LLNW Limelight Networks Inc

• Revenue of $49.3 million, up 7 percent year over year
• GAAP basic EPS of break-even and Non-GAAP EPS of $0.03
• Operating cash inflow of over $11 million, highest in over a decade
• Cash and marketable securities of $52.7 million
• Confirming guidance and tightening ranges with lower capital expenditures

Limelight Networks, Inc. (Nasdaq:LLNW) (Limelight), a leading provider of edge cloud services, today reported revenue of $49.3 million for the third quarter of 2018, up 7% compared to $46.1 million in the third quarter of 2017. Currency negatively impacted year-over-year comparison by $0.2 million, or less than one percent.

Gross margin was 48.7% in the third quarter of 2018, an increase of 30 basis points from 48.4% in the third quarter of 2017.

On a GAAP basis, Limelight reported a net loss of $0.3 million, or break-even per basic share for the third quarter of 2018, compared to a net loss of $1.8 million, or $0.02 per basic share, in the third quarter of 2017.

Non-GAAP net income was $3.2 million, or $0.03 per basic share, for the third quarter of 2018, compared to non-GAAP net income of $2.2 million, or $0.02 per basic share, in the third quarter of 2017.

EBITDA was $4.3 million for the third quarter of 2018, compared to $3.4 million for the third quarter of 2017. Adjusted EBITDA was $7.7 million for the third quarter of 2018, compared to $7.4 million for the third quarter of 2017.

Limelight ended the third quarter with 551 employees and employee equivalents, up from 549 at the end of the second quarter of 2018, and up from 535 in the year ago period.

“We are pleased with Limelight’s third quarter results that showed year over year improvements even in a seasonally weak quarter, and marked record achievements across multiple key financial and non-financial metrics. Customers continue to reward Limelight’s performance gains by sending us more business, and we believe we are continuing to take market share. Pricing discipline and operational efficiencies are driving gains in gross margin and overall profitability, and at the same time, the continuing improvement in an already strong Net Promoter Score confirms our customer’s growing satisfaction with the value they obtain from Limelight,” said Bob Lento, Chief Executive Officer at Limelight.

“In light of the strength of our results, we are confident we will finish 2018 ahead of the expectations we set at the start of the year and within the range of outcomes we laid out last quarter. Importantly, our focus on new initiatives is yielding results. The two-way partnership with Tencent is exciting for the near term. The Ericsson initiative and the Realtime streaming opportunities should drive revenue and margin growth in the medium-term and our strategic focus on edge services will contribute to meaningful growth and profitability in the long-term. While there is opportunity to do even better, we are very pleased with our performance on multiple fronts. Our talented and dedicated employees continue to enhance our strategic focus while driving ever-higher operating discipline. Altogether, we believe we are building a better Limelight for all stakeholders and remain acutely focused on delivering exceptional shareholder returns,” Mr. Lento added.

Based on current conditions, for the full-year 2018, we are providing the following updates to our previously announced guidance:

  Limelight Networks, Inc.2018 Guidance                 October 18, 2018 July 19, 2018 April 19, 2018 February 7, 2018 Revenue No change $200 to $203 million $198 to $202 million $196 to $200 million   Gross margin percentage No change No change

Expansion of 150 basispoints over 2017

Expansion of more than 100 basispoints over 2017

  GAAP EPS $0.12 to $0.14 No change $0.07 to $0.11 $(0.07) to $(0.03)   Non-GAAP EPS $0.14 to $0.17 No change $0.13 to $0.17 $0.11 to $0.15   Adjusted EBITDA $35 to $37 million No change $33 to $37 million $32 to $36 million   Capital expenditures Below $18 million Below $20 million $20 to $22 million $22 to $24 million  

Financial Tables

  LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except per share data)             September 30,2018 June 30,2018 December 31,2017 (Unaudited) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 28,678 $ 28,719 $ 20,912 Marketable securities 23,957 16,851 28,404 Accounts receivable, net 26,147 31,862 32,381 Income taxes receivable 154 153 98 Prepaid expenses and other current assets   17,859     18,147     5,397   Total current assets 96,795 95,732 87,192 Property and equipment, net 27,392 26,303 28,991 Marketable securities, less current portion 40 40 40 Deferred income taxes 1,590 1,550 1,506 Goodwill 76,683 76,648 77,054 Other assets   2,434     2,235     1,665   Total assets $ 204,934   $ 202,508   $ 196,448     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,976 $ 6,179 $ 4,439 Deferred revenue 853 965 1,187 Income taxes payable 111 219 452 Provision for litigation 13,500 18,000 18,000 Other current liabilities   13,804     12,269     18,507   Total current liabilities 37,244 37,632 42,585 Deferred income taxes 174 124 144 Deferred revenue, less current portion 68 37 16 Provision for litigation, less current portion - - 9,000 Other long-term liabilities   385     389     558   Total liabilities 37,871 38,182 52,303 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; 113,198, 112,478 and 110,824 shares issued and outstanding at September 30, 2018, June 30, 2018 and December 31, 2017, respectively 113 112 111 Additional paid-in capital 509,846 506,684 502,312 Accumulated other comprehensive loss (9,477 ) (9,324 ) (8,328 ) Accumulated deficit   (333,419 )   (333,146 )   (349,950 ) Total stockholders' equity   167,063     164,326     144,145   Total liabilities and stockholders' equity $ 204,934   $ 202,508   $ 196,448       LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)                                   Three Months Ended Nine Months Ended   September 30,2018 June 30,2018 PercentChange September 30,2017 PercentChange September 30,2018 September 30,2017 PercentChange   Revenue $ 49,315   $ 50,249   -2 % $ 46,069   7 % $ 151,678   $ 136,173   11 % Cost of revenue: Cost of services (1) 21,519 21,206 1 % 19,287 12 % 63,779 57,758 10 % Depreciation - network   3,761     4,196   -10 %   4,506   -17 %   12,337     13,594   -9 % Total cost of revenue   25,280     25,402   0 %   23,793   6 %   76,116     71,352   7 % Gross profit 24,035 24,847 -3 % 22,276 8 % 75,562 64,821 17 % Gross profit percentage 48.7 % 49.4 % 48.4 % 49.8 % 47.6 % Operating expenses: General and administrative (1) 7,851 7,517 4 % 8,079 -3 % 24,890 23,397 6 % Sales and marketing (1) 9,766 10,022 -3 % 8,836 11 % 30,068 27,100 11 % Research & development (1) 5,882 6,073 -3 % 6,443 -9 % 18,294 19,377 -6 % Depreciation and amortization   616     633   -3 %   603   2 %   1,837     1,789   3 % Total operating expenses   24,115     24,245   -1 %   23,961   1 %   75,089     71,663   5 %   Operating (loss) income (80 ) 602 -113 % (1,685 ) -95 % 473 (6,842 ) -107 %   Other income (expense): Interest expense (10 ) (7 ) NM (18 ) NM (76 ) (42 ) NM Interest income 177 134 32 % 127 39 % 440 365 21 % Settlement and patent license income - 14,900 NM - NM 14,900 - NM Other, net   (246 )   (221 ) NM   8   NM   (355 )   249   NM Total other (expense) income   (79 )   14,806   NM   117   NM   14,909     572   NM   (Loss) income before income taxes (159 ) 15,408 NM (1,568 ) NM 15,382 (6,270 ) NM Income tax expense   113     249   NM   188   NM   347     448   NM   Net (loss) income   (272 )   15,159   NM   (1,756 ) NM   15,035     (6,718 ) NM   Net income (loss) per share: Basic $ (0.00 ) $ 0.14   $ (0.02 ) $ 0.13   $ (0.06 ) Diluted $ (0.00 ) $ 0.13   $ (0.02 ) $ 0.13   $ (0.06 )   Weighted average shares used in per share calculation: Basic 112,760 111,356 109,342 111,626 108,376 Diluted 112,760 120,033 109,342 120,025 108,376   (1) Includes share-based compensation (see supplemental table for figures)     LIMELIGHT NETWORKS, INC.SUPPLEMENTAL FINANCIAL DATA(In thousands)(Unaudited)                     Three Months Ended Nine Months Ended   September 30,2018 June 30,2018 September 30,2017 September 30,2018 September 30,2017     Share-based compensation:   Cost of services $ 352 $ 350 $ 352 $ 1,059 $ 1,075 General and administrative 1,887 1,969 1,565 5,666 4,773 Sales and marketing 638 633 611 1,874 1,848 Research and development   544   605   584     1,746   1,746     Total share-based compensation $ 3,421 $ 3,557 $ 3,112   $ 10,345 $ 9,442     Depreciation and amortization:   Network-related depreciation $ 3,761 $ 4,196 $ 4,506 $ 12,337 $ 13,594 Other depreciation and amortization   616   633   603     1,837   1,789     Total depreciation and amortization $ 4,377 $ 4,829 $ 5,109   $ 14,174 $ 15,383       Net increase (decrease) in cash, cash equivalents and marketable securities: $ 7,065 $ 1,875 $ (2,904 ) $ 3,319 $ (8,495 )     End of period statistics:   Approximate number of active customers 667 689 753 667 753   Number of employees and employee equivalents 551 549 535 551 535     LIMELIGHT NETWORKS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)                       Three Months Ended Nine Months Ended   September 30,2018 June 30,2018 September 30,2017 September 30,2018 September 30,2017   Operating activities Net (loss) income $ (272 ) $ 15,159 $ (1,756 ) $ 15,035 $ (6,718 )   Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,377 4,829 5,109 14,174 15,383 Share-based compensation 3,421 3,557 3,112 10,345 9,442 Settlement and patent license income - (14,900 ) - (14,900 ) - Foreign currency remeasurement (gain) loss 64 (271 ) 79 (97 ) 658 Deferred income taxes (16 ) (111 ) (73 ) (86 ) (217 ) Gain on sale of property and equipment (18 ) (97 ) (2 ) (131 ) (94 ) Accounts receivable charges 157 78 242 453 732 Amortization of premium on marketable securities 24 25 65 82 228 Changes in operating assets and liabilities: Accounts receivable 5,558 493 (800 ) 5,781 (2,026 ) Prepaid expenses and other current assets (2,757 ) (655 ) (322 ) (2,530 ) 545 Income taxes receivable 7 61 13 (56 ) 34 Other assets (192 ) (72 ) 13 (759 ) 21 Accounts payable and other current liabilities 3,058 (3,298 ) 2,048 (2,526 ) 4,749 Deferred revenue (82 ) 37 (47 ) 85 (450 ) Income taxes payable (113 ) 160 46 (350 ) 180 Payments related to litigation, net (1,520 ) (1,520 ) (4,500 ) (7,540 ) (13,500 ) Other long term liabilities   (4 )   (19 )   (202 )   (173 )   (584 ) Net cash provided by operating activities   11,692     3,456     3,025     16,807     8,383     Investing activities Purchases of marketable securities (15,962 ) - (2,864 ) (15,962 ) (10,383 ) Sale and maturities of marketable securities 8,850 7,000 3,500 20,365 17,744 Purchases of property and equipment (4,214 ) (4,291 ) (5,328 ) (10,495 ) (15,806 ) Proceeds from sale of property and equipment   18     97     3     131     83   Net cash (used in) provided by investing activities   (11,308 )   2,806     (4,689 )   (5,961 )   (8,362 )   Financing activities Payment of employee tax withholdings related to restricted stock vesting (996 ) (1,206 ) (655 ) (3,808 ) (2,571 ) Cash paid for purchase of common stock - - - (3,800 ) - Proceeds from employee stock plans   737     4,032     12     4,799     1,200   Net cash (used in) provided by financing activities   (259 )   2,826     (643 )   (2,809 )   (1,371 ) Effect of exchange rate changes on cash and cash equivalents   (166 )   (232 )   79     (271 )   360   Net increase (decrease) in cash and cash equivalents (41 ) 8,856 (2,228 ) 7,766 (990 ) Cash and cash equivalents, beginning of period   28,719     19,863     22,972     20,912     21,734   Cash and cash equivalents, end of period $ 28,678   $ 28,719   $ 20,744   $ 28,678   $ 20,744    

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 the settlement and patent license income, share-based compensation and litigation expenses. 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 depreciation and amortization, interest expense, interest and other (income) expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude the settlement and patent license income, 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 Income (Loss) to Non-GAAP Net Income(In thousands)(Unaudited)                                           Three Months Ended Nine Months Ended   September 30, 2018 June 30, 2018 September 30, 2017 September 30, 2018 September 30, 2017 Amount Per Share Amount Per Share Amount Per Share Amount Per Share Amount Per Share   U.S. GAAP net (loss) income $ (272 ) $ (0.00 ) $ 15,159 $ 0.14 $ (1,756 ) $ (0.02 ) $ 15,035 $ 0.13 $ (6,718 ) $ (0.06 )   Settlement and patent license income - - (14,900 ) (0.13 ) - - (14,900 ) (0.13 ) - - Share-based compensation 3,421 0.03 3,557 0.03 3,112 0.03 10,345 0.09 9,442 0.09 Litigation expenses   19     0.00     215     0.00     863     0.01     2,904     0.03     4,048     0.04     Non-GAAP net income $ 3,168   $ 0.03   $ 4,031   $ 0.04   $ 2,219   $ 0.02   $ 13,384   $ 0.12   $ 6,772   $ 0.06       Weighted average basic shares used in per share calculation 112,760 111,356 109,342 111,626 108,376     LIMELIGHT NETWORKS, INC.Reconciliation of U.S. GAAP Net Income (Loss) to EBITDA to Adjusted EBITDA(In thousands)(Unaudited)                       Three Months Ended Nine Months Ended   September 30,2018 June 30,2018 September 30,2017 September 30,2018 September 30,2017   U.S. GAAP net (loss) income $ (272 ) $ 15,159 $ (1,756 ) $ 15,035 $ (6,718 )   Depreciation and amortization 4,377 4,829 5,109 14,174 15,383 Interest expense 10 7 18 76 42 Interest and other (income) expense 69 87 (135 ) (85 ) (614 ) Income tax expense   113     249     188     347     448     EBITDA $ 4,297 $ 20,331 $ 3,424 $ 29,547 $ 8,541   Settlement and patent license income - (14,900 ) - (14,900 ) - Share-based compensation 3,421 3,557 3,112 10,345 9,442 Litigation expenses   19     215     863     2,904     4,048     Adjusted EBITDA $ 7,737   $ 9,203   $ 7,399   $ 27,896   $ 22,031    

For future periods, we are unable to provide a reconciliation of EBITDA and Adjusted EBITDA to net income (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 877-296-5190 within the United States or +1 412-317-5233 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 revenue, gross margin, non-GAAP net income, capital expenditures, 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 October 18, 2018, 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 Inc., (NASDAQ: LLNW), a leading provider of digital content delivery, video, cloud security, and edge computing services, empowers customers to provide exceptional digital experiences. Limelight’s edge services platform includes a unique combination of global private infrastructure, intelligent software, and expert support services that enable current and future workflows. For more information, visit www.limelight.com, follow us on Twitter, Facebook, and LinkedIn.

Copyright © 2018 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