Limelight Networks' (LLNW) CEO Robert Lento on Q1 2018 Results - Earnings Call Transcript

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About: Limelight Networks, Inc. (LLNW)
by: SA Transcripts

Limelight Networks, Inc. (NASDAQ:LLNW) Q1 2018 Earnings Conference Call April 19, 2018 4:30 PM ET

Executives

Daniel Boncel - VP, Finance & Principal Accounting Officer

Robert Lento - President, CEO & Director

Sajid Malhotra - SVP & CFO

Analysts

Robert Majek - Raymond James

Mark Kelleher - D.A. Davidson & Co.

Jonathan Charbonneau - Cowen and Company

Timothy Horan - Oppenheimer & Co.

Sameet Sinha - B. Riley FBR, Inc.

Operator

Good day, ladies and gentlemen. Welcome to the Limelight Networks 2018 First Quarter Financial Results Conference Call. [Operator Instructions].

I will now turn the call over to Dan Boncel, Limelight's Chief Accounting Officer. Please go ahead.

Daniel Boncel

Good afternoon, and thank you for joining the Limelight Networks First Quarter 2018 Financial Results Conference Call. This call is being recorded on April 19, 2018 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 fact, such as our outlook for 2018 and beyond, our priorities, our expectations and our operational plans, business strategies and feature functionality announcements.

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 annual report on Form 10-K. 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 Lento, our Chief Executive Officer; and Sajid Malhotra, our Chief Financial Officer.

We will be available during the Q&A session at the end of prepared remarks from Bob and Sajid.

I will now like to turn the call over to Bob Lento.

Robert Lento

Thanks, Dan, and good afternoon. Today, we announced our first quarter results. This was an excellent quarter, building on the momentum of our record performance in 2017. On a year-over-year basis, revenue was up 16% for the first quarter and was our highest quarterly revenue ever. GAAP gross margin was also a record and was up 390 basis points over the year ago quarter.

I'm very proud to say that we were profitable this quarter, generating GAAP net income for the first time in our history as a public company without the benefit of any onetime items or reversals of contingent liabilities. Our non-GAAP earnings and adjusted EBITDA also set new records in the first quarter. As non-GAAP earnings more than tripled year-over-year, and our adjusted EBITDA was up 63% from the year ago quarter. We're extremely proud of these quarterly results, which were a strong start to 2018. We have momentum in our business and a solid foundation for future financial performance, which we believe positions us well to achieve our financial goals in 2018 and beyond.

We've made progress on multiple priorities during the first quarter. We continue to see evidence of improving customer satisfaction as traffic volume was up year-over-year, reaching levels second only to our seasonally high record traffic in the fourth quarter of 2017. At the same time, we also saw incident tickets declined by more than 20% compared to the year ago quarter. We're pleased that customers continue to trust us with more traffic as the quality and performance of our network continues to improve.

We continue to expand our geographic footprint in the first quarter in locations important to our customers. We completed expansion projects in the Middle East, Southeast Asia and South America, and this month we launched an important new site in South Africa. We're currently scoping a number of new locations across all regions based on the needs of our customers, which we believe will provide an important opportunity for growth. We also continue to further -- to build further improvements in our network capacity and performance globally through software optimization and server upgrades. For example, because of these efforts, our average capacity per server tripled from the start of 2017. We also observed an increase in throughput for our customers resulting from the fourth quarter launch of our new operating system as well as other software changes.

We saw an increase in demand for video delivery in the first quarter and continue to focus on building new innovative features and capabilities in this area. During the quarter, we introduced our digital rights management on the Fly solution that simplifies the encryption and delivery of content in all popular deal DRM formats, helping content distributors better manage and protect their intellectual property. We also previewed earlier this month, our WebRTC-based sub-second latency live global streaming solution at NAB. We expect to be the first to offer video streaming around the world with less than one second of latency using open and scalable technology that is supported on standard web browsers. Low-latency use cases includes sports broadcasting, gaming and live auctions. We believe in the strong future of the OTT market and we'll continue to focus on becoming the leading provider at scale.

We've made progress in edge services during the quarter as we continue to explore potential opportunities in this area. We believe our large-scale private global network gives us a unique ability to address customer's needs at the edge that require low latency and connectivity. We are pleased that our pipeline is growing, and we expect to gain momentum in this important market as the year progresses.

In January, we announced our agreement with Tencent Cloud, which allows us to offer CDN services to our customers in China using Tencent's infrastructure. We have also agreed to deliver content for Tencent and their customers using our global network. We're working closely together and recently began using Tencent to deliver a large mobile device customer software updates in China. We're working on other opportunities in our pipeline and expect this partnership will benefit us both.

Moving on to our patent infringement disputes with Akamai. On April 9, 2018, we entered into a definitive settlement and patent license agreement with Akamai that settled all outstanding legal disputes between us. The terms in the agreement required Akamai to pay us $14.9 million over five equal quarterly installments of $2.9 million each. The first such payment is scheduled to occur on May 9, 2018. Each party also licensed certain patents for their like to the other party and this agreement also includes a mutual covenant, not pursue on certain related patents for three years.

This agreement does not impact the 2016 settlement related to the 703 patent. All payments, to and from Akamai, will end in the second quarter of 2019. Our first quarter results were not impacted by this settlement and license agreement.

Looking ahead at the remainder of 2018 and beyond, we'll continue to focus on our long-term strategic priorities, creating customers for life, growing profitable revenue while generating cash, delivering significant and innovative features and capabilities and improving our position as employer of choice. We are very encouraged by our solid momentum on these priorities in the first quarter and expect it to continue. Market trends are positive and we're pleased with our competitive position. Our customer demand is healthy and our customer satisfaction continues to improve. We are also pleased with our ability to attract and retain talented employees. We generated a great first quarter, one of the best quarters in Limelight's history.

We believe that we are well positioned for continued revenue growth and margin expansion, and we remain disciplined in managing costs and pricing across our customer base. We believe this will translate into sustainable above market returns. With that, I'll turn the call over to Sajid to discuss the first quarter's financial performance in greater detail and our guidance for the rest of the year.

Sajid Malhotra

Thanks, Bob, and good afternoon. I'm delighted to talk to you about the impressive quarter for Limelight. For the first time in our history as a public company, we achieved GAAP profitability without the benefit of any onetime items or reversals of contingent liabilities. Last quarter, we mentioned GAAP profitability as a goal for 2018. We're extremely pleased to achieve that goal for this quarter. The hard work of our sales team continues to generate new logos, while the account management teams are providing strong support too and growing our existing customers. Our operations team has maintained a reliable, high-performing network that our customers recognize and as a result are reporting us with more traffic. Our research and development team continues to produce new software enhancement, allowing for higher throughput, greater capacity, additional functionality, all while continuing to develop new products. And our administrative functions are supporting this incremental business momentum with an impressive level of efficiency and effectiveness.

Now let us look at the financial results in a little more detail. Revenue in the quarter was a $52.1 million, up an impressive 16% from Q1 last year. It was our third consecutive quarter of double-digit percentage revenue growth, while continuing our trend of reporting record-high revenue. We experienced foreign exchange tailwinds in the quarter of approximately $450,000 or less than 1%, mostly due to changes in the euro, Japanese Yen and Korean Won. International customers accounted for 38% of total revenue in Q1 compared to 37% a year ago, approximately 17% of our first quarter revenue was in non-U.S. dollar-denominated currencies.

Our top 20 customers accounted for approximately 73% of total revenue in Q1. We've also experienced positive product and customer mix shifts as we continue to focus on traffic from customers who value reliability and performance and are willing to pay a premium for this competency. This translates into lower price compression and increased average revenue per customer. ARPU in the first quarter increased to $74,000 from $55,000 during the same period last year. For over two years, we have stayed disciplined pursuing customers and traffic that valued our improving quality and shedding the most price-sensitive and quality in different traffic. As a result, we believe, we have gained revenue share, had a lower than industry price compression and have seen dramatic improvement to our gross margin and operating margin.

Gross margin was 51.2% in the first quarter, an increase of 390 basis points over the same quarter last year. Cash gross margin was 60.3%, an increase of 200 basis points year-over-year, both are at a highest ever reported levels. We have expanded our global reach and footprint.

In addition, we have squeezed more out of our deployed capital to deliver record traffic. Our servers in many cases are delivering close to 5x what they did just a couple of years ago. Our ability to serve this traffic while our network infrastructure remains largely fixed is the biggest driver of margin expansion. We also experienced a slight decrease in bandwidth expense as a percent of revenue due to product mix and increasing focus on this expense line. We believe the adoption of OTT products as well as new revenue streams from edge services and low-latency live video streaming will continue to contribute to margin expansion for years to come.

Total GAAP operating expenses were $26.7 million, which is an increase of $2.1 million from the first quarter of 2017. G&A expense increased by $1 million, primarily due to an increase in legal expenses as we work to bring our lawsuit against Akamai to a resolution. Sales and marketing expense increased by $1 million due to increase in salary and variable compensation as we expanded our sales force.

R&D increased $100,000. Net interest income and other income and expenses were $200,000 in both Q1 of this year and last year. We reported net income of $150,000, long overdue, this is the first time, we have achieved GAAP probability borrowing any onetime items or loss contingency reversals in our history as a public company. Non-GAAP net income of $0.06 per share is also the highest in company history. By comparison in Q1 2017, we reported a $0.03 GAAP net loss and positive $0.02 per share of non-GAAP earnings. Adjusted EBITDA was $11 million, up 63% from $6.7 million in the first quarter of 2017.

Moving to the balance sheet and cash flow. We had cash and marketable securities of $43.7 million at the end of the first quarter, down from $49.4 million at the end of 2017. The big changes in the first quarter were as follows, we made our seventh of 12 $4.5 million payment from the 2016 settlement with Akamai. We also repurchased 1 million shares of our stock at $3.8 million. We paid our annual bonus to employees and paid $2 million for CapEx. Accounts payable increased $5.9 million. Given the improving operating results and our recent settlement with Akamai, we expect positive cash flow from operations for every quarter for the remainder of the year.

DSO, as of March 2018 was 54 days, an improvement of eight days from the end of the fourth quarter of 2017. We increased our borrowing capacity under a revolving credit agreement to $20 million, although, we have no plans to draw on it at the current time.

During the first quarter, Goldman Sachs, our then largest shareholder, sold another 15.3 million shares. As a reminder, they had previously sold 15 million shares in the fourth quarter of 2017. Coincident with the sale of these shares, Goldman has vacated their board seat. As of March 31, we had approximately 110 million shares outstanding. Total headcount at the end of the quarter was 544, up 11 from the end of last year. The increase is related to additional operational support and sales personnel.

In light of the strong first quarter performance, we're raising full year guidance across the board. Based on current market conditions, we expect revenue to be between $198 million and $202 million, up from $196 million to $200 million. Recall 2017 full year revenue was $184 million. We expect gross margins to increase by more than 150 basis points over 2017, up from our previous guidance of 100 basis point improvement.

GAAP EPS is expected to be between $0.07 and $0.11 per share and includes the positive impact of approximately $0.12 per share from the litigation settlement with Akamai, that concluded in April. We will record $14.9 million as other income in the second quarter of this year. We expect non-GAAP EPS to be between $0.13 and $0.17, up from $0.11 and $0.15. Adjusted EBITDA is now expected to be between $33 million and $37 million, revised up from $32 million and $36 million. Capital expenditures are expected to be lower and between $20 million and $22 million. Compared to our previous guidance of between $22 million and $24 million, essentially we are saying, we will get more revenue, keep more of it and spend less money than we thought previously in CapEx to serve this revenue. A really good outcome if we can execute it for the remainder of the year. It's not a given, it is detailed hard work, but if -- but it is the outcome we will be working towards.

In summary, we achieved some significant milestones this quarter. Record-high revenue, record-high gross margin, GAAP profitability and record-high non-GAAP income and adjusted EBITDA. In addition, we fundamentally changed the profile of our shareholder base. On developing and protecting our intellectual property, we believed in our legal position and are pleased with the certainty of the positive outcome.

Finally, we can move from the distraction from combating in the courtroom to solely competing in the marketplace. As we look ahead, we believe our edge services product and our new low-latency live video streaming products will differentiate us from our competition. The size of eSports and online gaming market is many times the size of CDN market. Our new low-latency live video streaming product aims to participate in the growth of that market space, as well as other potential verticals, and we believe our products will bring unique capabilities to the marketplace. Also, our improved performance and reliability of our network is allowing us to participate in the expanding OTT market. We are growing our pipeline in this space and expect it to continue to drive revenue growth. We are also experiencing significant interest with customers in regions we previously did not have much of presence in and have only recently expanded it. For example, in India, we meaningfully increased our footprint, and with it our traffic has grown and our performance is very strong. New potential customers are taking notice and they're expanding our sales force in that region.

We expect similar results in new regions such as Middle East, Africa, Latin America to drive revenue growth. Anticipating your question on pricing, let me say, there are many submarkets within the CDN market. Every ecosystem has scavengers. In ours, they're mediocre services providers, providing subpar services at rock-bottom prices. There is a market for that service. We are not in that game. We have a quality service and serve customers who demand quality and who care about experience of their customers. For this quality, we expect a fair price and that is good business for everybody. This strategy has worked for us for multiple quarters, and we will continue to follow it.

As for creating shareholder value and referring to the 30% Goldman sales and the Akamai litigation resolution, one of you remarked to me, the courtroom and board room overhang is behind us. The story is clear, simplified and has momentum. All of these factors and more make me excited for Limelight's future. With that, we'll open the call up for your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. The first question comes from Michael Turits with Raymond James.

Robert Majek

Sorry, this is Robert Majek for Michael. You made it clear in your prepared remarks that you're turning away unprofitable business. Can you help us quantify in any way, how much of business you're turning away and what your competitors are doing?

Sajid Malhotra

Hard to quantify. I think we've established ourselves and we've made it perfectly clear to the market and to the customers, said, this is what we're after. And very often, with the same customer they have different kinds of traffic. So they may have video traffic that they value one-way, they may have delivery of software, which they may value differently. They may have other streams that they value differently. So I think once you establish yourself that this is the quality and this is the price point and here's the behavior that you're going to follow, I think the market takes care of itself at some level from there. So I cannot say how much we turned away, how much we didn't, but all that said and done, the result of our action is higher revenue and a much higher gross margin outcome.

Robert Majek

And then just wanted to touch on the guidance. I know you don't guide quarterly but you materially beat your expectations this quarter, yet you increased your guidance by less than the beat. Should we read into that in anyway? Is that just conservatism on your part?

Sajid Malhotra

Here is the way I would answer that. We put a plan together for the year. And we want to execute against that plan. In the first quarter, we beat what our expectation was for the first quarter, and so we added that to the guidance. If we go ahead and beat in the second quarter, I expect we'll go ahead and add that to the guidance. But we're executing against the full year plan. And the expectations that the speed has does not normally line up exactly with what our plan might have been. So you'll see, in some cases, we actually beat and raise by an equal amount. In some cases, we beat and raise by a higher amount. And in some cases we beat and did not raise by a full amount. So traffic, for example, I don't think anybody on the street expected, we'll be taking down, even if revenues going up, you'd expect the opposite. And we're actually taking CapEx down. On the other end, revenue beat is a couple of million dollars and we've raised it by a couple, and so that's the way I would look at it.

Robert Majek

That's helpful. And then just lastly from me on capacity utilization. How much more traffic can your current infrastructure handle before you need to do a material upgrade?

Robert Lento

This is Bob. We don't really see the need to do -- I guess, it depends on how you define material. But between the CapEx spend that we have and have had over the last several quarters, and what we're seeing in terms of increased efficiency through software engineering and software optimization, we're clearly comfortable that we can meet our financial goals without any material change to CapEx spend, which is pretty closely aligned to the capacity needs.

Operator

The next question comes from Mark Kelleher with D.A. Davidson.

Mark Kelleher

I wanted to ask a couple of numbers questions first. Were there any 10% customers?

Sajid Malhotra

Just one. And we've had the same one for the last few quarters, which is Amazon.

Mark Kelleher

Okay. Sometimes you give us the traffic growth year-over-year in percentage. Can you do that?

Sajid Malhotra

Well, here's the thing, Mark. I don't mind giving the traffic growth. But I think for the wrong reasons people are growing a different instance from it than what they should. So for example, let me just kind of go through the math first, right? Like last quarter, we said traffic grew 12%, revenue grew 10%. And everybody said, "oh, the competition has traffic growing much faster than you have." So they must really be gaining share in this side than the other. I don't think that's right. Like we are doing this by design. I mean, I'm happy to give up 30 terabytes of traffic at some point 003 price in exchange for 3 terabytes of traffic at 0.3. When I do that, my traffic goes down by a lot. My revenue does not change, but as a result, I don't stress the organization. I don't stress the operations. I have leftover capacity of 2.7 that I don't use. I mean all of those good things happen as a result of making those choice decisions. That's what we're doing. We're running this business and managing it across the board for what we want to be the best outcome for our business. And I would say, that we are seeing traffic growth that is matching our desire for what the outcome we wanted to be. And I just want to stop there.

Mark Kelleher

Okay. All right. Fair enough. Moving off the numbers. Can you give us an update on your edge services efforts? Where do -- where should we look for some ramp there? Are there any particular opportunities that you would highlight?

Robert Lento

Yes, so Mark, I mean, I think we're pleased with what we're seeing in terms of momentum. As a reminder, we talked about in the last call. We just built a small team to focus on this coming into this year. So they're fairly new. In some cases, they were just employees that were moved in, and in some cases employees that we've hired in for their particular experience. But largely, just in place, in January, we're seeing some very interesting use cases for the capabilities that we have. We're seeing a growing pipeline. But as we said, even in the fourth quarter of last year when we talked, we don't expect it to be material amount of revenues this year. We're building towards it being material in 2019. And I'd say we're largely on track.

Operator

The next question comes from Jonathan Charbonneau with Cowen and Company.

Jonathan Charbonneau

Obviously, very strong revenue growth. Was there any one or two events that helped drive that or was it pretty broad-based? And then in terms of guidance, is there any change in the visibility you have into guidance this year versus maybe this time last year?

Sajid Malhotra

John, I think that this was a really solid growth quarter across the board. Particularly compared to the year ago period, I think we had more onetime events that were shaping that quarter differently than it -- what occurred this quarter. So I'm very pleased with how broad-based the quarter was and the performance was, and no real surprise from what we really expected at the start of the quarter. The best part about this is that you have a goal. The gross margin improvement was 570 basis points on a GAAP basis. And this quarter another 200. So I mean if you look at it between the two quarters, 15 months later, we've improved GAAP margins by 770 basis points. That is just -- I mean this isn't like we just started, right? We've been on this for the last two, three years. And the fact that we continue to make these kind of improvements with the revenue coming through, I think, that is what we're most proud about. You had a follow-on, which is around? I'm sorry.

Jonathan Charbonneau

About the visibility into guidance this year versus maybe at this point last year.

Sajid Malhotra

No, I mean, we look out ahead. You know what the business is. You basically get into annual agreements for the most part. And that gives you a hunting license. And have to perform every day and execute against your SLA to keep delivering that revenue. So that's what we're trying to do. There is no major mix shift in the customers except to the extent that we are less interested in some particular kind of traffic of -- that servicing the particular industry or a particular cost basis other than that, this looks just as good as it did getting into this quarter.

Operator

The next question comes from Tim Horan with Oppenheimer.

Timothy Horan

Congratulations on turning earnings positive. And I just have to say, I've followed the story for a very, very long time. I know it's just picked up the stock, but it's one of the better turnaround stories, I have seen in my 20-plus year career. So congratulations a great job. Keep it going.

Robert Lento

Thank you.

Timothy Horan

It seems like the reliability and performance and quality has been a critical part of this turnaround. Where do you think your -- the customer base is and your competitors are in kind of recognizing that? And do you have any metrics that you can point to. I guess, how much better are you than your peers now? Or any other color around that would be great.

Robert Lento

So we look at a few key metrics for the customers that we do software download. Activities for we look at throughput. And we've recently been very focused on that, and have seen some tremendous gains in throughput relative to where we were. And we have more coming in the first half of this year. So we're pretty -- very pleased with that. Last year, we focused a lot for the video providers on rebuffer and error rate, and so a tremendous change in that. But at the end of the day, the biggest test relative to our competition is the revenue growing or not. Because they can make those choices everyday and then we get further indication when we do our annual customer survey based on our Net Promoter Score, which we have seen going up at the same time that we have seen incident trouble tickets come down. So I think for most of our customers, it's a multidimensional relationship. It's not a single aspect that carries today, but clearly, the performance of the network depending on the type of content that's been distributed is really important. And then the ongoing reliability, been able to sustain that on a very consistent basis for long periods of time is also important. And we've seen positive results relative to all dimensions of the relationship.

Timothy Horan

And I know this is really hard to quantify at this point. But obviously, you've kind of had customer churn and revenue churn, basically by design. Where do you think you are in that process? I guess some -- are you down to the kind of customers and type of volumes that you want that line up well with your quality offering at this point? Or do we have another kind of one year or two transition?

Robert Lento

I think we'll always be in transition, right? We're investing a lot in low-latency video, edge services, and we'll constantly be looking to invest in ways that add value to our customer's ability to increase the experience for their customers. And so as we do that, we will certainly always be looking at where the areas that we can offer enhanced quality and enhanced experience. And we'll be always transitioning in that direction and moving away from things where maybe we're just as good as everybody else, but we don't offer any real sustainable differentiation. So I don't think we'll ever be done with any aspect of this, server efficiency, software optimization, customer optimization, new feature functionality. What I can tell you is, relative to where we were a few years ago, and certainly, when I first started in this business, we've come a long way. And we can go toe to toe with any competitor that we compete with and perform at a very effective level for our customer. But it is a never-ending process.

Timothy Horan

No. Clearly. But I guess, partially, what I was getting at, like, some of these services like eSports and online gaming and other things that are really, really mission-critical. Can you give us maybe a rough sense of what percentage of your revenue you think is really, really high quality at this point versus where it was three years ago, not just the ballpark figure?

Sajid Malhotra

The video business has become a big focus for us and we've clearly moved a lot more into that space. And it's probably become an even bigger portion of our revenue mix. So traffic mix has grown in that area more than anywhere else, and revenue mix has grown even more in that area. So that's kind of what I would point to. And I think from a competitive standpoint, because that's the other thing you were trying to get to it, I think we've got competitors who are extremely strong and are good viable competitors in this space. Now three, four years ago, we could not compete with them because our quality was not up to par. And so when you don't have quality, you're left with not too much ammunition except to fight on price. Today, when we're serving them the quality, we are asking for a different price point, and we're getting it because the customers are seeing that we are serving them the good quality. Now the first ones to see it are the ones that you are already serving.

Then comes the next blend of new customer acquisition. And at the same time, you've got other competitors who are focused more on just providing the lowest price point. Well, if you could get more price for your service, you would. So the reason why they are where they are is because they just can't get more price for that service. And others are trying to string together a bunch of acquisitions to see if they can kind of get to a combined solution. So you get everything. I mean, this is a vibrant ecosystem. There's a lot of growth across the globe, across multiple dimensions and traffic types. We're just trying to be very clear and very careful as we navigate, build our infrastructure, improve its quality, then go service the customers who value that particular subset the most and continue to do that. And I think the good news for us is that the demand and the growth in traffic is around the type of traffic that is demanding quality. Nobody wants poor video streaming experience. There isn't kind of such a thing as a subpar experience. You don't want audio and no video. You don't want buffering. You don't want pixelation. You don't want to be ordering 4K and getting standard definition. So all of that is playing to where we've tried to move the company. And so far, it seems to have worked out very well.

Operator

[Operator Instructions]. The next question comes from Sameet Sinha with B. Riley FBR.

Sameet Sinha

I have a couple of questions. I guess my first question would be, this time your top 20 customers grew 29%, just similar growth rates to what you saw in the third quarter. And at that time you indicated that you had pull some revenues from the fourth quarter into the third. Do you think something like that happened here as well? I'm just trying to figure out what sort of -- how should we normalize the growth rate over the next three quarters? Secondly, customer churn, I have seen a number of customers, the churn declined. Do you think this is a new normal or this is kind of a onetime thing and we should still be prepared for higher customer churn probably by design? Last question is in terms of Tencent, can you talk about the traffic commentary that you gave. You indicated, you're sending some traffic into China using Tencent, but traffic coming out of China, is it Tencent customers or Tencent's own traffic?

Robert Lento

So let me touch on Tencent. So as you know, we just started that relationship this year. We worked with them on pretty large opportunity for us to accommodate one of our customer's desire to deliver in China. And Tencent has been showing great quality. And so we're pleased with that. The intention is that we would carry both Tencent traffic and Tencent's customers' traffic outside of China. But we have not started that aspect of the relationship yet. So we're working on it. We think that it will be a two-way relationship. But we're very pleased with the fact that we are able to win this business leveraging their infrastructure. So I think there's more opportunity for both of us, but we're pleased with where we are so far.

On customer churn, what I would say on that is, we've been taking customer churn down every single year. There will always be some customer churn, customers go out of business, they stop whatever program is driving the need for CDN. And then there's just natural competitive things that will happen. And then on top of that, our desire to transition our customer base into higher quality activities and so there'll be some churn that will be managed by us as well. So some will be strategic on our part, some will be churn that we would have preferred didn't happen. So I think going forward, we see it. We've seen dramatic improvement over the last few years. I think that will sort of level itself out. It'll always be a part of the business. We don't view it as a huge problem today though that we have to go fix.

Sajid Malhotra

Sameet, I would just add -- let me just kind of throw some more color on customer churn, because I think there was a time here we had more than 1000 customers. We've done a few acquisitions that were very customer-intensive, but were not necessarily strategic to what we are trying to get done today. So as we kind of go ahead and sold the business back out, if you recall, applicability big customer count reduction. We stopped supporting for a few particular products that were hobbies, big reduction in customers, right? So I think most of that kind of slope, which was really steep as we were doing the cleanup, is behind us. And I think what you're seeing is a normalization that's taking place. So somewhere before we start growing customers again, we'll have to get to zero, and somewhere before we get to zero, we'll have to just shed 10, 15 customers. And I think that's what you're seeing right now. It's kind of that inflection point where the customer loss is in terms of total customer count, that slope has really, really, really reduced. And we hope sometime this year, we can turn the tide and get back to quarters where we actually grow the customer count. So that's kind of on the customer side.

On the revenue side, which was kind of your first question, so we're trying to answer them in reverse. The top 20 customers, right, makeup roughly more than 70% of the revenue. You get to the next 80% and you're north of 90% of the revenue, right? So I spend time thinking about growth rate here more than anything else. If I get 50% growth rate in the bottom, 600 versus 10% in the top 20, I'm happier of -- it's a lot more revenue dollars from getting that top 20. So that is where we want. And that is why we want that to be kind of the healthiest, fastest-growing part of our business. And so far it has been. Now from time to time, it moves around a little bit because, for example, just the nature of our business, we get big contracts that come up for renewals in second quarter, third quarter, right? And you see the dip. Then you see kind of the seasonality of this affair where as the weather gets warmer, people get more outdoors and get away from the television sets, traffic and channels and all that kind of moves around a little bit. So you get kind of a slight seasonality, Q3, Q4. But for the most part, the business is built around our largest customers, and we want those to be growing at a very healthy rate. And then there is just movement within those. Somebody drops out, others take their place and we kind of go ahead and focus on to this. Now don't get me wrong. It's not like we would not like the remaining 600 customers also to grow at those rates, but I think this is largely -- I mean, the business is going to do very well or not so well based on growth rates in the top 20 customers. And then the top 100, and then lastly, the remaining 600.

Sameet Sinha

Okay. One follow-up question. Clearly, you have better visibility into your cash flow. Now the litigation's done. You're getting some money from Akamai. Your payments to Akamai on the 703 patent is going to be done. You have about $21 million left in your buyback authorization. Is that something you plan to be active with? Clearly, you indicated your willingness to do so when you acquired about 1 million shares from Goldman. Can you elaborate on that, please?

Sajid Malhotra

Yes. I think from time to time, we've been active in the market and we are opportunistic. So for us, this is more about making sure we have enough cash to run the business through any down cycle, because you run out of cash once. We've maintained a pristine balance sheet. We don't have any debt. We -- even though we have capacity to take on some. But I want to be sure that we have enough cash for a rainy day and to be able to sustain the business over that period of time. When I think about it that way -- and so far the business has not been generating cash, right? So we are finally getting to the point where it begins to generate cash. I think when we have enough, then we'll figure out what is the best use for it. But rest assured, the cost of equity, the way I think about this in this business is very high. And therefore, the return on it, that would be expected similarly high. The cost of debt much less. And I think any investment that we make and any repositioning that we do of this cash should be consistent with the returns that we expect to get for the shareholders, because I don't have any debt, so there is no debt servicing cost associated with it.

Operator

This concludes our question-and-answer session, and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Robert Lento

Thanks, everyone.