Q1 2021 Limelight Networks Inc Earnings Call
[music].
Good afternoon, and welcome to the Limelight networks first quarter 2021 financial results Conference call.
All participants will be in listen only mode should you need assistance. Please signal of the conference specialist by pressing the Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.
Please note. This event is being recorded I would now like to turn the conference over to Dan <unk> Chief Financial Officer. Please go ahead and.
Good afternoon. Thank you for joining limelight networks, the 2021 first quarter financial results conference call.
This call is being recorded today April 29th 'twenty, and 'twenty, one and will be archived on our website for approximately 10 days.
Let me start by quickly covering the safe Harbor, we would like to remind everyone that we will be making forward looking statements on this call forward looking statements are all statements that are not strictly statements of historical fact, such as our priorities our expectations, our operational plans and business strategies secular trends and product.
And feature functionalities.
Actual results could differ materially from those contemplated by our forward looking statements and reported results should not be considered as an indication of future performance.
For more information please refer to the risk factors discussed in our periodic filings, including our most recent annual report on form 10-K.
The forward looking statements on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.
Joining me on the call today is Bob Lyons, our President and Chief Executive Officer, Bob We'll start today's call detailing our recent accomplishments and pursuit of our three strategic pillars for growth.
Will then review financial results and detail following that Bob will use the remainder of the call to discuss our plan going forward.
We will then open the call for Q&A.
I'll now turn the call over to Bob.
Thank you Dan and welcome everyone.
And last quarter's call, we outlined the foundation of our strategy to improve shareholder value and is supported by three pillars, each of which balance of our immediate and longer term growth and profitability objectives.
They are first improving our core which focuses on client performance and profitability.
Expanding our core which focuses on improving our land and expand commercial motions and third extending our core for.
Focused on pursuing additional solutions and non peak traffic customers to diversify our revenue and improve our network utilization.
I also shared my commitment to transparency and accountability, having had 90 days to dig into more detail, let me share a bit more color on our loss of momentum and a recent three quarters as previously discussed price compression has been a significant contributor. Additionally, we have seen some reductions and our traffic related to client SLA performance. Our plan is to reach.
And our company to our heritage of delivering best in class performance to our clients and is something that our people take the pride and but we simply lost our focus.
Over the.
Last 30 days, we have got and refocused and and again fully committed and resource to support our best in class performance Heritage, we have implemented a rigorous and disciplined process. The spans all aspects of our network and of our client operations more specifically.
We have established and advanced performance engineering team a collection of our most talented engineers, who are chartered with the sole purpose of ongoing tuning and performance and improvement across our client defined key performance indicators.
We are also refresh the disciplined and training of our operational change management.
Have strengthened our client success practices with improved tools and processes, enabling us to engage with a much deeper client understanding.
And last each of these teams and processes operate with the daily standup meetings, and the weekly where room review process.
Our industry typically compete on fractions of a percentage difference and performance with our initial performance improvements we have experienced the following results.
We have seen a top client metric rebar for rate improve by up to 30%. Our global network throughput has increased by up to 20% and increase and our Latin America traffic by 40% and most importantly, we have seen an increase and share of traffic from several large customers.
These early indications of progress are no doubt moving us and the right direction still there remains more work to do at this time I will turn the call over to Dan to reported first quarter financials guidance for the remainder of the year and how we expect to achieve that guidance Dan.
Thanks, Bob given our earnings call in February was less than two weeks into Bob's tenure as CEO, we decided to hold off issuing guidance for 2020. One we have used the additional time to critically evaluate our performance with our customers and our cost structure.
We realize that we need to reestablish our credibility and transparency and the marketplace not only with our customers, but with our existing and potential shareholders.
At this time, we believe revenue will be in the range of $220 million to $230 million.
GAAP loss per share and the range of 35% to 25.
Non-GAAP loss in the range of 15% to five.
Adjusted EBITDA of between 20% and $30 million and capital expenditures of $20 million to $25 million.
We believe the performance and client success initiatives. We are currently putting in place.
The significant positive impact on our market share with our clients, but we will take another quarter to manifest into positive topline growth.
These performance enhancements are expected to result in significantly improved operating metrics and the second half of 2021.
Additionally, last month, we reduced our workforce by approximately 16% while difficult to see many of our colleagues and friends leave it was a necessary step to begin the transformation of limelight, we expect annualized run rate savings from this action of approximately $15 million.
Primarily and the SG&A operating expense line items and will drive improvements of the bottom line as soon as the second quarter.
Just as important as the expected savings. This demonstrates we are focused and immediate action and firmly committed to improving our financial position.
We expect the continued to show incremental gains as we implement the strategy and laid out by Bob.
Now onto first quarter results.
Revenue for the first quarter was $51 2 million a decline of 10% from the first quarter of 2020.
The flow through impact of price compression with the number of our largest customers that we mentioned last quarter continues to have an adverse impact on year over year results.
Given the concentration of our revenue base with the small number of customers price compression that's of significant impact on our financial performance.
Our new operating model will allow our client success team to better align performance with clients' expectations.
There are also more closely monitoring and tracking our performance against the metrics our customers care. Most about this will enable us to more quickly identify and adapt to changes within the ecosystem.
With the improvements to our performance, we expect volume growth to exceed the price compression driving revenue growth and gross margin expansion and the second half of the year.
Our top 20 clients accounted for approximately 79% of total first quarter revenue international clients accounted for 44% of total revenue in Q1 compared to 39% of year ago.
Approximately 14% of our first quarter revenue was in non US dollar denominated currencies up from 11% last year.
Cash gross margins declined to 36% from 46, 8% and the first quarter of last year.
Given our mostly fixed cost infrastructure the revenue decline due primarily to price compression and drove the reduction and cash gross margin.
Our cost per gigabyte delivered decreased approximately 13% and the first quarter of this year compared to the first quarter of last year, continuing that trend. We believe there is of significant opportunity for us and improved gross margin as we improve our network asset utilization and focus on our cost structure.
And most of our largest clients offer OTT video streaming services. These clients have similar traffic demand profiles, requiring peak capacity for only a short period of the day, leading to poor asset utilization.
By diversifying the customer base with more off peak traffic, we believe we can significantly improve gross margin.
Our current network utilization is and the high teens.
Every 100 basis points of the utilization improvement and improved gross profit between five and $9 million dependent.
And depending on the region and average selling price.
We have also built out a pop monitoring and optimization model the dive into costs by locality country and region.
And this level of visibility will allow us to identify anomalies and cost structure and a more disciplined manner and develop action plans to drive down costs.
Total operating expenses were $36 3 million, excluding restructuring and transition related costs totaling $11 $7 million operating expenses would have been $24 6 million a decrease of 4% year over year.
Total restructuring and transition related costs include $5 8 million of cash for employee severance and consulting expenses and $5 $9 million related to noncash equity award modification.
Of the $11 7 million approximately $4 $8 million is recorded and general and administrative expenses.
The $15 million and annualized savings that I detailed earlier will be allocated to the following line items $1 $5 million and cost of revenue $1 5 million, and G&A $9 million and sales and marketing and $3 million and R&D.
We expect the restructuring and transition related charges to be approximately $6 million for the.
Major of the year as we continue work with our external consultants and evaluating process improvements and optimize performance and reduce costs and improve gross margins and overall profitability.
Net loss and the quarter totaled $25 5 million and adjusted EBITDA was the loss of $3 3 million.
And for cash flow and the balance sheet cash and cash equivalents of $117 million decreased $6 8 million.
Capital expenditures were $6 6 million during the quarter.
DSO at the end of the quarter was 51 days compared to 49 days at the end of December.
We anticipate continued DSO performance in 2021 within our normal range of 50 to 60 days.
With that I will turn the call over to Bob.
Thanks, Dan Let me reiterate why I joined the company in February and simply put I joined limelight, because I'm, a big believer and investing and asymmetric risk here and the challenges are temporary but the opportunities long and without limit we.
We'll be relentless and our pursuits become the company, we all want limelight to be within three years, we aspire to be a rule of 40 company with material accretion of shareholder value.
We are making progress with performance operational discipline and expense management to support the ongoing pace of our recent progress we have extended our relationship with Alix partners.
Have a strong belief and the opportunity at limelight and have index their fee structure to be directly aligned with shareholder value creation.
Now, let me unpack each of the three pillars and a bit more detail.
The efforts to improve our core will continue to focus on our performance and cost structure.
In addition to the aforementioned actions we have taken we've also identified a number of additional opportunities to improve our gross margin and improve our operating performance and pursuit of improved capacity utilization, we have begun evaluating specific action steps and a part by part basis. This will help us align our hardware infrastructure and peering capacity and identify underutilized.
And to drive sales initiatives and our cost reductions.
And a solid foundation of performance and cost efficiency. We believe there continues to be significant opportunity to expand market share with our current clients.
We believe we have an opportunity to continue driving improvements and profitability and growth by extending the use of our networks new clients with new solutions that utilize non peak traffic solutions. This is the premise of our extend pillar.
And our clients are focused on creating better digital experiences for their customers and their digital builders need to load content faster personalize it more and protected outside of the control environment. They are seeking to augment the scale and centralization benefits. The cloud offers with a low latency real time processing and security enabled edge networks.
Our goal as an organization is to put powerful differentiated edge capabilities and the hands of our clients. We have begun the required assessment and planning work and support of this pillar of our strategy.
I am confident that we are on the right path to achieve our revenue and profitability objectives. Our go forward strategy will result, and overcoming short term headwinds and optimize our unique position to address a large and growing unmet market opportunity to do so we will leverage our crown jewel or ultra low latency global network and operational expertise.
I look forward to sharing more details on these actions and the strategy elements I have highlighted and our to be scheduled early summer strategy update and announcement of the date and participations details will be shared approximately one month in advance of the event via press release.
Please join us for the discussion where feedback and questions will be welcome.
With that operator, please open up the lines for the question and answer session.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Greg Miller with twist. The Securities. Please go ahead.
Alright, thanks, guys. Thanks for the guidance.
And taking the question.
I would've guessed that you would of giving yourself a little more time for planning such of personal stake in the ground, but we really do appreciate the outlook for the year, but I wanted to talk a little bit about just the explained to the business that we had seen late last year and this year.
And typically see that sort of change and revenue trajectory and the CDN business for us.
At the end of a large customer of our pro forma tissue.
Youre alluding to.
Have something very much to do with price, but in the guide today it seems that.
Largely fix whatever was wrong for the cost of the downdraft can you give us any additional color relating to what might have been happening behind the scenes that give you confidence 'twenty will look a lot like 'twenty given the last few quarters sort of establish and different trajectory.
Yeah, Hey, Greg how are you doing it's Bob Thanks for the question. It's a great question and I'm going to in fact, I'm going to unpack two parts of your question. One is how do we feel comfortable giving guidance with where we are today and then to go into more color because I think the two are closely tied together.
As far as the guidance.
We tried to look at macro factors as well as micro factors and how we roll them up and so when you look at the macro trends that we have and the industry I think what we're seeing is.
Little bit of a reversion back to the mean as far as of this time last year. The whole world was and Lockdown and people are watching a lot of TV and is starting to revert back to normal. So that's a little bit of of short term headwind for us.
On the other side of that coin, though is the industry of continues to expand at a pretty rapid pace and continues to grow. So we see those as somewhat neutral other than maybe some timing issues. If you look at the micro factors, which is largely what has impacted us and.
And both the reason for the last few quarters of challenge and also of the reason to why we feel optimistic for the upcoming quarters as that.
Obviously, we talked about the price compression thats here to stay its never going away, but in addition to that we.
And our business is pretty easy we get traffic from our clients and our clients decide how much traffic you get compared to what they give the other people based on your SLA performance and there are a few metrics that really matter and.
And when Youre doing when Youre in first place for second place and you get the lion's share and when Youre in third and fourth place you get much less and the lion's share and historically, we have always been and first or second place over the past year, though we lost our focus and we slipped and the combination of a few competitors getting a little better but largely quite frankly, we just took our eye of the ball.
And so over the past 30 days, we looked at that and and the forecast we went by client by client and bottoms up forecast based on where it is today based on where we think we're going to get to.
The improvements in performance and and Thats, where we build the forecast and so quite honestly, Greg I could make an argument why.
The it's a conservative forecast I could also make a strong argument why theres risk and the forecast and so what we really tried to do is kind of put it right down the middle of the fairway and say this is what we think is the range of position to have right now so having said that to book color on the performance issues.
And it's very simple.
For a few metrics the clients look at and how they <unk> out volume and we slipped on some of those things.
Things like re buffering rate things like application playback failures and the difference between us and the next person could be of half of a percent of our fraction of a percent, but it's very meaningful and traffic and so we had we had some issues last year and quite frankly, we had clients.
Put us in jail and turn some of the traffic down and we felt that in Q4, we felt that in Q1 and and we continue to dig out of that what I would tell you, though one of the reasons why we feel pretty optimistic is that over the past 45 days, we've really gotten back of the basic Scott and really dialed in on performance improvements and lot of the things that we talked about and the opening and.
And we've seen and the last 14 to 21 days pretty meaningful upticks.
And performance, we're back to the number one and many positions and two and others and quickly pursuing number one and this translated into seeing new traffic over the past 14 days and fact hot off the press we had two of our previously top five customers today.
Just this morning tell us that they were going to dial it back up based on the improvements over the last 30 days and fact I'll share a couple of quotes that came from the meeting I'm not going to share. The names I don't think that would be appropriate, but the quotes from the customer where the limelight has taken the breakdown of the performance and quality and rail.
The reliability very seriously clearly you guys have been very.
A very busy over the past 45 days and the efforts show promise and Oh by the way the meeting that we had today and over the past few weeks or some of the best both and content.
And and presentation that we've seen from limelight and the long time. So we of two of our marquee customers, who are taking us out of jail and we're pretty excited about that and that's literally as of this morning. So.
No doubt about it we had some bumps over the past few quarters, but we feel pretty good about the progress that we're making now.
Thanks, a lot that's very very helpful. I appreciate that.
No no problem at all.
The next question is from Brett Feldman with Goldman Sachs. Please go ahead.
Yes. Thank you for taking the question you made the point about how some of your largest customers are and the OTT space, but that leaves you with the significant amount of off peak ex.
Yes capacity, so I sort of two questions. There firstly as you know when I look at the expand the number of OTT services I guess I would of intuitively guess of that would have been a bit more of a tailwind for your business not just in the traffic standpoint, but from the traffic diversification standpoint, and so I would imagine that actually probably has a constructive impact on your price.
And so I was hoping you can maybe give us some insight and maybe why it hasnt played out to your benefit yet and then second and maybe more importantly, when you talk about the significant amount of excess capacity and off peak times, what would you think of as being the principal of potential sources of traffic and what are the customer sets and historically have and targeted and how well positioned.
And are you right now to go after that or are there additional hires or investments you need to make the able to pursue those opportunities. Thank you yeah. Yeah. Thanks, Brad Great question. So I'll start at the beginning of the.
The reason why doing more OTT doesn't necessarily improve our utilization is because it's really about the demand curve and if you have a lot of customers who people watch TV at the same time, regardless of what source. They go to and so the issue really is the demand curve and if you look at the math of our business. If you have 24 hours of capacity.
And the vast majority of your demand comes in the six hour of 500 to six hour window mathematically you can never really get the utilization of your of your network over 20%. Even if you have more OTT traffic and in fact that sometimes makes it worse because you build for peak capacity and all you're doing is really creating more latent capacity the cost a lot of money and addition to that one of the one of the.
The significant advantages that we have.
Is the fact that we have our own private IP backbone and something thats unique in this industry and that cost a little bit of extra money and it adds the fixed cost, but it's also why we've been able historically to be always number one and number two and why we will get back there pretty quick and.
And doing that and so what happens is if you.
You've put more traffic that's the same kind of demand pattern, you create more peak and more and more of latent capacity. So when we talk about diversifying revenue of the question really becomes given that the IP backbone that we own and pay for we have let's say 18 hours a day of.
The ultra low latency high quality network bandwidth and every major city across the world, It's really unparalleled.
And so the question becomes one of those business solutions that we can leverage that and we can significantly go out and offer where the cost advantage because right now we're paying for that bandwidth, even though it's not being used and if we could leverage that bandwidth to bring solutions to market. The gives us a significant performance and cost advantage and at the same time drives our.
And of what would those look like and so we'll talk a lot more about that and our let's say mid June strategy comment summit, but what I will tell you the things the types of things that we're looking at the can fill that at scale or things like getting involved and the web and small object side with web acceleration web performance of course security is the big play and there as well, but not traditional security that is prime.
<unk> oriented more of threat detection and analytics and log ingestion things, where youre doing a lot of real time data that happens during the day things.
And things like cross connect where enterprises are now moving towards the more hybrid environment and they have multi cloud they of SaaS applications and they might still have premise locations and they have to be able to move data around seamlessly efficiently and and more cost effectively between their their enterprise and our network is ideal for that kind of thing and we just haven't really approach it that way so.
Those are all of the kind of conversations we're having we're working through all of those things what I can tell you that what we do pursue will be much more clear about that and the early summer meeting and it will be the things that definitely leverage our network and gives us a unique right to win and the marketplace and and where we can drive our utilization up at the same.
Time, and as Dan pointed out and the opening comments for every point of utilization that we can improve it anywhere from <unk>.
$7 million to $9 million, probably of the $9 million, depending on the region. The.
Growth rates of the bottom line, so it's a very meaningful opportunity for us.
Great.
And that's a different question.
And my career I worked at and emerging growth company. The speed bump and you kind of do a force reduction and it definitely takes of bite out of the culture and I'm. Just curious what are you done with the people who are staying on here to make sure that their day motivated and excited and incentivize. It looks like there was an uptick and stock based comp and the quarter. So it seems like there may have been some and <unk>.
Incremental equity awards is that something you think might be persisting for a few quarters and make sure everyone has sufficient upside as you get the company turned around.
Yeah, It's a great question, Brian and Unfortunately, when you are coming in and Youre trying to say Hey, we're going to drive a lot of change at the same time you have an event like we had which really dilutes trust that's the challenge.
Yes.
And Theres a number of things that we're doing number one we're focused on a lot of communications I, probably spent three hours of already today and having conversations with the organization taking them through the strategy, giving them reasons to believe quite frankly, we've been pushing the organization pretty hard as well and so when they got the wins that we just mentioned a little while ago that puts a lot of wind and people sales and what I found here the people really.
<unk> like to be the company it should be and are passionate about it and what we need to do is really just helping to do that so a lot of communication.
And we actually are and the process of redesigning a performance reward pay for performance program. So those people that really step up.
What I would tell the employees of exceptional performance will get exceptional results for them and standing behind that so we're doing all of those things, but it's a really important part of it.
The other thing that we're doing is bringing the employees into the solutions instead of telling them here's what we need to do we're saying here's the problem, let's figure it out together and and.
And they really embraced that and get energized about that.
Thank you for taking the questions.
Yes, no problem at all the.
The next question is from Robert <unk> with Raymond James. Please go ahead.
Great. Thanks, a lot of my appreciation for the full year revenue guidance that you just gave.
And I know you don't guide quarterly but to achieve the midpoint of your guide by just doing the math, one could assume of ramp throughout the year to.
Perhaps the 60 $61 million dollar figure of sell in Q4, So just kind of Annualizing that can you just help us understand how we get from $200 million and run rate business and Q1 to potentially $2 40, plus number in Q4.
And the face of what could be tougher could be of tougher traffic environment for CDN as people get vaccine and head outdoors or do you have the ability on some large net new business that might offset that cyclical pressure.
Yes, Great question, let me frame it up and then I'll, let Dan put the details on it but we spent a lot of time talking about that and so on the one hand, you have to look at the market to your point people going outside now and the summer as well as kind of coming outside of the lockdown from COVID-19, but but for us the actually the biggest material opportunity for US is just share of wallet with our clients.
And so we looked at each one of those and I will tell you I'm not a big fan of hockey stick plans I very rarely have them and so I'm always reticent to put those out but and this particular case, we've done a lot of the analysis and Matt and the math behind it actually supports it as long as we continue making the improvements that we're making and again.
For the last 14 days, if I showed you the trajectories over the last 14 days you would see that that's where it's really justified on and we've actually just kind of that back but for.
For 14 days and the trend yet so we really tried to adjusted based on what we're seeing over the recent trends with the performance improvements what we know the opportunity is and the top 20 clients that we have and what they have told US is available to us. If we continue to improve our performance and then we tried to really gauge that and Thats, where we got to the number.
Yes.
Robert This is Dan and just to add a little bit more color on that.
Expect normally we don't go quarter by quarter and issue revenue guidance, but given where we're at and trying to be transparent with our shareholders and where we see things going we felt.
And that number one that was appropriate to give the full year guidance and a little more color.
And how we expect that the flow through and with the performance improvements that we've implemented already and expect to continue to implement.
The gain that market share back from our customers, we do expect to see the.
Q2 be relatively flat.
And from the first quarter, and then that ramps starting to begin in Q3 and Q4.
And sequentially grow.
The year and so we've discounted the opportunities in the market share and what we believe we can gain from those customers within the guidance, but like Bob said and its first comments.
There is reason to believe that Thats conservative and there's reason to believe that the aggressive and we tried to take the middle Middle Road approach to it.
Yes. Thank you that's helpful and also I appreciate the performance improvements you are making to the network and thank you for sharing some specific customer feedback and I guess it has taken a step back to the broader of large customer group. If they were disappointed with performance previously are they now satisfied with where our performance is today or the.
For a more improvements that you have to make to retain their business.
Yes, so that's of Great question I would say.
Very encouraged with the performance so much so that we're seeing the traffic return.
And in some cases, our largest customer it's a non person decision is basically the mathematic algorithm and just the size who gets traffic based on the performance and that's where we've actually seen the biggest uptick so we're pretty excited about that.
What I will tell you, though Robert is the.
If you ask me of that question every quarter for the next 10 years, you'll get the same answer for me, there's always more to do and we're going to and we're going to be a company that wakes up every day, saying, how do we perform better and what else can we do and that's really the industry, where and the same goes for costs. What can we do to be more efficient what can we do to.
Perform better.
And if I can I'll add one last question again, I think investors appreciate the steps youre, taking to improve EBITDA profitability, but I guess it raises the question of especially given how youre highlighting how our performance is could the cost cutting actions you are taking negatively impact again, either performance or your sales motion or maybe you can just kind of help us understand.
And why that wouldn't be the case.
And we were very thoughtful about that and we don't think so I think for a number of reasons on the cost side.
There's really three areas I spoke about this a little bit and the first quarter Theres operational architectural and strategic ways that we can drive cost down operationally the <unk>.
Things that are going to impact people are the ones. We did so we're done with that we can move on and we wanted to rip the band aid off so the people aren't looking over the shoulder, but operationally. We can also do things like more automation more tooling using technology to self heal to respond the things that historically, we use people for which is.
Less efficient as also and also less predictable architectural you were looking at places where we can for example.
And I'll get really taxes for a second if we upgrade with the new function and Linux, we can significantly improve the TCE Pete for productivity and that translates into these metrics for our clients getting better. So we're really of that level of granularity as well and then strategically is all about utilization and so all of our diversification and using that off peak bandwidth too.
The drive utilization up.
Perfect really appreciate all of the detail looking forward to the summer strategy session.
Thank you.
We're looking forward to it as well thank you.
The next question is from Eric Martin Newsy with Lake Street. Please go ahead.
Yeah, and looking for Green shoots here and the business. It looks like you guys highlighted the Latin American traffic.
And just to kind of of volume based comment there the the 40%.
The increase traffic by 40%.
And there are weighted translate that into the revenue you know should I.
In other words, if we were.
For comparing it to a prior quarter and the price compression and already happened and the prior quarter and other words revenue from Latam is up 40% or are there puts and takes there.
Okay, Yes, thanks, Eric and Dan I appreciate the the question and with Latin America over the last year or so we've been really building out our capacity with some partners that are.
And well ingrained within the ecosystem and Latin America, and we've added over <unk> of capacity down there and so really it's of volume.
A volume play for us as well as the performance play for us that.
<unk> is filling up those pops as soon as we're putting them up.
And with Latin America, and with the difficulty in getting capacity down there.
We actually have a pretty nice premium on the pricing down there, which is which is also good there's a lot of competition and and the U S and developed countries in Western Europe.
Where we really saw a lot of price compression at the end of last year and.
And so we're just focused on continuing to add capacity, where it's profitable for us and Latin America has been where it is yes, hey, Eric and I would just add to that for.
Additional color on Green shoots and fact, Dan and I, just had a green shoes conversation yesterday as a matter of fact and.
So one is the.
Pieces that you just talked about but also.
We said 45 days ago, we were going to get really dialed in on improving our performance and in the past I'd say, 14% to 21 days three of our top five customers and seen notable upticks in traffic solely because of the improvements and performance. So those are about as good as green shoots as you can get.
From where we're sitting today.
Okay.
Okay, and then given your color on I know, we're not talking about guidance for Q2, but just revenue trend.
The gross profit margin in Q1.
It's a bit of a jaw dropper and you mentioned <unk>.
It is volume related and we got all of these fixed costs out there, but given the flat and assumption for flat revenue what can we expect gross profit for Q2 versus Q1.
Yes, it's still relatively flat on gross profit from Q1, we're working through our cost optimization model to identify any anomalies.
And different regions, where there is colo costs that are higher and of particular region and within that region versus other locations within that region or outside.
And so we're looking at.
Every aspect of our cost structure.
And really dive in and on the anomalies between our different locations and profitability by locations and who are serving out of there.
And so we expect to continuously make performance improvements.
And and improvements and our cost structure as we work through the modeling, but those arent those arent switches that we can turn overnight, we're identifying those issues right now.
And we expect to continue to really improve upon our cost structure, but really the biggest driver of how we can improve gross margin is going to be utilization improvements and really driving that off peak traffic and identifying customers that are <unk>.
And different from our existing base of customers that is primarily.
Nighttime peak traffic and so working through that process is really what's going to drive profitability and gross margin expansion and the long term, but there are other things that we're not dismissing that can help as well.
And just to add some part of that Eric the.
To put a little more color on the kind of things we're doing for optimizing obviously getting more revenue on the fixed cost is the biggest helped but and.
And when we talk about optimizing we're introducing things likes for the caustic modeling and linear program optimization on our products. So that we can use technology and real time to help us optimize and those things are going to take a little kind of implement but when we do they're going to make sure that we're constantly optimized to improve gross margin.
Got you and thanks for taking my question.
And anytime.
The next question is from James Breen with William Blair. Please go ahead.
Thanks for taking the question.
So given the comments on sort of the revenue and gross margins.
And you look at the income statement.
G&A was up quite a bit and our news of quite a bit sequentially.
It looks like the G&A was a lot of stock based comp and you just talk about and the trends there as we move forward and then of the.
The cost savings that are coming out of the $50 million annualized.
And maybe how much of that was recognized and the first quarter. If any and then how do we think about that step down and some of those costs as we move into the second quarter and rest of the year.
Yeah, Thanks, Jim I'll add a little more color on sequentially.
And really the big variance sequentially was in G&A.
And as we've gone through the restructuring process and really transition process into Bob Lyons 10 year here there was some cleanup in.
Equity award modifications from the previous management team.
And that couldn't go through the restructuring line item from an accounting perspective, and so that's what drove the increase and G&A expenses quarter over quarter going forward that $50 million.
And it's primarily going to be within the sales and marketing and line item.
$9 million of that 50 million flows through there with another $3 million flowing through.
R&D and $1 million and a half and cost of revenue and the million and a half and G&A and so we'll see those benefits right away in Q and Q2, none of those were recognized in Q1, and so we expect to see anywhere from $3 million to $4 million reduction and those line items as a result of the.
The.
The reduction of workforce.
And the the elevated G&A and does that basically go away now as that of onetime item and the quarter and so one that back to the one time alright.
And just how much of that was that sort of in the $5 million range.
Right.
Okay, great. Thanks.
The next question is from Colby <unk> with Cowen and company. Please go ahead.
Hello. This is Michael on for Colby two questions if all day.
First.
And when we think about your strategy update the you're planning for early summer and what should investors expect should we expect some form of the long term guidance for just a deeper dive into the current strategy and.
And then also when you talk about.
Over the next 90 days you believe that continued operational improvements will drive increased market share just wanted to be clear is the.
The market share relative to the lows that debt you saw or is this.
A further step up above what you had seen before any of the performance issues just want to make sure I'm clear. Thank you.
Yes, I'll start with the I'll start with the back end and worked for the front of your question. So in the back and there's really two drivers we have.
And how much of the share we get and then there is also of how much of the pie is there to begin with and most of our top customers. There probably is expanding pretty rapidly and the top five of our significantly expanding and and so we over the past that and let's say three quarters.
We have not only lost our share of the expanding pie, but we lost a relative share to percentage of overall and so we see both of that we see capturing a higher percentage overall and the pie is expanding so that should be sequentially better than previous years. Obviously, we have the price compression and that Dan talked about we've got to work through but for <unk>.
Generally speaking.
There should be upside.
And then on the.
And part of your question with the strategy I would expect it to be more focused on here's where we're going here's why we're going here's the the way.
And we're going to win and the market and here's why.
And what we've been saying and the future of limelight as bright I don't know that we will get into long term guidance, we will probably share our thesis around that so that you understand our thinking behind it but it'll be largely really understanding the roadmap the pieces that we're putting together and and a more detailed view of how we plan to win and grow ultimately the.
What you should walk away from that conversation is I understand exactly how they are building of growth and profitability platform and also a way to expand our multiples I mean those of the three things, obviously, they're going to improve shareholder values, where that's where we're focused on.
Perfect. Thank you very much for the color really appreciate it.
No problem.
Again, if you have a question. Please press Star then one.
The next question is for Michael Latimore with Northland Capital. Please go ahead.
Hi, This is the deal on behalf of Mike Latimore.
And your comment about the growth and the traction that youre seeing and the gaming vertical and also on the sports and live events related revenue how have they been growing and how much do they contribute a surplus of the data of total revenue.
Yes, we don't break it down and those terms.
Mentioned in the past the majority of our.
Delivery revenue delivery represents about 80% of our total revenue and so that's the lion's share and the lion's share of that delivery is video at this point and time the.
And the gaming and.
And other revenue is there and live events are there, but that's not a significant amount of of our our monthly or quarterly revenue and the live events real time streaming that'll be we'll discuss that and more detail in the the <unk>.
Mid summer early summer of strategy session and that's an area that we're focused on of where we shouldnt, how we can play and win there.
Alright, alright, thank you.
Okay.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Bob Lyons for any closing remarks.
Thank you operator, and thank you everyone for joining us today and my first 90 days, we have made meaningful progress with much more to do we are laser focused on building a platform for profitable growth and across the organization. We are optimistic and our ability to do so we look forward to updating you on our progress as we go forward. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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