Limelight Networks Reports First Quarter 2008 Results

Grew revenue to $30.2 million, a 29% increase from the year-ago first-quarter
Signed 183 new customers, up from 84 new customers in last year’s first quarter, including 35 international and 77 signed in March
Introduced Limelight Live Event Services – a solution of professional services and advanced technologies – enabling content producers to broadcast live events
Announced content delivery network support for Microsoft Silverlight DRM powered by PlayReady
Launched content delivery network support for Adobe Flash Media Server 3
Received first patent award for digital rights management technology

TEMPE, Ariz., May 8 /PRNewswire-FirstCall/ — Limelight Networks, Inc. (Nasdaq: LLNW) today reported first-quarter 2008 revenue of $30.2 million, and a GAAP net loss of $18.4 million, or 22 cents per basic share. Non-GAAP net loss, adjusted for certain charges, was $2.0 million, or 2 cents per share. EBITDA adjusted for share-based compensation, litigation and damage costs, was $2.1 million. Limelight Networks’ non-GAAP EPS loss of 2 cents per basic share excludes a charge of 15 cents per basic share related to litigation and damage costs and 5 cents per basic share of share-based compensation.

Reconciliation of GAAP to non-GAAP net income is included in the attached tables.

“We are pleased with our customer addition rate, platform advancements, additions to our service suite, and progress towards our goal of delivering a brilliant client and end-user experience. Our number of new customer wins was up over 110% compared to the same quarter last year – despite an unfavorable verdict in our ongoing litigation with Akamai. Over 40% of these new customers were signed in March, after the verdict was announced, clearly demonstrating continued confidence in our business,” said Jeff Lunsford, chief executive officer, Limelight Networks, Inc.

Business Drivers

Limelight Networks signed 183 new customers in the first quarter, up significantly from 84 signed in the same quarter a year ago. Of those new customer wins, 35 were international, and 77 occurred in the month of March. The Company also saw early success with its newly announced Live Event Services product, continued growth of its electronic software delivery products, expanded agreements with existing customers, and international expansion in the quarter.

Solid Financial Footing

First-quarter revenue was $30.2 million, up 29 percent from $23.4 million in the year-ago first quarter and within the range of guidance previously provided by the Company.

“We are focused on continued growth of recurring revenues and further diversification of revenue streams, including extending our business into the enterprise sector. Our top 20 customers now account for 58% of total revenue, down from 64% a year ago,” said Matt Hale, chief financial officer, Limelight Networks, Inc.

Capital purchases were $3.1 million, down from $5.6 million in last year’s first quarter.

“We continue to make operational improvements throughout the business, including software platform enhancements and improvements in infrastructure performance,” commented Hale.

Limelight Networks ended the quarter with no debt and approximately $195 million in cash and short-term marketable securities.

Second-Quarter Outlook

Limelight Networks anticipates second-quarter revenue to be in the range of $28 million to $30 million.

Conference Call and Web Audiocast

Management will host a quarterly conference call for investors beginning at 2:00 p.m. PST (5:00 p.m. EST). This call can be accessed toll-free at 1.800.561.2718 within the United States or 1.617.614.3525 outside of the U.S. using Conference ID 50345649.

The conference call will also be audiocast live at http://www.llnw.com and a replay will be available following the call from the Company’s website.
Financial Statements

LIMELIGHT NETWORKS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)

March 31, December 31,
2008 2007
Assets
Cash and cash equivalents $120,254 $113,824
Marketable securities 74,423 83,273
Accounts receivable, net 22,115 21,407
Income tax receivable 1,366 1,960
Prepaid expenses and other current assets 5,008 4,469
Current assets 223,166 224,933
Property and equipment, net 43,963 46,968
Marketable securities, less current portion 32 87
Other assets 876 1,440
Total assets $268,037 $273,428

Liabilities and stockholders’ equity

Accounts payable $4,929 $8,523
Accounts payable, related parties 150 230
Deferred revenue, current portion 5,399 4,237
Provision for litigation 55,264 48,130
Other current liabilities 14,753 9,312
Current liabilities 80,495 70,432
Deferred revenue, less current portion 7,328 8,189
Other liabilities 771 770
Total liabilities 88,594 79,391
Stockholders’ equity 179,443 194,037
Total liabilities and stockholders’ equity $268,037 $273,428

LIMELIGHT NETWORKS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)

Three Months Ended
March 31, December 31, March 31, December 31,
2008 2007 2007 2006

Revenues $30,202 $29,132 $23,353 $22,110
Costs and operating
expenses:
Cost of revenues
(1)(2) 20,672 18,435 14,497 13,232
General and
administrative
(1)(2) 13,329 7,961 7,774 10,061
Sales and marketing
(1) 8,142 8,619 3,018 2,450
Research and
development (1) 1,590 1,385 1,285 1,200
Provision for
Litigation 7,134 48,130 – -
Total costs and
operating expenses 50,867 84,530 26,574 26,943
Operating loss (20,665) (55,398) (3,221) (4,833)
Interest expense (21) (6) (573) (431)
Interest income 1,891 2,035 89 129
Other income (expense) 170 (177) – 105

Loss before income
taxes (18,625) (53,546) (3,705) (5,030)
Income tax (benefit)
expense (183) 1,799 200 (51)
Net loss $(18,442) $(55,345) $(3,905) $(4,979)
Net loss allocable
to common
stockholders $(18,442) $(55,345) $(3,905) $(4,979)
Net loss per share:
Basic $(0.22) $(0.67) $(0.18) $(0.25)
Diluted $(0.22) $(0.67) $(0.18) $(0.25)
Shares used in per
share calculations:
Basic 82,623 82,140 21,945 19,882
Diluted 82,623 82,140 21,945 19,882

(1) Includes share-based compensation (see supplemental table for
figures)
(2) Includes depreciation (see supplemental table for figures)

LIMELIGHT NETWORKS, INC.
Supplemental Financial Data
(In thousands)
(Unaudited)

Three Months Ended
March 31, December 31, March 31, December 31,
2008 2007 2007 2006

Supplemental financial
data (in thousands):

Share-based compensation:
Cost of revenues $507 $479 $242 $201
General and
administrative 1,665 1,454 3,743 4,655
Sales and marketing 1,306 1,272 235 143
Research and development 482 420 851 856
Total share-based
Compensation $3,960 $3,625 $5,071 $5,855

Depreciation and
amortization:
Network-related
depreciation $6,013 $5,429 $4,688 $3,908
Other depreciation 247 278 137 91
Total depreciation
and amortization $6,260 $5,707 $4,825 $3,999

Capital expenditures:
Capital Expenditures
(cash and accrual) $3,095 $5,135 $5,575 $17,109

Net increase (decrease)
in cash, cash
equivalents and
marketable
securities $(2,475) $3,032 $4,995 $(3,501)
End of period
statistics:
Number of production
customers under
recurring contract 1,232 1,157 726 693
Number of employees 244 239 167 123

LIMELIGHT NETWORKS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Three Months Ended
March 31, December 31, March 31, December 31,
2008 2007 2007 2006
Cash flows from
operating activities:
Net loss $(18,442) $(55,345) $(3,905) $(4,979)
Adjustments to
reconcile net loss
to net cash provided
by operating
activities:
Depreciation and
amortization 6,260 5,707 4,824 3,999
Share-based
compensation 3,960 3,625 5,071 5,855
Deferred income tax
(benefit) expense (176) 33 (467) (470)
Excess tax benefits
related to stock
option exercises – (1,596) – -
Accounts receivable
charges 1,562 2,268 677 743
Accretion of debt
discount – – 41 74
Accretion of
marketable
securities (453) (530) – -
Gain on sale of
property and
equipment – – – (175)
(Gain) Loss on
foreign exchange (106) 42 – -
Loss on investment 55 387 – -
Unrealized (gain)
loss on marketable
securities (58) – – -
Changes in operating
assets and
liabilities:
Accounts
receivable (2,271) (5,243) 1,998 (6,313)
Prepaid expenses
and other current
assets 87 1,037 (1,809) (499)
Income taxes
receivable 594 2,742 310 (3,124)
Other assets 564 11 (119) (162)
Accounts payable (4,678) 3,613 (732) (6,074)
Accounts payable,
related parties (80) 230 1 781
Deferred revenue 301 135 20 -
Provision for
litigation 7,134 48,130 – -
Other current
liabilities 5,035 (4,449) 630 2,161
Other long term
liabilities 1 740 – -
Net cash (used in)
provided by operating
activities: (711) 1,536 6,540 (8,183)
Cash flows from
investing
activities:
Purchase of
marketable
securities (34,725) (2,081) – -
Sale of marketable
securities 44,200 20,300 – -
Purchases of
property and
equipment (2,441) (37,569) (3,095) (13,282)
Net cash provided
by (used in)
investing
activities 7,034 (19,350) (3,095) (13,282)
Cash flows from
financing
activities:
Borrowings on
credit facilities – – – 23,818
Payments on credit
facilities – – – (7,749)
Borrowings on line
of credit – – 1,500 -
Payments on capital
lease obligations – – (159) (71)
Payments on notes
payable – related
parties – – – -
Escrow funds
returned from
share repurchase – 1,190 298 317
Excess tax benefits
related to stock
option exercises – 1,573 23 1,627
Proceeds from
exercise of stock
options and warrants 107 175 31 200
Proceeds from
preferred stock
issuance – – – (107)
Proceeds from initial
public offering,
net of issuance costs – (47) – -
Effects of exchange
rate changes on cash
and cash equivalents – (4) – -
Net cash provided by
financing activities 107 2,887 1,693 18,035
Net increase (decrease)
in cash and cash
equivalents 6,430 (14,926) 5,138 (3,430)
Cash and cash
equivalents,
beginning
of period 113,824 128,750 7,611 11,041
Cash and cash
equivalents, end
of period $120,254 $113,824 $12,749 $7,611

Use of Non-GAAP Financial Measures

To evaluate our business, we consider and use Non-GAAP net income and EBITDA adjusted for share-based compensation and litigation and damage costs as a supplemental measure of operating performance. We consider Non-GAAP net income to be an important indicator of overall business performance because it allows us to illustrate the impact of the effects of share-based compensation, litigation expenses and provision for litigation. We define EBITDA as GAAP net income before interest income, interest expense, other income and expense, provision for income taxes, depreciation and amortization. We define EBITDA adjusted for share-based compensation and litigation and damage costs as EBITDA plus expenses that we do not consider reflective of our ongoing operations. We use EBITDA adjusted for share-based compensation and litigation and damage costs as a supplemental measure to review and assess operating performance. We also believe use of EBITDA adjusted for share-based compensation and litigation and damage costs facilitates investors’ use of operating performance comparisons from period to period.

The terms Non-GAAP net income, EBITDA and EBITDA adjusted for share-based compensation and litigation and damage costs are not defined under U.S. generally accepted accounting principles, or 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, EBITDA and EBITDA adjusted for share-based compensation and litigation and damage costs have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income, EBITDA and EBITDA adjusted for share-based compensation and litigation and damage costs 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 EBITDA adjusted for share-based compensation and litigation and damage costs do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
they do not reflect changes in, or cash requirements for, our working capital needs;
they do not reflect the cash requirements necessary for litigation costs and damages accruals;
they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
they 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 EBITDA adjusted for share-based compensation and litigation and damage costs 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 EBITDA and EBITDA adjusted for share- based compensation and litigation and damage costs differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by relying primarily on our GAAP results and using Non-GAAP Net Income and EBITDA adjusted for share-based compensation and litigation and damage costs only as supplemental support for management’s analysis of business performance . Non-GAAP Net Income, EBITDA and EBITDA adjusted for share-based compensation and litigation and damage costs are calculated as follows for the periods presented in thousands:

Reconciliation of Non-GAAP Financial Measures

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the company is presenting the most directly comparable GAAP financial measures and reconciling the non-GAAP financial metrics to the comparable GAAP measures.

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(In thousands)
(Unaudited)

Three Months Ended
March 31, December 31, March 31, December 31,
2008 2007 2007 2006

GAAP net loss $(18,442) $(55,345) $(3,905) $(4,979)

Provision for
litigation 7,134 48,130 – -
Share-based
compensation 3,960 3,625 5,071 5,855
Litigation defense
expenses 5,366 2,772 885 2,296
Deferred CDN Services
not yet delivered – 729 – -
Deferred cost of
traffic and services – 21 – -
Non-GAAP net (loss)
income $(1,982) $(68) $2,051 $3,172

Reconciliation of GAAP Net Income (Loss) to EBITDA to EBITDA
Adjusted for Share-Based Compensation and Litigation and Damage Costs
(In thousands)
(Unaudited)

Three Months Ended
March 31, December 31, March 31, December 31,
2008 2007 2007 2006

GAAP net loss $(18,442) $(55,345) $(3,905) $(4,979)

Add: depreciation
and amortization 6,260 5,707 4,825 3,999
Add: interest
expense 21 6 573 431
Less: interest and
other income (2,062) (1,858) (89) (234)
Plus income tax
expense (benefit) (183) 1,799 200 (51)
EBITDA $(14,406) $(49,691) $1,604 $(834)
Add: provision for
litigation 7,134 48,130 – -
Add: share-based
compensation 3,960 3,625 5,071 5,855
Add: litigation
defense expenses 5,366 2,772 885 2,296
EBITDA adjusted for
share-based
compensation,
litigation and
damage costs $2,054 $4,836 $7,560 $7,317