LLNW Limelight Networks Inc

• Q2 revenue of $43.6 million
• GAAP gross margin of 43.2%, up 180 basis points versus prior year
• GAAP EPS of $(0.53), Non-GAAP EPS of $0.01
• Generated $6.7 million cash

Limelight Networks, Inc. (Nasdaq:LLNW) (Limelight), a global leader in digital content delivery, today reported revenue of $43.6 million for the second quarter ended June 30, 2016, compared to $43.8 million in the second quarter of 2015.

Gross margin was 43.2% in the second quarter of 2016, an increase of 180 basis points from 41.4% in the second quarter of 2015.

Limelight reported a net loss of $54.9 million, or $0.53 per basic share, for the second quarter of 2016, compared to a net loss of $6.4 million, or $0.06 per basic share in the second quarter of 2015. The second quarter of 2016 net loss included a $51 million provision for litigation related to the Akamai lawsuit. As a result, in July 2016, we have regained access to $11.8 million of availability under our $25 million secured revolving line of credit.

Non-GAAP net income was $0.6 million or $0.01 per basic share for the second quarter of 2016, compared to a non-GAAP net loss of $4.1 million, or $0.04 per basic share in the second quarter of 2015.

EBITDA was negative $49.3 million for the second quarter of 2016, compared to negative $1.2 million for the second quarter of 2015. Adjusted EBITDA was $6.2 million for the second quarter of 2016, compared to $0.9 million for the second quarter of 2015.

During the second quarter of 2016, Limelight generated $6.7 million in cash.

Limelight ended the second quarter with 512 employees and employee equivalents, up from 501 employees at the end of the first quarter of 2016, and down from 563 employees in the year ago period.

Commenting on the results, Chief Executive Officer, Robert Lento said, “This was a milestone quarter in many ways. Our reported revenue suggests we strengthened our market position. At the same time, we improved our gross margin, achieved positive non-GAAP net income for the first time since 2007, and generated almost $7 million in cash from operations.”

He added, “Our financials, service quality, and performance are much improved over prior year, and, during the quarter, we entered into strategic agreements with Neustar and Google, demonstrating growing trust major corporations are placing in our global capabilities. We believe we have sufficient cash to invest in our operations, and our focus is on delighting our customers, strengthening our balance sheet, generating cash, and building shareholder value.”

We believe the longstanding 703 litigation is largely behind us. In addition, we are pursuing compensation for unauthorized use of our intellectual property by Akamai and XO Communications in the patent infringement case we filed against those companies in the Eastern District of Virginia back in November 2015.”

Based on current conditions, Limelight expects revenue to grow year-over-year in the single-digit percentages for the remainder of 2016. Management expects gross margin improvement for the full year of over 250 basis points, versus 200 basis points previously expected. We are also raising the lower end of our non-GAAP net income projection to between break-even and positive $0.05 per share. Capital expenditures should be $3 million less than prior guidance, and should total less than $17 million for the full year.

Financial Tables

  LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)      

June 30,2016

December 31,2015

(Unaudited) ASSETS Current assets: Cash and cash equivalents $ 30,885 $ 44,680 Restricted cash 62,790 - Marketable securities - 28,322 Accounts receivable, net 24,872 26,795 Income taxes receivable 135 170 Deferred income taxes 80 89 Prepaid expenses and other current assets   6,278     9,578   Total current assets 125,040 109,634 Property and equipment, net 30,647 36,143 Marketable securities, less current portion 40 40 Deferred income taxes, less current portion 1,284 1,252 Goodwill 76,242 76,143 Other assets   1,903     2,415   Total assets $ 235,156   $ 225,627     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,630 $ 9,137 Deferred revenue 2,469 2,890 Capital lease obligations 1,119 466 Income taxes payable 165 204 Provision for litigation 50,956 - Other current liabilities   10,391     10,857   Total current liabilities 72,730 23,554 Long-term debt 12,790 - Capital lease obligations, less current portion 3,008 1,436 Deferred income taxes 145 137 Deferred revenue, less current portion 52 92 Other long-term liabilities   1,963     2,311   Total liabilities 90,688 27,530 Commitments and contingencies Stockholders' equity: Convertible preferred stock, $0.001 par value; 7,500 shares authorized; no shares issued and outstanding - - Common stock, $0.001 par value; 300,000 shares authorized; 104,653 and 102,299 shares issued andoutstanding at June 30, 2016 and December 31, 2015, respectively 104 102 Additional paid-in capital 483,903 477,202 Accumulated other comprehensive loss (10,304 ) (10,812 ) Accumulated deficit   (329,235 )   (268,395 ) Total stockholders' equity   144,468     198,097   Total liabilities and stockholders' equity $ 235,156   $ 225,627       LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)                     Three Months Ended Six Months Ended   June 30,2016 March 31,2016 PercentChange June 30,2015 PercentChange June 30,2016 June 30,2015 PercentChange   Revenues $ 43,560   $ 41,422   5 % $ 43,795   -1 % $ 84,982   $ 86,124   -1 % Cost of revenue: Cost of services (1) 20,271 20,110 1 % 21,271 -5 % 40,380 42,928 -6 % Depreciation - network   4,489     4,668   -4 %   4,376   3 %   9,157     8,528   7 % Total cost of revenue   24,760     24,778   0 %   25,647   -3 %   49,537     51,456   -4 % Gross profit 18,800 16,644 13 % 18,148 4 % 35,445 34,668 2 % Gross profit percentage 43.2 % 40.2 % 41.4 % 41.7 % 40.3 % Operating expenses: General and administrative (1) 7,241 6,808 6 % 6,081 19 % 14,049 12,932 9 % Sales and marketing (1) 8,117 8,903 -9 % 10,002 -19 % 17,020 20,278 -16 % Research & development (1) 6,289 6,325 -1 % 7,646 -18 % 12,614 13,909 -9 % Depreciation and amortization 626 623 0 % 635 -1 % 1,249 1,276 -2 % Provision for litigation   50,956     -   NA   -   NA   50,956     -   NA Total operating expenses   73,229     22,659   223 %   24,364   201 %   95,888     48,395   98 %   Operating loss (54,429 ) (6,015 ) 805 % (6,216 ) 776 % (60,443 ) (13,727 ) 340 %   Other income (expense): Interest expense (279 ) (179 ) 56 % - NA (459 ) (4 ) 11375 % Interest income 8 6 33 % 75 -89 % 14 149 -91 % Other, net   (79 )   400   -120 %   (131 ) -40 %   321     1,682   -81 % Total other income (expense)   (350 )   227   -254 %   (56 ) 525 %   (124 )   1,827   -107 %   Loss before income taxes (54,779 ) (5,788 ) 846 % (6,272 ) 773 % (60,567 ) (11,900 ) 409 % Income tax expense   115     158   -27 %   90   28 %   273     145   88 %   Net loss   (54,894 )   (5,946 ) 823 %   (6,362 ) 763 %   (60,840 )   (12,045 ) 405 %   Net loss per share: Basic and diluted $ (0.53 ) $ (0.06 ) $ (0.06 ) $ (0.59 ) $ (0.12 )   Weighted average shares used in per share calculation: Basic and diluted 103,904 102,693 99,841 103,299 99,239  

(1) Includes share-based compensation (see supplemental table for figures)

  LIMELIGHT NETWORKS, INC.SUPPLEMENTAL FINANCIAL DATA(In thousands)(Unaudited)               Three Months Ended Six Months Ended   June 30,2016 March 31,2016 June 30,2015 June 30,2016 June 30,2015     Share-based compensation:   Cost of services $ 436 $ 473 $ 571 $ 909 $ 1,084 General and administrative 1,677 1,826 1,476 3,503 2,882 Sales and marketing 638 737 608 1,375 1,297 Research and development   542   460     625     1,002     1,086     Total share-based compensation $ 3,293 $ 3,496   $ 3,280   $ 6,789   $ 6,349     Depreciation and amortization:   Network-related depreciation $ 4,489 $ 4,668 $ 4,376 $ 9,157 $ 8,528 Other depreciation and amortization 620 617 434 1,237 877 Amortization of intangible assets   6   6     201     12     399     Total depreciation and amortization $ 5,115 $ 5,291   $ 5,011   $ 10,406   $ 9,804      

Net increase (decrease) in cash, cash equivalents and marketable securities:

$ 6,744 $ (48,861 ) $ (6,027 ) $ (42,117 ) $ (18,167 )     End of period statistics:   Approximate number of active customers 904 926 1,035 904 1,035   Number of employees and employee equivalents 512 501 563 512 563     LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)               Three Months Ended Six Months Ended   June 30,2016 March 31,2016 June 30,2015 June 30,2016 June 30,2015   Operating activities Net loss $ (54,894 ) $ (5,946 ) $ (6,362 ) $ (60,840 ) $ (12,045 )   Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 5,115 5,291 5,011 10,406 9,804 Share-based compensation 3,293 3,496 3,280 6,789 6,349 Provision for litigation 50,956 - - 50,956 - Foreign currency remeasurement (gain) loss 467 (301 ) 96 166 (1,595 ) Deferred income taxes (68 ) 82 (62 ) 14 (115 ) Gain on sale of property and equipment (134 ) - - (134 ) - Accounts receivable charges (recoveries) 83 (116 ) 224 (33 ) 470 Amortization of premium on marketable securities - 19 48 19 106 Realized loss on marketable securities - 32 - 32 - Changes in operating assets and liabilities: Accounts receivable 2,497 (540 ) (4,312 ) 1,957 (9,292 ) Prepaid expenses and other current assets (191 ) 3,583 (1,352 ) 3,392 (202 ) Income taxes receivable 51 (13 ) 13 38 11 Other assets 166 342 217 508 1,009 Accounts payable and other current liabilities 1,566 (4,005 ) 3,389 (2,439 ) 1,666 Deferred revenue (934 ) 473 520 (461 ) 317 Income taxes payable 72 (127 ) 52 (55 ) - Other long term liabilities   (1,237 )   900     (175 )   (337 )   (444 ) Net cash provided by (used in) operating activities   6,808     3,170     587     9,978     (3,961 )   Investing activities Purchases of marketable securities - - (1,965 ) - (11,921 ) Sale and maturities of marketable securities - 28,315 1,920 28,315 11,760 Change in restricted cash - (62,790 ) - (62,790 ) - Purchases of property and equipment   (259 )   (1,421 )   (5,395 )   (1,680 )   (12,061 ) Net cash (used in) provided by investing activities   (259 )   (35,896 )   (5,440 )   (36,155 )   (12,222 )   Financing activities Principal payments on capital lease obligations (319 ) (159 ) - (478 ) (358 ) Payment of employee tax withholdings related to restricted stock vesting (298 ) (646 ) (837 ) (944 ) (1,944 ) Cash paid for purchase of common stock - - - - (957 ) Proceeds from line of credit - 12,790 - 12,790 - Proceeds from employee stock plans   813     43     544     856     2,519   Net cash provided by (used in) financing activities   196     12,028     (293 )   12,224     (740 ) Effect of exchange rate changes on cash and cash equivalents   (1 )   159     140     158     (342 ) Net increase (decrease) in cash and cash equivalents 6,744 (20,539 ) (5,006 ) (13,795 ) (17,265 ) Cash and cash equivalents, beginning of period   24,141     44,680     45,508     44,680     57,767   Cash and cash equivalents, end of period $ 30,885   $ 24,141   $ 40,502   $ 30,885   $ 40,502    

Use of Non-GAAP Financial Measures

To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net income (loss), EBITDA and Adjusted EBITDA as supplemental measures of operating performance. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income (loss) to be an important indicator of overall business performance. We define Non-GAAP net income (loss) to be U.S. GAAP net income (loss) adjusted to exclude provision for litigation, share-based compensation, litigation expenses and amortization of intangible assets. We believe that EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries. We define EBITDA as U.S. GAAP net income (loss) adjusted to exclude interest and other (income) expense, interest expense, income tax expense, and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted to exclude provision for litigation, share-based compensation and litigation expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. Our management uses these Non-GAAP financial measures because, collectively, they provide valuable information on the performance of our on-going operations, excluding non-cash charges, taxes and non-core activities (including interest payments related to financing activities). These measures also enable our management to compare the results of our on-going operations from period to period, and allow management to review the performance of our on-going operations against our peer companies and against other companies in our industry and adjacent industries. We believe these measures also provide similar insights to investors, and enable investors to review our results of operations “through the eyes of management.”

Furthermore, our management uses these Non-GAAP financial measures to assist them in making decisions regarding our strategic priorities and areas for future investment and focus.

The terms Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are not defined under U.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Our Non-GAAP net income (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income (loss), EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Some of these limitations include, but are not limited to:

• EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
• these measures do not reflect changes in, or cash requirements for, our working capital needs;
• Non-GAAP net income (loss) and Adjusted EBITDA do not reflect the cash requirements necessary for litigation costs, including provision for litigation and litigation expenses;
• these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
• these measures do not reflect income taxes or the cash requirements for any tax payments;
• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• while share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
• other companies may calculate Non-GAAP net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management's analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented in thousands:

Reconciliation of Non-GAAP Financial Measures

Limelight is presenting the most directly comparable U.S. GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable U.S. GAAP measures. Per share amounts may not foot due to rounding.

  LIMELIGHT NETWORKS, INC.Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (Loss)(In thousands)(Unaudited)                       Three Months Ended Six Months Ended   June 30, 2016 March 31, 2016 June 30, 2015 June 30, 2016 June 30, 2015 Amount Per Share   Amount Per Share Amount Per Share Amount Per Share Amount Per Share   U.S. GAAP net loss $ (54,894 ) $ (0.53 ) $ (5,946 ) $ (0.06 ) $ (6,362 ) $ (0.06 ) $ (60,840 ) $ (0.59 ) $ (12,045 ) $ (0.12 )   Provision for litigation 50,956 0.49 - - - - 50,956 0.49 - - Share-based compensation 3,293 0.03 3,496 0.03 3,280 0.03 6,789 0.07 6,349 0.06 Litigation expenses 1,271 0.01 1,178 0.01 (1,174 ) (0.01 ) 2,449 0.02 (1,155 ) (0.01 ) Amortization of intangible assets   6     0.00     6     0.00     201     0.00     12     0.00     399     0.00     Non-GAAP net income (loss) $ 632   $ 0.01   $ (1,266 ) $ (0.01 ) $ (4,055 ) $ (0.04 ) $ (634 ) $ (0.01 ) $ (6,452 ) $ (0.07 )     Weighted average shares used in per share calculation 103,904 102,693 99,841 103,299 99,239     LIMELIGHT NETWORKS, INC.Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA(In thousands)(Unaudited)               Three Months Ended Six Months Ended   June 30,2016 March 31,2016 June 30,2015 June 30,2016 June 30,2015   U.S. GAAP net loss $ (54,894 ) $ (5,946 ) $ (6,362 ) $ (60,840 ) $ (12,045 )   Depreciation and amortization 5,115 5,291 5,011 10,406 9,804 Interest expense 279 179 - 459 4 Interest and other (income) expense 71 (406 ) 56 (335 ) (1,831 ) Income tax expense   115     158     90     273     145     EBITDA $ (49,314 ) $ (724 ) $ (1,205 ) $ (50,037 ) $ (3,923 )   Provision for litigation 50,956 - - 50,956 - Share-based compensation 3,293 3,496 3,280 6,789 6,349 Litigation expenses   1,271     1,178     (1,174 )   2,449     (1,155 )   Adjusted EBITDA $ 6,206   $ 3,950   $ 901   $ 10,157   $ 1,271    

For future periods, we are unable to provide a reconciliation of EBITDA and Adjusted EBITDA to net loss as a result of the uncertainty regarding, and the potential variability of, the amounts of depreciation and amortization, interest expense, interest and other (income) expense and income tax expense, that may be incurred in the future.

Conference Call

At approximately 4:30 p.m. EST (1:30 p.m. PST) today, management will host a quarterly conference call for investors. Investors can access this call toll-free at 877-388-8480 within the United States or +1 678-809-1592 outside of the U.S. The conference call will also be audio cast live from http://www.limelight.com and a replay will be available following the call from the Limelight website.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These statements include, among others, statements regarding our expectations regarding revenues for the full year 2016; our gross margin, non-GAAP net income and capital expenditures for the full year 2016; our expectations regarding litigation; and our future prospects. Our expectations and beliefs regarding these matters may not materialize. The potential risks and uncertainties that could cause actual results or outcomes to differ materially from the results or outcomes predicted include, among other things, reduction of demand for our services from new or existing customers, unforeseen changes in our hiring patterns, adverse outcomes in litigation, and experiencing expenses that exceed our expectations. A detailed discussion of these factors and other risks that affect our business is contained in our SEC filings, including our most recent reports on Forms 10-K and 10-Q, particularly under the heading “Risk Factors.” Copies of these filings are available online on our investor relations website at investors.limelightnetworks.com and on the SEC website at www.SEC.gov. All information provided in this release and in the attachments is as of July 27, 2016, and we undertake no duty to update this information in light of new information or future events, unless required by law.

About Limelight

Limelight Networks (NASDAQ: LLNW), a global leader in digital content delivery, empowers customers to better engage online audiences by enabling them to securely manage and globally deliver digital content, on any device. The company’s award winning Limelight Orchestrate™ platform includes an integrated suite of content delivery technology and services that helps organizations secure digital content, deliver exceptional multi-screen experiences, improve brand awareness, drive revenue, and enhance customer relationships — all while reducing costs. For more information, please visit www.limelight.com, read our blog, follow us on Twitter, Facebook and LinkedIn and be sure to visit Limelight Connect.”

Copyright (C) 2016 Limelight Networks, Inc. All rights reserved. All product or service names are the property of their respective owners.

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Limelight Networks, Inc.Sajid Malhotra, 602-850-5778ir@llnw.com