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Section 1: 10-Q (10-Q)

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Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-Q
 
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from                          to                         
Commission file number 001-33508
 
 
Limelight Networks, Inc.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
20-1677033
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
1465 North Scottsdale Road, Suite 400
Scottsdale, AZ 85257
(Address of principal executive offices, including Zip Code)
(602) 850-5000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act;
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
LLNW
Nasdaq
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” , “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer   þ
Non-accelerated filer   o
Smaller Reporting Company   o
 
Emerging Growth Company   o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o  No  þ
The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of October 11, 2019: 116,523,442 shares.
 


Table of Contents

LIMELIGHT NETWORKS, INC.
FORM 10-Q
Quarterly Period Ended September 30, 2019
TABLE OF CONTENTS
 
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
Item 1.
FINANCIAL STATEMENTS
 
 
Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018
 
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018
 
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018
 
Unaudited Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2019 and 2018
 
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018
 
Notes to Unaudited Consolidated Financial Statements
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 4.
CONTROLS AND PROCEDURES
 
 
 
PART II. OTHER INFORMATION
 
Item 1.
LEGAL PROCEEDINGS
Item 1A.
RISK FACTORS
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 3.
DEFAULTS UPON SENIOR SECURITIES
Item 4.
MINE SAFETY DISCLOSURES
Item 5.
OTHER INFORMATION
Item 6.
EXHIBITS
 
SIGNATURES
 
 
 
 


Table of Contents

Special Note Regarding Forward-Looking Statement
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Forward-looking statements generally can be identified by the words “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events, as well as trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These statements include, among other things:
our beliefs regarding delivery traffic growth trends and demand for digital content and edge services;
our expectations regarding revenue, costs, expenses, gross margin, non-GAAP earnings per share, Adjusted EBITDA and capital expenditures;
our plans regarding investing in our content delivery network, as well as other products and technologies;
our beliefs regarding the growth of, and competition within, the content delivery industry;
our beliefs regarding the growth of our business and how that impacts our liquidity and capital resources requirements;
our expectations regarding headcount;
the impact of certain new accounting standards and guidance as well as the time and cost of continued compliance with existing rules and standards;
our plans with respect to investments in marketable securities;
our expectations and strategies regarding acquisitions;
our estimations regarding taxes and belief regarding our tax reserves;
our beliefs regarding the use of Non-GAAP financial measures;
our approach to identifying, attracting and keeping new and existing customers, as well as our expectations regarding customer turnover;
the sufficiency of our sources of funding;
our beliefs regarding our interest rate risk;
our beliefs regarding inflation risks;
our beliefs regarding expense and productivity of and competition for our sales force; and
our beliefs regarding the significance of our large customers.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the caption “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission (SEC).
In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
The forward-looking statements contained herein are based on our current expectations and assumptions and on information available as of the date of the filing of this Quarterly Report on Form 10-Q. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
Unless expressly indicated or the context requires otherwise, the terms "Limelight," "we," "us," and "our" in this document refer to Limelight Networks, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries. All information is presented in thousands, except per share amounts, customer count, headcount and where specifically noted.



Table of Contents

PART I. FINANCIAL INFORMATION
Item 1.        Financial Statements
Limelight Networks, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
14,832

 
$
25,383

Marketable securities
3,218

 
25,083

Accounts receivable, net
35,818

 
26,041

Income taxes receivable
77

 
122

Prepaid expenses and other current assets
9,522

 
14,789

Total current assets
63,467

 
91,418

Property and equipment, net
46,304

 
27,378

Operating lease right of use assets
12,667

 

Marketable securities, less current portion
40

 
40

Deferred income taxes
1,474

 
1,462

Goodwill
77,051

 
76,407

Other assets
7,394

 
2,220

Total assets
$
208,397

 
$
198,925

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
20,641

 
$
9,216

Deferred revenue
1,205

 
1,883

Operating lease liability obligations
1,870

 

Income taxes payable
325

 
124

Provision for litigation

 
9,000

Other current liabilities
12,516

 
12,922

Total current liabilities
36,557

 
33,145

Operating lease liability obligations, less current portion
13,331

 

Deferred income taxes
123

 
152

Deferred revenue, less current portion
162

 
42

Other long-term liabilities
300

 
435

Total liabilities
50,473

 
33,774

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Convertible preferred stock, $0.001 par value; 7,500 shares authorized; no shares issued
  and outstanding

 

Common stock, $0.001 par value; 300,000 shares authorized; 116,513 and 114,246 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
117

 
114

Additional paid-in capital
524,758

 
513,682

Accumulated other comprehensive loss
(9,837
)
 
(10,033
)
Accumulated deficit
(357,114
)
 
(338,612
)
Total stockholders’ equity
157,924

 
165,151

Total liabilities and stockholders’ equity
$
208,397

 
$
198,925

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Limelight Networks, Inc.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
51,321

 
$
49,315

 
$
140,505

 
$
151,678

Cost of revenue:
 
 

 
 
 
 
Cost of services
25,602

 
21,519

 
71,311

 
63,779

Depreciation — network
4,961

 
3,761

 
13,905

 
12,337

Total cost of revenue
30,563

 
25,280

 
85,216

 
76,116

Gross profit
20,758

 
24,035

 
55,289

 
75,562

Operating expenses:
 
 

 
 
 
 
General and administrative
7,356

 
7,851

 
23,231

 
24,890

Sales and marketing
10,713

 
9,766

 
32,679

 
30,068

Research and development
5,160

 
5,882

 
17,075

 
18,294

Depreciation and amortization
172

 
616

 
545

 
1,837

Total operating expenses
23,401

 
24,115

 
73,530

 
75,089

Operating (loss) income
(2,643
)
 
(80
)
 
(18,241
)
 
473

Other income (expense):
 
 

 
 
 
 
Interest expense
(10
)
 
(10
)
 
(30
)
 
(76
)
Interest income
81

 
177

 
402

 
440

Settlement and patent license income

 

 

 
14,900

Other, net
(13
)
 
(246
)
 
(89
)
 
(355
)
Total other income (expense)
58

 
(79
)
 
283

 
14,909

(Loss) income before income taxes
(2,585
)
 
(159
)
 
(17,958
)
 
15,382

Income tax expense
166

 
113

 
544

 
347

Net (loss) income
$
(2,751
)
 
$
(272
)
 
$
(18,502
)
 
$
15,035

 
 
 
 
 
 
 
 
Net (loss) income per share:
 
 
 
 
 
 
 
Basic
$
(0.02
)
 
$

 
$
(0.16
)
 
$
0.13

Diluted
$
(0.02
)
 
$

 
$
(0.16
)
 
$
0.13

 
 
 
 
 
 
 
 
Weighted average shares used in per share calculation:
 
 
 
 
 
 
 
Basic
116,270

 
112,760

 
115,318

 
111,626

Diluted
116,270

 
112,760

 
115,318

 
120,025


The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Limelight Networks, Inc.
Unaudited Consolidated Statements of Comprehensive (Loss) Income
(In thousands)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net (loss) income
$
(2,751
)
 
$
(272
)
 
$
(18,502
)
 
$
15,035

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain on investments
2

 
18

 
39

 
38

Foreign exchange translation (loss) gain
(357
)
 
(171
)
 
157

 
(1,187
)
Other comprehensive (loss) income
(355
)
 
(153
)
 
196

 
(1,149
)
Comprehensive (loss) income
$
(3,106
)
 
$
(425
)
 
$
(18,306
)
 
$
13,886

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Limelight Networks, Inc.
Unaudited Consolidated Statements of Stockholders' Equity
(In thousands)
For the Three Months Ended September 30, 2019
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Balance June 30, 2019
115,760

 
$
116

 
$
520,375

 
$
(9,482
)
 
$
(354,363
)
 
$
156,646

Net loss

 

 

 

 
(2,751
)
 
(2,751
)
Change in unrealized loss on available-for-sale investments, net of taxes

 

 

 
2

 

 
2

Foreign currency translation adjustment, net of taxes

 

 

 
(357
)
 

 
(357
)
Exercise of common stock options
5

 

 
13

 

 

 
13

Vesting of restricted stock units
1,129

 
1

 
(1
)
 

 

 

Restricted stock units surrendered in lieu of withholding taxes
(381
)
 

 
(1,015
)
 

 

 
(1,015
)
Share-based compensation

 

 
5,386

 

 

 
5,386

Balance September 30, 2019
116,513

 
$
117

 
$
524,758

 
$
(9,837
)
 
$
(357,114
)
 
$
157,924

For the Three Months Ended September 30, 2018
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Balance June 30, 2018
112,478

 
$
112

 
$
506,684

 
$
(9,324
)
 
$
(333,147
)
 
$
164,325

Net loss

 

 

 

 
(272
)
 
(272
)
Change in unrealized loss on available-for-sale investments, net of taxes

 

 

 
18

 

 
18

Foreign currency translation adjustment, net of taxes

 

 

 
(171
)
 

 
(171
)
Exercise of common stock options
285

 
1

 
738

 

 

 
739

Vesting of restricted stock units
641

 
1

 
(1
)
 

 

 

Restricted stock units surrendered in lieu of withholding taxes
(206
)
 
(1
)
 
(996
)
 

 

 
(997
)
Share-based compensation

 

 
3,421

 

 

 
3,421

Balance September 30, 2018
113,198

 
$
113

 
$
509,846

 
$
(9,477
)
 
$
(333,419
)
 
$
167,063










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For the Nine Months Ended September 30, 2019
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Balance December 31, 2018
114,246

 
$
114

 
$
513,682

 
$
(10,033
)
 
$
(338,612
)
 
$
165,151

Net loss

 

 

 

 
(18,502
)
 
(18,502
)
Change in unrealized loss on available-for-sale investments, net of taxes

 

 

 
39

 

 
39

Foreign currency translation adjustment, net of taxes

 

 

 
157

 

 
157

Exercise of common stock options
10

 

 
21

 

 

 
21

Vesting of restricted stock units
2,695

 
3

 
(3
)
 

 

 

Restricted stock units surrendered in lieu of withholding taxes
(887
)
 

 
(2,528
)
 

 

 
(2,528
)
Issuance of common stock under employee stock purchase plan
449

 

 
1,095

 

 

 
1,095

Share-based compensation

 

 
12,491

 

 

 
12,491

Balance September 30, 2019
116,513

 
$
117

 
$
524,758

 
$
(9,837
)
 
$
(357,114
)
 
$
157,924

For the Nine Months Ended September 30, 2018
 
Common Stock
 
 
 
 
 
 
 
 
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Total
Balance December 31, 2017
110,824

 
$
111

 
$
502,312

 
$
(8,328
)
 
$
(349,950
)
 
$
144,145

Cumulative effect of accounting change

 

 

 

 
1,496

 
1,496

Net income

 

 

 

 
15,035

 
15,035

Change in unrealized loss on available-for-sale investments, net of taxes

 

 

 
38

 

 
38

Foreign currency translation adjustment, net of taxes

 

 

 
(1,187
)
 

 
(1,187
)
Exercise of common stock options
1,317

 
1

 
3,689

 

 

 
3,690

Vesting of restricted stock units
2,659

 
3

 
(3
)
 

 

 

Restricted stock units surrendered in lieu of withholding taxes
(852
)
 
(1
)
 
(3,808
)
 

 

 
(3,809
)
Issuance of common stock under employee stock purchase plan
250

 

 
1,110

 

 

 
1,110

Purchases of common stock
(1,000
)
 
(1
)
 
(3,799
)
 

 

 
(3,800
)
Share-based compensation

 

 
10,345

 

 

 
10,345

Balance September 30, 2018
113,198

 
$
113

 
$
509,846

 
$
(9,477
)
 
$
(333,419
)
 
$
167,063


The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Limelight Networks, Inc.
Unaudited Consolidated Statements of Cash Flows
(In thousands)
 
Nine Months Ended September 30,
 
2019
 
2018
Operating activities
 
 
 
Net (loss) income
$
(18,502
)
 
$
15,035

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
14,450

 
14,174

Share-based compensation
10,463

 
10,345

Settlement and patent license income

 
(14,900
)
Foreign currency remeasurement gain
(104
)
 
(97
)
Deferred income taxes
(30
)
 
(86
)
Gain on sale of property and equipment
(56
)
 
(131
)
Accounts receivable charges
1,274

 
453

Amortization of premium on marketable securities
29

 
82

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(11,051
)
 
5,781

Prepaid expenses and other current assets
(777
)
 
(2,530
)
Income taxes receivable
43

 
(56
)
Other assets
(2,641
)
 
(759
)
Accounts payable and other current liabilities
3,675

 
(2,526
)
Deferred revenue
(557
)
 
85

Income taxes payable
204

 
(350
)
Payments related to litigation, net
(3,040
)
 
(7,540
)
Other long term liabilities
(137
)
 
(173
)
Net cash (used in) provided by operating activities
(6,757
)
 
16,807

Investing activities
 
 
 
Purchases of marketable securities
(10,279
)
 
(15,962
)
Sale and maturities of marketable securities
32,153

 
20,365

Purchases of property and equipment
(24,224
)
 
(10,495
)
Proceeds from sale of property and equipment
51

 
131

Net cash used in investing activities
(2,299
)
 
(5,961
)
Financing activities
 
 
 
Payments of employee tax withholdings related to restricted stock vesting
(2,528
)
 
(3,808
)
Cash paid for purchase of common stock

 
(3,800
)
Proceeds from employee stock plans
1,116

 
4,799

Net cash used in financing activities
(1,412
)
 
(2,809
)
Effect of exchange rate changes on cash and cash equivalents
(83
)
 
(271
)
Net (decrease) increase in cash and cash equivalents
(10,551
)
 
7,766

Cash and cash equivalents, beginning of period
25,383

 
20,912

Cash and cash equivalents, end of period
$
14,832

 
$
28,678

Supplemental disclosure of cash flow information
 
 
 
Cash paid during the period for interest
$
30

 
$
76

Cash paid during the period for income taxes, net of refunds
$
340

 
$
843

The accompanying notes are an integral part of the unaudited consolidated financial statements.

9

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Limelight Networks, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 2019
1. Nature of Business
Limelight Networks Inc., a provider of digital content delivery, online video delivery, cloud security, edge computing and cloud storage services, empowers customers to provide exceptional digital experiences. Limelight’s edge services platform includes a globally distributed, high performance private network, intelligent software, and expert support services that enable current and future workflows.
We were incorporated in Delaware in 2003, and have operated in the Phoenix metropolitan area since 2001 and elsewhere throughout the United States since 2003. We began international operations in 2004.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim periods presented and of a normal recurring nature. This quarterly report on Form 10-Q should be read in conjunction with our audited financial statements and footnotes included in our annual report on Form 10-K for the fiscal year ended December 31, 2018. All information is presented in thousands, except per share amounts and where specifically noted.
The consolidated financial statements include accounts of Limelight and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. In addition, certain other reclassifications have been made to prior year amounts to conform to the current year presentation.
Use of Estimates
The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results and outcomes may differ from those estimates. The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2019, or for any future periods.
Recent Accounting Standards
Adopted Accounting Standards            
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2016-02, which establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for most leases. In July 2018, the FASB issued ASU No. 2018-11, which amends the guidance to add a method of adoption whereby the issuer may elect to recognize a cumulative effect adjustment at the beginning of the period of adoption. ASU No. 2018-11 does not require comparative period financial information to be adjusted. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 defines a lease as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of the identified asset for a period of time, the customer has to have both (1) the right to obtain substantially all of the economic benefits from the use of the identified asset and (2) the right to direct the use of the identified asset, a contract does not contain an identified asset if the supplier has a substantive right to substitute such asset ("the leasing criteria"). Upon review of our co-location and bandwidth arrangements, we have determined that such arrangements did not meet the leasing criteria, and therefore, were not included in our ROU asset and lease liability obligations on our balance sheet. We have determined that our real estate leases with terms in excess of one year and which do not include an option to purchase the underlying asset, do meet the leasing criteria. On January 1, 2019, we adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby we elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. We elected to apply the transition provisions as of January 1, 2019, the date of adoption, and we recorded lease ROU assets and related liabilities on our balance sheet of $3.6 million related to our operating leases. We have no financing leases. There was no change to our consolidated statements of operations or cash flows.

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In June 2018, the FASB issued ASU 2018-07, which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation (Topic 718), to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers (Topic 606). We adopted this guidance effective January 1, 2019. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements             
In June 2016, the FASB issued ASU No. 2016-13, which requires measurement and recognition of expected credit losses for financial assets held. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We do not plan to early adopt this ASU. We are in the process of evaluating the potential impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in fiscal years beginning after December 15, 2019, including interim periods within that reporting period. We will adopt this guidance using a prospective approach. Earlier adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not plan to early adopt this accounting standard, and we are currently evaluating the impact of this guidance on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds to the disclosure requirements on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. This guidance will become effective for us in fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted upon issuance of this updated guidance. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this updated guidance and delay adoption of the additional disclosures until their effective date. We do not plan to early adopt this accounting standard, and we are currently evaluating the impact of this guidance on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. This guidance will become effective for us in fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. We do not plan to early adopt this accounting standard, and we are currently evaluating the impact of this guidance on our consolidated financial statements.
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Our customers generally execute contracts with terms of one year or longer, which are referred to as recurring revenue contracts or long-term contracts. These contracts generally allow the customer access to our network and are either entirely usage based or commit the customer to a minimum monthly level of usage with additional charges applicable for actual usage above the monthly minimum commitment. We define usage as customer data sent or received using our content delivery service, or content that is hosted or cached by us at the request or direction of our customers. For contracts that contain minimum monthly commitments, we recognize revenue equal to the greater of the minimum monthly committed amount or actual u

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sage, if actual usage exceeds the monthly committed amount, using the right to invoice practical expedient allowable under Topic 606.
For contracts that contain minimum commitments over the contractual term, we estimate an amount of variable consideration by using either the expected value method or the most likely amount method. We include estimates of variable consideration in revenue only when we have a high degree of confidence that revenue will not be reversed in a subsequent reporting period. We believe that the expected value method is the most appropriate estimate of the amount of variable consideration. These customers have entered into contracts with contract terms generally from one to four years. As of September 30, 2019, we have approximately $4,600 of remaining unsatisfied performance obligations. We recognized revenue of approximately $2,200 and $1,900, respectively, during the three months ended September 30, 2019 and 2018, related to these types of contracts with our customers. During the nine months ended September 30, 2019 and 2018, we recognized approximately $7,400 and $3,900, respectively. We expect to recognize approximately 50% of the remaining unsatisfied performance obligations in 2019, approximately 47% in 2020 and the remaining in 2021 and 2022.
We may charge the customer an activation fee when services are first activated. We do not charge activation fees for contract renewals. Activation fees are not distinct within the context of the overall contractual commitment with the customer to perform our content delivery service and are therefore recognized initially as deferred revenue and recognized as revenue ratably over the estimated life of the customer arrangement.
We also derive revenue from services and events sold as discrete, non-recurring events or based solely on usage. For these services, we recognize revenue when control of promised goods or services is transferred to customers at an amount that reflects the consideration to which we expect to be entitled to in exchange for those goods or services.
At the inception of a customer contract for service, we make an assessment as to that customer’s ability to pay for the services provided. If we subsequently determine that collection from the customer is not probable, we record an allowance for doubtful accounts and bad debt expense or deferred revenue for that customer’s unpaid invoices and cease recognizing revenue for continued services provided until it is probable that revenue will not be reversed in a subsequent reporting period. Our standard payment terms vary by the type and location of our customer.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included in ROU assets, and lease liability obligations in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liability obligations represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We have lease agreements with lease and non-lease components and account for such components as a single lease component. As most of our leases do not provide an implicit rate, we estimated our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 16 "Operating Leases - Right of Use Assets and Purchase Commitments" for additional information.
Share-Based Compensation
We account for our share-based compensation awards using the fair-value method. The grant date fair value was determined using the Black-Scholes-Merton pricing model. The Black-Scholes-Merton valuation calculation requires us to make key assumptions such as future stock price volatility, expected terms, risk-free rates, and dividend yield. Our expected volatility is derived from our volatility rate as a publicly traded company. The expected term is based on our historical experience. The risk-free interest factor is based on the United States Treasury yield curve in effect at the time of the grant for zero coupon United States Treasury notes with maturities of approximately equal to each grant’s expected term. We have never paid cash dividends and do not currently intend to pay cash dividends, and therefore, we have assumed a 0% dividend yield.
We develop an estimate of the number of share-based awards that will be forfeited due to employee turnover. We will continue to use judgment in evaluating the expected term, volatility, and forfeiture rate related to our own share-based awards on a prospective basis, and in incorporating these factors into the model. If our actual experience differs significantly from the assumptions used to compute our share-based compensation cost, or if different assumptions had been used, we may have recorded too much or too little share-based compensation cost.
We apply the straight-line attribution method to recognize compensation costs associated with awards that are not subject to graded vesting. For awards that are subject to graded vesting and performance based awards, we recognize

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compensation costs separately for each vesting tranche. We also estimate when and if performance-based awards will be earned. If an award is not considered probable of being earned, no amount of share-based compensation is recognized. If the award is deemed probable of being earned, related compensation expense is recorded over the estimated service period. To the extent our estimates of awards considered probable of being earned changes, the amount of share-based compensation recognized will also change.
3. Investments in Marketable Securities
The following is a summary of marketable securities (designated as available-for-sale) at September 30, 2019:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Certificate of deposit
$
40

 
$

 
$

 
$
40

Corporate notes and bonds
3,212

 
6

 

 
3,218

Total marketable securities
$
3,252

 
$
6

 
$

 
$
3,258

The amortized cost and estimated fair value of marketable securities at September 30, 2019, by maturity, are shown below:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Available-for-sale securities
 
 
 
 
 
 
 
Due in one year or less
$
3,212

 
$
6

 
$

 
$
3,218

Due after one year and through five years
40

 

 

 
40

 
$
3,252

 
$
6

 
$

 
$
3,258

The following is a summary of marketable securities (designated as available-for-sale) at December 31, 2018:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Certificate of deposit
$
40

 
$

 
$

 
$
40

Corporate notes and bonds
25,115

 

 
32

 
25,083

Total marketable securities
$
25,155

 
$

 
$
32

 
$
25,123

The amortized cost and estimated fair value of marketable securities at December 31, 2018, by maturity, are shown below:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
Available-for-sale securities
 
 
 
 
 
 
 
Due in one year or less
$
25,115

 
$

 
$
32

 
$
25,083

Due after one year and through five years
40

 

 

 
40

 
$
25,155

 
$

 
$
32

 
$
25,123

4. Accounts Receivable, net
Accounts receivable, net include:
 
September 30,
 
December 31,
 
2019
 
2018
Accounts receivable
$
36,621

 
$
27,040

Less: credit allowance
(240
)
 
(250
)
Less: allowance for doubtful accounts
(563
)
 
(749
)
Total accounts receivable, net
$
35,818

 
$
26,041


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5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets include:
 
September 30,
 
December 31,
 
2019
 
2018
Settlement and patent license receivable
$

 
$
5,960

Prepaid bandwidth and backbone
1,060

 
1,395

VAT receivable
3,073

 
2,022

Prepaid expenses and insurance
1,856

 
1,816

Vendor deposits and other
3,533

 
3,596

Total prepaid expenses and other current assets
$
9,522

 
$
14,789

6. Property and Equipment, net
Property and equipment, net include:
 
September 30,
 
December 31,
 
2019
 
2018
Network equipment
$
124,275

 
$
105,760

Computer equipment and software
7,779

 
8,711

Furniture and fixtures
1,387

 
703

Leasehold improvements
7,715

 
4,587

Other equipment
52

 
156

Total property and equipment
141,208

 
119,917

Less: accumulated depreciation
(94,904
)
 
(92,539
)
Total property and equipment, net
$
46,304

 
$
27,378

Depreciation expense related to property and equipment classified in operating expense was $172 and $616 for the three months ended September 30, 2019 and 2018, respectively and was $545 and $1,837 for the nine months ended September 30, 2019 and 2018, respectively.
7. Goodwill
We have recorded goodwill as a result of past business acquisitions. Goodwill is recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired.
No indicators of impairment were identified as of September 30, 2019. Foreign currency translation adjustments increased the carrying amount of goodwill by $203 for the three months ended September 30, 2019. For the nine months ended September 30, 2019, foreign currency translation adjustments increased the carrying value of goodwill by $644.
8. Other Current Liabilities
Other current liabilities include:
 
September 30,
 
December 31,
 
2019
 
2018
Accrued compensation and benefits
$
4,893

 
$
7,528

Accrued cost of revenue
4,666

 
2,361

Deferred rent

 
145

Accrued legal fees
20

 
22

Other accrued expenses
2,937

 
2,866

Total other current liabilities
$
12,516

 
$
12,922


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9. Line of Credit
In February 2018, we entered into a Fourth Amendment (Fourth Amendment) to the Loan and Security Agreement (the Credit Agreement) with Silicon Valley Bank (SVB) originally entered into in November 2015. Under the Fourth Amendment, we increased the maximum principal commitment amount to $20,000. Our borrowing capacity is the lesser of the commitment amount or 80% of eligible accounts receivable. All outstanding borrowings owed under the Credit Agreement become due and payable no later than the final maturity date of November 2, 2020.
As of September 30, 2019, we had no outstanding borrowings, and we had availability under the Credit Agreement of approximately $20,000. We had no outstanding borrowings at December 31, 2018, and we had availability under the Credit Agreement of approximately $20,000.
As of September 30, 2019, borrowings under the Credit Agreement bear interest at the current prime rate minus 0.25%. In the event of default, obligations shall bear interest at a rate per annum that is 3% above the then applicable rate. 
Amendment fees and other commitment fees are included in interest expense. During the three months ended September 30, 2019 and 2018, there was no interest expense, and fees expense and amortization was $10 and $10, respectively. For the nine months ended September 30, 2019 and 2018, there was no interest expense, and fees expense and related amortization were $30 and $76, respectively.
Any borrowings are secured by essentially all of our domestic personal property, with a negative pledge on intellectual property. SVB’s security interest in our foreign subsidiaries is limited to 65% of voting stock of each such foreign subsidiary.
We are required to maintain a minimum liquidity of $10,000 at all times, measured quarterly, with a minimum of $5,000 of the $10,000 in cash at SVB. In addition, we are required to maintain an Adjusted Quick Ratio of at least 1.0 to 1.0. We are also subject to certain customary limitations on our ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividends, dispose of assets or undergo a change in control. As of September 30, 2019, we were in compliance with all covenants under the Credit Agreement.
10. Contingencies              
Legal Matters
Akamai ‘703 Litigation
    In June 2006, Akamai Technologies, Inc. (Akamai) and the Massachusetts Institute of Technology (MIT) filed a lawsuit against us in the United States District Court for the District of Massachusetts alleging that we were infringing multiple patents assigned to MIT and exclusively licensed by MIT to Akamai. In August 2016, we entered into a settlement and license agreement with Akamai with respect to U.S. Patent No. 6,108,703 (the ’703 patent) and certain other related patents, which settled all asserted and unasserted claims with respect to the licensed patents. The terms of the agreement required us to pay $54,000 over twelve equal quarterly installments, which began on August 1, 2016. We recorded a charge in the quarter ended June 30, 2016 for the full, undiscounted amount of $54,000. During the three months ended June 30, 2019, we made our final payment of $4,500 to Akamai under the terms of the settlement and license agreement.
Other Akamai Litigation
In November 2015, we filed a lawsuit against Akamai and XO Communications in the District Court for the Eastern District of Virginia alleging the infringement of six of our patents covering a broad range of inventions that we believe are critical to the effective and efficient delivery of bytes by a content delivery network (the Akamai and XO Litigation). Akamai also filed counterclaims in April 2016, alleging the infringement of five of its patents. We filed an answer to Akamai’s counterclaims, denying each of the allegations of infringement in May 2016.
In February 2016, Akamai filed a complaint against us in the District Court for the District of Massachusetts alleging infringement of three of its patents. In April 2016, Akamai amended its complaint by withdrawing one of the asserted patents. In April 2016, we filed our answer to the complaint, denying each of the allegations of infringement, and asserting two counterclaims alleging infringement of two of our patents. In December 2016, Akamai filed a second complaint against us in the District Court for the District of Massachusetts alleging infringement of three additional patents, and we later filed our answer to the complaint, denying each of the allegations of infringement. The two cases were ultimately consolidated into a single action by the court.

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On April 9, 2018, we entered into a definitive settlement and patent license agreement where the parties agreed to (i) license certain patents to the other party, (ii) a covenant not to sue for three years for certain patents related to the licensed patents, and (iii) settle all outstanding legal disputes between the parties. The terms of the agreement also required Akamai to pay to Limelight a total of $14,900 over five equal quarterly installments. During the three months ended June 30, 2019, we received our final payment of $2,980 from Akamai.
We include litigation expenses in general and administrative expenses as incurred, as reported in the consolidated statement of operations.
Other Matters
We are subject to various other legal proceedings and claims, either asserted or unasserted, arising in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations, or cash flows. Litigation relating to the content delivery services industry is not uncommon, and we are, and from time to time have been, subject to such litigation. No assurances can be given with respect to the extent or outcome of any such litigation in the future.
Taxes
We are subject to indirect taxation in various states and foreign jurisdictions. Laws and regulations that apply to communications and commerce conducted over the Internet are becoming more prevalent, both in the United States and internationally, and may impose additional burdens on us conducting business online or providing Internet-related services. Increased regulation could negatively affect our business directly, as well as the businesses of our customers, which could reduce their demand for our services. For example, tax authorities in various states and abroad may impose taxes on the Internet-related revenue we generate based on regulations currently being applied to similar but not directly comparable industries.
There are many transactions and calculations where the ultimate tax determination is uncertain. In addition, domestic and international taxation laws are subject to change. In the future, we may come under audit, which could result in changes to our tax estimates. We believe we maintain adequate tax reserves, that are not material in amount, to offset potential liabilities that may arise upon audit. Although we believe our tax estimates and associated reserves are reasonable, the final determination of tax audits and any related litigation could be materially different than the amounts established for tax contingencies. To the extent these estimates ultimately prove to be inaccurate, the associated reserves would be adjusted, resulting in the recording of a benefit or expense in the period in which a change in estimate or a final determination is made.
11. Net (Loss) Income per Share
We calculate basic and diluted (loss) income per weighted average share. We use the weighted-average number of shares of common stock outstanding during the period for the computation of basic (loss) income per share. Diluted (loss) income per share include the dilutive effect of all potentially dilutive common stock, including awards granted under our equity incentive compensation plans in the weighted-average number of shares of common stock outstanding.
The following table sets forth the components used in the computation of basic and diluted net (loss) income per share for the periods indicated (in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net (loss) income
$
(2,751
)
 
$
(272
)
 
$
(18,502
)
 
$
15,035

Basic weighted average outstanding shares of common stock
116,270

 
112,760

 
115,318

 
111,626

Basic weighted average outstanding shares of common stock
116,270

 
112,760

 
115,318

 
111,626

Dilutive effect of stock options, restricted stock units, and other equity incentive plans

 

 

 
8,399

Diluted weighted average outstanding shares of common stock
116,270

 
112,760

 
115,318

 
120,025

Basic net (loss) income per share
$
(0.02
)
 
$

 
$
(0.16
)
 
$
0.13

Diluted net (loss) income per share:
$
(0.02
)
 
$

 
$
(0.16
)
 
$
0.13


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For the three and nine months ended September 30, 2019 and 2018, respectively, the following potentially dilutive common stock, including awards granted under our equity incentive compensation plans, were excluded from the computation of diluted net (loss) income per share because including them would have been anti-dilutive.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Employee stock purchase plan
324

 
214

 
324

 

Stock options
1,433

 
5,660

 
1,977

 
2,941

Restricted stock units
567

 
2,101

 
884

 
21

 
2,324

 
7,975

 
3,185

 
2,962

12. Stockholders’ Equity
Common Stock
On March 14, 2017, our board of directors authorized a $25,000 share repurchase program. Any shares repurchased under this program will be canceled and returned to authorized but unissued status. During the nine months ended September 30, 2019, we did not repurchase any shares under the repurchase program. During the nine months ended September 30, 2018, we purchased and canceled 1,000 shares for $3,800, including commissions and fees. As of September 30, 2019, there remained $21,200 under this share repurchase program.
Amended and Restated Equity Incentive Plan
We established the 2007 Equity Incentive Plan, or the 2007 Plan, which allows for the grant of equity, including stock options and restricted stock unit awards. In June 2016, our stockholders approved the Amended and Restated Equity Incentive Plan, or the Restated 2007 Plan, which amended and restated the 2007 Plan.  Approval of the Restated 2007 Plan replaced the terms and conditions of the 2007 Plan with the terms and conditions of the Restated 2007 Plan, and extended the term of the plan to April 2026. There was no increase in the aggregate amount of shares available for issuance. The total number of shares authorized for issuance under the Restated 2007 Plan as of September 30, 2019 was approximately 9,620.
Employee Stock Purchase Plan
In June 2013, our stockholders approved our 2013 Employee Stock Purchase Plan (ESPP), authorizing the issuance of 4,000 shares. In May 2019, our stockholders approved the adoption of Amendment 1 to the ESPP. Amendment 1 increased the number of shares authorized to 9,000 shares (an increase of 5,000 shares) and amended the maximum number of shares of common stock that an eligible employee may be permitted to purchase during each offering period to be 5 shares. The ESPP allows participants to purchase our common stock at a 15% discount of the lower of the beginning or end of the offering period using the closing price on that day. During the three and nine months ended September 30, 2019, we issued 449 shares under the ESPP. Total cash proceeds from the purchase of the shares under the ESPP was approximately $1,095. As of September 30, 2019, shares reserved for issuance to employees under this plan totaled 4,585, and we held employee contributions of $792 (included in other current liabilities) for future purchases under the ESPP.
Preferred Stock
Our board of directors has authorized the issuance of up to 7,500 shares of preferred stock at September 30, 2019. The preferred stock may be issued in one or more series pursuant to a resolution or resolutions providing for such issuance duly adopted by the board of directors. As of September 30, 2019, the board of directors had not adopted any resolutions for the issuance of preferred stock.
13. Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss, net of tax, for the nine months ended September 30, 2019, was as follows:

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Unrealized





Gains (Losses) on



Foreign

Available for



Currency

Sale Securities

Total
Balance, December 31, 2018
$
(9,992
)

$
(41
)

$
(10,033
)
  Other comprehensive income before reclassifications
157


39


196

Amounts reclassified from accumulated other comprehensive
  loss





Net current period other comprehensive income
157


39


196

Balance, September 30, 2019
$
(9,835
)

$
(2
)

$
(9,837
)
14. Share-Based Compensation
The following table summarizes the components of share-based compensation expense included in our consolidated statements of operations:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Share-based compensation expense by type:
 
 
 
 
 
 
 
Stock options
$
1,044

 
$
1,044

 
$
3,130

 
$
3,151

Restricted stock units
2,149

 
2,177

 
6,834

 
6,524

ESPP
165

 
200

 
499

 
670

Total share-based compensation expense
$
3,358

 
$
3,421

 
$
10,463

 
$
10,345

Share-based compensation expense:
 
 
 
 
 
 
 
Cost of services
$
331

 
$
352

 
$
1,119

 
$
1,059

General and administrative expense
2,006

 
1,887

 
6,240

 
5,666

Sales and marketing expense
584

 
638

 
1,666

 
1,874

Research and development expense
437

 
544

 
1,438

 
1,746

Total share-based compensation expense
$
3,358

 
$
3,421

 
$
10,463

 
$
10,345

Unrecognized share-based compensation expense totaled approximately $17,069 at September 30, 2019, of which $5,390 related to stock options and $11,679 related to restricted stock units. We currently expect to recognize share-based compensation expense of $3,070 during the remainder of 2019, $8,671 in 2020 and the remainder thereafter based on scheduled vesting of the stock options and restricted stock units outstanding at September 30, 2019.
On February 1, 2019, the compensation committee of our board of directors approved a stock for salary program wherein eligible participants elected to receive payment of his or her base salary in shares of our common stock beginning on February 1, 2019. The shares of common stock will be issued under our Restated 2007 Plan. Eligible program participants include our Chief Executive Officer and his direct reports.
The stock for salary program permits eligible participants to receive 0, 25, 50, 75, or 100% of his or her 2019 salary (including any increases that may occur during the year) in shares of our common stock. On the last trading day of each calendar month, each participant will receive the number of shares of our common stock determined by dividing (i) 1/12th of his or her enrolled salary by (ii) the trailing 30-day closing average of our common stock, rounded up to the nearest whole share. Once an election is made, it runs for the full year 2019 and is irrevocable and the program will automatically terminate on the earlier to occur of January 1, 2020 or the date upon which our common stock trades on the Nasdaq at $4.00 per share or greater. Participation levels may not be changed after the close of the enrollment period. Once issued, there is no vesting period for the shares. During 2019, our Chief Executive Officer and two of his direct reports elected to participate in the program. Each of the three participants elected to receive 50% of their respective salary in stock. As a result of their participation in the program, we will issue 56 shares of common stock and have recorded $152 of share based compensation expense during the three months ended September 30, 2019. For the nine months ended September 30, 2019, we issued 138 shares of common stock and recorded $396 of share based compensation expense.


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15. Related Party Transactions
In July 2006, an aggregate of 39,869,960 shares of Series B Preferred Stock was issued at a purchase price of $3.26 per share to certain accredited investors in a private placement transaction. As a result of this transaction, entities affiliated with Goldman, Sachs & Co., one of the lead underwriters of our initial public offering (IPO), became holders of more than 10% of our common stock. On June 14, 2007, upon the closing of our IPO, all outstanding shares of our Series B Preferred Stock automatically converted into shares of common stock on a 1-for-1 share basis. Between November 2017 and March 2018, investment partnerships affiliated with Goldman Sachs & Co. LLC and Goldman Sachs Group, Inc. sold 30,272,493 shares that they had acquired upon the conversation of their Series B Preferred Stock at the time of the Company’s IPO in June 2007. As of September 30, 2019, Goldman, Sachs & Co. owned less than 1% of our outstanding common stock. We had no other material related party transactions during the three and nine months ended September 30, 2019 and 2018.
16. Operating Leases - Right of Use Assets and Purchase Commitments
Right of Use Assets
We have various operating leases for office space that expire through 2030. Below is a summary of our right of use assets and liabilities as of September 30, 2019.
Right-of-use assets
$
12,667

 
 
Lease liability obligations, current
$
1,870

Lease liability obligations, less current portion
13,331

Total lease liability obligations
$
15,201

 
 
Weighted-average remaining lease term
8.67 years

 
 
Weighted-average discount rate
5.00
%
During the three and nine months ended September 30, 2019, we recognized approximately $787 and $2,730 in operating lease costs. Operating lease costs of $111 and $402 are included in cost of revenue and $676 and $2,328 are included in operating expenses in our consolidated statement of operations. During the nine months ended September 30, 2019, cash paid for operating leases was approximately $1,515.
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of September 30, 2019, are as follows:
Remainder of 2019
$
557

2020
2,438

2021
2,783

2022
1,951

2023
1,688

Thereafter
9,710

Total minimum payments
19,127

Less: amount representing interest
3,926

Total
$
15,201

In September 2019, the operating lease for our corporate headquarters in Scottsdale, Arizona commenced with a term of approximately 11 years. The total estimated lease cost is approximately $12.7 million.

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Purchase Commitments
We have long-term commitments for bandwidth usage and co-location with various networks and internet service providers. These commitments do not meet the definition of a ROU asset/lease under ASU No. 2016-02. The following summarizes our minimum non-cancellable commitments for future periods as of September 30, 2019:
Remainder of 2019
$
9,946

2020
13,504

2021
6,168

2022
1,702

2023
599

Thereafter
299

Total minimum payments
$
32,218

17. Concentrations
During the three and nine months ended September 30, 2019 and 2018, respectively, we had one customer, Amazon, who represented 10% or more of our total revenue.
Revenue from customers located within the United States, our country of domicile, was $32,052 for the three months ended September 30, 2019, compared to $27,823 for the three months ended September 30, 2018. For the nine months ended September 30, 2019, revenue from customers located within the United States was $84,115, compared to $88,443 for the nine months ended September 30, 2018.
During the three months ended September 30, 2019 and 2018, respectively, based on customer location, we had three countries, the United States, Japan, and the United Kingdom, that accounted for 10% or more of our total revenue. For the nine months ended September 30, 2019, based on customer location, we had three countries, the United States, Japan and the United Kingdom, that accounted for 10% or more of our total revenue. For the nine months ended September 30, 2018, based on customer location, we had two countries, the United States, and the United Kingdom, that accounted for 10% or more of our total revenue.
18. Income Taxes
Income taxes for the interim periods presented have been included in the accompanying consolidated financial statements on the basis of an estimated annual effective tax rate. Based on an estimated annual effective tax rate and discrete items, income tax expense for the three months ended September 30, 2019 and 2018, was $166 and $113, respectively. For the nine months ended September 30, 2019 and 2018, income tax expense was $544 and $347, respectively. Income tax expense was different than the statutory income tax rate primarily due to us providing for a valuation allowance on deferred tax assets in certain jurisdictions, and the recording of state and foreign tax expense for the three and nine month periods.
We file income tax returns in jurisdictions with varying statutes of limitations. Tax years 2015 through 2018 remain subject to examination by federal tax authorities. Tax years 2014 through 2018 generally remain subject to examination by state tax authorities. As of September 30, 2019, we are not under any federal or state examination for income taxes.
For the three and nine months ended September 30, 2019, there was no impact to income tax expense related to the Global Intangible Low-Taxed Income inclusion (GILTI) as a result of our net operating loss carryforwards (NOL) and valuation allowance position. We do not expect the GILTI to have a material impact on future earnings due to our NOL and valuation allowance position.
19. Segment Reporting and Geographic Areas
Our chief operating decision maker (our Chief Executive Officer) reviews our financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. We operate in one industry segment — content delivery and related services and we operate in three geographic areas — Americas, Europe, Middle East, and Africa (EMEA), and Asia Pacific.
Revenue by geography is based on the location of the customer from which the revenue is earned. The following table sets forth our revenue by geographic area:

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Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Americas
$
32,860

64
%
 
$
28,700

58
%
 
$
86,865

62
%
 
$
92,317

61
%
EMEA
7,574

15
%
 
9,656

20
%
 
22,122

16
%
 
31,156

20
%
Asia Pacific
10,887

21
%
 
10,959

22
%
 
31,518

22
%
 
28,205

19
%
Total revenue
$
51,321

100
%
 
$
49,315

100
%
 
$
140,505

100
%
 
$
151,678

100
%
The following table sets forth the individual countries and their respective revenue for those countries whose revenue exceeded 10% of our total revenue:
 
Three Months Ended September 30,
Nine Months Ended September 30,
Country / Region
2019
 
2018
2019
 
2018
United States / Americas
$
32,052

 
$
27,823

$
84,115

 
$
88,443

United Kingdom / EMEA
$
5,813

 
$
6,590

$
16,227

 
$
21,896

Japan / Asia Pacific
$
6,556

 
$
5,610

$
18,061

 
$
14,841

The following table sets forth long-lived assets by geographic area in which the assets are located:
 
September 30,
 
December 31,
 
2019
 
2018
Americas
$
32,697

 
$
18,349

International
13,607

 
9,029

Total long-lived assets
$
46,304

 
$
27,378

20. Fair Value Measurements
As of September 30, 2019, and December 31, 2018, we held certain assets and liabilities that were required to be measured at fair value on a recurring basis.
The following is a summary of fair value measurements at September 30, 2019:
 
 
 
Fair Value Measurements at Reporting Date Using
Description
Total
 
Quoted Prices In Active Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds (2)
$
2,177

 
$
2,177

 
$

 
$

Certificate of deposit (1)
40

 

 
40

 

Corporate notes and bonds (1)
3,218

 

 
3,218

 

Total assets measured at fair value
$
5,435

 
$
2,177

 
$
3,258

 
$

  
____________
(1)
Classified in marketable securities
(2)
Classified in cash and cash equivalents

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The following is a summary of fair value measurements at December 31, 2018:
 
 
 
Fair Value Measurements at Reporting Date Using
Description
Total
 
Quoted Prices In Active Markets for Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Money market funds (2)
$
752

 
$
752

 
$

 
$

Certificate of deposit (1)
40

 

 
40

 

Corporate notes and bonds (1)
25,083

 

 
25,083

 

Total assets measured at fair value
$
25,875

 
$
752

 
$
25,123

 
$

____________
(1)
Classified in marketable securities
(2)
Classified in cash and cash equivalents
The carrying amount of cash equivalents approximates fair value because their maturity is less than three months. The carrying amount of short-term and long-term marketable securities approximates fair value as the securities are marked to market as of each balance sheet date with any unrealized gains and losses reported in stockholders’ equity. The carrying amount of accounts receivable, accounts payable and accrued liabilities approximates fair value due to the short-term maturity of the amounts.

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Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2018, included in Part II of our annual report on Form 10-K, as filed with the SEC, on January 31, 2019.
Prior period information has been modified to conform to current year presentation. All information in this Item 2 is presented in thousands, except per share amounts, customer count and where specifically noted.
Overview
We were founded in 2001 as a provider of content delivery network services to deliver digital content over the internet. We began development of our infrastructure in 2001 and began generating meaningful revenue in 2002. We are a provider of digital content delivery, online video delivery, cloud security, and edge computing services, empowering customers to provide exceptional digital experiences. Our edge services platform includes a unique combination of global private infrastructure, intelligent software, and expert support services that enable current and future workflows. Our mission is to securely manage and globally deliver digital content, building customer satisfaction through exceptional reliability and performance.
Our delivery services represented approximately 78% of our total revenue during the three and nine months ended September 30, 2019. We also generate revenue through the sale of professional services and other infrastructure services, such as transit and rack space services.
We operate in markets that are highly competitive. We have experienced and expect to continue to experience increased competition in price, features, functionality, integration and other factors leading to customer churn and customers operating their own network. Competition and technology advancements have resulted in declining average selling prices in the industry. We believe continued increases in content delivery traffic growth rates, driven by increased migration of applications and data to the cloud, continued growth rates of mobile device usage and increased consumption of rich media content and larger file sizes, are all important trends that will continue to outpace declining average selling prices in the industry.
During the three and nine months ended September 30, 2019 and 2018, respectively, we had one customer, Amazon, who represented 10% or more of our total revenue.
In addition to these revenue-related trends, our profitability is impacted by trends in our costs of services and operating expenses. We continuously work with our vendors to optimize our data center footprint. We continuously renegotiate our infrastructure contracts in order to scale our operations based on traffic levels and lower bandwidth costs per unit. Our operating expenses are largely driven by payroll and related employee costs. Our headcount increased from 563 at December 31, 2018, to 609 as of September 30, 2019.
In August 2016, we entered into a settlement and license agreement with Akamai Technologies, Inc. (Akamai) with respect to the U.S. Patent No. 6,108,703 (the ‘703 patent) and certain other related patents. The agreement settles all asserted and unasserted claims with respect to the licensed patents. The terms of the agreement required us to pay $54,000 over twelve equal quarterly installments beginning on August 1, 2016. During the three months ended June 30, 2019, we made our final payment of $4,500 to Akamai under the terms of the settlement and license agreement.
On April 9, 2018, we entered into a definitive settlement and patent license agreement with Akamai in a separate matter where the parties agreed to (i) license certain patents to the other party, (ii) a covenant not to sue for three years for certain patents related to the licensed patents, and (iii) settle all outstanding legal disputes between the parties. The terms of the agreement also required Akamai to pay to Limelight a total of $14,900, over five equal quarterly installments. During the three months ended June 30, 2019, we received our final payment of $2,980 from Akamai.
Please see our discussion in Note 10 "Contingencies - Legal Matters" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this quarterly report on Form 10-Q for more information on this and other lawsuits.


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The following table summarizes our revenue, costs and expenses in thousands of dollars and as a percentage of total revenue for the three and nine months ended September 30, 2019 and 2018.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
51,321

 
100.0
 %
 
$
49,315

 
100.0
 %
 
$
140,505

 
100.0
 %
 
$
151,678

 
100.0
%
Cost of revenue
30,563

 
59.6
 %
 
25,280

 
51.3
 %
 
85,216

 
60.6
 %
 
76,116

 
50.2
%
Gross profit
20,758

 
40.4
 %
 
24,035

 
48.7
 %
 
55,289

 
39.4
 %
 
75,562

 
49.8
%
Operating expenses
23,401

 
45.6
 %
 
24,115

 
48.9
 %
 
73,530

 
52.3
 %
 
75,089

 
49.5
%
Operating (loss) income
(2,643
)
 
(5.1
)%
 
(80
)
 
(0.2
)%
 
(18,241
)
 
(13.0
)%
 
473

 
0.3
%
Settlement and patent license income

 
 %
 

 
 %
 

 
 %
 
14,900

 
9.8
%
Total other income (expense)
58

 
0.1
 %
 
(79
)
 
(0.2
)%
 
283

 
0.2
 %
 
9

 
%
(Loss) income before income taxes
(2,585
)
 
(5.0
)%
 
(159
)
 
(0.3
)%
 
(17,958
)
 
(12.8
)%
 
15,382

 
10.1
%
Income tax expense
166

 
0.3
 %
 
113

 
0.2
 %
 
544

 
0.4
 %
 
347

 
0.2
%
Net (loss) income
$
(2,751
)
 
(5.4
)%
 
$
(272
)
 
(0.6
)%
 
$
(18,502
)
 
(13.2
)%
 
$
15,035

 
9.9
%
Use of Non-GAAP Financial Measures
To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net income (loss), EBITDA and Adjusted EBITDA as supplemental measures of operating performance. These measures include the same adjustments that management takes into account when it reviews and assesses operating performance on a period-to-period basis. We consider Non-GAAP net income (loss) to be an important indicator of overall business performance. We define Non-GAAP net income (loss) to be U.S. GAAP net income (loss), adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We believe that EBITDA provides a useful metric to investors to compare us with other companies within our industry and across industries. We define EBITDA as U.S. GAAP net income (loss), adjusted to exclude depreciation and amortization, interest expense, interest and other (income) expense, and income tax expense. We define Adjusted EBITDA as EBITDA adjusted to exclude the settlement and patent license income, share-based compensation and litigation expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. Our management uses these Non-GAAP financial measures because, collectively, they provide valuable information on the performance of our on-going operations, excluding non-cash charges, taxes and non-core activities (including interest payments related to financing activities). These measures also enable our management to compare the results of our on-going operations from period to period, and allow management to review the performance of our on-going operations against our peer companies and against other companies in our industry and adjacent industries. We believe these measures also provide similar insights to investors, and enable investors to review our results of operations “through the eyes of management.”
Furthermore, our management uses these Non-GAAP financial measures to assist them in making decisions regarding our strategic priorities and areas for future investment and focus.
In our October 16, 2019, earnings press release, as furnished on Form 8-K, we included Non-GAAP net income (loss), EBITDA and Adjusted EBITDA. The terms Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are not defined under 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 (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income (loss), EBITDA and Adjusted EBITDA 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 Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
these measures do not reflect changes in, or cash requirements for, our working capital needs;
Non- GAAP net income (loss) and Adjusted EBITDA do not reflect the cash requirements necessary for litigation costs, including provision for litigation and litigation expenses;
these measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
these measures do not reflect income taxes or the cash requirements for any tax payments;

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Table of Contents

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA 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 Non-GAAP net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by relying primarily on our U.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management’s analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Item 10(e) of Regulation S-K, we are presenting the most directly comparable U.S. GAAP financial measures and reconciling the unaudited Non-GAAP financial metrics to the comparable U.S. GAAP measures.
Reconciliation of U.S. GAAP Net Income (Loss) to Non-GAAP Net Income (Loss)
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
Sept. 30,
 
Sept. 30,
 
2019
 
2019
 
2018
 
2019
 
2018
U.S. GAAP net (loss) income
$
(2,751
)
 
$
(7,192
)
 
$
(272
)
 
$
(18,502
)
 
$
15,035

Settlement and patent license income

 

 

 

 
(14,900
)
Share-based compensation
3,358

 
3,649

 
3,421

 
10,463

 
10,345

Litigation expenses

 

 
19

 

 
2,904

Non-GAAP net (loss) income
$
607

 
$
(3,543
)
 
$
3,168

 
$
(8,039
)
 
$
13,384

Reconciliation of U.S. GAAP Net Income (Loss) to EBITDA to Adjusted EBITDA
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
 
Sept. 30,
 
June 30,
 
Sept. 30,
 
Sept. 30,
 
Sept. 30,
 
2019
 
2019
 
2018
 
2019
 
2018
U.S. GAAP net (loss) income
$
(2,751
)
 
$
(7,192
)
 
$
(272
)
 
$
(18,502
)
 
$
15,035

Depreciation and amortization
5,133

 
4,755

 
4,377

 
14,450

 
14,174

Interest expense
10

 
10

 
10

 
30

 
76

Interest and other (income) expense
(68
)
 
(40
)
 
69

 
(313
)
 
(85
)
Income tax expense
166

 
255

 
113

 
544

 
347

EBITDA
$
2,490

 
$
(2,212
)
 
$
4,297

 
$
(3,791
)
 
$
29,547

Settlement and patent license income

 

 

 

 
(14,900
)
Share-based compensation
3,358

 
3,649

 
3,421

 
10,463

 
10,345

Litigation expenses

 

 
19

 

 
2,904

Adjusted EBITDA
$
5,848

 
$
1,437

 
$
7,737

 
$
6,672

 
$
27,896

Critical Accounting Policies and Estimates
Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of changes in significant accounting policies. In addition, our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. During the nine months ended September 30, 2019, there have been no other significant changes in our critical accounting policies and estimates.

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Table of Contents

Results of Operations
Revenue
We derive revenue primarily from the sale of our digital content delivery, video delivery, cloud security, edge cloud and cloud storage services. We also generate revenue through the sale of professional services and other infrastructure services, such as transit and rack space services.
The following table reflects our revenue for the three and nine months ended September 30, 2019, compared to the three and nine months ended September 30, 2018:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
 
$
 
%
 




$

%
 
2019
 
2018
 
Change
 
Change
 
2019

2018

Change

Change
Revenue
$
51,321

 
$
49,315

 
$
2,006

 
4
%
 
$
140,505
</