Q2 2019 Earnings Call
Thank you and the company or with.
Era.
Right.
They need at the call. Thank you.
Good afternoon.
And welcome to the Limelight networks second quarter 2019 earnings conference call and webcast.
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I would now like to turn the conference over to Dan bought so Limelights Chief Accounting Officer. Please go ahead.
Good afternoon, and thank you for joining limelight networks second quarter 2019 financial results Conference call.
This conference call is being recorded on July 17, 2019, and will be archived on our website for approximately 10 days.
Let me start by quickly covering the safe Harbor, we would like to remind everyone that we will be making forward looking statements on this call.
Forward looking statements are all statements that are not strictly statements of historical fact.
Such as our outlook for 2019 and beyond our priorities our expectations, our operational plan business strategies secular trends and product and feature functionality announcements.
Actual results could differ materially from those contemplated by our forward looking statements and reported results should not be considered as an indication of future performance.
For more information please refer to our risk factors discussed in our periodic filings, including our most recent annual report on Form 10-K .
The forward looking statements on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.
Joining me on the call today are Bob Lento, our Chief Executive Officer, and Sajid Malhotra, our Chief Financial Officer will be available during the Q and a session at the end of prepared remarks from Bob inside I would now like to turn the call over to Bob Lento.
Thanks, Dan and good afternoon today, we announced our second quarter results. We made good progress on multiple priorities during the quarter setting the foundation for a strong second half across many operational and financial measures.
Revenue in the second quarter was $45.9 million GAAP net loss was $7.2 million non-GAAP net loss was three and a half million dollars and adjusted EBITDA was $1.4 million.
These results were largely in line with analyst expectations.
Our revenue in the second quarter continued to be impacted by the decisions. We made last year to secure our top customers and align our customer base with our strategy.
We continue to invest in opportunities expected to drive revenue growth in the coming quarters. We believe those decisions have better positioned us for growth and long term financial success.
Many financial and operational metrics improve sequentially this quarter and we expect this trend to continue in the second half of 2019 with particular strength in the fourth quarter. When many of our new deals and initiatives are expected to have a more substantial impact.
One such initiative is our partnership with Ericsson and gravity, where we are the exclusive provider of content delivery capabilities for its global scale hedge cloud platform with points of presence within more than 40 service provider networks.
Well the partnership remains strong momentum on executing our plan with its gravity slowed in the second quarter. After the departure of its CEO in March.
However, new leadership is now in place as former Horizon Executive Kyle Okamoto stepped in at the end of June as edge Gravities, New CEO .
We are very pleased with cars engagement and enthusiasm for our partnership and we are already seeing improvements in execution and momentum.
Well, while we are behind plan with edge gravity, we still made good progress during the quarter.
We have now COVID-19 existing its gravity locations across eight countries to limelight infrastructure and operating software.
We also recently reached an important milestone in the partnership turning up our first next generation pop, which is a new build by edge gravity.
Within a service provider utilizing our software and hardware specs. This new pop is significant as it is a proof point for other service providers that our partnership is working.
It also provides limelight with a low capex capex model for expanding capacity closer to the edge within service providers in locations that were previously hard for us to reach.
We are excited that its gravity as a very strong pipeline of next generation pop deals with service providers.
They have agreements in place with several operators already and discussions in process with many more.
We expect momentum to now accelerate.
In addition to the capacity added through the converted and new Ericsson edge gravity locations. We continue to focus on expanding our capacity through software enhancement and expansion of our network footprint into new locations that are important to our customers and support key initiatives.
There are two major components of capacity that are important to us theres server capacity at the edge and network capacity, which is the access we have connecting us with local is piece.
At the beginning of 2019, we had 28 terabits per second of edge server capacity.
Our goal for the year was to achieve 50 terabits per second.
We are on track to exceed that goal at this point through the year.
We expect that half of the increase to come from a new version of our software that is designed to drive increased performance and throughput.
This new software innovation has been in development for the past two years.
We've begun deployment in May and are now over 80% complete resulting in an increase of at least 10 terabits per second of edge server capacity without additional capex spend.
We are also pursuing an aggressive network capacity expansion plan that includes increasing capacity in existing Pops and building new pops in new geographies that are important to our customers.
We have expanded capacity across the globe and in some regions by more than three times, where we started the year as a result of these initiatives and our work with edge gravity. We now have 105 Pops and over 50 Terabits per second of network capacity.
We expect these efforts to have a positive impact on our customers and drive revenue growth in the future.
Customer acquisition was solid in the second quarter with numerous new logos added across all regions.
I'm, especially pleased that expected revenue from new bookings in the second quarter were at record highs, which we expect will drive revenue growth in the second half of 2019 and beyond.
We're seeing significant opportunities to drive revenue growth in line with our strategy of being the leading provider of delivering low latency high quality video on a global scale.
Examples include Amazon Prime video recently, one exclusive rights to broadcast some English Premier League matches in the UK for with Apple and Disney who are both expected to launch their own direct to consumer offerings. This fall.
We are pleased to be one of the Cdns working closely with these customers to address their delivery capacity needs. We believe that initiatives. Like these are indicative of a longer term trend that supports our strategic focus.
We are excited about these opportunities as well as others, we expect to share with you in the near future.
During the second quarter, we delivered record traffic, which was over 10% higher than our previous record set in the first quarter. While we participated in some major customer event during the quarter, including HP owes game of Thrones in April and May Im, particularly pleased that we generated record traffic in June without any major customer events.
We are excited about this momentum in our baseline business and expect it to continue in the second half.
We continue to see a high degree of interest in limelight real time streaming which is the Industrys first global scalable sub second live video streaming solution that is natively supported by major browsers and devices.
During the second quarter, we closed several more real time streaming deals and have a number of new deals actively engaged in trials. We also continue to have a robust pipeline.
We're working on additional software releases to introduce new feature functionality important to our customers, which we expect will accelerate our momentum.
Oh this offering is not yet driving a material increase in revenue were traffic. It is a differentiator for us that is changing the nature of our discussions with broadcasters as we are the only provider that can do this at scale.
Real time streaming as a long term opportunity for us and we're pleased with this new offering clearly establishes limelight as the industry leader in sub second global video delivery.
We're also pleased with our continued progress in Ed services, which leverages, our infrastructure to address our customers needs at the edge for low latency and connectivity in the second quarter. We closed a number of new edge service deals and have a strong and growing pipeline. We continue to be excited about the opportunity to grow our it services business.
In summary, our financial performance in the second quarter and first half of 2019 was largely in line with analysts expectations and we continue to be on track to generate four quarters of sequential growth.
Since the beginning of the year, we have generated momentum across multiple dimensions with much activity and expansion across all regions multiple product lines, both existing and new customers and at our various partnerships, which we believe has positioned us for a strong second half.
As I look forward I remain confident that 2019 will be our best year ever on many fronts.
We believe our industry is healthy and growing and we are in an opportunity rich environment as new and existing customers come to us with major events, new launches innovative offerings and other important low latency high quality video delivery needs.
We continue to build out capacity expand our footprint drive product and network innovation and investment to be able to serve customer needs and we believe our efforts and decisions will yield the right results and lay the foundation for an even better 2020.
I'm pleased with the hard work of our global team and would like to express my gratitude for the momentum it together have generated in the first half of 2019.
I've never been as excited as I am at this moment about the industry reserve and our future.
With that I will turn the call over to sided to discuss second quarter financial performance in greater detail and our guidance for 2019.
Thanks, Paul Good afternoon.
Starting at the top revenue in the second quarter was $45.9 million down 9% year over year, but increased 6% sequentially.
The sequential growth is that third highest in the last 30 quarters.
Foreign exchange headwinds in the quarter amounted to approximately $300000 almost 1%.
International customers accounted for 37% of total revenue in Q2 compared to 38% a year ago.
Approximately 16% of our second quarter revenue was in non us dollar denominated currencies.
Our top 20 customers account for approximately 71% of our total revenue compared to 72% last year.
Second and third quarter revenue is typically lighter than the first and fourth quarters.
Knowing that we are very pleased with the sequential growth.
The core business continues to grow in volume delivered and we believe at a faster pace than industry growth. We are adding capacity. It is getting consumed and it services continue to see good momentum as we've added new customers during the quarter and the pipeline is strong.
Our relationship with Ericsson and the work both our teams are performing will allow us to expand with localized speed networks in new geographies.
This project is a huge undertaking and while we are slightly behind in its implementation, we see many opportunities to broaden in school.
Moving beyond revenue at the end of the second quarter, our total network capacity to reach approximately 50 terabits per second.
Our continued network expansion is necessary to deliver the record amount of traffic we delivered in the second quarter, we saw a steady increase in traffic throughout the quarter and we expect that to continue.
Jan expense increased $800000 and sales and marketing increased $1 million R&D decreased $100000.
Interest income expense and other income and expense netted to immaterial income.
And the second quarter compared to $100000 of expense last year, excluding the 14.9 million up my settlement income recorded in the second quarter last year.
On a GAAP basis, we lost six cents per basic share this quarter compared to earnings of 14 cents per share last year.
30 cents per share coming from the optimize settlement.
Adjusted EBITDA was $1.4 million for the second quarter 2019.
We had cash and marketable securities of $29 million at the end of the second quarter cash generated from operations was $1.1 million in the second quarter.
We expect that to increase in each of the remaining quarters in 2019.
During the second quarter, we made the final payment to optimize related to a 54 million settlement in 2016.
We spend approximately 11 and a half million dollars in capital expenditures in the second quarter, bringing the total for the year to $16.5 million.
As you can see we are spending to meet the demand on customers and prospective customers are requesting in the back half of the year.
At the end of the second quarter Dsos was 53 days compared to 52 days at the end of last year within our expected range of 50 to 55 days.
Our balance sheet remains very strong we remain debt free receivables are up on higher revenue was vehicles are down compared to the previous quarter.
As of June Thirtyth, we had approximately 115.8 million shares outstanding.
Total employee count at the end of the quarter was 594 up 45 from the second quarter last year.
The increase primarily relates to additional sales personnel and is consistent with our strategy.
Employee count and non customer functions should remain stable.
Before giving guidance, let me highlight a few key points.
First we are moving our headquarters from Tempe Baby had been since inception Diskless deal, we signed 11 year lease for a new location, which is currently under construction.
Occupancy begins in September and we are currently in temporary quarters.
The construction move and occupation pace with it some significant cash spend even as most of it is amortized over the life of the lease.
There are no onetime charges called out related to this as we are absorbing all of this within our operating results.
Next in the second quarter of 2018, we need initiated six major contracts representing been over 50% of our revenue base.
Some investors will concern that dead anniversary now would yield a similar is up again this year.
Meanwhile, we've said, we don't expect any material renegotiations of that magnitude and continue to believe that to be the case, we have no major price renegotiations to address at this time.
Then at about the same time last year, we parted ways with key customers.
The content and price points that did not align with our strategy.
It was a tough decision as all see were among our top 20 customers.
It hit our result hard but starting in the third quarter that impact is fully absorbed taken together the price renegotiations and customer departures impacted our first half results to the tune of over $15 million.
In about a year, we've replaced it all with revenue traffic and customers aligned with our video and that strategy.
It's now time to start growing and the best way to measure and monitor our future expectations is to look at the exit rate of the previous quarter and multiplied by four and then add the expected industry growth rate. For example, we ended 2018 and 195 million in revenues, but we also exited Fourq you 2018 with 44 million in revenues on a run rate of $176 million.
When you provide infrastructure as a service or platform as a service as we do this run rate its consistency its predictability establishes the base landfill coming quarters and for this reason sequential growth has varied regimen.
When I look at analyst consensus numbers for our competitors it appears to be up predicting the highest sequential growth within the group. We believe we will continue to exhibit sequential growth for the coming quarters that we will be higher than the peer group.
And we believe we have kind of the tide from revenue declines of 17% year over year in the first quarter, the 9% from the second quarter to single digit growth in the third quarter and very high possibly industry, leading growth in the fourth quarter.
This even at some of the more significant revenue generating event, we expected two big players have been delayed for reasons beyond our control.
We fully expect these projects to come to fruition and some are even expected to expand in scope from what we originally envisioned.
Based on our current view, we expect revenue in the range of $200 million to $210 million, we expect Q3 to show sequential improvement over Q2 and year over year growth.
At the midpoint of our updated range. This implies a 30% second half increase over the first half of 2019, and almost 25% growth rate for the second half of 2018.
We see this growth rate exceeding extending into 2020, but more about that when we give 2020 guidance.
We expect GAAP loss to be around 10 cents per share and non-GAAP EPS to be around breakeven, we expect capital expenditures to be approximately $25 million.
With that let's open the call up for any questions.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Michael Turits with Raymond James. Please go ahead.
Good afternoon. This is actually Robert magic filling in for Michael today.
Hi, Robert Hi, you addressed it in your prepared remarks I was just hoping you could give give us. Some further reiterate what is driving your confidence in the back half I know part of that is from real time streaming and some of that is from the new partnerships you've made like edge gravity.
But just wondering if in the core business. There are some large contracts that you've already signed a ramping give you strong visibility.
Well, it's a combination of.
A number of things right. One we are gaining momentum in real time streaming, we're gaining momentum with our edge services business.
The customers that we onboarded in the first half of the year, we'll obviously be stronger in the second half because we'll get the full second half value of that and they typically.
Ramp up as you go into the fall.
And then there are some major projects you know Disney and Apple for example, we will announce very very strong initiatives.
To go directly to consumers.
And there are others out there other projects out there as well and so you know as we look at the.
The growth in our traffic from our existing customers and new customer layering in on top of that the new customers that we already signed on top of that customers that we've done business with for a long time, but are now going to market with their own.
Initiatives.
We we feel very confident that we can continue sequential.
Growth quarter to quarter and drive pretty significant year over year growth.
That's helpful and just one more from me I don't see EBITDA guide in the press release can you just give us some additional color on what EBITDA margins might be for the year.
Yes, there is only one adjustment to our EBITDA number which is stock based comp. So we've really gone ahead and adopted the gap.
Accounting measures and so.
I'll go ahead and.
I mean, it's easy to just map to that then the stock based comp number for the year is about about 5 million $5 million.
Got it.
Thanks, a lot.
The next question comes from Jon Charbonneau with Cowen and company. Please go ahead.
Great. Thanks for taking the questions just to clarify how much of the decline in 2019 revenue guidance would you say is coming from I guess in that major customer delays versus the Ericsson partnership and then can you also just give us an update on the competitive environment in the pricing environment. There. Obviously has been a lot of talk recently between Fastly and others given their IPO.
How would you how would you how would you talk about that in terms of this competitive environment.
So let me start and inside it can averages thoughts I mean, we actually.
Yes, when we look at the different today relative to our expectations and our forecasted two where it might have been three or six months ago.
There's there's always tons of moving pieces, but theres really three.
Three big movers in that that are somewhere in the $10 million to $15 million range. The good news is.
They did not projects or initiatives that we've lost.
They are just either behind in their implementation.
Or the implementation has been pushed by a couple of quarters for corporate reasons.
And so while we still feel very strong about their ability to succeed.
And in their marketplace and our.
Ability to help them succeed in our position.
In terms of delivering for them.
The the impact was fairly material Ericsson is a good example of that.
We came into the year included in our original forecast with a number that.
So think of it this way we hedged their number by about a third.
Before going into our plan and we hedge that by 23%, including it in our analyst guidance and even with all that hedging will be half of what we thought it would be.
But.
At the same time.
There that that contract is still.
Exclusive it's still multi year with new leadership in place, we're seeing a re energizing of momentum and so our view hasn't really changed in terms of the value to limelight its impact in 2019 has changed pretty dramatically.
But we feel as we go into 2020, it's still going to be material for us.
In terms of competition.
We really don't see much of a change in the landscape. There's a handful of people out there that can do what we do at scale that hasn't really changed.
Much.
Over the last few years.
We see more of some from time, it's shifted a little bit in terms of who's more aggressive this quarter or this year versus last quarter or last year.
But we don't really see much of a change in the competitive environment.
And we based on the feedback we get from our customers.
We like.
Our ability to deliver high quality video.
Versus our competition and we like the position that we have today.
With with our major customers so I just.
Yeah, and I'll, just clarify little bit because I think you're trying to figure out. We had said that we had expected somewhere between $7 million to $9 million from Ericsson I think from going from high single digits. I think now the expectation would be low single digits and if the question becomes 100 on you know where were you in the guidance before because we had a range before so from the low end and the high end now you can actually attribute all of that change to the one customer one situation, but I would tell you I mean, there are a couple of quick.
That are taking more time for example, we talked about our relationship with Tencent Tencent is now a revenue generating customer for us. So we had to kind of break that it was really important to get from zero to one get database of customers on begin to generate some revenue, which we started to do and that's now opens up you know field of other opportunities within their ecosystem. When we leave time that was about two or three quarters is critical we should I mean, rather than longer price than we originally thought it would be so it's taken more time, but it's very much there the opportunity is still very large and it didn't quite get us some specialization in terms of billing and EPA that needed to be done for their customers from the way, we presented our data et cetera, but the integration is done we are moving forward right. So that kind of what I would say about the guidance little bit is the base business continues to perform well.
You'll get a report on a quarterly basis, we'd be a lot of attention on a monthly basis. The run rate on a monthly basis has continued to improve from April to May to June in Q2 over Q1, we expect the drilling rig to continue to improve into July August September and the third quarter to be better than the second quarter, and then with the projects that Bob talked about coming on from the significant events that are happening in the marketplace. We expect a lot of opportunity. These are all existing customers for us and we expect to get a sizable share off that whether it's with Amazon our business with Apple.
So there is real.
You know understanding believe finding the project work is underway and we are trying to get that up.
When we talk about you know the new I view in the marketplace and how do we compare ourselves I mean listen.
We have very.
Cognizant of the difference in the valuation between the two companies, but as I sit back and look at it I think I can explain some of that to the growth rates and those attribute and I think we will be there as we approach fourth quarter going into first and second quarter next year I feel pretty good about a growth characteristics, which I think is the biggest delta.
Otherwise, we both operate within the CDN industry. They operate in one sub segment, we operate in another but we are all part of that CDN business within that we both have hedge businesses I believe ours is as large as as maybe larger we had seven digit numbers coming from this business in 2018, it's grown significantly in 19 over that it will grow again in 2020, we have a strong pipeline on the edge business and so that growth continues beyond the revenue growth when I look at the financials I think our financials a much stronger I mean, we are able to generate positive EBITDA, we are able to generate free cash flow. We have been doing it for some time, we intend to do it for the foreseeable future. So that there's a lot of its own kind of understand and then there is a question of capital intensity with the business and at a smaller scale. It is spending a lot more capital to go run the business and beyond so so those kind of the financials. Then okay feature functionality I mean, we can speak on anything.
We like I'm, just going by what's available from a public disclosure standpoint, I mean little testing that.
You know we have the ability to push to date I mean, we put a press release out in terms of our ability to do sub ticket for just two years ago. So it may be relevant but some of the other players in the marketplace, but that capability really does not separate them from us. So I think there is a real opportunity for us to predict all business, our trajectory and get back on track to actually reporting what we are seeing making our numbers and delivering against those and be able working hard to get that done.
Sorry for the long answer but.
I think that needed to be addressed.
No thats great. Thank you very much.
Yep.
The next question comes from receives Loria with D.A. Davidson. Please go ahead.
We see welcome.
Hey, guys like thank you good get to be be back on the name.
A couple of a couple of questions from my and I I think let me just start with the guidance and I don't want to belabor points I want to make sure I fully understand.
So this year, bringing the full year guidance down about $15 million.
You know, there's you can call it somewhere around a 5 million type impact from from the Ericsson partnership can you just maybe without giving exact numbers just just help quantify the other factors for bringing down the guidance.
So.
Firstly, I think where we started at the start of the year. You know we had a range of outcomes. Some of the things needed to go really really well for us to hit the upper end of the guidance on the other things. We thought you know if things were just kind of take the ordinary course of business. You know we should be in that you know I I had the loaded as we talk to the analyst community and we talked about what was built into that guidance I think the group as a whole if the sales cycle and said you know what this is so back half loaded and we'll wait for when that actually begins to transpire. So the sell side community as a group has been closer to the dual seven to eight number which is within our refreshed guidance.
Oh wait as we were hoping that if all of these things happen in a timely fashion and get executed as well as they do we could be north of 250, and then how far north was a question on how well and what is the rate of adoption et cetera.
Included in that were the things like the business from.
Ericsson included in that was what we could do with Tencent.
And then they were you know a couple of large age deals. We had you know a very large.
Customer with an edge deals that instead of a launch happening in the fourth quarter is pushing the launch into the first quarter. It is very significant.
We were hoping it would happen in the fourth I think it would have been a game changer for us, but you know that's the customer's prerogative and if they decide to go ahead and put together their digital strategy and want to do a bigger launch at a later date, that's fine, but we got selected from a pool of companies to be the provider. We did the also bid them. We did the beta with them that this thing is continuing it is expanding but instead of being in the millions and millions of dollars of revenue. It is going to be a small single digit millions or so so we have I mean this business I think we just have to take it in stride and move on.
Okay got it that's helpful and sorry, just from a gross margin perspective, right and we did see a sequential improvement from Q1 to Q2 should we expect there to be continued sequential improvements.
Through the year, especially now that you are talking about returning to revenue growth in Q3 and definitely in Q4.
Yes.
Okay, Yes.
Yes, we have made material improvements in our gross margin that took a big hit with the repricing and we were left with stranded infrastructure under utilized and price point with customer that was a different that's what the gross margin down over the course of last year and we'll just go build that back.
So the absorption of the infrastructure, the telcos and and you know I don't have any major price renegotiations at the same time, we continue to adapt a lot of calls and so yes, I expect improvements across the quarters.
Got it Okay, and then I think too from a housekeeping perspective, and I'll hop off off first with the new headquarter build out when when should that start to show up on Capex is any of that going to be this year or is that all starting next year.
No. There's some this year.
And that is me you know other expenses associated to that that would be taken strike pick off the items on the income statement type, we feel I think pretty candidly at least I believe still about all of the items and the puts and takes that are taking place. The one item that was not there and the largest unit off the unknown items that you might not be able to reconcile to was this one item. It's a significant move for US. We've got you know over did almost 250 people in the area and so moving them physically along with you can well imagine brand new space with furniture fixtures and all the cash as we expected out here. So the cash is getting spent now which you see in the cash flow statement and air force much of it is amortized over the length of the lease and then there are some expenses that are not and not taken in period.
Got it okay. That's helpful.
Yes, yes, yes from an expense standpoint, we're roughly.
In line with the expenses that we had in Tempe.
Right moving forward right. So yes.
Yes. This is not going to add to a major event uptick when an increase.
Yes.
Hi, Okay.
And then I think last line just ER.
Amazon where were they a 10% customer in the quarter.
Yes.
Okay got it all right well. Thank you so much guys appreciate the time.
And then with the only 10% customer.
Thank you.
The next question comes from Tim Horan with Oppenheimer. Please go ahead.
Thanks, Scott said you are do you think the whole industry is going to accelerate to that type of growth you are seeing.
And fourth quarter into next year or do you think you're just going to be kind of gaining material share or are you just in the right segment of the market.
I think that the video segment is growing at a much faster rate and I think that the quality that those customers want matches up better with our capabilities and obviously the price points for delivering quality video are higher than delivering you know nondiscriminate software for example in the middle of the night.
So we think that we are participating in the right part of the market, but the growth rates up, particularly high the move toward PT all of the subscription based services coming on board kind of lend themselves well to the strategy that we adopted.
And and we will see now opt for US our video business is more than 50% of our total business. I think we told you about last quarter. So so as that is the case I don't know if other companies experience the same kind of break down between their businesses.
You know what is video versus non video I don't have any idea, but because we've built an infrastructure to care for that and because we focused on that part of the market that are the low latency ultra low latency video on demand streaming video stored video.
We are participating in every element of this industry and it bodes well for us for our customers. We have been a lot of attention to this and I think that will yield results as we go along.
I look forward to seeing what others have to step up a bit but I think it's a healthy trend for the industry I continue to believe we do better than the industry overall.
And on the basis, because you think you're going to be good gain share also it sounds like.
Within the video market Victoria.
And then can you talk about your asset utilization on the network you've added a massive amount of capacity and you've lost a lot of customers I know volumes are growing a little bit but can you just give a little bit more color there.
Well I mean, the the under utilization occurred with the price changes that happened last year.
Right. So so you'll get rid of three customers and you have pricing negotiations and so we we where you'll see that in the gross margin of course pricing renegotiations don't impact utilization.
But they do impact gross margin, but the departure of customers still that's replacing absolutely hits the utilization at the same time, we've been building back into the network and we've been doing.
Weve actually leased a lot of effort on our R&D teams to come up with the necessary software and the necessary you you know environment, where we can maximize how much we can get from industry standard servers.
So the whole idea is not to get purpose built servers to somehow deliver 40 gigabits per server 50, but to be able to big generic off the shelf servers and push as much traffic through them as possible. The price point between those numbers is a lot and if we can squeeze as much capacity as we've been able to get out of them I think that's what lends itself to better.
Capacity and asset utilization and return on the capital expenditures.
And so that's what we've been focused on now as this has happened we've seen the benefit from software coming about and help us increase our capacity in a very very significant way at the same time, we've been adding capacity by procuring more because we are getting.
A very good.
Ideas from our customers.
Telling us how much capacity they need when they need it and where they need it. So so because of that we're willing to go ahead and invest in and get ready for that demand coming on board and.
I'll just leave it at that I am doing well I guess I'm trying I'm trying to get it you mean like doubled capacity. This year in your revenues are down 10%. I mean are you at with your you know it is does that imply that you have a lot of excess capacity in the network, because you're implying essentially 30% revenue growth next year and I'm trying to get at that we need a lot more capex to meet that 30% revenue growth for next year.
As things stand right now I do not envision our capex going you know beyond the twentys.
I don't know if it's going to be 22, or 26, but you know the range of our capital expenditures in the guidance, we've been giving for the last few years has been in the Twentys range and I suspect that should be sufficient for us to meet our growth demand.
Thank you.
Thanks.
The next question comes from Jeff Van Rhee with Craig Hallum. Please go ahead.
Mr. Van Rhee. Your line is open I got to know hedge on mute sorry, I'm here. So just a couple from me guys. Thanks, the the Rts product. The features I think you referenced the.
You had some upcoming features that you are going to bring that were somewhat of a gating factor really bone. It opened there can you just expand on that a little bit.
As you know customers are always as they get into it asking for for more feature functionality, but the two big things that.
We are.
It already come out whether in the process of coming out with we're on.
Mobile SDK.
And so that we could cover that capability thats already in customers hands, and then Avi our which is.
Automated bit rate.
So that we get a comedy adjustments a bit rates on the fly.
And that's already been completed so in the first half of the year. We brought on customers. The feedback was these areas are important to us.
We now have them in the third quarter available with customers I mean, obviously theres always a roadmap, but those were two what I would call revenue blockers.
But we have addressed.
Got it and could you talk just a bit and then what three with respect to retention I think you touched on last quarter that you were hitting record levels of customer retention and in that context. It looks like the total customer count had somewhat stabilized I understand the focused on the higher quality slash larger customers, but you know just talk to retention and talk about thoughts about total customer accounts going forward.
So you know we'd like to see the customer count growth, but we're less focused on that than we are revenue and so I think that I like is in the second quarter. For example, there were customers that we lost for sure.
And then obviously customers that we've signed up as new the expected revenue from new exceeds the revenue from the ones that we lost.
And obviously with that applies in which is true is that the average revenue per customer of the customers were signing is much higher than those that were losing so.
So we're pleased with that performance to your point, we have seen a stabilization.
Customer churn in the years I've been here has improved year over year over year at this point, we're really looking to add more you know H.B.O. Smith of the world.
As opposed to small customers.
And we will continue to focus we believe that we will have greater success with customers that need the highest quality and.
You know global scale, and so that's where we're focusing on.
And the customers as we look at customer segmentation small and small medium sized customers. There are lots of places that people can go to get that capability capacity, but for customers that are looking for lots of capacity with global reach there's only a few places.
That they can go and typically the larger customers are interested in having multiple suppliers.
And so we believe once we get a seat at the table. Despite having competition in the mix that we can win not only as the customer growth, but because of our proven ability to take market share.
And so a couple of data points here that I'd just point, you do and I think we talked about it on thoughtful we we say it in the script, but our top 20 customers accounted for about 72%.
Of the total revenue stream right. So.
That even with the departure of key customers out of the top 20 within last year. You know if that number had dropped down to lets say 65 or 60 feet Gotta deal do you have any color on replacing them, but one year later, our top 20 customers just like last year still stable accounting for 72%, so be replacing big with big.
Along the lines of what people want and you know 650 customer than 20 customers that accounting for 72% of the total kind of gives you an idea of why we believe so much importance at the very very high end.
But even with that.
Well I havent seen numbers from anybody that suggest that they bought a higher ARPU on a revenue per customer is the best and highest in the industry and if I was to sub segment that and say okay. What is my revenue per enterprise customer needless to say it will be even higher.
Got it got it.
And then just one more actually two more.
The 15 million roughly reduction in the guide let's call. It happens the Ericsson a delay of the remaining half just can you segment that is that more related to a couple of these very large deals that just took a little longer to get going there were new but but took longer to ramp or would you say that's more due to just the existing base, maybe not hitting volume targets, just something more related to sort of existing legacy customers versus new projects.
Lets about existing customers and more about what we were expecting from new.
Decided product Tencent as an example, it's taken a lot longer to get the first bit of revenue from them than we thought.
It requires a lot more development work on our side than we initially.
But.
And now we're just starting with them and so we are where we are today.
Where we are today, we thought we would be six or nine months ago and building from there.
And then there's there's one project for example, where the.
The company just made a decision to launch.
To one or two quarters later than what they originally told us to plan for.
And so some stuff like that happens, but largely new initiatives.
With existing customers or new customers versus the existing base doing less than we thought they would or us losing traffic to a competitor or flat out losing losing deals.
It's more about.
Taking longer to achieve the revenue goals that we had originally said.
Got it got it and then just I saw them.
Look at those customer told that I could point to and say you know what it here is the one customer departure costs made more money in our company that I haven't looked at in IP.
Nothing.
Got it got it and then just one one clarification on the on the Capex I think the guide was what 20 to 24, if I recall last quarter. Its 25 now.
Well, what's top of the list you talked about a lot of things you're spending on but what's the delta from April to here in terms of where you know your expectations on spend changed.
Yes, so I'm still saying at approximately 25, I mean, hopefully we come in slightly below that uniclic still be within 20 to 24 I'm I was just trying to put a number out there yet.
To make sure that when I think of that as largely unchanged as I look at it.
And.
I think there's nothing out of the ordinary from what we set out to do at the start of the year to how we are progressing over the course of the year.
There's a little bit more of a capex that's related to you know the build out of our move that you would not have known about before but other than that I think it is largely to go ahead and add capacity for the demand that.
He is being requested of us.
Got it great.
I'm not I'm not building capacity in regions anticipating demand I'm actually most of my capital or a lot of my capital now is against demand that has been you know.
Articulated to us that this is the region and this is the time and this is the amount that they would like to see.
Got it got it okay. Thank you.
Again, if you have a question. Please press the Star then one.
The next question comes from Lina crowded with B. Riley FBR. Please go ahead.
Hi, guys. Thanks for taking my questions.
Sneaking me in at the end kind of just one too.
Take everyone's questions on the second half guide and maybe ask it slightly different but.
Taking it all in together and just you guys talked about.
You had some new customers in the first half.
That were additions and I just wanted to figure out if what what part of the second half guidance is contingent upon customers that you've recently added versus just the existing customers.
Operating status quo versus prior expectations.
So let me ask maybe a different question I mean, as we go into the second half, we obviously know which customers are you know have been onboarded and whether they are trending towards our expectations are not in terms of risk in the second half.
Customers that we have yet to sign.
And our accounting on revenue from Weve by bringing the guidance down weve minimized that in a pretty pretty dramatic and material way and so.
What is true is we are expecting to close some business and have it.
Some revenue contribution in the second half what I would tell you is that it is dramatically reduced.
From where it was.
To that you know the what we're expecting to meet the current.
Range of outcomes.
Yes, so the N.B. I, just kind of had I mean, we've gone out of home, we do need to the plan you know for those.
Variances because.
I think the back half story is good on its own as it is today.
And I don't want to get into a situation, where I'm reporting third or fourth quarter results and why the results on their own are really really good because it all up a million or two you know the question deviate to why did you Miss by a million words as my where your results about me and I think we've got a good story to tell as we put the first half behind us and going into the second half I think revenue begins to grow sequentially. It begins to grow year over year in the third quarter and then at a very high rate, possibly the heightened they must be in the board or amongst the highest in the industry and and.
Yeah. This community was not as it is.
As reflected in the consensus numbers.
Putting much faith in our numbers so big I thought it was prudent because it's gone to plan. It got identified out of the plan focused on what we feel certain about and then just go ahead and execute and tell the story as it is that transpires.
Got it and then just a just a point of clarification.
I know you guys previously expected UTI and to be in contributing revenue into Q.
Just kind of curious is it generating.
Revenue for you currently or hasn't yet Tdm line.
No it is well less than we expected at this point, but.
It is generating revenue.
There is a major milestone.
That needed to be had we needed to do a conversion of the gen. One.
We needed to convert the Gen. Two fathers Don stuck to see revenue flows back and forth between the two businesses Don begin to make sure that the billing attach almost fully integrated.
Go ahead and tie that altogether taken care off you know do the customer conversions. So I think things that had to be done are getting dot I think it's.
Again, it's not unnatural is when you have a leadership change business takes a little bit of a pause and then just restarts.
As that.
Gives me high and then we are having good conversations with them and we are really happy about you know tides role in that entity and I think good things will happen like I said I mean, we are having conversations that a broader in scope than when we began I mean keep in mind. They have a big play in Fiveg you have a big play on the edge and Aiotv side of the business. So this conversation it with a partner with best feel well engaged Lynn can become much broader than just the CDN conversations that we had.
Got it that makes sense.
And then.
Just kind of an opex question.
You guys have been adding some sales headcount to address some of these newer products.
Is the expectation that you built the head count you need or do you expect to continue hiring the rest of the year.
I think weve built up fast initially so don't expect the rate of change to continue at the same pace, but expect incremental additions and some of it is also for not just adding volume, but also covering more geography. You until then we are entering the Latin America market we want.
Feet on the street and presence there and we had entering China, we would like to be able to have presence there, but we are entering into some news on that being in the middle east we'd like to have physical presence. There at the same time man attacking the breadth of the marketplace. Sometimes it many unique capabilities. For example, what we are doing with low latency awaited the gaming customers. So as they look for industry expertise in that area. So so we've gone ahead and added on that and we continue to support the business and the plan that we have.
Got it thank you for taking my questions.
And again welcome.
Do you enter Rishi.
Congratulations on the appointment then.
Any other questions.
This concludes our question and answer session I would like to turn the conference back over to set aside you need mehos for any closing remarks.
Great. Thanks, and so just before we close I just want to let you know if you like to schedule. A visit you know just rattle call me I mean, we'd be happy to visit with you for a face to face meeting Oh I'm happy to get on the phone call I'm available for the rest of the day to day Tomorrow.
And thanks, again, and as always and be available to answer any questions. After the call.
All right with that we'll conclude the call. Thank you all thank you.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.