LLNW

Limelight Networks, Inc. (LLNW)

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Limelight Networks, Inc. (LLNW)

Q4 2008 Earnings Call Transcript

February 26, 2009 8:00 am ET

Executives

Paul Alfieri – Senior Director, Corporate Communications

Jeff Lunsford – Chairman and CEO

Doug Lindroth – CFO

Analysts

David Hilal – FBR

Sri Anantha – Oppenheimer

Katherine Egbert – Jefferies

Kerry Rice – Wedbush Morgan

Michael Turits – Raymond James

Derek Bingham – Goldman Sachs

Mike Goldstein [ph]

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Limelight Networks Inc. fourth quarter 2008 earnings conference call. My name is Shanel and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator instructions)

I would now like to turn the presentation over to your host for today's call, Mr. Paul Alfieri, Senior Director of Corporate Communications. Please go ahead.

Paul Alfieri

Good morning and thank you for joining the Limelight Networks’ fourth quarter 2008 financial results conference call. Speaking today will be Jeff Lunsford, Chairman and Chief Executive Officer, and Doug Lindroth, Chief Financial Officer.

This conference call is being recorded on February 26, 2009, and will be archived on our website for approximately one week. Some portions of this conference call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are all statements that are not strictly statements of historical facts, such as statements regarding future events or future financial performance, including, but not limited to, statements relating to Limelight Networks’ market opportunity and future business prospects, guidance on 2009 financial results and statements concerning anticipated future growth and profitability, as well as management’s plans, goals, strategies, expectations, hopes and beliefs.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those contained, projected or implied in the forward-looking statements and reported results should not be considered an indication of future performance. Factors that could cause actual results to differ are included in the company’s periodic filings with the Securities and Exchange Commission.

I would now like to introduce Jeff Lunsford, Chief Executive Officer. Jeff?

Jeff Lunsford

Thank you all for joining us this morning. The fourth quarter was a stellar quarter for Limelight Networks. We delivered $36 million in revenue, 23% year-over-year growth over Q4 of 2007, and drove multiple points of gross margin expansion in the quarter, as the investments we made in capacity and sales resources in the first half of 2008 paid off in the second half.

We achieved these results despite the very tough business environment in the quarter. Consumers continued to flock to the Internet, and perhaps increase our online activity even while they were scaling back other expenses. Our over-performance in revenue led to adjusted EBITDA before litigation costs and stock-based compensation of approximately $4.6 million. We exited 2008 with over 25% video CDN market share. And looking back, we see 2008 as the year where we built a solid financial footing in the first quarter and grew the business from there. We expect the same general pattern to repeat in 2009, although we believe we will see deeper retrenchment during Q1 of 2009 than we did in Q1 of 2008, given the current business environment.

In Q4, and continuing into Q1, we took the opportunity to proactively adjust some of our major contracts so that they were more reflective of the budgetary pressures being felt by our large customers. We also saw a few emerging-market customers scale back their operations. As a result, we expect to see a sequential revenue decline from the strong Q4 levels into a more rationalized Q1 base. And from this base, we expect to put together another growth to the year like 2008, where revenue will build from a Q1 base throughout the year and where we will pick up a few points of gross margin expansion between Q1 and Q4.

Like most other businesses, we do not have great visibility at this time, but in general, we believe we are operating in a market with a healthy underlying demand driver that should allow us to continue to grow. Internet traffic continues to grow and while we have the good challenges of pricing pressures and operating efficiencies to deal with, we also have demand growth unlike many other segments, where demand itself has deteriorated.

In addition to these high-level financial highlights, today I would like to update you on Limelight’s customer base, where we continued to grow the quality of our relationships, Limelight's network growth, our ongoing litigation and guidance.

First, Limelight’s customer base. During the quarter, we added over 30 net new customers and continued to grow the overall value of our customer relationships as AARPC, average annualized revenue per customer, grew from $102,000 last quarter to $107,000 this quarter. At year-end, we had over 1,330 active customers. We have previously discussed a proactive shift from a number of customers towards building higher quality relationships within our accounts. In the quarter, we also worked to diversify the markets in which we do business, continuing our expansion into the enterprise and corporate segments, adding customers such as Deutsche Bank and Toyota of Japan, and into the government and public sector segment adding customers such as the University of Virginia and Ford Institute of technology.

We also advanced the ball on our channels program, where we announced a very strategic partnership and reseller relationship with Rackspace in which we will provide scalable content delivery and application acceleration services for their innovative Cloud files product. This partnership enables us to address the self-service pay-as-you-go market space by leveraging the resources and relationships of Rackspace. We continue to build out the channel in Q1, where we recently signed a large multi-year reseller partnership with Global Crossing, a global cell communications provider. In Q4, we also continued to expand our already strong presence in the media and entertainment segment, winning business and deepening relationships with some of the largest Internet businesses in the world. And we are pleased to be supporting customers like Netflix and Amazon as they innovate in direct digital distribution of consumer entertainment to the PC and to new Internet connected devices like Blu-Ray players and IP set top boxes.

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