Fellow Shareholders,
During 2015, Limelight made significant progress despite some challenges. We remained
focused on our three strategic intents – creating customers for life, growing profitable revenue
and becoming an employer of choice. Through our focused effort, we strengthened our market
position and improved our financial performance.
For the full year, we generated revenue of $170.9 million, up 5% from 2014. Excluding Netflix
revenue in 2014 and the impact of currency fluctuations, revenue increased 15% in 2015, which
we believe is at the high end of industry growth rates. For 2015, we reported a GAAP net loss of
$24.0 million, or $0.24 per basic share, and a non-GAAP net loss of $11.2 million, or $0.11 per
basic share. Adjusted EBITDA was approximately $6.9 million for the full year, and we ended
2015 with approximately $73 million in cash and marketable securities.
During the year, we made significant progress on multiple fronts. Our employees aligned around
our priorities and objectives with a steadfast focus on our customers. Customer satisfaction was,
and will remain, our top priority. Other priorities included improving operations, reducing customer
churn and employee turnover, improving product stability and functionality, and focusing on
operating cost efficiency.
Our focus on these priorities and objectives resulted in many achievements in 2015. A few
highlights include:
• We continued meaningful revenue growth from our top customers.
• Customer and revenue churn was at its lowest level in years.
• Our Net Promoter Score (customer satisfaction levels) continued to improve, resulting in
60-point increase in the last 3 years.
• We beat our all-time monthly traffic record 10 times in 2015.
• We introduced industry leading purge capability, added self-service capability and
•
partnered to provide a comprehensive DDoS offering.
Incident and support tickets were down 30 percent compared to 2014, while traffic
increased.
• Employee attrition moved into a range that we believe is sustainable.
We also managed through some challenges towards the end of 2015. In mid-August, the U.S.
Court of Appeals for the Federal Circuit reversed its earlier decision in our favor and reinstated
the 2008 jury verdict against us in our long-standing patent case with Akamai. While we are
disappointed with this legal ruling, we have taken steps that we believe will address an
unfavorable outcome even as we strongly believe our arguments have merit and should prevail.
We enter 2016 optimistic about our continuing ability to deliver further improvements to our
operational and financial performance. Our industry is growing at a healthy rate, and we have one
of the most valuable networks in the world. I believe we have an achievable plan, favorable
market conditions, and the right team with shareholder aligned incentives in place. We expect
2016 to be the year we prove that we can create superior offerings for our customers and
generate attractive returns for our investors. On behalf of all Limelight employees, I want to thank
you for your continuing support.
Sincerely,
Robert Lento
President, Chief Executive Officer and Director
Limelight Networks, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:59)(cid:3)ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
(cid:134)(cid:3)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
(State or other jurisdiction of
incorporation or organization)
20-1677033
(I.R.S. Employer
Identification No.)
222 South Mill Avenue, 8th Floor
Tempe, AZ 85281
(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
Common Stock, $0.001 par value
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:59)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934. Yes (cid:134) No (cid:59)
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 (cid:59) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files). Yes (cid:59) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:134)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer (cid:134)
Accelerated filer (cid:59)
Non-accelerated filer (cid:134)
(Do not check if a smaller reporting company)
Smaller Reporting Company (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:59)
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant was approximately
$256.2 million based on the last reported sale price of the common stock on the Nasdaq Global Select Market on June 30, 2015.
The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of February 1, 2016: 102,359,517
shares.
Portions of the Proxy Statement for the Registrant’s 2016 Annual Meeting of Stockholders are incorporated by reference in Part III of
DOCUMENTS INCORPORATED BY REFERENCE
this Form 10-K.
LIMELIGHT NETWORKS, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2015
TABLE OF CONTENTS
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships, Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
Signatures
Schedule II — Valuation and Qualifying Account
Exhibits Index and Exhibits
Page
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 Annual Report
on Form 10-K, 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 expectations regarding revenue, costs and expenses;
• 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;
• our plans with respect to investments in marketable securities;
• our expectations and strategies regarding acquisitions;
• our expectations regarding litigation and other pending or potential disputes;
• 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 belief regarding our interest rate risk; 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 I, Item 1A in this Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. 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 and where specifically noted.
PART I
Item 1.
Business
Overview
Limelight operates a globally distributed, high-performance network and provides a suite of integrated services
marketed under the Orchestrate Platform which include content delivery, video content management, website and web
application acceleration, website and content security, and cloud storage services.
The services we provide help our customers optimize and deliver digital content to web, mobile, social, gaming, large
screen, and other digital channels. These services provide advanced features including video publishing, mobile enablement,
1
content delivery, website and web application acceleration and security, transcoding, and cloud storage. These services leverage
our global network, which provides highly available, highly redundant storage, bandwidth, and computing resources, as well as
connectivity to last-mile broadband network providers.
We derive revenue primarily from the sale of components of the Orchestrate Platform. We also generate revenue
through the sale of professional services and other infrastructure services, such as transit and rack space services. We also
maintain relationships with resellers that purchase our services for resale to their end customers.
We provide our services to customers that we believe view Internet, mobile, social, and other digital initiatives as
critical to their success, including traditional and emerging media companies operating in the television, music, radio,
newspaper, magazine, movie, game, software, and social media industries, as well as to enterprises, technology companies, and
government entities conducting business online. Our offerings enable our customers to deliver a high quality online experience
across all customer interaction channels, and thereby improve brand awareness, drive revenue, and enhance their customer
relationships.
We are a Delaware corporation formed in 2001. Our principal executive offices are located at 222 South Mill Avenue,
8th Floor, Tempe, Arizona 85281, and our main telephone number is (602) 850-5000. We began development of our
infrastructure in 2001 and began generating meaningful revenue in 2002. We began international operations in 2004. As of
December 31, 2015, we had approximately 963 active customers and had a presence in approximately 56 countries throughout
the world.
We are registered as a reporting company under the Securities Exchange Act of 1934, as amended (Exchange Act).
Accordingly, we file or furnish with the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to such reports as required by the Exchange Act and the rules and regulations of the SEC. We
refer to these reports as "Periodic Reports". The public may read and copy any Periodic Reports or other materials we file with
the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, DC 20549. Information on the operation of the
Public Reference Room is available by calling 1-800-SEC-0330. In addition, the SEC maintains an Internet website that
contains reports, proxy and information statements and other information regarding issuers, such as Limelight Networks, Inc.,
that file electronically with the SEC. The address of this website is www.sec.gov.
Our Internet website address is www.limelight.com. We make available, free of charge, on or through our Internet
website our Periodic Reports and amendments to those Periodic Reports as soon as reasonably practicable after we
electronically file them with the SEC. We are not, however, including the information contained on our website, or information
that may be accessed through links on our website, as part of, or incorporating it by reference into, this annual report on Form
10-K.
Five Trends Driving Internet Congestion
We have identified five trends that point to an Internet of the future in which congestion may cause outages and
prevent organizations from delivering the highest quality digital experiences. In this situation, the need and demand for private,
global networks to deliver digital content become important. These trends are:
• Shift to over the top (OTT) consumption for online video. OTT is growing rapidly, especially amongst millennials
which represent the largest demographic. In our December 2015 State of Online Video consumer research report,
we discovered that millennials are watching a significant amount more online video than the general population and
doing so from a variety of devices. This trend reflects that many top-tier content owners have either already
launched their content direct-to-consumer (e.g., HBO, CBS, Showtime) or have announced plans to do so. In
addition, content owners are joining forces with large media companies (e.g., Sony, Apple, Dish Networks) to
launch OTT subscription services enabling consumers to bundle together channels for a fraction of the cost of a
cable subscription. As day-to-day consumption of video content shifts to Internet-based delivery, we believe this
will put an increasing strain on the Internet placing additional pressure on organizations and service providers to
take steps to protect the quality of the end-user experience as this increasing segment of traffic competes with other
Internet activities, such as browsing websites and downloading digital content.
• Broadcast Quality Online Video. Consumers are continuing to consume online streaming video in record numbers.
As demonstrated by Yahoo!’s streaming of an NFL game in 2015 and by service providers like YouTube, online
video is rapidly growing towards becoming a primary method by which users consume video content, whether it’s
via their personal computers (PCs), smartphones, tablets, or connected televisions. Yet, consumers continue to
expect the same quality experience online as they would have in viewing a television. To keep up with the
consumer expectations, organizations have been forced to increase quality to provide a “broadcast-like” experience.
For example, with the recent advent of 4K resolution devices, several large-scale online video providers are already
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streaming in this new format that requires, in most cases, four times the bandwidth of a traditional high definition
stream. We believe that as more content is made available in 4K resolution (coupled with increasing sales of 4K-
ready devices like televisions and computer monitors), more consumers will want to consume the higher-quality
content, resulting in increased strain on Internet architecture and infrastructure.
• Growth of digital downloads. With the growing availability of higher bandwidth connections to connected devices,
consumers are becoming more accustomed to making purchases of movies, music, games, and applications digitally
from a variety of retailers. As a result, consumers accept larger download sizes. For example, recent releases of
popular games have topped 50 gigabytes (GBs) in size. As digital purchases of massive files increases, we believe
that this will cause more strain on the Internet’s infrastructure resulting in additional pressure on organizations and
service providers to take steps to avoid congestion, latency, lengthening download times, and increasingly
interrupted downloads, all of which we believe would undermine an organization’s ability to deliver the best
possible digital experience.
• The Internet of Things. Connected devices communicate with each other and with server-based resources via the
Internet. Although it is unclear as to how much bandwidth this “background communication” will consume, as
more devices become connected and begin communicating with each other and other resources, this traffic will
compete with other Internet traffic such as streaming video and digital downloads. We believe that the Internet of
Things may complicate an organization’s ability to utilize the Internet to deliver high quality digital experiences.
• Webpage size. Organizations are building more complex, interactive, and engaging digital experiences which rely
heavily on imagery and multimedia content. This trend is reflected in the growing size of webpages. According to
the HTTP-Archive, webpages were over 2100KB by the end of 2015, a 150% growth since 1995. We believe,
through a highly congested Internet, these websites will become increasingly harder to deliver at the level of
performance that users expect.
Seven Trends Illustrating Consumer Demand for Digital Content
The Internet is key for today’s digital business. Hyper text transfer protocol (HTTP) and other Internet protocols are
critical to enabling organizations to digitize their business processes and operations as well as provide the kinds of experiences
that consumers around the globe have come to expect across web, mobile, social, and large screen channels. We believe there
are seven trends that illustrate a demand for digital content, contribute to the overall usage of the Internet, increase potential
congestion, and punctuate the need for a private, global network to meet the level of performance that users expect. We believe
these trends are:
• The continued growth of online video. Consumers are demanding and consuming, and publishers are increasingly
making available for these consumers, video, music, and other forms of rich media over the Internet. According to
eMarketer’s Q2 2015 State of Video report, ad spend for online video has doubled since 2013 (from 2.2% to 4.4%)
and people are watching almost five times as much online video per day (from 39 minutes in 2011 to 1 hour, 55
minutes in 2015). This growth is reflective of predictions made by Cisco in their Visual Network Index annual
report that online video will account for 70% of Internet traffic by 2017. Based on this trend, we expect that
businesses will continue to incorporate video into their digital marketing efforts as a way to further differentiate
their message from competitors and generate new opportunities for engagement.
• Mobile First. We believe that mobile is becoming increasingly important as a primary method users employ to
interact with online content, a position supported by our April 2015 State of Online Video consumer research which
indicated smartphones as the second most popular device from which to watch online video. KPCB analyst Mary
Meeker’s 2015 Internet Trends report also shows that between 2013 and 2014 mobile usage for accessing the web
in some countries doubled as a percentage of overall web access with clear growth in all regions around the globe
clearly illustrating that consumers use their mobile devices more than anything else (even computers) to access the
Internet. Ultimately, mobile devices enable consumers to remain connected and engaged with an organization’s
content when they are away from their primary computers or TVs and it’s clear that consumers are employing these
devices more often to do so. But in order for those consumers to remain engaged, the experience must be consistent
across devices. An organization’s dynamic content and video has to be accessible regardless of device and provide
the same engagement and interaction with those users.
• The continued migration of information technology (IT) services into the cloud. Enterprises may seek to decrease
infrastructure expenditures by moving to a “cloud-based” model in which application delivery and storage are
available on-demand and paid for on an as-needed basis. We anticipate that the core cloud computing market will
continue to grow at a rapid pace as the cloud increasingly becomes a mainstream IT strategy embraced by corporate
enterprises and government agencies. This presumption is supported by the growth of the cloud market which,
3
according to Global Industry Analysts, will reach $127 billion by 2017. The core cloud market includes platform-
as-a-service (PaaS) and infrastructure-as-a-service (IaaS) offerings such as content delivery networks (CDN), as
well as the cloud-delivered software used to build and manage a cloud environment.
•
•
Increasing user expectations for digital experience performance. Websites are becoming increasingly complex
and large while user expectations for website performance are becoming more demanding. We anticipate that these
demanding consumer expectations will drive a continued need for website and web application acceleration
services. The combination of performance expectation coupled with multi-device delivery creates a considerable
challenge for most organizations.
Increasing need for scalable storage. The amount of data created each year has grown rapidly and we believe this
rapid growth in data production will create demand for flexible and scalable storage mechanisms to support
growing libraries of digital content. We anticipate the need for digital content storage to increase because of the
growing demand for video and other types of digital content as well as other trends like the continued migration of
IT services into the cloud. But organizations must consider their choice of storage solution carefully when the
technology is part of a digital content delivery chain as the wrong selection can lead to incremental latency that can
undermine digital experience performance.
• The evolution of digital marketing. As the global online economy has continued to expand and grow, it has become
increasingly difficult for businesses to capture consumer attention. Because of this difficulty, we anticipate that
marketing will continue to evolve from “broadcast advertising” to engaging with users through conversations
associated with content in a variety of places including websites and social networks. We believe this kind of
engagement requires that content be increasingly comprised of video and rich media, and be delivered in a manner
that meets the high user expectations for the delivery and responsiveness of digital experiences. In fact, according
to the 2015 State of Digital Marketing Report, three out of four marketers now incorporate video into their strategy.
• Global broadband speed increase. With each passing year, the average broadband connection speed is increasing
around the world, especially as governmental agencies (such as the United States Federal Communications
Commission) take an active role in ensuring that consumers have access to high-speed connections. The continued
increase in speed is illustrative of consumer desire to access multimedia content (i.e., online video, game
downloads, interactive web applications) through the Internet and how integral rich, digital experiences have
become to the way people conduct their lives on a daily basis.
Requirements for delivering effective digital experiences
We believe that the challenges of delivering digital content, particularly related to rich media, dynamic content, and
applications over the Internet to a wide variety of mobile and connected devices, have created a new set of technical,
management, and economic requirements for organizations seeking to succeed in the online economy. We believe those
requirements include the following:
• Reduction of IT involvement. As businesses rely increasingly on cloud-based services they will require more
intuitive web-based interfaces that enable adoption and usage of the cloud-based services by the entire company or
organization, regardless of location, with less direct IT support required.
• Security. Maintaining effective security is a challenge for any enterprise that operates an Internet presence. Threats,
denial of service attacks, viruses, and piracy can impact online web presence in many ways, including
compromising personal and sensitive information, loss of customer trust and loyalty, loss of revenue, and negative
publicity and brand reputation. Businesses require services that employ a number of software and network features
to mitigate the risk of unauthorized access to content and network-related attacks against web properties, digital
content, and applications. In 2015, there were a number of high profile security incidents that continue to raise the
awareness, and strategic importance of, security in our industry.
• Business rules-based content delivery. Consumers increasingly expect the ability to consume any form of media
content online. To meet this expectation, traditional media companies are making their enormous libraries of
content, such as television shows and movies, available for viewing online. Content providers often have
regulations with respect to where they can display, or store their content, whether that is because of industry
requirements (such as PCI and HIPAA) or geographic location. Accordingly, companies require powerful features
that enable them to control where content is stored, for how long, and in what regions it can be delivered.
• Ability to scale capacity to handle rapidly accelerating demand. Online businesses must scale delivery of their
web presence smoothly as the quantity of their site visitors or audience increases to avoid delays for users. When a
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large number of users simultaneously access a particular digital content asset like a website or video, the operator
must be able to meet that surge in demand without making users wait. Rapidly accelerating demand can be related
to a single event, such as a breaking news story or seasonal shopping, or can be spread across an entire library of
content, such as when a social media website surges in popularity. The continued increase in video and other rich
media consumption, and the growing size of digital content objects, contributes to concerns that Internet bandwidth
may be supply constrained in the future.
• Ability to easily publish and deliver online video. As the consumer demand for online video grows, businesses and
organizations may be required to adopt video into their marketing messages. However, there are a host of
complexities involved in developing and implementing a “video publishing workflow.” Businesses will require
intuitive tools that will enable them to manage their video portfolio, and quickly and efficiently publish and deliver
their video content at scale with quality performance. Additionally, businesses will require that video content can be
converted automatically for quality playing on any mobile device with the opportunity to integrate advertisements
into on-demand assets.
• Multi-device delivery. With the increasing popularity of smartphones and tablets, businesses and organizations must
ensure that their content, whether dynamic web pages or video, display properly in their mobile format. However,
adding this requirement to existing content publishing workflows may greatly complicate internal processes that
may result in delays for making content available to end users. Additionally, because many mobile devices have
separate requirements, businesses will require features for automatically delivering correctly formatted content.
• Reliability and Consistency. Throughout the path data must traverse to reach a user, problems with the underlying
infrastructure supporting the Internet can occur. For example, servers can crash or network connections can fail.
Network, datacenter, or service provider outages can mean frustrated users, lost audiences, and missed revenue
opportunities. Businesses require a massively redundant network that they can rely on to ensure a reliable and
consistent delivery of their digital experiences.
Our Services
We believe our integrated suite of services, coupled with our global network, are responsive to the trends that are
driving Internet growth and address the requirements for delivering effective digital experiences. Our primary services include
the following:
• Content delivery services improve the reliability and performance of digital content by using our global network to
deliver rich media files such as video, music, games, and software, or live streaming of corporate or entertainment
events. We support all major formats as well as dynamic and static webpages.
• Mobile delivery services help publishers deliver properly-formatted, device-optimized video to almost any media-
enabled mobile device as well as to present dynamic pre-, mid-, or post-roll video and audio advertising into media
that is delivered to mobile or connected users. These mobility services automatically detect the requesting mobile
device and provide a version of the content suitable to that device.
• Video content management services help organizations publish, manage, syndicate, analyze, and monetize video
content through a cloud-based service. Services here also include off-the-shelf players for quick deployment, a
mobile application to capture video in the field, and monetization features that enable customers to integrate
advertising into the video playback experience.
• Performance services improve web experiences by speeding up the loading of web pages for faster action and
providing consistent performance from any geography for dynamic and personalized content, online commerce
transactions, and web applications.
• Cloud-based storage services provide customers with a scalable, redundant, geographically diverse storage of
media and enterprise content offering policies for global geographic placement, content workflow, and business
logic controls while maintaining the highest levels of performance for object retrieval.
• Cloud-based content security services mitigate a variety of network-based attacks (i.e., distributed denial of
service) against websites and web properties by redirecting traffic to global scrubbing centers where malformed or
bad traffic (as part of an attack) can be removed in real time. This service ensures an organization’s digital
experience remains operational and available. In addition, these cloud services can help limit who has access to
digital content (like online video) as well as protect it from theft through rights management and other mechanisms.
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Our Solutions
In addition to marketing our core suite of services, we continue to develop and launch prepackaged solutions that help
organizations tackle workflow-related challenges in delivering digital content to their customers. These solutions integrate
multiple Orchestrate services with documented “reference architectures” that align to specific use cases and industries. Our
solutions include the following:
• Software and Device Manufacturers addresses the complexities of delivering software downloads and updates to
connected and consumer devices.
• Media and Broadcasters addresses the complexities of publishing and delivering digital video content to global
audiences on any devices.
• Gaming addresses the complexities of distributing, promoting, and updating video games across PC, consoles, and
mobile devices.
Limelight Global Network
Our global network provides highly available, highly redundant storage, bandwidth, and computing resources in
support of our services and solutions. This architecture, managed by our proprietary software, automatically responds to
network and datacenter outages and disruptions. All of our delivery locations are interconnected via our global network and also
connected to multiple Internet backbone and broadband Internet service provider (ISP) networks. This global network has three
main features:
• Densely configured, high-capacity. Our global network consists of dense clusters of specially configured servers
organized into large, multi-tiered, logical delivery locations. The extensive storage capacity of these logical
locations leads to fewer cache misses to our network of servers than we believe would occur in other CDN
architectures and provides significant scalability and responsiveness to surges in end-user demand. The clustering
of many high-performance CPUs provide us with aggregated computational power.
• Many connections to other networks. Our logical locations are directly connected to hundreds of ISPs and other
user access networks, which are computer networks connected to end-users. In addition, for dedicated connectivity
between our logical locations, we operate a dedicated fiber optic backbone and metro area networks. Also, our
infrastructure has multiple connections to the Internet. In combination, these connections enable us to frequently
bypass the often-congested public Internet, improving the delivery speed of content.
•
Intelligent software to manage the network. We have developed proprietary software that manages our global
network. This software manages, among other things, the delivery of digital content, the retrieval of dynamic
content, storage and retrieval of objects, activity logging, and information reporting.
We have been expanding our architecture through the use of “smart pops.” These smaller pops are less dense than our
traditional densely-configured metro pops and are designed to be quickly and more cost-effectively deployed within existing
networks. In addition, we continue to explore and implement ways to improve throughput and efficiency of our infrastructure
through the use of advanced technologies, hardware tuning, and software refinement that help us deliver more content, more
quickly, for less cost.
Segment and Geographic Information
We operate in one industry segment, providing content delivery and related services and solutions for global
businesses to help them deliver their digital content across Internet, mobile, and social channels. We operate in three geographic
areas - Americas; Europe, Middle East and Africa (EMEA); and Asia Pacific. For the years ended December 31, 2015, 2014,
and 2013, approximately 40%, 38%, and 31%, respectively, of our total revenue was derived from our operations outside the
Americas. For the years ended December 31, 2015, 2014, and 2013, we derived approximately 48%, 55%, and 57%,
respectively of our international revenue from EMEA and approximately 52%, 45%, and 43%, respectively, of our international
revenue from Asia Pacific. During 2015 and 2014, we had two countries, Japan and the United States, that represented more
than 10% of our total revenues. During 2013, no single country outside of the United States accounted for 10% or more of our
total revenues. For a description of risks attendant to our foreign operations, see the section titled “Risk Factors” set forth in
Part 1, Item 1A of this annual report on Form 10-K. For more segment and geographic information, including revenue from
customers, a measure of profit or loss, and total assets for each of the last three fiscal years, see our Consolidated Financial
Statements included in this annual report on Form 10-K, including Note 21 thereto.
6
Sales, Service and Marketing
Our sales and service professionals are located in five offices in the United States with an additional six office
locations in EMEA and Asia Pacific. We target media, high tech, software, gaming, enterprise, and other organizations for
which the delivery of digital content is critical to the success of their business.
Our sales and service organization includes employees in telesales and field sales, professional services, account
management, and solutions engineering. As of December 31, 2015, we had approximately 118 employees in our sales
organization. Our ability to achieve revenue growth in the future will depend in large part on whether we successfully recruit,
train, and retain sufficient sales, technical, and global services personnel, and how well we establish and maintain our
distribution and reseller relationships. We believe that the complexity of our services will continue to require highly trained
global sales and services personnel.
To support our sales efforts and promote the Limelight brand, we conduct marketing programs. Our marketing
strategies include an active public relations campaign, advertisements, events and trade shows, strategic alliances, and on-going
customer communication programs. As of December 31, 2015, we had 22 employees in our global marketing organization.
Customers
Our customers operate in the media, entertainment, gaming, software, enterprise, and other sectors. As of
December 31, 2015, we had approximately 963 active customers worldwide, including many widely recognized names in the
fields of video, digital music, news media, games, rich media applications, and software delivery. During 2015, some of our
most notable customers included ABC, Amazon, Apple, BBC, Bell Canada, Ciena, DirecTV, HBO, MLB, Middle East
Broadcasting Company (MBC), NBC, NFL, Microsoft, Nintendo, Nissan, QVC, Sony, Walmart, and Yahoo!
For the year ended December 31, 2015 and 2014, respectively, we had no customer who accounted for 10% or more of
our total revenue. During 2013, we had one customer, Netflix who accounted for approximately 11% of our total revenue. In the
past, the customers that comprise our top 20 customers have continually changed, and our large customers may not continue to
be as significant going forward as they have been in the past.
From time to time we have discontinued service to customers for non-payment. Although we did not receive
continuing revenue from these former customers, these changes provided for a stronger mix of customers across our base,
decreased our days sales outstanding, and allowed us to recoup network capacity to help meet future growth needs. We continue
to focus on acquiring and retaining high quality customers across all market segments.
Competition
We operate in the digital content delivery market, which is rapidly evolving and highly competitive. We expect this
competitive environment to continue. We believe that the principal competitive factors affecting this market fall into four
primary categories: management, delivery, security, and metrics.
Management for digital content is measured by the features available for managing, publishing, and delivering digital
content across multiple channels and to multiple devices.
Delivery for digital content is measured by scale and performance. We measure scale by the number of physical
locations in the network and the capabilities of the network to deliver large amounts of content to locations around the world
and to absorb unplanned spikes in requests for content. We measure performance by file delivery time, end-user media
consumption rates, quality of the end-user experience, and scalability, both in terms of average capacity and special event
capacity.
Security for digital content is measured by the features available for addressing attacks against digital properties (i.e.,
websites) and protecting content from unauthorized view, transmission, or access.
In addition, metrics around the ability to efficiently locate and deliver web content, the ease of implementation, the
ability to customize systems for unique content types and mixes, reliability, security, consumer engagement, and cost efficiency
continue to be key criteria for this market.
The market for digital content delivery is increasingly complex and can require multiple vendors to provide customers
with a complete set of tools and services to manage and deliver all of their digital content to all audiences as part of a global
digital presence. We believe that in those situations where multiple vendors are required, Limelight is one of the few CDNs
with the scale, performance, and reach required to deliver digital content to global audiences. We also believe the combination
of cloud-based software and infrastructure/bandwidth associated with our physical global network solve multiple challenges for
7
customers by removing the need to install, manage, or provision software and hardware to satisfy the requirements for storing
and delivering digital content.
We believe our future success will depend on our ability to continue to enhance the performance, integration, and
functionality of our existing suite of services and of our global network, and on our ability to add additional services and
functionality to meet the market’s increasing expectations regarding digital content delivery and consumer engagement.
The global digital content delivery market is fragmented, but we face primary competition from Akamai, Level 3,
Amazon, CDNetworks, and Verizon Digital Media Services.
The principal methods of competition in this market include scale, performance, service, ease of use, product features,
and price. We believe we are competitive in scale, performance, and price, and have made significant improvements in both
service and ease of use. Product feature competition is heated, requiring continuous investment in innovation.
Research and Development
Our research and development organization is responsible for the design, development, testing, and certification of the
software, hardware, and network architecture of our global network and support of our content delivery and other Orchestrate
Platform solutions. As of December 31, 2015, we had 170 employees and employee equivalents in our research and
development group. Our research and development personnel are primarily located in San Francisco, California; Boston,
Massachusetts; Grand Rapids, Michigan; Seattle, Washington; Lviv, Ukraine and at our headquarters in Tempe, Arizona. Our
engineering efforts support product development across all of our service areas, as well as innovation related to the global
network itself. We test our services to ensure scalability in times of peak demand. We use internally developed and third-party
software to monitor and to improve the performance of our network in the major Internet consumer markets around the world
where we provide services for our customers. Our research and development expenses were $28,016, $20,965 and $22,003 in
2015, 2014, and 2013, respectively, including stock-based compensation expense of $2,236, $1,477, and $2,256 in 2015, 2014,
and 2013, respectively.
Intellectual Property
Our success depends in part upon our ability to protect our core technology and other intellectual capital. To
accomplish this, we rely on a combination of intellectual property rights, including patents, trade secrets, copyrights,
trademarks, domain registrations, and contractual protections.
As of December 31, 2015, we had received 133 patents in the United States, expiring between 2023 and 2034, and we
had 39 U.S. patent applications pending. We have 9 issued patents in foreign countries. We do not know whether any of our
patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our
claims. Any patents that may be issued to us may be contested, circumvented, found unenforceable or invalidated, and we may
not be able to prevent third parties from infringing them. Therefore, we cannot predict the exact effect of having a patent with
certainty.
As of December 31, 2015, we had received four trademarks in the United States. Our name, Limelight Networks, has
been filed for multiple classes in the United States, Australia, Canada, the European Union, India, Japan, South Korea and
Singapore. We have 21 non United States trademarks registered. There is a risk that pending trademark applications may not
issue, and that those trademarks that have issued may be challenged by others who believe they have superior rights to the
marks.
We generally control access to and use of our proprietary software and other confidential information through the use
of internal and external controls, including physical and electronic security, contractual protections with employees, contractors,
customers and partners, and domestic and foreign copyright laws.
Despite our efforts to protect our trade secrets and proprietary rights and other intellectual property rights by following
sound business practices, licenses, and confidentiality agreements, there is risk that unauthorized parties may still copy or
otherwise obtain and use our software and technology. In addition, we have been expanding our international operations, and
effective patent, copyright, trademark, and trade secret protection may not be available or may be limited in foreign countries.
Further, expansion of our business with additional employees, locations, and legal jurisdictions may create greater risk that our
trade secrets and proprietary rights will be harmed. If we fail to effectively protect our intellectual property and other
proprietary rights, our business could be harmed.
Third parties could claim that our products or technologies infringe their proprietary rights. The Internet content
delivery services industry is characterized by the existence of a large number of patents, trademarks, and copyrights and by
frequent litigation based on allegations of infringement or other violations of intellectual property rights. We expect that
8
infringement claims may further increase as the number of products, services, and competitors in our market increases. Further,
continued success in this market may provide an impetus to those who might use intellectual property litigation as a weapon
against us. We have been the target of intellectual property infringement claims in the past and may be the target of such claims
by third parties in the future.
During 2015, we were party to a lawsuit alleging aspects of our content delivery network infringed upon third party
patent rights. More information about this case, Akamai Technologies, Inc. vs. Limelight Networks, Inc., is described in further
detail under “Legal Proceedings” in Part 1, Item 3 of this annual report on Form 10-K.
Employees
As of December 31, 2015, we had 509 employees and employee equivalents. Of these, 369 are based in the Americas,
104 are based in EMEA and 36 are based in Asia Pacific. None of our employees are represented by a labor union, and we have
not experienced any work stoppages to date. We consider the relationships with our employees to be positive.
Executive Officers of the Registrant
Our executive officers and their ages and positions as of February 1, 2016 are as follows:
Name
Robert A. Lento
Sajid Malhotra
Michael D. DiSanto
George E. Vonderhaar
Age
54
52
43
55
Position
President, Chief Executive Officer and Director
Chief Strategy Officer and Interim Chief Financial Officer
Chief Administrative and Legal Officer and Secretary
Chief Sales Officer
Robert A. Lento has served as our Chief Executive Officer since November 2012 and has served as a member of our
board of directors since January 2013. Prior to joining us, Mr. Lento was a senior sales executive at Convergys Corporation, a
provider of customer management services, from July 1998 to May 2012, most recently serving as President - Information
Management Division from September 2007 to May 2012. Prior to that, from 1997 to 1998, Mr. Lento served as President of
LAN Systems for Donnelly Enterprise Solutions, Inc., a provider of information management solutions. From 1989 to 1996,
Mr. Lento served in leadership positions at ENTEX Information Services, Inc., a provider of computing infrastructure services.
Mr. Lento received a B.S. in Management from the State University of New York.
Sajid Malhotra has served as our Interim Chief Financial Officer since December 2015. Mr. Malhotra has also served
as our Chief Strategy Officer since June 2015 and was our Senior Vice President, Strategy, Facilities, Investor Relations and
Procurement from March 2014 to June 2015. Prior to joining us, from September 2012 to March 2013, Mr. Malhotra was an
independent consultant focused on strategic and financial consulting, communication, and value creation. Prior to that, from
2006 to 2012, Mr. Malhotra was the Senior Vice President of Strategy, Marketing and Mergers and Acquisitions for Convergys
Corporation. Prior to joining Convergys, Mr. Malhotra held several senior executive positions with NCR Corporation and
AT&T. Mr. Malhotra earned his bachelor’s degree in computer science and a master’s degree of business administration in
finance from PACE University in New York.
Michael D. DiSanto has served as our Senior Vice President, Chief Administrative and Legal Officer and Secretary
since April 2015. Prior to joining us, Mr. DiSanto was a partner at the law firm Bingham McCutchen LLP from 2013 to 2014.
From 2010 to 2013, Mr. DiSanto was a partner at the law firm Dinsmore & Shohl LLP. From 2008 to 2010, Mr. DiSanto was a
partner at the law firm Reed Smith. Mr. DiSanto received a B.A. from Vanderbilt University and his J.D. from Santa Clara
University School of Law.
George E. Vonderhaar has served as our Chief Sales Officer since February 2013. Prior to joining us, Mr. Vonderhaar
served in various capacities for Convergys Corporation, a provider of customer management services, from 1984 through 2012,
including as Senior Vice President, General Manager - Cable and Satellite from January 2011 until the division was acquired by
NEC Corporation in May 2012, where Mr. Vonderhaar then served as Vice President, General Manager North America Cable
from May 2012 to July 2012. Mr. Vonderhaar also was Senior Vice President - Human Resources Management at Convergys
Corporation from April 2006 through June 2010, when the Human Resources Outsourcing division was acquired by
NorthgateArinso, where Mr. Vonderhaar then served as Vice President, Client Services and General Manager from June 2010 to
December 2010. Mr. Vonderhaar also served as General Manager - Mobile Cable Solutions Group at Convergys Corporation
from November 2004 to April 2006. Mr. Vonderhaar received a B.S. in Business Administration from Marquette University.
9
Item 1A.
Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties
described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, and our
consolidated financial statements and related notes, before making a decision to invest in our common stock. The risks and
uncertainties described below may not be the only ones we face. If any of the risks actually occur, our business, financial
condition, operating results and prospects could be materially and adversely affected. In that event, the market price of our
common stock could decline, and you could lose part or all of your investment. All information is presented in thousands,
except per share amounts, customer count, head count and where specifically noted.
Risks Related to Our Business
We currently face competition from established competitors and may face competition from others in the future.
We compete in markets that are intensely competitive, rapidly changing and characterized by frequently declining
prices. In these markets, vendors offer a wide range of alternate solutions. We have experienced and expect to continue to
experience increased competition on price, features, functionality, integration and other factors. Many of our current
competitors, as well as a number of our potential competitors, have longer operating histories, greater name recognition,
broader customer relationships and industry alliances, and substantially greater financial, technical and marketing resources
than we do. As a consequence of the competitive dynamics in our markets, we have experienced reductions in our prices, and
an increased requirement for product advancement and innovation in order to remain competitive, which in turn have adversely
affected and may continue to adversely affect our revenue, gross margin and operating results.
Our primary competitors for the content delivery service offering of our Orchestrate Platform include Akamai,
Level 3, Amazon, CDNetworks, and Verizon Digital Media Services. In addition, a number of companies have recently entered
or are currently attempting to enter our market, either directly or indirectly, as a result of the growth in the content delivery
market. Some of these new entrants may become significant competitors in the future. Given the relative ease by which
customers typically can switch among content delivery service providers, differentiated offerings or pricing by competitors
could lead to a rapid loss of customers. Some of our current or potential competitors may bundle their offerings with other
services, software or hardware in a manner that may discourage content providers from purchasing the services that we offer. In
addition, we face different market characteristics and competition with local content delivery service providers as we expand
internationally. Many of these international competitors are very well positioned within their local markets. Increased
competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could
harm our business, financial condition and results of operations.
We face different competitors for the other service offerings of our Orchestrate Platform. However, the competitive
landscape is different from content delivery in this area in that the process of changing vendors can be more costly and
complicated for the customer, which could make it difficult for us to attract new customers and increase our market share.
Many of our competitors have greater financial and sales resources than we do. Many have been offering similar
services in the markets in which we compete longer than we have. We may not be able to successfully compete against these or
new competitors. If we are unable to increase our customer base and increase our market share, our business, financial
condition and results of operations may suffer.
Our involvement in litigation may have a material adverse effect on our financial condition and operations.
We are currently involved in two significant intellectual property lawsuits - one as a defendant and one as a plaintiff
(see discussion of such lawsuits in Note 11 “Contingencies - Legal Matters" of the Notes to Consolidated Financial Statements
included in Part I, Item 1 of this annual report on Form 10-K).
The outcome of all litigation, including intellectual property litigation, is inherently unpredictable. If we are ultimately
held liable for infringing the '703 patent in Akamai Technologies, Inc. v. Limelight Networks, Inc., it could seriously impact our
ability to conduct our business and to offer our products and services to our customers. For example, a permanent injunction
could prevent us from providing our content delivery services or from delivering certain types of traffic, which could impact
the viability of those portions of our business. Any such finding of infringement would also harm our revenue, expenses,
market share, reputation, liquidity and overall financial position. Akamai has filed motions asserting approximately $99,000 in
total damages (including the original jury verdict) and interest, which we believe represents the upper end of our range of loss.
10
If the district court ultimately awards damages to Akamai toward the upper end or in excess of this range, we could default on
our covenants and our ability to continue as a going concern could be impaired.
If we are unsuccessful in our recently filed lawsuit against Akamai and XO Communications, which alleges that both
companies infringed six of our patents we believe are critical to the effective and efficient delivery of bytes by a content
delivery network, our rights to enforce such intellectual property may be impaired or we could lose some or all of our rights to
such intellectual property.
We are from time to time party to other lawsuits in addition to that described above. The expenses of defending these
lawsuits, particularly fees paid to our lawyers and expert consultants, have been significant to date. If the cost of prosecuting or
defending current or future lawsuits continues to be significant, it may continue to adversely affect our operating results during
the pendency of such lawsuits. Lawsuits also require a diversion of management and technical personnel time and attention
away from other activities to pursue the defense or prosecution of such matters. In addition, adverse rulings in such lawsuits
either alone or cumulatively may have an adverse impact on our revenue, expenses, market share, reputation, liquidity and
financial condition.
Any unplanned interruption or degradation in the functioning or availability of our network or services, or attacks on
or disruptions to our internal information technology systems, could lead to increased costs, a significant decline in our
revenue and harm to our reputation.
Our business is dependent on providing our customers with fast, efficient, and reliable distribution of content delivery
and digital asset management services over the Internet every minute of every day. Many of our customers depend primarily or
exclusively on our services to operate their businesses. Consequently, any disruption, or substantial and extensive degradation,
of our services could have a material impact on our customers’ businesses. Our network or services could be disrupted by
numerous events, including natural disasters, failure or refusal of our third-party network providers to provide the necessary
capacity or access, failure of our software or global network infrastructure and power losses. In addition, we deploy our servers
in third-party co-location facilities, and these third-party co-location providers could experience system outages or other
disruptions that could constrain our ability to deliver our services. We may also experience disruptions caused by software
viruses, unauthorized hacking of our systems, security breaches or other cyberattacks by unauthorized users. Any hacking of
our systems or other cyberattacks could lead to the unauthorized release of confidential information that could damage our
customers’ business and reputation, as well as our own. The economic costs to us to eliminate or alleviate cyber or other
security problems, viruses, worms, malicious software programs, and other security vulnerabilities could be significant, and our
efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service, and loss
of existing or potential customers. In addition, our release of a security-related solution may increase our visibility as a
security-focused company and make us a more attractive target for attacks on our infrastructure intended to steal information
about our technology, financial data, or customer information or take other actions that would be damaging to our customers
and us.
We could experience a significant, unplanned disruption, or substantial and extensive degradation of our services, or
our network may fail in the future. Despite our significant infrastructure investments, we may have insufficient
communications and server capacity to address these or other disruptions, which could result in interruptions in our services.
Any widespread interruption or substantial and extensive degradation in the functioning of our Orchestrate Platform services
for any reason would reduce our revenue and could harm our business and results of operations. If such a widespread
interruption occurred, or if we failed to deliver content to users as expected during a high-profile media event, game release or
other well-publicized circumstance, our reputation could be damaged severely. Moreover, any disruptions, significant
degradation, cybersecurity threats, security breaches, or attacks on our internal information technology systems could
undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones, either of
which could harm our business and results of operations.
We have a history of losses and we may not achieve or maintain profitability in the future.
Since 2006, we have been profitable only one year, which was as a result of a reversal of a significant reserve for
litigation. We incur significant share-based compensation expense, which has substantial impact on our results of operations.
We have also incurred, and may continue to incur, significant costs associated with litigation. Our share-based compensation
expense and any material ongoing litigation costs could adversely affect our ability to achieve and maintain profitability in the
future.
We also may not achieve sufficient revenue to achieve or maintain profitability and thus may continue to incur
significant losses in the future for a number of reasons, including, among others:
•
slowing demand for our services,
11
increasing competition and competitive pricing pressures,
any inability to provide our services in a cost-effective manner,
the incurrence of unforeseen expenses, difficulties, complications and delays, and
•
•
•
• other risks described in this annual report on Form 10-K.
If we fail to achieve and maintain profitability, the price of our common stock could decline, and our business, financial
condition and results of operations could suffer.
If we are unable to sell our services at acceptable prices relative to our costs, our revenue and gross margins will
decrease and our business and financial results will suffer.
Prices for content delivery services have fallen in recent years and are likely to fall further in the future. We have
invested significant amounts in purchasing capital equipment to increase the capacity of our global content delivery network.
Our investments in our infrastructure are based upon our assumptions regarding future demand, as well as prices that we will be
able to charge for our services. These assumptions may prove to be wrong. If the price that we are able to charge customers to
deliver their content falls to a greater extent than we anticipate, if we over-estimate future demand for our services, or if our
costs to deliver our services do not fall commensurate with any future price declines, we may not be able to achieve acceptable
rates of return on our infrastructure investments, and our gross profit and results of operations may suffer dramatically.
As we further expand our global network and the Orchestrate Platform, and as we refresh our network equipment, we
are dependent on significant future growth in demand for our services to justify additional capital expenditures. If we fail to
generate significant additional demand for our services, our results of operations will suffer, and we may fail to achieve planned
or expected financial results. There are numerous factors that could, alone or in combination with other factors, impede our
ability to increase revenue, moderate expenses or maintain gross margins, including:
•
•
•
•
•
•
•
•
•
continued price declines arising from significant competition;
increasing settlement fees for certain peering relationships;
failure to increase sales of our Orchestrate Platform services;
increases in electricity, bandwidth and rack space costs or other operating expenses, and failure to achieve
decreases in these costs and expenses relative to decreases in the prices we can charge for our Orchestrate
Platform services and products;
failure of our current and planned services and software to operate as expected;
loss of any significant customers or loss of existing customers at a rate greater than our increase in new customers
or our sales to existing customers;
failure to increase sales of our Orchestrate Platform services to current customers as a result of their ability to
reduce their monthly usage of our services to their minimum monthly contractual commitment;
failure of a significant number of customers to pay our fees on a timely basis or at all or to continue to purchase
our Orchestrate Platform services in accordance with their contractual commitments; and
inability to attract high quality customers to purchase and implement our current and planned services.
A significant portion of our revenue is derived collectively from our video content management services, performance
services for website and web application acceleration, and cloud storage services. These services tend to have higher gross
margins than our content delivery services. We do not have a long history of offering these services, and we may not be able to
achieve the growth rates in revenue from such services that we or our investors expect or have experienced in the past. If we
are unable to achieve the growth rates in revenue that we expect for these service offerings, our revenue and operating results
could be significantly and negatively affected.
We may have difficulty scaling and adapting our existing architecture to accommodate increased traffic and technology
advances or changing business requirements. This could lead to the loss of customers and cause us to incur unexpected
expenses to make network improvements.
Our content delivery and other Orchestrate Platform services are highly complex and are designed to be deployed in
and across numerous large and complex networks. Our global network infrastructure has to perform well and be reliable for us
to be successful. The greater the user traffic and the greater the complexity of our solutions and services, the more resources we
will need to invest in additional infrastructure and support. Further, as a result of our on-going litigation in the Akamai
Technologies, Inc. v. Limelight Networks, Inc. lawsuit, we made significant investment in designing and implementing changes
to our network architecture in order to implement our content delivery services in a manner we believe does not infringe the
claims of Akamai’s ’703 patent as alleged in the February 2008 trial. We have spent and expect to continue to spend substantial
amounts on the purchase and lease of equipment and data centers and the upgrade of our technology and network infrastructure
to handle increased traffic over our network, implement changes to our network architecture and integrate existing solutions
and to roll out new solutions and services. This expansion is expensive and complex and could result in inefficiencies,
12
operational failures or defects in our network and related software. If we do not implement such changes or expand
successfully, or if we experience inefficiencies and operational failures, the quality of our solutions and services and user
experience could decline. From time to time, we have needed to correct errors and defects in our software or in other aspects of
our network. In the future, there may be additional errors and defects that may harm our ability to deliver our services,
including errors and defects originating with third party networks or software on which we rely. These occurrences could
damage our reputation and lead to the loss of current and potential customers, which would harm our operating results and
financial condition. We must continuously upgrade our infrastructure in order to keep pace with our customers’ evolving
demands. Cost increases or the failure to accommodate increased traffic or these evolving business demands without disruption
could harm our operating results and financial condition.
If we are unable to develop new services and enhancements to existing services or fail to predict and respond to
emerging technological trends and customers’ changing needs, our operating results and market share may suffer.
The market for our Orchestrate Platform services is characterized by rapidly changing technology, evolving industry
standards, and new product and service introductions. Our operating results depend on our ability to understand user
preferences or predict industry changes. Our operating results also depend on our ability to modify our solutions and services
on a timely basis or develop and introduce new services into existing and emerging markets. The process of developing new
technologies is complex and uncertain. We must commit significant resources to developing new services or enhancements to
our existing services before knowing whether our investments will result in services the market will accept. Furthermore, we
may not successfully execute our technology initiatives because of errors in planning or timing, technical hurdles that we fail to
overcome in a timely fashion, misunderstandings about market demand or a lack of appropriate resources. As prices for content
delivery services fall, we will increasingly rely on new product offerings and other Orchestrate Platform service offerings to
maintain or increase our gross margins. Failures in execution, delays in bringing new or improved products or services to
market, failure to effectively integrate service offerings, or market acceptance of new services we introduce could result in
competitors providing those solutions before we do, which could lead to loss of market share, revenue and earnings.
We depend on a limited number of customers for a substantial portion of our revenue in any fiscal period, and the loss
of, or a significant shortfall in demand from, these customers could significantly harm our results of operations.
During any given fiscal period, a relatively small number of customers typically account for a significant percentage
of our revenue. For the year ended December 31, 2015, sales to our top 20 customers accounted for approximately 57% of our
total revenue. During the year ended December 31, 2015, we had no customer who represented 10% or more of our total
revenue.
In the past, the customers that comprised our top 20 customers have continually changed, and we also have
experienced significant fluctuations in our individual customers’ usage of, or decreased usage of, our services. As a
consequence, we may not be able to adjust our expenses in the short term to address the unanticipated loss of a large customer
during any particular period. As such, we may experience significant, unanticipated fluctuations in our operating results that
may cause us to not meet our expectations or those of stock market analysts, which could cause our stock price to decline.
Rapidly evolving technologies or new business models could cause demand for our Orchestrate Platform services to
decline or could cause these services to become obsolete.
Customers, potential customers or third parties may develop technological or business model innovations that address
digital delivery requirements in a manner that is, or is perceived to be, equivalent or superior to our Orchestrate Platform
service offerings. This is particularly true as our customers increase their operations and begin expending greater resources on
delivering their content using third party solutions. If we fail to offer content delivery, video content management and other
related services that are competitive to in-sourced solutions, we may lose additional customers or fail to attract customers that
may consider pursuing this in-sourced approach, and our business and financial results would suffer.
If competitors introduce new products or services that compete with or surpass the quality or the price or performance
of our services, we may be unable to renew our agreements with existing customers or attract new customers at the prices and
levels that allow us to generate attractive rates of return on our investment. We may not anticipate such developments and may
be unable to adequately compete with these potential solutions. In addition, our customers’ business models may change in
ways that we do not anticipate, and these changes could reduce or eliminate our customers’ needs for our services. If this
occurred, we could lose customers or potential customers, and our business and financial results would suffer.
As a result of these or similar potential developments, it is possible that competitive dynamics in our market may
require us to reduce our prices faster than we anticipate, which could harm our revenue, gross margin and operating results.
13
Failure to effectively enhance our sales capabilities could harm our ability to increase our customer base and achieve
broader market acceptance of our services.
Increasing our customer base and achieving broader market acceptance of our services will depend to a significant
extent on our ability to enhance our sales and marketing operations. We have a concentration of our sales force at our
headquarters in Tempe, Arizona, but we also have a widely deployed field sales force. We have aligned our sales resources to
improve our sales productivity and efficiency and to bring our sales personnel closer to our current and potential customers.
Adjustments to our sales force have been and will continue to be expensive and could cause some near-term productivity
impairments. As a result, we may not be successful in improving the productivity and efficiency of our sales force, which could
cause our results of operations to suffer.
We believe that there is significant competition for both inside and direct sales personnel with the sales skills and
technical knowledge that we require. Our ability to achieve significant growth in revenue in the future will depend, in large
part, on our success in recruiting, training and retaining sufficient numbers of inside and direct sales personnel. New hires
require significant training and, in most cases, take a significant period of time before they achieve full productivity. Our recent
hires and planned hires may not become as productive as we would like, and we may be unable to hire or retain sufficient
numbers of qualified individuals in the future in the markets where we do business. Our business will be seriously harmed if
our sales force productivity efforts do not generate a corresponding significant increase in revenue.
Many of our significant current and potential customers are pursuing emerging or unproven business models, which, if
unsuccessful, or ineffective at monetizing delivery of their content, could lead to a substantial decline in demand for our
content delivery and other Orchestrate Platform services.
Because the proliferation of broadband Internet connections and the subsequent monetization of content libraries for
distribution to Internet users are relatively recent phenomena, many of our customers’ business models that center on the
delivery of rich media and other content to users remain unproven. Some of our customers will not be successful in selling
advertising, subscriptions, or otherwise monetizing the content we deliver on their behalf and consequently may not be
successful in creating a profitable business model. This will result in some of our customers discontinuing their Internet or web-
based business operations and discontinuing use of our services and solutions. Further, any deterioration and related uncertainty
in the global financial markets and economy could result in, among other things, reductions in available capital and liquidity
from banks and other providers of credit, fluctuations in equity and currency values worldwide, and concerns that portions of
the worldwide economy may be in a prolonged recessionary period. Any one or more of these occurrences could materially
adversely impact our customers’ access to capital or willingness to spend capital on our services or, in some cases, ultimately
cause the customer to file for protection from creditors under applicable insolvency or bankruptcy laws or simply go out of
business. This uncertainty may also impact our customers’ levels of cash liquidity, which could affect their ability or
willingness to timely pay for services that they will order or have already ordered from us. From time to time we discontinue
service to customers for non-payment of services. We expect further customers may discontinue operations or not be willing or
able to pay for services that they have ordered from us. Further loss of customers may adversely affect our financial results.
If we are unable to attract new customers or to retain our existing customers, our revenue could be lower than expected
and our operating results may suffer.
To increase our revenue, we must add new customers and sell additional services to existing customers and encourage
existing customers to increase their usage levels. If our existing and prospective customers do not perceive our services to be of
sufficiently high value and quality, we may not be able to retain our current customers or attract new customers. We sell our
services pursuant to service agreements that generally include some form of financial minimum commitment. Our customers
have no obligation to renew their contracts for our services after the expiration of their initial commitment, and these service
agreements may not be renewed at the same or higher level of service, if at all. Moreover, under some circumstances, some of
our customers have the right to cancel their service agreements prior to the expiration of the terms of their agreements. Aside
from minimum financial commitments, customers are not obligated to use our services for any particular type or amount of
traffic. These facts, in addition to the changing competitive landscape in our market, means that we cannot accurately predict
future customer renewal rates or usage rates. Our customers’ renewal rates may decline or fluctuate as a result of a number of
factors, including:
their satisfaction or dissatisfaction with our services;
the quality and reliability of our content delivery network;
the prices of our services;
the prices of services offered by our competitors;
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• discontinuation by our customers of their Internet or web-based content distribution business;
• mergers and acquisitions affecting our customer base; and
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reductions in our customers’ spending levels.
If our customers do not renew their service agreements with us, or if they renew on less favorable terms, our revenue
may decline and our business may suffer. Similarly, our customer agreements often provide for minimum commitments that are
often significantly below our customers’ historical usage levels. Consequently, even if we have agreements with our customers
to use our services, these customers could significantly curtail their usage without incurring any penalties under our
agreements. In this event, our revenue would be lower than expected and our operating results could suffer.
It also is an important component of our growth strategy to market our services and solutions to particular industries or
market segments. As an organization, we may not have significant experience in selling our services into certain of these
markets. We have only recently begun a number of these initiatives, and our ability to successfully sell our services into these
markets to a meaningful extent remains unproven. If we are unsuccessful in such efforts, our business, financial condition and
results of operations could suffer.
Rapid increase in the use of mobile and alternative devices to access the Internet present significant development and
deployment challenges.
The number of people who access the Internet through devices other than PCs, including mobile devices, game
consoles and television set-top devices, has increased dramatically in the past few years. The capabilities of these devices are
advancing dramatically and the increasing need to provide a high quality video experience will present us and other providers
with significant challenges. If we are unable to deliver our service offerings to a substantial number of alternative device users
and at a high quality, or if we are slow to develop services and technologies that are more compatible with these devices, we
may fail to capture a significant share of an increasingly important portion of the market. Such a failure could limit our ability
to compete effectively in an industry that is rapidly growing and changing, which, in turn, could cause our business, financial
condition and results of operations to suffer.
We need to defend our intellectual property and processes against patent or copyright infringement claims, which may
cause us to incur substantial costs and threaten our ability to do business.
Companies, organizations or individuals, including our competitors and non-practicing entities, may hold or obtain
patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services or
develop new services, which could make it more difficult for us to operate our business. From time to time, we may receive
inquiries from holders of patents inquiring whether we infringe their proprietary rights. Companies holding Internet-related
patents or other intellectual property rights are increasingly bringing suits alleging infringement of such rights or otherwise
asserting their rights and seeking licenses. Any litigation or claims, whether or not valid, could result in substantial costs and
diversion of resources from the defense of such claims. In addition, many of our agreements with customers require us to
defend and indemnify those customers for third-party intellectual property infringement claims against them, which could
result in significant additional costs and diversion of resources. If we are determined to have infringed upon a third party’s
intellectual property rights, we may also be required to do one or more of the following:
cease selling, incorporating or using products or services that incorporate the challenged intellectual property;
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• pay substantial damages;
• obtain a license from the holder of the infringed intellectual property right, which license may or may not be
available on reasonable terms or at all; or
redesign products or services.
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If we are forced to litigate any claims or to take any of these other actions, our business may be seriously harmed.
Our business may be adversely affected if we are unable to protect our intellectual property rights from unauthorized
use or infringement by third parties.
We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect
our intellectual property rights. We have applied for patent protection in the United States and a number of foreign countries.
These legal protections afford only limited protection and laws in foreign jurisdictions may not protect our proprietary rights as
fully as in the United States. Monitoring infringement of our intellectual property rights is difficult, and we cannot be certain
that the steps we have taken will prevent unauthorized use of our intellectual property rights. Developments and changes in
patent law, such as changes in interpretations of the joint infringement standard, could restrict how we enforce certain patents
we hold. We also cannot be certain that any pending or future patent applications will be granted, that any future patent will not
be challenged, invalidated or circumvented, or that rights granted under any patent that may be issued will provide competitive
advantages to us.
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Our results of operations may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of
securities analysts or investors, which could cause our stock price to decline.
Our results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If
our results of operations fall below the expectations of securities analysts or investors, the price of our common stock could
decline substantially. In addition to the effects of other risks discussed in this section, fluctuations in our results of operations
may be due to a number of factors, including, among others:
• our ability to increase sales to existing customers and attract new customers to our content delivery and other
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Orchestrate Platform services;
the addition or loss of large customers, or significant variation in their use of our content delivery and other
Orchestrate Platform services;
costs associated with current or future intellectual property lawsuits and other lawsuits;
service outages or third party security breaches to our platform or to one or more of our customers’ platforms;
the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our
business, operations and infrastructure and the adequacy of available funds to meet those requirements;
the timing and success of new product and service introductions by us or our competitors;
the occurrence of significant events in a particular period that result in an increase in the use of our content
delivery and other Orchestrate Platform services, such as a major media event or a customer’s online release of a
new or updated video game or operating system;
changes in our pricing policies or those of our competitors;
the timing of recognizing revenue;
limitations of the capacity of our global network and related systems;
the timing of costs related to the development or acquisition of technologies, services or businesses;
the potential write-down or write-off of intangible or other long-lived assets;
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• general economic, industry and market conditions (such as fluctuations experienced in the stock and credit
markets during times of deteriorated global economic conditions) and those conditions specific to Internet usage;
limitations on usage imposed by our customers in order to limit their online expenses; and
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• war, threat of war or terrorist actions, including cyber terrorism targeted at us, our customers, or both, and
inadequate cybersecurity.
We believe that our revenue and results of operations may vary significantly in the future and that period-to-period
comparisons of our operating results may not be meaningful. You should not rely on the results of one period as an indication
of future performance.
We generate our revenue primarily from the sale of content delivery services, and the failure of the market for these
services to expand as we expect or the reduction in spending on those services by our current or potential customers
would seriously harm our business.
While we offer our customers a number of services and solutions associated with our Orchestrate Platform, we
generate the majority of our revenue from charging our customers for the content delivered on their behalf through our global
network. We are subject to an elevated risk of reduced demand for these services. Furthermore, if the market for delivery of
rich media content in particular does not continue to grow as we expect or grows more slowly, then we may fail to achieve a
return on the significant investment we are making to prepare for this growth. Our success, therefore, depends on the continued
and increasing reliance on the Internet for delivery of media content and our ability to cost-effectively deliver these services.
Many different factors may have a general tendency to limit or reduce the number of users relying on the Internet for media
content, the amount of content consumed by our customers’ users, or the number of providers making this content available
online, including, among others:
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a general decline in Internet usage;
third party restrictions on online content (including copyright restrictions, digital rights management and
restrictions in certain geographic regions);
system impairments or outages, including those caused by hacking or cyberattacks; and
a significant increase in the quality or fidelity of offline media content beyond that available online to the point
where users prefer the offline experience.
The influence of any of these or other factors may cause our current or potential customers to reduce their spending on
content delivery services, which would seriously harm our operating results and financial condition.
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We could incur charges due to impairment of goodwill and long-lived assets.
As of December 31, 2015, we had a goodwill balance of approximately $76,143, which is subject to periodic testing
for impairment. Our long-lived assets also are subject to periodic testing for impairment. A significant amount of judgment is
involved in the periodic testing. Failure to achieve sufficient levels of cash flow could result in impairment charges for
goodwill or fixed asset impairment for long-lived assets, which could have a material adverse effect on our reported results of
operations. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of our reporting
unit to our total market capitalization. If our stock trades below our book value, a significant and sustained decline in our stock
price and market capitalization could result in goodwill impairment charges. During times of financial market volatility,
significant judgment will be used to determine the underlying cause of the decline and whether stock price declines are short-
term in nature or indicative of an event or change in circumstances. Impairment charges, if any, resulting from the periodic
testing are non-cash.
Our operations are dependent in part upon communications capacity provided by third party telecommunications
providers. A material disruption of the communications capacity we have leased could harm our results of operations,
reputation and customer relations.
We lease private line capacity for our backbone from third party providers. Our contracts for private line capacity
generally have terms of three to four years. The communications capacity we have leased may become unavailable for a variety
of reasons, such as physical interruption, technical difficulties, contractual disputes, or the financial health of our third party
providers. Alternative providers are available; however, it could be time consuming and expensive to promptly identify and
obtain alternative third party connectivity. Additionally, as we grow, we anticipate requiring greater private line capacity than
we currently have in place. If we are unable to obtain such capacity from third party providers on terms commercially
acceptable to us or at all, our business and financial results would suffer. Similarly, if we are unable to timely deploy enough
network capacity to meet the needs of our customer base or effectively manage the demand for our services, our reputation and
relationships with our customers would be harmed, which, in turn, could harm or business, financial condition and results of
operations.
We face risks associated with international operations that could harm our business.
We have operations in numerous foreign countries and may continue to expand our sales and support organizations
internationally. As part of our business strategy, we intend to expand our international network infrastructure. Expansion could
require us to make significant expenditures, including the hiring of local employees, in advance of generating any revenue. As a
consequence, we may fail to achieve profitable operations that will compensate our investment in international locations. We
are subject to a number of risks associated with international business activities that may increase our costs, lengthen our sales
cycle and require significant management attention. These risks include:
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increased expenses associated with sales and marketing, deploying services and maintaining our infrastructure in
foreign countries;
competition from local content delivery service providers, many of which are very well positioned within their
local markets;
challenges caused by distance, language and cultural differences;
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• unexpected changes in regulatory requirements preventing or limiting us from operating our global network or
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resulting in unanticipated costs and delays;
interpretations of laws or regulations that would subject us to regulatory supervision or, in the alternative, require
us to exit a country, which could have a negative impact on the quality of our services or our results of operations;
longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
corporate and personal liability for violations of local laws and regulations;
currency exchange rate fluctuations and repatriation of funds;
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• potentially adverse tax consequences;
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credit risk and higher levels of payment fraud; and
foreign exchange controls that might prevent us from repatriating cash earned in countries outside the United
States.
International operations are subject to significant additional risks not generally faced in our domestic operations,
including, but not limited to, risks relating to legal systems that may not adequately protect contract and intellectual property
rights, policies and taxation, the physical infrastructure of the country, as well as risks relating to potential political turmoil and
currency exchange controls. There can be no assurance that these international risks will not materially adversely affect our
business. For example, our operations include software development and quality assurance activities in Ukraine, which is
currently experiencing a period of social unrest. Should there be significant productivity losses, or if we become unable to
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conduct operations in Ukraine in the future, and our contingency plans are unsuccessful in addressing the related risks, our
business could be adversely affected.
Our business depends on continued and unimpeded access to third party controlled end-user access networks.
Our content delivery services depend on our ability to access certain end-user access networks in order to complete the
delivery of rich media and other online content to end-users. Some operators of these networks may take measures that could
degrade, disrupt or increase the cost of our or our customers’ access to certain of these end-user access networks. Such
measures may include restricting or prohibiting the use of their networks to support or facilitate our services, or charging
increased fees to us, our customers or end-users in connection with our services. In 2015, the U.S. Federal Communications
Commission (FCC) released new network neutrality and open internet rules that reclassified broadband Internet access services
as a telecommunications service subject to some elements of common carrier regulation. Among other things, the FCC order
prohibits blocking or discriminating against lawful services and applications and prohibits "paid prioritization," or providing
faster speeds or other benefits in return for compensation. Nevertheless, the rules are subject to legal challenges, and if they are
overturned, we or our customers could experience increased cost or slower data on these third-party networks. If we or our
customers experience increased cost in delivering content to end users, or otherwise, or if end users perceive a degradation of
quality, our business and that of our customers may be significantly harmed. This or other types of interference could result in a
loss of existing customers, increased costs and impairment of our ability to attract new customers, thereby harming our revenue
and growth.
In addition, the performance of our infrastructure depends in part on the direct connection of our global network to a
large number of end-user access networks, known as peering, which we achieve through mutually beneficial cooperation with
these networks. In some instances, network operators charge us for the peering connections. If, in the future, a significant
percentage of these network operators elected to no longer peer with our network or peer with our network on less favorable
economic terms, then the performance of our infrastructure could be diminished, our costs could increase and our business
could suffer.
If our ability to deliver media files in popular proprietary content formats was restricted or became cost-prohibitive,
demand for our content delivery services could decline, we could lose customers and our financial results could suffer.
Our business depends on our ability to deliver media content in all major formats. If our legal right or technical ability
to store and deliver content in one or more popular proprietary content formats, such as HTTP Live Streaming and Multimedia
Messaging Services, was limited, our ability to serve our customers in these formats would be impaired and the demand for our
content delivery and other Orchestrate Platform services would decline by customers using these formats. Owners of propriety
content formats may be able to block, restrict or impose fees or other costs on our use of such formats, which could lead to
additional expenses for us and for our customers, or which could prevent our delivery of this type of content altogether. Such
interference could result in a loss of existing customers, increased costs and impairment of our ability to attract new customers,
which would harm our revenue, operating results and growth.
We use certain “open-source” software the use of which could result in our having to distribute our proprietary
software, including our source code, to third parties on unfavorable terms, which could materially affect our business.
Certain of our service offerings use software that is subject to open-source licenses. Open-source code is software that
is freely accessible, usable and modifiable. Certain open-source code is governed by license agreements, the terms of which
could require users of such open-source code to make any derivative works of such open-source code available to others on
unfavorable terms or at no cost. Because we use open-source code, we may be required to take remedial action to protect our
proprietary software. Such action could include replacing certain source code used in our software, discontinuing certain of our
products or features or taking other actions that could divert resources away from our development efforts.
In addition, the terms relating to disclosure of derivative works in many open-source licenses are unclear. We
periodically review our compliance with the open-source licenses we use and do not believe we will be required to make our
proprietary software freely available. Nevertheless, if a court interprets one or more such open-source licenses in a manner that
is unfavorable to us, we could be required to make some components of our software available at no cost, which could
materially and adversely affect our business and financial condition.
If we are unable to retain our key employees and hire qualified sales and technical personnel, our ability to compete
could be harmed.
Our future success depends upon the continued services of our executive officers and other key technology, sales,
marketing and support personnel who have critical industry experience and relationships that they rely on in implementing our
business plan. There is increasing competition for talented individuals with the specialized knowledge to deliver Orchestrate
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Platform services and this competition affects both our ability to retain key employees and hire new ones. Historically, we have
experienced a significant amount of employee turnover, especially with respect to our sales personnel. As a result, a significant
number of our sales personnel are relatively new and may need time to become fully productive. The loss of the services of any
of our key employees could disrupt our operations, delay the development and introduction of our services, and negatively
impact our ability to sell our services.
We are subject to the effects of fluctuations in foreign exchange rates, which could affect our operating results.
The financial condition and results of operations of our operating foreign subsidiaries are reported in the relevant local
currency and are then translated into U.S. dollars at the applicable currency exchange rate for inclusion in our consolidated U.S.
dollar financial statements. Also, although a large portion of our customer and vendor agreements are denominated in U.S.
dollars, we may be exposed to fluctuations in foreign exchange rates with respect to customer agreements with certain of our
international customers. Exchange rates between these currencies and U.S. dollars in recent years have fluctuated significantly
and may do so in the future. In addition to currency translation risk, we incur currency transaction risk whenever one of our
operating subsidiaries enters into a transaction using a different currency than the relevant local currency. Given the volatility
of exchange rates, we may be unable to manage our currency transaction risks effectively. Currency fluctuations could have a
material adverse effect on our future international sales and, consequently, on our financial condition and results of operations.
As part of our business strategy, we may acquire businesses or technologies and may have difficulty integrating these
operations.
We have completed a number of business acquisitions and may seek to acquire businesses or technologies that are
complementary to our business in the future. Acquisitions are often complex and involve a number of risks to our business,
including, among others;
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the difficulty of integrating the operations, services, solutions and personnel of the acquired companies;
the potential disruption of our ongoing business;
the potential distraction of management;
the possibility that our business culture and the business culture of the acquired companies will not be compatible;
the difficulty of incorporating or integrating acquired technology and rights with or into our other services and
solutions;
expenses related to the acquisition and to the integration of the acquired companies;
the impairment of relationships with employees and customers as a result of any integration of new personnel;
employee turnover from the acquired companies or from our current operations as we integrate businesses;
risks related to the businesses of acquired companies that may continue to impact the businesses following the
merger; and
• potential unknown liabilities associated with acquired companies.
Any inability to integrate services, solutions, operations or personnel in an efficient and timely manner could harm our
results of operations.
If we are not successful in completing acquisitions that we may pursue in the future, we may be required to reevaluate
our business strategy, and we may incur substantial expenses and devote significant management time and resources without a
productive result. In addition, future acquisitions will require the use of our available cash or dilutive issuances of securities.
Future acquisitions or attempted acquisitions could also harm our ability to achieve profitability.
Internet-related and other laws relating to taxation issues, privacy, data security and consumer protection and liability
for content distributed over our network, could harm our business.
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 companies conducting business
online or providing Internet-related services such as ours. 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 abroad
may impose taxes on the Internet-related revenue we generate based on where our internationally deployed servers are located.
In addition, domestic and international taxation laws are subject to change. Our services, or the businesses of our customers,
may become subject to increased taxation, which could harm our financial results either directly or by forcing our customers to
scale back their operations and use of our services in order to maintain their operations. Also, the Communications Act of 1934,
as amended by the Telecommunications Act of 1996 (the Act), and the regulations promulgated by the FCC under Title II of the
Act, may impose obligations on the Internet and those participants involved in Internet-related businesses. In addition, the laws
relating to the liability of private network operators for information carried on, processed by or disseminated through their
networks are unsettled, both in the United States and abroad. Network operators have been sued in the past, sometimes
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successfully, based on the content of material disseminated through their networks. We may become subject to legal claims
such as defamation, invasion of privacy and copyright infringement in connection with content stored on or distributed through
our network. In addition, our reputation could suffer as a result of our perceived association with the type of content that some
of our customers deliver. If we need to take costly measures to reduce our exposure to the risks posed by laws and regulations
that apply to communications and commerce conducted over the Internet, or are required to defend ourselves
against related claims, our financial results could be negatively affected.
Several other federal laws also could expose us to liability and impose significant additional costs on us. For example,
the Digital Millennium Copyright Act has provisions that limit, but do not eliminate, our liability for the delivery of customer
content that infringe copyrights or other rights, so long as we comply with certain statutory requirements. In addition, the
Children’s Online Privacy Protection Act restricts the ability of online services to collect information from minors and the
Protection of Children from Sexual Predators Act of 1998 requires online service providers to report evidence of violations of
federal child pornography laws under certain circumstances. Also, there are emerging regulation and industry standards
regarding the collection and use of personal information and protecting the security of data on networks. Compliance with these
laws, regulations and standards is complex and any failure on our part to comply with these regulations may subject us to
additional liabilities.
Privacy concerns could lead to legislative and other limitations on our ability to use “cookies” and video player
“cookies” that are crucial to our ability to provide services to our customers.
Our ability to compile data for customers depends on the use of “cookies” and video player “cookies” to identify
certain online behavior that allows our customers to measure a website or video’s effectiveness. A cookie is a small file of
information stored on a user’s computer that allows us to recognize that user’s browser or video player when the user makes a
request for a web page or to play a video. Government authorities inside the United States concerned with the privacy of
Internet users have suggested limiting or eliminating the use of cookies. Bills aimed at regulating the collection and use of
personal data from Internet users are currently pending in United States Congress and many state legislatures. Attempts at such
regulation may be drafted in such a way as to limit or prohibit the use of technology like cookies, thereby creating restrictions
that could reduce our ability to use them. In addition, the Federal Trade Commission and the Department of Commerce have
conducted hearings regarding user profiling, the collection of non-personally identifiable information and online privacy.
Our foreign operations may also be adversely affected by regulatory action outside the United States. For example, the
European Union has adopted a directive addressing data privacy that limits the collection, disclosure and use of information
regarding European Internet users. We have in the past relied on adherence to the Department of Commerce’s Safe Harbor
Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as agreed to and set forth by the
Department of Commerce, and the European Union and Switzerland, which established a means for legitimating the transfer of
personally identifiable information by U.S. companies doing business in Europe from the European Economic Area to the U.S.
As a result of the October 6, 2015 European Union Court of Justice (ECJ) opinion in Case C-362/14 (Schrems v. Data
Protection Commissioner) regarding the adequacy of the U.S.-EU Safe Harbor Framework, the U.S.-EU Safe Harbor
Framework is no longer deemed to be a valid method of compliance with the restrictions set forth in the data privacy directive
(and member states’ implementations thereof) regarding the transfer of data outside of the European Economic Area. In light of
the ECJ opinion in Case C-362/14, we anticipate engaging in efforts to legitimize data transfers from the European Economic
Area. We may be unsuccessful in establishing legitimate means of transferring data from the European Economic Area for
some of our service offerings, we may experience hesitancy, reluctance, or refusal by European or multi-national customers to
continue to use our services due to the potential risk exposure to such customers as a result of the ECJ ruling, and we and our
customers are at risk of enforcement actions taken by an EU data protection authority until such point in time that we ensure
that all data transfers to us from the European Economic Area are legitimized. If we determine that it is necessary to establish
systems to maintain EU-origin data in the European Economic Area, this may require us to incur substantial expense and
distract from other aspects of our business. We publicly post our privacy policies and practices concerning our processing, use
and disclosure of personally identifiable information. Our publication of our privacy policy and other statements we publish
that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are
found to be deceptive or misrepresentative of our practices.
In addition, the European Union has enacted an electronic communications directive that imposes certain restrictions
on the use of cookies and also places restrictions on the sending of unsolicited communications. Each European Union member
country was required to enact legislation to comply with the provisions of the electronic communications directive. Germany
has also enacted additional laws limiting the use of user profiling, and other countries, both in and out of the European Union,
may impose similar limitations.
Internet users may directly limit or eliminate the placement of cookies on their computers by using third-party
software that blocks cookies, or by disabling or restricting the cookie functions of their Internet browser software and in their
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video player software. Internet browser software upgrades also may result in limitations on the use of cookies. Technologies
like the Platform for Privacy Preferences Project may limit collection of cookies. Plaintiffs’ attorneys also have organized class
action suits against companies related to the use of cookies and several companies, including companies in the Internet
advertising industry, have had claims brought against them before the Federal Trade Commission regarding the collection and
use of Internet user information. We may be subject to such suits in the future, which could limit or eliminate our ability to
collect such information. If our ability to use cookies were substantially restricted due to the foregoing, or for any other reason,
we would have to generate and use other technology or methods that allow the gathering of user data in order to provide
services to customers. This change in technology or methods could require significant re-engineering time and resources, and
may not be complete in time to avoid negative consequences to our business. In addition, alternative technology or methods
might not be available on commercially reasonable terms, if at all. If the use of cookies is prohibited and we are not able to
efficiently and cost effectively create new technology, our business, financial condition and results of operations would be
materially adversely affected. In addition, any compromise of security that results in the release of Internet users’ and/or our
customers’ data could seriously limit the adoption of our service offerings as well as harm our reputation and brand, expose us
to liability and subject us to reporting obligations under various state laws, which could have an adverse effect on our business.
The risk that these types of events could seriously harm our business is likely to increase as the amount of data stored for
customers on our servers and the number of countries where we operate has been increasing, and we may need to expend
significant resources to protect against security breaches, which could have an adverse effect on our business, financial
condition or results of operations.
If we are required to seek funding, such funding may not be available on acceptable terms or at all.
We may need to obtain funding due to a number of factors, including a shortfall in revenue, increased expenses, final
adverse judgments in litigation matters, increased investment in capital equipment or the acquisition of significant businesses or
technologies. We believe that our cash, cash equivalents and marketable securities classified as current plus cash from
operations will be sufficient to fund our operations and proposed capital expenditures for at least the next 12 months. However,
we may need or desire funding before such time. If we do need to obtain funding, it may not be available on commercially
reasonable terms or at all. If we are unable to obtain sufficient funding, our business would be harmed. Even if we were able to
find outside funding sources, we might be required to issue securities in a transaction that could be highly dilutive to our
investors or we may be required to issue securities with greater rights than the securities we have outstanding today. We might
also be required to take other actions that could lessen the value of our common stock, including borrowing money on terms
that are not favorable to us. If we are unable to generate or raise capital that is sufficient to fund our operations, we may be
required to curtail operations, reduce our capabilities or cease operations in certain jurisdictions or completely.
Our business requires the continued development of effective business support systems to support our customer growth
and related services.
The growth of our business depends on our ability to continue to develop effective business support systems. This is a
complicated undertaking requiring significant resources and expertise. Business support systems are needed for:
implementing customer orders for services;
•
• delivering these services; and
•
timely and accurate billing for these services.
Because our business plan provides for continued growth in the number of customers that we serve and services
offered, there is a need to continue to develop our business support systems on a schedule sufficient to meet proposed service
roll-out dates. The failure to continue to develop effective business support systems could harm our ability to implement our
business plans and meet our financial goals and objectives.
We have incurred, and will continue to incur significant costs as a result of operating as a public company, and our
management is required to devote substantial time to compliance initiatives.
As a public company, we have incurred, and will continue to incur, significant expenses, including accounting, legal
and other professional fees, insurance premiums, investor relations costs, and costs associated with compensating our
independent directors. In addition, rules implemented by the SEC and the Nasdaq Global Select Market impose additional
requirements on public companies, including requiring changes in corporate governance practices. For example, the listing
requirements of the Nasdaq Global Select Market require that we satisfy certain corporate governance requirements relating to
independent directors, audit committees, distribution of annual and interim reports, stockholder meetings, stockholder
approvals, solicitation of proxies, conflicts of interest, stockholder voting rights and codes of conduct. Our management and
other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and
regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly. For
21
example, these rules and regulations make it more difficult and more expensive for us to obtain director and officer liability
insurance.
If the accounting estimates we make, and the assumptions on which we rely, in preparing our financial statements prove
inaccurate, our actual results may be adversely affected.
Our financial statements have been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make estimates and judgments about, among other
things, taxes, revenue recognition, share-based compensation costs, contingent obligations and doubtful accounts. These
estimates and judgments affect the reported amounts of our assets, liabilities, revenue and expenses, the amounts of charges
accrued by us, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances and at the time they are made. If our
estimates or the assumptions underlying them are not correct, we may need to accrue additional charges or reduce the value of
assets that could adversely affect our results of operations, investors may lose confidence in our ability to manage our business
and our stock price could decline.
If we fail to maintain proper and effective internal controls or fail to implement our controls and procedures with
respect to acquired or merged operations, our ability to produce accurate financial statements could be impaired, which
could adversely affect our operating results, our ability to operate our business and investors’ views of us.
We must ensure that we have adequate internal financial and accounting controls and procedures in place so that we
can produce accurate financial statements on a timely basis. We are required to spend considerable effort on establishing and
maintaining our internal controls, which is costly and time-consuming and needs to be re-evaluated frequently.
We have operated as a public company since June 2007, and we will continue to incur significant legal, accounting
and other expenses as we comply with the Sarbanes-Oxley Act of 2002, as well as new rules implemented from time to time by
the SEC and the Nasdaq Global Select Market. These rules impose various requirements on public companies, including
requiring changes in corporate governance practices, increased reporting of compensation arrangements and other
requirements. Our management and other personnel will continue to devote a substantial amount of time to these compliance
initiatives. Moreover, new rules and regulations will likely increase our legal and financial compliance costs and make some
activities more time-consuming and costly. These rules and regulations could also make it more difficult for us to attract and
retain qualified persons to serve on our board of directors, our board committees or as executive officers.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report our assessment of the
effectiveness of our internal control over financial reporting and our audited financial statements as of the end of each fiscal
year. Furthermore, our independent registered public accounting firm, Ernst & Young LLP (EY), is required to report on
whether it believes we maintained, in all material respects, effective internal control over financial reporting as of the end of the
year. Our continued compliance with Section 404 will require that we incur substantial expense and expend significant
management time on compliance related issues, including our efforts in implementing controls and procedures related to
acquired or merged operations. We currently do not have an internal audit group and use an international accounting firm to
assist us with our assessment of the effectiveness of our internal controls over financial reporting. In future years, if we fail to
timely complete this assessment, or if EY cannot timely attest, there may be a loss of public confidence in our internal controls,
the market price of our stock could decline, and we could be subject to regulatory sanctions or investigations by the Nasdaq
Global Select Market, the SEC or other regulatory authorities, which would require additional financial and management
resources. In addition, any failure to implement required new or improved controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to fail to timely meet our regulatory reporting obligations.
Changes in financial accounting standards or practices may cause adverse, unexpected financial reporting fluctuations
and affect our reported results of operations.
A change in accounting standards or practices can have a significant effect on our operating results and may affect our
reporting of transactions completed before the change is effective. New accounting pronouncements and varying interpretations
of existing accounting pronouncements have occurred and may occur in the future. Changes to existing rules or the questioning
of current practices may adversely affect our reported financial results or the way we conduct our business.
Divestiture of our businesses or product lines, including those that we have acquired or will acquire, may materially
adversely affect our financial condition, results of operations or cash flows, or may result in impairment charges that
may adversely affect our results of operations.
Divestitures involve risks, including difficulties in the separation of operations, services, products and personnel, the
diversion of management’s attention from other business concerns, the disruption of our business, the potential loss of key
22
employees and the retention of uncertain contingent liabilities related to the divested business, any of which could result in a
material adverse effect to our financial condition, results of operations or cash flows. Divestitures of previously acquired
businesses may result in significant asset impairment charges, including those related to goodwill and other intangible assets,
which could have a material adverse effect on our financial condition and results of operations. Future impairment may result
from, among other things, deterioration in the performance of the acquired business or product line, adverse market conditions
and changes in the competitive landscape, adverse changes in applicable laws or regulations, including changes that restrict the
activities of the acquired business or product line, changes in accounting rules and regulations, and a variety of other
circumstances. The amount of any impairment is recorded as a charge to the statement of operations. We may never realize the
full value of our goodwill and intangible assets, and any determination requiring the write-off of a significant portion of these
assets may have an adverse effect on our financial condition and results of operations. We cannot assure you that we will be
successful in managing these or any other significant risks that we encounter in divesting a business or product line.
Risks Related to Ownership of Our Common Stock
The trading price of our common stock has been, and is likely to continue to be, volatile.
The trading prices of our common stock and the securities of technology companies generally have been highly
volatile. Factors affecting the trading price of our common stock will include:
• variations in our operating results;
•
•
•
•
announcements of technological innovations, new services or service enhancements, strategic alliances or
significant agreements by us or by our competitors;
commencement or resolution of, our involvement in and uncertainties arising from, litigation, particularly our
current litigation with Akamai and MIT;
recruitment or departure of key personnel;
changes in the estimates of our operating results or changes in recommendations by any securities analysts that
elect to follow our common stock;
• developments or disputes concerning our intellectual property or other proprietary rights;
•
the gain or loss of significant customers;
• market conditions in our industry, the industries of our customers and the economy as a whole; and
•
adoption or modification of regulations, policies, procedures or programs applicable to our business.
In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence,
the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial
condition. The trading price of our common stock might also decline in reaction to events or speculation of events that affect
other companies in our industry even if these events do not directly affect us.
If securities or industry analysts do not publish research or reports about our business or if they issue an adverse or
misleading opinion or report, our stock, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities
analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding
our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to
publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or
trading volume to decline.
Insiders have substantial control over us and will be able to influence corporate matters.
As of December 31, 2015, our directors and executive officers and their affiliates beneficially owned, in the aggregate,
approximately 32% of our outstanding common stock, including approximately 30% beneficially owned by investment entities
affiliated with Goldman, Sachs & Co. These stockholders are able to exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or
other sale of our company or its assets. This concentration of ownership could limit other stockholders’ ability to influence
corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.
23
Future equity issuances or a sale of a substantial number of shares of our common stock may cause the price of our
common stock to decline.
Because we may need to raise additional capital in the future to continue to expand our business and our research and
development activities, among other things, we may conduct additional equity offerings. If we or our stockholders sell
substantial amounts of our common stock (including shares issued upon the exercise of options and warrants) in the public
market, the market price of our common stock could fall. A decline in the market price of our common stock could make it
more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in
control of our company and may affect the trading price of our common stock.
Provisions of our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law,
could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions:
•
•
establish that members of the board of directors may be removed only for cause upon the affirmative vote of
stockholders owning a majority of our capital stock;
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to increase
the number of outstanding shares and thwart a takeover attempt;
•
limit who may call special meetings of stockholders;
• prohibit stockholder action by written consent, thereby requiring stockholder actions to be taken at a meeting of
the stockholders;
•
establish advance notice requirements for nominations for election to the board of directors or for proposing
matters that can be acted upon at stockholder meetings;
• provide for a board of directors with staggered terms; and
• provide that the authorized number of directors may be changed only by a resolution of our board of directors.
In addition, Section 203 of the Delaware General Corporation Law, which imposes certain restrictions relating to
transactions with major stockholders, may discourage, delay or prevent a third party from acquiring us.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our global corporate headquarters is located in approximately 64,000 square feet of leased office space in Tempe,
Arizona. We also lease space for a data center and warehouse in Phoenix, Arizona. We lease offices in several other locations in
the United States, including in or near San Francisco, California; Boston, Massachusetts; New York, New York; Grand Rapids,
Michigan and Seattle, Washington. We also lease offices in Europe and Asia in or near London, England; Paris, France;
Munich, Germany; Dubai, UAE; Delhi and Mumbai, India; Ramat Gan, Israel; Lviv, Ukraine; Tokyo, Japan; Seoul, Korea; and
Singapore. We believe our facilities are sufficient to meet our needs for the foreseeable future and, if needed, additional space
will be available at a reasonable cost.
Item 3.
Legal Proceedings
For a description of our material pending legal proceedings, please refer to Note 11 “Contingencies - Legal Matters"
of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this annual report on Form 10-K, which is
incorporated herein by reference.
Item 4.
Mine Safety Disclosures.
Not applicable.
24
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock, par value $0.001 per share, trades on The Nasdaq Global Select Market under the symbol
“LLNW”.
The following table sets forth, for the periods indicated, the high and low sale price per share of our common stock on
The Nasdaq Global Select Market:
2014:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
2.39 $
3.25 $
3.15 $
2.99 $
3.98 $
4.43 $
4.29 $
2.22 $
1.88
1.91
2.16
2.11
2.52
3.36
1.78
1.43
As of February 1, 2016, there were 277 holders of record of our common stock.
Dividends
We have never paid or declared any cash dividends on shares of our common stock or other securities and do not
anticipate paying any cash dividends in the foreseeable future. We currently intend to retain all future earnings, if any, for use in
the operation of our business.
Issuers Purchases of Equity Securities
None
STOCK PERFORMANCE GRAPH
The graph set forth below compares the cumulative total stockholder return on our common stock between
December 31, 2010 and December 31, 2015, with the cumulative total return of (i) the Nasdaq Composite Index and (ii) the
S&P Information Technology Sector Index, over the same period. This graph assumes the investment of $100 on December 31,
2010 in our common stock, the Nasdaq Composite Index and the S&P Information Technology Sector Index, and assumes the
reinvestment of dividends, if any. The comparisons shown in the graph below are based upon historical data. We caution that
the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the
potential future performance of our common stock.
25
Comparative Stock Performance
e
u
l
a
V
x
e
d
n
I
250
200
150
100
50
0
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Period Ending
Limelight Networks, Inc.
NASDAQ Composite
S&P Information Technology Index
This graph assumes an investment on December 31, 2010 of $100 in our common stock (based on the closing sale
price of our common stock), and in each of such indices (including the reinvestment of all dividends). Measurement points are
to the last trading day for each respective period. The performance shown is not necessarily indicative of future performance.
26
Item 6.
Selected Financial Data
The following selected consolidated financial data should be read in conjunction with our Consolidated Financial
Statements and related notes and with “Management Discussion and Analysis of Financial Condition and Results of
Operations” and other financial data included elsewhere in this annual report on Form 10-K. In January 2010 and April 2010,
we acquired chors GmbH (chors) and EyeWonder, LLC (EyeWonder), respectively. On September 1, 2011, we completed the
sale of EyeWonder and chors video and rich media advertising services to DG FastChannel, Inc. (DG). Accordingly, the results
of EyeWonder and chors for the year ended December 31, 2011 have been reclassified to discontinued operations and have not
been included in our selected financial data and management’s discussion and analysis of financial condition and results of
operations. On December 23, 2013, we sold our Web Content Management business resulting in a gain on sale of $3,836
which is included in Other, net, for the year ended December 31, 2013. This sale was not treated as a discontinued operation
because the operations and cash flows of our Web Content Management business cannot be clearly distinguished, operationally
or for financial reporting purposes, from the rest of the Company. All information is presented in thousands, except per share
amounts, customer count and where specifically noted.
Revenues
Cost of revenue:
Cost of services (1)
Depreciation — network
Total cost of revenue
Gross profit
Operating expenses:
General and administrative (1)
Sales and marketing (1)
Research and development (1)
Depreciation and amortization
Total operating expenses
Operating loss
Other income (expense):
Interest expense
Interest income
Gain on sale of cost basis investment
Other, net
Total other income (expense)
Loss from continuing operations before
income taxes
Income tax provision (benefit)
Loss from continuing operations
Discontinued operations:
Income (loss) from discontinued operations, net of
income taxes
Net loss
Net (loss) income per share:
Basic and diluted
Continuing operations
Discontinued operations
Total
Weighted average shares used in per share
calculation:
Basic and diluted
_______________
$
$
$
Limelight Networks, Inc.
Year Ended December 31,
2015
170,912 $
2014
162,259 $
2013
173,433 $
2012
180,236 $
2011
171,292
$
84,818
17,975
102,793
68,119
25,027
37,868
28,016
2,929
93,840
(25,721)
(29)
317
—
1,748
2,036
(23,685)
267
(23,952)
82,176
16,673
98,849
63,410
28,176
37,458
20,965
3,529
90,128
(26,718)
(32)
276
—
1,821
2,065
(24,653)
203
(24,856)
88,783
22,942
111,725
61,708
31,904
41,474
22,003
5,804
101,185
(39,477)
(76)
321
—
4,643
4,888
(34,589)
387
(34,976)
85,226
27,992
113,218
67,018
34,500
45,044
20,182
5,843
105,569
(38,551)
(177)
356
9,420
(602)
8,997
(29,554)
481
(30,035)
82,976
28,030
111,006
60,286
30,672
40,110
17,163
4,787
92,732
(32,446)
(299)
752
—
(311)
142
(32,304)
(2,238)
(30,066)
—
(23,952) $
265
(24,591) $
(426)
(35,402) $
(2,861)
(32,896) $
4,778
(25,288)
(0.24) $
—
(0.24) $
(0.25) $
—
(0.25) $
(0.36) $
(0.01)
(0.37) $
(0.30) $
(0.02)
(0.32) $
(0.28)
0.05
(0.23)
100,105
98,365
96,851
101,283
109,236
27
(1)
Includes share-based compensation as follows:
Cost of services
General and administrative
Sales and marketing
Research and development
Total
Consolidated Balance Sheet Data:
Cash and cash equivalents and marketable
securities, current
Non-current marketable securities
Working capital
Property and equipment, net
Total assets
Long-term debt, less current portion
Total stockholders’ equity
$
$
$
Limelight Networks, Inc.
Year Ended December 31,
2015
2014
2013
2012
2011
2,047 $
5,398
2,657
2,236
12,338 $
1,956 $
4,741
2,317
1,477
10,491 $
1,873 $
5,971
2,245
2,256
12,345 $
2,117 $
6,511
3,104
2,743
14,475 $
2,419
6,132
3,776
3,554
15,881
Limelight Networks, Inc.
Year Ended December 31,
2015
2014
2013
2012
2011
73,002 $
40
86,080
36,143
225,627
1,436
198,097
93,084 $
40
100,218
32,636
241,341
135
212,163
118,462 $
46
123,265
32,905
268,298
358
237,331
127,955 $
18
137,066
41,251
304,881
824
267,230
140,199
51
159,180
56,368
346,345
2,124
309,105
28
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements include, among other things, statements as to
industry trends, our future expectations, operations, financial condition and prospects, business strategies and other matters that
do not relate strictly to historical facts. These statements are often identified by the use of words such as “may,” “will,”
“expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. These
statements are based on the beliefs and assumptions of our management based on information currently available to
management. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual
results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and
those discussed in the section titled “Risk Factors” set forth in Part I, Item 1A and in the "Special Note Regarding Forward-
Looking Statements" preceding Part I of this annual report on Form 10-K. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to update any forward-
looking statements to reflect events or circumstances after the date of such statements. Prior period information has been
modified to conform to current year presentation. All information 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. Today, we
operate a globally distributed, high-performance, computing platform (our global network) and provide a suite of integrated
services including content delivery services, video content management services, performance services for website and web
application acceleration and security, and cloud storage services. The suite of services that we offer collectively comprises our
Limelight Orchestrate Platform (the Orchestrate Platform).
We derive revenue primarily from the sale of components of the Orchestrate Platform. Our delivery services represent
approximately 77% of our total revenue for the year ended December 31, 2015. We also generate revenue through the sale of
professional services and other infrastructure services, such as transit and rack space services.
We compete 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 is an important trend that will continue to
outpace declining average selling prices in the industry.
For the year ended December 31, 2015 and 2014, respectively, we had no customer who accounted for 10% or more of
our total revenue. During 2013, we had one customer, Netflix, who accounted for approximately 11% of our total revenue.
Changes in revenue are driven by a small subset of large customers who have low contractually committed obligations.
In addition to these revenue-related trends, our profitability is impacted by trends in our costs of services and operating
expenses. We continue to work with our vendors to consolidate our datacenter footprint and renegotiate our fixed rate
infrastructure contracts to variable rate 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 decreased from 520 at
December 31, 2014, to 509 as of December 31, 2015, primarily due to a reduction in force during the fourth quarter of 2015.
We make our capital investment decisions based on careful evaluation of a number of variables, including the amount
of traffic we anticipate on our network, the cost of the physical infrastructure required to deliver such traffic, and the forecasted
capacity utilization of our network. Our capital expenditures increased in 2015 compared to the prior two years. The increase
in capital expenditures was primarily due to the purchase of servers and network equipment associated with the build out,
upgrade, and expansion of our global computing platform. We expect a decrease in capital expenditures in 2016 compared to
2015, as we believe technological enhancements in our software will provide increased capacity in our global network and
systems.
On August 13, 2015, the United States Court of Appeals for the Federal Circuit, sitting en banc, reversed its earlier
decisions in our favor and reinstated the 2008 jury verdict holding us liable for direct infringement of Akamai's United States
Patent 6,108,703 ('703 patent). The case was subsequently mandated back to District Court for the District of Massachusetts on
December 23, 2015. On that same date, Akamai filed a series of motions with the district court seeking an entry of final
judgment on the original jury award, an accounting of post-suit damages, damages for willful infringement and pre-judgment
interest, which Akamai estimated to be approximately $99,000 in the aggregate, and a permanent injunction against us. We
29
have opposed that motion and asked the district court for a stay of all proceedings pending the outcome of our petition to the
Supreme Court of the United States, which we filed on January 25, 2016. We intend to continue to vigorously defend against
the allegation that we infringed the '703 patent. Please see our discussion of the Akamai '703 Lawsuit in Note 11
“Contingencies - Legal Matters" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this annual
report on Form 10-K for more information on this lawsuit.
In October 2015, our board of directors approved a reduction in force plan of 44 employees, or approximately 8% of
our global workforce. We recorded charges during the year ended December 31, 2015 of approximately $800, comprised of
cash payments for severance costs of approximately $500 and the accelerated amortization of intangible assets of $300. We
believe this plan will allow us to become profitable on an accelerated basis and at lower revenue levels.
On November 2, 2015, we entered into a Credit Agreement with Silicon Valley Bank (SVB). The Credit Agreement
provides for revolving credit borrowings up to a maximum principal amount of $25,000. As of December 31, 2015, we had no
outstanding borrowings against the line of credit; however, we believe this Credit Agreement as well as a separate $10 million
vendor financing agreement, provides sufficient liquidity as we continue to execute our growth strategy through innovative
product development and select global market expansion.
On November 30, 2015, we filed a lawsuit in the Eastern District of Virginia against Akamai and XO Communications
in the District Court for the Eastern District of Virginia alleging the infringement 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. We believe
this lawsuit will provide future protection against and significant relief from this type of illegal competition.
The following table summarizes our revenue, costs and expenses for the years ended December 31, 2015, 2014, and
2013 (in thousands of dollars and as a percentage of total revenue).
Revenues
Cost of revenue
Gross profit
Operating expenses
Operating loss
Total other income
Loss from continuing operations before income
taxes
Income tax provision
Loss from continuing operations
Discontinued operations:
Income (loss) from discontinued operations, net of
income taxes
2015
Year Ended December 31,
2014
2013
$ 170,912
102,793
68,119
93,840
(25,721)
2,036
100.0 % $ 162,259
98,849
60.1 %
63,410
39.9 %
90,128
54.9 %
(26,718)
(15.0)%
2,065
1.2 %
100.0 % $ 173,433 100.0 %
64.4 %
111,725
60.9 %
35.6 %
61,708
39.1 %
58.3 %
101,185
55.5 %
(22.8)%
(39,477)
(16.5)%
2.8 %
4,888
1.3 %
(23,685)
267
(23,952)
(13.9)%
0.2 %
(14.0)%
(24,653)
203
(24,856)
(15.2)%
0.1 %
(15.3)%
(34,589)
387
(34,976)
(19.9)%
0.2 %
(20.2)%
—
— %
265
0.2 %
(426)
(0.2)%
Net loss
$ (23,952)
(14.0)% $ (24,591)
(15.2)% $ (35,402)
(20.4)%
Use of Non-GAAP Financial Measures
To evaluate our business, we consider and use non-generally accepted accounting principles (Non-GAAP) net loss,
EBITDA from continuing operations 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 loss to be an important indicator of overall business
performance. We define Non-GAAP net loss to be U.S. GAAP net loss, adjusted to exclude share-based compensation,
litigation expenses, acquisition related expenses, amortization of intangible assets, the gain (loss) on sale of our web content
management (WCM) business and discontinued operations. We believe that EBITDA from continuing operations provides a
useful metric to investors to compare us with other companies within our industry and across industries. We define EBITDA
from continuing operations as U.S. GAAP net loss, adjusted to exclude interest and other (income) expense, interest expense,
income tax expense, depreciation and amortization, discontinued operations and gain (loss) on sale of WCM. We define
Adjusted EBITDA as EBITDA from continuing operations adjusted to exclude share-based compensation, litigation expenses
and acquisition related expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating
30
performance. We also believe use of Adjusted EBITDA facilitates investors’ use of operating performance comparisons from
period to period, as well as across companies.
In our February 9, 2016, earnings press release, as furnished on Form 8-K, we included Non-GAAP net loss, EBITDA
from continuing operations and Adjusted EBITDA. The terms Non-GAAP net loss, EBITDA from continuing operations 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 loss, EBITDA from continuing operations and Adjusted
EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net loss, EBITDA
from continuing operations and Adjusted EBITDA should not be considered in isolation, or as a substitute for net 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 from continuing operations 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;
these measures do not reflect the cash requirements necessary for litigation costs;
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;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be
replaced sometime in the future, and EBITDA from continuing operations 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 EBITDA from continuing operations 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 from continuing operations, and Adjusted EBITDA only as supplemental support for management’s analysis of
business performance. Non-GAAP net income (loss), EBITDA from continuing operations 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 Loss to Non-GAAP Net Loss
(Unaudited)
Year Ended December 31,
2014
2015
2013
U.S. GAAP net loss
Share-based compensation
Litigation expenses
Acquisition related expenses
Amortization of intangible assets
Loss (gain) on sale of the WCM business
(Income) loss from discontinued operations
Non-GAAP net loss
$
$
(23,952) $
12,338
(613)
—
1,063
—
—
(11,164) $
(24,591) $
10,491
817
—
1,138
62
(265)
(12,348) $
(35,402)
12,345
450
176
2,843
(3,836)
426
(22,998)
31
Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA
(Unaudited)
U.S. GAAP net loss
Depreciation and amortization
Interest expense
Loss (gain) on sale of the WCM business
Interest and other (income) expense
Income tax provision
(Income) loss from discontinued operations
EBITDA from continuing operations
Share-based compensation
Litigation expenses
Acquisition related expenses
Adjusted EBITDA
Critical Accounting Policies and Estimates
$
$
$
Year Ended December 31,
2014
(24,591) $
20,202
32
62
(2,159)
203
(265)
(6,516) $
10,491
817
—
4,792 $
2015
(23,952) $
20,904
29
—
(2,065)
267
—
(4,817) $
12,338
(613)
—
6,908 $
2013
(35,402)
28,746
76
(3,836)
(1,128)
387
426
(10,731)
12,345
450
176
2,240
The preparation of 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. Note 2 to the consolidated financial statements describes the significant accounting
policies and methods used in the preparation of the consolidated financial statements. The accounting policies described below
are significantly affected by critical accounting estimates. Such accounting policies require significant judgments, assumptions,
and estimates used in the preparation of the consolidated financial statements, and actual results could differ materially from
the amounts reported based on these policies.
Revenue Recognition
We derive revenue primarily from the sale of services that comprise components of the Orchestrate Platform. Our
customers generally execute contracts with terms of one year or longer, which we refer to as recurring revenue contracts or
long-term contracts. These contracts generally 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
customer. We recognize the monthly minimum as revenue each month provided that an enforceable contract has been signed by
both parties, the service has been delivered to the customer, the fee for the service is fixed or determinable, and collection is
reasonably assured. Should a customer’s usage of our services exceed the monthly minimum commit, we recognize revenue for
such excess in the period of the usage. For annual or other non-monthly period revenue commitments, we recognize revenue
monthly based upon the customer’s actual usage each month of the commitment period and only recognize any remaining
committed amount for the applicable period in the last month thereof.
Certain of our revenue arrangements consist of multi-element arrangements. Revenue arrangements with multiple
deliverables are divided into separate units of accounting if each deliverable has stand-alone value to the customer. Our
multiple-element arrangements may include a combination of some or all of the following: content delivery services, video
content management services, performance services for website and web application acceleration and security, professional
services, and cloud storage. Each of these products has stand-alone value and is sold separately. In the absence of vendor
specific objective evidence (VSOE) or third-party evidence of selling prices, consideration would be allocated based on
management’s best estimate of such prices. The deliverables within multiple-element arrangements are provided over the same
contract period, and therefore, revenue is recognized over the same period.
We may charge the customer an installation fee when the services are first activated. We do not charge installation fees
for contract renewals. Installation fees are recorded as deferred revenue and recognized as revenue ratably over the estimated
life of the customer arrangement as installation fees do not have standalone value.
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 after an enforceable contract has been signed by both parties, the fee is fixed or
determinable, the event or usage has occurred, and collection is reasonably assured.
32
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 reasonably assured, we record an
allowance for doubtful accounts and bad debt expense or deferred revenue for all of that customer’s unpaid invoices and cease
recognizing revenue for continued services provided until cash is received.
Deferred revenue represents amounts billed to customers for which revenue has not been recognized. Deferred
revenue primarily consists of the unearned portion of monthly billed service fees; prepayments made by customers for future
periods and deferred installation fees.
Accounts Receivable and Related Reserves
Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. We record reserves as a
reduction of our accounts receivable balance for service credits and for doubtful accounts. Estimates are used in determining
both of these reserves. The allowance for doubtful accounts charges are included as a component of general and administrative
expenses.
Our allowance for doubtful accounts is based upon a calculation that uses our aging of accounts receivable and applies
a reserve percentage to the specific age of the receivable to estimate the allowance for doubtful accounts. The reserve
percentages are determined based on our historical write-off experience. These estimates could change significantly if our
customers’ financial condition changes or if the economy in general deteriorates. In the event such conditions become known,
we specifically identify balances for necessary reserves.
Our reserve for future service credits relates to service credits that are expected to be issued to customers during the
ordinary course of business, as well as for billing disputes. These credits typically relate to customer disputes and billing
adjustments and are estimated at the time the revenue is recognized and recorded as a reduction of revenues. Estimates for
service credits are based on an analysis of credits issued in previous periods.
Goodwill and Other Intangible Assets
We have recorded goodwill and other intangible assets 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. In each of our acquisitions, the objective of the acquisition was to expand our product offerings and customer
base and to achieve synergies related to cross selling opportunities, all of which contributed to the recognition of goodwill.
We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate
that goodwill might be impaired. We concluded that we have one reporting unit and assigned the entire balance of goodwill to
this reporting unit. The estimated fair value of the reporting unit is determined using our market capitalization as of our annual
impairment assessment date or more frequently if circumstances indicate the goodwill might be impaired. Items that could
reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to:
•
•
•
sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers,
loss of key personnel, emergence of new technologies or new competitors and/or unfavorable outcomes of
intellectual property disputes;
decline in overall market or economic conditions leading to a decline in our stock price; and
decline in observed control premiums paid in business combinations involving comparable companies.
The estimated fair value of the reporting unit is determined using a market approach. Our market capitalization is
adjusted for a control premium based on the estimated average and median control premiums of transactions involving
companies comparable to us. As of the annual impairment testing date of October 31, 2015, and in an interim impairment test
performed at December 31, 2015, we determined that goodwill was not impaired. We noted that the estimated fair value of our
reporting unit exceeded carrying value by approximately $90,135 or 45%, and $11,002 or 6%, using the market capitalization
plus an estimated control premium of 40% on the annual impairment testing date and December 31, 2015, respectively. A 5%
decrease in our share price or a reduction of the estimated control premium to 30%, would likely result in our carrying value
exceeding the estimated fair value of the Company, thereby failing Step 1 of the goodwill impairment test. If Step 1 is failed,
we will be required to perform a hypothetical purchase price allocation to estimate the then-current fair value of the Company's
goodwill. We will be required to recognize a goodwill impairment charge for the difference if the carrying value of the
goodwill exceeds the estimated fair value. We have not estimated what the approximate fair value of our goodwill is currently,
however, any such goodwill impairment charge could be significant.
33
Our other intangible assets represent customer relationship intangibles. Other intangible assets are amortized over their
respective estimated lives, ranging from less than one year to six years. In the event that facts and circumstances indicate
intangibles or other long-lived assets may be impaired, we evaluate the recoverability and estimated useful lives of such assets.
Amortization of other intangible assets is included in depreciation and amortization in the accompanying consolidated
statements of operations.
Impairment and Useful Lives of Long-Lived Assets
We review our long-lived assets, such as fixed assets and amortizable intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events that would
trigger an impairment review include a change in the use of the asset or forecasted negative cash flows related to the asset.
When such events occur, we compare the carrying amount of the asset to the undiscounted expected future cash flows related to
the asset. If this comparison indicates that impairment is present, the amount of the impairment is calculated as the difference
between the carrying amount and the fair value of the asset. If a readily determinable market price does not exist, fair value is
estimated using discounted expected cash flows attributable to the asset. The estimates required to apply this accounting policy
include forecasted usage of the long-lived assets, the useful lives of these assets, and expected future cash flows. Changes in
these estimates could materially impact results from operations.
Contingencies
We record contingent liabilities resulting from asserted and unasserted claims when it is probable that a loss has been
incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable
possibility that the ultimate loss will exceed the recorded liability. Additionally, estimating the loss, or range of loss, associated
with a contingency requires analysis of multiple factors, and changes in law or other developments may ultimately cause our
judgments to change. Therefore, actual losses in any future period are inherently uncertain and may be materially different from
our estimate.
Deferred Taxes and Tax Reserves
Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is
calculated as the estimated taxes payable or refundable on tax returns for the current year. The deferred income tax provision is
calculated for the estimated future tax effects attributable to temporary differences and carryforwards using expected tax rates
in effect during the years in which the differences are expected to reverse or the carryforwards are expected to be realized.
We currently have net deferred tax assets consisting of net operating loss carryforwards, tax credit carryforwards and
deductible temporary differences. Management periodically weighs the positive and negative evidence to determine if it is
more likely than not that some or all of the deferred tax assets will be realized. Forming a conclusion that a valuation allowance
is not required is difficult when there is negative evidence such as cumulative losses in recent years. As a result of our recent
cumulative losses, we have recorded a valuation allowance to reduce our deferred tax assets to the amount that is more likely
than not to be realized. In the event we were to determine that we would be able to realize our deferred income tax assets in the
future in excess of their net recorded amount, we would make an adjustment to the valuation allowance which would reduce the
provision for income taxes in the period of such realization.
We have recorded certain tax reserves to address potential exposures involving our income tax and sales and use tax
positions. These potential tax liabilities result from the varying application of statutes, rules, regulations and interpretations by
different taxing jurisdictions. Our estimate of the value of our tax reserves contain assumptions based on past experiences and
judgments about the interpretation of statutes, rules and regulations by taxing jurisdictions. It is possible that the costs of the
ultimate tax liability or benefit from these matters may be materially more or less than the amount that we estimated.
Uncertainty in income taxes is recognized in our financial statements under guidance that prescribes a two-step
process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination. If the tax position is deemed more-likely-than-not to be
sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The
amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized
upon ultimate settlement. Our unrecognized tax benefit from uncertain tax positions decreased by $75 from January 1, 2015 to
December 31, 2015. We anticipate that our unrecognized tax benefits may increase or decrease within twelve months of the
reporting date, as audits or reviews are initiated or settled and as a result of settling potential tax liabilities in certain foreign
jurisdictions. It is not currently reasonably possible to estimate the range of change. We recognize interest and penalties related
to unrecognized tax benefits in our tax provision.
34
Our effective tax rate is influenced by the recognition of tax positions pursuant to the more likely than not standard
that such positions will be sustained upon examination by the taxing authority. In addition, other factors such as changes in tax
laws, rulings by taxing authorities and court decisions, and significant changes in our operations through acquisitions or
divestitures can have a material impact on the effective tax rate. Differences between our estimated and actual effective income
tax rates and related liabilities are recorded in the period they become known.
We conduct business in various foreign countries. As a multinational corporation, we are subject to taxation in
multiple locations, and the calculation of our foreign tax liabilities involves dealing with uncertainties in the application of
complex tax laws and regulations in various taxing jurisdictions. If we ultimately determine that the payment of these liabilities
will be unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine the liability no
longer applies. Conversely, we record additional tax charges in a period in which we determine that a recorded tax liability is
less than we expect the ultimate assessment to be.
The application of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax
laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the
evolution of regulations and court rulings. Therefore, the actual liability for United States or foreign taxes may be materially
different from our estimates, which could result in the need to record additional tax liabilities or potentially reverse previously
recorded tax liabilities.
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
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.
Results of Continuing Operations
Comparison of the Years Ended December 31, 2015 and 2014
Revenue
We derive revenue primarily from the sale of components of the Orchestrate Platform. 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 year ended December 31, 2015, compared to December 31, 2014:
Year Ended December 31,
Increase
(Decrease)
2014
2015
170,912 $ 162,259 $
Percent
Change
5.3%
8,653
Revenue
$
35
Our revenue increased during the year ended December 31, 2015, versus the comparable 2014 period primarily due
to an increase in our content delivery revenue, which was driven by volume increases with certain of our larger customers,
partially offset by a decrease in average selling price.
The year ended December 31, 2014 included $11,274, of revenue from Netflix whose contract expired in July 2014.
Our active customers worldwide decreased to 963 as of December 31, 2015, compared to 1,095 as of December 31, 2014. We
are continuing our selective approach to accepting profitable business by establishing a clear process for identifying customers
that value quality, performance, availability, and service.
During the year ended December 31, 2015 and 2014, sales to our top 20 customers accounted for approximately 57%
and 50%, respectively of our total revenue. The customers that comprised our top 20 customers change, and our large
customers may not continue to be as significant going forward as they have been in the past.
During the year ended December 31, 2015 and 2014, we had no customer who represented 10% or more of our total
revenue.
Revenue by geography is based on the location of the customer from which the revenue is earned. The following
table sets forth revenue by geographic area (in thousands and as a percentage of total revenue):
Americas
EMEA
Asia Pacific
Total revenue
Year Ended December 31,
2015
2014
$ 102,505
32,505
35,902
60.0% $
19.0%
21.0%
101,302
33,630
27,327
62.5%
20.7%
16.8%
$ 170,912
100.0% $
162,259 100.0%
Based on current market conditions, we anticipate revenues will range between $180 and $195 million in 2016.
Cost of Revenue
Cost of revenue consists primarily of fees paid to network providers for bandwidth and backbone, costs incurred for
non-settlement free peering and connection to Internet service providers or ISPs, and fees paid to data center operators for
housing of our network equipment in third party network data centers, also known as co-location costs. Cost of revenue also
includes leased warehouse space and utilities, depreciation of network equipment used to deliver our content delivery services,
payroll and related costs, and share-based compensation for our network operations and professional services personnel.
Other costs include professional fees and outside services, travel and travel-related expenses and royalty expenses.
Cost of revenue was composed of the following (in thousands and as a percentage of total revenue):
Bandwidth and co-location fees
Depreciation - network
Payroll and related employee costs
Share-based compensation
Other costs
Total cost of revenue
Year Ended December 31,
2015
$
$
58,608
17,975
17,960
2,047
6,203
102,793
34.3% $
10.5%
10.5%
1.2%
3.6%
60.1% $
2014
55,274
16,673
17,691
1,956
7,255
98,849
34.1%
10.3%
10.9%
1.2%
4.5%
60.9%
Our cost of revenue increased in aggregate dollars and decreased as a percentage of revenue for the year ended
December 31, 2015, versus the comparable 2014 period primarily as a result of the following:
•
increased bandwidth, peering and transit fees as a result of more traffic being delivered on our network.
Additionally, during the year ended December 31, 2014, we recorded a nonrecurring $1,100 credit related to an
over billing from one of our co-location providers; and
•
increased depreciation as a result of new servers and network equipment placed into service.
36
These increases were partially offset by decreases in other costs which were primarily other recurring cost of sales,
professional fees, office and computer supplies, and other employee costs.
Effective April 1, 2015, we reorganized the job responsibilities of certain employees, and as a result, such employee
expenses have moved from cost of services to research and development, on a prospective basis. This reorganization resulted
in approximately $2,000 of payroll and related employee costs in 2015 being allocated to research and development, which
were previously allocated to cost of services.
We anticipate an improvement in gross margin for the full year 2016 compared to 2015 despite an increase to our
depreciation expense related to our network equipment. Depreciation expense is expected to increase due to the increase in
capital expenditures in 2015 compared to prior periods.
General and Administrative
General and administrative expense was composed of the following (in thousands and as a percentage of total
revenue):
Payroll and related employee costs
Professional fees and outside services
Share-based compensation
Other costs
Total general and administrative
Year Ended December 31,
2015
10,105
4,134
5,398
5,390
25,027
$
$
5.9% $
2.4%
3.2%
3.2%
14.6% $
2014
10,347
6,003
4,741
7,085
28,176
6.4%
3.7%
2.9%
4.4%
17.4%
Our general and administrative expense decreased in aggregate dollars and as a percentage of total revenue for the
year ended December 31, 2015, versus the comparable 2014 period primarily as a result of the following:
• decreased professional fees, primarily due to lower consulting and accounting fees; and
• decreased other costs as a result of our negotiations with a vendor, which reduced our legal fees by $1,200, lower
fees and licenses, other employee costs, office and computer supplies and insurance.
These decreases were partially offset by increased share-based compensation and increased bad debt expense
(included in other costs).
We expect our general and administrative expenses for 2016 to increase from 2015 in aggregate dollars as a result of
ongoing legal costs.
Sales and Marketing
Sales and marketing expense was composed of the following (in thousands and as a percentage of total revenue):
Payroll and related employee costs
Share-based compensation
Marketing programs
Other costs
Total sales and marketing
Year Ended December 31,
2015
2014
$
$
25,402
2,657
1,690
8,119
37,868
14.9% $
1.6%
1.0%
4.8%
22.2% $
24,016
2,317
1,462
9,663
37,458
14.8%
1.4%
0.9%
6.0%
23.1%
Our sales and marketing expense slightly increased in aggregate dollars for the year ended December 31, 2015,
versus the comparable 2014 period but decreased as a percentage of total revenue. The slight increase in sales and marketing
expense for the year ended December 31, 2015, was primarily as a result of the following:
•
•
increased payroll and related employee costs due to increased average salaries and higher variable compensation;
increased share-based compensation; and
37
•
increased marketing spending related to trade shows and public relations.
These increases were partially offset by decreased other costs, which was primarily lower consulting expense, fees
and licenses and travel costs.
We expect our sales and marketing expenses for 2016 to remain consistent with 2015.
Research and Development
Research and development expense was composed of the following (in thousands and as a percentage of total
revenue):
Payroll and related employee costs
Share-based compensation
Other costs
Total research and development
Year Ended December 31,
2015
2014
$
$
21,445
2,236
4,335
28,016
12.5% $
1.3%
2.5%
16.4% $
15,887
1,477
3,601
20,965
9.8%
0.9%
2.2%
12.9%
Our research and development expense increased in aggregate dollars and as a percentage of total revenue for the
year ended December 31, 2015, versus the comparable 2014 period, primarily as a result of the following:
•
•
•
increased payroll and related employee costs due to increased headcount and higher average salaries as we
expanded our research and development activities;
increased share-based compensations for our research and development personnel; and
increased other costs primarily due to increased professional fees for consulting, facilities, and fees and licenses
and to a lesser extent increased travel and travel related expenses.
Effective April 1, 2015, we reorganized the job responsibilities of certain employees, and as a result, such employee
expenses have moved from cost of services to research and development, on a prospective basis. This reorganization resulted
in approximately $2,000 of payroll and related employee costs in 2015 being allocated to research and development, which
were previously allocated to cost of services.
We expect our research and development expenses for 2016 to remain consistent with 2015.
Depreciation and Amortization (Operating Expenses)
Depreciation and amortization expense was $2,929, or 1.7% of revenue, for the year ended December 31, 2015,
versus $3,529, or 2.2% of revenue, for the comparable 2014 period. This reduction was primarily due to lower depreciation
expenses on equipment and furnishings used by general administrative, sales and marketing, and research and development
personnel. Amortization expense consists of amortization of intangible assets acquired in business combinations.
Interest Expense
Interest expense was $29 for the year ended December 31, 2015, versus $32 for the comparable 2014 period. Interest
expense is primarily comprised of interest paid on capital leases and amortization of fees associated with our Credit
Agreement. See Note 8 of Notes to Consolidated Financial Statements included in Part II, Item 8 of this annual report on
Form 10-K for additional information related to our Credit Agreement.
Interest Income
Interest income was $317 for the year ended December 31, 2015, versus $276 for the comparable 2014 period.
Interest income includes interest earned on invested cash balances and marketable securities.
Other Income (Expense)
Other income (expense) was $1,748 for the year ended December 31, 2015, versus $1,821 for the comparable 2014
period. For the year ended December 31, 2015, other income consists primarily of foreign currency transaction gains and
losses, the $275 gain on the conversion of our investment in a convertible debt security into preferred shares and gain on sale
of assets.
38
For the year ended December 31, 2014, other income (expense) consists primarily of foreign currency transaction
gains and losses, and also includes a working capital adjustment associated with the sale of our WCM business, and gain on
sale of assets.
Income Tax Expense
Income tax expense from continuing operations for the year ended December 31, 2015, was $267 versus $203 for the
comparable 2014 period. Income tax expense on the loss from continuing operations before taxes was different than the
statutory income tax rate primarily due to our providing for a valuation allowance on deferred tax assets in certain
jurisdictions, and recording of state and foreign tax expense for the year. The effective income tax rate is based primarily upon
income or loss for the year, the composition of the income or loss in different countries, and adjustments, if any, for the
potential tax consequences, benefits or resolutions for tax audits.
Income (Loss) from Discontinued Operations
Discontinued operations relate to our EyeWonder and chors rich media advertising services. During the three months
ended June 30, 2014, we recovered previously written-off receivables.
39
Comparison of the Years Ended December 31, 2014 and 2013
Revenue
The following table reflects our revenue for the year ended December 31, 2014, compared to December 31, 2013:
Revenue
$
Year Ended December 31,
Increase
(Decrease)
2014
162,259 $ 173,433 $
2013
(11,174)
Percent
Change
(6.4)%
to:
•
•
Our revenue decreased during the year ended December 31, 2014, versus the comparable 2013 period primarily due
the sale of the WCM business in December 2013. Revenue from our WCM-related business was approximately $12
million for the year ended December 31, 2013.
the expiration of our content delivery contract with Netflix in July 2014. Revenue from Netflix was approximately
$11 million and $20 million for the years ended December 31, 2014, and 2013, respectively.
• our active customers worldwide decreased to 1,095 as of December 31, 2014, compared to 1,295 as of December 31,
2013. Approximately 25% of the decrease in customers is attributable to the sale of the WCM business.
Partially offsetting these decreases were increases in volume to several large customers, as well as an increase in
average selling price for delivery of approximately 10% year over year.
During the year ended December 31, 2014, and 2013, sales to our top 20 customers accounted for approximately 50%
and 44%, respectively, of our total revenue. The customers that comprised our top 20 customers have continually changed,
and our large customers may not continue to be as significant going forward as they have been in the past.
During the year ended December 31, 2014, we had no customer who accounted for 10% or more of our total revenue.
For the year ended December 31, 2013, we had one customer, Netflix, who represented approximately 11% of our total
revenue.
Revenue by geography is based on the location of the customer from which the revenue is earned. The following
table sets forth revenue by geographic area:
Americas
EMEA
Asia Pacific
Total revenue
Cost of Revenue
Year Ended December 31,
2014
2013
$
$
101,302
33,630
27,327
162,259
62.5% $
20.7%
16.8%
100.0% $
119,020
30,793
23,620
173,433
68.6%
17.8%
13.6%
100.0%
Cost of revenue was composed of the following (in thousands and as a percentage of total revenue):
Bandwidth and co-location fees
Depreciation - network
Payroll and related employee costs
Share-based compensation
Other costs
Total cost of revenue
Year Ended December 31,
2014
2013
$
$
55,274
16,673
17,691
1,956
7,255
98,849
34.1% $
10.3%
10.9%
1.2%
4.5%
60.9% $
59,447
22,942
18,951
1,873
8,512
111,725
34.3%
13.2%
10.9%
1.1%
4.9%
64.4%
40
Our cost of revenue decreased in aggregate dollars and as a percentage of total revenue for the year ended
December 31, 2014, versus the comparable 2013 period, primarily as a result of the following:
• decreased bandwidth and co-location fees as a result of our focus on renegotiating our fixed rate infrastructure
contracts to variable rate based on traffic levels. Additionally, during the third quarter of 2014, we recorded a
nonrecurring $1,100 credit related to an over billing from one of our co-location providers;
• decreased network depreciation as a result of a decrease in capital expenditures beginning in 2012;
• decreased payroll and related employee costs as a result of lower average salaries due to employee mix; and
• decreased other costs primarily due to lower consulting fees.
Our network equipment is primarily depreciated over a three year useful life. Capital expenditures prior to 2012 were
much higher due to our network build-out. Over the past three years, capital expenditures have remained consistent.
General and Administrative
General and administrative expense was composed of the following (in thousands and as a percentage of total
revenue):
Payroll and related employee costs
Professional fees and outside services
Share-based compensation
Other costs
Total general and administrative
Year Ended December 31,
2014
10,347
6,003
4,741
7,085
28,176
$
$
6.4 % $
3.7 %
2.9 %
4.4 %
17.4 % $
2013
10,206
7,762
5,971
7,965
31,904
5.9%
4.5%
3.4%
4.6%
18.4%
Our general and administrative expense decreased in aggregate dollars and as a percentage of total revenue for the
year ended December 31, 2014, versus the comparable 2013 period, primarily as a result of the following:
•
•
•
decreased professional fees and outside services primarily due to lower general legal fees (patent defense costs
and commercial and employment issues) and reduced consulting fees;
decreased share-based compensation; and
decreased other costs which was primarily lower facilities, bad debt expense and office supplies, partially offset
by increased franchise taxes and software fees.
Sales and Marketing
Sales and marketing expense was composed of the following (in thousands and as a percentage of total revenue):
Payroll and related employee costs
Share-based compensation
Marketing programs
Other costs
Total sales and marketing
Year Ended December 31,
2014
24,016
2,317
1,462
9,663
37,458
$
$
14.8% $
1.4%
0.9%
6.0%
23.1% $
2013
24,799
2,245
2,822
11,608
41,474
14.3%
1.3%
1.6%
6.7%
23.9%
Our sales and marketing expense decreased in aggregate dollars and as a percentage of total revenue for the year
ended December 31, 2014, versus the comparable 2013 period, primarily as a result of the following:
•
•
decreased payroll and related employee costs primarily due to reduced sales personnel and lower variable
compensation;
decreased marketing and public relations spending; and
41
•
decreased other costs primarily related to reduced subscription based services, lower facilities and facility related
costs, reduced costs associated with employee events, and lower travel related expenses.
Research and Development
Research and development expense was composed of the following (in thousands and as a percentage of total
revenue):
Payroll and related employee costs
Share-based compensation
Other costs
Year Ended December 31,
2014
2013
$
15,887
1,477
3,601
9.8% $
0.9%
2.2%
16,568
2,256
3,179
9.6%
1.3%
1.8%
Total research and development
$
20,965
12.9% $
22,003
12.7%
Our research and development expense decreased in aggregate dollars and slightly increased as a percentage of total
revenue for the year ended December 31, 2014, versus the comparable 2013 period, primarily as a result of the following:
•
•
decreased payroll and related employee costs due to lower average salaries and transitioning of our network and
software engineering work to lower cost locations; and
decreased share-based compensation.
These decreases were partially offset by increased other costs primarily due to increased consulting and facilities
related expenses.
Depreciation and Amortization (Operating Expenses)
Depreciation and amortization expense was $3,529, or 2.2% of revenue, for the year ended December 31, 2014,
versus $5,804, or 3.3% of revenue, for the comparable 2013 period. This reduction was primarily due to lower amortization of
intangible assets. Depreciation expense consists of depreciation on equipment and furnishings used by general administrative,
sales and marketing, and research and development personnel. Amortization expense consists of amortization of intangible
assets acquired in business combinations and has decreased due to the sale of our WCM business in December 2013.
Interest Expense
Interest expense was $32 for the year ended December 31, 2014, versus $76 for the comparable 2013 period. Interest
expense is primarily comprised of interest paid on capital leases.
As of December 31, 2014, with the exception of our capital leases, we had no outstanding credit facilities.
Interest Income
Interest income was $276 for the year ended December 31, 2014, versus $321 for the comparable 2013 period.
Interest income includes interest earned on invested cash balances and marketable securities.
Other Income (Expense)
Other income (expense) was $1,821 for the year ended December 31, 2014, versus $4,643 for the comparable 2013
period. For the year ended December 31, 2014, other income (expense) consists primarily of foreign currency transaction
gains and losses, and also includes a working capital adjustment associated with the sale of our WCM business, and gains on
sale of assets.
For the year ended December 31, 2013, other income (expense) consists primarily of the gain on the sale of our
WCM business of approximately $3,836 as well as foreign currency transaction gains and losses.
Income Tax Expense
Income tax expense from continuing operations for the year ended December 31, 2014, was $203 versus $387 for the
comparable 2013 period. Income tax expense on the loss from continuing operations before taxes was different than the
statutory income tax rate primarily due to our providing for a valuation allowance on deferred tax assets in certain
42
jurisdictions, and recording of state and foreign tax expense for the year. The effective income tax rate is based primarily upon
income or loss for the year, the composition of the income or loss in different countries, and adjustments, if any, for the
potential tax consequences, benefits or resolutions for tax audits.
Income (Loss) from Discontinued Operations
Discontinued operations relate to our EyeWonder and chors rich media advertising services. On September 1, 2011,
we completed the sale of EyeWonder and chors to DG.
Liquidity and Capital Resources
As of December 31, 2015, our cash, cash equivalents and marketable securities classified as current totaled $73,002.
Included in this amount is approximately $4,541 of cash and cash equivalents held outside the United States that would be
subject to withholding taxes upon repatriation. Changes in cash, cash equivalents and marketable securities are dependent upon
changes in, among other things, working capital items such as deferred revenues, accounts payable, accounts receivable,
accrued provision for litigation and various accrued expenses, as well as purchases of property and equipment and changes in
our capital and financial structure due to debt repurchases and issuances, stock option exercises, sales of equity investments and
similar events.
We believe that our existing cash, cash equivalents and marketable securities, and available borrowing capacity will be
sufficient to meet our anticipated cash needs for at least the next 12 months. If the assumptions underlying our business plan
regarding future revenue and expenses change, payment for an unfavorable outcome in litigation, or other unexpected
opportunities or needs arise, we may seek to raise additional cash by selling equity or entering into new debt securities.
The major components of changes in cash flows for the years ended December 31, 2015, 2014, and 2013 are discussed
in the following paragraphs.
Operating Activities
Net cash provided by operating activities of continuing operations increased by $5,973 for the year ended
December 31, 2015, versus the comparable 2014 period. Changes in operating assets and liabilities of ($2,535) during the year
ended December 31, 2015, versus ($3,651) in the comparable 2014 period were primarily due to:
•
•
•
•
accounts receivable increased $5,210 during the year ended December 31, 2015, due to the timing of billings net of
collections, and an increase in our days sales outstanding (DSO) due to longer payment terms with certain large
customers as compared to a $1,600 increase in the comparable 2014 period;
other assets decreased $3,064 during the year ended December 31, 2015, versus a decrease of $1,607 for the
comparable 2014 period primarily due to the amortization of prepaid bandwidth expenses and a reduction in vendor
deposits and other;
accounts payable and other current liabilities increased $85 during the year ended December 31, 2015, versus an
increase of $122 for the comparable 2014 period due to the timing of vendor payments, the payment of 2014
accrued compensation and the reversal of accrued legal fees;
deferred revenue decreased $932 during the year ended December 31, 2015, versus a decrease of $1,109 for the
comparable 2014 period due to recognition of revenue and churn in our deferred revenue balance.
Net cash provided by operating activities of continuing operations decreased by $5,128 for the year ended
December 31, 2014, versus the comparable 2013 period. Changes in operating assets and liabilities of $3,651 during the year
ended December 31, 2014, versus $2,130 in the comparable 2013 period were primarily due to:
•
•
•
•
accounts receivable increased $1,600 during the year ended December 31, 2014, due to the timing of billings net of
collections as compared to a $2,581 decrease in the comparable 2013 period;
prepaid expenses and other current assets increased $1,792 during the year ended December 31, 2014, versus a
decrease of $1,222 for the comparable 2013 period due primarily to prepayment of software licenses in 2014
partially offset by amortization of prepaid bandwidth expenses;
other assets decreased $1,607 during the year ended December 31, 2014, versus a decrease of $519 for the
comparable 2013 period due to the amortization of bandwidth expenses paid in prior periods;
accounts payable and other current liabilities increased $122 during the year ended December 31, 2014, versus a
decrease of $1,808 for the comparable 2013 period due to timing of vendor payments and the application of
customer deposits to their receivable balances;
43
•
deferred revenue decreased $1,109 during the year ended December 31, 2014, versus an increase of $4 for the
comparable 2013 period due to changes in WCM deferred revenue balances in the prior period.
Cash provided by operating activities may not be sufficient to cover new purchases of property and equipment during
2016 and potential litigation expenses associated with patent litigation, including any potential payment required on the
ultimate outcomes of the associated litigation. The timing and amount of future working capital changes and our ability to
manage our days sales outstanding will also affect the future amount of cash used in or provided by operating activities.
Investing Activities
Net cash used in investing activities of continuing operations was $18,915 for the year ended December 31, 2015,
versus $21,499 for the comparable 2014 period and $19,019 for the year ended December 31, 2013. Net cash used in investing
activities was primarily related to the purchase of marketable securities, and capital expenditures primarily for servers and
network equipment associated with the build-out and expansion of our global computing platform, partially offset by cash
received from maturities of marketable securities.
We expect to have ongoing capital expenditure requirements as we continue to invest in and expand our content
delivery network. During 2015, we made capital expenditures of $24,714, which represented approximately 14% of our total
revenue. We currently expect a decrease in capital expenditures in 2016 compared to 2015, as we believe technological
enhancements in our software will provide increased capacity in our global network and systems.
Financing Activities
Net cash used in financing activities of continuing operations was $19 for the year ended December 31, 2015, versus
$5,422 for the comparable 2014 period. Net cash used in financing activities in the year ended December 31, 2015, related to
payments made for the purchase of our common stock under our stock repurchase plans of $957, payments of employee tax
withholdings related to the net settlement of vested restricted stock units of $2,627 and payments made on our capital lease
obligations of $453, partially offset by cash received from the purchase of common stock through our employee stock purchase
plan and cash received from the exercise of stock options and our employee stock purchase plan of $4,018.
Net cash used in financing activities of continuing operations was $5,422 for the year ended December 31, 2014,
versus $8,922 for the comparable 2013 period. Net cash used in financing activities in the year ended December 31, 2014,
related to payments made for the purchase of our common stock under our stock repurchase plans of $4,542, payments of
employee tax withholdings related to restricted stock units of $1,795 and payments made on our capital lease obligations of
$466, partially offset by cash received from the purchase of common stock through our employee stock purchase plan and cash
received from the exercise of stock options of $1,381.
Share repurchases
On February 12, 2014, our board of directors authorized a $15,000 share repurchase program. During the years ended
December 31, 2015 and 2014, we purchased and canceled approximately 293 and 1,719 shares, respectively. All repurchased
shares were canceled and returned to authorized but unissued status. As of December 31, 2015, we have $9,525 remaining
under this share repurchase authorization.
On October 29, 2012, our board of directors authorized and approved a common stock repurchase program that
authorized us to repurchase up to $10,000 of our shares of common stock, exclusive of any commissions, markups or expenses,
from time to time through May 9, 2013. During 2013, we purchased and canceled approximately 2,300 shares under this
repurchase program.
Any shares repurchased pursuant to these programs were canceled and returned to authorized but unissued status.
Capital leases
In October 2015, we entered into a $10,000 equipment financing arrangement. The arrangement allows us to finance
equipment purchases over a period of 4 years at variable interest rates. As of December 31, 2015, we have $1,902 in capital
leases outstanding versus $358 in the comparable 2014 period.
Line of Credit
On November 2, 2015, we entered into a Loan and Security Agreement (the Agreement) with Silicon Valley Bank.
The Agreement provides for revolving credit borrowings up to a maximum principal amount of $25,000. As of December 31,
2015, we have no outstanding borrowings against the line of credit. All outstanding borrowings owed under the Agreement
44
become due and payable no later than the final maturity date of November 2, 2017. For a more detailed discussion regarding
our Agreement, please refer to Note 8 “Line of Credit” of the Notes to Consolidated Financial Statements included in Part II,
Item 8 of this Annual Report on Form 10-K.
Financial Covenants and Borrowing Limitations
The Agreement requires, and any future credit facilities will likely require, us to comply with specified financial
requirements that may limit the amount we can borrow. A breach of any of these covenants could result in a default. Our ability
to satisfy those covenants depends principally upon our ability to meet or exceed certain financial performance results. Any
debt agreements we enter into in the future may further limit our ability to enter into certain types of transactions.
The Agreement contains a covenant that requires us to maintain a minimum tangible net worth of $100,000. Tangible
net worth is defined as total shareholders’ equity less cash held by our foreign subsidiaries, goodwill and other intangible
assets. The tangible net worth requirement is adjusted by up to $52,500 in the event we record a provision for or make a
payment related to the Akamai ‘703 Litigation. 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. The tangible net worth covenant could have the effect of limiting
our availability under the Agreement, as additional borrowings would be prohibited if we would be in violation of such
covenant. In addition, we have a maximum unfinanced capital expenditures amount of $30,000 for 2015 and $25,000 per
annum thereafter. As of December 31, 2015, we remained in compliance with our debt covenants.
The maximum amount we can borrow under the Agreement is subject to contractual and borrowing base limitations,
which could significantly and negatively impact our future access to capital required to operate our business. Borrowing base
limitations are based upon eligible accounts receivable. If the value of our accounts receivable decreases for any reason, or if
some portion of our accounts receivable is deemed ineligible under the terms of the Agreement, the amount we can borrow
under the Agreement could be reduced. These limitations could have a material adverse impact on our liquidity and financial
condition. As of December 31, 2015, availability under the Agreement was approximately $18,000.
We may also be prevented from taking advantage of business opportunities that arise because of the limitations
imposed on us by restrictive covenants within the Agreement. These restrictions may also limit our ability to plan for or react to
market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to
finance our operations, enter into acquisitions, execute our business strategy, effectively compete with companies that are not
similarly restricted or engage in other business activities that would be in our interest. In the future, we may also incur debt
obligations that might subject us to additional and different restrictive covenants that could affect our financial and operational
flexibility. We cannot assure you that we will be granted waivers or amendments to the indenture governing the Agreement, or
such other debt obligations if for any reason we are unable to comply with our obligations thereunder or that we will be able to
refinance our debt on acceptable terms, or at all, should we seek to do so. Any such limitations on borrowing under the
Agreement, including a payment related to the Akamai '703 Litigation toward the upper end or in excess of the range of loss,
could have a material adverse impact on our liquidity and our ability to continue as a going concern could be impaired.
Contractual Obligations, Contingent Liabilities, and Commercial Commitments
In the normal course of business, we make certain long-term commitments for operating leases, primarily office
facilities, bandwidth, and computer rack space. These leases expire on various dates ranging from 2016 to 2022. We expect that
the growth of our business will require us to continue to add to and increase our long-term commitments in 2016 and beyond.
As a result of our growth strategies, we believe that our liquidity and capital resources requirements will grow.
45
The following table presents our contractual obligations and commercial commitments, as of December 31, 2015 over
the next five years and thereafter (in thousands):
Payments Due by Period
Less than
1 year
1-3 years
More than
3-5 years
5 years
Operating Leases
Bandwidth leases
Rack space leases
Real estate leases
Total operating leases
Capital leases
Other purchase obligations
$
Total
19,643
16,482
11,714
47,839
2,139
183
$
15,641 $
10,541
3,902
3,745 $
5,405
5,886
250 $
535
1,657
30,084
571
183
15,036
1,141
—
2,442
427
—
7
1
269
277
—
—
277
Total commitments
$
50,161
$
30,838 $
16,177
$
2,869 $
Off Balance Sheet Arrangements
As of December 31, 2015, we are not involved in any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii)
of SEC Regulation S-K.
New Accounting Pronouncements
See Item 8 of Part II, “Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting
Policies - Recent Accounting Standards.”
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our debt and investment portfolio. In our
investment portfolio, we do not use derivative financial instruments. Our investments are primarily with our commercial and
investment banks and, by policy, we limit the amount of risk by investing primarily in money market funds, United States
Treasury obligations, high quality corporate and municipal obligations, and certificates of deposit. Our outstanding capital lease
obligations bear variable interest rates and are impacted by fluctuations in interest rates. We do not believe that an interest rate
increase related to our capital leases would be material to our results of operations. Interest expense on our line of credit will
fluctuate as the interest rate for the line of credit floats based, at our option of one, two, three or six-month LIBOR plus a
margin of 2.75% or an Alternative Base Rate (ABR), which is defined as the higher of (a) Wall Street Journal prime rate or (b)
Federal Funds Rate plus 0.50%, plus a margin of 0.50% or 1.50% depending on our minimum liquidity, as defined in the
Agreement. If we fall below a minimum liquidity of $17,500, we are required to use the ABR interest rate. An increase in
interest rates of 100 basis points would add $10 of interest expense per year, to our financial position or results of operations,
for each $1,000 drawn on the line of credit. As of December 31, 2015, there were no outstanding borrowings against the line of
credit.
Foreign Currency Risk
We operate in the Americas, EMEA and Asia-Pacific. As a result of our international business activities, our financial
results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign
markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future. We have foreign
currency exchange rate exposure on our results of operations as it relates to revenues and expenses denominated in foreign
currencies. A portion of our cost of revenues and operating expenses are denominated in foreign currencies as are revenues
associated with certain international customers. To the extent that the U.S. dollar weakens, similar foreign currency
denominated transactions in the future will result in higher revenues and higher cost of revenues and operating expenses, with
expenses having the greater impact on our financial results. Similarly, our revenues and expenses will decrease if the
U.S. dollar strengthens against these foreign currencies. Although we will continue to monitor our exposure to currency
fluctuations, and, where appropriate, may use financial hedging techniques in the future to minimize the effect of these
fluctuations, we are not currently engaged in any financial hedging transactions. Assuming a 10% weakening of the U.S. dollar
relative to our foreign currency denominated revenues and expenses, our net loss for the year ended December 31, 2015, would
46
have been higher by approximately $2,979. There are inherent limitations in the sensitivity analysis presented, primarily due to
the assumption that foreign exchange rate movements across multiple jurisdictions are similar and would be linear and
instantaneous. As a result, the analysis is unable to reflect the potential effects of more complex markets or other changes that
could arise which may positively or negatively affect our results of operations.
Inflation Risk
We do not believe that inflation has had a material effect on our business, financial condition, or results of operations.
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs
through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Credit Risk
During any given fiscal period, a relatively small number of customers typically account for a significant percentage
of our revenue. For example, in 2015, 2014, and 2013, sales to our top 20 customers accounted for approximately 57%, 50%
and 44%, respectively, of our total revenue. During 2015 and 2014, we had no customer who represented 10% or more of our
total revenue. During 2013, we had one customer, Netflix, who represented approximately 11% of our total revenue. In 2016,
we anticipate that our top 20 customer concentration levels will remain consistent with 2015. In the past, the customers that
comprised our top 20 customers have continually changed, and our large customers may not continue to be as significant going
forward as they have been in the past.
47
Item 8.
Financial Statements and Supplementary Data
LIMELIGHT NETWORKS, INC.
Index to Consolidated Financial Statements and Schedule
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2015 and 2014
Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2015, 2014, and 2013
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013
Notes to Consolidated Financial Statements
Page
49
50
51
52
53
55
56
48
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Limelight Networks, Inc.
We have audited the accompanying consolidated balance sheets of Limelight Networks, Inc. as of December 31, 2015 and
2014, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Limelight Networks, Inc. at December 31, 2015 and 2014, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Limelight Networks, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 11, 2016 expressed an unqualified opinion thereon.
Phoenix, Arizona
February 11, 2016
/s/ Ernst & Young LLP
49
Limelight Networks, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Income taxes receivable
Deferred income taxes
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Marketable securities, less current portion
Deferred income taxes, less current portion
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Deferred revenue
Capital lease obligations
Income taxes payable
Other current liabilities
Total current liabilities
Capital lease obligations, less current portion
Deferred income taxes
Deferred revenue, less current portion
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
December 31,
2015
December 31,
2014
$
$
$
44,680 $
28,322
26,795
170
89
9,578
109,634
36,143
40
1,252
76,143
15
2,400
225,627 $
9,137 $
2,890
466
204
10,857
23,554
1,436
137
92
2,311
27,530
57,767
35,317
22,622
237
78
9,625
125,646
32,636
40
1,364
76,133
1,071
4,451
241,341
7,065
3,509
223
248
14,383
25,428
135
170
405
3,040
29,178
Convertible preferred stock, $0.001 par value; 7,500 shares authorized; 0 shares issued
and outstanding
Common stock, $0.001 par value; 300,000 shares authorized; 102,299 and 98,409 shares
issued and outstanding at December 31, 2015 and 2014, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
—
—
102
477,202
(10,812)
(268,395)
198,097
225,627 $
98
464,294
(7,786)
(244,443)
212,163
241,341
The accompanying notes are an integral part of the consolidated financial statements.
50
Limelight Networks, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Years Ended December 31,
2015
170,912 $
2014
162,259 $
2013
173,433
$
Revenues
Cost of revenue:
Cost of services (1)
Depreciation — network
Total cost of revenue
Gross profit
Operating expenses:
General and administrative
Sales and marketing
Research and development
Depreciation and amortization
Total operating expenses
Operating loss
Other income (expense):
Interest expense
Interest income
Other, net
Total other income (expense)
Loss from continuing operations before income taxes
Income tax provision
Loss from continuing operations
Discontinued operations:
Income (loss) from discontinued operations, net of income taxes
Net loss
Net loss per share:
Basic and diluted
Continuing operations
Discontinued operations
Total
Weighted average shares used in per share calculation:
Basic and diluted
$
$
$
84,818
17,975
102,793
68,119
25,027
37,868
28,016
2,929
93,840
(25,721)
(29)
317
1,748
2,036
(23,685)
267
(23,952)
82,176
16,673
98,849
63,410
28,176
37,458
20,965
3,529
90,128
(26,718)
(32)
276
1,821
2,065
(24,653)
203
(24,856)
—
(23,952) $
265
(24,591) $
88,783
22,942
111,725
61,708
31,904
41,474
22,003
5,804
101,185
(39,477)
(76)
321
4,643
4,888
(34,589)
387
(34,976)
(426)
(35,402)
(0.24) $
—
(0.24) $
(0.25) $
—
(0.25) $
(0.36)
(0.01)
(0.37)
100,105
98,365
96,851
____________
(1)
Cost of services excludes amortization related to intangibles, including existing technologies, customer relationships,
and trade names and trademarks, which are included in depreciation and amortization
The accompanying notes are an integral part of the consolidated financial statements.
51
LIMELIGHT NETWORKS, INC.
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss
Other comprehensive loss, net of tax:
Unrealized loss on marketable securities
Foreign exchange translation
Other comprehensive loss, net of tax
Comprehensive loss
Years Ended December 31,
2015
2014
2013
$
(23,952) $
(24,591) $
(35,402)
(1)
(3,025)
(3,026)
(26,978) $
(68)
(6,055)
(6,123)
(30,714) $
(13)
(941)
(954)
(36,356)
$
The accompanying notes are an integral part of the consolidated financial statements.
52
Balance at December 31, 2012
Net loss
Change in unrealized loss on
available-for-sale
investments, net of taxes
Foreign currency translation
adjustment, net of taxes
Exercise of common stock
options
Vesting of restricted stock units
Restricted stock units
surrendered in lieu of
withholding taxes
Issuance of common stock for
contingent consideration
Issuance of common stock
under employee stock
purchase plan
Purchases of common
stock
Share-based compensation -
continuing operations
Balance at December 31, 2013
Net loss
Change in unrealized
loss on available-for-sale
investments, net of taxes
Foreign currency translation
adjustment, net of taxes
Exercise of common stock
options
Vesting of restricted stock units
Restricted stock units
surrendered in lieu of
withholding taxes
Issuance of common stock
under employee stock
purchase plan
Purchases of common stock
Share-based compensation —
continuing operations
Balance at December 31, 2014
Net loss
Change in unrealized
loss on available-for-sale
investments, net of taxes
Foreign currency translation
adjustment, net of taxes
Limelight Networks, Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
Common Stock
Amount
Shares
98,038 $
—
Additional
Paid-In
Capital
Contingent
Consideration
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
98 $ 452,258 $
—
—
33 $
—
(709) $ (184,450) $ 267,230
(35,402)
(35,402)
—
—
—
143
2,032
(593)
11
135
—
—
—
2
—
—
—
—
—
38
(2)
(1,304)
33
225
(2,089)
(2)
(4,845)
—
97,677 $
—
12,345
—
98 $ 458,748 $
—
—
—
—
522
2,385
—
—
1
2
—
—
893
(2)
(725)
(1)
(1,643)
269
(1,719)
—
(2)
488
(4,681)
—
98,409 $
—
10,491
—
98 $ 464,294 $
—
—
—
—
—
—
—
—
53
—
—
—
—
—
(33)
—
—
—
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
(13)
(941)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(13)
(941)
38
—
(1,304)
—
225
(4,847)
—
—
12,345
(1,663) $ (219,852) $ 237,331
(24,591)
(24,591)
—
(68)
(6,055)
—
—
—
—
—
—
—
—
—
(68)
(6,055)
894
—
—
(1,644)
—
—
488
(4,683)
—
—
10,491
(7,786) $ (244,443) $ 212,163
(23,952)
(23,952)
—
(1)
(3,025)
—
—
(1)
(3,025)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Contingent
Consideration
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Exercise of common stock
options
Vesting of restricted stock units
Restricted stock units
surrendered in lieu of
withholding taxes
Issuance of common stock
under employee stock
purchase plan
Purchases of common stock
Share-based compensation
Balance at December 31, 2015
607
3,069
1
3
1,052
(3)
(876)
(1)
(2,627)
1,383
(293)
—
102,299 $
2,965
(817)
12,338
1
—
—
102 $ 477,202 $
—
—
—
—
—
—
— $
—
—
—
—
1,053
—
—
—
(2,628)
—
—
—
2,966
(817)
12,338
(10,812) $ (268,395) $ 198,097
—
—
—
The accompanying notes are an integral part of the consolidated financial statements.
54
Limelight Networks, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities
Net loss
Income (loss) from discontinued operations
Net loss from continuing operations
Adjustments to reconcile net loss from continuing operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization
Share-based compensation
Foreign currency remeasurement gain
Deferred income taxes
Loss on disposal of property and equipment
Accounts receivable charges
Amortization of premium on marketable securities
Non cash tax benefit associated with sale of discontinued operations
Gain on sale of the Web Content Management business
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Income taxes receivable
Other assets
Accounts payable and other current liabilities
Deferred revenue
Income taxes payable
Other long term liabilities
Net cash provided by operating activities of continuing operations
Investing activities
Purchases of marketable securities
Maturities of marketable securities
Purchases of property and equipment
Proceeds from the sale of cost basis investment
Proceeds from sale of the Web Content Management business
Proceeds from the sale of discontinued operations
Net cash used in investing activities of continuing operations
Financing activities
Payments on capital lease obligations
Payment of employee tax withholdings related to restricted stock vesting
Cash paid for purchase of common stock
Proceeds from employee stock plans
Net cash used in financing activities of continuing operations
Effect of exchange rate changes on cash and cash equivalents
Discontinued operations
Cash used in operating activities of discontinued operations
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplement disclosure of cash flow information
Cash paid during the year for interest
Cash paid during the year for income taxes, net of refunds
Property and equipment acquired through leasehold incentives
Contingent consideration common stock issued in connection with acquisition of businesses
Property acquired due to vendor concession
Property and equipment acquired through capital lease
Years Ended December 31,
2014
2013
2015
$
(23,952) $
—
(23,952)
(24,591) $
265
(24,856)
(35,402)
(426)
(34,976)
20,904
12,338
(1,591)
46
—
1,037
194
—
—
(5,210)
(194)
44
3,064
85
(932)
(80)
688
6,441
(16,821)
22,620
(24,714)
—
—
—
(18,915)
(453)
(2,627)
(957)
4,018
(19)
(594)
—
(13,087)
57,767
44,680 $
29 $
379 $
— $
— $
— $
2,035 $
20,202
10,491
(2,167)
(359)
—
408
459
(59)
—
(1,600)
(1,792)
150
1,607
122
(1,109)
(233)
(796)
468
(25,482)
22,150
(18,581)
—
—
414
(21,499)
(466)
(1,795)
(4,542)
1,381
(5,422)
(1,732)
(4)
(28,189)
85,956
57,767 $
32 $
647 $
— $
— $
— $
— $
28,746
12,345
(531)
(328)
442
965
639
—
(3,836)
2,581
1,222
105
519
(1,808)
4
305
(798)
5,596
(59,047)
44,901
(18,575)
1,237
12,341
124
(19,019)
(1,301)
(2,372)
(5,512)
263
(8,922)
(606)
(8)
(22,959)
108,915
85,956
76
321
386
33
250
—
$
$
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
55
Limelight Networks, Inc.
Notes to Consolidated Financial Statements
December 31, 2015
1. Nature of Business
Limelight operates a globally distributed, high-performance network and provides a suite of integrated services
marketed under the Orchestrate Platform which include content delivery, video content management, website and web
application acceleration, website and content security, and cloud storage services.
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 consolidated financial statements have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP). 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 period amounts to conform to the current period presentation. All information is
presented in thousands, except per share amounts and where specifically noted.
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 annual report on Form 10-K are not necessarily indicative of the results that may be expected for
the year ending December 31, 2016, or for any future periods.
Foreign Currency Translation
The functional currency of our international subsidiaries is the local currency. Due to changes in exchange rates
between reporting periods and changes in certain account balances, the foreign currency translation adjustment will change
from period to period. During the years ended December 31, 2015, 2014, and 2013, we recorded foreign currency translation
losses of $3,025, $6,055, and $941, respectively, in our statements of comprehensive loss. During the years ended December
31, 2015, 2014, and 2013, we recorded a foreign currency re-measurement gain of approximately $1,341, $1,489, and $92,
respectively, in other income (expense) in the consolidated statements of operations.
Recent Accounting Standards
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2015-03, which requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the
carrying value of the debt, similar to the presentation of debt discounts. We adopted this guidance effective December 31, 2015.
We had no outstanding debt agreements as of December 31, 2014 and the adoption of this guidance had no impact on our prior
presented financial statements.
In August 2015, the FASB issued ASU No. 2015-15, which clarifies the treatment of debt issuance costs from line-of-credit
arrangements after the adoption of ASU 2015-03. In particular, ASU 2015-15 clarifies that the SEC staff would not object to an
entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing
the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding
borrowings on the line-of-credit arrangement. We adopted this guidance effective December 31, 2015.
Recently Issued Accounting Pronouncements
In April 2015, the FASB issued ASU 2015-05, which provides guidance to customers about whether a cloud
computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the
customer should account for the software license element of the arrangement consistent with the acquisition of other software
56
licenses. If a cloud computing arrangement does not include a software license, the customer should account for the
arrangement as a service contract. The guidance will not change U.S. GAAP for a customer's accounting for service contracts.
We will adopt this guidance effective January 1, 2016. We do not expect the adoption of this guidance to have a material impact
on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, which provides guidance for revenue recognition. The standard’s core
principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so,
companies will need to use more judgment and make more estimates than under today’s guidance. These may include
identifying performance obligations in the contract, estimating the amount of variable consideration to include in the
transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued
ASU 2015-14, which defers the effective date of ASU 2014-09 for all entities by one year. Accordingly, public business entities
should apply the guidance in ASU 2014-09 to annual reporting periods (including interim periods within those periods)
beginning after December 15, 2017. Early adoption is permitted but not before annual periods beginning after December 15,
2016. The standard permits the use of the retrospective or the modified approach method. We have not yet selected a transition
method, and are currently in the process of evaluating the impact of adoption of this ASU on our consolidated financial
statements and disclosures.
In August 2014, the FASB issued ASU 2014-15, which provides guidance for disclosure of uncertainties about an
entity’s ability to continue as a going concern. ASU 2014-15 defines management's responsibility to assess an entity's ability to
continue as a going concern, and to provide related footnote disclosures in certain circumstances. This guidance will be
effective for us in the first annual period ending after December 15, 2016, and interim periods within such year; however, early
adoption is permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial
statements.
In September 2015, the FASB issued ASU No. 2015-16 which requires that an acquirer recognize adjustments to
provisional amounts that are identified during the measurement period for a business combination in the reporting period in
which the adjustment amounts are determined. Prior to the issuance of the standard, entities were required to retrospectively
apply adjustments made to provisional amounts recognized in a business combination. We will adopt this guidance effective
January 1, 2016. We do not expect that the adoption of this standards update will have a material impact on our consolidated
financial statements.
In November 2015, the FASB issued ASU 2015-17, which will require entities to present deferred tax assets (DTAs)
and deferred tax liabilities (DTLs) as noncurrent in a classified balance sheet. The ASU simplifies the current guidance, which
requires entities to separately present DTAs and DTLs as current and noncurrent in a classified balance sheet. ASU 2015-17 is
effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. We do not expect the adoption of this guidance to have a material impact on our consolidated financial
statements.
Revenue Recognition
We derive revenue primarily from the sale of services that comprise components of our Orchestrate Platform. 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 commit the customer to a minimum monthly level of usage with additional
charges applicable for actual usage above the monthly minimum commitment, or are entirely usage based. 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. We recognize the monthly minimum as revenue each month provided that an enforceable contract
has been signed by both parties, the service has been delivered to the customer, the fee for the service is fixed or determinable,
and collection is reasonably assured. Should a customer’s usage of our services exceed the monthly minimum commitment, we
recognize revenue for such excess in the period of the usage. For annual or other non-monthly period revenue commitments,
we recognize revenue monthly based upon the customer’s actual usage each month of the commitment period and only
recognize any remaining committed amount for the applicable period in the last month thereof.
Certain of our revenue arrangements consist of multi-element arrangements. Revenue arrangements with multiple
deliverables are divided into separate units of accounting if each deliverable has stand-alone value to the customer. Our
multiple-element arrangements may include a combination of some or all of the following: content delivery services, video
content management services, performance services for website and web application acceleration and security, professional
services, and cloud storage. Each of these products has stand-alone value and is sold separately. In the absence of vendor
specific objective evidence (VSOE) or third-party evidence of selling prices, consideration would be allocated based on
57
management’s best estimate of such prices. The deliverables within multiple-element arrangements are provided over the same
contract period, and therefore, revenue is recognized over the same period.
We may charge the customer an installation fee when the services are first activated. We do not charge installation fees
for contract renewals. Installation fees are recorded as deferred revenue and recognized as revenue ratably over the estimated
life of the customer arrangement as installation fees do not have standalone value.
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 after an enforceable contract has been signed by both parties, the fee is fixed or
determinable, the event or usage has occurred, and collection is reasonably assured.
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 reasonably assured, we record an
allowance for doubtful accounts and bad debt expense or deferred revenue for all of that customer’s unpaid invoices and cease
recognizing revenue for continued services provided until cash is received.
Deferred revenue represents amounts billed to customers for which revenue has not been recognized. Deferred
revenue primarily consists of the unearned portion of monthly billed service fees; prepayments made by customers for future
periods and deferred installation fees.
Cash and Cash Equivalents
We hold our cash and cash equivalents in checking, money market, and highly-liquid investments. We consider all
highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash
equivalents are deposited in or managed by major financial institutions and at times exceed Federal Deposit Insurance
Corporation insurance limits.
Investments in Marketable Securities
Management determines the appropriate classification of its marketable securities at the time of purchase and
reevaluates such classification as of each balance sheet date. We have classified our investments in marketable securities as
available-for-sale and as current, as our marketable securities are available to fund current operations. Available-for-sale
investments are initially recorded at cost with temporary changes in fair value periodically recorded through comprehensive
income. Realized gains and losses and declines in value judged to be other than temporary are determined based on the specific
identification method and are reported in the statements of operations. We periodically review our investments for other-than-
temporary declines in fair value based on the specific identification method and would write down investments to their fair
value if and when an other-than-temporary decline has occurred.
Accounts Receivable
Trade accounts receivable are recorded at the invoiced amounts and do not bear interest. We record reserves against
our accounts receivable balance for service credits and for doubtful accounts. Estimates are used in determining both of these
reserves. The allowance for doubtful accounts charges are included as a component of general and administrative expenses.
The allowance for doubtful accounts is based upon a calculation that uses our aging of accounts receivable and applies
a reserve percentage to the specific age of the receivable to estimate the allowance for doubtful accounts. The reserve
percentages are determined based on our historical write-off experience. These estimates could change significantly if our
customers’ financial condition changes or if the economy in general deteriorates. In the event such conditions become known,
we specifically identify balances for necessary reserves.
Our reserve for service credits relates to credits that are expected to be issued to customers during the ordinary course
of business. These credits typically relate to customer disputes and billing adjustments and are estimated at the time the revenue
is recognized and recorded as a reduction of revenues. Estimates for service credits are based on an analysis of credits issued in
previous periods.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation or amortization. Depreciation and
amortization are computed using the straight-line method over the assets’ estimated useful lives of the applicable asset.
58
Network equipment
Computer equipment and software
Furniture and fixtures
Other equipment
3 years
3 years
3 years
3-5 years
Leasehold improvements are amortized over the shorter of the asset’s estimated useful life or the respective lease term.
Repairs and maintenance are charged to expense as incurred.
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to the underlying net assets of the acquired company.
Goodwill is not amortized but instead is tested for impairment annually or more frequently if events or changes in
circumstances indicate goodwill might be impaired. We have concluded that we have one reporting unit and assigned the entire
balance of goodwill to this reporting unit. The estimated fair value of the reporting unit is determined using a market approach.
Our market capitalization is adjusted for a control premium based on the estimated average and median control premiums of
transactions involving companies comparable to us. As of the annual impairment testing date of October 31, 2015, and in an
interim impairment test performed at December 31, 2015, management determined that goodwill was not impaired.
Management determined that the estimated fair value of its reporting unit exceeded carrying value by approximately $90,135 or
45%, and $11,002 or 6%, using our market capitalization plus an estimated control premium of 40% on October 31, 2015, and
December 31, 2015, respectively.
Our other intangible assets represent existing technologies and customer relationship intangibles. Other intangible
assets are amortized over their respective estimated lives, ranging from less than one year to six years. In the event that facts
and circumstances indicate intangibles or other long-lived assets may be impaired, we evaluate the recoverability and estimated
useful lives of such assets. Amortization of other intangible assets is included in depreciation and amortization in the
accompanying consolidated statements of operations.
Contingencies
We record contingent liabilities resulting from asserted and unasserted claims when it is probable that a loss has been
incurred and the amount of the loss is reasonably estimable. We disclose contingent liabilities when there is a reasonable
possibility that the ultimate loss will exceed the recorded liability. Additionally, estimating the loss, or range of loss, associated
with a contingency requires analysis of multiple factors, and changes in law or other developments may ultimately cause our
judgments to change. Therefore, actual losses in any future period are inherently uncertain and may be materially different
from our estimate.
Long-Lived Assets
We review our long-lived assets for impairment annually, or whenever events or circumstances indicate that the
carrying amount of an asset may not be fully recoverable. We recognize an impairment loss if the sum of the expected long-
term undiscounted cash flows that the long-lived asset is expected to generate is less than the carrying amount of the long-lived
asset being evaluated. We treat any write-downs as permanent reductions in the carrying amounts of the assets. We believe the
carrying amounts of our long-lived assets at December 31, 2015, and 2014, are fully realizable and have not recorded any
impairment losses.
Deferred Rent and Lease Accounting
We lease bandwidth, co-location and office space in various locations. At the inception of each lease, we evaluate the
lease terms to determine whether the lease will be accounted for as an operating or a capital lease. The term of the lease used
for this evaluation includes renewal option periods only in instances where the exercise of the renewal option can be reasonably
assured and failure to exercise the option would result in an economic penalty. We record tenant improvement allowances
granted under the lease agreements as leasehold improvements within property and equipment and within deferred rent.
For leases that contain rent escalation provisions, we record the total rent payable during the lease term on a straight-
line basis over the term of the lease (including any “rent free” period beginning upon possession of the premises), and record
any difference between the actual rent paid and the straight-line rent expense recorded as increases or decreases in deferred
rent.
59
Cost of Revenue
Cost of revenues consists primarily of fees paid to network providers for bandwidth and backbone, costs incurred for
non-settlement free peering and connection to Internet service provider networks and fees paid to data center operators for
housing network equipment in third party network data centers, also known as co-location costs. Cost of revenues also includes
leased warehouse space and utilities, depreciation of network equipment used to deliver our content delivery services, payroll
and related costs, and share-based compensation for our network operations and professional services personnel.
We enter into contracts for bandwidth with third party network providers with terms typically ranging from several
months to five years. These contracts generally commit us to pay minimum monthly fees plus additional fees for bandwidth
usage above contracted minimums. A portion of the global computing platform traffic delivery is completed through direct
connection to ISP networks, called peering.
Research and Development
Research and development costs consist primarily of payroll and related personnel costs for the design, development,
deployment, testing, operation, and enhancement of our services, and network. Costs incurred in the development of our
services are expensed as incurred.
Advertising Costs
Costs associated with advertising are expensed as incurred. Advertising expenses, which are comprised of Internet,
trade show, and publications advertising, were approximately $1,669, $1,409, and $2,754 for the years ended December 31,
2015, 2014, and 2013, respectively.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this
method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the
enactment date.
We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making
such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax
liabilities, projected future taxable income, tax planning strategies, and recent financial performance. In the event we were to
determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount,
we would make an adjustment to the valuation allowance, which would reduce the provision for income taxes.
We recognize uncertain income tax positions in our financial statements when it is more-likely-than-not the position
will be sustained upon examination.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximate fair value due to the nature and short maturity of
those instruments. The respective fair values of marketable securities are determined based on quoted market prices, which
approximate fair values. The carrying amounts of accounts receivable, accounts payable, and accrued liabilities reported in the
consolidated balance sheets approximate their respective fair values due to the immediate or short-term maturity of these
financial instruments.
Share-Based Compensation
We measure all employee 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 own 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, 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
60
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.
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
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 estimate 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 December 31, 2015:
Certificate of deposit
Corporate notes and bonds
Total marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
12,480 $
15,940
28,420 $
1 $
2
3 $
17 $
44
61 $
12,464
15,898
28,362
At December 31, 2015, we evaluated our marketable securities and determined unrealized losses were due to
fluctuations in interest rates. We do not believe any of the unrealized losses represented an other-than-temporary impairment
based on our evaluation of available evidence as of December 31, 2015. Our intent is to hold these investments to such time as
these assets are no longer impaired.
The amortized cost and estimated fair value of the marketable debt securities at December 31, 2015, by maturity, are
shown below:
Available-for-sale securities
Due in one year or less
Due after one year and through five years
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
18,075 $
10,345
28,420 $
2 $
1
3 $
12 $
49
61 $
18,065
10,297
28,362
The following is a summary of marketable securities (designated as available-for-sale) at December 31, 2014:
Certificate of deposit
Commercial paper
Corporate notes and bonds
Convertible debt security
Total marketable securities
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
11,040 $
1,498
21,876
1,000
35,414 $
2 $
—
7
—
9 $
32 $
1
33
—
66 $
11,010
1,497
21,850
1,000
35,357
The amortized cost and estimated fair value of the marketable debt securities at December 31, 2014, by maturity, are
shown below:
Available-for-sale securities
Due in one year or less
Due after one year and through five years
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
19,798 $
15,616
35,414 $
5 $
4
9 $
9 $
57
66 $
19,794
15,563
35,357
61
4. Business Disposition
On December 23, 2013, we sold 100% of the outstanding common stock of our Web Content Management (WCM)
business for $12,341 in cash, net of preliminary working capital adjustments. After allocating goodwill of $3,799 to WCM, the
sale resulted in a gain of $3,836, which was included in Other, net in the consolidated statement of operations for the year
ended December 31, 2013. During the year ended December 31, 2014, we recorded a working capital adjustment of $(62)
(expense), related to new information subsequent to the closing of the acquisition, which is included in Other, net in the
consolidated statement of operations for the year ended December 31, 2014. This sale was not treated as a discontinued
operation because the operations and cash flows of the WCM business cannot be clearly distinguished, operationally or for
financial reporting purposes, from the rest of the Company.
5. Accounts Receivable
Accounts receivable include:
Accounts receivable
Less: credit allowance
Less: allowance for doubtful accounts
Total accounts receivable, net
6. Goodwill
December 31,
2015
2014
$
$
28,599 $
(460)
(1,344)
26,795 $
24,456
(380)
(1,454)
22,622
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. In each of
our acquisitions, the objective of the acquisition was to expand our product offerings and customer base and to achieve
synergies related to cross selling opportunities, all of which contributed to the recognition of goodwill.
We test goodwill for impairment on an annual basis or more frequently if events or changes in circumstances indicate
that goodwill might be impaired. We concluded that we have one reporting unit and assigned the entire balance of goodwill to
this reporting unit. The estimated fair value of the reporting unit is determined using our market capitalization as of our annual
impairment assessment date or each reporting date if circumstances indicate the goodwill might be impaired. Items that could
reasonably be expected to negatively affect key assumptions used in estimating fair value include but are not limited to:
•
•
•
sustained decline in our stock price due to a decline in our financial performance due to the loss of key customers,
loss of key personnel, emergence of new technologies or new competitors and/or unfavorable outcomes of
intellectual property disputes;
decline in overall market or economic conditions leading to a decline in our stock price; and
decline in observed control premiums paid in business combinations involving comparable companies.
The changes in the carrying amount of goodwill for the years ended December 31, 2015, and 2014, were as follows:
Balance, December 31, 2013
Foreign currency translation adjustment
Balance, December 31, 2014
Foreign currency translation adjustment
Balance, December 31, 2015
$
$
$
77,035
(902)
76,133
10
76,143
62
7. Property and Equipment
Property and equipment include:
Network equipment
Computer equipment and software
Furniture and fixtures
Leasehold improvements
Other equipment
Less: accumulated depreciation
Total property and equipment, net
December 31,
2015
129,172 $
11,408
2,472
4,976
166
148,194
(112,051)
36,143 $
$
$
2014
127,962
9,079
2,498
5,262
186
144,987
(112,351)
32,636
Cost of revenue depreciation expense related to property and equipment was approximately $17,975, $16,673, and
$22,942, respectively, for the years ended December 31, 2015, 2014, and 2013, respectively.
Operating expense depreciation and amortization expense related to property and equipment was approximately
$1,866, $2,391, and $2,961, respectively, for the years ended December 31, 2015, 2014, and 2013, respectively.
8. Line of Credit
On November 2, 2015, we entered into a Loan and Security Agreement (the Agreement) with Silicon Valley Bank
(SVB). The Agreement provides for revolving credit borrowings up to a maximum principal amount of $25,000. We are
subject to a borrowing base calculation to determine the amount available to us. Our borrowing capacity is the lesser of the
commitment amount or 80% of eligible accounts receivable. All outstanding borrowings owed under the Agreement become
due and payable no later than the final maturity date of November 2, 2017. As of December 31, 2015, there were no
outstanding borrowings against the line of credit. As of December 31, 2015, we had approximately $18,000 availability under
the line of credit.
Borrowings under the Agreement bear interest at our option of one, two, three or six-month LIBOR plus a margin of
2.75% or an Alternative Base Rate (ABR), which is defined as the higher of (a) Wall Street Journal prime rate or (b) Federal
Funds Rate plus 0.50%, plus a margin of 0.50% or 1.50% depending on our minimum liquidity, as defined in the Agreement. If
we fall below a minimum liquidity of $17,500, we are required to use the ABR interest rate. We incurred a commitment fee
(issuance costs) of 0.25% upon entering into the Agreement and 0.20% to be paid on the one year anniversary of closing. In
addition, there is an unused line fee of 0.375% if our minimum liquidity is greater than $17,500. If our minimum liquidity falls
below $17,500, the unused line fee is 0.250%. Commitment fees are included in prepaid expenses and other current assets, are
charged to interest expense and were not material in the year ended December 31, 2015.
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.
The Agreement contains a covenant that requires us to maintain a minimum tangible net worth of $100,000. Tangible
net worth is defined as total shareholders’ equity less cash held by our foreign subsidiaries, goodwill and other intangible
assets. The tangible net worth requirement is adjusted by up to $52,500 in the event we record a provision for or make a
payment related to the Akamai ‘703 Litigation. 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.
In addition, we have a maximum unfinanced capital expenditures amount of $30,000 for 2015 and $25,000 per annum
thereafter. As of December 31, 2015, we were in compliance with all covenants under the Agreement.
63
9. Other Current Liabilities
Other current liabilities include:
Accrued compensation and benefits
Accrued cost of revenue
Accrued legal fees
Deferred rent
Other accrued expenses
Total other current liabilities
10. Other Long Term Liabilities
Other long term liabilities include:
Deferred rent
Income taxes payable
Total other long term liabilities
11. Contingencies
Legal Matters
Akamai ‘703 Litigation
December 31,
2015
2014
4,786 $
2,698
143
782
2,448
10,857 $
5,266
2,031
1,292
1,277
4,517
14,383
December 31,
2015
2014
1,907 $
404
2,311 $
2,511
529
3,040
$
$
$
$
In June 2006, Akamai Technologies, Inc., or Akamai, and the Massachusetts Institute of Technology, or MIT, filed a
lawsuit against us in the United States District Court for the District of Massachusetts alleging that we were infringing two
patents assigned to MIT and exclusively licensed by MIT to Akamai, United States Patent No. 6,553,413 (the ’413 patent) and
United States Patent No. 6,108,703 (the ’703 patent). In September 2006, Akamai and MIT expanded their claims to assert
infringement of a third patent United States Patent No. 7,103,645 (the ’645 patent). Before trial, Akamai waived by stipulation
its claims of indirect or induced infringement and proceeded to trial only on the theory of direct infringement. In February
2008, a jury returned a verdict in this lawsuit, finding that we infringed four claims of the ’703 patent at issue and rejecting our
invalidity defenses. The jury awarded an aggregate of approximately $45,500 which included lost profits, reasonable royalties
and price erosion damages for the period April 2005 through December 31, 2007. In addition, the jury awarded prejudgment
interest which we estimated to be $2,600 at December 31, 2007. We recorded an aggregate $48,100 as a provision for litigation
as of December 31, 2007. During 2008, we recorded a potential additional provision of approximately $17,500 for potential
additional infringement damages and interest. The total provision for litigation at December 31, 2008 was $65,600.
On July 1, 2008, the court denied our Motions for Judgment as a Matter of Law (JMOL), Obviousness, and a New
Trial. The court also denied Akamai’s Motion for Permanent Injunction as premature and its Motions for Summary Judgment
regarding our equitable defenses. The court conducted a bench trial in November 2008 regarding our equitable defenses. We
also filed a motion for reconsideration of the court’s earlier denial of our motion for JMOL. Our motion for JMOL was based
largely upon a clarification in the standard for a finding of joint infringement articulated by the Federal Circuit in the case of
Muniauction, Inc. v. Thomson Corp., released after the court denied our initial motion for JMOL. On April 24, 2009, the court
issued its order and memorandum setting aside the adverse jury verdict and ruling that we did not infringe Akamai’s ’703
patent and that we were entitled to JMOL. Based upon the court’s April 24, 2009 order, we reversed the $65,600 provision for
litigation previously recorded for this lawsuit as we no longer believed that payment of any amounts represented by the
litigation provision was probable. The court entered final judgment in favor of us on May 22, 2009, and Akamai filed its notice
of appeal of the court’s decision on May 26, 2009. On December 20, 2010, the Court of Appeals for the Federal Circuit issued
its opinion affirming the trial court’s entry of judgment in our favor. On February 18, 2011, Akamai filed a motion with the
Court of Appeals for the Federal Circuit seeking a rehearing and rehearing en banc. On April 21, 2011, the Court of Appeals for
the Federal Circuit issued an order denying the petition for rehearing, granting the petition for rehearing en banc, vacating the
December 20, 2010 opinion affirming the trial court’s entry of judgment in our favor, and reinstated the appeal.
64
On August 31, 2012, the Court of Appeals for the Federal Circuit, sitting en banc, issued its opinion in the case. A slim
majority in this three-way divided opinion also announced a revised legal theory of induced infringement, remanded the case to
the trial court, and gave Akamai an opportunity for a new trial to attempt to prove that we induced our customers to infringe
Akamai’s patent under the Federal Circuit's new legal standard. On December 28, 2012, we filed a petition for writ of certiorari
to the United States Supreme Court to appeal this sharply divided Federal Circuit decision. Akamai then filed a cross petition
for consideration of the Federal Circuit standard for direct infringement followed by an opposition to our petition. On January
10, 2014, the Supreme Court granted our petition for writ of certiorari and did not act on Akamai's cross petition. On April 30,
2014, the Supreme Court heard oral argument in our case. On June 2, 2014, the Supreme Court issued its decision and reversed
the Federal Circuit's decision, remanding the case back to that court. On July 24, 2014, the Federal Circuit issued an order
vacating its prior judgment, reinstating the appeals, dissolving its en banc status, and referring the case back to the original
three-judge appellate panel for further proceedings. The three-judge panel heard arguments on September 11, 2014, and on May
13, 2015, the Federal Circuit issued its opinion in the case, holding that we did not infringe Akamai's '703 patent. On June 12,
2015, Akamai filed a motion with the Federal Circuit seeking a rehearing en banc. On August 13, 2015, the Federal Circuit
sitting en banc issued an opinion reversing its previous decision that we were not liable for direct infringement of the '703
patent, reinstating the 2008 jury verdict holding us liable for direct infringement and remanding the case back to the three-judge
panel for a resolution of our 2009 cross-appeal, which was now ripe for the first time. On September 3, 2015, we filed an
updated briefing with respect to our December 2009 cross-appeal challenging the original jury verdict in the event the JMOL
was later overturned. On November 16, 2015, the three-judge appellate panel at the Federal Circuit filed its opinion affirming
the $45,500 jury award from 2008. On December 23, 2015, the Federal Circuit mandated the case back to District Court for the
District of Massachusetts. On that same date, Akamai filed a series of motions with the district court seeking an entry of final
judgment on the original jury award, accounting of post-suit damages, damages for willful infringement and pre-judgment
interest, which Akamai estimated to be approximately $99,000 in the aggregate, and a permanent injunction against us. On
January 26, 2016, we petitioned the Supreme Court seeking review of our claim that the Federal Circuit committed reversible
error by changing the standard for direct infringement in a divided actor scenario in a manner inconsistent with controlling
legal precedent. On January 27, 2016, we filed an opposition to Akamai’s motion in the district court, and also filed a motion
for a stay of all district court proceedings pending the outcome of our Supreme Court petition.
In light of the status of the litigation, we believe that there is a reasonable possibility that we have incurred a loss
related to the Akamai ‘703 Litigation, but we do not believe that an ultimate loss is probable. We believe Akamai's recent
motion for accounting requesting approximately $99,000 in total damages and interest represents the upper end of our range of
potential loss. We will continue to vigorously defend against the allegation.
Legal and other expenses associated with this case have been significant. We include these litigation expenses in
general and administrative expenses as incurred, as reported in the consolidated statement of operations.
Akamai and XO Litigation
On November 30, 2015, we filed a lawsuit against Akamai and XO Communications in the District Court for the
Eastern District of Virginia alleging the infringement 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. We intend to vigorously protect our
intellectual property rights in this matter.
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.
65
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 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.
12. Net Loss per Share
We calculate basic and diluted loss per weighted average share based. We use the weighted-average number of shares
of common stock outstanding during the period for the computation of basic earnings per share. Diluted earnings 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 per share for the
periods indicated:
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Basic and diluted weighted average outstanding shares of common stock
Basic and diluted loss per share:
Continuing operations
Discontinued operations
Basic and diluted net loss per share
Years Ended December 31,
2015
2014
2013
$
$
$
$
(23,952) $
—
(23,952) $
100,105
(0.24) $
—
(0.24) $
(24,856) $
265
(24,591) $
98,365
(0.25) $
—
(0.25) $
(34,976)
(426)
(35,402)
96,851
(0.36)
(0.01)
(0.37)
For the years ended December 31, 2015, 2014 and 2013, the following potentially dilutive common stock, including
awards granted under our equity incentive compensation plans were excluded from the computation of diluted net loss per
share because including them would have been anti-dilutive.
Employee stock purchase plan
Stock options
Restricted stock units
13. Stockholders’ Equity
Common Stock
Years Ended December 31,
2015
2014
2013
134
1,245
2,420
3,799
40
664
1,764
2,468
—
561
1,425
1,986
On February 12, 2014, our board of directors authorized a $15,000 share repurchase program. Under this program, we
may repurchase shares periodically in the open market or through privately negotiated transactions, in accordance with
applicable securities rules regarding issuer repurchases. During the year ended December 31, 2015, we purchased and canceled
293 shares for $817, including commissions and expenses. All repurchased shares were canceled and returned to authorized
but unissued status.
During the year ended December 31, 2014, we purchased and canceled 1,719 shares for $4,683, including
commissions and expenses. All repurchased shares were canceled and returned to authorized but unissued status.
Employee Stock Purchase Plan
In June 2013, our stockholders approved our 2013 Employee Stock Purchase Plan (ESPP). 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
66
the closing price on that day. During the years ended December 31, 2015, 2014, and 2013, we issued 954, 269, and 135 shares,
respectively, under the ESPP. Total cash proceeds from the purchase of shares under the ESPP were approximately $1,511,
$487, and $225, respectively for the years ended December 31, 2015, 2014, and 2013. As of December 31, 2015, shares
reserved for issuance to employees under this plan totaled 2,642 and we held employee contributions of approximately $166
(included in other current liabilities) for future purchases under the ESPP.
We have reserved approximately 8,759 unissued shares of common stock for future options and restricted stock units
under the incentive compensation plan.
Preferred Stock
Our board of directors have authorized the issuance of up to 7,500 shares of preferred stock at December 31, 2015.
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 December 31, 2015, the Board had not adopted any resolutions for the issuance of
preferred stock.
14. Accumulated Other Comprehensive Loss
Changes in the components of accumulated other comprehensive loss, net of tax, for the year ended December 31,
2015, was as follows:
Unrealized
Gains (Losses) on
Available for
Sale Securities
(43) $
(1 )
—
(1 )
(44) $
Foreign
Currency
$
$
(7,743) $
(3,025)
—
(3,025)
(10,768) $
Total
(7,786)
(3,026)
—
(3,026)
(10,812)
Balance, December 31, 2014
Other comprehensive loss before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period other comprehensive loss
Balance, December 31, 2015
15. Share-Based Compensation
Incentive Compensation Plans
We maintain Incentive Compensation Plans (the Plans) to attract, motivate, retain, and reward high quality executives
and other employees, officers, directors, and consultants by enabling such persons to acquire or increase a proprietary interest
in the Company. The Plans are intended to be qualified plans under the Internal Revenue Code.
The Plans allow us to award stock option grants and restricted stock units (RSUs) to employees, directors and
consultants of the Company. During 2015, we granted awards to employees, directors and consultants. The exercise price of
incentive stock options granted under the Plan may not be granted at less than 100% of the fair market value of our common
stock on the date of the grant.
67
Data pertaining to stock option activity under the Plans are as follows:
Balance at December 31, 2012
Granted
Exercised
Cancelled
Balance at December 31, 2013
Granted
Exercised
Cancelled
Balance at December 31, 2014
Granted
Exercised
Cancelled
Balance at December 31, 2015
Weighted
Average
Exercise
Price
Number of
Shares
(In thousands)
14,310 $
4,902
(143)
(3,087)
15,982
4,215
(522)
(2,803)
16,872
3,649
(607)
(5,247)
14,667
4.58
2.19
0.26
3.87
4.00
2.40
1.71
4.15
3.66
2.64
1.73
4.08
3.33
The following table summarizes the information about stock options outstanding and exercisable at December 31,
2015:
Exercise Price
$ 0.00 — $ 1.50
$ 1.51 — $ 3.00
$ 3.01 — $ 4.50
$ 4.51 — $ 6.00
$ 6.01 — $ 7.50
$ 7.51 — $ 15.00
Options Outstanding
Options Exercisable
Number of
Options
Outstanding
(In thousands)
304
9,707
2,175
1,269
441
771
14,667
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
0.4 $
7.5
6.7
4.3
2.3
2.3
0.45
2.25
3.75
5.15
6.37
12.17
Number of
Options
Exercisable
(In thousands)
304 $
5,311
1,131
1,269
441
771
9,227
Weighted
Average
Exercise
Price
0.45
2.25
3.85
5.15
6.37
12.17
The weighted-average grant-date fair value of options granted during the years ended December 31, 2015, 2014, and
2013 on a per-share basis was approximately $1.38, $1.45, and $1.48, respectively. The total intrinsic value of the options
exercised during the years ended December 31, 2015, 2014, and 2013 was approximately $621, $449, and $265, respectively.
The aggregate intrinsic value of options outstanding at December 31, 2015 is approximately $307. The weighted average
remaining contractual term of options currently exercisable at December 31, 2015 was 5.1 years.
The fair value of options awarded were estimated on the grant date using the following weighted average assumptions:
Expected volatility
Expected term, years
Risk-free interest
Expected dividends
Years Ended December 31,
2015
2014
2013
54.53%
5.99
1.80%
—%
66.05%
5.99
1.83%
—%
77.96%
6.05
1.31%
—%
Unrecognized share-based compensation related to stock options totaled $6,889 at December 31, 2015. We expect to
amortize unvested stock compensation related to stock options over a weighted average period of approximately 2.3 years at
December 31, 2015.
68
The following table summarizes the RSUs outstanding (in thousands):
RSUs with service-based vesting conditions
Years Ended December 31,
2015
2014
2013
6,265
6,820
5,286
Each RSU represents the right to receive one share of our common stock upon vesting. The fair value of these RSUs
was calculated based upon our closing stock price on the date of grant.
Data pertaining to RSUs activity under the Plans is as follows:
Balance at December 31, 2012
Granted
Vested
Cancelled
Balance at December 31, 2013
Granted
Vested
Cancelled
Balance at December 31, 2014
Granted
Vested
Cancelled
Balance at December 31, 2015
Number of
Units
(In thousands)
Weighted
Average
Fair Value
4,581 $
4,970
(2,032)
(2,233)
5,286
5,542
(2,385)
(1,623)
6,820
4,156
(3,069)
(1,642)
6,265
2.74
2.15
2.53
2.78
2.24
2.33
2.28
2.22
2.30
3.00
2.31
2.54
2.70
The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2015, 2014, and
2013 was approximately $3.00, $2.33, and $2.15, respectively. The total intrinsic value of the units vested during the years
ended December 31, 2015, 2014, and 2013 was approximately $7,088, $5,469, and $5,117, respectively. The aggregate intrinsic
value of RSUs outstanding at December 31, 2015 is $9,148.
At December 31, 2015 there was approximately $13,860 of total unrecognized compensation costs related to RSUs.
That cost is expected to be recognized over a weighted-average period of approximately 2.32 years as of December 31, 2015.
Unrecognized aggregate share-based compensation expense totaled approximately $20,749 at December 31, 2015,
which is expected to be recognized over a weighted average period of approximately 2.31 years.
69
The following table summarizes the components of share-based compensation expense included in our consolidated
statement of operations:
Years Ended December 31,
2015
2014
2013
Share-based compensation expense by type:
Stock options
Restricted stock units
ESPP
Total share-based compensation expense
$
$
4,131 $
7,620
587
12,338 $
Share-based compensation expense included in the consolidated statements of operations:
Cost of services
General and administrative expense
Sales and marketing expense
Research and development expense
Total share-based compensation expense
$
$
2,047 $
5,398
2,657
2,236
12,338 $
4,704 $
5,609
178
10,491 $
1,956 $
4,741
2,317
1,477
10,491 $
6,617
5,671
57
12,345
1,873
5,971
2,245
2,256
12,345
On September 18, 2015, the compensation committee of our board of directors approved a stock for salary program
and a stock for bonus program, wherein eligible participants may elect to receive payment of his or her base salary and/or
bonus in shares of our common stock beginning on January 1, 2016. The shares of common stock will be issued under our 2007
Equity Incentive 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 2016 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 2016 and is irrevocable. Participation levels may not be changed after
the close of the enrollment period. Once purchased, there is no vesting period for the shares.
16. 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. As of December 31, 2015, Goldman, Sachs &
Co. owned approximately 30% of our outstanding common stock. As of December 31, 2014, and 2013, respectively, Goldman,
Sachs & Co. owned approximately 31% of our outstanding common stock.
We sold services to entities owned, in whole or in part, by certain of our executive officers and previous directors.
Revenue derived from related parties was less than 1% of total revenue for the year ended December 31, 2014. Revenue
derived from related parties was approximately 1% for the year ended December 31, 2013. Total outstanding accounts
receivable from all related parties as of December 31, 2014 and 2013 was not material. We had no material related party
transactions during the year ended December 31, 2015.
During 2013, we entered into an agreement for services with an entity in which a current member of our board of
directors was an officer. During 2013, we incurred approximately $154 in expense for services rendered. We did not incur
similar expenses in 2014 or 2015.
70
17. Leases and Commitments
Operating Leases
We are committed to various non-cancellable operating leases for office space and office equipment which expire
through 2022. Certain leases contain provisions for renewal options and rent escalations upon expiration of the initial lease
terms. Approximate future minimum lease payments over the remaining lease periods as of December 31, 2015 are as follows:
2016
2017
2018
2019
2020
Thereafter
Total minimum payments
Purchase Commitments
$
$
3,902
3,051
2,835
1,301
356
269
11,714
We have long-term commitments for bandwidth usage and co-location with various networks and Internet service
providers or ISPs.
The following summarizes minimum commitments as of December 31, 2015:
2016
2017
2018
2019
2020
Thereafter
Total minimum payments
$
$
26,365
6,517
2,633
715
70
8
36,308
Rent and operating expense relating to these operating lease agreements and bandwidth and co-location agreements
was approximately $61,571, $58,288, and $61,693, respectively, for the years ended December 31, 2015, 2014, and 2013.
Capital Leases
We lease equipment under capital lease agreements which extend through 2020. As of December 31, 2015 and 2014,
the outstanding balance for capital leases was approximately $1,902 and $358, respectively. We have recorded assets under
capital lease obligations of approximately $1,679 and $2,224, respectively, as of December 31, 2015 and 2014. Related
accumulated amortization totaled approximately $210 and $2,209, respectively as of December 31, 2015 and 2014. The assets
acquired under capital leases and related accumulated amortization are included in property and equipment, net in the
consolidated balance sheets. The related amortization is included in depreciation and amortization expense (operating
expenses) in the consolidated statements of operations. The average interest rate on our outstanding capital leases at
December 31, 2015 was approximately six percent. Interest expense related to capital leases was approximately $14, $32, and
$76, respectively, for the years ended December 31, 2015, 2014, and 2013.
Future minimum capital lease payments at December 31, 2015 were as follows:
2016
2017
2018
2019
2020
Thereafter
Total
Amounts representing interest
Present value of minimum lease payments
71
$
$
571
571
570
427
—
—
2,139
(237)
1,902
18. Concentrations
During the years ended December 31, 2015 and 2014, we had no customer who represented 10% or more of total
revenue. For the years ended December 31, 2013, Netflix, Inc. represented approximately 11% of our total revenue.
Revenue from customers located within the United States, our country of domicile, was approximately $96,469,
$93,678, and $110,824, respectively, for the years ended December 31, 2015, 2014, and 2013.
During the years ended December 31, 2015 and 2014, we had two countries, Japan and the United States, which
accounted for 10% or more of our total revenues. During the year ended December 31, 2013, we had no single country outside
of the United States that accounted for 10% or more of our total revenues.
19. Income Taxes
Our loss from continuing operations before income taxes consists of the following:
(Loss) income from continuing operations before income taxes:
United States
Foreign
The components of the provision for income taxes are as follows:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision
Years Ended December 31,
2015
2014
2013
(24,105) $
420
(23,685) $
(25,025) $
372
(24,653) $
(34,789)
200
(34,589)
Years Ended December 31,
2015
2014
2013
— $
103
210
313
17
—
(63)
(46)
267 $
(143) $
26
680
563
15
—
(375)
(360)
203 $
—
80
442
522
16
—
(151)
(135)
387
$
$
$
$
A reconciliation of the U.S. federal statutory rate to our effective income tax rate is shown in the table below:
Years Ended December 31,
2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
$
U.S. federal statutory tax rate
Valuation allowance
Foreign income taxes
State income taxes
Non-deductible expenses
Uncertain tax positions
Share-based compensation
Other
Provision for income taxes
$
(8,290)
3,821
86
92
552
(86)
4,064
28
267
(8,629)
7,424
(26)
26
1,335
201
—
(128)
203
35 % $
(30 )%
— %
— %
(6 )%
(1 )%
— %
1 %
(1 )% $
(12,106)
12,958
221
80
(783)
14
—
3
387
35 %
(37)%
(1)%
— %
2 %
— %
— %
— %
(1)%
35 % $
(16)%
(0.5)%
(0.5)%
(2)%
— %
(17)%
— %
(1)% $
72
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purpose. Significant components of our
deferred tax assets and liabilities are as follows:
Deferred tax assets:
Share-based compensation
Net operating loss and tax credit carry-forwards
Deferred revenue
Accounts receivable reserves
Fixed assets
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Prepaid expenses
Other
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
December 31,
2015
2014
$
11,090 $
43,600
1,306
518
3,172
1,041
60,727
—
(128)
(154)
(282)
(59,241)
$
1,204 $
13,613
33,519
2,089
556
4,813
1,693
56,283
(177)
(144)
(36)
(357)
(54,654)
1,272
In addition to the deferred tax assets listed in the table above, we have unrecorded tax benefits of $13,660 and $10,750
at December 31, 2015 and December 31, 2014, respectively, primarily attributable to the difference between the amount of the
financial statement expense and the allowable tax deduction associated with employee stock options and RSUs, which, if
subsequently realized will be recorded to contributed capital. As a result of net operating loss (NOL) carryforwards, we were
not able to recognize the excess tax benefits of stock option deductions because the deductions did not reduce income tax
payable. Although not recognized for financial reporting purposes, this unrecorded tax benefit is available to reduce future
income and is incorporated into the disclosed amounts of our federal and state NOL carryforwards, discussed below.
The federal and state NOL carryforwards relate to prior years’ NOLs, which may be used to reduce tax liabilities in
future years. At December 31, 2015, we had $127,200 federal and $83,500 state NOL carryforwards, including the NOLs
discussed in the preceding paragraph. Our federal NOL will begin to expire in 2027 and the state NOL carryforwards will begin
to expire in 2016. Pursuant to Sections 382 and 383 of the Internal Revenue Code, the utilization of NOLs and other tax
attributes may be subject to substantial limitations if certain ownership changes occur during a three-year testing period (as
defined by the Internal Revenue Code). At December 31, 2015, we had state tax credit carryforwards of $15, which will expire
at various dates beginning in 2016.
We reduce the carrying amounts of deferred tax assets by a valuation allowance if, based on the evidence available, it
is more-likely-than-not that such assets will not be realized. In making the assessment under the more-likely-than-not standard,
appropriate consideration must be given to all positive and negative evidence related to the realization of the deferred tax
assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses,
forecasts of future profitability, the duration of statutory carry-forward periods by jurisdiction, unitary versus stand-alone state
tax filings, our experience with loss carryforwards not expiring unutilized, and all tax planning alternatives that may be
available.
A valuation allowance has been recorded against our deferred tax assets, with the exception of deferred tax assets at
certain foreign subsidiaries as management cannot conclude that it is more-likely-than-not that these assets will be realized. As
of December 31, 2015, no valuation allowance was provided on $1,600 of deferred tax assets associated with certain NOLs
because it was believed that they will be used to offset our liabilities relating to our uncertain tax positions.
Estimated liabilities for unrecognized tax benefits are included in “other liabilities” on the consolidated balance sheet.
These contingent liabilities relate to various tax matters that result from uncertainties in the application of complex income tax
regulations in the numerous jurisdictions in which we operate. As of December 31, 2015, unrecognized tax benefits were
$1,968, of which approximately $371, if recognized, would favorably impact the effective tax rate and the remaining balance
would be substantially offset by valuation allowances.
73
A summary of the activities associated with our reserve for unrecognized tax benefits, interest and penalties follow:
Balance at January 1, 2014
Additions for tax positions related to current year
Additions for tax positions related to prior years
Settlements
Adjustment related to foreign currency translation
Reductions related to the lapse of applicable statute of limitations
Reduction for tax positions of prior years
Balance at December 31, 2014
Additions for tax positions related to current year
Additions for tax positions related to prior years
Settlements
Adjustment related to foreign currency translation
Reductions related to the lapse of applicable statute of limitations
Reduction for tax positions of prior years
Balance at December 31, 2015
Unrecognized
Tax Benefits
1,757
—
312
—
(4)
(22)
—
2,043
—
—
(26)
(18)
(31)
—
1,968
$
$
We recognize interest and penalties related to unrecognized tax benefits in our tax provision. As of December 31,
2015, we had an interest and penalties accrual related to unrecognized tax benefits of $23, which decreased during 2015 by
$56. We anticipate our unrecognized tax benefits may increase or decrease within twelve months of the reporting date, as audits
or reviews are initiated or settled and as a result of settled potential tax liabilities in certain foreign jurisdictions. It is not
currently reasonably possible to estimate the range of change.
We file income tax returns in jurisdictions with varying statues of limitations. Tax years 2012 through 2014 remain
subject to examination by federal tax authorities. Tax years 2011 through 2014 generally remain subject to examination by state
tax authorities. As of December 31, 2015, our 2012 federal income tax return is under audit. As of December 31, 2015, we are
not under any state income tax examinations.
Income taxes have not been provided on a portion of the undistributed earnings of our foreign subsidiaries over which
we have sufficient influence to control the distribution of such earnings and have determined that substantially all of such
earnings were reinvested indefinitely. The undistributed earnings of our foreign subsidiaries were approximately $1,500 at
December 31, 2015. These earnings could become subject to either or both federal income tax and foreign withholding tax if
they are remitted as dividends, if foreign earnings are loaned to any of our domestic subsidiaries, or if we sell our investment in
such subsidiaries. A hypothetical calculation of the deferred tax liability, assuming those earnings were remitted, is not
practicable.
20. 401(k) Plan
We manage the Limelight Networks 401(k) Plan covering effectively all of our employees. The plan is a 401(k) profit
sharing plan in which participating employees are fully vested in any contributions they make.
We will match employee deferrals as follows: a dollar-for-dollar match on eligible employee’s deferral that does not
exceed 3% of compensation for the year and a 50% match on the next 2% of the employee deferrals. Our employees may elect
to reduce their current compensation up to the statutory limit. We made matching contributions of approximately $1,434,
$1,225, and $1,196 during the years ended December 31, 2015, 2014, and 2013, respectively.
21. Segment Reporting and Geographic Information
Our chief operating decision maker (whom is our Chief Executive Officer) reviews the 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.
74
Revenue by geography is based on the location of the customer from which the revenue is earned. The following table
sets forth revenue by geographic area:
Americas
EMEA
Asia Pacific
Total revenue
Years Ended December 31,
2015
102,505
32,505
35,902
170,912
60.0% $
19.0%
21.0%
100.0% $
2014
101,302
33,630
27,327
162,259
62.5 % $
20.7 %
16.8 %
100.0 % $
2013
119,020
30,793
23,620
173,433
68.6%
17.8%
13.6%
100.0%
$
$
The following table sets forth long-lived assets by geographic area:
Long-lived Assets
Americas
International
Total long-lived assets
22. Fair Value Measurements
Years Ended December 31,
2015
2014
2013
$
$
19,692 $
16,466
36,158 $
22,505 $
11,202
33,707 $
26,502
8,757
35,259
The Company evaluates certain of its financial instruments within the three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include:
Level 1 - defined as observable inputs such as quoted prices in active markets;
Level 2 - defined as other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
As of December 31, 2015, and 2014, 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 December 31, 2015:
Fair Value Measurements at Reporting Date Using
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
725 $
15,898
12,464
29,087 $
725 $
—
—
725 $
— $
15,898
12,464
28,362 $
—
—
—
—
Description
Assets:
Money market funds (2)
Corporate notes and bonds (1)
Certificate of deposit (1)
Total assets measured at fair value
___________
(1)
(2)
Classified in marketable securities
Classified in cash and cash equivalents
75
The following is a summary of fair value measurements at December 31, 2014:
Fair Value Measurements at Reporting Date Using
Quoted Prices In
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
57 $
21,850
1,497
11,010
1,000
35,414 $
57 $
—
—
—
—
57 $
— $
21,850
1,497
11,010
—
34,357 $
—
—
—
—
1,000
1,000
Description
Assets:
Money market funds (2)
Corporate notes and bonds (1)
Commercial paper (1)
Certificate of deposit (1)
Convertible debt security (1)
Total assets measured at fair value
____________
(1)
(2)
Classified in marketable securities
Classified in cash and cash equivalents
During the year ended December 31, 2015, a $1,000 convertible debt security, classified as Level 3 in the fair value
hierarchy as of December 31, 2014, was converted into preferred shares of the issuing entity. As a result of the conversion, we
recognized a gain of $275, related to a beneficial conversion feature, which is included in other income (expense) in our
statement of operations for the year ended December 31, 2015. After conversion, at December 31, 2015, the investment is
carried at cost of $1,275 and is evaluated for impairment quarterly or when events or changes in circumstances indicate the
carrying value of the investment may exceed its fair value. We did not estimate the fair value of the investment because we did
not identify any events or circumstances that would have a significant effect on the fair value of the investment. Determining
fair value is not practicable because the preferred shares are not publicly traded and information necessary to determine fair
value is not available. The cost basis investment transferred out of a Level 3 marketable security to other assets in our
consolidated balance sheet.
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.
23. Quarterly Financial Results (unaudited)
The following tables sets forth certain unaudited quarterly results of operations for the years ended December 31, 2015
and 2014. Amounts may not foot due to rounding.
In the opinion of management, this information has been prepared on the same basis as the audited consolidated
financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the
amounts below for a fair statement of the quarterly information when read in conjunction with the audited consolidated
financial statements and related notes included elsewhere in this annual report on Form 10-K:
76
Revenues
Gross profit
Loss from continuing operations
Net loss
Basic and diluted net loss per share from continuing
operations
Basic and diluted net loss per share
Basic and diluted weighted average common shares
outstanding
Revenues
Gross profit
Loss from continuing operations
Income (loss) from discontinued operations
Net loss
Basic and diluted net loss per share from continuing
operations
Basic and diluted net loss per share from discontinued
operations
Basic and diluted net loss per share
Basic and diluted weighted average common shares
outstanding
For the Three Months Ended
March 31,
2015
June 30,
2015
Sept. 30,
2015
Dec. 31,
2015
42,329 $
16,519 $
(5,683) $
(5,683) $
(0.06) $
(0.06) $
43,795 $
18,148 $
(6,362) $
(6,362) $
(0.06) $
(0.06) $
42,049 $
15,911 $
(7,762) $
(7,762) $
(0.08) $
(0.08) $
42,739
17,540
(4,145)
(4,145)
(0.04)
(0.04)
98,636
99,841
100,552
101,391
For the Three Months Ended
March 31,
2014
June 30,
2014
Sept. 30,
2014 (a)
Dec. 31,
2014
41,170 $
15,267 $
(7,640) $
— $
(7,640) $
41,343 $
15,873 $
(7,138) $
269 $
(6,869) $
39,020 $
16,141 $
(5,071) $
(4) $
(5,075) $
40,727
16,129
(5,007)
—
(5,007)
(0.08) $
(0.07) $
(0.05) $
(0.05)
— $
(0.08) $
— $
(0.07) $
—
$
(0.05) $
—
(0.05)
97,946
98,419
98,458
98,637
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(a) During the three months ended September 30, 2014, we recorded an immaterial error correction of approximately
$1,100 relating to previous over-billings by a co-location provider. The correction was recorded as a reduction of costs of
revenue.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in
our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of December 31, 2015. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as
of December 31, 2015.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2015
that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
77
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and
procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed the
effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management
used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) (2013 framework). Based on this assessment, our management has concluded that our
internal control over financial reporting was effective as of December 31, 2015.
Our financial statements included in this annual report on Form 10-K have been audited by Ernst & Young LLP,
independent registered public accounting firm, as indicated in the report included elsewhere herein. Ernst & Young LLP has
also provided an attestation report on the Company’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints
and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to
their costs.
78
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Limelight Networks, Inc.
We have audited Limelight Networks, Inc.’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) (the COSO criteria). Limelight Networks, Inc.’s management is responsible for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Limelight Networks, Inc. maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Limelight Networks, Inc. as of December 31, 2015 and 2014, and the related consolidated
statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2015 and our report dated February 11, 2016 expressed an unqualified opinion thereon.
Phoenix, Arizona
February 11, 2016
/s/ Ernst & Young LLP
79
Item 9B. Other Information
None.
80
Item 10.
Directors, Executive Officers and Corporate Governance
PART III
The information required by this item relating to our directors and nominees is included under the captions “Proposal
One: Election of Directors,” “— Information About the Directors and Nominees,” and “Board of Directors Meetings and
Committees — Nominating and Governance Committee” in our Proxy Statement related to the 2016 Annual Meeting of
Shareholders and is incorporated herein by reference.
The information required by this item regarding our Audit Committee is included under the caption “Board of
Directors Meetings and Committees” in our Proxy Statement related to the 2016 Annual Meeting of Shareholders and is
incorporated herein by reference.
The information required by this item relating to our executive officers is included under the caption “Executive
Officers of the Registrant” in Part I of this annual report on Form 10-K.
The information required by this item regarding compliance with Section 16(a) of the Securities Act of 1934 is
included under the caption “Executive Compensation and Other Matters — Section 16(a) Beneficial Ownership Reporting
Compliance” in our Proxy Statement related to the 2016 Annual Meeting of Shareholders and is incorporated herein by
reference.
We have adopted a code of ethics and business conduct that applies to our Chief Executive Officer, Chief Financial
Officer and all other principal executive and senior financial officers and all employees, officers and directors. This code of
ethics and business conduct is posted on our website. The Internet address for our website is www.limelight.com, and the code
of ethics may be found from our main webpage by clicking first on “About ” and then on “Investors Home”, next on
“Corporate Governance”, and finally on “Code of Ethics” under Governance Documents.
We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver
from, a provision of this code of ethics by posting such information on our website, on the webpage found by clicking through
to “Code of Ethics” as specified above.
Item 11.
Executive Compensation
The information appearing under the headings “Executive Compensation and Other Matters,” “— Director
Compensation,” “Board of Directors Meetings and Committees — Compensation Committee Interlocks and Insider
Participation,” and “— Compensation Committee Report” in our Proxy Statement related to the 2016 Annual Meeting of
Shareholders is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item relating to security ownership of certain beneficial owners and management is
included under the heading “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement
related to the 2016 Annual Meeting of Shareholders, and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information regarding our current equity compensation plans as of December 31, 2015
(shares in thousands):
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
Weighted-
average exercise
price of
outstanding
options,
warrants and
rights (b)
14,667 $
—
14,667 $
3.33
—
3.33
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) (c)
8,759
—
8,759
Plan category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
81
Item 13.
Certain Relationships, Related Transactions, and Director Independence
The information required by this item relating to review, approval or ratification of transactions with related persons is
included under the heading “Certain Relationships and Related Transactions,” and the information required by this item relating
to director independence is included under the headings “Proposal One: Election of Directors” and “Board of Directors
Meetings and Committees — Board Independence,” in each case in our Proxy Statement related to the 2016 Annual Meeting of
Shareholders, and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item is included under the headings “Audit Committee Report—Principal Accountant
Fees and Services” and “— Audit Committee Pre-Approval Policy,” in each case in our Proxy Statement related to the 2016
Annual Meeting of Shareholders, and is incorporated herein by reference.
82
Item 15.
Exhibits and Financial Statement Schedules.
(a)
Documents included in this annual report on Form 10-K.
PART IV
(1)
Financial Statements. See Item 8 — Financial Statements and Supplementary Data included in this
annual report on Form 10-K.
(2)
Financial Schedules. The schedule listed below is filed as part of this annual report on Form 10-K:
Schedule II — Valuation and Qualifying Accounts
Page
85
All other schedules are omitted as the information required is inapplicable or the information is presented in the
consolidated financial statements and the related notes.
(b)
Exhibits. The exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index immediately
preceding the exhibits and are incorporated herein.
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 11, 2016
By:
/S/ SAJID MALHOTRA
LIMELIGHT NETWORKS, INC.
Sajid Malhotra
Chief Strategy Officer and Interim Chief Financial Officer
(Principal Financial Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Robert A. Lento and Sajid Malhotra and each of them, each with the power of substitution, their attorney-in-fact, to sign
any amendments to this Annual Report on Form 10-K (including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ ROBERT A. LENTO
Robert A. Lento
/S/ SAJID MALHOTRA
Sajid Malhotra
President, Chief Executive Officer and Director (Principal
Executive Officer)
February 11, 2016
Chief Strategy Officer and Interim Chief Financial Officer
(Principal Financial Officer)
February 11, 2016
/S/ DANIEL R. BONCEL
Vice President, Finance (Principal Accounting Officer)
February 11, 2016
Daniel R. Boncel
/S/ WALTER D. AMARAL
Non-Executive Chairman of the Board and Director
February 11, 2016
Walter D. Amaral
/S/ GRAY HALL
Director
Gray Hall
/S/ JEFFREY T. FISHER
Director
Jeffrey T. Fisher
/S/ JOSEPH H. GLEBERMAN
Director
Joseph H. Gleberman
/S/ MARK MIDLE
Director
Mark Midle
/S/ DAVID C. PETERSCHMIDT
Director
David C. Peterschmidt
84
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
February 11, 2016
LIMELIGHT NETWORKS, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Description
Year ended December 31, 2013:
Allowances deducted from asset accounts:
Reserves for accounts receivable
$
Deferred tax asset valuation allowance $
Year ended December 31, 2014:
Allowances deducted from asset accounts:
Reserves for accounts receivable
$
Deferred tax asset valuation allowance $
Year ended December 31, 2015:
Allowances deducted from asset accounts:
Reserves for accounts receivable
$
Deferred tax asset valuation allowance $
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
Against
Revenue
Deductions
Write-Offs
Net of
Recoveries
Balance at
End of Period
4,070
46,215
2,010
47,166
1,834
54,654
965
951
408
7,488
1,037
4,587
(30)
—
2,995 $
— $
2,010
47,166
(230)
—
81
—
354 $
— $
1,834
54,654
1,148 $
— $
1,804
59,241
85
INDEX TO EXHIBITS
___________
Exhibit
Number
2.2(1)
3.1(2)
3.2(3)
4.1(4)
4.2(4)
10.1(4)
10.2(4)
10.3(4)
Exhibit Title
Purchase Agreement dated as of August 30, 2011 by and among DG FastChannel, Inc., Limelight Networks,
Inc. and Limelight Networks Germany GmbH.
Amended and Restated Certificate of Incorporation of the Registrant, as currently in effect.
Amended and Restated Bylaws of the Registrant, as currently in effect.
Specimen Common Stock Certificate of the Registrant.
Amended and Restated Investors’ Rights Agreement dated July 12, 2006.
Form of Indemnification Agreement for directors and officers.
Amended and Restated 2003 Incentive Compensation Plan and form of agreement thereunder.
2007 Equity Incentive Plan and form of agreement thereunder.
10.4†(5)
10.4.01†(6)
10.4.02†(7)
10.4.03†(8)
10.5(9)
Bandwidth/Capacity Agreement between the Registrant and Global Crossing Bandwidth, Inc., dated August
29, 2001, and amendments thereto.
Amendments to Bandwidth/Capacity Agreement between the Registrant and Global Crossing Bandwidth,
Inc., dated August 29, 2001.
Amendment #23 to Bandwidth/Capacity Agreement between the Registrant and Global Crossing Bandwidth,
Inc., dated August 29, 2001, as amended.
Amendment #24 to Bandwidth/Capacity Agreement between the Registrant and Global Crossing Bandwidth,
Inc., dated August 29, 2001, as amended.
Form of At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement
for officers and employees.
10.6(10)
Employment Agreement between the Registrant and Philip C. Maynard effective October 22, 2007.
10.6.01(11)
Amendment to Employment Agreement between the Registrant and Philip C. Maynard dated December 30,
2008.
10.6.02(12)
Transition and employment agreement between the Registrant and Philip C. Maynard dated March 2, 2015.
10.7(13)
10.8(14)
10.9(15)
Master Executive Bonus and Management Bonus Plan.
Form of 2007 Equity Incentive Plan Restricted Stock Unit Agreement.
Form of 2007 Equity Incentive Plan Restricted Stock Unit Agreement for Non-U.S. Employees.
10.10(16)
Standard Office Lease between the Registrant and GateWay Tempe LLC dated as of July 20, 2010.
10.11(17)
Employment Agreement between the Registrant and Charles Kirby Wadsworth dated June 22, 2012.
10.12(18)
Interim CEO Employment Agreement between the Registrant and Robert A. Lento dated November 8, 2012.
10.13(19)
Employment Agreement between the Registrant and Robert A. Lento dated January 22, 2013.
10.14(20)
Employment Agreement between the Registrant and George Vonderhaar dated January 22, 2013.
10.14.01(21)
Amendment to Employment Agreement between the Registrant and George Vonderhaar dated June 19, 2015.
10.15(22)
Limelight Networks, Inc. 2013 Employee Stock Purchase Plan.
10.16(23)
Employment Agreement between the Registrant and Peter J. Perrone dated July 23, 2013.
10.16.01(24)
Amendment to Employment Agreement between the Registrant and Peter J. Perrone dated June 19, 2015.
10.16.02
Transition and employment agreement between the Registrant and Peter J. Perrone dated November 17,
2015.
86
10.17 (25)
Employment Agreement between the Registrant and Sajid Malhotra dated March 24, 2014.
10.17.01 (26)
Amendment to Employment Agreement between the Registrant and Sajid Malhotra dated June 18, 2015.
10.18 (27)
Employment Agreement between the Registrant and Michael DiSanto effective April 1, 2015.
10.19 (28)
Loan and Security Agreement between Limelight Networks, Inc. and Silicon Valley Bank dated November
2, 2015.
21.1(29)
List of subsidiaries of the Registrant.
23.1
24.1
31.1
31.2
32.1*
32.2*
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
Power of Attorney (See signature page).
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL INSTANCE DOCUMENT.
101.SCH
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT.
101.CAL
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT.
101.DEF
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT.
101.LAB
XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT.
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT.
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed on September 6,
2011.
Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed on June 14, 2011.
Incorporated by reference to Exhibit 3.2 of the Registrant's Form 8-K filed on February 29, 2013.
Incorporated by reference to the same number exhibit of the Registrant’s Form S-1 Registration Statement
(Registration No. 333-141516), declared effective by the Securities and Exchange Commission on June 7, 2007.
Incorporated by reference to Exhibit 10.10 of the Registrant’s Form S-1 Registration Statement (Registration
No. 333-141516), declared effective by the Securities and Exchange Commission on June 7, 2007.
Incorporated by reference to Exhibit 10.10.01 of the Registrant’s Quarterly Report on Form 10-Q filed on
August 14, 2008.
Incorporated by reference to Exhibit 10.10.02 of the Registrant’s Annual Report on Form 10-K filed on March 13,
2009.
Incorporated by reference to Exhibit 10.10.03 of the Registrant’s Quarterly Report on Form 10-Q filed on
November 6, 2009.
Incorporated by reference to Exhibit 10.12 of the Registrant’s Form S-1 Registration Statement (Registration
No. 333-141516), declared effective by the Securities and Exchange Commission on June 7, 2007.
Incorporated by reference to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K filed on November 13,
2007.
Incorporated by reference to Exhibit 99.7 of the Registrant’s Current Report on Form 8-K filed on December 31,
2008.
Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed on May 1, 2015.
Incorporated by reference to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K filed on May 19, 2009.
Incorporated by reference to Exhibit (a)(1)(I) of the Registrant’s Schedule TO filed on May 15, 2008.
Incorporated by reference to Exhibit (a)(1)(J) of the Registrant’s Schedule TO filed on May 15, 2008.
Incorporated by reference to Exhibit 10.32 of the Registrant’s Quarterly Report on Form 10-Q filed on November 5,
2010.
101.PRE
____________
(1)
87
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
Incorporated by reference to Exhibit 10.29 of the Registrant’s Quarterly Report on Form 10-Q filed on November 5,
2012.
Incorporated by reference to Exhibit 10.20 of the Registrant's Annual Report on Form 10-K filed on March 1, 2013.
Incorporated by reference to Exhibit 10.21 of the Registrant’s Annual Report on Form 10-K filed on March 1, 2013.
Incorporated by reference to Exhibit 10.22 of the Registrant's Annual Report on Form 10-K filed on March 1, 2013.
Incorporated by reference to Exhibit 10.3 of the Registrant's Form 8-K filed on June 19, 2015.
Incorporated by reference to Exhibit 10.23 of the Registrant's Quarterly Report on Form 10-Q filed on August 8,
2013.
Incorporated by reference to Exhibit 10.24 of the Registrant's Quarterly Report on Form 10-Q filed on August 8,
2013.
Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on June 19, 2015.
Incorporated by reference to Exhibit 10.17 of the Registrant’s Annual Report on Form 10-K filed on February 17,
2015.
Incorporated by reference to Exhibit 10.2 of the Registrant's Form 8-K filed on June 19, 2015.
Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed on May 1, 2015.
Incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on November 3, 2015.
Incorporated by reference to Exhibit 21.1 of the Registrant's Annual Report on Form 10-K filed on February 20,
2014.
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any filings.
† Confidential treatment has been requested or granted for portions of this exhibit by the Securities and Exchange
Commission.
88
© 2016 Limelight Networks, Inc.