Limelight Networks, Inc.
Q3 2017 Earnings Call Transcript

Published: 19 Oct 2017

[Operator:]

Good day, ladies and gentlemen. Welcome to the Limelight Networks' 2017 Third Quarter Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I will now turn the call over to Dan Boncel, Limelight's Chief Accounting Officer. Please go ahead.

[Daniel Boncel:]

Good afternoon, and thank you for joining the Limelight Networks' Third Quarter 2017 Financial Results Conference Call. This call is being recorded on October 18, 2017, and will be archived on our website for approximately 10 days. Let me start by quickly covering the safe harbor. We'd like to remind everyone that we will be making forward-looking statements on this call. Forward-looking statements are all statements that are not strictly statements of historical fact, such as our outlook for 2017 and beyond, our priorities, our expectations and our operational plans, business strategies and feature functionality announcements. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. For more information, please refer to the risk factors discussed in our periodic filings, including our most recent annual report on Form 10-K. The forward-looking statements on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law. Joining me on the call today are Bob Lento, our Chief Executive Officer; and Sajid Malhotra, our Chief Financial Officer. We will be available during the Q&A session at the end of prepared remarks from Bob and Sajid. I would now like to turn the call over to Bob Lento.

[Robert Lento:]

Thanks, Dan, and good afternoon. I'm pleased to say this was yet another great quarter as momentum continued from our very strong first half of 2017. In fact, it was one of our strongest quarters ever, which is particularly impressive as the third quarter has historically been seasonally low for us. Revenue was up 17% for the third quarter and was our highest quarterly revenue in over 4 years. GAAP gross margin, which set a new record high for us, was up 730 basis points over the year-ago quarter. Our non-GAAP earnings increased 850% year-over-year and our adjusted EBITDA was up 45% from the year-ago quarter. We are extremely proud of these results, several of which are the best we have ever seen as a public company. We believe that we have built solid foundation for future financial performance, which has positioned us well to achieve our financial goals for the remainder of this year and beyond. We continue to see evidence of improved customer satisfaction in the third quarter. Our customer churn in the third quarter of 2017 was the lowest since we started tracking this metric in 2012. We also recently completed our latest customer survey and announced that our Net Promoter Score, which is a benchmark for customer satisfaction, was up a solid 14 points since last year. Our NPS has increased in each of the last 7 consecutive surveys, totaling an impressive 84-point improvement since our first survey in 2013. I'm particularly pleased that we experienced this increased customer satisfaction around the world with each geographic region survey receiving its highest ever NPS. Customer satisfaction is very important to us. It was the primary tenet of our turnaround plan when I joined the company in 2013. These excellent results are an indication that our customer-focused strategy is working, and we believe our improved customer satisfaction will continue to drive top line growth going forward. We're also seeing other indications that customer satisfaction is improving. Traffic volume during the quarter was up 18% in the third quarter of 2016, while incident tickets were down by 25%. We are pleased that customers continue to trust us with more traffic as the quality and performance of our network continues to improve. Another important tenet of our turnaround plan was improved employee satisfaction. We're seeing positive trends in this area as well as our attrition levels were at the lowest level in at least 8 years since we started tracking this metric and continue to be in a range that we believe is sustainable. I'm very pleased that employee pride in Limelight continues to grow. During the third quarter, we continue to make good progress on expanding our global network capacity. Some examples include our recently added capacity in Canada, Brazil and several locations in Europe. We also have expansion plans for Middle East, Southeast Asia, South Africa, and we anticipate adding even more capacity throughout Europe. Based on feedback from our customers, these geographic expansions represent an important opportunity for additional growth. We also continue to expand our capacity globally through software engineering. Our capacity models indicate that since the beginning of 2017, over half of our increase in capacity has come from software enhancements. Additionally, during this period, our capacity per server improved by over 50%. We are very encouraged by these trends and we believe there is still more we can do. By the end of this quarter, we anticipate completing the rollout of our new operating system, which we believe will further expand capacity and improve network performance, both for software downloads by providing faster throughput and for video delivery by providing higher-quality through lower rebuffer rates. We are excited about the potential positive impact to our customers of this significant development as well as other upcoming network efficiencies and software enhancements scheduled for release throughout 2018. Moving on to recent events. During the third quarter, we announced a few product and research related developments that I'd like to share. At IBC 2017 in September, we announced enhancements to our video delivery services that further improved the performance, quality and consistency of digital experiences for customers. New capabilities include low-latency live video streaming, integrated DRM support for video streaming and Limelight Video Acceleration, a new service that reduces the delivery latency of standard video streaming formats. We continue our though leadership in research in Q3 with our state of online video research report, the latest in the series of semiannual surveys that explores consumer perceptions and behaviors. According to the survey, global online video viewing has increased 34% and the average global viewer now watches more than 5 hours of online video each week and subscribes to one or more video-on-demand services. Last quarter we mentioned there were potential opportunities in Edge compute, and the good news is we're seeing quite a bit of interest. We're finding our large scale, private global network makes us a good alternative for customers who are looking to deploy Edge computing applications where latency and connectivity is mission-critical. Our high-capacity, high-performance network has connectivity to almost 1,000 ISP networks. Additionally, our distributed object storage, analytics and Edge compute capabilities are well suited to newer business initiatives that have a need for distributed computing closer to the source data. We've already onboarded a few customers, and we have others in the pipeline. We expect to have more updates in the fourth quarter, and we believe these efforts can yield meaningful revenue in 2019 and beyond. Looking ahead, at the remainder of 2017 and beyond, we will continue to focus on our long-term strategic priorities, creating customers for life, growing profitable revenue, while generating cash and improving our position as employer of choice. I'm very encouraged by our solid momentum on these priorities over the past few quarters and I expect this trend to continue. Customer demand is healthy, market trends are positive and our customer satisfaction continues to improve. We believe that we are well positioned for revenue growth and margin expansion as we remain disciplined in our approach to managing cost and pricing across our customer base. We remain focused on our goal of delivering the highest quality in the industry. In summary, this was another great quarter, one of the best in our history as a public company. We believe these results are sustainable given the foundational changes we've made over the past few years. We also believe that our performance through the first 3 quarters of 2017 demonstrates that our strategy, focus and discipline are working. Our team is focused on generating a strong fourth quarter, which is typically our seasonal high. We remain confident about Limelight's ability to meet our goals to responsibly and profitably grow the company. We believe accomplishing these goals would translate into above-market returns for our shareholders. With that, I'll turn the call over to Sajid to discuss third quarter's financial performance in greater detail and our guidance for the rest of 2017.

[Sajid Malhotra:]

Thanks, Bob, and good afternoon. We had a great third quarter. And we continue to progress towards what we believe will be an outstanding 2017. Revenue is up 17% from the quarter a year ago. In the third quarter, which is seasonally our lightest revenue quarter of the year, we reported our highest third quarter revenue ever, and it was the highest revenue in 19 quarters. Gross margin at 48.4% increased 730 basis points from the prior year, and is the highest we have ever reported. With operating expenses remaining under control, the combination of these elements resulted in our lowest third quarter GAAP lost since 2012, our best non-GAAP EPS in over 10 years and our best third quarter adjusted EBITDA ever. Let's just dig a little deeper into these financial results. Revenue in the quarter was $46.1 million. Again, it was an increase of 17% year-over-year. We experienced foreign exchange headwinds in the quarter of approximately $200,000 or less than 1%, primarily due to the Japanese yen. International customers accounted for 36% of total revenue in Q3 compared to 39% a year ago and approximately 17% of our third quarter revenue was in non-U.S. dollar-denominated currencies. Our top 20 customers accounted for approximately 66% of total revenue in Q3. As we've mentioned for a while, our primary focus has been on retaining and growing our business with existing large customers and attracting new large customers. Our customer churn in the third quarter of 2017 was the lowest since we started tracking this metric in 2012. We believe that our performance and reliability, along with our expanding feature functionality and first-class account management has allowed us to increase our share with these large customers. At the same time, we increased our average selling price year-over-year. Now let me just deviate from the script for a minute. As you recall, last quarter, the largest [indiscernible] that we're going to focus on the top 250 customers using pricing as a tool. A number of you picked on that. I filled in many calls about the implication. Well, one quarter later, strong growth in revenue and an industry multi-price compression, we are reporting an uptick in the average selling price. So this is a direct consequence, amongst other things, of staying disciplined in our pricing, continuing to focus on improved quality, the revenue mix, and thereby improving the overall business. A segment of the market values quality, capacity, capability, and our results suggest that we are serving it well. GAAP gross margin was 48.4% in the third quarter, an increase of an amazing 730 basis points year-over-year and a record high for Limelight. Cash gross margin was 58.9%, an increase of 610 basis points year-over-year. Our colocation fees have remained relatively flat despite adding PoPs and capacity in places like India, Canada and France. We have been able to accomplish this through great work by our research and development teams and increasing server efficiency and improved throughput. This has allowed us to reduce the number of servers in our network, while at the same time increasing our edge capacity by approximately 40%. We believe there continues to be opportunity in this area with technological advancements of equipment installed in our network as well as software enhancements. While we have expanded global capacity, we have also consistently reduced the number of content delivery servers and increased our quality, capability and footprint, and this is an incredible achievement. The easiest visible metric is our CapEx spend compared to the industry or key competitor analogues. Similar changes in our network architecture and win on negotiations have resulted in year-over-year decrease in bandwidth cost despite increased volumes. It is rare to find gross margin improvements like the one we have experienced this year. We believe we still have room to improve margins by continuing improvement in customer and product mix as well as new revenue streams we mentioned last quarter around security and Edge cloud and Edge compute. Total GAAP operating expenses were $24 million, which is an increase of $2 million from the third quarter of 2016. G&A expense increased by $100,000. Sales and marketing expense increased by $1.1 million and R&D expense increased $800,000 year-over-year. With the strong performance, variable compensation expense is up significantly and captured in the operating expense across all departments. It is included in our current liabilities on our balance sheet. We had net interest income of $100,000 in the third quarter of 2017 compared to $400,000 of net interest expense last year. Our other income was minimal in the third quarter of 2017 compared to $100,000 of income last year. The change was primarily due to foreign currency fluctuations. GAAP net loss was $0.02 per share in the third quarter of 2017, and we achieved positive $0.02 in non-GAAP earnings per share. In the third quarter of 2016, we reported a $0.06 GAAP net loss and breakeven non-GAAP earnings per share. Adjusted EBITDA was approximately $7.4 million, up a strong 45% from $5.1 million in the third quarter of 2016. Moving to the balance sheet and cash flow. We had cash and marketable securities of $57.7 million at the end of third quarter. Accounts receivable increased $600,000 and accounts payable decreased $2 million, driving the change in cash from prior quarter. We also made our fifth of 12, $4.5 million payments from the previously announced settlement with Akamai, and we spent $5.3 million on capital expenditures in the quarter. We are allocating more CapEx to accelerate expansion plans in the previously mentioned market and to meet the demands for future growth. DSO as of September 2017 was 55 days, consistent with the end of fourth quarter 2016. We typically expect DSO in the range of 50 to 55 days based on a global revenue distribution. We recently doubled our borrowing capacity under our revolving credit agreement to $10 million. We are able to accomplish this at a very minimal incremental cost due to our continued improvements in our financial conditions. We do not have any targeted use for this line at this time. I think of this as a very low-cost insurance policy. We had approximately 110 million shares outstanding as of September 30. Total headcount at the end of the quarter was 535, up 33 from the third quarter of 2016 and up 25 from the end of last year. The increases are related to additional operational support and sales and marketing personnel. Based on current conditions, for the full year 2017, we are increasing our revenue guidance to between $182 million and $185 million, up from our previous guidance provided last quarter of between $180 million and $182 million. We now expect gross margin to increase by more than 450 basis points over 2016 compared to prior guidance of a 300 basis point improvement. We are also raising non-GAAP earnings per share to be between $0.06 and $0.08 per share compared to prior guidance of between $0.05 and $0.07 per share. Adjusted EBITDA ranges increase to between $26 million and $29 million from previous guidance of $24 million to $28 million. Capital expenditures should stay at approximately $20 million. We are currently in the budgeting cycle and we'll confirm 2018 guidance later this year. At current levels, I'm comfortable with this great expectations for 2018. In summary, Limelight's financial and operational improvements continued at an extraordinary pace in the seasonally slow third quarter. At $46.1 million, revenue was the highest in 19 quarters and the highest for any third quarter. GAAP gross margin was the best in our history and was up a notable 730 basis points over last year. Cash flows margin was highest since 2008. GAAP net loss was second best in five years, just slightly behind last quarter. Comparing only third quarter results, this is our highest non-GAAP net income since 2007 and our highest adjusted EBITDA ever. In addition to a strong financial performance, we feel very good about our overall execution. We believe we are taking market share. At the same time, our customer satisfaction, as reflected in the improving Net Promoter Score, is at record highs. Our operating performance, as evidenced by the declining ratio of trouble tickets through traffic, is at record lows. Our financial performance captured in our revenue growth and massive improvement in margin profile and cash generation is best ever. Our employee satisfaction and moral based on record low turnover and internal surveys is very encouraging. Our R&D impact, evidenced by our capacity expansion, reduced buffering and storage leadership is substantial. And our opportunities to expand into adjacent markets supported by the new business and trials we are doing to support Edge cloud, Edge compute is indicative of our potential. We feel as good as we ever have about our current state of the business. It is my belief, these substantial successes across the multiple dimensions are creating significant shareholder value in 2017, after doing the same in 2016. We are doing our best to carry this momentum into 2018. With that, let's open the call to your questions. Operator?

[Operator:]

[Operator Instructions]. Our first question comes from Michael Turits with Raymond James.

[Michael Turits:]

Strong results, strong execution. Just questions on trying to drill down on the performance in the quarter. Obviously, it's very strong on a year-over-year basis, and it seemed that you have the same sequential growth that you've seen for a while. So no negative seasonality in the third quarter. So accounting for some of the great year-over-year performance, so what's the reason on what's taking place here? Is this an acceleration in the business from your perspective or are we seeing less seasonality?

[Sajid Malhotra:]

So Mike, thanks for the question, and we appreciate your support. Here's my take on this. First of all, we focused largely on the year overall as opposed to within the quarter, right? So as an example, when we gave guidance last year, we said we should be approaching double-digit for the balance half for each of the quarters. But in the middle of that, you have a very large upgrade from one of the handset providers. Now if that happens in October, it has one impact. If it happens in September, it has a different impact. So some of it we try to manage against. Some of it is hard for us to manage. But in general, we feel very good about the state of our business. And I think as our quality is improved, I think we are getting a larger share of the business that we really want. And I think some of the comparisons are also against weak quarters. And when you go back to 2015 and 2016, a little of it may have to do with seasonality, but a little of this also has to do with some of the very large price compression that we saw back in those quarters. And in recent months, we have refused and have been very disciplined about whether we want to go ahead and have a business experience the same thing again.

[Michael Turits:]

So just a quick follow-up on that. So from a price compression perspective, I mean, you grew 18% volume quarter. You grew, I think, you said 20% last quarter. So it seems like it's not an acceleration in volume. Your perception is more and more price stability, is that correct?

[Sajid Malhotra:]

Right. Discipline, flexibility...

[Robert Lento:]

And a change in the mix of the business for us, right. We've always said that the software download types of used cases tend to push lots of traffic, but are also lower-priced OTT. People are willing to pay for quality and so it also has to do with how we are managing the mix of our business.

[Sajid Malhotra:]

I mean, just add to that, when I met with investors I sometimes get asked and people paint a very broad brush, it's CDN market and it's commodity. And I'm also able to suggest that there may be elements of this market that are commodity, but we definitely have very large pieces of this business that are not commodity where people really care a lot about the quality of the service and the feature set of the service. For example, nobody is willing to tolerate buffering getting worse, and people are willing to pay for vendors that are able to provide high-quality services in that area as an example.

[Michael Turits:]

So if I can squeeze one last one in there. So it seems as if there is an acceleration in the organic growth of the OTT providers at this point? I would think that's based on your volumes numbers, but I just want to check.

[Robert Lento:]

Yes. I'd say that's a fair statement that we're seeing an acceleration.

[Michael Turits:]

So you are seeing an acceleration in OTT?

[Robert Lento:]

Correct.

[Operator:]

Our next question comes from Mark Kelleher with D. A. Davidson.

[Mark Kelleher:]

Were there any 10% customers in the quarter?

[Sajid Malhotra:]

Yes, there were. There were two customers that were 10%. We'll follow a Q tomorrow or later on tonight, and the two customers that you'll see named in there are Amazon and Apple.

[Mark Kelleher:]

Okay. The gross margin improvement, very impressive. What are your thoughts on -- is this the new base where there are some elements in there that lifted it unusually for the quarter? Is this kind of the new level that -- is there still room to grow from here?

[Sajid Malhotra:]

Yes. We've had really strong improvement as you can see in the three quarters leading up to the current quarter. But even last year, we improved gross margins by 240 basis points. So this has been, in large part, a gross margin story and we're trying to hold the expense line in check and CapEx in check. Fourth quarter last year, gross margins were already at very high levels, very close to the level we just supported for the third quarter. So we expect to improve on that, I mean, keep that in mind that the improvement is a lot more over very low number for Q3 and there's a smaller improvement over a very good number for Q4 last year. And then as you look into next year, I mean, as I said, I'll provide detailed guidance for next year later on this year. We just got to get through a board and get the path plan finalized. But I would be disappointed if we don't see triple-digit improvements in gross margin, again, next year. And we've laid out the long-term numbers, which suggests that we have to get to those business operating at gross margins north of 50%.

[Mark Kelleher:]

Okay. And you talked about some of the adjacent markets that you can move into. I assume it's still a little early for the Edge computing to be contributing. How about securities, how much is that helping?

[Sajid Malhotra:]

We've always had a security offering that we've taken from third-party partners, best-in-breed as opposed to building our own. We think that, that better serves the customer set for whatever their unique needs might be. We had an early relationship with Radware. We have a new relationship with Neustar. We are working with Zenedge. And that has always been part of the offering. It continues to move around that rates that are similar to the overall growth in the business. I don't think of it as contributing more to the revenue growth or less. I mean, it moves around. It's a small number and any one quarter can move it around but overall, it's really not a big deal. Now when Neustar moves over fully and looking into next year, I think it will become the larger contributor than it was this year, but at the same time, it still doesn't move the needle overall for the company.

[Operator:]

Our next question comes from Jon Charbonneau with Cowen.

[Jonathan Charbonneau:]

In terms of revenue guidance for this year, can you talk about what you believe are the biggest drivers in determining where you fall within that range?

[Robert Lento:]

Well, we're coming into the fourth quarter, obviously, the holiday season. Lots of new games being put out. Lots of new offerings on OTT. And so we don't really know how big will any one game or offering be, what percentage of the total are we going to get. So there's a fair number of unknown that, as the quarter progresses, obviously, those questions will get answered. So we're trying to give a range of outcomes that we think is reasonable.

[Sajid Malhotra:]

Yes. But it's no different than years gone by. It's all the same things, right? It's seasonality. There's a lot of sports. People hibernate more in the wintertime, they consume video compared to July, August when summertime people are out in outdoors and there's less consumption. So it's the things that we know about the business, there are some seasonality within the business and you always have to kind of go ahead and plan for that.

[Operator:]

Our next question comes from Sameet Sinha with B. Riley.

[Sameet Sinha:]

So a couple of questions here. First, if you can help us think about percentage of revenue, the way you described it now between commodity and non-commodity. And also, if you could kind of put some more color on how that has changed year-over-year, so that will give us a sense of kind of the momentum shift in the mix of the business. Secondly, if you can talk about the fourth quarter, the implied guidance. Obviously, $1 million sequential increase in revenue kind of implied, some of the business from 4Q got pulled into third quarter. If you can elaborate more on -- in spite revenue growing sequentially, margins, you're implying is going down. That's it.

[Sajid Malhotra:]

Okay. So first one is commodity, non-commodity, and then you've got a question on revenue and margins. I'm just noting this. I think it was hard for us to go ahead and have proof points 2 years ago, 1 year ago, when the business was at a different level and a different state. I mean, today, as the business -- and we believed then, and we told people then, that the business we operate in is not commodity business. But we had to go ahead and then make the investments necessary in R&D and to get the proof points to be able to then go to the customers and then say, this is what we are now bringing to the table. And based on that, you should give us a higher share of your wallet or a higher price or less price reductions, whatever that may take. So that's the business that we've been in. But evidence of that, we're starting to see now. I mean, the investments that we've been made are translating into the press releases that you see us put where we're willing to compare ourselves with anybody in the market around buffering, where you see our storage rank in the top every time you look at Cedexis. So I think that's what's happening is that all of that is coming to bear now. And that confirms our point that there is a large piece of this business where this is important. Not amongst 10,000 customers or 100,000 customers like some vendors have, but for the 800 customers we have, for a very large piece of them, these things are important. So that's one. On revenue, I mean, if you think of it as pull-through -- I don't necessarily think of it as pull-through. But yes, I've got more revenue in Q3 than I thought. At the same time, so maybe you have to appreciate that we still raised guidance for the full year and move the total revenue numbers up. So to the extent it got pulled out of Q4 into Q3, if that's what the map would suggest, we still left Q4 where it was at the original level to go back and replace it, and that's what we are focused on. To make sure that Q4 we can deliver what we set out to do and more to the extent possible. As far as gross margin go, I think if I could have said a higher number, I would have. I want to be sure that I can deliver the numbers that we've set out and share with you. And so at this point, I feel comfortable saying more than 450 basis point. Could it be higher? Yes. But I don't want to get to a point where we stretch ourselves and then have difficulty meeting those numbers and have difficult calls with you.

[Sameet Sinha:]

Great. One final question. Bob, well, speaking about Edge computing customers. Last time you referred to them as pilot programs. This call, you're referring to them as onboarding new customers. So should we assume that this is kind of out of the beta trial phase and now you are generating some revenue from it? Albeit small, but still generating revenue from it?

[Robert Lento:]

I think it's a fair assumption. We like, more important than the revenue that we're generating, we like the conversations that we're having regarding the value and putability of the assets that we have in place in terms of what people are looking for. And so we're hoping this quarter to continue to grow the pipeline and add some significant customers as well. And so as I think about it, I like the fact that we're able to bring out some new customers like the kinds of customers we are talking to in terms of who's in our pipeline. I like the trajectory in terms of what you're reading from industry analyst about where they feel this industry is going, and so it seems like it's a good match for us. I think the revenues in the second half of '18, but more importantly, into '19 could become a meaningful part of our growth and so we're cautiously optimistic.

[Operator:]

[Operator Instructions]. Our next question comes from Rishi Jaluria with JMP Securities.

[Rishi Jaluria:]

It's nice to see this kind of the gross margin improvement that you've shown this quarter. I guess, first, on the side of the emerging used cases such as the Edge computing. I'm sure you'll talk more in depth about that when you're ready, but how -- I guess, in terms of the development required for that, should we expect a significant growth or increase in R&D, be it expense or capitalized, to kind of build up those solutions based on the early pilots and the early customers that you adopted? Or how should we be thinking about the expense growth related to those new used cases?

[Robert Lento:]

Yes. The good news for us is we largely have all the assets in place. So people are attracted to us because we're connected to almost 1,000 ISPs. Those connectivities are already in place. They like the idea that we have storage close to the Edge that's already there. The space, the power and the computing power is already in place. And so yes, we'll have to do some things around how we monitor things differently, how we manage some things differently. So I do -- it's not going to be "free" but I don't see this as a driver, for example, of a big increase in our capital spending or our R&D spend.

[Sajid Malhotra:]

And Rishi, I think we talked about this 7 or 8 elements that kind of makeup a CDN. And so we have, as a company, a couple of choices to go expand the business outside of the core. So one is to go take our sales and leverage that with the roughly 800 customers we have and what else can we sell to them. So we can sell security to them, et cetera, right? So that's a reuse. But the other thing is to take the infrastructure and see who else can utilize what we put in place for a CDN. And there are different used cases, there are some used cases that only use 10% of our infrastructure that we've deployed or 20 or 30. So the higher that it's used, the better the business for us. But at this point, we are not contemplating having to add much to the infrastructure we have for the used cases that we are taking to the market for what we call Edge cloud, Edge compute, and the marketplace is still developing the nomenclature around this stuff.

[Rishi Jaluria:]

Okay. Got it. That's helpful. And on the security side, can you, I guess, help us understand with Radware and with Neustar, how does that work? Is there kind of a revenue sharing arrangement? Is there a joint sales motion? How should we be thinking about that?

[Robert Lento:]

Yes. So Neustar, for example, which we've disclosed probably last year when we signed that deal, is definitely going to be -- them with their sales team, selling their products and services and the underlying infrastructure supporting that will be ours, and we also have the ability to sell their products to our customer base. So that's an example of where we'll be selling their products into our customer base. But additionally, they have their own sales force and will be working on customer initiatives directly. And the same is true for Radware and Zenedge.

[Rishi Jaluria:]

Okay. Got it. And last one for my end, and then I'll hop off. But just in terms of headcount growth, how are you thinking about that heading into next year?

[Sajid Malhotra:]

So you know added about 25, 30 people to our workforce over the course of the year. And I think that, that is the right kind of number for the year going ahead into next year for the revenue base that we contemplate adding. And equally important is the way they get added, and we still think that the majority of the additions are customer-facing sales, marketing, R&D and some in operations. I still do not expect our G&A functions to see any increases because we still believe that we can continue to deliver the necessary G&A results for a higher base of business.

[Operator:]

All right. Then this concludes the question-and-answer session and today's conference. Thank you for attending the presentation.

[Sajid Malhotra:]

Thanks, everyone.

[Robert Lento:]

Thank you.

[Operator:]

You may now disconnect.