Q1 2022 Limelight Networks Inc Earnings Call
Periodic filings in.
<unk>, our most recent annual Form 10-K , and quarterly reports Form 10-Q . 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 Lyons, our President and CEO , and then bond sale EVP and CFO .
Bob will start today's call with a brief discussion of the results and an update on our improve expand and extend the initiatives.
Dan will then review financial results and guidance.
Following that Bob will use the remainder of the call to discuss aspects of strategy and corporate initiatives going forward. We will then open the call for Q&A with Iga Kapoor Limelight CTO will also be available to answer your question.
I will now turn the call over to Bob.
Thank you and welcome everyone. The first quarter of 2022, continuing to build on our positive momentum with three sequential quarters of profitability improvement and two sequential quarters of double digit year over year revenue growth, our operational improvements and renewed client focus have driven record traffic with 17 of <unk> top 20 highest all time traffic.
Dave landing in the quarter.
It is also important to note that the traffic improvements were broad based in nature spanning streaming live events software downloads gaming and spanned our diverse client base in Q1, our financial results were well ahead of market expectations as well as ahead of our management plan.
Revenue was $58 million.
An improvement of 13% year over year and well ahead of plan.
Cash gross margin of 42% was up 420 basis points year over year and consistent with our plan. Adjusted EBITDA was $2 million ahead of plan for the quarter and a meaningful $5 $3 million improvement year over year I can comfortably state today that our business continues to strengthen and we remain confident in our ability to continuously create meaningful.
Book value for our clients shareholders and employees alike. The underlying pillars supporting this momentum are threefold first our unwavering commitment to operational performance as previously reported third party load balancing and data analytics firm per crops continues to raise <unk> performance is best in class last quarter, we rip.
Ported that we were number one in North America building on that we have worked very hard to improve our standing in other regions as well. We have made notable progress in Latin America, a critical market for us our efforts have resulted in achieving the number one rating in that region as well as a result of almost a year of dedicated performance improvements. We can now proudly in capital in the state.
That we consistently ranked number one in the world.
The performance of our network, it's critical to our success and we will continue to be unwavering in our pursuit to consistently deliver best in class performance.
Second our commitment to delivering an unmatched client experience and the many conversations I had with clients each quarter I am frequently told that one of our towering strength is our team and their focus on delivering great support. This is something that separates us from the pack and we intend to continue building on that strength.
Third our.
Our strategic pivot has extended our ability to deliver high growth high margin edge enabled application and security solutions with.
With layer zero, we added meaningful capabilities products and solutions to our edge platform. We now have what we believe to be the most complete <unk> solution for developers, who are focused on improving performance protection and productivity.
Their web applications by migrating them to an edge enabled next generation platform.
And the market agrees, we replace direct competitors in nine of our new logo deals this quarter.
Our commitment to continuously improving across these three pillars result in more confidence and deeper relationships with our clients with that confidence they are more inclined to turn their traffic down towards us and evaluate our high margin products that in turn drives more traffic to our platform improving our utilization and creating.
Unity is to deliver additional SaaS solutions. This all translates into a company that can sustainably and continuously create additional value for our clients and shareholders in short our recent success in creating shareholder value has been the direct result of addressing the performance support and App modernization needs of our clients, we will continue making them our.
First priority they pay for that and should expect nothing less.
Let me shift focus and share some detail around what we have done and plan on doing in the months and quarters ahead, I will frame my comments using our improve expand and extend framework as I've done in previous updates.
As a reminder, our improved program is focused on network performance and operating cost or expand program is focused on client experience and the expanding relationships with them and our extend program is focused on introducing new best in class edge enabled solutions that increase network utilization growth and gross margins. Let me highlight some of the things that we have.
Focused on to continue building on our recent momentum under our improved program, we continue to make operational and architectural improvements toward improving performance and reducing our cost footprint.
Improve highlights include last quarter, we introduced an initiative to upgrade our network to Linux based operating system. This initiative will improve throughput increase capacity and reduce operating costs. We are on track with this initiative and expect to see incremental improvements each quarter going forward. Further this initiative to accelerate our ability to pursue and <unk>.
Asset light model with Isps and more rapidly consolidate the edge cast and limelight platforms as a service we began executing a plan to increase our cash capacity and bandwidth capacity by over 40%, which will meaningfully improve our performance and allow us to gain more wallet share with existing clients and.
And earn the business of new ones.
We continue to focus on network utilization by improving traffic mix and traffic management, we have maintained our improved utilization levels achieved in the fourth quarter of 2021.
Despite seasonality trends in Q1.
As a reminder, every point of utilization result.
The $9 million of adjusted EBITDA.
Last the year over year flow through of revenue growth to adjusted EBITDA is approximately 77%.
Highlights this quarter for expand program include we've previously discussed that two of our top 20 clients had not been growing and reflect in our annual plan I am happy to report that both have delivered traffic above plan in Q1.
Our largest client is starting to see the COVID-19 induced shortage of new content subside in the quarter. They had a number of popular launches and anticipate many more in the second half of the year. Additionally, they continue to expand their focus on lifetime tenants, such as sports and proving on the trends from previous COVID-19 of our top 20 customers grew their revenue by more than 20% year over.
A year.
Hi additions continued to trend in a positive direction with a five quarter high achieved this quarter in the quarter. We added 24, new logos 50 of which were in the Americas.
Of those 60% were sourced and closed by a newly created channel team were largely focused on FX swaps.
The new product sales nine replace direct competitors in this quarter, our pipeline continues to grow as well in the quarter. We grew our pipeline by more than 30% with the App ops portion growing by triple digits, we continuing to attract large media companies for content delivery, but with our App solution. We are also relevant to a variety of company sizes and types that are looking for the <unk>.
Best solution for their high Stakes web applications layer zero contributed $3 8 million in the quarter and is tracking well towards its full year guide of at least $20 million in high growth high gross margin revenue, we have largely completed the planned rebuild of our sales and marketing teams. The second quarter will be the first full quarter for most of our quota carrying reps.
Providing ample opportunity for continued momentum in the second half of the year.
Our extend program was rich with highlights this quarter, we announced the transformational acquisition of edge cast without question. We have taken another giant leap forward in our strategy to become a leading edge enabled solutions company.
<unk> will be one of the largest independent edge platforms with a significant increase in scale security live events and video capabilities, we strengthen our security capabilities with data WAF Ddos and basic bot detection. This coupled with our November App CDN lines enables us to lead the rapidly growing $4 4 billion web CDN and <unk>.
Security market.
With these newly added capabilities, we have increased the size of clients, we can target and our reach across industries. Our edge enabled platform will include hedge cash enterprise grade security solutions, the fastest edge logic in the market relative to our direct competitors are developer and James deck Apis and application operational tools all seamlessly in.
<unk> with the world's most performing global edge platform.
And by the way this comprehensive set of capabilities are already integrated with over 40 of the most popular web development frameworks.
We believe that the robustness of our solution platform and holistic and integrated approach to edge and cloud services will quickly be recognized as the most complete solution in the market, especially as developers continue to govern purchase decisions in our market. The evolution from a media CDN to an edge enabled solutions company anchored by the industry's most.
<unk> <unk> solution and powered by the world's fastest as network has and will continue to build positive momentum in our business the momentum and leading indicators underwriting business that continues to strengthen we are seeing organic revenue growth improving gross margins and growing adjusted EBITDA. While we have made meaningful progress in the past five quarters and have seen three quarters of positive.
Momentum much work remains to be done.
Our combination with edge cast provides us with a rich set of opportunities for improved growth and profitability. We will continue to focus on the basics client experience operational discipline and focusing our strategic investments into solutions, where we can establish a clear right to win.
Under the soon to be NGL banner, we will be a growing technology solutions company with a $40 billion total addressable market. The most complete <unk> solutions all running on the world's most performing edge platform I don't think its too much of a stretch to say that the future of NGL looks very bright at this time I will turn the call over to Dan to reported first quarter financials.
Thanks, Bob revenue for the first quarter was $58 million up 13% from the first quarter of 2021, and our second consecutive quarter of double digit percentage revenue growth over the prior year.
Layer zero contributed $3 $8 million of our revenue, which when excluded implies 6% organic growth in the quarter, which is two consecutive quarters of single digit organic growth.
We delivered this performance despite global supply chain headwinds, which we have battled to continue.
Our top 20 clients accounted for approximately 76% of total first quarter revenue compared to 79% last year.
Cash gross margins expanded to 42% from 36% in the first quarter of 2021, an increase of 420 basis points due to revenue growth driven by higher traffic and improvement in utilization of our network.
Total cash operating expenses were $27 $1 million in the first quarter of 2022 or 46, 8% of revenue down from 65, 1% of revenue in the first quarter of 2021.
Cash operating expenses, excluding restructuring and acquisition related expenses were 21 3 million or 36, 8% of revenue down from 42, 3% last year, we continue to realize the benefits from our improved management of operating costs. As previously mentioned, we have continued to invest in sales and marketing and <unk>.
Tired ahead of plan, given our ability to attract qualified talent.
Acquisition and legal related charges in connection with our proposed acquisition of edge Cats were $5 1 million for the first quarter.
The aforementioned year over year revenue growth and improvements within our operating model resulted in a meaningful year over year increase in adjusted EBITDA.
First quarter 2022, adjusted EBITDA was $2 million up from a loss of $3 $3 million last year improved network utilization and operating leverage in the business allowed for 77% flow through of the revenue growth.
Cash and marketable securities totaled $62 million, a decrease of $17 million, we spent $5 $4 million for capital expenditures.
So at the end of the quarter was 81 days compared to 51 days at the end of December the increase is due to the timing of client payments received our accounts receivable balance increased $12 $8 million from the end of December we expect DSO to be in the 50 to 60 day range and have seen improved cash collections in April as for guidance given we anticipate.
Closing of the edge gas transaction in the next 30 to 60 days, we are maintaining our full year guidance. We expect to begin working with the <unk> team on a bottom up forecast for the remainder of the year immediately after we close and we will provide combined guidance for the year as soon as we finish that process.
We expect second quarter to be consistent with the first quarter with continued tight management of networking operating expenses. We would expect gross margin adjusted EBITDA margin to continue its methodical expansion to reiterate how we think about the combined company post integration and upon successful completion of these synergies initiatives, which will take 24 months from close the combined <unk>.
Company is anticipated to have growth rate of approximately 10% to 15%.
Better than 50% gross margins improving to 60% <unk>.
Approximately 10% to 15% adjusted EBITDA and positive free cash flow.
With that I will turn the call back to Bob Thanks, Dan Let me take this opportunity to outline the next phase of our transformative story that begins with a company rebrand to mgo.
Combined basis, NGL will have one of the largest networks in the world delivering more than 200 terabytes per second across more than 300 global Pops.
In 2021 revenues exceeding $500 million.
Our scale will enable us to improve our gross margins to approximately 60% over the next two years underwritten with an approved platform utilization.
Growing high margin revenue and planned net operational synergies of greater than $50 million with our new capabilities, we will be recognized as having the most complete web application platform with a <unk> increase in market share to over $100 million.
In high growth high margin applications security revenue.
The addition of edge cash industry, leading edge video platform further diversifies, our revenue and our solutions that we can deliver from our edge platform. As a result, we will reduce client concentration risk and our largest client will be less than 13% of total revenue the only one above 10%.
To put a fine point on the complementary nature of the business is coming together limelight has significant international presence expertise and large cloud delivery, a growing sales and marketing team with proven client success practices, a leading and high growth App ops platform superior video on demand capabilities all.
Over on the world's best performing edge platform with edge cast we add a proven channel program supported by partners, such as <unk> and Verizon industry, leading live events capabilities, a multilayered edge security platform that includes scaled WAF Ddos and Bot management highly synergistic edge video platform Linux based again capable.
That will meaningfully improve automation and a team of highly skilled employees.
After close we will have the ability to dig deeper and anticipate the ability to capture additional client and commercial synergies.
Integration planning is well underway and we expect to close this acquisition and start this exciting next phase of our transformation in the next 30 to 60 days under the <unk> brand. We thank our investors for their continued support and look forward to working together to achieve what we all know is uniquely possible for us with that operator. Please open the lines for the question and answer session.
Thank you if you would like to ask a question. Please press star one on your trying to trying to keep that now.
And if you change your mind pistol stockholder devices when preparing to ask your question. Please ensure that your phone is unmatched luxury.
And our first question is from Michael <unk> from Cowen <unk> Co. Your line is now open. Please proceed.
Alright, Thanks for taking the question two if I may so first in your recent proxy you provided management expectations for the combined company and I believe the growth rates for revenue are essentially between the 911% range through 2023, and 2020 and I know you've talked about 10 to 15 <unk>.
<unk> revenue growth and then potentially getting to 20% to 25% just wanted to know from your perspective like what are the levers to getting to that to the higher end of that range. That's my first question and.
And then the second question would be.
I believe your 2022 guidance implies that traffic with two of the top 20 customers essentially flat year over year and I believe earlier, you were talking about how youre seeing improved progress.
In terms of traffic just wondering.
What youre seeing there and then also.
How we should think about the standalone guidance throughout the year as a result of that thank you.
Hey, Michael how are you doing this Bob.
I will start with your second question first on the traffic.
We obviously are seeing a lot of traffic.
And the cost we had 17 of the top 20 days historically in the last quarter and so we're pretty excited about that.
In fact, those two customers that you mentioned in one of those was up 20%.
This quarter as well so we're seeing growth there again both of them grew by the way. So we're pretty excited about that so from a standpoint of how the business is running we're very happy with that the challenge that we have is in our business you have to build capacity to be able to continue that momentum and we're seeing a lot of supply chain disruption takes us nine to 12 months to get servers and so we had a lot of conversation internal.
About hey, do we raise guidance or do we stay flat and I think given the fact that we're going to have a major reset of guidance in the next.
90 days, let's say with the merger with edge cast in addition to that I'm continuing to watch the supply chain challenges. We just thought it was better just to kind of hold tight in and come back and reset that in the short period of time, but but having said all that we're navigating those challenges.
It very well have done it and we're very happy with where the business is running.
From a traffic standpoint on.
On the gross standpoint from edge cash that's a great conversation.
When you look at the business <unk> has been tucked into this huge Verizon company didn't have a sales force of its own really relied on the Verizon channel and so when you look at those growth rates those growth rates are despite the fact that they really had no commercial presence for most of the products. They didn't have a great go to market strategy.
Didn't really even have a sales team per se and so when you take the capabilities that they have the security.
<unk> CDN and the video platform and you put them into the redesign model that we spent the last 12 months rebuilding yes, we expect to see much more growth than what they have been and will do so it's a pretty interesting they have pretty favorable growth. Despite the fact really having no commercial.
Presence of our capabilities in the organization other than relying on on horizon to sell stuff for them. So that's how you get to the upper end I think the other thing we have to continue to do is launch products and other areas like security, which will continue to push that growth rate up.
Awesome. Thank you.
Okay. Thank you.
Yes.
Thank you Mike next question is from Frank Louthan from Raymond James Your line is now open. Please proceed.
Great. Thank you talk to us a little bit more about edge cast and how that's going to help with the content delivery business, how does that help support that.
And then give us if you can give us an update on the conversion.
And what sort of challenges.
Geis integration will bring to that as well that'd be great. Thanks.
Yeah. Thanks, Brian So a couple of things I think one when you look at our video delivery business were very strong and broad over the top video streaming they.
They do much more in live events actually I'd argue they're probably best in class at live events.
Its an area were pretty weak actually so you put the two combinations together and essentially you have the ability to spend the full spectrum of live events to video on demand with their video platform. They also have a best in class AD insertion engine.
Will position us well for what we think is another growth area on the horizon, which is advertising driven video on demand abroad, and so we're pretty excited about that so from a capability standpoint, they're very complementary but the addition of that is going back to the.
The answer I gave to Michael capacity and throughput is something that's really important to us.
When you combine the networks one of the things that we've learned we did a pilot we found out that when we go to Linux, we can actually improve our capacity and our throughput without having to add hardware and so that's one of the ways that we can actually expand our capacity without having to take the headwinds of the supply chain disruption head on.
When we merged the two networks together and bring the companies together they have a lot of excess capacity, they're already running on Linux as well and so we're going to bring a lot of expertise over.
In the early stages of our rollout of that and we'll be able to accelerate that with the combination of their expertise their network in our network. So we will be able to do that in addition, they also are far ahead of us and automation because that Linux platform and so essentially by combining the networks will bring excess capacity of the table will be able to accelerate our Linux based transformation.
And also accelerate the automation, which all translates into higher revenue and higher gross margins.
Alright, great. Thank you.
Thank you and our next question is from James Breen from William Blair. James Your line is now open if you'd like to proceed.
Thanks for taking the question just a couple on the security side.
The products that you have now sufficient sort of grow from here or do you need to gain more technology that through acquisition or through develop it internally and then secondly, just could you comment on any impact.
Just from what's going on in Ukraine relative to your business there. Thanks.
Yeah sure. Thanks, Steve So let me take the Ukraine piece and I'll start the security piece and then I actually have <unk> on the call with us today and I'll, let him talk a little bit more about our thoughts around security.
So from the Ukraine piece, it's one of those stories, where I feel guilty, saying this but we're actually doing really well we have.
About 120 people in the Ukraine, largely focused on development and professional services. The professional services is really geared against the App ops layer zero and implementations.
What I can tell you is that we as a company has done a lot to make sure that they're safe and have all the resources that they need they are working really well, it's really a testament to the Ukraine people has been really been amazing. So we have not seen any disruption. There obviously continue to monitor that and watch that and do all the things that we can it does govern us a little bit in our growth plans.
And making sure that we can expand the resources, it's hard to expand in the Ukraine. So we're looking at other regions to be able to expand that those capabilities and that team, but as we sit today, it's been working pretty well, obviously day to day, though and so we continue to watch that on the security front.
We pick up a lot of capabilities, we launched herself in January of this year. We also pick up a lot of capabilities with edge cast and as I've said in previous calls we continue to be inquisitive, there and have some pretty big ideas about what we can do there, but we're going to be thoughtful and patient let me turn it over to ours and he could talk about some of the stuff that we're doing with security today, and then maybe I'll follow up with some of the stuff.
We're looking at as we look forward.
Yes, Thank you Bob.
And thanks for the question there James So I'll just quickly on Ukraine, I, just wanted to add a little bit there.
One of the managers that works with the teams there. They are an incredibly resilient group here who has.
They met all of their deliverables for the first quarter, which is really incredible and really enjoy the fact that the company is supportive of what they're doing.
And.
They then are able to be employed and pay taxes in support there.
Defense is as a result of that that's just been incredible to watch their resilience in what they've been able to do.
On the first question of growth.
I think what you asked is hey is there.
The need for further acquisitions to be able to get to the kind of growth rate that Bob spoke about.
The second before and.
Through the work of <unk> and <unk> zero, we have everything we need to support those growth rates.
And but we will always be open to synergistic acquisitions like those especially in the area of security and enterprise security in particular, but coming back to your kind of your original question.
The markets around web.
Web and application web and API security are growing rapidly double digit growth.
The 20% range or north of that.
Areas, such as App ops are growing much much faster than that from a small base.
And then we believe on the core business. There are things that we can do that allow us to take share from incumbent especially as a result of increased scale and capacity that we have.
And through the acquisition.
Which will allow us to also grow that business at rates.
Much faster than the market.
So kind of the first answer here is that yes, absolutely with what we have and what we can do to optimize those businesses over the next couple of years, we can achieve those growth rates, but we will always be looking for opportunities for further growth.
Great. Thanks.
Thank you James our next question is from Mike Latimore of Northland Mark Your line's now open if you would like to proceed with your question.
Great. Thanks.
So on the pipeline growth you guys highlighted would you attribute that to the sales and marketing investments you've been making or is it.
Just a really healthy and mark near I guess that would be one and then can you give a little more insight into the core traffic patterns, you're seeing kind of.
February March April play out relative to January and some traffic patterns.
Yes, so I'll take on the pipeline and then I'll, let Dan answer the traffic stuff.
So we're seeing robust pipeline growth in general I think it's probably attributable to three things I think first and foremost, having a clear strategy and a well articulated value proposition. When you look at what we've done over the last 12 months, we essentially put together a best in class application.
<unk> platform that includes security best in class development framework running on the world's most performing network.
You can't find that solution anywhere else, you've got a cobbled together. So that's number one that really helps a lot.
Number two we have been ramping up the team Q2 will be the first quarter. When we have full staff of quota carrying reps.
Started in December and continue that through the first quarter and so obviously the more capacity you have that's going to build a pipeline as well and then third.
We also redesigned our demand gen capabilities, we hired a new team around demand Gen and marketing put new programs has really been designed that motion from bottom up and we're starting to see the early stages of that production as well. So when you look at our pipeline growth is growing at rates that we needed to grow to support the growth rates that we've been talking about.
It grow very significantly in the areas, where we want to see it grow which is an app ops caught non CDN, but we're also seeing a growing CDN as well and we're pretty happy with the diversity of the portfolio. It also includes both large and medium sized customers in different industries as well.
I think the broadened security story has also helped really accelerates pipeline growth.
Yes, and then I'll take the traffic question. When we came out of Q4, we are guiding to roughly 10%.
Seasonality number and in Q1, we didn't see that that dip that we're anticipating and so we're very happy about that not only.
That's a broad based traffic.
Movement from where we had initially expected in the plan and so we continue to see strong off peak traffic and demand for that continues to increase as well as our core CDN and the streaming product.
That our customers are demanding and that normal traffic profile continues to be really strong as well as new content comes out.
And we expect that to continue here throughout the remainder of the year and even grow in the back half.
Yeah.
Okay.
Yeah.
Our next question is from the line of Mike Sorry, Maxim Microdose from Lake Street Capital. Please proceed with your question. Your line is open.
Hey, guys nice quarter I, just got two quick questions here. The first one is are you guys, having any large contracts up for renewal anytime recently are you seeing any pricing pressures from the customers.
Yes, I'll take that Michael.
We always have contracts up for renewal.
Currently having those conversations as we've talked about in previous quarters.
Change our approach from waiting for that to be an event to proactively having those conversations. So we continue to do that.
There is always going to be pricing compression in this industry. So that's just a way of life, we're not seeing anything that concerns us or should be a surprise to us. We're just navigating that is we expect to navigate it and pretty consistent with how we forecasted and built in our plans any pricing compression.
Okay. Thanks, and then just maybe a little more clarity.
Profitability metrics with the adjusted EBITDA expected for Q2, I think the comments. We're methodical expansion is that from is that sequentially or is that year over year.
Yes, I'll take that sequentially.
And year over year.
I think in Q2, we were about breakeven in terms of adjusted EBITDA.
And in Q1, obviously were $2 million positive, which was ahead of our plan.
We expect.
The plan, we expect to continue to invest in sales and marketing and R&D as the plans are to really.
Focus on the development of automation auctions.
The operation of our network.
And so even with.
Those continued investments we expect to.
We continued to expand adjusted EBITDA margins as our revenue growth sequentially throughout the year.
Yes, yes, I also looked at so you can imagine we're getting ready to close on this big transaction will more than double of revenue. So we're investing ahead of that as well to make sure that we can absorb that and manage that transaction pretty smoothly.
Alright, perfect. Thanks, guys.
Yeah.
Our next question is from the line of Jeff Van <unk> from Craig Hallum. Jeff. Please proceed your line is now open.
Great. Thanks for taking my questions guys.
A couple from me I think first Bob maybe as you look at the guide on the sequential basis as it relates to revenues can you just talk through the puts and takes of the sequential Q2 being similar to Q1.
Thank you referenced supply chain issues, maybe just expand a little bit more on that obviously a lot of concerns around the Netflix OTT none.
<unk> in general and you'd offset I guess, both of those with a pretty bullish commentary about <unk>.
Pipeline in signings, thus far so just talk a bit about the puts and takes on revenue growth.
From Q1 to Q2.
Yes, sure happy to do it thanks.
I guess in full transparency I will say that those of us from management on the call don't I'll agree with.
We came out with guidance I think there was a lot of really robust debate when we have a quarter like we did in the first quarter would be easy to assume that hey, we should lean in and guide up and we certainly could have had that conversation, but when you take that one of the things I've always committed is that we'll be transparent and will be.
Asymmetric in a risk and that we will have much more upside than downside risk and so we really took that approach in this quarter. When you look at what really we're going to we had a Q1, where we had record traffic Q2 is working the same way and we continue to expand on that and so the business is running very well and we're very bullish on that but at the same time, we've got a transit.
And they're getting ready to do.
<unk> got supply chain disruption that we do have a backlog and equipment, we could add capacity and actually increased traffic tomorrow, but we can't get the equipment and so and that's a continually evolving conversation day by day and so that there is some uncertainty around that.
Obviously, the economic factors with inflation, what that's going to do.
The geopolitical issues. So there's so many issues that we're navigating that we just kind of said look you know what given all of this and given we're going to come back in 60 to 90 days with a reset guidance with a completely different P&L from where we are today, let's just make sure that everybody knows the business is running well were very happy with where it is.
But give us 90 days and we'll come back and we'll reset and we will have a better view of kind of all the dynamics that we're navigating and.
There was a more prudent thing to do but to make sure that we double click on affect the business is running well were very happy with where we are.
Mhm.
And just to expand on the OTT concerns around Netflix I mean can you talk to what your customers are telling you with cove. It unlocks et cetera, just concerns people consume less what are you you can add some color yes, yes.
Yes, I appreciate that it's interesting with Netflix Netflix is the only.
Big client, we don't have and they do everything themselves and so when they have subscribers decrease that actually helps us. So it's interesting we saw the market react to Netflix.
But actually my view of what's happening. There is you have inflation people are worried about how much it cost pillar gas tank and Netflix raise their prices.
You shouldnt be surprised that people canceled.
Five years ago three years ago.
Motto was Netflix plus one in subscriptions now the average household has seven subscriptions.
And Netflix raise their prices and people are saying look I really don't need seven subscriptions I'm going to have less so I'm going to pick the one that I'm going to cancel them.
It shouldnt be a real surprise if that happened in my opinion, but having said that they are still watching movies, Mr. Western content, they're just watching at different places in those different places happen to be a customer of ours. So.
It actually works in our favor and we're pretty happy perhaps thats, a big part of why we're seeing record traffic who knows.
Yes, yes.
Okay.
The other thing I would add to that.
A lot of our other customers that.
We believe net flix subscribers are moving toward <unk>.
Continuing to expand internationally and with our global scale and continue to increase capacity global globally with the <unk> acquisition.
We feel that the tailwind for us.
As customers continue to that international expansion.
And reach of our global customer base.
Okay.
One other quick one for you on the sales side, obviously tough environment.
Hearing from almost everybody their fallen short on sales hiring goals. It sounds like you met or possibly exceeded where did you end up in sales head count where do you think you'll go in next 12 months.
Yes, we ended up where we are fully staffed at this point.
Probably the first time since I've been at the company, we can say that for sure. So we're fully staffed so Q2 will be a first quarter that were pushed back we're very happy with the quality of the team that we hired as well.
Some of them came from our competitors. So we're pretty happy with that we have not had a hard time hiring I think largely because people really like the story and like where we're going with salespeople are coin operated they want to make money they want to sell things and so if they believe in the product and they believe in the industry.
Can attract them in and so far.
They really are excited about where we're going what we're doing and what they have to sell and I think thats, where we will only continue to get better. So so we feel pretty good about that and it's not just the salespeople to we've also redesigned all the motions around our salespeople to sales operations and sales support the demand Gen.
And so we continually have a pipeline that's growing that also help salespeople.
The numbers and so all of the other things are coming together, we expect it to come together, we just have to stay focused and keep executing the way we are.
Yes sure.
Yes, Hi, Jay.
I wanted to take advantage of you being on here as well as it relates to layer zero a couple a couple of questions I.
I guess as it relates to developers and just awareness both of your capabilities as well as capturing of developers on the platform I know that's front and center and what you think about so question. One just talk on progress you know in terms of capturing capturing developers and the second question is related to edge cast.
How does that change your value proposition in the App ops world as you put the two platforms together.
Yes, great question, we've been making great progress.
Building awareness and developer community.
And it is only underscored and accelerated the kind of the thesis we had.
The buyer of the CDN is.
Surely headed and.
With every quarter headed in the direction of shifting from kind of an operations purchaser.
To a developer and depth team purchaser, that's kind of a one way trend, it's an inevitable trend and we have far and away the best product to capitalize on that trend and you couple that with edge cat, which bring kind of best in class web and API security.
And we really have kind of elevated.
Our solution set for websites in API two best in the industry and it is a industry in which our market share is small relative to the size of this market. It's a minimum of $4 $4 billion market not including some of the things that we expect to happen as a result of App ops.
And we have a small small market share there and have really far and away the best product to be able to capitalize and grow rapidly and with the sales team coming online.
They are to Bob's point.
Not only did we hired a plan, but they are being trained and being made effective very rapidly one of the anecdotes Bob shared earlier.
There was a team that wasn't around in Q4 than in Q1 on the channel side was able to represent.
Difficult portion of the U S.
Sourced and closed deals and that's an incredible kind of ramp up time that just speaks to kind of the way in which we're attacking the opportunity that we have here with the best in class product.
And you touched on it maybe a little bit there, but my second part as it relates to layer zero just in terms of the bookings relative to expectations. Other observations about bookings and then from a revenue standpoint Q1 to Q2 any seasonality just not clear how the layer zero revenues play seasonally as the quarters roll through the year.
Yes, it's a great question on the second point, there isn't a ton of seasonality.
Because it's more contracted and consistent basis.
So theres not much seasonality there there may be slight seasonality as it relates to bookings.
Generally it smooth out because of the recurring nature of the kind of existing client base.
Where we're at.
Generally just growing.
So that's good.
A question on seasonality in.
In terms of.
Just in general on bookings things are great and again, Bob Dan shared earlier, we've got triple digit growth in pipeline as it relates to the App ops.
Arena, and that's not including some of the things that we're hearing.
About the the progress that's being made on all the web.
<unk> web security business that edge Caf does.
So we're really looking forward to that as well.
And what are you displacing last one for me what are you what are you displacing.
Yes, great question. So there were a minimum of nine direct displacement.
And it is a combination of pellet, the who's who of web CDN and web security vendors.
Combined with up and comer private companies with Unicorn valuation.
And it's the combination of those that are in the mix of at least nine that were direct replacements.
Oh, great number okay, alright, thank you.
Before we take our next question I would just like to remind everyone that if they'd like to ask a question. Please stop by one on the telephone keypad.
Our next question is from the line of Rudy Kessinger.
Davidson. Your line is now open if you'd like to proceed.
Hey, Thanks, guys. Thanks for taking my questions going back to layers zero.
And that seasonality comment you know the 383 $8 million in Q1 was a bit lower than I think I had expected to see it was flat with Q4.
At $3 $8 million, and so to get to that $20 million for the year, I mean, and <unk> got to grow that business like 18, or 19% sequentially. Each of the next three quarters.
Understand triple digit pipeline growth, but it seems like a pretty rapid acceleration in that business. What gives you confidence to hit that number.
Yes.
Yes, I'll take that and then Bob Jay can chime in.
As we built out that sales force.
That pipeline and the demand Gen capabilities that we have in place that triple digit growth in pipeline gives us confidence that we will convert that.
And the conversion time period on those types of deals.
A little bit quicker than the historical.
Our legacy CDM business.
Which you have to run through a trial process.
Get through the procurement people.
Versus the layer zero, which we believe is the best in class.
Product that developers are really looking forward to working with as quickly as possible given the productivity and efficiency improvements at that product has and so I think just the shortening of the conversion timeline into actual revenue gives us that confidence and the fact that we've only had the sales force and demand Gen team.
In place for a really short period of time and to see that growth in the pipeline and something that's very exciting for us.
Yes, I think the other thing too is to bifurcate the conversation separate bookings from revenue so.
You mentioned the revenue number Rudy we have a book.
Bookings target that we have to hit every month every quarter, we track. It every week actually throughout the year and when you get the bookings. Obviously, then you have to convert that into revenue with the implementation.
And we are actually on plan of where we expected to be in bookings to support the numbers that you talked about.
So youll see that in the first quarter, we had bookings youll see that translate into revenue in the next quarter, probably the biggest risk that we have there we talked about earlier is really making sure that we maintain the productivity, we're seeing and the team in the Ukraine and.
That's obviously, a big part of attorney bookings into revenue and so so far we've been doing great job credit to them and but that will be the area that we probably our closest most closely monitoring.
Got it and then just.
Secondly for me I think you said 24 gross new customer adds nine direct takeaways from competitors. So that's good to see I think you said the highest gross new customer adds in five quarters on a net basis, though our customers I think it was down like three.
Quarter over quarter. When do you expect I mean Q2 is that kind of the inflection point with that being the first full quarter, having all their sales reps fully ramped what do you think you'll start to actually see active customer count going up on a net basis.
Yes, yes, yes, I think that would be.
Appropriate expectation.
Actually with our historical trends and customers.
Having that net decline up three.
Specifically the increase of 24, new adds and where we're getting those ads.
Positive for us, but I think I think Q2 would be inappropriate.
Point of view.
For that trending back in the positive direction.
Yes, I think if you look over the last five quarters and you were just a plotted out eagle five quarters ago, we were having higher attrition and not adding customers every quarter, we've gotten better and better at that and I think it's fair to say that the inflection point is probably Q2, we're adding a lot more customers and losing lesson.
So I think that's the way expectation.
Yes.
Got it that's helpful. That's it for me thanks, guys.
Thank you.
Thank you and as a reminder, please press star one on your telephone keypad. If you have a question.
Not just a moment for any further questions to be Richardson.
And it appears we have no further questions being registered today, so I'll hand back to management for any further remarks.
Okay. Thank you operator, and thank you everyone for joining US today, we look forward to sharing our progress in continuing our conversations with analysts and investors going forward have a great day. Thank you.
Okay.
Thank you to all those who have joined US today. This concludes the cool when you may now disconnect your lines.
Thank you Eric.
Yeah.
[noise].