Limelight Networks, Inc.
Q4 2017 Earnings Call Transcript

Published: 8 Feb 2018

[Operator:]

Good day, ladies and gentlemen. Welcome to the Limelight Networks' 2017 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode. At the end of the prepared remarks, we will provide instructions for those interested in entering the queue for the question-and-answer session. 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' fourth quarter 2017 financial results conference call. This call is being recorded on February 7, 2018 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 2018 and beyond, our priorities, our pending litigation, 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. Today, we announced our fourth-quarter and full-year results. This was an excellent quarter, capping a year of hard work that resulted in solid momentum in our business and improving financial and operating performance. Revenue was up 10% for the fourth quarter and was our highest quarterly revenue ever. Gross margin was up 280 basis points, over the year ago quarter and was second only to a record high performance last quarter. Our non-GAAP earnings and adjusted EBITDA, set new records this quarter, as non-GAAP earnings increased to 119% year-over-year and our adjusted EBITDA was up 15% from the year ago quarter. We are extremely proud of these quarterly results, which were a strong finish to an exceptional year. For the full-year 2017, revenue was up 10% year-over-year and well above our guidance at the beginning of the year and within the range we reiterated last quarter. I'm especially proud of our double-digit revenue growth for the year, which was an important goal going into 2017. Our 2017 gross margin improved by 520 basis points over 2016 and our adjusted EBITDA for 2017 was up 35% from the prior year amount. These excellent results are an indication that our customer focused strategy is working. We have momentum in our business and a solid foundation for future financial performance, which we believe positions us well to achieve our financial goals in 2018 and beyond. In 2017, we made meaningful progress on multiple priorities. Customer satisfaction continues to improve, as evidenced by the solid 14-point increase from our 2016 net promoter score. We have earned a higher NPS score every year since our first survey in 2013, totaling an impressive 84-point improvement. This improved customer satisfaction contributed to record traffic levels in 2017, which were up almost 20% over 2016, while incident tickets were down by a little more than 20%. We are pleased that customers continue to trust us with more traffic as the quality and performance of our network continue to improve. We focused on geographic expansion and markets important to our customers as part of our customer satisfaction efforts in 2017. We expanded our presence in India, added capacity in Canada, Brazil and several locations in Europe and North America. We also launched expansion projects in the Middle East, Southeast Asia and South Africa, which we expect to finish this quarter. Carrying this momentum into 2018, we also recently extended our reach into the rapidly growing market in China, through an agreement with Tencent Cloud. This agreement allows our customers to access the Chinese market and Tencent customers to access global consumers through our network. We believe these geographic expansion efforts will serve our customers well and provide an important opportunity for additional growth. We also made numerous and important software enhancements throughout 2017 to drive significant capacity expansion across our network, our capacity models indicate that since the beginning of 2017, our network capacity has doubled with over 60% of this increase coming from software enhancements. These successful software enhancements included the rollout of a new next-generation operating system in the fourth quarter, which has had a positive impact on our network capacity and performance. This new operating system is providing faster throughput for software downloads and higher quality through lower rebuffer rates for video delivery. One major U.S. video customer has seen its rebuffer performance improved by 19% for high definition content and 24% for standard definition content, since we deployed the new operating system. Another major global video customer that uses a multi-CD and workflow has been rewarding significantly more traffic to Limelight due to our improved performance. We’re excited about the positive impact of this significant development effort. We began exploring potential opportunities in Edge services in the second half of 2017, as we believe that our large scale private global network makes us a good alternative for customers looking to deploy application at the Edge, where latency and connectivity are mission critical. We have seen growing interest, on-boarded a few customers and continue to build our pipeline. I'm very pleased that we just announced our first material win in this space with Avitas, a GE venture, who will be using our global private network and distributed cloud storage infrastructure to deploy its next generation automated inspection platform. After scanning the world for performance and completing a six-month pilot with us, Avitas chose Limelight for its need signing a multi-year contract. We are proud to serve Avitas and its large-scale inspection platform, which is enabling its customers to save money and also drive a level of safety and security that is unprecedented. Turning now to our ongoing legal dispute with Akamai, as you know, we filed a claim for patent infringement against Akamai in the Eastern District of Virginia back in November of 2015. Akamai filed counter claims asserting infringements of five of its patents. After a series of challenges by both parties to each patent in the case, the court decided to schedule a one-week trial solely with respect to the question of Akamai's infringement of three of our patents. The trial is scheduled to begin on April 2, 2018, which is less than two months from today. We intend to seek the maximum damages allowable by law and also a permanent injunction against future acts of infringement by Akamai with respect to these patents. Each of Akamai's five patents has undergone a validity challenge before the patent trial and appeal board. This has resulted in the invalidity of one patent while the other four is still pending. According to statistics cited by Akamai in the Eastern District of Virginia proceedings, once instituted, two-thirds of these types of challenges litigated to a final decision result in the PTAB invalidating the challenge claims. The PTAB will render its validity decisions on Akamai's remaining four patents in the coming months and any patent that survives these challenges will be eligible for future trial. Looking ahead at 2018, our long-term strategic priorities will continue to be creating customers for growing profitable revenue, while generating cash and improving our position as employer of choice. We are also well-positioned to add significant and innovative features and capabilities and have added this as a key strategic priority. Customer satisfaction will continue to be at the heart of everything we do in 2018. We will continue to communicate with our customers and focus our efforts in areas that are important to them. The communication between our employees and our customers happens daily along with our more formal annual customer satisfaction survey and our frequent regional customer advisory forums serve to keep us well-informed regarding our customers' needs and expectations. We believe this focus on improved customer satisfaction will continue to drive top-line growth going forward. The market for video delivery both live and on-demand is growing, and we are focused on becoming a lead provider at scale in this area. We also continue our efforts in Edge services, which we believe has great potential for us given our unique ability to address customers' needs. We expect to prove our value proposition and exit the year as a key player in this market, which should position us for meaningful growth in 2019 and beyond. We will continue to expand our geographic footprint in 2018 in locations that are strategic to our customers. We will also build further improvements in our network capacity globally through continued software optimization, which we expect will also drive network efficiencies and better performance. We are encouraged by the capacity increases through software enhancements that we experienced in 2017 and we believe there is still more to come. Our R&D spend in 2018 will also be focused on driving new feature functionality for our customers, particularly in software downloads, video and Edge services. We have a number of software enhancements and feature functionality releases scheduled for 2018, which we expect to further improve our customers' experience. We will also focus on our employee satisfaction to maintain our low level of attrition. We will continue to invest in our employees through training and expanded responsibilities, and I expect that employee pride in Limelight will continue to grow. In summary, this was another great quarter, concluding a great year. I would like to thank our global work force for all their hard work in making 2017 one of the best years in Limelight history. I am very encouraged by our solid momentum on our strategic priorities and I expect this trend to continue. We believe that we are well-positioned for continued revenue growth and margin expansion, as we remain disciplined in our approach to managing costs and pricing across our customer base. We remain focused on our global goal of delivering the highest quality in the industry and we believe this will translate into above market returns. With that, I’ll turn the call over to Sajid to discuss the fourth quarter's financial performance in greater detail and our guidance for 2018.

[Sajid Malhotra:]

Thanks, Bob, and good afternoon. I am happy to report another great quarter, as we continue our move to profitable growth in our turnaround. Net [ph] milestone is GAAP profitability and positive cash flow and I will have more on that in our guidance later on. Revenues up 10% from the quarter a year ago, it was our fifth consecutive quarter of revenue growth, our second consecutive quarter of double-digit percentage revenue growth, and our highest reported revenue ever. Gross margin at 47.7% increased 280 basis points from the prior year. With operating expenses remaining under control, the combination of these elements resulted in our lowest quarterly GAAP loss since 2012, our best non-GAAP EPS ever and our best quarterly adjusted EBITDA ever. Revenue in the quarter was $48.2 million, up 10% from Q4 last year. We experienced Foreign Exchange tailwinds in the quarter of approximately $300,000 or less than 1%, primarily due to the British pound. International customers accounted for 38% of total revenue in Q4, compared to 40% a year ago, and approximately 17% of our fourth quarter revenue was a non-U.S. dollar denominated currencies. Our top 20 customers accounted for approximately 69% of total revenue in Q4. Our revenue growth has come from both existing customers as well as new customer wins. Our new customer wins have approximately three times the amount of annual revenue than the customer is leading us. The positive mix shift has resulted in average monthly revenue per customer to move from $50,000 in the fourth quarter of 2016 to $65,000 in the fourth quarter of 2017. It is our belief that we have one of the highest if not the highest average revenue per customer in the industry. According to the Cisco Visual Index White Paper published in June 2017, CDN traffic will carry 71% of all Internet traffic by 2021. This is up from 52% in 2016. We feel we are uniquely positioned to participate in this industry's organic growth. We aim to win market share, as we continue to invest in our infrastructure enhancements and add feature functionality that our customer wants and need. Gross margin was 47.7% in the fourth quarter, an increase of 280 basis points over the strong prior year. Cash gross margin was 57.9%, an increase of 190 basis points year-over-year. Our bandwidth expenses in aggregate dollars increased, as we served record traffic in the fourth quarter of 2017. Despite a 12% increase in traffic delivered in the fourth quarter of this year compared to last year, our bandwidth expense was essentially flat, as we continue to efficiently manage this and every aspect of our cost line. Rack fees remains consistent with the prior year despite the addition of multiple geographies and the significant increase in overall capacity. Rack fees also continue to decline as a percentage of revenue contributing to our gross margin improvements. The increase in gross margin at Limelight has been an incredible and we expected to continue to make further improvements in the coming years. Customer and product mix as well as the new revenues streams, we mentioned around security and Edge services should help these efforts for the foreseeable future. Total GAAP operating expenses were $24.2 million, which is an increase of $1.3 million from the fourth quarter of 2016. G&A expense increased by $700,000, sales and marketing expense increased by $800,000. These increases were partially offset by a decrease of $100,000 in R&D expenses year-over-year. With our strong performance, variable compensation expense is up and is captured in operating expenses across all departments. It is included in other current liabilities on our balance sheet. We had net interest income of $90,000 in the fourth quarter of 2017 compared to $40,000 last year, other income was $200,000 in the fourth quarter of 2017 compared to $600,000 of expense last year. This change was primarily due to foreign currency fluctuations. GAAP net loss was $0.01 [ph] per share in the fourth quarter of 2017 and we achieved a strong $0.04 in non-GAAP earnings per share. We reported $0.04 GAAP net loss and positive $0.02 per share of non-GAAP earnings in the fourth quarter of 2016. Tax reform did not have a material impact on our financial results given our net operating loss position and our valuation allowance on that NOL. Adjusted EBITDA was approximately $8.7 million, up 15% from $7.5 million in the fourth quarter of 2016. Moving to the balance sheet and cash flow, we had cash and marketable securities of $49.4 million at the end of fourth quarter. The primary drivers of our change in cash were an increase in accounts receivable of $3.7 million and a decrease in accounts payable of $4.4 million. We expect these year-end calendar related changes to correct as early as the coming quarter. We also made our sixth of 12, $4.5 million payments from the previously announced settlement with Akamai, and we spent $4.9 million on capital expenditures in the quarter. Capital expenditure totaled $20.7 million for the year in line with our original guidance. DSO as of December 2017 was 62 days, seven days higher than the end of the fourth quarter of 2016, as it looks like some customers were managing their cash at the end of the year. We expect DSO to be more in line to the historical averages and be in the mid-50s in the first quarter of 2018. We maintain our borrowing capacity under our revolving credit agreement at $10 million although we have not drawn on it to-date. During the fourth quarter, Goldman Sachs, our largest shareholder sold 15 million shares or roughly half of their position. Earlier today, we filed a shelf [ph] registration statement with the SEC to register the remaining shares held by Goldman, applicable securities laws prevent us from further commenting on the subject until the registration statement becomes effective. As of December 31st, we had approximately 111 million shares outstanding. Total headcount at the end of the quarter was 533, up 23 from the end of last year. The increase is related to additional operational support and sales and marketing personnel. Moving to our guidance for 2018, we expect revenue to be between $196 million and $200 million. We expect gross margin to increase by more than 100 basis points over 2017 and we expect non-GAAP EPS to be between $0.11 and $0.15. Adjusted EBITDA is expected to be between $32 million and $36 million. Capital expenditures are expected to be between $22 million and $24 million. Within the year, we expect the four quarters to be more even than in previous years, if that rolls, we could be close to breakeven at the operating income line for the four quarters. Our goal is to increase our cash balance every quarter before any buyback M&A etcetera. These metrics have alluded us as a public company, but I believe it’s time to put these down as a near term target. In summary, 2017 has been a finest year across many, many fronts. We have now reported five consecutive quarters of revenue growth. We added more revenue in 2017 than we did collectively between 2011 and 2016. We improved gross margin by over 520 basis points. Record revenue, record cash and GAAP gross margin, record non-GAAP net income, record EBITDA, record adjusted EBITDA, when I looked back at where our three-year analyst estimates were at the beginning of 2017 and compare them to what we achieve this year, it is remarkable. For example, we nearly achieved 2018 analyst estimates from our 2017 performance. On multiple metrics, our guidance for 2018 now is higher than what the estimates set for 2019 a year ago. On profitability measures, we are essentially more than the year ahead of where consensus views were a year ago. We are very proud of this achievement and we look to build on this momentum moving forward. As we look ahead, we are increasingly confident about our ability to play a meaningful role in businesses requiring low-latency at services. Let me spend a minute on why? The entry into new business typically goes through a buy versus build analysis. The buy decision is a quick start, immediate addition, but carries higher operational, integration and balance sheet risk. On the other hand, the build decision is less risky with capital deployment and the ability to review and revise direction. But it is inherently slow. With our Edge services initiatives, which we see as an expansion into an adjacency, we get speed, a global network is ready. At the same time, there is very little risk, almost no incremental capital deployment, no big balance sheet debt and we come to the market with a reputation, traction and existing relationships. Relative to our scale, in my carrier, I have never come across an opportunity so large and a starting cost so low. Our early events are with marquee names as evidenced with the Avitas announcement. A competitive advantage against even the biggest name is significant, as we bring low-latency access with the secure network, high performance storage and connectivity at a global scale. And compare to our CDN business, we expect longer-term contracts with healthier margins and lower customer flight risk. For these reasons, we believe this could be a significant source of new revenue with respectable margins for years to come. At the same time, we will continue to stay focused on growing the core, improving margin, managing operating expenses and achieving profitability. This is an exciting time for all attached to Limelight. With that, we'll open the call up for your questions. Operator?

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Mark Kelleher with D.A. Davidson. Please go ahead.

[Mark Kelleher:]

Great. Thanks for taking the questions and congratulations on some really good execution there. Just a couple of housekeeping first, were there any 10% customers in the quarter?

[Sajid Malhotra:]

Yes, there is one customer, if you recall last quarter, we had two, this quarter we have one customer, it's Amazon.

[Mark Kelleher:]

Okay. And were there any -- can you tell us what their pricing dynamics are for content delivery, are they seeing any competitive challenges there?

[Robert Lento:]

Nothing out of the ordinary -- I mean historically we have price compression every year. We try to manage that as best we can both in terms of passing along the savings that we achieve through cost management and our business and at the same time dealing with competitive pressures. So, I don't really see any big change at a macro level, obviously on any one deal, competitor can get a little crazy and we see that from time-to-time, but at a macro level I think it's been pretty steady.

[Mark Kelleher:]

Okay. And last question, can you talk a little bit about the Tencent partnership, what should we expect from that, when does it ramp or what does that look like?

[Robert Lento:]

So, obviously lots of content being created inside of China that with a large population of Chinese speaking people outside of China. Tencent wants to help its customers deliver that content to where ever Chinese speaking people are, and obviously we want to help them do that through our network, so that's one side of it. And we have lots of customers that also at the same time want to get their content into China. We made decision years ago not to build out or try to build out in China and instead to partner and what we see with Tencent Cloud is very large, mature or high-quality network much like we have outside of China. And so, I think it's going to be very good for both us. In terms of ramping, we've actually -- we are actually already using Tencent for at least one or two and then keep in mind we just sign this a few weeks ago, one or two of our larger customers are just starting to ramp with us inside of China using the Tencent capabilities and network, and we are in the process of working with them on opportunities for them to use our network. So, it's early days. We like what we’re seeing in terms of quality they can provide, and we are actively talking with our customers about that. And we're just starting to talk to them about moving traffic into our network on behalf of their customers for content outside of China.

[Mark Kelleher:]

And we should think of this is a 2019 impact?

[Sajid Malhotra:]

Yeah, Mark, I think in terms of percentages, if we just wanted to do put the marketing spin on in, it’s a lot of very large percentage improvement, both this as well as what we see from the other big announcement from the quarter along Avitas. But it factored into our guidance for this year, I think it ramps up over the course of the year being more meaningful than the second half of the year, but this is -- this could be material for us in 2019 and beyond.

[Mark Kelleher:]

Okay, great. Thanks.

[Robert Lento:]

Appreciate it, Mark. Thank you.

[Operator:]

The next question comes from Jon Charbonneau with Cowen. Please go ahead.

[Jonathan Charbonneau:]

Great, thanks for taking the questions. In terms of traffic, how fast the traffic grows year-over-year in the fourth quarter and any change in terms of the mix between OTT and software downloads. I believe last quarter you noted an acceleration in OTT. Did that continue in the fourth quarter? Thank you.

[Robert Lento:]

Yeah, we are still seeing that more -- a greater percentage of our traffic is coming from everything video and so we're pleased with that, because that's where a lot of our R&D dollars are going into and in fact, we have some pretty amazing feature functionality items that will be coming out within the first half of this year, especially around low-latency, which obviously is great for live sports and other types of live activities, gambling and other things where that really matters. In terms of traffic the fourth quarter was about 12% year-over-year and for the year it was about 20%, so those are kind of round numbers. So, we're pleased - especially pleased that we’re able to hit the revenue that we did in the fourth quarter, without having to take I mean 12% still a healthy, but lower than what we did on average for the year and still not only hit but exceed the expectations that we set both publicly and for ourselves in the fourth quarter.

[Sajid Malhotra:]

And Jon, I would just add to that, that if you do the math around traffic growth in the quarter or for the year and then map that against our revenue, this is probably one of our better performances in terms of price compression and so whatever you may hear in the marketplace about price and aggressive pricing et cetera, I think we did a really good job of managing our pricing and the discipline around that, and fixing or focusing on the business that attracts quality as opposed to indiscriminate pricing.

[Jonathan Charbonneau:]

Great, thank you.

[Robert Lento:]

Thanks Jon.

[Operator:]

The next question comes from Michael Turits with Raymond James. Please go ahead.

[Michael Turits:]

Hey Sajid, just wanted to follow-up on that, so what was behind traffic slowing throughout 18% two quarters ago than 12%, two quarters ago, 20% than 18% and 12%. So why was it slowing and does that have anything to do with the Akamai claim that they are getting more aggressive with their top customers?

[Robert Lento:]

No, we can’t speak to what Akamai is or is not doing, obviously with their call yesterday and quite frankly confused by their numbers. But that aside you know it's not a slowdown of traffic, we've made some decisions in terms of what traffic we would choose to handle in the fourth quarter and chose to be less aggressive in the area of what I would call the bulk mail delivery, the software download kinds of traffic. And at the same time, very, very focused on the video traffic, which on average carries a higher ASP than the software download traffic and so for us it was a conscious decision and the fact that Q4 was a little bit lower than the year on average, I wouldn’t read much into that, we’re - this year, we expect the number to be higher than 12% from a traffic growth standpoint. So that really in the Q4 where we made some decisions in terms of how we were going to go about meeting our financial expectations and we were lucky enough to be able to get enough of the video business to be able to reach our financial goals without having to go after the low-price bulk traffic.

[Sajid Malhotra:]

And Mike, I would just add to that, that is evidenced in the revenue acceleration. So, if you look at the first half of the year or the first and second quarter versus the third and fourth quarter, our revenue ramped up. So, we had less price compression. We stopped going after all of the traffic that's available at some really, really - at pricing that we just don't find attractive. Others do, they're chasing it, it's evidenced if somebody is talking about high growth in traffic, but it's not showing up in revenue and that's the business that they want to pursue that's good for them, it's not good for us.

[Robert Lento:]

And that's a confusing part. I mean we had 12% increase in traffic as we said with the 10% increase in revenue by Akamai notes properly, they were down 3% or 4% in revenue but claim that traffic was growing in excess of industry rates. So, I don't - there are not too many variables inherent to make that happen, but I'm not sure how that works.

[Michael Turits:]

What about the large cloud vendors Apple, Facebook, Microsoft et cetera. You've commented on some of these guys in the past. Can you comment at all anyway what your traffic was likely with those guys?

[Sajid Malhotra:]

Yeah. We don't do business with all of the names that are in there, list of six, but with the names that we do business with, our revenue's up with them as a group.

[Robert Lento:]

And the relationships are good. So, we've already talked about the fact that Amazon is our 10% customer this last quarter. Apple was in Q3, the fact that they weren't in Q4. The relationship is still healthy; our traffic is growing with them. Obviously, they had a big operating system release in Q3 that pumped that up a little bit. So, we enjoy healthy relationship with some of those customers and some of those customers, we don't do any business with and never have for that matter.

[Michael Turits:]

The last question, just a clarification Sajid, what was your guidance for 2018 in terms of I guess it was net income comp positive. And did you say for each of the quarters. I just wanted to make sure I was really clear on what you meant?

[Sajid Malhotra:]

Obviously, we want to be able to do it for the full year. But if the quarterly revenue is about even. We'd love to be able to do it for the four quarters or try and get as slow through as possible.

[Michael Turits:]

Is in the net income now?

[Sajid Malhotra:]

Yeah.

[Michael Turits:]

Okay. So, you should be net income positive each quarter.

[Sajid Malhotra:]

Correct.

[Michael Turits:]

Okay. Thanks.

[Operator:]

The next question comes from Greg McDowell with JMP Securities. Please go ahead.

[Greg McDowell:]

Great. Thank you. A lot to be proud of. Thanks for taking my questions. I want to first focus on the new customer wins having 3X, the annual revenue of customers leaving you. And maybe help us think about 2018 and number of active customers and how that will play out, because I know over the previous years that customer number has been coming down. But maybe just a little guidance on how we should be thinking about that number moving forward. And then I have some follow-ups.

[Robert Lento:]

Yeah. So, let me make a comment on it. And then I will pass it over to Sajid. So, if you remember back in 2016, we cut back on our sales and marketing expense. And we started to rebuild that as we went into 2017, but the actions you've taken in 2016 affect the results in 2017. So, 2017, we started building back that expense and we are further increasing our sales force and marketing spend in 2018 over 2017. So, we expect that we will add more customers this year than we did last year. But from a focus standpoint we've really made the decision to try to focus on the medium to large size enterprises. And generally speaking the customers that have been leaving are the smaller ones. And the customers that we've been going after are more of the marquee names in the industries that we choose to participate in. As we go through 2018, our desire is to close the gap between customers leaving and new customers coming in still focusing on the largest customers, but continuing to do a better job of reducing churn, 2017 was a record year for us but so in 2016 and 2015 and 2014 and 2013 so we’ve been getting better at that and so we’ll continue to focus on reducing churn but a much more aggressive in terms of the amount of dollars that we’re deploying to win new customers. Sajid?

[Sajid Malhotra:]

Yeah, I’d just resonate with that. I think -- it’s one of those statistics that we’ve been publishing from sometime. When I meet with investors or people like if I’d remind them that this is not a statistic that is really a key driver of our business one way or the other, but we continue to publish it because people ask for it, because they’re use to it and so you can see the progress or the lack of progress with any one number et cetera. Having said that, the idea is to continue to go after customers that want our services and our feature functionality and the quality that we bring, and I think that there is a market out there and I think we continue to pursue those customers. And some of the customers we shared we can argue if we had any business serving them in the first place and they’ve actually helped our gross margin story, because we had a largely a direct high-touch business. The idea of servicing a customer that has a sub-$500 revenue stream is a very, very expensive proposition for us. So, exchanging those customers out and getting customers who are spending in the thousands with us is a better deal for us every time.

[Greg McDowell:]

Absolutely. And Sajid, one follow-up for you, two-part financial question, first, I just want to be entirely clear on your commentary on the seasonality of revenue for the year and whether or not we should see more of a traditional ramp up quarter-by-quarter or if what you’re saying, if we took the high end of the guidance of $200 million and divided by four that would be $50 million a quarter, but my fear in doing that is on a sequential basis from Q4 and Q1, historically we haven’t seen that sort of revenue bump. So that’s part A, I just want to better understand those revenue seasonality dynamics. And part two, is just further if you can just comment further on cash flow and this seasonality of cash flow in in light of your comments of what transpired in Q4. Thanks.

[Sajid Malhotra:]

Sure. So, listen, if you look at our history, we report a fairly strong Q1 and we’ve reported a couple of lousy Q3s without mincing awards, there’s nothing we were proud about. And the revenue stream in Q3 has dipped quite a bit at least for two out of the last three years, last year was much better. Now if you look at last year’s performance, the four quarters were closer to each other than they historically have been. And I think that that is closer to reality than what was happening two years ago or three years ago or four years ago. So, I don’t think you can kind of just go 200 and divide by four, but I am suggesting that the variability within the quarters won’t be $4 million or $5 million should be one or two something like that right, so we’re not going to go from 45 then all of a sudden show up to 36 then jump back up to 51. You’re talking about quarters that are closer to the 50 number right, it’s 47, 48, 51, 52 that kind of stuff and more even across the four quarters. Helpful?

[Greg McDowell:]

Thank you.

[Sajid Malhotra:]

Okay. Second is your question around the cash flows. So, we watch our cash flows as you know very, very closely and $20 million of CapEx that’s what is built in to the model last year we did 20 -- just a little over 20 units and little under 21. In addition to the big use for cash is the $4.5 million payment that we made to Akamai every quarter, so there’s four more payments this year and two more next year and then we’re done with those. That aside typically our days receivables outstanding runs around 55 days and our payables runs around $7 million to $8 million at the end of the quarter. And as this quarter came about we went ahead and paid down our payables, I think as you know some of our vendors that we deal with have been, we’ve been pushing them to the limit and it was their year-end as well and we thought it would be a good gesture to give them the money on-time or a little bit early, so that they could close their books well, and we did. And our accounts payable as you can see in the reported numbers was quite a bit lower than our historical track record that will return back to normal. On the other hand, some of the customers are managing their books as well and we had our receivable days jump up to over 60 days and I don’t think that is the norm, so we've already collected on some of the big outstanding balances, we are seeing both of those correct back and I think that will return to normalcy very, very quickly.

[Greg McDowell:]

Understood, thank you.

[Robert Lento:]

Thanks, Greg.

[Operator:]

The next question comes from Sameet Sinha with B. Riley FBR. Please go ahead.

[Sameet Sinha:]

Yes, thank you very much. Couple of questions actually following-up on Greg’s question first. Talking about the even quarters, I would assume that with some of these new businesses that you have between Edge and Tencent that you would have, it should be most second half weighted. So, if you can talk about that. Secondly, your top 20 customers, so the revenue growth from the top 20 customers still pretty good up like 19% year-over-year leaving out the third quarter it’s a pretty substantial number, highest in many quarters, but outside of the top 20, it went down by about 5%. So, can you talk about or help us think about were these the software download business that you did not, or you decided to not win was that in that category the below the top 20 customers. And lastly, your implied guidance for 2018 assumes about an OpEx increases of about 10 million, can you help us think about where all that will go to? Thank you.

[Sajid Malhotra:]

So, the increase in OpEx let's just start there. We are investing more in people, in sales and marketing, I think I have been pretty clear that the launch of the business around the Edge services does not require much capital infusion, in fact it is for anybody else, if we were starting from scratch or not from the position we have, it would require large amount of capital, think about deploying data centers all around the world, connecting them with security backbone, storage et cetera. So, we have that advantage, we don’t have to do that, but we are going to invest in people to cover the market, get some expertise from the market, establish some relationships, and then assist them with the necessary marketing support that they need, so that’s part one. I think the rest of it is just general growth in the business, I mean the overall business is growing, we are trying to make sure that OpEx grows at a much slower rate than the overall revenue growth and that’s just a healthy trend, I don’t think that we are a bloated company that has to go ahead and kind of go ahead and resize or anything, we are growing in line with and in a very disciplined way in tandem with the revenue growth. Your next question is around the growth rate of revenue and traffic in the top 20, our top 20 has been doing very well, I mean it has historically been overachieving the growth rate of the company overall and we like that trend, I mean there is nothing to hide behind that, these are good customers, the 20 customers today are not necessarily the same 20 that we had last year or the year before, so that list keeps changing, but as it changes the top 20 continues to grow at a very healthy clip and above company corporate averages and that’s fine, that’s what we want, we want that group to do really, really well with us, because we invest a lot of time focused on their needs. And your third question was around, I am sorry Sameet just remind me.

[Sameet Sinha:]

Yes. So, my third question, actually if Sajid if you can get me a second with that question about the top 20 customers, so, what the question it was outside of the top 20 year-over-year decline was about by 5%, so my question was the business that you decided to forego was that in the top 20 customers or was it outside of the top 20, because that will make sense if you forego, decide to forego that business from customers outside of the top 20.

[Sajid Malhotra:]

The business that we have chosen to become a lot more disciplined around is where there is no -- where there is zero price elasticity. It is just somebody has a bunch of capacity and is willing it to give it to anybody at any price right so, that what we -- some of that business is the large customer they may no longer be in the top 20, they may have dropped off that list, but when we grow after a particular type of business, it is not driven by is this is in a top 20 or the next 50 or 80 or in the last 600. We go after business by what is it really do for our business and utilization of our resources and the margin profile of what we are taking on. So, I don't necessarily take into account. I mean of course volume matters and larger customers get bigger discount than smaller customers. But we go after the type of business and where we can discriminate ourselves and differentiate ourselves versus our competition.

[Robert Lento:]

One thing I would add, I mean we don't really internally look at like the top 20 versus the rest, but we do look at the top 100 versus the rest and in our 10% growth is pretty even, our top 100% grew it about 10% and the rest of the couple of base grew it about 10% so we have to follow-up on your question about the....

[Sajid Malhotra:]

I need to go ahead and look at those numbers to make sure if that ties together completely.

[Sameet Sinha:]

Okay. The final question I think is about the -- the revenue cadence throughout the year. With Tencent and with Edge computing ramping up, I'd assume that second half, the full year revenues would be more second half weighted, is there anything else that we should be considering?

[Sajid Malhotra:]

Yes, so, that's really good question, but when I'm saying then I'm getting to more evenness here, I am expecting uptick here, and I am expecting the usual seasonality within the base business, but when it's reported all combined it should look like very even quarters or more even than they historically are. So, we still have the annual renegotiation with some of our larger customers occurring in the third quarter. We are just able to offset it with other revenue that's coming onboard and plan at about the same time.

[Sameet Sinha:]

Got it, thank you.

[Sajid Malhotra:]

So yes, while it may look more even than it historically is, there is a lot of moving parts underneath that top-line.

[Operator:]

[Operator Instructions]

[Robert Lento:]

Okay. With no other questions in the queue, we'd like to thank everyone for their time this afternoon. Please visit the Investor Relations page at limelight.com for upcoming events and presentations. With that, have a goodnight.

[Sajid Malhotra:]

Thanks everyone.

[Robert Lento:]

Thank you.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.