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

Limelight Networks, Inc. (Nasdaq:LLNW) (Limelight), a leading provider of edge cloud services, today reported revenue of $45.9 million for the second quarter of 2019, down 9% compared to $50.2 million in the second quarter of 2018. Currency negatively impacted year-over-year comparison by $0.3 million.

Limelight reported a net loss of $7.2 million, or $0.06 per basic share for the second quarter of 2019, compared to net income of $15.2 million, or $0.14 per basic share and $0.13 per fully diluted share, in the second quarter of 2018. Net income in the second quarter of 2018 included $14.9 million of non-operating income ($0.13 per basic share and $0.12 per fully diluted share) related to a settlement and patent license agreement.

Non-GAAP net loss was $3.5 million, or $0.03 per basic share, for the second quarter of 2019, compared to Non-GAAP net income of $4.0 million, or $0.04 per basic share, in the second quarter of 2018.

EBITDA was negative $2.2 million for the second quarter of 2019, compared to $20.3 million for the second quarter of 2018, which included the positive impact of $14.9 million of non-operating income related to the settlement and patent license agreement. Adjusted EBITDA was $1.4 million for the second quarter of 2019, compared to $9.2 million for the second quarter of 2018.

Limelight ended the second quarter with 594 employees and employee equivalents, up from 562 at the end of the first quarter of 2019, and up from 549 at the end of the second quarter of 2018.

“Second quarter results were in line with analyst expectations,” said Bob Lento, Chief Executive Officer. “Building upon our sequential top-line growth, we continue to anticipate year-over-year growth accelerating in the back half of the year and into 2020. We believe that the fourth quarter, in particular, will set us up for industry leading growth in revenue in 2020. During the first half of the year, we have achieved significant increases in capacity through software enhancements and investments in our infrastructure which leaves us well positioned to take advantage of the massive growth in demand for digital video services that most industry analysts are predicting for the near future.”

We are updating guidance to reflect the impact of timing issues on completion of certain major customer and partner-driven initiatives in 2019. Based on current conditions, we expect 2019 revenue to be between $200 and $210 million dollars. GAAP net loss is expected to be approximately $0.10 per share and Non-GAAP earnings per share should be near breakeven. Capital expenditures should be approximately $25 million dollars.

Financial Tables
LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
		June 30,				March 31,				December 31,
			2019				2019				2018
		(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	24,698			$	16,499			$	25,383
Marketable securities			4,224				22,142				25,083
Accounts receivable, net			31,098				29,505				26,041
Income taxes receivable			125				124				122
Prepaid expenses and other current assets			8,739				12,276				14,789
Total current assets			68,884				80,546				91,418
Property and equipment, net			35,531				32,996				27,378
Operating lease right of use assets			2,701				3,012				-
Marketable securities, less current portion			40				40				40
Deferred income taxes			1,443				1,508				1,462
Goodwill			76,848				76,707				76,407
Other assets			5,848				4,199				2,220
Total assets		$	191,295			$	199,008			$	198,925
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	14,346			$	17,858			$	9,216
Deferred revenue			1,331				1,524				1,883
Operating lease liability obligations			1,579				1,620				-
Income taxes payable			270				186				124
Provision for litigation			-				4,500				9,000
Other current liabilities			15,227				11,656				12,922
Total current liabilities			32,753				37,344				33,145
Operating lease liability obligations, less current portions			1,325				1,630				-
Deferred income taxes			140				128				152
Deferred revenue, less current portion			149				105				42
Other long-term liabilities			283				263				435
Total liabilities			34,650				39,470				33,774
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 7,500 shares authorized; no shares issued and outstanding			-				-				-
Common stock, $0.001 par value; 300,000 shares authorized; 115,760 114,874 and 114,246 shares issued and
outstanding at June 30, 2019, March 31, 2019 and December 31, 2018, respectively			116				115				114
Additional paid-in capital			520,375				516,251				513,682
Accumulated other comprehensive loss			(9,483	)			(9,657	)			(10,033	)
Accumulated deficit			(354,363	)			(347,171	)			(338,612	)
Total stockholders' equity			156,645				159,538				165,151
Total liabilities and stockholders' equity		$	191,295			$	199,008			$	198,925

LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
		Three Months Ended																		Six Months Ended
		June 30,				March 31,				Percent			June 30,				Percent			June 30,				June 30,				Percent
			2019				2019			Change				2018			Change				2019				2018			Change
Revenue		$	45,904			$	43,280			6	%		$	50,249			-9	%		$	89,184			$	102,363			-13	%
Cost of revenue:
Cost of services (1)			22,769				22,941			-1	%			21,206			7	%			45,710				42,260			8	%
Depreciation - network			4,628				4,317			7	%			4,196			10	%			8,944				8,576			4	%
Total cost of revenue			27,397				27,258			1	%			25,402			8	%			54,654				50,836			8	%
Gross profit			18,507				16,022			16	%			24,847			-26	%			34,530				51,527			-33	%
Gross profit percentage			40.3	%			37.0	%						49.4	%						38.7	%			50.3	%
Operating expenses:
General and administrative (1)			8,340				7,535			11	%			7,517			11	%			15,875				17,038			-7	%
Sales and marketing (1)			10,994				10,972			0	%			10,022			10	%			21,966				20,302			8	%
Research & development (1)			6,013				5,901			2	%			6,073			-1	%			11,915				12,412			-4	%
Depreciation and amortization			127				245			-48	%			633			-80	%			372				1,221			-70	%
Total operating expenses			25,474				24,653			3	%			24,245			5	%			50,128				50,973			-2	%
Operating (loss) income			(6,967	)			(8,631	)		NM				602			NM				(15,598	)			554			NM
Other income (expense):
Interest expense			(10	)			(10	)		NM				(7	)		NM				(20	)			(66	)		NM
Interest income			110				212			NM				134			NM				321				263			NM
Settlement and patent license income			-				-			NM				14,900			NM				-				14,900			NM
Other, net			(70	)			(6	)		NM				(221	)		NM				(76	)			(109	)		NM
Total other income (expense)			30				196			NM				14,806			NM				225				14,988			NM
(Loss) income before income taxes			(6,937	)			(8,435	)		NM				15,408			NM				(15,373	)			15,542			NM
Income tax expense			255				124			NM				249			NM				378				234			NM
Net (loss) income		$	(7,192	)		$	(8,559	)		NM			$	15,159			NM			$	(15,751	)		$	15,308			NM
Net (loss) income per share:
Basic		$	(0.06	)		$	(0.07	)					$	0.14						$	(0.14	)		$	0.14
Diluted		$	(0.06	)		$	(0.07	)					$	0.13						$	(0.14	)		$	0.13
Weighted average shares used in per share calculation:
Basic			115,275				114,410							111,356							114,843				111,059
Diluted			115,275				114,410							120,033							114,843				119,454

(1) Includes share-based compensation (see supplemental table for figures)

LIMELIGHT NETWORKS, INC.
SUPPLEMENTAL FINANCIAL DATA
(In thousands)
(Unaudited)
		Three Months Ended											Six Months Ended
		June 30,				March 31,				June 30,			June 30,				June 30,
			2019				2019				2018			2019				2018
Share-based compensation:
Cost of services		$	377			$	411			$	350		$	788			$	707
General and administrative			2,140				2,094				1,969			4,234				3,779
Sales and marketing			598				484				633			1,082				1,236
Research and development			534				467				605			1,001				1,202
Total share-based compensation		$	3,649			$	3,456			$	3,557		$	7,105			$	6,924
Depreciation and amortization:
Network-related depreciation		$	4,628			$	4,317			$	4,196		$	8,944			$	8,576
Other depreciation and amortization			127				245				633			372				1,221
Total depreciation and amortization		$	4,755			$	4,562			$	4,829		$	9,316			$	9,797
Net increase (decrease) in cash, cash equivalents and marketable securities:		$	(9,719	)		$	(11,825	)		$	1,875		$	(21,544	)		$	(3,746	)
End of period statistics:
Approximate number of active customers			621				643				689			621				689
Number of employees and employee equivalents			594				562				549			594				549

LIMELIGHT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
			Three Months Ended												Six Months Ended
			June 30,				March 31,				June 30,				June 30,				June 30,
				2019				2019				2018				2019				2018
Operating activities
	Net (loss) income		$	(7,192	)		$	(8,559	)		$	15,159			$	(15,751	)		$	15,308
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation and amortization			4,755				4,562				4,829				9,316				9,797
	Share-based compensation			3,649				3,456				3,557				7,105				6,924
	Settlement and patent license income			-				-				(14,900	)			-				(14,900	)
	Foreign currency remeasurement (gain) loss			(135	)			10				(271	)			(125	)			(161	)
	Deferred income taxes			82				(51	)			(111	)			31				(70	)
	(Gain) loss on sale of property and equipment			(21	)			(30	)			(97	)			(51	)			(113	)
	Accounts receivable charges			437				257				78				694				296
	Amortization of premium on marketable securities			8				12				25				20				58
	Changes in operating assets and liabilities:
	Accounts receivable			(2,031	)			(3,720	)			493				(5,751	)			223
	Prepaid expenses and other current assets			582				(474	)			(655	)			108				227
	Income taxes receivable			-				(2	)			61				(2	)			(63	)
	Other assets			(1,685	)			(1,737	)			(72	)			(3,422	)			(567	)
	Accounts payable and other current liabilities			4,230				2,243				(3,298	)			6,473				(5,584	)
	Deferred revenue			(148	)			(297	)			37				(445	)			167
	Income taxes payable			81				62				160				143				(237	)
	Payments related to litigation, net			(1,520	)			(1,520	)			(1,520	)			(3,040	)			(6,020	)
	Other long term liabilities			22				(175	)			(19	)			(152	)			(170	)
	Net cash provided by (used in) operating activities			1,114				(5,963	)			3,456				(4,849	)			5,115
Investing activities
	Purchases of marketable securities			(1,013	)			(9,266	)			-				(10,279	)			-
	Sale and maturities of marketable securities			18,929				12,224				7,000				31,153				11,515
	Purchases of property and equipment			(11,456	)			(5,018	)			(4,291	)			(16,474	)			(6,281	)
	Proceeds from sale of property and equipment			17				29				97				46				113
	Net cash provided by (used in) investing activities			6,477				(2,031	)			2,806				4,446				5,347
Financing activities
	Payment of employee tax withholdings related to restricted stock vesting			(619	)			(894	)			(1,206	)			(1,513	)			(2,812	)
	Cash paid for purchase of common stock			-				-				-				-				(3,800	)
	Proceeds from employee stock plans			1,095				8				4,032				1,103				4,062
	Net cash provided by (used in) financing activities			476				(886	)			2,826				(410	)			(2,550	)
	Effect of exchange rate changes on cash and cash equivalents			132				(4	)			(232	)			128				(105	)
Net increase (decrease) in cash and cash equivalents				8,199				(8,884	)			8,856				(685	)			7,807
Cash and cash equivalents, beginning of period				16,499				25,383				19,863				25,383				20,912
Cash and cash equivalents, end of period			$	24,698			$	16,499			$	28,719			$	24,698			$	28,719

Use of Non-GAAP Financial Measures

To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net income (loss), EBITDA and Adjusted EBITDA as supplemental measures of operating performance. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income (loss) to be an important indicator of overall business performance. We define Non-GAAP net income (loss) to be U.S. GAAP net income (loss) adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We believe that EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries. We define EBITDA as U.S. GAAP net income (loss) adjusted to exclude depreciation and amortization, interest expense, interest and other (income) expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. Our management uses these Non-GAAP financial measures because, collectively, they provide valuable information on the performance of our on-going operations, excluding non-cash charges, taxes and non-core activities (including interest payments related to financing activities). These measures also enable our management to compare the results of our on-going operations from period to period, and allow management to review the performance of our on-going operations against our peer companies and against other companies in our industry and adjacent industries. We believe these measures also provide similar insights to investors, and enable investors to review our results of operations “through the eyes of management.”

Furthermore, our management uses these Non-GAAP financial measures to assist them in making decisions regarding our strategic priorities and areas for future investment and focus.

The terms Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are not defined under U.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Non-GAAP net income (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income (loss), EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

• EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
• these measures do not reflect changes in, or cash requirements for, our working capital needs;
• Non-GAAP net income (loss) and Adjusted EBITDA do not reflect the cash requirements necessary for litigation costs, including provision for litigation and litigation expenses;
• these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
• these measures do not reflect income taxes or the cash requirements for any tax payments;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
• other companies may calculate Non-GAAP net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management's analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented in thousands:

Reconciliation of Non-GAAP Financial Measures

Limelight is presenting the most directly comparable U.S. GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable U.S. GAAP measures. Per share amounts may not foot due to rounding.

LIMELIGHT NETWORKS, INC.
Reconciliation of U.S. GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(In thousands)
(Unaudited)
		Three Months Ended																								Six Months Ended
		June 30, 2019								March 31, 2019								June 30, 2018								June 30, 2019								June 30, 2018
		Amount				Per Share				Amount				Per Share				Amount				Per Share				Amount				Per Share				Amount				Per Share
U.S. GAAP net (loss) income		$	(7,192	)		$	(0.06	)		$	(8,559	)		$	(0.07	)		$	15,159			$	0.14			$	(15,751	)		$	(0.14	)		$	15,308			$	0.14
Settlement and patent license income			-				-				-				-				(14,900	)			(0.13	)			-				-				(14,900	)			(0.13	)
Share-based compensation			3,649				0.03				3,456				0.03				3,557				0.03				7,105				0.06				6,924				0.06
Litigation expenses			-				-				-				-				215				0.00				-				-				2,885				0.03
Non-GAAP net (loss) income		$	(3,543	)		$	(0.03	)		$	(5,103	)		$	(0.04	)		$	4,031			$	0.04			$	(8,646	)		$	(0.08	)		$	10,217			$	0.09
Weighted average basic shares used in per share calculation							115,275								114,410								111,356								114,843								111,059

LIMELIGHT NETWORKS, INC.
Reconciliation of U.S. GAAP Net Income (Loss) to EBITDA to Adjusted EBITDA
(In thousands)
(Unaudited)
			Three Months Ended												Six Months Ended
			June 30,				March 31,				June 30,				June 30,				June 30,
				2019				2019				2018				2019				2018
U.S. GAAP net (loss) income			$	(7,192	)		$	(8,559	)		$	15,159			$	(15,751	)		$	15,308
	Depreciation and amortization			4,755				4,562				4,829				9,316				9,797
	Interest expense			10				10				7				20				66
	Interest and other (income) expense			(40	)			(206	)			87				(245	)			(154	)
	Income tax expense			255				124				249				378				234
EBITDA			$	(2,212	)		$	(4,069	)		$	20,331			$	(6,282	)		$	25,251
	Settlement and patent license income			-				-				(14,900	)			-				(14,900	)
	Share-based compensation			3,649				3,456				3,557				7,105				6,924
	Litigation expenses			-				-				215				-				2,885
Adjusted EBITDA			$	1,437			$	(613	)		$	9,203			$	823			$	20,160

For future periods, we are unable to provide a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) as a result of the uncertainty regarding, and the potential variability of, the amounts of depreciation and amortization, interest expense, interest and other (income) expense and income tax expense, that may be incurred in the future.

Conference Call

At approximately 4:30 p.m. EST (1:30 p.m. PST) today, management will host a quarterly conference call for investors. Investors can access this call toll-free at 877-296-5190 within the United States or [phone] outside of the U.S. The conference call will also be audio cast live from http://www.limelight.com and a replay will be available following the call from the Limelight website.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These statements include, among others, statements regarding our expectations regarding revenue, gross margin, non-GAAP net income, capital expenditures, and our future prospects. Our expectations and beliefs regarding these matters may not materialize. The potential risks and uncertainties that could cause actual results or outcomes to differ materially from the results or outcomes predicted include, among other things, reduction of demand for our services from new or existing customers, unforeseen changes in our hiring patterns, adverse outcomes in litigation, and experiencing expenses that exceed our expectations. A detailed discussion of these factors and other risks that affect our business is contained in our SEC filings, including our most recent reports on Forms 10-K and 10-Q, particularly under the heading “Risk Factors.” Copies of these filings are available online on our investor relations website at investors.limelightnetworks.com and on the SEC website at www.SEC.gov. All information provided in this release and in the attachments is as of July 17, 2019, and we undertake no duty to update this information in light of new information or future events, unless required by law.

About Limelight

Limelight Networks, Inc. (NASDAQ: LLNW), a leading provider of digital content delivery, video, cloud security, and edge computing services, empowers customers to provide exceptional digital experiences. Limelight’s edge services platform includes a unique combination of global private infrastructure, intelligent software, and expert support services that enable current and future workflows. For more information, visit www.limelight.com, follow us on Twitter, Facebook and LinkedIn.

Copyright (C) 2019 Limelight Networks, Inc. All rights reserved. All product or service names are the property of their respective owners.

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