Note: Updated to reconcile GAAP vs. non-GAAP revenue.
Web content distribution firm Limelight Networks (LLNW) reported in-line Q4 results but said Q1 revenue will be lower than the Street consensus.
The company posted $29.9 million of non-GAAP Q4 revenue, up 35% y/y and in-line with the Street’s $29.9 million prediction. Non-GAAP net income came in at 1 cent per share, also in line with analysts’ estimates. Limelight’s operating loss grew 31% to a $6.4 million loss, and its net loss widened 26% to a $6.3 million loss.
Guidance: In Q1, the company expects to post sales between $30 million and $32 million, short of the Street’s $33.2 million consensus. It expects Q1 non-GAAP net income to fall between 2 cents and 3 cents per share, in line with consensus.
Most worrying: The company’s GAAP revenue of $29.1 million was essentially flat q/q, dropping $58,000. Archrival Akamai Technologies (AKAM), meanwhile, grew sales 14% from Q3 to Q4. And y/y growth slowed: In Q3, Limelight’s GAAP revenue increased 67% year-over-year, compared to just 32% y/y growth in Q4.
Call highlights: Apparently the writers strike is costing Limelight millions! Because TV networks aren’t pushing out new content, management says, people aren’t watching as much online. (At least on sites Limelight works with.) Execs don’t offer much useful colour on CDN industry pricing war.
LIVE conference call notes:
5:35 Call over.
5:35 Perhaps will have a full year picture in 90 days.
5:33 Some of customers could see business shift in March. Not competitive losses. Business model shifts, where customer plans to reduce/limit amount of traffic they’ll deliver.
5:31 Why writers strike extrme in Q2? Takes a while for writers to spool back up and for content to get back to where it’s getting released. We saw major customers postpone initatives, push back budgets, get into defensive posture with spending. Hard to tell whether they’ll go forward full steam ahead. Actual release of content is what drives our business. Impact in Q4 was minimal — really been Q1 after traffic dropped off. Since we don’t know, we felt in best interest to guide assuming that it doesn’t really come back strong.
5:29 Any lumpiness in GAAP revenue? Strategic partnership with MSFT had lots of early baked in revenue growth associated with first few nodes built out. Going forward, it’s a fairly routine addition of nodes at relatively small amount of value. Wouldn’t expect to see any lumpiness going forward. Professional services was never a big component of our businesses.
5:28 Plans for expanding sales force this year? Big ramp was last year, expect sales expenses to grow in line with revenue. Good mix last year, about the right mix to take into ’08.
5:24 Any variance in contract length with big deals? Change in business model — how much is occurring at large customer level? So… second half of question. If it’s the little guys, you don’t really see it, over 1,000 customer base. If we look at top 20 customers, out of those, there’s only a couple that are not traditional businesses, that are “emerging business model” category. Beyond that, traditional businesses with strong P&Ls that are happily funding their online initiatives. Contract length? No major change. Exit of volume smiliar to YouTube or MySpace? No, large customer base is mostly stable. Microsoft is only over-10% customer, that relationship is backed up by a multi-year strategic partnership, traffic promises, custom CDN work, etc.
5:23 Seeing offset where new customers are a little too small to offset pricing competition at larger customer level? Had some third party costs with custom third party buildout. After all puts/takes you look at gross margin to see what’s going on with pricing. Seem to be holding line at same level as last couple of quarters.
5:19 Legal costs? We’re about through the trial on Akamai suit, should be through trial this quarter, assume some ongoing spend through appeal process on either side of the decision. Level 3 lawsuit scope very similar to Akamai suit, except where court docket is located — generally operates at faster pace.
5:16 Q&A: Pricing environment “hard to tell.” Most competitive pricing activity is on the bigger deals. It’s a high-growth marketplace with aggressive competition. Some deals where our scale/performace let us extract a price premium, but it’s hard to say — give you a general trend — because it’s so varied between the large/middle/small market deals.
5:10 Going over the numbers from the release.
5:08 Given combination of factors, projecting 28-37% growth in Q4, 25-30% in Q2. Expect to exit year growing faster than overall industry.
5:07 Some changes in customers’ operating profiles which means losing customers. (MySpace?) Trying to diversify customer base to fix this problem.
5:05 Writers strike will cost $1 million in revenue this quarter, and more in the future. Less new content in ecosystem because of strike.
5:04 Customer highlights: Working with MSFT, Digitas, etc.
5:02 CEO Lunsford joins the call. “Market continued to embrace” Limelight in Q4. Enjoyed strong customer base/traffic growth. 35% non GAAP rev growth y/y.
5:01 Call begins. Standard forward-looking-statements disclaimer.
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