Limelight Networks Management Discusses Q1 2013 Results - Earnings Call Transcript

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Limelight Networks (NASDAQ:LLNW) Q1 2013 Earnings Call May 9, 2013 4:30 PM ET


Gillian Reckler

Robert A. Lento - Chief Executive Officer, President and Director

Douglas S. Lindroth - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer


David M. Hilal - FBR Capital Markets & Co., Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

James Wesman


Good day, ladies and gentlemen. Welcome to the Limelight Networks First Quarter 2013 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Gillian Reckler, Limelight's Director of Investor Relations. Ms. Reckler, you may begin.

Gillian Reckler

Good afternoon and thank you for joining the Limelight Networks First Quarter 2013 Financial Results Conference Call. This call is being recorded on May 9, 2013, and will be archived in our website for approximately 10 days. If you are online we have updated our investor presentation and you can find it in PDF format within the Investor section of our website.

Some portions of this conference call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are all statements that are not strictly statements of historical fact, such as statements regarding future events or future financial performance including, but not limited to, statements relating to Limelight Networks' market opportunity and future business prospects, guidance on financial results, statements concerning anticipated future growth and profitability, as well as management's plans, goals, strategies, expectations, hopes and beliefs, and statements concerning the anticipated effects of pending or completed business combinations or other strategic transactions.

These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those contained, projected or implied in the forward-looking statements including the inherent risks associated with litigation, particularly intellectual property based litigation. Reported results should not be considered an indication of future performance. Factors that could cause actual results to differ are included in the company's periodic filings with the Securities and Exchange Commission.

I would now like to introduce Bob Lento, Limelight's Chief Executive Officer.

Robert A. Lento

Thanks, Gillian. I've just completed my first full quarter as CEO of Limelight Networks. Before I jump into the quarter's results, let me take a few minutes to tell you what I've learned about our products, our people, the markets that we serve and the steps we've taken to implement the roadmap for 2013 that I laid out for you a few months ago.

This quarter, I continued to bridge the learning gap and identify and assess the existing strengths and areas of improvement that we have at Limelight. I continued to work closely with the board and met many of our employees and current customers. I also met with prospective customers and industry analysts covering individual products within our Orchestrate suite of services. And of course, I got a chance to speak with many of you, our financial analysts and shareholders, who are now on the call.

What continues to impress me as I learn more about Limelight is the great potential of our markets and our service offerings to those markets. This was exemplified by the recognition that we received from Forrester, who named our Orchestrate Video solution as a Strong Performer in their Wave report on online video platforms. This acknowledgment followed closely on the heels of the recognition that we received at the end of 2012 from Gartner for our web content management solution.

We are pleased with the many new customers that we've added during the quarter. However, as we indicated last quarter, customer churn has been higher than we would like and is an area of focus for us. While the rate is not significant, at less than 1% per month for the quarter, we still think it is too high and led to a net customer loss during the quarter. We serve over 1,400 customers, and our year-over-year revenue increase showed that our average annual revenue per customer continued to increase.

I also appreciate the hard work and dedication of our employees. Their focus makes a difference every day. One example of our many employee contributions this quarter was the team effort that went into launching our thought leadership book, Digital Presence for Dummies, which was published by Wiley and is the industry's first guide to digital presence. Demand for the book is strong, and within just a few weeks of hitting the digital airwaves, the book won a Killer Content Award from DemandGen Report, the publication of record for B2B marketing professionals.

Last fall, we enhanced Limelight's digital presence using the same processes and technologies we offer our customers. Since then, traffic to our website has increased over 1,000%, and online engagement with our customer and prospect audience has increased just as significantly. This month, the International Academy of Digital Arts & Sciences named Limelight a 2013 Webby Award Honoree for these improvements to our own digital presence.

What I've reiterated on the calls I've had with our customers, industry analysts and our shareholder base is that our strategy is solid. Our mission quite simply is to help our customers better engage digital audiences. We offer a suite of cloud-based services that aid in creating, managing and delivering exceptional digital experiences. And because we own and operate one of the world's largest content delivery networks, our customer know that their digital content will be superbly delivered on any device anywhere. We believe this is a unique and powerful value proposition and business strategy.

What has changed is our tactical approach to delivering this strategy. I have placed a strong emphasis on driving execution throughout our business. I am encouraged to see our focus, simplify and execute theme taking hold. For example, within R&D, we have simplified product management and product development across our combined portfolio, putting in place enhanced systems and processes for synchronizing product releases and investing in our product offerings in order to accelerate time to market. Additionally, we launched Limelight's inaugural voice of the customer satisfaction survey. This biannual comprehensive customer survey seeks input through phone calls and online surveys so that we can better understand our customers' level of satisfaction with Limelight's products and services and how we need to evolve in order to achieve higher levels of customer satisfaction.

During the first quarter, we began to implement changes to improve our sales organizations' efficiency, which we believe will lead to increased productivity from our sales and marketing investments. We clearly delineated the work of managing the retention and growth of existing customer relationships from that of winning new customers. We believe that this change will over time increase our effectiveness in securing new customers, increase customer satisfaction within our existing base and reduce customer churn.

Today, we reported first quarter revenue of $45.8 million, of which 35% was generated by our value-added services. Analysis of our business and financial highlights affirms that our customers welcome our continuing transition from a pure-play content delivery network to a provider of integrated, cloud-based digital presence management solutions. We saw new customers purchase an average of 2.1 products in Q1 of 2013 as they established their initial relationships with Limelight. This is in line with the average number of products purchased by new customers over the past few quarters.

While we are pleased that value-added services represented 35% of our revenue for the quarter and shows that we are making progress, the 16% year-over-year growth for our value-added services fell short of the longer-term growth rates we expect to achieve. Doug will discuss the details behind the lower year-over-year growth rate with you shortly.

Core Content Delivery revenue declined approximately 2% year-over-year for the first quarter, and 5% sequentially. As we said before, our intention going forward is to grow our content delivery revenue on a profitable basis as part of our integrated value proposition. Doug will also give you more details on our content delivery services shortly.

Let's briefly review the components of the Orchestrate suite. Our Video Platform solution continues to charge ahead within the value-added services portfolio. Our video solutions enable customers to manage and publish video on their own websites and on sites like YouTube, ensuring that their video is published in a manner optimized for the best playback and that the content renders in mobile templates with ad integration regardless of device.

With its short sales cycle, rapid time to implementation and strong value proposition, our video service helps organizations deliver personalized, engaging video content and offers us an excellent entry point to new customers who can benefit from our broader set of services. Revenue for our online video platform showed strong year-over-year growth in Q1 of 2013 and good sequential growth from Q4 2012 to Q1 2013. We continue to make good progress selling our Video Platform to our existing customer base and received strong endorsements from the market, including the recognition from Forrester, who designated us in the top 5 as a strong performer among the dozens of competitors in this space.

As expected, in Q1 of 2013, our web content management offering was up sequentially. The strong bookings that we earned in the last quarter helped us reverse the decline in revenue that we experienced from Q3 to Q4 2012 when we lost one large customer. Our web content management offering addresses the challenges organizations face in their efforts to capture, retain and convert customer attention online in today's global economy. We enable organizations to engage customers more effectively by delivering rich, personalized, dynamic content on any device anywhere in the world. Our content management solutions are for mobile publishing, social media integration, search engine optimization, reporting, analytics and more, all while providing our customers with the benefits of SaaS economics and simplicity.

Year-over-year revenue for our acceleration service was also strong for the first quarter. These services continue to be extremely important for our customers in the enterprise and e-commerce space. Limelight's acceleration services help our customers improve user experience by providing fast, consistent performance and decreasing the time it takes for users to interact with website content from any device anywhere. This time to action is critical because speed and performance of an end-user's experience leads to a higher number of completed transactions, more successful conversions and increased digital loyalty.

We continue to migrate new and existing customers to our cloud storage offering. The market opportunity for cloud-based storage continues to grow as enterprises seek to decrease infrastructure spending. We provide a robust set of cloud search functionality and features, which collectively simplify administrative overhead, reduce long-term IP cost and help ensure compliance to regulatory standards.

Our storage customers benefit from fast uploads via localized ingestion points, flexible replication policies, support for large object libraries and a wide variety of upload protocols. Standalone storage revenue was down slightly year-over-year for the first quarter and was also down sequentially. However, we are continuing to see our Agile Storage revenue show both sequential and year-over-year growth. Over the past few quarters, we have discussed our storage solution without differentiating Agile Storage from storage that is aligned with our content delivery service.

Agile Storage is our storage solution for enterprises that leverages our massively provisioned compute and storage platform. It is an API-driven, policy-driven, geographically distributed cloud storage solution, where customers can specify where they want their files stored. We also sell storage as an integrated part of our video publishing and content management solutions. Revenue from storage sold on an integrated basis is captured within our video and content management revenue.

Our global consulting and technical services group is continuing its evolution from providing implementation services to also providing higher-value services that help organizations assess and optimize the creation, management and delivery of their digital presence. Global Consulting revenue grew modestly on a year-over-year basis during the first quarter. However, the near-term investments we are making to transform the services are leading to lower gross margin. We continue to believe we have solid opportunities to grow our Global Consulting Services on a year-over-year basis.

Our high-performance global content delivery network improves the reliability, performance and user experience of our customers' online presence by delivering rich media files such as video, music, games and software or streaming live corporate or entertainment events. Our content delivery network provides highly available, highly redundant storage, bandwidth and computing resources in support of the online video platform, web content management, acceleration and storage solutions discussed above.

The infrastructure that underlies the content delivery services when integrated with our value-added services increases Limelight's competitive differentiation. For example, during Q1, we started to deliver improved integration between our content delivery services and our video services. We have stronger integration between our content delivery network and our video solution today than we had in the past, and this integration contributed to the strong Q1 revenue growth in our video solution.

Last quarter, we announced that we are going to invest appropriately to reverse the decline in the content delivery service revenue. We are on track to add more capacity in 2013 than we had in 2012. This will satisfy existing demand and create capacity to satisfy future demand so that we can grow revenue.

Limelight is proud to be a partner of choice for organizations focused on optimizing their digital presence. Across our portfolio of digital presence management products, we signed leading brands that span a wide range of industries. Across these industries, we saw new and existing customers continue to purchase multiple products within the Orchestrate portfolio of solutions as they established their relationships with us or added additional services.

Key customer wins included Machinima, the online gaming powerhouse, who initiated their relationship with us by purchasing content delivery, video and storage solutions; and Mouser Electronics, and online semiconductor and electronics component distributor, who purchased Accelerate and Content Delivery. Flexera, a leading provider of applications usage management solutions, enlisted our global consulting group to harness our web content management and cloud storage solutions to create, manage and deliver its website as well as store archived web content.

Internationally, the new team we put in place in EMEA at the beginning of the quarter is already performing well. We signed a multiyear deal with a large Tier 1 telecom provider in Europe to provide services for its new entertainment portal. The deal came to fruition as a result of strong, cross-functional team effort, and it also shows the traction we are gaining selling Acceleration, Content Delivery and storage products to large customers.

In Asia, we continue to see strong demand for our online video platform and Content Delivery network. Key customer wins included our arvato Systems, Shamzar [ph] and Bell [ph] Samsung, who either added video to an existing service or purchased video and other services as part of our Orchestrate suite.

Let me now hand the call over to Doug Lindroth, Chief Financial Officer, to review the financials in more detail and to further discuss the results for the first quarter of 2013.

Douglas S. Lindroth

Thanks, Bob. Please note the following financial results that I will be discussing are for continuing operations and exclude EyeWonder and Corus from current and prior periods. For more information regarding discontinued operations, please see our earnings press release that we issued today and our Form 10-Q that will be filed by tomorrow.

During the first quarter, Limelight Networks recorded total revenue of $45.8 million, which was up 3% year-over-year and down 1% sequentially. Our content delivery revenue for the quarter was down 5% sequentially due in part to stronger seasonal traffic growth during the fourth quarter of 2012, as well as the contract termination fees we received as a result of the acquisition of Gaikai. Content Delivery revenue declined 2% year-over-year primarily due to the decline in our reseller revenue from Global Crossing, whose reseller contract ended during Q2 of 2012, and the decline in our transit and collocation services revenue.

As Bob mentioned, our value-added services revenue was 35% of total revenue during the first quarter, with sequential revenue growth of 5% from Q4 2012 and 16% year-over-year growth compared to the first quarter of 2012. We had another strong quarter of year-over-year growth from the online video platform and from our Acceleration services in addition to modest growth in consulting services. Sequential growth returned in Content Management; however, the loss of a large customer in Q4 led to a slight decline on a year-over-year basis. Our storage revenue also had a slight decline. However, we are continuing to see rapid growth for our Agile Storage offering, which now nearly 1/4 of our total storage revenue.

During the first quarter, Limelight's international operations represented 31% of total revenue, the same as it was in Q4 and Q1 of 2012. During Q1, our international revenue was negatively impacted by approximately $500,000 due to the strength of the U.S. dollar, primarily against the yen. We reported first quarter adjusted EBITDA of $2.8 million compared to $2.2 million for the first quarter of 2012 and $2.4 million last quarter.

Our Q1 GAAP loss from continuing operations was $8.1 million or $0.08 per basic share compared to a GAAP loss from continuing operations of $9.7 million or $0.09 per basic share in the same period in 2012 and compared to $10.3 million or $0.10 per basic share last quarter. We also reported first quarter non-GAAP net loss before stock-based compensation, litigation costs, amortization of intangibles, acquisition-related expenses and discontinued operations of approximately $4 million or $0.04 per basic share compared to a non-GAAP net loss of approximately $5.5 million or $0.05 per basic share in Q1 of 2012. Please refer to the tables included in our press release for the reconciliation of GAAP measures to these non-GAAP measures.

GAAP gross margin was 37% during Q1 compared to 38% in Q1 of last year and down from 39% in Q4 of 2012. Gross margin decreased over last quarter and last year due primarily to the decline in content delivery revenue and increased global consulting services costs, offset by increases from the growth in our value-added services. We believe the gross margins for our global consulting services will improve as we continue the transformation of our offering. Cash gross margin was 53% for Q1, down from 55% last quarter and the same period last year.

During the first quarter, our total operating expenses were approximately $26 million, down from $28 million last quarter and a decrease of approximately $770,000 from Q1 2012. Operating expenses decreased from Q4 due to a reduction in non-income related tax expense of approximately $1.6 million as we had an accrual for certain non-income based taxes in Q4 and we received a refund for other unrelated taxes in Q1.

In addition, our bad debt expense declined by approximately $600,000 from Q4. Our litigation expense decreased by approximately $300,000, and during Q4 we wrote off approximately $400,000 related to certain patent licenses that we acquired in 2010. These costs were offset by increased expenses related to our annual global sales kickoff of approximately $500,000 and an increased employee-related cost for annual merit raises and employer taxes of approximately $600,000.

Total depreciation and amortization for the first quarter was $8.1 million, down from $8.5 million last quarter and down from $8.2 million in the first quarter of 2012. Stock-based compensation expenses for the quarter was $3.4 million compared to $3.6 million last quarter and $4 million in Q1 2012.

Moving on to the balance sheet. Our combined cash and cash equivalents and short-term marketable securities balance on March 31, was approximately $120 million, down from $128 million in the fourth quarter of 2012. Our cash flow from operations during the first quarter was approximately $2.7 million.

During the first quarter, we spent approximately $2.6 million on capital expenditures, and we repurchased approximately $5.5 million of our common stock. The Board of Directors previously authorized the repurchase of a total of $50 million in common stock under 3 separate repurchase plans, the first of which was authorized in September 2012. With the first quarter repurchases, the third stock repurchase program is now complete.

Day sales outstanding for the quarter were 54 days, up from 52 days in the previous quarter and down from 57 days in Q1 2012. With that, I will turn it back to Bob.

Robert A. Lento

Thanks, Doug. This update provides status on what we've done during the first quarter. We are continuing our transformation into an innovative provider of high-value, high-performance integrated cloud-based services that help organizations more efficiently and more effectively manage and deliver their digital presence. We are positioning ourselves to create shareholder value from the accelerating digital presence market opportunity ahead of us. Our customers are looking to us for solutions to solve the unique challenges that they face engaging their audiences with compelling personalized content delivered with superior performance across all digitally delivered touch points.

As we communicated during our last earnings call, we are not currently providing financial guidance. Our focus continues to be on creating long-term value for Limelight shareholders. With that in mind, while we are directionally pleased with our Q1 performance, that doesn't mean that there won't be bumps along the way as we continue to make changes, refine our focus and execute on investments designed to create long-term value.

We are investing in adding capacity to our network and adding new functionality to our products. We expect to see the revenue impact from the additional network capacity toward the end of this year and beyond and to see our R&D investment expand our competitive differentiation as we move into 2014. However, these investments, combined with our near-term employee and customer churn, may create lumpiness in our top line and bottom line results over the next few quarters.

Our priorities for 2013, which are already underway, will help us drive -- will help drive us toward a focused, simplified and efficient business that will result in increased customer satisfaction and growth in shareholder value. Next week, we will announce the next generation of the Orchestrate Digital Presence platform. The launch will outline a roadmap of innovation leading to our vision of a fully integrated and operationalized digital presence platform. It will showcase our vision for our service offerings, our capabilities and how our solutions align with the market.

At this time, we will open the line up for questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from David Hilal of FBR.

David M. Hilal - FBR Capital Markets & Co., Research Division

I guess, first on the -- I appreciate the color on the different components of the value-added services piece, in terms of what saw growth and what didn't. Can you remind us the top 3 contributors and specifically, on professional services, what percent of VaaS that represents?

Douglas S. Lindroth

David, it's Doug. Yes, so it's interesting in the quarter, as we talked about with the strong growth we continue to see in video. So that's now the largest component within the value-added services group. It was previously storage and so now, the video group is the largest.

Robert A. Lento

And fastest-growing.

Douglas S. Lindroth

And fastest-growing, closely followed in size by storage and then content management. So those are the 3. On the professional services, within there, it's probably next in rank order. But we don't split that out in terms of what percentage of that is within the group.

David M. Hilal - FBR Capital Markets & Co., Research Division

Okay, that's helpful. On buybacks. You guys completed the outstanding authorization. You've got $120 million on the balance sheet and this quarter, it looks like free cash flow is breakeven. So you're not really losing money, at least this past quarter. And so thoughts there about taking advantage of more buybacks?

Douglas S. Lindroth

Yes, I mean, it's something that certainly we think about, the board thinks about what's the best uses of our cash, and it's constantly discussed. As Bob talked about in his section, we're definitely making investments to expand capacity. In the quarter, you didn't see a lot of that in terms of our CapEx, but you'll see more of that in coming quarters, plus the investments we're making in R&D. So we looked at where we are today and said, for right now, we're just going to continue to make the investments in the business and didn't do anything further on the buyback.

David M. Hilal - FBR Capital Markets & Co., Research Division

All right. And Bob, last quarter, you commented that headcount could grow 10% to 20% this year as you invest in the business. Is that still the plan? And on this call, you commented on employee turnover, so it sounds like that may have picked up. And so would that imply gross adds will need to be more than 10% to 20%? And is that a lot to do in a short period of time?

Robert A. Lento

So I think what we talked about last quarter was sort of the net adds being in the 10% to 20%. So gross adds, obviously, being higher than that because there's always some turnover. Obviously, with the change in management and lots of changes being made throughout the business, we have probably slightly higher turnover than we have experienced over the last few quarters. And I think that's somewhat to be expected. We just read a recent article in Harvard Business Review that talked about in the first 12 months of a company having a new CEO, turnover is typically greater than 30%, which is much higher than the average. So I think we're no different. We're making lots of changes, and so we're seeing that. To directly answer your question, in terms of our intentions and plans going forward, it is to increase headcount over the next few quarters, specifically in the area of research and development, will be one of the key areas that we would see that. So I think as we get into the latter part of this year, you'll see headcount higher than what it is today. I don't expect turnover to change that much, either negative or positive, but we're certainly looking to have that trend down in terms of involuntary turnover. So I think you'll see headcount rise through the year and turnover become less of a problem as things settle out.

David M. Hilal - FBR Capital Markets & Co., Research Division

All right. And then lastly for me, on the CDN part of the business. So Akamai had a pretty decent quarter there, and they cited macro volumes having picked up in the quarter. That part of your business wasn't -- the strength this quarter for you guys was VaaS, the CDN not as much. What did you see in terms of volumes? And is the customer churn hurting that number? I mean in the past, customer churn, I recall, seemed to be with more smaller customers. But let's – I just wanted to understand the traditional CDN part, what you saw there versus maybe what Akamai was saying?

Robert A. Lento

So I think it's early days in terms of us focusing on growing CDN. I think first quarter is encouraging in that while the revenue declined by 2%, it is less than it has been declining in previous quarters. We are adding new capacity in Q2 and Q3 to the network, and that's obviously a key component of being able to grow revenue. Despite that, I think we still saw traffic increase through our network. And like Akamai, we are still seeing price compression. I think they announced price compression in the 20% range. I think our number was higher than that. And so I think directionally, we're pleased with the progress that we're making, but it's only been one quarter. And so I think over the next few quarters, hopefully we'll see better results in that area, but traffic does continue to grow. I don't know, Doug, any additional?

Douglas S. Lindroth

Yes. I think that's right, and we did see an acceleration of traffic growth in Q1 from the last couple quarters to over 50% type of growth. Price compression was in the levels that we had seen the last couple of quarters, around 30%. So I think to your point on the churn, when you look at it and how we've typically measured it, and Bob mentioned it in the early part of the prepared remarks, less than 1% of revenue during the quarter. So not significant. It's still important that we reduce those levels of churn and make sure our account management teams that we split up now from our new customer are doing a good job on really focusing on those renewals, maintaining those good relationships with those core accounts and not having either share losses or absolute customer losses. So it's a combination of focus that, as Bob says, we'll get to from what we previously had, about a 4% decline, to 2%, to ultimately as we add more capacity and turn it around and start growing the CDN later in the year.


Our next question comes from Aaron Schwartz of Jefferies.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

I had a follow-up question on the CDN business. It was my understanding that a lack of capacity, if you will, was not the limiting factor for growth there. You had a lot of capacity in the networks. It was more just, I guess, managing the peaks and valleys of how your customers fill that capacity. So maybe you could walk through that. It might be helpful, and just kind of reconcile why just adding capacity here would help grow the revenue there when it seemed like you had plenty of capacity in your network to begin with.

Robert A. Lento

Well, there's a lot of different ways to measure capacity. The thing that we're sensitive to is time of the day. So there are certain times of the day where we have plenty of capacity and other times of the day where the network has been running hotter than we would like to see it. And so there's always a balance there, but we feel that in order to grow the revenue, obviously, we have to do a better job of selling the capacity that we have on "off peak hours." But we also have to grow capacity overall because, as Doug mentioned, traffic is growing very rapidly. So the goal for us is obviously to control price compression as best we can, sell into the valleys as best we can, and continue to grow our capacity so that as traffic continues to grow, we have the ability to take that on.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay. And then, Doug, I know you and the team are not giving guidance, but when you talk about adding that capacity, is there any sort of advice here on how we should think about the CapEx for the year relative to maybe your past comments that it's still sort of within your longer-term model?

Douglas S. Lindroth

Yes. I mean, you're right. We're not giving guidance. All I would say is similar to I think what we said on the last call, that the levels wouldn't be significantly different from what we saw in 2012, both from a dollar as a percentage of revenue.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Okay. And I guess, last question for me here. Bob, it sounds like you spent quite a bit of time in the quarter here talking to customers. As you sort of talk to the customer churn, I think you said it wasn't terrible but maybe not to your satisfaction. Was there any common denominator on sort of why churn was where it was? Is this competitive? Is it just not having the right sales coverage? Is there anything that you identified as you went through the review?

Robert A. Lento

Yes. I think there's probably 2 – obviously, they're all individual situations and the stories can vary quite a bit. But I think there's 2 themes that are controllable and addressable by us. One is we need to do a better job of managing the relationship and, therefore, that's why in Q1, we reorganized the sales force to have a dedicated focus on existing clients. And obviously, that just happened. And so while the customers may know it happened, they may not be seeing the benefit of that yet, but we're going to stay focused on that. And I think that will prove over time to be a great benefit to our existing customers, both in terms of us being able to retain what we're doing for them today, but more importantly, grow the relationship over time. So that's a big area that definitely is within our control. And the other area I think speaks to our desire and our plan to increase investments in our product development area. And so there are areas within our product where we are missing some features that are key to certain customers. And so we've got a very strong focus and sense of urgency on prioritizing those features and putting the right people and investments behind our development organization to be able to address those needs in the market. And there, again, I think we've done a good job in the first quarter of identifying what those issues are. We'll start to see those features coming out into the market in the second and third quarter and then obviously beyond, but addressing the near-term needs over the next couple quarters. And so as I looked at sort of the common themes across the customers, those are the 2 that I thought that were the biggest and in the control of Limelight Networks.


[Operator Instructions] Our next question comes from Michael Turits of Raymond James.

James Wesman

It's James Wesman sitting in for Michael. Bob, I just wanted to ask, sort of how the breakout is going so far between the development and the renewal sales teams. If I heard it correct, did you say it was done or is it still ongoing? And could you just give us some color on how the renewals team has executed so far versus your expectations?

Robert A. Lento

So I would talk about it differently than just the renewal team, right? So we have a dedicated team that is focused on account management. One of their goals is renewal. But more importantly, it is making sure that those customers understand the value that Limelight can bring to them in the form of the other products and services that we have available. And so it's to retain and to grow. We just -- again, we just did this reorganization in the middle of Q1, I would say sort of towards the end of February is when we completed it. So we now have teams in place, accounts assigned, but it's early days in terms of driving up effectiveness and productivity in that group. So I think we're pleased with where we are today. But again, it is early days. And then so the other group is focused on the business development in the market with new customers. And I think we did a very good job in Q1 of attracting many new customers. Now what we really have to focus on is making sure that we're focused on relationships that have the capability to grow with us over time and become long-term profitable relationships for both of us and for the customer. And again, it's early days there. So I would say we've completed the reorganization, so check mark there. In terms of driving up productivity and effectiveness, we're pleased with where we are, but it hasn't made a material difference in outcomes yet, because it's early days.

James Wesman

Understand. Doug, just taking a look at the CDN business. Some of your competitors have said that there's been an uptick in the software download trends lately. Have you guys been experiencing that at Limelight?

Douglas S. Lindroth

We have a good number of customers that do software downloads and whether that's game downloads or just straight software update type. And so we've seen good business. It typically in that market is often spiky type, from a new release, where there's a lot of use software being downloaded, and then you have the others, where it's very consistent in terms of a consistent method of releasing patches. But that's still a nice piece of our business, and we continue to see good performance in that portion of our business in Q1.

James Wesman

Did you see an upturn in Q1 in the business?

Douglas S. Lindroth

I didn't see anything as a significant upturn. And again, because we have quite a variety of customers in there that sometimes you see seasonal patterns, especially in Q4, on certain releases around the holidays. So seasonally up in Q4 normally, and roughly flat with that in Q1. So to me that it held fairly steady in Q1, maybe indirectly answers your question that it was still performing well.

James Wesman

Okay. And then just last question. On the Netflix contract for this year, any update on the contract out there?

Robert A. Lento

I think as you know, our contract goes till the end of this year, and I don't think that Netflix has announced any change to their plans. They're building some in-house capacity as well. And so we're just starting to have conversations about what the relationship would look like beyond 2013, but nothing to report there. Those conversations are ongoing. The relationship between the 2 companies is healthy. We're an important part of their ability to serve their customers today, and we look to work closely with them over the coming months to understand how we can serve them beyond the current contract.


[Operator Instructions] Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Have a great day.

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