Edgio Reveals Positive Financial Outcomes and Major Milestones for Third Quarter of 2023
Bob Lyons, the President and CEO of Edgio commented on the company’s performance, stating that Edgio achieved a record number of bookings during the third quarter. This achievement reflects the company’s strong momentum and dedication to its transformation strategy. Lyons also mentioned the recent capital infusion, which he believes will provide Edgio with enhanced financial flexibility. This development is expected to bolster the ongoing momentum.
Lyons expressed confidence in the company’s reinforced strategic objectives, anticipating significant year-over-year improvements in Adjusted EBITDA and free cash flow for 2024. This outlook underscores Edgio’s robust position and optimistic prospects following a successful third quarter.
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Recent Highlights in Business
- The company unveiled a new logo and saw expansion revenues exceed revenue losses in Q3.
- There was a significant reduction in revenue churn, dropping by over 24% from Q4 2022 and by more than 35% in a sequential comparison.
- A record increase in application bookings was observed in Q3, rising by about 150% from Q2.
- Bookings for new logos saw an almost 400% increase, with upsell bookings also rising by nearly 300% sequentially in the same quarter.
- Major acquisitions for Applications included a €250 billion European automotive group and a national pet supplies retailer. Contract renewals were secured with an Asian airline and a major AI semiconductor firm. Upsell agreements included a major hardware company in Asia, a prominent U.S. health food brand, a leading Brazilian e-commerce unicorn, and an Indian media corporation.
- The company released a new API Security solution for general availability.
- A managed service offering was announced, along with a strategic partnership network with top streaming technology vendors like Accedo, Bitmovin, Grabyo, Vimond, and Wurl, allowing seamless technology integration across the entire streaming tech stack.
- High-level Protect and Perform Applications Bundles were introduced, combining top-tier web performance with a comprehensive web security suite and high-end Security Operations Center (SOC) support services in a unified, streamlined package. This initiative aims to simplify billing and reduce unpredictable costs.
- An investment in expanding the Security Operations Center (SOC) was announced to enhance security-managed services, incident response, and threat intelligence capabilities.
- The company was recognized with the “Competitive Strategy Leadership Award” by Frost & Sullivan and named “Overall Web Security Solution of The Year” by the CyberSecurity Breakthrough Awards. It is also a contender for InfoWorld’s Technology of the Year awards in the DevOps Security category.
- The company is on track to implement about $85-90 million in anticipated run-rate cost savings by the end of 2023, with projections for an increase by 2024.
Financial Overview for the Third Quarter:
- Total revenue reached $97.0 million, marking a 1.3% sequential increase. This rise is attributed to new and existing client revenue growth surpassing lost revenue.
- Compared to the same period last year, there was a 12.4% decrease. This reduction is linked to previously announced client losses at Edgecast and an extended booking cycle.
Gross Margin Analysis:
- GAAP gross margin stood at 23.9%, showing improvement from 22.6% in the previous quarter and a decrease from 25.8% year-over-year.
- The non-GAAP gross margin was 28.0%, up from 26.9% quarter-over-quarter and down from 31.4% in the same period last year.
- Cash gross margin improved to 32.1% from 30.8% sequentially, though it declined from 41.2% year-over-year. This improvement is partly due to higher revenue and ongoing cost-saving measures, partially offset by increased costs associated with a cloud platform service provider change.
Operating Expenses Insight:
- GAAP operating expenses, including various costs such as share-based compensation, restructuring charges, and acquisition-related expenses, amounted to 48% of revenue. This decreased from 57.3% in the previous quarter to 67.6% in the same quarter last year.
- Non-GAAP operating expenses, which exclude specific items like share-based compensation and restructuring charges, were 44.0% of revenue, down from 47.0% in the previous quarter and 48.0% year-over-year.
- Cash operating expenses, excluding depreciation and amortization, were 41.8% of revenue, compared to 44.8% in the previous quarter and 46.4% in the same period last year. This reduction is mainly due to effective cost-containment measures.
- The quarter saw an adjusted EBITDA loss of $9.5 million, an improvement from a $13.4 million loss in the previous quarter. This improvement is attributed to higher revenues and successful cost savings initiatives.
- Capital expenditure, net of payments from ISPs, was $4.9 million or 1.7% of total revenue for the year-to-date.
- The company plans to continue efficient capital expenditure, leveraging operational discipline, excess capacity, and the higher revenue contribution from software solutions with lower capital requirements.
- Cash, cash equivalents, and marketable securities were at $27.6 million as of September 30, 2023, down from $36.2 million as of June 30, 2023.
- Net cash used in operations during the quarter was $10.7 million.
2023 Financial Outlook for Edgio:
Stephen Cumming, CFO of Edgio, highlighted the company’s achievements over the past year, including the launch of award-winning products, accelerated market initiatives, operational improvements, and a stronger balance sheet. He emphasized the company’s intensified focus on revenue quality and unit economics. Combined with ongoing cost-saving initiatives, these efforts are expected to contribute to an expanded adjusted EBITDA margin in 2024.
Fourth Quarter 2023 Guidance:
- The projected revenue is anticipated to be between $96 million and $98 million.
- The adjusted EBITDA is expected to range from a loss of $1 million to a gain of $1 million.
- Capital expenditure is estimated to be in the range of $3 to $6 million.
Full-Year 2023 Revised Projections:
- The company now expects annual revenue to be between $391 million and $393 million, representing a year-over-year growth of 15.5 to 16.0 percent.
- Adjusted EBITDA is forecasted to be negative $38 to $36 million.
- Capital expenditure is projected to be between $10 and $13 million, accounting for about 2.6% to 3.3% of the revenue.
New Capital Infusion Announcement:
- Edgio has disclosed a new financial arrangement with Lynrock Lake Master Fund LP (“Lynrock”), an existing investor. This deal provides Edgio with $66 million in new financing.
- The agreement also involves converting Lynrock’s existing unsecured convertible notes due in 2025 into secured ones due in 2027.
- Further details about this arrangement can be found in a separate press release and a Form 8-K filing, available on the Investor Relations section of Edgio’s.
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