, mid-year, right? We had 6 big customers that repriced, and one of them was quite major and significant, and it kind of caused a hiccup in our results. We do not have anything like that in our profile today. So we have kind of the standard operating principles and guidelines and what we expect in the industry. Some of it is factored in, it is spread out over the course of the year, and it is not anything that is out of whack or a large customer that has got pricing that is disconnected with market pricing, et cetera, that I see a risk that is out of line with what our business plans call for.

And then the point on share shift, I mean, the part of the industry that we are operating in on video, like I said in my comments, there is real business that's coming from other industries. So if I'm doing web performance services, I have to take business from one of my direct competitors and convince the customer move to me. In this case, we're talking about entire traffic that's moving from a completely different industry and a different set of companies to our industry, from broadcast, from cable, from satellite. And I think we are participating in that, enabling that and helping our customers. And I think that is helping us that is helping the industry. Should help everybody in the industry, but given the bets we've placed, the improvements we made in our performance, I mean, the Limelight of a few years ago would not be able to get as high a share today, I'm confident, as we do today because of the investments we've made.

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Operator [29]

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The next question is from Tim Horan with Oppenheimer.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [30]

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Just a couple of follow-ups. So have you seen pricing trends change all that much? It looks like a pretty substantial increase in volumes. I mean, pricing had been pretty brutal in terms of declines for the past couple of years? Has that slowed down or improved or changed the trajectory at all?

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

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I wouldn't say it's improved. It hasn't gotten any worse. And I think it's manageable where it is. Again, in order for the customers that we deal with to be able to expand their business, we have to drive and find more efficient ways to deliver more content without the bills going through the roof for them. And so we're very focused on that.

The key for us is to manage that our costs come down at a slightly faster rate than our prices do, but it's a key imperative for us and for our competitors to find ways to drive efficiencies so our customers can drive adoption in the marketplace. Sajid?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [32]

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And you get kind of the benefits on the costing side as well, right? So we used to have 1-gig links, we went to 10-gig links, then 40 -- 25, then 40, now 100-gig links, right? And each link then takes up a card on a PC, and you can have multiple PCs on a rack only to be able to drive so much traffic. And each PC could only do 1 or 2 gigs. Today, we've got -- we're doing 20x the capacity our server could do just 3, 4, 5 years ago and ready for another uptick on that number. So we are constantly making improvements in our cost. The idea is to make sure that, that improvement, some of that gets invested back in the business in the form of R&D, in the form of sales and marketing; some of it flows back to the customer in terms of lower pricing and price compression, which then enables other revenue streams and further expansions of models and businesses to move to the Internet; and some of it is retained for shareholders in terms of earnings. I mean, that is the balance that we are constantly trying to get to. But if we don't do that, you're still buying CDs and DVDs at Best Buy. I mean, this is because of price compression that you see all of this movement that's happening in the marketplace.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [33]

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And quality.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [34]

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And quality, of course.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [35]

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A great point. And on the quality front. Given your focus and your execution, can you point to your customers' material differences in your quality versus your competitors in terms of latency or capacity or any other measurements?

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [36]

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It depends on what the customer is measuring. What I would say is, in a multi-CDN environment, we're confident that we are performing in the top-tier when it comes to performance. Once in a while, you'll get the opportunity to see graphs of us compared to our competitors, and we're very confident that we are producing very high-quality for our customers as compared to our competition.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [37]

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We fine-tune for the solution that a customer is looking for. So the service was generic to you or to the industry, it's one thing, but we will fine-tune to what the customer really wants and places a priority on, access to first by being able to start as quickly as somebody presses play or the throughput, or the download time that it takes to download a file. All of those things get taken into consideration.

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Timothy Kelly Horan, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [38]

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And just lastly, it doesn't seem like there's a lot of seasonality in the video viewership, the fourth quarter, the first quarter or third quarter, the fourth quarter. But can you give us any indication of how much of the incremental growth came from what you thought was onetime events or onetime volume growth from third to fourth quarter? Or any color at all?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [39]

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Let me not break that out, but we do see seasonality between the fourth quarter and first quarter to some degree. So I think if you're looking at the delta, right? The Street is looking at -- if I'm looking at the estimates, which is roughly right, about $5 million, $6 million lower than the first -- the fourth quarter numbers, I mean, you can break it out into the 3 buckets that we talked about. And if you assume a 1/3, 1/3, 1/3, you won't really be off by that much. It's in that category. But as the weather gets warmer, I mean, that's why we talk about it, that our second and third quarter typically sees a dip because of seasonality. And then we have a very strong fourth quarter around with the Christmas holidays and all of the new games and video and time off and live events that take place in that time frame. So we typically get a very strong seasonal fourth quarter. That is kind of the seasonality in the business. So we plan for that, and that's what we're seeing.

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Operator [40]

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(Operator Instructions) The next question is from Rishi Jaluria with D.A. Davidson.

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Rishi Nitya Jaluria, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [41]

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Definitely a nice quarter. Maybe a couple ones. I wanted to start on the cash flow side. If I look...

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [42]

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Hello?

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Operator [43]

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Mr. Jaluria's line disconnected. So this concludes our question-and-answer session. I'd like to turn the call...

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Sajid Malhotra, Limelight Networks, Inc. - CFO [44]

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Wait, wait, wait. Hold on.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [45]

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Give him 1 minute. Let him reconnect.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [46]

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Yes, let's just see if he can join back on. I don't know what happened. And if there are other questions, we can take those at this time, but I don't see anybody in the queue.

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [47]

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And if he doesn't connect in a minute, we can reconnect with him off the line. So that's -- we won't keep the call holding for that long a period of time.

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Sajid Malhotra, Limelight Networks, Inc. - CFO [48]

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But in the meantime, I mean, before we bring the call to a close, I just wanted to let you know, we go ahead and post our visits as we travel around. They're on our website. If there are follow-on questions, feel free to call me. You have my cell number and direct numbers. So we are here to answer your questions. If there's need for a visit or when we happen to be traveling, I'm happy to stop by and see you. Again, thanks. As always, this is -- very thankful for the relationship we have, and thankful to the employees for the businesses that they're helping build here.

I don't see Rishi joining back on. So...

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Robert A. Lento, Limelight Networks, Inc. - President, CEO & Director [49]

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We can follow-up with him separately then. Operator, you can go ahead and end the call.

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Operator [50]

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Okay. Mr. Malhotra, do you have any other closing remarks?

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Sajid Malhotra, Limelight Networks, Inc. - CFO [51]

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That's good. Thank you very much.

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Operator [52]

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Okay. The conference is now concluded. Thank you for attending today's presentation, you may now disconnect.