Q1 2020 Earnings Call

Thursday

6 a.m.

Dead dead dead good day and welcome take the Limelight Networks, first quarter 2020 earnings conference call and webcast. All participants will be in a listen-only mode. So do you need assistance, please signal conference specialist by pressing the star key followed by zero after

so today's

Temptation there will be an opportunity to act questions to ask a question. You may press star than one on your touchtone phone to withdraw your question, please press star than to please note that this event is being recorded our knowledge of ten thousand friends over to Dan Bond sale, please go ahead sir.

Good afternoon, and thank you for joining the Limelight Network first quarter 2020 Financial results conference call. This call is being recorded on April 23rd 2020 and will be archived on our website for practices end date. 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 or looking statements are all statements that are not strong statements of historical fact such as our outlook for 2020 and beyond our priorities. Our expectations are operational plans business strategies secular Trends and products and features or functionality announcements and the impact of covid-19 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 discussing your 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 back today are Bob lento our chief executive officer and Sajid Mo Ultra our Chief Financial Officer. We will be available during the Q&A session at the end of prepared remarks from Bob's. I would now like to turn the call over to Bob lento.

Thanks, Dan. Good afternoon. Before we discuss the first quarter results. I would like to start with some remarks about the current environment is an extremely challenging time for us for all of us. Our thoughts are with those directly impacted by covid-19. Including those who have contracted the virus and their families, but also like to express my deep gratitude for the extraordinary response by individual companies and government during this crisis particularly, the health care workers on the front lines of the pandemic and the many people who provide essential services to ensure the world continues to function. We salute you and thank you for your service disrupt operations around the world. We believe that Limelight plays an important role in supporting the digital experience of the global population under isolation mandates as such the services we provide to our customers and our customers customers are more important than ever reactivate.

In our pandemic response plan and early March and it taken numerous steps to maintain high-quality services for our customers while prioritizing the safety and health of our Global Workforce. We have a dedicated team of seniors leaders across our company who together a closely monitoring developments and determining Swift and effective actions necessary in response to the changing circumstances resulting from covid-19.

We mobilize our employees around the globe to work remotely ensuring they have the right tools to perform their jobs effectively. We have also taken action to insure the uninterrupted availability of network and services or operations names are fully staffed and continue to manage our Network. We are put in place infrastructure and systems allowing our employees to work remotely off. Well ensuring security and access to all the tools needed to operate the network. We have developed extensive back up and shift coverage plan, which identify three layers of name backups off a critical job functions. Our teams are also in close contact with our business critical Partners to ensure a business continuity across regions.

Regarding our Network infrastructure. We remain confident instability during the pandemic. We operate globally distributed Network and close to 140 data centers. Our network box is fully redundant can include extensive diversity from Data Center and Telecom suppliers within and across regions. We have also initiated conversations with various isps. Do understand their pain points and how we can manage our traffic to better alleviate congestion.

From a customer's perspective or services and support or unchanged our teams will continue to provide around-the-clock support to our customers worldwide.

As this crisis continues around the world. I'm grateful for the efforts of limelight's global Workforce whose focus in collaboration has ensured a seamless high-quality experience for our customers with a confident in our ability to manager Network serve our customers and maintain support functions during these very challenging times.

Not turning to the first quarter results announced today. This is a great Quarter building on the strong business momentum and strengthening financial and operational performance in 2019 Revenue in the first quarter was $57 million dollars up 32% year-over-year and was our highest first-quarter revenue ever gaap net loss improved by 39% over the year-ago quarter in our own definite laws improved by 96% over the first quarter of 2019 adjusted ebitda was more than ten times higher than the prior-year amount and our balance sheet remains. We're proud of this quarter's results which reflects our focus and study execution for our customers.

Traffic was strong in the first quarter and volumes accelerated in March as much of the global population came under isolation mandates. Whoever this increase was partially offset by Los Topic in March resulting from canceled Live Events such as March Madness and other sporting events.

As much uncertainty about the duration of the isolation mandates as well as the impact on traffic levels when isolation mandates are lifted workers returned to their jobs and warmer weather pulls people outside away from their screens.

despite these

Uncertainties, we are confident in the underlying momentum in our business and expect it to continue in 2020 and Beyond.

To ensure we can meet the expected growth of online traffic. We are actively pursuing our aggressive network capacity capacity expansion plan for 2020 that includes increasing capacity off an existing pops and building new Pops in new geographies that are important to our customers. We continue to make progress on this plan in the first quarter. We have adapted to supply chain issues and travel and operational restrictions resulting from covid-19 requiring long lead times and capacity expansion. We believe these efforts will position as well to age of the strong demand expected from our customers and drive Revenue growth in the future.

Customer acquisition was solid in the first quarter despite a Slowdown in March and some opportunities were pushed into subsequent quarters as a result of the pandemic.

Even with this headwind we see we signed numerous new logos across all regions and I'm particularly pleased with the average deal size in terms of expected Revenue was up 50% year-over-year. We exited the first quarter with a strong Pipeline and growing demand for high-quality services from both new and existing customers.

Strong demand we experienced in the first quarter was partially due to our continued participation in new on-demand Ott offerings by some of the largest media companies in the world.

Replace the support launches in new geographies in the quarter as well as the recent launch of NBC's peacock offering these companies look to us as a trusted partner in these launches wage based on the performance of our Network global scale and strong value proposition.

Even with the pandemic employees continue to work hard on a new private initiatives during the quarter and I'm pleased about our progress.

During the first quarter we finalized the new service from line one called life Bush ingest which allows content providers to push live streaming video content to Limelight for distribution across r c d e y push helps. Our customers simplify their video were closed reduce egress cost and scale up to meet the needs of the largest live streaming events without the author's overloading their origin servers.

We Begin beta customers browse and the third quarter for our service compute capabilities also known as Edge functions it's offering will provide a platform for our customers to deploy their own application functions into our Network Edge locations and run them on demand it's functions will have used cases specifically aimed at supporting the requirements of or delivery customers and is generating a tremendous amount of customer interest. We're very excited about this new offering and expect to launch its General availability later this quarter

we also

I only watch the portal targeting developers within our customers base.

It's a rich source of API documents code samples software development kits and a great place to obtain answers to their technical questions.

What we are navigating these extreme conditions related to covid-19. We're still very focused on planning and positioning for the future. We are executing on our for strategic imperatives for this year includes expanding capacity expanding our ProActive Management the network placing more control in the hands of our customers and driving Innovation. Our employees are working hard every day on these initiatives despite the challenges and disruptions. We now face we are trying to ensure that when the pandemic ends we emerge as a stronger company.

We are fortunate that our industry is healthy and providing essential services to individuals businesses and governments during these immense challenges and disruptions.

We also announced today that sided will be transitioning from CFO to Chief strategy officer, assuming the responsibilities for corporate strategy m&a and investor relations. So except in to the CFO five years ago and I'm grateful for the tremendous contribution. He's made to our improved financial and operating performance we have on sale will assume the position of Chief Financial Officer. He has been at Limelight for seven years as Vice President of Finance and chief accounting officer Dan strong capabilities, as a finance leader is deep knowledge of why and his existing relationships with many of you made in the ideal candidate for this position. These management changes will be effective July 1st of this year providing ample time for some transition.

In summary, this was a strong quarter for Limelight as we operated very well in an extremely challenging environment as I look forward at the rest of the twenty-twenty. Well, there are many uncertainties. I take strengthen the health of our industry the momentum in our business are solid financial position and the ongoing dedication of our Global Workforce to deliver for our own customers and drive results. I'd like to thank our employees for their hard work focus and resiliency as we Face This Global pandemic together and have never been more proud of that Limelight and I remain confident in our ability to meet our goals for twenty $20 with that. I'll turn the call over to side it to discuss the first quarter financial performance in Greater detail and our guys for 20 20

Thanks, Bob and good afternoon before I get started. I would also like to acknowledge the impact of covid-19 many people have lost loved ones off many people have lost their jobs and face tremendous hardships for all of us the way we live. Our everyday lives has changed dramatically and perhaps forever. I would like to walk by thanking our Global Workforce for adopting to the change in the most professional and expeditious and least disruptive manner our operations team for continuously running a, Global Network remotely at escalated levels our sales and marketing teams for staying in contact with customers are research and development teams maintaining their focus on new products and a general and administrative functions keeping their departments running smoothly and remotely it has been reassuring to see what we can do as a team, even when we are not next to each other in the authors.

everyday, I'm

Very proud of what we are achieving with that backdrop. I'm very pleased with the quarter. We just reported and the prospects for the remainder of 2020 and Beyond let me review the details.

Cuban revenue of $57 is our highest reported first-quarter Revenue in Austin Street, year-over-year Revenue increased 32% and it exceeded a previous highest quarter by almost 5 million dollars International customers accounted for 39% of total revenue in q1 compared to 42% a year ago. Approximately 10% of the first quarter Revenue was it not us dollar-denominated currencies?

Born exchanged headphones in the quarter amounted to approximately $100,000 due primarily to fluctuation in the pound average revenue per customer remained at approximately $800,000. This is our entire Revenue / our entire customer base. And we believe our average revenue per customer is the highest in the industry. I'm missing record traffic levels in the last two weeks of March and that trend has continued into April last year result of over-the-top video streaming usage on the flipside. We also had any customers in Industries such as broadcasting of live sporting events and betting or travel sites who have been adversely impacted. We will continue to work with all customers to help them get through this together.

Moving down the p&l during the first quarter. We continue to expand our capacity and peering Arrangements in anticipation of a continued ramp up and traffic from Ott offerings incoming online in 2020 as well as significant new customer wins. Some of these offerings are still expanding into new geographies. And this is a multi-year trend operating expenses increase wage, ultimately one point 1 million dollars primarily due to the increase in variable compensation expense. We reported a gaap net loss of 5.3 million dollars in the first quarter or four cents per base here compared to a 7% loss Q one last year. We were Break Even from a non-gaap standpoint compared to a $0.04 loss per basic shared last year.

Adjusted ebitda was five point six million dollars for the first quarter of 2020 compared to negative $600,000 last year.

We had cash and cash equivalents of twenty one point four million dollars at the end of the first quarter of three million dollars from the end of last year on strong operating cash inflow in the quarter of nine hundred eighty six million dollars Capital expenditures total 6.9 million dollars at the end of March this year. DSO was down to 51 days compared to $59 at the end of March last year off and 48 days at the end of December we target to be in the range of 50 to 55 days.

Despite a strong overall performance in the first quarter there is significant uncertainty from a macroeconomic perspective. We mentioned earlier many of our customers are experiencing financial difficulties as a result of the global pandemic. We are working with these customers to determine the best course of action for us and them for some that may take the shape of a deferral of the traffic levels for some maybe extended payment terms. We are also working to stay current with our vendors use uncertainty in timing of cash flows. We have extended a half million dollar credit line with this will be through October 2022 that was previously set to expire in the fourth quarter of this year. We believe this flexibility in our balance sheet position is sufficient to fund our growth and operational needs as we work through these challenging times.

as of March two

31st we had approximately 119.6 million shares outstanding total employee count at the end of the quarter was 616 up 6 from the end of last quarter. I have a green raised the lower end of our guidance bringing the midpoint to 230 million dollars. I have two choices keep the confidence interval the same and raised guidance even more or feel more confident about the guidance. We are giving with all the uncertainties. I have chosen the latter route. We do not know when the pandemic ends. What is the reaction when it ends how quickly the light returns to normal and on and on in this environment. We have one of the few companies feeling more confident about our guidance wage raising the midpoint of Revenue and starting the Year Strong.

We will have more to say and revisit this in 90 days.

In summary in a very difficult environment. I'm confident Limelight will be one of a small minority of companies that has actually met or beaten expectations and raised any element of the page to recap the quarter revenues up 32% net losses better by 39% non-government non-gaap net loss improved 96% and adjusted. Ebitda is ten times what it was a year ago. We generated almost ten million dollars of positive operating cash flow the balance sheet remains debt-free even as we continue to invest in the business and expect the highest growth here in our history.

I'd also like to make an observation regarding Post twenty-twenty Street estimates while we have shared some long-term goals, the street estimates appear conservative a 15% growth at the midpoint this year. The estimates have us dropping to less than 10% every year and not reaching 300 million dollar Mark and revenues still twenty twenty four months. That would be a very disappointing outcome. I do believe we can grow revenues in the double digits on a sustained basis. I also believe we should on an organic basis wage to attain the three hundred million Mark in revenues a full year ahead of current analyst expectations current estimates. Do not have up getting there till 2024. I say that now off because what the business looks like postcode is very relevant and important to the investment decisions and choices you're making every day.

And with that I'll open the call up to your questions.

Thank you. We will now begin the question-and-answer session to ask a question. You may press stores in one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys off your question, please press * then two at this time. We'll pause momentarily to assemble our roster.

And our first question will come from Leak with Riley, please go ahead.

Great. Thanks for taking my questions congrats on a great quarter and specifically congrats to both Dan and Sajid the in for the promotion. And so I did for many years of age beautiful Services CFO as it relates to questions. I just want to start off on gross margin, you know with the with the solid results in q1 off and kind of the expectation for seasonality also evicted maybe just some of the puts and takes as you've seen record traffic and and and perhaps, you know with streaming services building scale how that impacts gross margin.

Really, this is Bob. I'm going to have to answer that question. But before we get into the actual answers just want to make a statement that this conference call in a little unusual, um for everybody but especially for us we are actually in three different locations following government mandates to stay home. And so we're going to try to be as long as we can but just know that unlike our usual Cadence with these calls were all in the in the same room. We're actually in three separate locations and we'll do our best to do act like we're in one room and totally coordinated here. So Sajid with that being said if you want to address the gross margin question,

Yeah sure and I have it also say, you know at any time any sound can happen in this household. So luckily the dog has embarked so far or something like that, but if we keep moving on so, thanks. Thanks. First of all for your kind words, I appreciate that very much. And so does everybody here? I think the gross margin question. First of all knowing me and Ed how we operated this business, right? You know, we start with the bottom line. I mean, the most important thing that we care about is the total profitability in cash innovation in the business, then the sustainability of that cash flow and cash generation. Then the geography of the numbers right many a companies and the absence of all the other items big demand geography which is kind of strong and healthy and focus on that we took to talk about the total profitability know when I get to the geography of the numbers. Yes, I think that the gross margins has more room than it does today. I think that when the revenue drops from birth

$60 billion run rate in Q4 to some number lower than that. It is the absorption of the unused and so that shows up in the gross margin being down. And at the same time we are adding even more for what we anticipate coming on. So you have kind of a tooth, you know, a double-action that's occurring the other item that I would just like to point to it's a nuanced but with the cobit traffic only hit for the last week and a half two weeks in March and the way the variable cost in the gross margin side. The bandwidth fences occur is that you get charged we get charged by our vendors for the peak. So on any ordinary month, you know you establish a peek and you pretty much you know, I'm still under that throughout the month and you kind of get to a good outcome.

hear what happened was we go to

Speak very late in the month and it was a steep big as a result. You have under absorption throughout the course of the month. So so I think there are a number of stories here, I would have liked to go smart just to be higher. I think we should continue to see Improvement in the gross margins, but I am in a while. I'm not happy with the gross margin then that particularly line off. I'm really pleased with the leverage at the expense lines and at the profitability overall.

Got it, and then specifically on the streaming launch is just kind of curious. Would you guys kind of expect similar or more or less traffic Chef some of these Services go live internationally.

We don't really, you know, we don't have good data on market share by by customer and some of the launches that are coming up aren't going to going to be International. For example, NBC's peacock is us only pretty much HBO. Max will be us only pretty much from others life Disney for sure or you know marching pretty rapidly across the globe. So whether there's growth International or not depends on which launched you're talking about and then you know, obviously which countries and you know, we know we have a seat at the table. What we don't know is what percent of the total that's usually kept pretty close to Best Buy those companies.

Got it. And then last question just kind of on the active customer count, you know, the the the wrong number ticked down double digits in the quarter, but you guys can suck to uh

New customers so maybe just kind of the puts and takes between the the commentary of new customers versus the active customer account. Thanks, you know, we still have found of decline in a total customer account. And most of it is happening at the very base of the business with very small customers, you know where the average revenue is relatively minor and and as those have been replaced like I have said this again and again there are top 20 customers account for so much of a business and traffic that could get one more player who qualifies in that category is worth the bottom two hundred, you know on on kind of size and impact to the business standpoint. So our focus and our ability to add the top. I think I'm very proud about and I think at the low end of the business sometimes because of profitability sometimes because of the unique feature or functionality or software that they dead,

Using that is third-party. You know, they just kind of General cleanup that is occurring and I'm not particularly troubled by that but I should and do expect the customer to flatten out and then even begin to grow. I think we've kind of reached the low point of those numbers.

Got it. Thanks for taking my questions guys. Yep. Thank you Lee.

Our next question will come from Robert magic of Raymond Dean, please go ahead.

It's it's Michael Jordan Salon. Hey guys, couple questions down on the traffic levels a little bit. So I just wanted to be clear you say that you have an increase in traffic levels at the end of March. And is that continued in April? I assume that Peak traffic levels. And and and what was that in Chrome and exactly how did it completely sustained and do you think of the vehicle?

Well start answering that and then I'll pass it over to side you so, you know as the world started to shutdown. We saw it two things one, you know, obviously I Live Events go to zero and while we've talked in the past anyone live event even one as large as the Superbowl, um, is it really material enough to affect anyone quarter's results, but when you add up a string of those throughout a quarter because we stream live events almost on a daily basis somewhere in the world. It's pretty material. So that went to zero at the same time the video on demand side went up in a pretty material way and I would say the one interesting thing but Michael was we saw a steadier traffic sort of like if I think about it as a peek average the peaked off.

Which decreased meaning that it was more sustained traffic. So we saw more traffic in off-peak hours than we would normally I see but the site is point. The peak was still up but you saw more underneath that Peak than you normally would now as schools started to go back into a question and you know people used to working at home some of that, you know, then haven't changed. But what I will tell you we're sitting here on April whatever today's date is they're all blending together 23rd, you know, we're still seeing those elevated traffic levels continued through you know today. The question is, you know, the uncertainty part for us is you know, I'm a sports come back. When do people start going back to more of a quote-unquote normal life. And what is the effect on the on the traffic when that happens dead?

That'll be offset by something.

Launches, um, cuz as we've discussed, you know as NBC is discussed their peacock while it's officially launched to some Comcast subscribers on some devices doesn't really launched until July HBO is being in May. Um, so you have sort of a bunch of different things going on at the same time. So I did anything additional from you know, I think you covered it. Thanks. So I guess what I was trying to first of all, you know, I have a conference and they said their Peak traffic levels are up 30% month of the month. So I was wondering if you could quantify how much a pig traffic levels are up in at the end of ours confirm that that same level maintained into into April and then we really look at your traffic including live. We're looking at just those two traffic levels or happens like sports what the total amount is downloaded but might be dead.

I'm trying to I'd like to know in addition whether or not that that total amount downloaded that you get paid on was that the sustained higher levels and what's been the trend there.

Sure, so I think on the sports I think maybe a few franchises if you may have pulled, you know, the releases and sooner and earlier and they may have been a higher frequency of an update, you know launch date of the launch dates are the overall Peak is not very dissimilar for us. If you're talking about the number like 30% you know, we are kind of in that same zip code may be a little bit higher little bit lower in that range. I think it's the same for everybody in the space that is primarily serving video. And and and that is you know, that is a good thing. Now keep in mind wage. It is cool. Even in apartment living or household living people are mostly homebound in this has suddenly hit and there's a lot of content available in our business. There is some slight seasonality which become a factor into all the items, right which is why we say Q2 Q3 are the low points and then business picks up again. This year should be a little bit different where I think you know, you you will see some

Go through of that business, but then the question is what happens when the state opens up, you know, I don't have a Playbook to see what happened the last time right we've done crisis planning crisis management and all that and we followed very strategic kind of what we are supposed to do from an operating standpoint. But what happened the last time I can tell you when a Floodgate been and hurricane hit, you know, when there was a but I don't have a what happened when the last time they make up occurred on a global basis and the world shut out. So we'll see what the reaction is at the back end. You know, we're feeling good about where we are. We're feeling very fortunate about the industry. We are in our position in that industry the fact that you know, we gave guidance for the highest revenue growth in our history and we think we can achieve that with a higher degree of confidence. Um, I I just want this day, you know, I just need more data to be able to tell you in a really unambiguous way that this is what I see happening until I get there. I feel like I should just over back.

Cuz if I can squeeze one more in so I'm just trying to understand I can't recall. What was your

Capex expectation for this year. And and have you changed in other words. Are you increasing your bill. Milk or decreasing Republican response to cover know? I was close to 35 million dollars and this year we said we were going to do somewhere between twenty-five and thirty and it would be front end loaded. We almost did seven in the first quarter and we will stay with its guidance. So I think even with covideo even with higher traffic, we think we have the capacity in the right geographies for the most part to go ahead and deliver what we talked about.

Great. Thanks. And then just just you know to clarify one thing Michael, you know, cuz you asked a pretty direct question about traffic growth. I don't know the exact number of top of my head but you know the 30% that you mentioned, you know, we are at or above that from a traffic growth standpoint of a year-over-year basis.

I'm sorry.

Thanks, Michael.

Our next question will come from Colby synesael, please. Go ahead. I'm great. Thank you. I guess if you questions one is I think you had previous month said that you expected Revenue to be down sequentially in the first quarter. But then in each quarter thereafter in 2020 would be higher than the quarter before and I'm just curious if you still would expect that and then I guess someone to follow up on the last question. Are you able to quantify what the downside was in terms of things that effectively went away because covid-19 like sporting or Live Events versus what the upside was and I guess it's part of that you raised the the low end of your guidance.

Is that explicitly because of covid-19 or is it really just you know, the traffic that you were seeing was really better throughout the quarter not just in the last two weeks. That's really what's driving. It's in other words if the covid-19 spike in traffic that we seen the last two weeks was to sustain on a longer period of time the second quarter we actually could see you know, that's when you would actually be raising guidance. I guess more specifically covid-19. Thanks. Sure. Thanks for the questions for you. So let me make sure I answer them all and I'll no specific order. But some of our beat is absolutely tied to the Kobe Bryant home. I mean, they will direct correlation between when that action took place and what happened with traffic so so we can kind of look at overall traffic and say Yes traffic began to move up as more and more of that stay-at-home order got deployed. We do very special.

Tu fake account by account by price by month by type of traffic kind of planning when we go ahead and put our annual plans together. So we have details here's what I expect from LB or from March Madness or whatever. It might be and we have what the price expectation is with the customers and we know what normal growth is in customers share with us what their game plans are in some cases. So so the detail exists over there, but it's not something that I want to go ahead and put out and say, you know here it's three down because of this and five up because of that month, but that is you know factored into what we saw and then your point about you know, the sequential Improvement and the code related. So yes, the quarter benefited Page Avenue in totality because of the pandemic and yes, when we initially gave the guidance we had said four quarters of sequential Improvement because it was I saw clears

Update right. I saw kind of big step increases of a few million dollars going from where the guy

Settle for q1 to Q2 to Q3 and Q4 now with the 230 million dollar midpoint for the guidance. If you take into account where we finish in the first quarter, I think those phone numbers will be more closely tied together. And so if in 1/4 it is not sequentially up. I don't want to have to come in apologize but it is our implants still to show for quarters of an improvement.

Great. Thank you.

Our next question will come from Rishi alluri of d a Davidson please go ahead.

Hey guys. Thanks. Thanks for taking my questions. I'm sorry, then Dan congrats to both of you on your new roles. Maybe I just wanted to start first by the way down a little bit more into the guidance. It sounds like from the commentary or you're clearly being conservative, which I think is the right thing to do some one of the commentaries made was the you know cancellation of some live sporting events, right March Madness in q1 Olympics getting pushed to next year NBA season. I'm sure there's more maybe to you directly help us quantify, you know, what sort of Revenue you were expecting from those types of events as you first set out the initial guidance for for twenty twenty and and you know how big that trunk that now is kind of Disappearing is going to be then I've got a follow-up

Yep. Sure. So they do things first of all, I think I have a higher degree of achieving the guidance that we've given now, you know, give em b r and I've got four months behind me versus having 12 ahead of me and and I think that I have more confidence and like I said, I had an option to raise the guidance even more but I think conservatism had some level it's prudent and that's what we look. I also want to be clear that Beyond this year. I'm actually getting a little bit more aggressive. I mean for for a few quarters and for a few years of lead guidance sit there or estimates it that you know, we thought we could go beat but we feel better about the fact that yes, we can get to double-digit growth on a sustainable basis and what the song is suggesting for 20 21 22 23, maybe too conservative, right? So so there is an aggressiveness on our part on on that front. I just want you to at least recognize that wage.

And and then in terms of the total dollar value know we don't talk about dollar value from a particular customer or a particular event as such we haven't in the past we won't do it now, but suffice to say that these events are you know, in in the seven figures, you know, when you go through a month of activity and the bits that you push across over the network, you know for game after game for basketball or baseball or football that equates to you know, seven digit amounts. So so yes the absence of that hurts in totality though that the benefit that we are seeing everything else seems to not only just offset that but actually exceeded and it's showing up in our results.

Got it. Is it a reminder? Cuz so I just said it in his earlier remarks, you know, you really talking about the loss of those live events for two or three weeks of a 13-week quarter of offset by the increase in both e t you know for two or three weeks within a 13-week quarter, right, so it didn't sound like it affected the whole Court

Okay, that's helpful. And and then on the wanted to go back to the gross margin the side, you know, I appreciate there's obviously a lot of moving pieces off on that figure. I think taking a step back, you know as we look at gross margins now on a full-year basis for twenty twenty mean is there any reason we shouldn't expect gross margins to to meaningfully improve your over a year versus 2019 given now that you're in a state of you know, sustain double-digit Revenue growth for for the entire year.

Will be pushed very hard to show sustained gross margin Improvement year-over-year that that continues to be a plan what that number finally lands up to be, you know, God will get there when we get there. But yeah, I mean we are, you know, not satisfied with the 36% gross margin number that we reported in q1 and have to move up from here. We know that it's geared to us.

Got it. Okay, and then last one and I'll hop but wanted to go back to maybe something a little bit more more philosophical but both talked about in the prepared remarks, which is thinking about you know, some of the traffic spikes that you're getting and thinking about how sustainable they are. Right o t t consumption gaining obviously really huge if we listen to the commentary from some of the gaming companies out there which way you're probably you're benefiting from a lot of that. How do you think about the sustainability of some of these spikes? Is this something that you're contemplating as you know, we're getting the benefit now, and you know, when social distancing measures are relaxed and then some of that starts to disappear or or are you looking at some of this is kind of being you know, uh a permanent, you know improve now that more people are are consuming video o t t versus through traditional cable that that there's a certain Baseline. That's always just going to be there with you. Maybe help me understand just philosophically how you're thinking.

That concept thanks, let me start and then we can add on, you know, it's an interesting philosophical question because you know, it would be easy to assume that once things get back to whatever normal is going to look like that traffic levels should go back to what normal was as well. But the thing that we think about is, you know our new behaviors being learned and so will the faster shifting to streaming services, uh M. And so we're really, you know, when you think about when Sports comes back, you know, will there be crowded stadiums and bars or will people be home, you know watching on internet-enabled devices, right? We don't don't really know what that's going to look like. So it's an interesting question that we think that we're thinking about every day and it's part of what month.

after the uncertainty

You know, what will things look like in the future when Sports, you know gets turned back on and you're already heard the PGA announced that they're going to start the tour but without any fans club, there's some other stuff going discussions like that going on in Europe with European football or soccer. So it's an interesting question that we are, you know, thinking about 5 every day and to your point is philosophical at this point because we just don't know. I don't know if you have any additional comments. I was a little fewer if you'd like you were talking to everybody in the industry. And where do you think this happens? You know, what do you think happens?

My just get a I figure you've got probably a lot more insight at least it's Behavior, but it's an interesting. I'll be learning as we go along. I think the we will develop a point of view and we'll share that as as we learn more and talk to more customers and see what happens in the early days and what the reaction is.

Okay. All right. Thank you guys really helpful. Thanks.

Our next question will come from James Breen of William Blair, please go ahead.

Thanks taking a question in the comments. You talked about expanding capacity. Just wondering how you think about that in terms of passing the existing Network or expanding geographically to pick up more Hotspots for customers. Thanks. Yeah, so we came into 2020 with a plan that added to the aggressive capacity additions that we had in June 2019 and luckily, you know, we were very aggressive in 2019 with a lot of build out in Q4 which downside it's your margins. In fact one but you know, we have you know, we have that behind us and we were lucky enough to have capacity in most places that customers wash. There are two your points of hot spots. So we think there's underserved opportunity in certain locations in the world that we are dead.

I need to build out this year so that we can better serve the growth in those areas. I will tell you that you know, Corona has had an impact on supply chain. So, you know, for example in q1, we had a really hard time getting the SSD hard drives that we use in our servers. We were originally told that there's a fire in some in a giant plant in China, you know came to later find out that that wasn't necessarily the whole story China had started shutting down and that's why you know, we didn't get those drives in in q1, and in fact didn't get them until this month. So, you know, and there were various stories throughout the supply chain. So the good news for us is you know, we were very aggressive in 2019, especially in the back half of the year. We've got an aggressive plan this year and month.

Other than the normal, you know.

Growth in in every location. We do believe that there are some pretty large geographies that represent opportunities for Limelight based on what our customers are telling us with respect to demand and we are working hard to fill that.

Great. Thanks. And then just give them the traffic that you've seen across the network in the capacity that you've built in, you know, is there any any risk I guess of using all that capacity. You've given what's happened in the markets?

It depends on the location, you know, we we have been caught short in some locations, which has I talked to you, you know our version of the capacity hotspot off but in most places we've we've been okay, um, but it is important that we keep adding capacity based on the growth that we're seeing and we have enough confidence in that growth that we are going to continue with our twenty-twenty bill plan.

Great. Thank you.

Our next question will come from Jeff Van Ree of craig-hallum, please go ahead right. Thanks for taking my question couple from you guys. First time the gross margin side. I just want to revisit but I don't want to put words in your mouth, but it sounds like gross margins were below your expectations. I don't know you I know you don't guide to them for the corridor you referenced a bit about the the linearity of the traffic so late in the quarter and having a cost Revenue mismatched, but maybe you could just spend a second terms of what were the incremental surprises or I should I say headwinds on the gross margin side. Like how would you rank order those one two or three? I know Live Events certainly come with attractive margins. It sounds like the linearity played a role. I'm assuming there were some other things in there. Maybe just talk a bit about the the rancor headlines.

So so let me try to do this and I'll give you my view of what drives the first of all is just the difference between Q4 and Q10 have an infrastructure in place. You have contracts and agreements bandwidth kholo expenses all in place. And if you have lower revenue on all of that fix course, you're going to get to lower gross. Margin number one girl number to even as you have lower Revenue, you're busy expanding because you see your business expecting to go up from what was the estimate to a higher number in Q2 and home and ultimately Q4. So even though you have that you're expanding and so you're investing more so that kind of hurts the gross margin some more then you get hit in the last week. We can you shut off the last month of the quarter with higher Peaks. So you'll end up being your vendors even more because they have distributed for you and established new Peaks dead.

and so you're paying according to

Speak so you'll end up paying a little bit more there and the customers that you're getting more business from our moving up into tears or levels or higher volumes et cetera, you know where they get some prep advantages as there's more volume. So you've got a mish-mash of all of these things happening about the same time was my expectation for a gross margin higher. I think at some level yet. I was expecting a dip in gross margin from Q4 into q1 just because I knew that I was looking Revenue going from 60 something to 50 something and I needed to absorb the cost somewhere so often so I wasn't particularly surprised except for a couple of those items that I talked about.

That's helpful. Thanks. So I guess as you think about gross margins for Q2, then I know you don't want a guide to a specific number. But what are the key factors now that you've experienced need them that you're watching very closely and how should we think about gross margins as we turn from q1 and Q2?

I am still expanding like Bob talked about we have hotspots. We are putting capacity in there. So I'm going to go ahead and allow cost to go up specifically to match the revenue profile that we have. I have some absence of Revenue in some geographies where I have stranded costs, but you know, this is it's a hundred stories. We've got a month across the line everywhere and we are very focused on this and we'll and and with the increments in Revenue, I expect that the gross margin will move up now. I I would love to tell you that it's going to move a hundred or two hundred basis points or 300. I don't know what that number is because a lot of things get factored into all of that and and we'll just have to wait that out.

Yeah, sounds good. And then shifting gears I guess to the revenue Outlook. It sounds like I think is you framed that you have the room you could have potentially taken the high end of the range fire. You chose not to you want to bring in a little more conservatism given the range that's as it stands. Now what what are the scenarios? I guess at a high level. What are the scenarios that would drive Revenue above the high end of the guided range.

So well there is still a couple of big launches coming on and the range of outcomes for those big launches in our share of that. Traffic is a needle mover for what life might look like.

Let's just speak. You know when Sports come back if they don't happen in front of live audiences in stadium, but everybody's watching from home and I think it's just kind of insatiable desire to watch some Live Events and that picks up, you know, maybe there is more Revenue than we had anticipated. We are working with existing customers on all kinds of expansion plans that they have and so how do those progress has a bearing and of course, you know, you're always looking to your sales Effectiveness and pale seems to kind of go bring on a couple of big customer we have, you know, many things in play now bringing on 50 customers at the low end of the business doesn't move the needle this year enough for kind of you know to go outside the range to really go outside of the range one of your top twenty customers or many of your top twenty customers begin to project or progress with you at a much higher rate than what you originally envisioned dead.

and some of the new launch

Issues with the megas gives you more than what you kind of profile for and you know all along like I've been saying we when we get estimates from customers, we try to give you guidance around the conservative number and yet be billed for the aggressive number and customers typically share with us a range of outcomes. You don't want to be stuck in a situation where they had traffic to give and you didn't have capacity to take it less than I just um, as it relates to the pipeline. I know you've commented in a in a number of anecdotes or or or snapshots of data points towards the progress you made there. Then you could just talk about the pipeline composition what types of eels how that's changed in the last quarter or two. Maybe just a little more color in them. Give give one data point but maybe a bit more they're on what's in the pipe.

So the pipeline remains healthy as I stated earlier, you know, we saw some of the deals that we expected to close in March, you know, typically and of course, you know for whatever reason the third month of the quarter tends to be the strongest from a closing New Deals perspective and we saw as we got into March things from a decision making standpoint slow down a little bit but you know, we we look at that pipeline, you know, I know. It looks as daily but I do age, you know weekly review with him on that what what I'm most encouraged by is the quality of the deals both in terms of the customer side the deal and fit with our strategic Focus meaning they're very video focused deals. Um, and so we've got for example a few customers now dead.

And pilot with us that are you know, very exciting opportunities for us and and we believe that those will close in this quarter. And so we're we're very pleased with the size of the pipeline but even more so with the quality both from size of dog and and you know with our strategic Focus, hopefully, that's helpful. That's helpful. Thanks so much guys.

Thanks, Jeff.

Our next question will come from Tim Horton of Oppenheimer. Please go ahead and do the virtual mvpd guys were they meaningful customers and it's dead, you know people replace linear with virtual and you know, can that have a material impact for you guys?

Not not yet. I mean we we do have customers that you know, we're doing linear with but our our bigger volume is tended to be in the video on demand and um and the live streaming, you know, we heavily in live streaming with our real-time streaming service and just in general being able to serve Live Events when you look at the pure data, you know, the internet was projected to grow at 25% video at 35 and live seventy right choice made sense to put that push their I still believe it'll grow at that 70 will probably be right over the next few years. But this year it's it probably won't be but we believe that there's tremendous opportunity for us in live in you know video on demand. And yes, we're talking too many, you know linear, um live birth.

talking

Companies with many linear live opportunities that has not typically been a a big business for us and then what can what can turn that off and I know you're talking to them. I mean and you got the network for it, I guess is it is it just that it's not a very large business now or do you have less market share than they than that you would hope to get

I would say we have less market share than we we hope to get we just we hadn't really focused that much on it and we are now, you know in the pipeline there are several meaningful opportunities in that area.

Great. And do you think your customers are are happy, you know with the overall industry to see the industry's kind of performance here during this crisis and and I guess the same thing for price and wage do they feel that the industry has enough capacity for them to rely on you guys.

Yeah, that's interesting question. I I would say from what I hear from customers that Limelight and not only line like Limelight and its competitors have done a really good job with that being said there have been some problems around the world. You may have read that for example in Europe several of European governments have asked people like Disney app is on Prime and Netflix and others to scale down the bitrate. Um, so not to deliver HD and 4K but to go down to standard definition or lower. Um, and so, you know, there are ways in which we can help the isps with their congestion. So, you know people like to think of the internet as having unlimited capacity, and of course, it doesn't given that I would say, you know, the industry has performed really well off.

This time and you know there have been some issues in some areas. Some of them have been on the inside. Some of them have been on the ISP side, but there's actions that have been put in place to help alleviate that and I'd say overall, you know Limelight and its fellow competitors should feel very good about the way we've stepped up during this this time of Crisis great. And so just last one was a Jeep. So can you give us some color in your thinking of how much you can contribute to incremental revenues or the next four years or you know five years from now what percentage of revenues it could be just you know, you've gotten a lot more data and intelligence and you're sitting there getting more visibility on the product just you know hard for us to understand from the outside. What's really neat.

Sure. I I think that the edge time is much larger than the CD and time. So let's just first agree on the overall market share. I think it has more competitors than the CD and business but I think what we're back into the marketplace is rather unique because of our last mile connectivity because of how pervasive we are around the world and you know Global deployed infrastructure that is connected with a secure took it back on. So so that situation for us is rather unique off small numbers the growth rates are in and they should be very high in the early years, but you know, what if this is not a 100 million dollar business three four five years from now then I think you know, we would we would have missed something. I mean that that's kind of, you know, we're sitting this up to be an equal leg at some point, you know to the base business that we have and and that's what you know, the opportunity is

Great. Well, I got dozens of more questions, but we'll

Thank you. Yeah, well, we'll follow up with you later. Thanks. I'll just give room for a few more that we see here.

Our next question will come from Mike Lattimore with Northland Capital markets, please go ahead.

Thanks, you talked about some potential or some Pilots that could potentially turn into, you know clothes and turn into customers in the quarter. Would you start seeing Revenue then or how long the delay because they start seeing revenue on that?

Meaningful Revenue would probably not occur till Q3. Right cuz most large customers don't just like slam you with a lot of traffic, you know, unless it's a lawn wage but you know, typically when they're migrating from one CD into another or adding you into the mix usually, you know, for how long for the you know, the help of both sides they do that in a fairly measured way so that we can build the cash on our side of the most popular contents and make sure that I have the opportunity to tweak the various configurations to ensure the highest level of performance on delivery. And so usually it's a fairly steady ramp, um after the pilot is done and so my expectation is as you go into Q3 and for sure into queue for the customers that we're doing Pilots within Club.

You will have you know meaningful Revenue in Q3, and then you know, whatever. The Run rate will be that'll be achieved, you know, probably three months after God thinks and then did you give the kind of percent of revenue from your top customer top? 20 customer might have missed it needed not.

Okay, do you have that or do we wait to the end on it? I I think then do you have that handy?

I can I'll read that back to you before we hang up here while then let's go ahead and maybe we can just take the next question. In the meantime. Just last one you talked about the spike in traffic took a margin now through April did did the did online gaming contribute much to that or was it really kind of video?

The sustained traffic comes from Ott video, you know the online gaming see spikes for a short period of time and a game is released fortnite released or some other game is released on the new version released. But most of the sustained truck comes from video consumption. The answer to that question was 77%

Okay. Thank you. All right. Thanks.

Our next question will come from Lehi of aigh Investment Partners, please go ahead.

Hi, thank you gentlemen for taking my call. I wanted to ask I'm always very excited. When I see the amount sense of how Limelight is introducing new features for capacity and latency, you know, most recently the the live push in jest really really wonderful stuff. That's worth keeping. Well, I'm not really into in the in the head of the business in the the CDN world the part that I don't hear a lot about which everyone else can fill was make a month is security and now I understand about the the private Network aspect of of Limelight being a tremendous leg up but it doesn't seem to be something gets highlighted or sunao in the sort of state of confusion of the world sort of any, you know, what's going on in terms of security measures that Limelight is in a implementing Etc wage.

it would be great to hear something of

About that wait appreciate the comment obviously security is important to lots of companies Limelight. We made the decision a few years ago, but instead of you know buying a security company or Building Products on our own that we would partner to ensure we have best-in-class products and services and we did that with rep where um, who's based in Israel and with new Star based here in the us both very important Partners to us. Um, the security business wage is important to our customers. It's a growing business for us. In fact, you know, one of the largest deals that we signed last quarter in q1 was for 8:30 with one of our existing customers. So a nice expansion of that relationship and it was leveraging our partner Partners intellectual property to do that so dead.

It's important for us. It's important for our customers. And as I said, we really appreciate and and value the relationship we have with both handled right away or on that front.

Refresh one more question. So let's take that and

our next question will come from Colby synesael of please go ahead. Sorry for jumping back on you had mentioned in your prepared remarks say you were considering having to extend payment terms for for some customers and you mentioned some verticals as potentially having trouble whether it's in I think you might have mentioned travel or Hospitality or lodging you already started to do these things or would you anticipate this becoming a bigger potential risk in in the second quarter? And what can you talk to if he talked to us about what happened with bad debt in the first quarter any expectations of relates to the second quarter? Thank you. I think that's a really good question and I think in this industry, well, you know, we have some five hundred and some-odd customers. We're very fortunate with the names of those customers. You know, our our list reads like a Who's Who and I don't think any other company has twenty customers at

Accounting for 77% of the revenue which I consider in the secure space where you know, we don't have an issue with uh bad debt and with the credibility of the customers and and there's a payment terms or you know their liquidity. So I think we have very very fortunate in that regard but on the other hand, we do have small customers that are all over the world really really wage, you know, and if somebody says Hey listen, umm, you know, I had a commit of this level or I have to pay you, you know, would you go from 30 to 45 while I sort through this? I'm not going to be a pain in the neck around that I I just don't think that that's right. I think in the long term that purchase more than it helps us and I think it should not helped hurt my balance sheet. I don't think it should add more to my receivable continue to Target with you to 55 days for a r and and will continue to execute against that now if something large happens, obviously, you know, we kind of go ahead and call that out. But right now it's dead.

not in high

Demand, but I do want to lay it out that it is out there and to the extent it is and we can be helpful in our small way. We will be

And as far as the first quarter, you know, nothing nothing changed at that level, right? We are still able to collect and and feel very good about the quality of rer.

Great. So as you as it stands today from what you've seen as I guess April 23rd, nothing that you would be on a call after the second quarter that you would consider to be material in terms of non-payment home. Yeah, the oil our inability to manage through that accept. Go ahead Bob. Yeah. I was just going to say Kobe issue. It's a really interesting question because you know, the government has come out with the p p program and Sergeant then moves very quickly to analyze whether we would qualify for a loan under that program given the uncertainty that we could be facing and you know, we we look at that very closely and felt, you know, it was best for us to pass because you know, we feel very fortunate to be in a solid financial position with good business momentum and you know made that decision, you know, ma'am.

Years ago and and now there's a lot of guidance coming out from the small business administration and um, you know, and you're seeing other companies that have taken that note giving it back so, you know, but it really forced us to really dig deep into the question you asked is how confident do we feel about that? And you know, we made that determination that you know, we would pass on the opportunity even though we're not really qualified for that program based in our confidence in our in our business in our customers.

Great. Thank you.

This concludes our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Thank you everybody.

Thanks, everyone.