Q3 2020 Limelight Networks Inc Earnings Call

Dead dead, good afternoon and welcome to the Limelight Networks third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then one on your telephone keypad to withdraw your question, please press start then to please note this event is being recorded. I would now like to turn the conference over to Dan Bond cell Chief Financial Officer, please go ahead. Good afternoon. And thank you for joining the Limelight Networks third quarter 2020 Financial results conference call. This conference call is being recorded on October 22nd 2020 and will be archived on our website for approximately ten 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 are operational plans business strategies secular Trends product and feature function of the 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 indicator 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 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 is

Bob lento our chief executive officer and Sajid Malhotra our chief strategy officer. We will be available during the Q&A session at the end of prepared remarks. I would now like to turn the call over to Bob. Thanks, Dan and good afternoon Q3 was another very strong quarter for us as we grew top-line Revenue by 15% announced several New Edge deals and made significant progress across our strategic imperatives Revenue in the third quarter was 59.2 million dollars up 15% year-over-year, it marked our highest third-quarter ever and second highest in company history. We also successfully executed a $125 million-dollar convertible debt offering which further strengthens our already strong balance sheet and allows for flexibility in accelerating our growth initiatives. There is a digital transformation underway, and we've seen acceleration of this transformation in 2020 from COVID-19 and the rapid adoption birth.

of the direct consumer content model

the increase of a remote Workforce on a global scale and the dramatic increase in content consumption have created sustained demand along with new and exciting choices from low latency delivery and had Services Limelight is well positioned in these Dynamic times to provide the scale and services our customers now demand our investments in extending our Global capacity deepening our video capabilities and expanding our suite of edge services are some of the most significant accomplishments in 2020 that have not only given our growth but also allowed us to achieve differentiation.

As a specific example in India this year alone. We have doubled our capacity to help meet the growing demand in the Region online education companies are scaling largely driven by COVID-19. Three of the top five leading providers in online education in India are our customers including buys you a company that was a valued in excess of ten billion dollars. I'll talk in a moment about specific progress in the quarter, but let me briefly revisit our strategy to set the stage. The Limelight is doubling down on our Focus to serve the video media and gaming spaces. We have a robust base of existing customers including three of the top five Global media streaming companies month.

According to IDC. The public CDN space is expected to experience Healthy Growth through 2024 with video media and gaming increasing most rapidly off with our robust product offerings Global private Network and unmatched customer service coupled with our execution. We are in a strong position to benefit from this trend. Now, let's talk about a few of the specific highlights from Q3 as we've discussed on past earnings calls, our strategic imperatives in 2020 center around four pillars, which are extend capacity expand control ProActive Management and enable Innovation. Each imperative is designed to impact one of three areas revenue or performance gains drive down for most importantly deliver improved experiences for our customers.

last quarter we announced the launch of our new developer Community has

Part of our expand control imperative and developer engagement has been strong further our efforts to extend Global capacity remain a priority with steady progress during the quarter with advancements in the ProActive Management of our Global Network through automated traffic engineering were significant in Q3 while this is not new to us. We deployed several New Age abilities to better manage the complexities and high volume of changes. We see on a daily basis. We expect to see full benefits from these advancements as we move into 2020 with a product Innovation at Limelight in twenty-twenty has delivered at a rapid pace and is driven by our strategy to deepen our video capabilities and expand our Edge services off.

Last quarter, we released the live push which is a video service that allows customers to directly push live video content to the Limelight CDN. It simplifies delivery protects the bank customers origin servers and reduces bandwidth costs. One of our long-time customers in the UK is one of the first users of our live Push Service and reports that it is home to meet their business goals.

As we all know edges of very Hot Topic in our space and one that is early in its maturity and brought market adoption.

Well content being pushed to multiple Edge locations is not necessarily new the innovation in how content is delivered and what you can do with it is rapidly evolving. In fact, we were first to Market in our space with the launch of age functions our new service compute capability that puts flexibility and Power in the hands of our customers to manage deployed and run their functions at our Network Edge. It leverages limelight's Global Network and takes advantage of our direct. Connections with more than one thousand isps in a public Cloud providers.

With the release of edge functions, we now provide one of the most comprehensive Suites of edge services available today for our Target customers that ranges from flexible Edge compute options are metal is a service to serverless compute and application capabilities several customers are actively implementing our Edge functions and seeing quick benefits. One of our customers is alleged functions to deliver optimize images for any device. Another is using Edge functions to execute forensic watermarking algorithms embedded in high-value video content app to detect piracy and record time.

Further this year, we expect almost double edged Revenue over last year. We secured several New Edge deals this quarter including those we formally announced with Simon TV and cut off Global Ott provider and online video platform company. Our next evolution is in development now and focuses on providing tools to manage complex workflows at the edge only we are weeks away from releasing the next generation of our real-time streaming service for organizations doing live streaming that requires near real-time performance. It is a solution that provides subject and delivery worldwide.

unlike others in the

Market real-time streaming is integrated with our Global CDN providing unparalleled reliability and scale. We are currently in the limited availability with multiple customer moving into production across a range of Industries, including Live Events gaming and sports.

Organizationally, we made some changes in Q3 designed to better align with our strategy and Foster additional solidarity during these challenging times. We Consolidated our development and operations group into one organization and Consolidated our Edge Services Group into our product and marketing organization.

We are still very much in the middle of the pandemic and our employees continue to work remotely as a result how we work together is evolving with these changes. We belong we will optimize team collaboration and be even faster and better focused on delivering customer value and closing. It was another outstanding quarter.

We sit in an opportunity field position surrounded by multiple ways. We can extend our business and add value to our customers while all the options present opportunity great companies know who they are who they serve the value they provide and translate it through unparalleled execution.

Why might has invested heavily this year to extend our Network optimize our performance and expand our capabilities through Edge Innovation and new product introductions wage are well-positioned to serve the video media and gaming spaces and have tremendous optimism for the future.

Thank you. I'll now turn the call over to Dan to discuss the financial details. Thanks, Bob and good afternoon. Bob mentioned revenue of 59.2 dollars off our highest reported third-quarter revenue and history and second highest quarterly Revenue ever due to seasonality. The third quarter is generally the lowest Revenue quarter of the year to have grown now sequentially each quarter this year further demonstrates the strength of our strategy and execution as an organization as noted earlier. Our growth is being driven by an acceleration of direct consumer streaming services as well as growth in our Edge Services products International customers accounted for 35% of total revenue in Q3 compared to 36% a year approximately 10% of our third-quarter Revenue was in non US dollar denominated currency.

Average revenue per customer inch higher this quarter and is approximately $110,000. This is our Revenue divided by our customer base and we believe our average revenue per customer is the highest in the industry.

This is an important metric for us because compared to others are size in our industry. Our financial model has been focused on fewer and larger customers. This allows us to accept a slightly lower gross margin, but it's just a much lower operating expense profile resulting in higher operating margin profitability and flow through to Eva. Cash gross. Margin in the third quarter was 46.4% off during the second quarter when stay-at-home mandates were more widespread. We delivered record traffic volumes. We continue to see elevated traffic levels throughout the third quarter and have added capacity on an accelerated timeline to allow us to deliver this traffic as we add capacity in new geographies and expand capacity in existing pops. We see some fluctuations in Gross margins, I believe selling through the continuous capacity additions as well as ongoing work to optimize traffic flows within the network should have favorable impacts to overall cash gross margin operating expenses increased

approximately 600,000

Dollars primarily due to one-time costs related to organizational realignments. We reported a gap loss of four million dollars in the third quarter for $0.03 per basic share compared to a loss of two point eight million dollars or two cents per share in the year-ago quarter. This year's third quarter includes one point seven million dollars of interest expense or almost two cents per share as a result of the successful execution of our convertible debt offering in July approximately $800,000 with cash interest expense and $900,000 was non-cash amortization of debt issuance costs and the debt discount excluding these adjustments Q3 net income is in line with Street estimates.

Ebitda was three point seven million dollars up a very strong 49% over the third quarter last year adjusted ebitda was five point six million dollars this year.

On to the balance sheet and cash flow as briefly mentioned earlier during the third quarter. We completed a $125 convertible debt offering bearing interest at 3.5% off with a conversion premium at twenty seven and a half percent with an overnight execution. We were able to successfully price the convertible offering to limit the typical downward pressure on our stock.

We also purchased a cap call for sixteen point four million dollars this instrument increase the conversion premium to 100% or $13.38. We purchase this instrument to limit the dilutive impact of conversion over the premium based on the confidence we have in our future performance.

Operating cash flow in the third quarter was a strong seven point seven million dollars and we paid 7.2 million dollars for Capital expenditures primarily building out capacity to expand our footprint.

As a result, we ended the quarter with cash and cash equivalents of 124.8 million dollars at the end of September will return to historical Norms at approximately 57 days after expanding 270 days at the end of last quarter. We anticipate continued DSO performance within our normal range of fifty to sixty days.

As of September 30th, we had approximately 122.8 million shares outstanding.

Total employee account at the end of the quarter with 620 worldwide.

We are leaving our full-year guidance unchanged except for gaap and non-gaap EPS solely due to the impact of our convertible debt offering and the additional cash and non-cash interest expense.

Interest expense will have a $0.03 impact on Gabby PS adjusting to a $3.13 loss and non-gaap EPS is adjusted to a $0.02 loss to an $0.08 a month.

Annual cash interest expense from the July convertible. Offering will be four point four million dollars payable in February and August.

Non-cash interest expense for the fourth quarter of 2020 will be approximately 1 million dollars. However due to an expected change in accounting rules for convertible debt offerings effective in January of 2021. We expect annual non-cash interest expense thereafter to be approximately $600,000.

We recently kicked off our internal 20-21 budgeting process as we have done for the past several years. We will provide guidance for 20 21 at a later date. I will now turn the call over to the operator for home.

We will now begin the question-and-answer session to ask a question. You may press * then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two at this time. We will pause momentarily to assemble our roster.

Our first question comes from Lee crawl with Riley Securities, please go ahead.

Great. Thanks for taking my questions guys. Wanted to just start out on the Q4 implied guidance back-of-the-envelope math kind of implies that the midpoint flat year-over-year wage. Maybe just kind of walks through the the upside and downside assumptions to Q4. Just you know, from where I sit seems like visibility is improved since the last time we talked, you know, each year over your contribution from Ed Services some gaming launches and and obviously the acceleration of streaming video. So want to just kind of understand how you guys think about Q4 against that backdrop.

Yeah, thanks for the question. This is Dan. So, you know, we raised our guidance and in January and then again in February when when many of our people in our industry were withdrawing their guidance and then we had one competitor actually bring down guidance for this quarter. And so, you know, we felt comfortable throughout the whole year off with you know, where we are moving as a company in the in the volumes. We are seeing in the business and where the edge business is going. And so, you know, we continue to focus on the full-year number and and this year will be our our best year ever in terms of Revenue growth and and we expect that to be over 15% And so you know with where I am seeing the revenue the the volume numbers coming in. Um, as we as we approach the end of the year, you know, we just felt comfortable with with leaving the guidance where we're at, you know, we'll see where wage

Where we go from here, the fourth quarter is generally our our highest volume quarter with with all the new releases going out and in the in the, you know, people staying home for the holidays and just I'm watching more of a online content. And so, you know, we felt comfortable and where where we left the guidance here for the for the year.

Got it, and then second question just obvious on gross margin, you know last quarter was kind of one step forward and now we're kind of taken two steps back again to kind of the q1 levels off. Um, you know, when do you guys kind of expect to see the the the gains are realized the gains from the network, uh, automatic and processes and and kind of I guess better utilization of the car or the capacity. You guys have brought online, then I'll make some comments on the margin, you know, we had a really good with the with the lockdowns being in full effect result of COVID-19.

third-quarter is

Seasonally the lowest volume quarter and and so there's a little bit of all of those things that play here. So that's what caused the margin change, you know, quarter-over-quarter, but you should be expect margin to generally uh friend up as these uh Auto traffic engineering things come into play and and I'll let. Talk a little bit about that. Yeah. So the full version of I mean, obviously we've had Automation in our Network for years, but the new development work that I mean spent the last couple of years on starting wage go into production the end of July and with him very careful and very deliberate about how you know, how we use that and off a quick how quickly we allow it to take over more and more of the network operations. And so I would say that that version will be completely dead.

We rolled out probably by the end of this year. So we'll get the full benefit in Twenty-One. But the real Improvement will come with the next version of that which we anticipate will suck rolling out late first quarter next year. So I think we'll see, you know some improvement in terms of asset utilization and our band with mayonnaise, you know, starting early next year but really accelerating through the second half and then to dance point, you know that there are also other dependence upon what is our product mix in terms of our age Services versus content delivery within content-delivery. What parts of the world are moving more versus others cuz our margin tends to vary but we are very confident that on a full year basis next year. We will be higher as you know, we don't give guidance on both marja.

We believe that the improvements will start to show in a in a very reasonable way next year as we look at you or the year.

Got it. And then third just quick question in in Q3. Curious. How many 10% customers you had? Was it the same as Q2 or was it plus or minus?

Yeah, it'll be in the queue but there's just one 10% customer for the quarter.

Got it. Thanks for taking my questions guys.

Actually, the next question is from Jeff Van with craig-hallum, please go ahead great. Thanks for taking my questions. If you from you guys want a circle back to the month prior question on gross margin. So the reps are up roughly 700,000 sequentially colleagues were up three and I think coming into the quarter you had thought crudely speaking would be roughly flat. So just walk in there a little deeper was this when we see the key was this bandwidth that really drove the sequential increase in cogs or or kind of two questions there. Well, I guess what drove the increase in the cogs in two thousand. What was the variance to your expectations?

Yeah, so all I can answer.

The question but just a reminder, you know, when we we talked a little bit about in the opening of the the realignment we did in our development and operations organization and some of those costs hit, you know to recreate it a devops group that combined team some of those um costs in our cogs. Um, so there's some of that in there. There's you know, structural things beyond that that van can speak to yeah. Yeah, and and so, you know again, we we don't guide to gross margin quarter-over-quarter and and we actually don't guide to it for the year, but we know that the point of emphasis and it wouldn't drop it's what drives a significant amount of flow-through given our operating structure. And and so that's what we're really looking for is is continuing to drive that Revenue Top Line number and and get that flow through down all the way through the bottom number but but again as far as the individual authors

Within that Cog line, there is a little bit in Colo Colo as as we continue to expand that footprint, you know adding a therapist to capacity you need to add the rack space and the power so there is a little bit of that and and as we put out those new locations and new geographies, sometimes it does take a little bit longer for that traffic to ramp up and so you got you have those expenses on the front page and add that traffic ramps. We expect to get the better asset utilization and for the margins to improve it just just doggedly have one more thing. Right? I mean, we're trying to run this business as a walk across every line on the p&l. And so yes while gross margin wasn't perfect. I think the topics line was very good and drove to a really good outcome. I think the business makes and how that was given was really good. The top line was exactly where we would like it to be and the bottom line was exactly where we would like it to be, you know, I mean, of course if if you know, the headline number is kind of I read the new somebody dead.

That you know, we miss Betsy, but that's all below-the-line related to kind of the one-time convert. But overall we were pleased with the quarter. I mean, let's let's just see no doubt about it that inside the company as we look at these results. Yes, the geography of the company the numbers did not line up perfectly, but the overall outcome was a really good outcome. And and we think as others in the industry will report, you know for us to have sequential growth in the third phone number for us to have a current order. That was a second best quarter ever that goes a very long way for us. And this is a very different company and we are now focusing on you know, how to improve the mix and how to invest in the way of the future and how to get to a better outcome. Wow, while working completely remotely while putting out some of the most significant products we've ever done while we organizing, you know, a big part of the country. Yeah.

Is this a while you're on that reorg? You touched on a few of the logistics of what you did but why did you do it talked about the reorg? What was the impetus?

So

You know the edge Services I'll start with the the smaller one which was moving Edge Services under our new Chief marketing officer Christine Krauss, you know, we we've had that as a separate group to provide the amount of you know, initial focus and attention that we felt that needed but we're real pleased with the product set that we have both in terms of what we can sell today and and development. We're pleased with what we're seeing in terms of Revenue momentum package. You felt that the timing was right to integrate it into the larger organization, um because it's a bigger piece of what we're doing and I don't have to worry about it took getting getting lost in the fact that it was special was becoming, you know more complex than than there was value there now that it's a larger piece of our business.

So that was the driving force there in development and operations and in creating a devops organization, you know, we're not the first in the industry to do that in the technology technology industry. It's uh, I wouldn't say common but it's not uncommon, um do that and what we felt was that would be amount of change that we were making and the implications that those changes had on our operations group that a closer alignment would help us basically better and faster. And so we have the group under the single leadership of Dan Carney who reports to me and that we were able to offer not just you know, dance group now is interest as existing report supposed new ones were able to redesign the organization so that the teams had everything they needed dead.

Within their own groups and then a shared services, um, and then shared services across the team and so we believe not only is it going to be more efficient, but we can we can get product developed faster and a higher quality and we felt the timing the timing was right for that same last for me just in truck order. How did overall traffic volumes behave month to month to month?

Pretty steady. I you know, yeah pretty steady. I mean Q2 will probably be the highest. We don't know what you for will look like but in the first three quarters, you know Q2 had the highest amount of traffic but we didn't see the kind of the normal pullback in Q3 despite, you know, whether being great and a lot of places and people, you know, still take off holidays or vacations, even though they may not have gotten on planes and you know, the other thing in Q3 was and this has been widely reported you show a lack of new content, right? And so typically there's a fair amount of new content that starts coming out in the fall. I think this year will be less than a button to three that was really out of low and then there are other factors like, you know, so many as announces PlayStations new version of PlayStation that will start shipping next month birth.

you know it was as we

Back with them early in the year. They expected this to be a light year up until that announcement because of a manufacturer's focusing on the new console in terms of consumers waiting to bring you stuff until the new console came out. So, you know, there's a mix of things that are going on in this industry at all times this year that makes it's just been a little less predictable than a little Choice Wings a little greater than than might what might otherwise have been without a pandemic

Okay. Thank you for taking my questions. Thank you. Next question is from Tim, please go ahead.

I think like guys just on that point on the volume. So are you seeing kind of a typical pick up here in the fourth quarter, you know bombs like it's like we normally see what the weather getting colder. Yeah. It's a little girly most of that seasonal pickup starts, you know around Thanksgiving and runs through the end of the year. And so, you know, there are some of our customers that are launching in new territories and that starts in the middle of November, you know, it's only for example coming as I've already mentioned coming out the new PlayStation but that's in the middle of November and I think that you know, traffic is definitely up here over a year in October so far, but the real volume tends to come in and the last six weeks of the years and you know through the first week of January so that remains to be seen but I think that you know so far the trend is looking about Thursday.

Yeah, we have no reason to believe will be any different. I think you know, the games are launching. The new shows are coming on and traffic patterns are generally healthy as weather gets warmer people get the weather gets colder people get back home and all the new shows come on board and reserved more and live sports and we'll have a couple of months then we did, you know prior to that that's helpful. So but but definitely, you know more wildcards this year than in past years. So it sounds like you're running the network at a lower lower utilization for like three or four different reasons is new automation tool new geographies and correct me if I'm wrong, but I guess you know how much better can utilization be next year can it be like gimmicky operated, you know thousand basis points better utilization, you know, just just kind of some rough idea, which is what I think you're saying.

Yeah, we are we are saying that we think we can operate it better. It's not a thousand basis points. It's you know what we think we can get, you know, maybe several hundred basis points and that all depends on you know, what happens on the pricing side, which is a big component of gross margin, but assuming that you know, the compression on price range within the range of historical averages, you know, we believe that through better Automation and better management office box group that change can be in several hundred basis points range, but this let me try and help you understand that because I know you've talked about utilization a few times. So the Delta based on our assessment of us and what we think Best in Class is not a thousand data points, right? So so they they may be dead.

a couple of hundred more than a few hundred basis points of difference between

What we think is best in class and ask and we will continue to move up but even small movements in utilization have huge impact to the bottom line results too gross margin to flash two at cetera et cetera. So I Am with You utilization is a Big Driver of the business and business results. But I also just want to be sure that you understand that there isn't a thousand basis points to Bill get sort of blind to this, you know, many of these initiatives started over a year ago, right? So, you know, we identified this as an area of opportunity for us. Um, as you can imagine it's fairly complex to create the software and then, you know, we want to be very careful that we don't negatively impact our customers in any way by creating, you know, short-term. We can't afford a great short-term pain for long-term gain,

Our performance has to stay at the highest level. And so, you know, we're more willing to suffer a slower increase in margin than we are willing to tolerate lower performance for our customers. But I mean this quarter you came in probably a hundred basis points below trend line utilization given the reasons you described and you might be a couple hundred thousand points above the next year. Is that fairly accurate?

It's in the range of outcomes.

Okay. Yeah, I didn't I'm sorry last last last I'm just getting asked a lot of these questions. I guess the main concern on the gross margin and you kind of brought it up as a price competition. Did you see pricing out of the ordinary wage? That's when everyone sees the gross margins decline so much. It's always the main worry right over all when we look at, you know, cuz we we are negotiating contracts every month when we look at the entire year. I'd say it's fairly, you know in the range of what we've seen but one thing that you know, is that Limelight, you know, our top 20 customers are often overly large portion of our total and so while on average it can be in line if we get like we had a few years ago one large customer that we negotiate sandwich set pricing from one quarter of the next, you know that can have a short-term impact that you know, took us what two or three quarters to get back up to normal. So, you know, we're not immune dead.

For something like that happening and there's always you know example I can point you where I think the price out of competitors given a customer is irrational thoughts. But if we look at the average, I think it's within historical averages range, but from quarter-to-quarter, you know one large customer does a complete renegotiation reset, you know for the next year. It may take one or two quarters for for our margins to stabilize back to where they were free pricing. Yeah, and and it's our job to go back to our vendors and Rego. She ate the that that pricing we get from them based on that increase volume that our customers are saying we'll get from them as a result of these negotiations. So

And so did that happen this quarter.

Happens every quarter that recorder. I mean there was in the last quarter there were not blaming, you know, we're not blaming the margin, you know, quote unquote issue on that. It was more, you know, open up on capacity. We had some realignment costs, you know, and we don't have the automation full again there. I'm just saying that you know, it can it can be given the size of customers to deal with and the you know, the the impact any one of them can have on short-term results if that is another area that can take a short-term effect on us. I'm not I'm not blaming anything like, you know, the last quarter on anyone customer and Tim this is part of the reason you know why we stay focused on fully regain. So for us the big achievement is that we are on track to have a best year ever write top-line bottom line is cetera on lower capex than we did last year right delivering better outcomes. Yep.

Better free cash flow and better utilisation of assets not that said within the year and within the quarters you have times when customers are repricing you have times when vendors are getting repaved you have times when efficiency metrics from our R&D efforts are going into the network you have times when they maybe breakage in the network on some competition and we see spikes in traffic you have in subjects that are occurring you have live traffic that comes on you have one-time events that get loaded on and loaded off. So there are so many things to manage across. I mean this is people going to say that it looks like a simple, a business. It is not there is complexity in the business and our job is to manage to that complexity and I think that with the results that we are reporting and and the progress that we're making, you know, that is commendable in terms of the overall achievement that we are, you know, achieving right here.

Okay, and will come back if you have more questions, I'll just like to move to the next question super thank you to the next question is from James William Blair, please go ahead great. Thanks to the question just with respect to the guidance ranges, you know you maintain guide for the full year. Can you just walk us to how you get comfortable around the even that number would be just over thirty million implies, uh, you know an absolute increase obviously in the fourth quarter of a few million dollars from where you were this quarter. Um, and and you you talk about adding capacity this month order was that added in in anticipation of the fourth quarter. And so there won't be a need to do more of that before the quarter given what you expect in terms of traffic volumes. What was the last name? I'm sorry. We added one in the in the in the quarter. So you you added capacity this cord that was in anticipation of forth. So that will help from a larger perspective of the fourth quarter dead.

I got you. I got you. Yeah, so so first question is on Q4 even so, you know, if we get the revenue growth that we we believe that the capacity that we've added throughout the years.

And and we can get that traffic to come through given our financial model A lot of that will flow through to our ebitda number. So I mean even in the quarter was up 49% year-over-year with Revenue being up 15% year-over-year. So I mean that's demonstrating the fact that this does flow through to the bottom line. And so we need to continue driving that wrong number and and we believe will get the results that you know will get us to those ranges from as far as the capacity as you know, if we're always adding capacity. We talked to our customers every day and see where they are looking to go with their launches and and and as we add new customers and new locations, we add capacity accordingly Thursday the 4th quarter, we do lock down for the last six weeks. We try not to you know, there may be an exception, but we try not to make any changes in terms of heading capacity in the last six weeks of the year off.

Great. Thanks.

Next question is from Eric martinuzzi with Lake Street, please go ahead.

The adjusted Outback set a little over $22 billion in Q3 is that I know your your account did shrink a little bit from Q2 to Q3. But is that a topics number a go to a junction for Q4? Yeah, you you can you can keep that there.

What's a little bit about the excitement over Edge services and you had just signed a large customer? This was back your commentary on July 21st. You also talked about hoping to get a couple more services customers in the door in the next 30 days. Can you give us an update on those two large prospects?

Yeah, so let me just start the overall view we mentioned earlier that we've doubled the Revenue Services year-to-date versus last year. And so we're we're not going to break that out separately, but I can tell you, you know, we were in sort of the midst of five single digit Millions last year. And so, you know, I'm starting to get you know, some some material numbers are happy about in the July call the customer that we were hopeful that we were, you know on the uh, one yard line of clothing. It actually hasn't closed and and may not close till middle in next year's geopolitical things that are that have gone on with this company. So that's the bad news. The good news is a deal that was on our radar screen that we did think would dead.

We close that early accelerated. And so, you know kind of the way the deal steals work sometimes and so because of that we were very pleased with the quarter the names were different than I thought they were would be three months ago. But we made the progress that we were looking to make and more importantly, you know, I'm real pleased with the initial reaction. We're getting from our customers that are using live push, which is a service at The Edge Edge functions is being really well received and our real-time streaming which obviously needs to be at the very end customers that are using that are reporting really good feedback to us, which is very different than what we got with our first version which was somewhat of Miss for us. So we're really pleased with what we've topped off.

partly, where where we think we can take

It's over the next couple of years.

Got it. Thanks for taking my question.

Thank you. Thank you.

The next question is from Colby synesael with common a company, please go ahead. Hi. This is Michael told me to questions. If I may first in line at the capital that you raised vehicle back in July. Can you give us some color on the expected uses of the proceeds raised should we expect any headcount additions m&a or higher capex any color around that would be great and then a second one of your competitors it noted that it did seem lower usage from a number of customers including one that was impacted for geopolitical reasons broadly. Did you see any change in the allocation of traffic or your market share in the third quarter? Thank you. So, let me just speak to Marcus here. So from a market share perspective, you know, what is absolutely true is that in our largest customers? We are not exclusive provider to you know, any any of them. Maybe there's one or two exceptions. I don't think so. Yep.

For large enough that they need, you know diversity from us suppliers standpoint. And so we are still in the mixing all of them largely across all of them. They have most cases automated tools to shift traffic based on where they can get the best quality wage. Um, and so, you know things tend to shift around from day-to-day, you know, we've had a fiber cut in some country and our competitor didn't and the next day they did and we didn't so often there's always shift like that generally speaking in our customer base compared to the second quarter. I don't think there's any name that stands out in my mind in terms of you know, a loss of market share from second to third quarter and I think there's more opportunity for us to Thursday.

Game share, um, as we're well-positioned with some of the largest names in the industry and and they're doing pretty well. So it's not say that it couldn't I couldn't happen. It just hasn't and you know, we're are spending a lot of time and again going back to the whole idea of putting the devops organization together really am looking for ways to change the way we perform for our customers globally and and drive higher consistency higher performance. And we think with that a long time comes more traffic not less and getting back to your first question on the converts and what we're going to use that for so you may as our stock price has crept up over the last year or a year and half we were consistently approached by by various entities looking to do some sort of financing and Ed.

we felt that the

You know, it wasn't the right time and and we continued to operate our business uh-uh at a at the levels that we wanted to with the cash that we had on hand over the last what whatever 4 to 6 a.m. And so, you know, we were able to do everything that we wanted to do. But but as we got into the second quarter last year and the pandemic really, you know dead decimated industries that were strong and strong brand names and and and those companies had a ton of cash and and you know that that really spooked us a little bit and and you know, we were off we are beneficiaries of of this environment that we're in right now, but you know, who knows what could happen and and so with that convertible Market operating efficiently as it was we felt that it was appropriate time to take advantage of of that market and and and then do something with that cash and and whether that's just going to be you know internal Improvement.

Add a capacity accelerated capacity moving into adjacent fees internally with added R&D expenses and sales expenses. I think it's going to be a combination of all the wage. Um, and then it gives us the the wherewithal if if something comes around that we want to go out and pick up on the m&a basis that we have that flexibility in order to do that.

Thank you.

The next question is from Robert with Raymond James, please go ahead.

Thanks, you touched on some of the traction you're getting with real-time streaming and Edge functions. Can you just talk about the per unit pricing of these offerings in relation to the rates you charge on or video delivery Edge this might have on on your gross margin stacks.

Yeah, so for sure the margin is higher the way we price is completely different. So with Edge functions, for example, it's a you know per minute or per month second of CPU usage, which is different than RTS which is per stream concurrent stream, which is different than our, you know core delivery business law. We um, gigabytes transferred. Um, so they're completely different the margin profile of you. May I call Advanced Services like Edge functions like live push like RDS is higher than our core delivery business and so, you know the plan off so, you know, we just introduced them but to grow them as rapidly as we can both with our existing customers and new and have that be a larger portion of the total dead.

And so in addition to the automation tools we talked about in terms of better managing the assets. We believe a different mix and also help that way we can prove all the time.

And if I can have one more question, can you share any color on your pipeline of potential new business that might help explain the recent investments in capacity.

So from a pipeline perspective, I mean the one of the negative sides of covet from a business perspective from Ross has been a slow down of the signing of new fields. And so we had actually a good third quarter but the second quarter was terrible. So on a year-to-date basis over a year, we're home. I'm we were last year. But as I look forward the deals that are in the pipeline are larger than historical and um, and we feel that we're well-positioned in those heels. In fact the deal that we've done Year date on average have been higher expected total revenue deals contract Revenue deals than previously or even of the numbers down. So it's a mixed story there. But as I look forward, the pipeline was very encouraging especially for some of the page search, you know Advanced dead.

products that are that are driving our services Revenue

Thanks a lot.

The next question is from Michael Adam or with Northland Capital markets, please. Go ahead. Yeah. Thanks. How much capacity do you expect to add this year? And can you give any off early sort of view into how much capacity you're thinking about adding next year?

So in 2019, I think we said we added about 30 per second plan. This month was a little bit less than that and we'll end up missing that plan by a little bit largely because the supplier issues in q1 and Q2 and so will end this year somewhere between twenty and twenty-five of additional capacity and you know, we're constantly adjusting the number as we learn more from our customers about their plan, but I anticipate that next year will be between 20 and 30 service per second of additional capacity. Thanks and then did did you have a fair amount of incremental revenue from live events in the the third quarter relative to the second. So was it, you know a few million material

And I would say we definitely had incremental Revenue related to Live Events. It's hard to it's hard to break that out though. Just because you know, a lot of the live events are with customers that all video on demand and and so we don't break it up by customer. But just anecdotally we we believe that there was an incremental Revenue. I mean, we can't break it out. We just don't know it yet. But Mike it just took my you know for us live events are kind of the series and Seasons that are long-lived, right? So English Premier League or Bundesliga or MLB or NFL like these constant events are multiple games et cetera. When you have those seasons in play rest assured, you know, we are participating in those and then that translates into good business for us, right if if it is just walk in Kentucky Derby in a live event. You have a great deal, but it doesn't translate into much revenue, even though you know delivering that traffic and delivering it well and better than anybody else matters.

And then and just last on the on the guidance, you know kind of a wide range implied for the fourth quarter, you know.

The lower-end would have you guys down a couple of million sequential and year-over-year? I guess, you know, what what would have to happen to hit the low end of the range?

Yeah. Yeah, I mean we what would have to happen is that we don't know about it and I don't want to quote it a phone number but let's just hypothetically speaking. You know Sony this is the the production date or they find a you know, a bug in the system that helps them from Shipping in and not only do you have any new contracts? There's no new games for the whole console. I mean that's a major major event. If you know, there are things like that that can happen or we get you know with some major repricing event for a major customer, you know mid-quarter, you know after we've talked to you in before we report so there are things that can happen at managing no life, you know, we're pretty good in terms of meeting the guidance we give for the year and you know, we're not immune to things like that happening and we're not always perfect but dead.

We're always you know, we're always do a pretty good job of of working with you to give you numbers that are that are reasonable and achievable. And by the way those same hypotheticals existing a positive side, right so you can have the Rangers so big so we we feel good about you know, the range of outcomes and and onwards

Okay. Thanks. The next question is From Russia with d a Davidson, please. Go ahead. Hey guys. Thanks so much for taking my questions. Just just to offer first. I wanted to start bobbing your prepared remarks you talked about, you know some of the traction you're getting in in India with online education. I was wondering if you talk a little bit more about what you're doing with them that you know, specifically video deliveries it also the software download component. Is there some Edge in there and then maybe broadening that question specifically to the environment in in India, cuz I know you've been making investors there for a while and and now you know with the with the pandemic we're obviously seeing a huge uptake and o t t consumption they're not just, you know, Netflix Amazon, but but even homegrown stuff like hotstar and z5s and Eros now, so maybe let's talk about that and then I've got a follow-up.

Oh, it is interesting, you know the few years ago where we went from, you know, almost nothing. I mean, we I think we talked about growing our capacity, you know, ten X in India and Thursday first time you really paid a lot of attention to that continent since then, you know, we've grown every year and and this year we've more than doubled the capacity in India, but in addition to just pure capacity, we've also invested in the team that's on the ground in India. So in the past it was largely, you know our customers in us or in in Europe that we're providing content or the Indian market as we sit here today that is still true. But we also have many customers that are named India based on the work that our team on the ground has done. So we feel very good about that about that market. We talked a little bit in the prepared remarks about just one month.

You know that the online education.

Um, but obviously you've mentioned video on demand by the vents. Uh, I think the amount of India content will continue to grow the availability accessibility and quality of of internet will grow for the people in India and we feel very good about our prospects. We're not going there and and another Market that we are now focusing on you know, in a hyper way is the Latin America market and we're seeing some of the same characters but they're driven by more content for the market and a you know, internet service that's more widely available more or less school and higher quality than it ever has so, you know, when I look at of course, we're growing North America capacity and traffic, of course, we're growing western or dead.

European traffic and and capacity but the two areas of focus for us are Latin America and India India. We've been bought out of four years now several years and I would say in Latin America, you know, starting end of last year beginning of this year. We really trying to build a lot of capacity in that Marketplace. All right, great. And and then I wanted to touch a little bit on Live Events, you know without breaking out specific Revenue. I mean we've seen that ratings for all the major leagues right NBA NFL MLB NHL all all down year-over-year in some cases really significantly. So just wondering is that having any any impact or is this a case where you know o t t consumption of those may actually be up year-over-year even if you know cable consumption is down and dragging that average down. Thanks enough numbers to Thursday.

you know, uh

Try to pretend. I'm an expert on that but I can tell you what we've seen in some of the games we've looked at where you know, we're looking at your numbers, um on the low end. Um, some of the less popular games are about the same volume as we've done last year and some of the more popular events are often or even higher than they were last year. So I think you know as it's been reported that the cable ratings are generally speaking down. I would say that the over-the-top or streaming, um activity has been the same or higher.

Right, that's helpful. Thank you so much.

This concludes our question-and-answer session. I would like to turn the conference back over to Bob lento for any closing remarks.

Thanks, and and thank you for your questions and your participation. It was another incredibly productive quarter with advancements in several important imperatives. We look forward to continuing to add value our customer right opportunities for employees and create shareholder value. If anyone has any additional questions, we're always available for you. And that's either me sides or Dan. And once again, thank you for your participation. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Dead dead dead dead.

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