Earnings Transcript for EGIO - Q1 Fiscal Year 2022

Operator: Good day, ladies and gentlemen. Welcome to the Limelight Networks 2022 First Quarter Financial Results Conference Call. At this time all participants are in a listen-only mode. At the end of the prepared remarks we will provide instructions for those interested in answering the queue their question-and-answer session. I'll now turn the call over to Sameet Sinha, Vice President of Investor Relations and Corporate Development.

Sameet Sinha: Good afternoon. Thank you for joining the Limelight Networks First Quarter 2022 Financial Results Conference Call. The call is being recorded today, April 28, 2022 and will be archived on our website for approximately 10 days Let me start by quickly covering the safe harbor. We'd like to remind everyone that we will be making forward-looking statements on this call. Forward-looking statements are all statements that are not strictly statements of historical facts such as our priorities, our expectations, our operational plans, business strategies, secular trends, product and feature functionalities, pro forma results, acquisition activities and contributions from acquired businesses. Actual results could differ materially from those contemplated by our forward-looking statements and reported results should not be considered as an indication of future performance. For more information, please refer to the risk factors discussed in our periodic filings, including our most recent report Annual Form 10-K and quarterly reports Form 10-Q. The forward-looking statements on this call are based on information available to us as of today's date and we disclaim any obligation to update any forward-looking statements except as required by law. Joining me on the call today are Bob Lyons our President and CEO; and Dan Boncel, EVP and CFO. Bob will start today's call with a brief discussion of the results and an update on our Improve, Expand and Extend initiatives. Dan will then review financial results and guidance. Following that, Bob will use the remainder of the call to discuss aspects of our strategy and corporate initiatives going forward. We will then open the call for Q&A where Ajay Kapur Limelight's CTO will also be available to answer your questions. I will now turn the call over to Bob.

Bob Lyons: Thank you, Sameet and welcome, everyone. The first quarter of 2022 continued to build on our positive momentum with three sequential quarters of profitability improvement and two sequential quarters of double-digit year-over-year revenue growth. Our operational improvements and renewed client focus have driven record traffic with 17 of Limelight's top 20 highest all-time traffic days landing in the quarter. It is also important to note that the traffic improvements were broad-based in nature spanning, streaming, live events, software downloads, gaming and expand our diverse client base. In Q1, our financial results were well ahead of market expectations as well as ahead of our management plan. Revenue was $58 million, an improvement of 13% year-over-year and well ahead of plan. Our cash gross margin of 40.2% was up 420 basis points year-over-year and consistent with our plan. Adjusted EBITDA was $2 million ahead of plan for the quarter and a meaningful $5.3 million improvement year-over-year. I can comfortably say today that our business continues to strengthen and we remain confident in our ability to continuously create meaningful value for our clients, shareholders and employees alike. The underlying pillars of supporting this momentum are threefold

Dan Boncel: Thanks Bob. Revenue for the first quarter was $58 million, up 13% from the first quarter of 2021 and our second consecutive quarter of double-digit percentage revenue growth over the prior year. Layer0 contributed $3.8 million to our revenue which when excluded implies 6% organic growth in the quarter, which is two consecutive quarters of single-digit organic growth. We delivered this performance despite global supply chain headwinds which we have modeled to continue. Our top 20 clients accounted for approximately 76% of total first quarter revenue compared to 79% last year. Cash gross margins expanded to 40.2% from 36% in the first quarter of 2021, an increase of 420 basis points due to revenue growth driven by higher traffic and improvement in utilization of our network. Total cash operating expenses were $27.1 million in the first quarter of 2022 or 46.8% of revenue, down from 65.1% of revenue in the first quarter of 2021. Cash operating expenses, excluding restructuring and acquisition-related expenses were $21.3 million, or 36.8% of revenue, down from 42.3% last year. We continue to realize the benefits from our improved management of operating costs. As previously mentioned, we had continued to invest in sales and marketing and hired ahead of plan given our ability to attract qualified talent. Acquisition and legal-related charges in connection with our proposed acquisition of Edgecast were $5.1 million for the first quarter. The aforementioned year-over-year revenue growth and improvements within our operating model resulted in a meaningful year-over-year increase in adjusted EBITDA. First quarter 2022 adjusted EBITDA was $2 million, up from a loss of $3.3 million last year. Improved network utilization and operating leverage in the business allowed for 77% flow-through of the revenue growth. Cash and marketable securities totaled $62 million, a decrease of $17 million. We spent $5.4 million for capital expenditures. DSO at the end of the quarter was 81 days compared to 51 days at the end of December. The increase is due to the timing of client payments received. Our accounts receivable balance increased $12.8 million from the end of December. We expect DSO to be in the 50 to 60 day range and have seen improved cash collections in April. As for guidance, given we anticipate closing of the Edgecast transaction in the next 30 to 60 days, we are maintaining our full-year guidance. We expect to begin working with the Edgecast team on a bottom-up forecast for the remainder of the year immediately after we close, and we'll provide combined guidance for the year as soon as we finish that process. We expect second quarter to be consistent with the first quarter with continued tight management of network and operating expenses, we would expect gross margin adjusted EBITDA margin to continue its methodical expansion to reiterate how we think about the combined company post integration and upon successful completion of these synergies initiatives, which will take 24 months from close the combined company is anticipated to have a growth rate of approximately 10% to 15%, better than 50% gross margins, improving to 60%, approximately 10% to 15% adjusted EBITDA and positive free cash flow. With that, I will turn the call back to Bob.

Bob Lyons: Thanks, Dan. Let me take this opportunity to outline the next phase of our transformative story that begins with a company rebrand to Edgio. On a combined basis, Edgio will have one of the largest networks in the world, delivering more than 200 terabytes per second across more than 300 global PoPs and 2021 revenues exceeding $500 million. Our scale will enable us to improve our gross margins to approximately 60% over the next two years, underwritten, with an improved platform utilization, growing high-margin revenue and planned net operational synergies of greater than $50 million. With our new capabilities, we will be recognized as having the most complete web application platform with a 5x increase in market share to over $100 million in high-growth, high-margin application and security revenue. The addition of Edgecast industry-leading edge video platform further diversifies our revenue and the solutions that we can deliver from our Edge platform. As a result, we will reduce client concentration risk, and our largest client will be less than 13% of total revenue, the only one above 10%. To put a fine point on the complementary nature of the businesses coming together, Limelight has significant international presence, expertise in large cloud delivery, a growing sales and marketing team with proven client success practices, a leading and high growth AppOps platform, superior video on-demand capabilities, all delivered on the world's best-performing edge platform. With Edgecast, we add a proven channel program supported by partners such as Azure and Verizon, industry-leading live event capabilities, a multilayered edge security platform that includes scaled WAF, DDoS and Bot Management, a highly synergistic edge video platform, Linux-based CDN capabilities that will meaningfully improve automation and a team of highly skilled employees. After close, we will have the ability to dig deeper and anticipate the ability to capture additional client and commercial synergies. Integration planning is well underway, and we expect to close this acquisition and start this exciting next phase of our transformation in the next 30 to 60 days under the Edgio brand. We thank our investors for their continued support and look forward to working together to achieve what we all know is uniquely possible for us. With that, operator, please open the lines for the question-and-answer session.

Operator: Thank you. [Operator Instructions] And our first question is from Michael Elias from Cowen & Co. Michael your line is now open. Please proceed.

Michael Elias: Hi. Thanks for taking the question. Two, if I may. So first, in your recent proxy, you provided management expectations for the combined company. And I believe the growth rates for revenue are essentially between the 9% and 11% range between 2023 and 2028. And I know you've talked about 10% to 15% revenue growth and then potentially getting to 20% to 25%. I just want to know from your perspective like, what are the levers to getting to the higher end of that range? That's my first question. And then the second question would be, I believe your 2022 guidance implies that traffic with two of the top 20 customers essentially flat year-over-year. And I believe earlier you were talking about how you're seeing improved progress in terms of traffic. Just wondering what you're seeing there. And then also how we should think about the standalone guidance throughout the year as a result of that? Thank you.

Bob Lyons: Yes. Hi, Michael. How are you doing? It's Bob. I'll start with your second question first on the traffic. The -- we obviously are seeing a lot of traffic. And as we mentioned in the call script we had 17 of the top 20 days historically in the last quarter. And so we're pretty excited about that. In fact those two customers that you mentioned one of those was up 20% this quarter as well. So we're seeing growth there again. Both of them grew by the way. So we're pretty excited about that. So from a standpoint of how the business is running we're very happy with that. The challenge that we have is in our business you have to build capacity to be able to continue that momentum and we're seeing a lot of supply chain disruption. It takes us 9 months to 12 months to get servers. And so we had a lot of conversation internally about, hey do we raise guidance? Or do we stay flat? And I think given the fact that we're going to have a major reset of guidance in the next 90 days, let's say, with the merger with Edgecast in addition to that I'm continuing to watch the supply chain challenges we just thought it's better just to kind of hold tight and come back and reset that in a short period of time. But having said all that we're navigating those challenges, doing it very well have done it and we're very happy with where the business is running from a traffic standpoint. On the growth standpoint from Edgecast that's a great conversation. The -- when you look at the business Edgecast has been tucked into this huge Verizon company, didn't have a sales force of its own really relied on the Verizon channel. And so when you look at those growth rates those growth rates are despite the fact that they really had no commercial presence for most of their products. They didn't have a great go-to-market strategy, didn't really even have a sales team per se. And so when you take the capabilities that they have the security the app CDN and the video platform and you put them into the redesign model that we spent the last 12 months rebuilding, we expect to see much more growth than what they've been able to do. So it's pretty interesting. They have pretty favorable growth despite the fact really having no commercial presence or capabilities in the organization other than relying on Verizon to sell stuff for them. So that's how you get to the upper end. I think the other thing, we have to continue to do is launch products in other areas like security which will continue to push that growth rate up.

Michael Elias: Awesome. Thank you.

Bob Lyons: Thank you.

Operator: Thank you, Michael. Our next question is from Frank Louthan from Raymond James. Frank, your line is now open. Please proceed.

Frank Louthan: Great. Thank you. Talk to us a little bit more about Edgecast and how that's going to help with the content delivery business? How does that help support that? And then give us -- if you can give us an update on the Linux conversion and what sort of -- what challenges the Edgecast integration will bring to that as well? That would be great. Thanks.

Bob Lyons: Yes. Thanks, Frank. So a couple of things. I think, one, when you look at our video delivery business we're very strong in broad over-the-top video streaming. They do much more in live events. Actually, I'd argue they're probably best-in-class at live events. That's an area where we're pretty weak actually. So you put the two combinations together and essentially you have the ability to span the full spectrum of live events to video on-demand. With their video platform they also have a best-in-class ad insertion engine that will position us well for what we think is another growth area on the horizon which is advertising-driven video-on-demand AVOD. And so we're pretty excited about that. So from a capability standpoint they're very complementary. But the addition of that is going back to the answer I gave to Michael capacity and throughput is something that's really important to us. We -- when you combine the networks one of the things that we've learned we did a pilot we found out that when we go to Linux we can actually improve our capacity and our throughput without having to add hardware. And so that's one of the ways that we can actually expand our capacity without having to take the headwinds of the supply chain disruption head on. When we merged the two networks together and bring the companies together they have a lot of excess capacity. They're already running on Linux as well and so we're going to bring a lot of expertise over. We're in the early stages of our rollout of that and we'll be able to accelerate that with the combination of their expertise their network and our network. So we'll be able to do that. In addition they also are far ahead of us in automation because of that Linux platform. And so essentially by combining the networks will bring excess capacity to the table we'll be able to accelerate our Linux-based transformation and also accelerate the automation, which all translates into higher revenue and higher gross margins.

Frank Louthan: All right. Great. Thank you.

Operator: Thank you. And our next question is from James Breen from William Blair. James, your line is now open, if you like to proceed/

James Breen: Thanks for taking the question. Just a couple on the security side. Are the products that you have now that should, sort of, grow from here? Or do you need to gain more technologies through acquisition or through development internally? And then secondly, just can you comment on any impact you've seen just from what's going on in Ukraine relative to your business there? Thanks.

Bob Lyons: Yes. Sure. Thanks. Let me take the Ukraine piece and I'll start the security piece and then I actually have Ajay on the call with us today and I'll let him talk a little bit more about our thoughts around security. So from the Ukraine piece, it's one of those stories where I feel guilty saying this, but we're actually doing really well. We have about 120 people in the Ukraine largely focused on development and professional services. The professional services is really geared against the AppOps and Layer0 implementations. What I can tell you is that we've as a company done a lot to make sure that they're safe and have all the resources that they need. They're working really well. It's really a testament to the Ukraine people. It's really been amazing. So, we have not seen any disruption there. We obviously continue to monitor that and watch that and do all the things that we can. It does govern us a little bit in our growth plans and making sure that we can expand the resources. It's hard to expand in the Ukraine. So we're looking at other regions to be able to expand that those capabilities and that team. But as we sit today it's been working pretty well. Obviously day-to-day though and so we continue to watch that. On the security front we pick up a lot of capabilities. We had a launch ourselves in January of this year. We also pick up a lot of capabilities with Edgecast. And as I've said in previous calls we continue to be inquisitive there and have some pretty big ideas about what we can do there but we're going to be thoughtful and patient. Let me turn it over to Ajay and he could talk about some of the stuff that we're doing with security today and then maybe I'll follow up with some of the stuff we're looking at as we look forward.

Ajay Kapur: Yes. Thank you, Bob. Thanks for the question there James. So, just quickly on Ukraine I just want to add a little bit there as one of the managers that works with the team there. They're an incredibly resilient group here who has meet and -- they met and exceed all of their deliverables for the first quarter which is really incredible and really enjoy the fact that the company is supportive of what they're doing and that they then are able to be employed and pay taxes and support their defenses as a result of that. So, it's just been incredible to watch their resilience in what they've been able to do. On the first question of growth I think what you asked is hey is there a need for further acquisitions to be able to get to the kind of growth rate that Bob spoke about just a second before? And through the work of Edgecast and Layer0 we have everything that we need to support those growth rates. And -- but we will always be open to synergistic acquisitions like those especially in the area of security and enterprise security in particular. But coming back to kind of your original question the markets around web and application web and API security are growing rapidly double-digit growth in kind of the 20% range or north of that. Areas such as AppOps are growing much faster than that from a small base. And then we believe on the core business there are things that we can do that allow us to take share from incumbents especially as a result of increased scale and capacity that we have and through the acquisition of Edgecast which will allow us to also grow that business at rates much faster than the market. So, kind of, the first answer here is that yes absolutely with what we have and what we can do to optimize those businesses over the next couple of years we can achieve those growth rates. But we will always be looking for opportunities for further growth.

James Breen: Great. Thanks.

Operator: Thank you, James. Our next question is from Mike Latimore of Northland. Mike, your line is now open, if you would like to proceed with your question.

Mike Latimore: Great. Thanks. Yes. So, on the pipeline growth you guys highlighted would you attribute that to the sales and marketing investments you've been making? Or is it just a really healthy end mark here? I guess that would be one. And then can you give a little more insight just into the core traffic patterns you're seeing kind of how did February March April play out relative to January and traffic patterns?

Bob Lyons: Yes. So, I'll take on the pipeline and then I'll let Dan answer the traffic stuff. So, we're seeing robust pipeline growth in general. I think it's probably attributable to three things. I think first and foremost having a much clear strategy and a well-articulated value proposition when you look at what we've done over the last 12 months we essentially put together a best-in-class application AppOps platform that includes security best-in-class development framework running on the world's most performant network. And it's hard you can't find that solution anywhere else. You've got to cobble together. So, that's number one. That really helps a lot. Number two, we have been ramping up the team. Q2 will be the first quarter when we have full staff of quota-carrying reps. We started in December and continued that through the first quarter. And so obviously the more capacity you have that's going to build pipeline as well. And then third, I think we also redesigned our demand gen capabilities. We hired a new team around demand gen and marketing and put new programs and redesigned that motion from bottom up and we're starting to see the early stages of that production as well. So, when you look at our pipeline growth it's growing at rates that we needed to grow to support the growth rates that we've been talking about. We're seeing it grow very significantly in the areas where we want to see it grow which is in AppOps and call it non-CDN, but we're also seeing it grow in CDN as well. And we're pretty happy with the diversity of the portfolio. It also includes both large- and medium-sized customers in different industries as well. I think the broadened security story has also helped really accelerate the pipeline growth.

Dan Boncel: Yes. And then I'll take the traffic question. When we came out of Q4 we are guiding to roughly 10% seasonality number. And in Q1 we didn't see that dip that we are anticipating. And so we're very happy about that. And that's not only -- that's a broad-based traffic improvement from where we had initially expected in the plan. And so we continue to see strong off-peak traffic and demand for that continues to increase, as well as our core CDN and the streaming product that our customers are demanding in that normal traffic profile continues to be really strong as well, as new content comes up and we expect that to continue here throughout the remainder of the year and even grow in the back half.

Mike Latimore: Thanks.

Operator: Our next question is from the line of Max Michaelis from Lake Street Capital. Max, please proceed with your question. Your line is open.

Max Michaelis: Hey guys. Nice quarter. I just got two quick questions here. The first one is, are you guys having any large contracts up for renewal anytime recent? And then are you seeing any pricing pressures from these customers?

Bob Lyons: Yes I'll take that Michael [ph]. We always have contracts up for renewal and we're constantly having those conversations. As we've talked about in previous quarters, we've changed our approach from waiting for that to be an event to proactively having those conversations. So we continue to do that. There's always going to be pricing compression in this industry. So that's just a way of life. We're not seeing anything that concerns us or should be a surprise to us. We're just navigating that as we expect to navigate it and pretty consistent with how we forecasted and built in our plans any pricing compression.

Max Michaelis: Okay. Thanks. And then just maybe a little more clarity on the profitability metrics of the adjusted EBITDA expected for Q2. I think the comments were methodical expansion. Is that from -- is that sequentially? Or is that year-over-year I guess?

Dan Boncel: Yes, I'll take that. Sequentially and year-over-year. I think in Q2, we were about breakeven in terms of adjusted EBITDA. And in Q1 obviously, we were $2 million positive which was ahead of our plan. We expect -- in the plan, we expect to continue to invest in sales and marketing and R&D as the plans are to really focus on the development of automation of the operation of our network. And so even with those continued investments, we expect to continue to expand adjusted EBITDA margins as our revenue grows sequentially throughout the year.

Bob Lyons: Yes. I'd also like to add to you can imagine -- we're getting ready to close on this big transaction and more than double our revenue. So we're investing ahead of that as well to make sure that we can absorb that and manage that transaction pretty smoothly.

Max Michaelis: All right. Perfect. Thanks, guys.

Operator: Our next question is from the line of Jeff Van Rhee from Craig-Hallum. Jeff, please proceed. Your line is now open.

Jeffrey Van Rhee: Great. Thanks for taking my questions guys. A couple from me. I think first Bob, maybe as you look at the guide on the sequential basis as it relates to revenues, can you just talk through the puts and takes of the sequential Q2 being similar to Q1? I think you referenced supply chain issues. Maybe just expand a little bit more on that? Obviously, a lot of concerns around the Netflix OTT numbers in general and you'd offset I guess both of those with a pretty bullish commentary about pipeline and signings thus far. So just talk a bit about the puts and takes on revenue growth from Q1 to Q2.

Bob Lyons: Yes, sure, thanks. I guess in both transparency, I'll say that, those of us from management on the call don't all agree with where we came out with guidance. I think there was a lot of really robust debate. When we have a quarter like we did in the first quarter, it would be easy to assume that, hey we should lean in and guide up and we certainly could have had that conversation. But when you take that -- one of the things I've always committed is that we'll be transparent and we'll be asymmetric in a risk and that we will have much more upside than downside risk. And so, we really took that approach in this quarter. When you look at what really -- we had a Q1 where we had record traffic. Q2 is working the same way and we continue to expand on that. And so the business is running very well and we're very bullish on that. But at the same time, we've got a transaction that we're getting ready to do. We've got supply chain disruption that we do have a backlog in equipment. We could add capacity and actually increase traffic tomorrow, but we can't get the equipment. And so -- and that's a continually evolving conversation day by day. And so, that -- there's some uncertainty around that. You have obviously the economic factors with inflation, what that's going to do the geopolitical issues. So there's so many issues that we're navigating that we just kind of said, look you know what given all this and given -- we're going to come back in 60 to 90 days with a reset guidance with a completely different P&L from where we are today. Let's just make sure that everybody knows the business is running well. We're very happy with where it is. But give us 90 days and we'll come back and we'll reset and we'll have a better view of kind of all the dynamics that we're navigating. And we thought that was the more prudent thing to do. But to make sure that we double click on the fact the business is running well and we're very happy with where we are.

Jeffrey Van Rhee: And just to expand on the OTT concerns around Netflix. I mean, can you talk to what your customers are telling you with COVID unlocks et cetera, just concerns people consume less? What are you -- you can add some color there?

Bob Lyons: Yes I appreciate that. It's interesting with Netflix. Netflix is the only big client we don't have and they do everything themselves. And so when they have subscribers decrease that actually helps us. So it's interesting. We saw the market react to Netflix, but actually my view of what's happening there is you have inflation people are worried about how much it cost to fill our gas tank and Netflix raised their prices. You shouldn't be surprised that people canceled. Five years ago or three years ago, the model was Netflix plus one in subscriptions. Now the average household has seven subscriptions and Netflix raised their prices and people are saying, look, I really don't need seven subscriptions. I want to have less. So I'm going to pick the one that I'm going to cancel and it shouldn't be a real surprise that that happened in my opinion. But having said that, they're still watching movies. They're still watching content. They're just watching it in different places and those different places happen to be customer of ours. So it actually works in our favor and we're pretty happy. Perhaps that's a big part of why we're seeing record traffic who knows.

Jeff Van Rhee: Yes. Helpful.

Dan Boncel: The other thing I'd add to that is a lot of our other customers that we believe Netflix subscribers are moving toward continue to expand internationally. And with our global scale and continue to increase capacity globally with the Edgecast acquisition, we feel that as a tailwind for us as customers continue to that international expansion and reach of a global customer base.

Jeff Van Rhee: Okay. And Bob one other quick one for you on the sales side, obviously, a tough environment and hearing from almost everybody they're falling short on sales hiring goals. It sounds like you met or possibly exceeded. Where did you end up in sales headcount? Where do you think you're going next 12 months?

Bob Lyons : Yes. We're fully staffed at this point. And it's probably the first time since I've been at the company we can say that for sure. So we're fully staffed. So Q2 will be the first quarter that we're pleased staff. We're very happy with the quality of the team that we hired as well. Some of them came from our competitors, so we're pretty happy with that. We have not had a hard time hiring, I think, largely because people really like the story and like where we're going. Look salespeople are going operative. They want to make money. They want to sell things. And so if they believe in the product and they believe in the industry you can attract them. And so far they really are excited about where we're going and what we're doing and what they have to sell and I think that soil only continue to get better. So we feel pretty good about that. And it's not just the salespeople too we've also redesigned all the motions around the salespeople, the sales operations, the sales support, the demand gen. And so we continually -- when you have a pipeline that's growing that also helps salespeople hit their numbers. And so all the things are coming together, we expect it to come together. We just have to stay focused and keep executing the way we are.

Jeff Van Rhee: Yes. Sure. Ajay, I wanted to take advantage of you be on here as well. The -- as it relates to Layer0, a couple of questions. I guess, as it relates to developers and just awareness both of your capabilities as well as capturing the developers on the platform. I know that's front and center in what you think about. So question one, can you just talk on progress in terms of capturing developers? And the second question is related to Edgecast. How does that change your value proposition in the AppOps world as you put the two platforms together?

Ajay Kapur: Yes. Great question. We've been making great progress building awareness in developer community. And it is only underscored and accelerated the kind of the thesis we had that the buyer of the CDN is surely headed and -- with every quarter headed in the direction of shifting from kind of an operations purchaser to a developer and dev team purchaser. That's kind of a one-way trend. It's an inevitable trend and we are far and away the best product to capitalize on that trend. And then you could couple that with Edgecast, which brings kind of best-in-class web and API security. And we really have kind of elevated our solution set for websites and APIs to best in the industry. And it is an industry in which our market share is small relative to the size of this market. It's a minimum of $4.4 billion market, not including some of the things that we expect to happen as a result of AppOps. And we have a small, small market share there and have really far and away the best product to be able to capitalize and grow rapidly. And with the sales team coming online, they are to Bob's point not only did we hired a plan, but they're being trained and being made effective very rapidly. It's one of the anecdotes Bob shared earlier there was a team that wasn't around in Q4 then in Q1 on the channel side was able to represent a significant portion of the U.S. kind of sourced and closed deals. And that's an incredible kind of ramp-up time that just speaks to kind of the way in which we're attacking the opportunity that we have here with the best-in-class product.

Jeff Van Rhee: And you touched on it maybe a little bit there, but my second part as it relates to Layer0, just in terms of the bookings relative to expectations other observations about bookings. And then from a revenue standpoint Q1 to Q2 any seasonality just not clear how the Layer0 revenues play seasonally as the quarters roll through the year?

Ajay Kapur: Yes, it's a great question. On the second point, there isn't a ton of seasonality, because it's more contracted and consistent in basis. So there's not much seasonality there. There may be slight seasonality as it relates to bookings, but that's generally a smooth out, because of the recurring nature of the kind of existing client base where sort of generally just growing. So that's to the question of seasonality. In terms of -- just in general on bookings things are great. And again, as Bob and Dan shared earlier, we've got triple-digit growth in pipeline as it relates to the AppOps arena, and that's not including some of the things that we're hearing about the progress that's being made on all the web CDN, web security business that Edgecast does. So we're really looking forward to that as well.

Jeff Van Rhee: And what are you displacing? Last one from me just what are you displacing?

Ajay Kapur: Yes, it's a great question. So there were a minimum of nine direct displacements. And it is a combination of pallet that who's who of web CDN and web security vendors combined with up-and-comer private companies with Unicorn valuations. And it's a combination of those that are in the mix of at least nine that were direct replacements.

Jeff Van Rhee: Well, great number. Okay. All right. Thank you.

Operator: [Operator Instructions] Our next question is from the line of Rudy Kessinger of D.A. Davidson. Rudy, your line is now open, if you’d like to proceed.

Rudy Kessinger: Hey. Thanks, guys. Thanks for taking my question. Going back to Layer0 on that seasonality comment. The $3.8 million in Q1 was a bit lower than I think I had expected to see, it was flat with Q4 at $3.8 million. And so, to get to that $20 million for the year, I mean, it implies you've got to grow that business like 18% or 19% sequentially each of the next three quarters. I understand triple-digit pipeline growth, but it seems like a pretty rapid acceleration in that business. What gives you confidence to hit that number?

Dan Boncel: Yes, I'll take that and then Bob and Ajay can chime in. As we built out that sales force, that pipeline and the demand gen capabilities that we have in place, that triple-digit growth in pipeline gives us confidence that we will convert that. And the conversion time period on those types of deals is a little bit quicker than the historical or legacy CDN business, which you have to run through a trial process and get through the procurement piece, versus the Layer0 which we believe is a best-in-class product that developers are really looking forward to working with as quickly as possible, given the productivity and efficiency improvements that that product has. And so, I think, just the shortening of the conversion time line into actual revenue gives us that confidence. And the fact that we've only had the sales force and demand gen team in place for a really short period of time. And to see that growth in the pipeline is something that's very exciting for us.

Bob Lyons: Yes. I think, the other thing too is to bifurcate the conversation, separate bookings from revenue. So you mentioned the revenue number, Rudy. We have a bookings target that we have to hit every month, every quarter. We track it every week actually throughout the year. And when you get the bookings, obviously, then you have to convert that into revenue with the implementation. And we're actually on plan of where we expected to be in bookings to support the numbers that you talked about. And so, you'll see that in the first quarter, we had bookings you'll see that translate into revenue in the next quarter. Probably, the biggest risk that we have there, we talked about earlier, is really making sure that we maintain the productivity we're seeing on the team in the Ukraine and that's, obviously, a big part of turning bookings into revenue. And so, so far we've been doing great job, give credit to them. And -- but that will be the area that we probably are closest -- most closely monitoring.

Rudy Kessinger: Got it. And then, just secondly, from me, I think, you said 24 gross from customer adds, nine direct takeaways from competitors. So that's good to see. I think you said the highest gross new customer adds in five quarters. On a net basis though, customers I think it was down like three quarter-over-quarter. When do you expect -- I mean, Q2 is that kind of the inflection point with that being the first full quarter, having all those sales reps fully ramped, where you think you'll start to actually see active customer count going up on a net basis?

Dan Boncel: Yes. I think, that would be an appropriate expectation. Actually, with our historical trends and customers, having that net decline of three, with specifically the increase of 24 new ads and where we're getting those ads, is very positive for us. But I think Q2 would be an appropriate point of view for that trending back in the positive direction.

Bob Lyons: Yes. I think, if you look over the last five quarters, and you would just plot it out, you go five quarters ago, we were having higher attrition and not adding customers. Every quarter we've gotten better and better at that. And I think it's fair to say that the inflection point is probably Q2. We're adding a lot more customers and losing less. And so, I think, that's the right expectation.

Rudy Kessinger: Got it. That’s helpful. All right, that’s it for me. Thanks, guys.

Bob Lyons: Thank you.

Operator: Thank you. [Operator Instructions] And it appears that we have no further questions being registered today. So I'll hand it back to management for any further remarks.

Bob Lyons: Okay. Thank you, operator, and thank you, everyone, for joining us today. We look forward to sharing our progress and continuing our conversations with analysts and investors going forward. Have a great day. Thank you.

Operator: Thank you to all those who have joined us today. This concludes the call and you may now disconnect your lines.