Edgio Inc (EGIO) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Limelight Networks' 2016 Second Quarter Financial Results Conference Call. At the end of the prepared remarks, we will provide instructions for those interested and entering the queue for a question-and-answer session. As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Dan Boncel, Limelight's Chief Accounting Officer. Sir, you may begin.

Good afternoon and thank you for joining Limelight Networks' second quarter 2016 financial results conference call. This call is being recorded on July 27, 2016, and will be archived on our website for approximately 10 days.

Let me start by quickly covering the Safe Harbor. We would 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 2016 and beyond, our priorities, our expectations regarding pending litigation, our operational plans, and business strategies. 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. Please note that our non-GAAP second quarter 2016 results discussed today in this call exclude the $51 million provision related to the Akamai 703 litigation.

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 the prepared remarks from Bob and Sajid.

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

Thanks, Dan, and good afternoon. Today, we announced our second quarter results. This was a solid quarter that demonstrated our continued progress to improve our financial and operating performance. Revenue in the quarter was $43.6 million, down 1% from the second quarter of 2015 and essentially flat year-over-year excluding the impact of foreign currency exchanges. More importantly, our GAAP gross margin expanded to 43.2% this quarter, up 180 basis points from 41.4% in the year-ago quarter. We also continued to manage operating expenses, which were down 9% year-over-year despite an additional $1.3 million of litigation costs this quarter. As a result of this financial discipline, our cash position increased by $6.7 million, one of the best quarters in our history. We also reported a GAAP loss of $0.53 per share and a non-GAAP EPS of $0.01 per share, our first positive result on this measure since 2007. We are very pleased with these results.

As Dan has already mentioned, the non-GAAP amounts excluded the $51 million provision related to the Akamai's 703 litigation. I'm very proud of our continued ability to expand margins and generate cash. We remain disciplined on pricing this quarter to make sure we did not generate revenue at the expense of margins and cash. Our financial results in the quarter indicate that the strategy is working.

We also continue to expand and optimize our network during the quarter. We rolled out optimized versions of EdgePrism, the software that controls our network, dramatically adding to our capacity to deliver for our customers. With these software improvements, we achieved higher-than-expected capacity expansion, allowing us to slow our CapEx investments. In fact, we added almost as much capacity in the first half of 2016 than we did in the full year of 2015 while spending $7.6 million less in CapEx year-to-date. This is a very positive outcome for our customers and our shareholders.

As I look at the first half of 2016, I'm proud of the significant progress we've made over the past few years through fundamental structural changes in our business. As a result, after years of poor financial performance, we delivered in 2016 a good first quarter and an even better, stronger second quarter while continuing to prove our operational performance. The business is showing evidence of its potential and gaining momentum.

I'm encouraged that this progress is showing up across multiple metrics and not just a single dimension. When we compare ourselves to where we were three years ago, two years ago, last year, last quarter, we look much improved across multiple dimensions. For example, we generated more cash from operations this quarter than we had in any quarter over the last five years. Our year-to-date gross margin was 650 basis points higher than three years ago and we posted positive non-GAAP earnings this quarter for the first time since 2007. Our current year-to-date customer churn is nearly half the level it was three years ago as our customer satisfaction has improved dramatically with our NPS score increasing over 60 points since 2013.

Our network performance as measured by third parties has improved dramatically. We now rank in the top three for CDN throughput and response time, and we remain a leader for storage performance. Over the last two years, our service performance has improved with a 50% drop in service ticket despite more than a 50% increase in traffic. And finally, while higher than last year levels, our employee turnover this quarter is down materially since the second quarter of 2013. We believe these are impressive results and we expect these improvements to continue.

There have been recent developments on a couple of fronts with respect to our ongoing litigation with Akamai. First, our long-standing dispute with Akamai over the 703 patent finally appears to be coming to an end. On July 1, the District Court in Massachusetts issued final judgment in this case, awarding Akamai approximately $5.5 million in pre-judgment interest, which brings the total damages in the case to approximately $51 million. This is just over half the damages that Akamai requested in December of 2015 and also less the $63 million we disclosed as the top end of the range last quarter. We view this as a good result all things considered. As a result, we've regained access to approximately $12 million of the $63 million that was held in the letter of credit supporting the damages award.

The patent infringement case we filed against Akamai and XO Communications in the Eastern District of Virginia continues to move at a brisk pace. We intend to continue to vigorously enforce, protect and defend our intellectual property rights.

During the quarter, we had a few successes that I'd like to share. In May, we announced that Neustar had selected Limelight to support their DDoS mitigation network. Neustar, based on Virginia, is a provider of real-time information services and security solutions to protect against DDoS attacks. We are very excited to be working with them and believe that the coupling of our network and their technology will result in a security solution capable of handling the world's largest DDoS attacks.

In June, we announced that we had joined the Google Cloud Platform, CDN Interconnect Program. Customers will be able to leverage Limelight's network interconnectivity and CDN capabilities with Google Cloud Platform's product offerings. As part of this relationship, Google and Limelight will work together to drive customer success through technical integrations and mutual sales engagements. Joint customers will benefit from faster object delivery, global scale and the flexibility to use both Limelight and Google Cloud Platforms. Our relationship with Google is a strong indicator of our capabilities and commitment to securely deliver Internet traffic to organizations and consumers around the world.

In June, we continued our thought leadership with our State of Online Video Report. The research continues to show increasing adoption of over-the-top content, especially among millennials. While online video consumption continues to grow at a steady rate, online video quality is becoming increasingly important. We believe this research will help us and our customers better understand consumer trends and expectations, and how those trends and expectations translate into requirements for our customers. As we have in previous quarters, we continue to add important customers to our roster across all regions and across our key use cases of software download, video on demand and live streaming, including the delivery of website content and DDoS protection.

As I say every quarter, customer satisfaction was, is and will remain our top priority. It is the motivation for everything we do. Customer demand is healthy, market trends are positive and our customer satisfaction is improving. Our financial priorities for 2016 continue to be cash generation, margin expansion and revenue growth. We consider cash generation to be most important and we are delivering on this goal through margin expansion and discipline on operating expenses and CapEx. We have a strong team in place that is aligned and focused and I remain optimistic about Limelight's ability to meet our goals and generate shareholder value in 2016.

With that, I'll turn the call over to Sajid to discuss this quarter's financial performance in greater detail and provide an update to our guidance for 2016.

Thanks, Bob, and good afternoon. I'm happy to report one of the best quarters in Limelight's history. Second quarter 2016 revenue was $43.6 million, gross margin was 43.2%, cash gross margin was 54.5%, non-GAAP EPS was positive $0.01 and adjusted EBITDA was approximately $6.2 million. Keep in mind that GAAP EPS was a loss of $0.53 per share.

In the quarter, the impact of foreign exchange fluctuations decreased revenue by approximately $100,000 year-over-year. Excluding foreign exchange rate fluctuation, our revenue was essentially flat compared to prior year and up 4.4% sequentially. In Q2, international customers accounted for 40% of total revenue compared to 38% a year ago and approximately 19% of our second quarter revenue was in non-US dollar denominated currencies.

In Q2 2016, our top 20 customers accounted for approximately 62% of total revenue and over 90% of total traffic. We have remained focused on generating revenue growth from our largest customers. Revenue related to these customers grew year-over-year at a higher rate than Company average. Over the past several quarters, we have improved our market share position with Microsoft and in the second quarter of 2016, revenue from Microsoft represented more than 10% of our total revenue.

Gross margin of 43.2% is up 180 basis points from 41.4% in the prior-year quarter. Cash gross margin of 54.5% is also up 180 basis points from 52.7% in the second quarter of 2015. Contributing to this improvement, colocation fees decreased by more than 20% year-over-year due to the consolidation and upgrade of our network equipment in our data centers. Partially offsetting the colocation fee reduction is an increase in bandwidth expense. Compared to the second quarter of 2015, our delivery traffic volume increased 8%.

In the second quarter of 2016, total GAAP operating expenses were $73.2 million. Excluding the $51 million provision for litigation and $1.3 million of litigation-related expense, our operating expenses would have been $21 million or 48.2% of revenue. Q2 of last year included a credit of $1.2 million for the reversal of accrued litigation fees. Excluding that one-time credit, total operating expenses decreased $4.6 million or 18%. This is a good outcome and demonstrates the work we have done to control our operating expenses.

G&A expenses increased by $1.2 million or 19%. However, when we adjust for litigation expenses incurred this quarter as well as the credit in the prior year quarter, G&A expenses decreased $1.3 million or 18%. Payroll and related employee cost decreased due to disciplined hiring and a reduction in force in the fourth quarter of 2015. Bad debt expense decreased as well due to continued collection efforts and an improving quality of our customer base.

Sales and marketing expense decreased by $1.9 million or 19% versus the year-ago quarter. R&D expense was lower by $1.4 million or 18% versus Q2 2015. Both decreases are largely attributable to lower payroll and related expenses and the reduction in force in the fourth quarter of 2015. Interest and other expense was $400,000 in the second quarter of 2016 compared to $100,000 in Q2 2015. Fluctuations are primarily driven by changes in foreign currencies and interest expense related to our revolving credit facility.

GAAP net loss was $0.53 per share in the second quarter of 2016 compared to a $0.06 loss last year. We achieved non-GAAP net income of $0.01 per share in the second quarter of 2016 compared to a non-GAAP net loss of $0.04 per share in the second quarter of 2015. This is the first time we have achieved non-GAAP net income since the first year we were a public company in 2007. Adjusted EBITDA was approximately $6.2 million in the second quarter of 2016, up from $900,000 in the second quarter of 2015. Year-to-date adjusted EBITDA is $10.2 million, an increase of 700% from the first half of 2015. This is the highest adjusted EBITDA result in almost five years.

Moving to the balance sheet, at the end of the first quarter of 2016, we had cash and restricted cash of $86.9 million. This included a draw on our revolving credit facility of $12.8 million. At the end of the second quarter, we had cash and restricted cash of $93.7 million and the same $12.8 million drawn on our revolver, an increase in cash of $6.7 million. This increase in our cash balance was generated through our operating activities without significant variations in working capital and is the most cash provided from operations in over five years. We expect to pay Akamai's $51 million as final judgment on the 703 patent litigation in the third quarter. We are confident in our cash position and do not expect to require any additional financing, in fact, earlier this month, we repaid all outstanding amounts drawn on our revolving line of credit with Silicon Valley Bank.

During the quarter, we spent $300,000 in capital expenditures and acquired additional assets with a cost of $1.2 million through capital leases, bringing the total cash paid and finance for CapEx to $1.5 million in the quarter. We were able to lower our capital investments this quarter even as we expanded capacity in our networks at a rate well above growth in traffic. You've heard Bob say and it is so consequential that I want to repeat again. We have added almost as much capacity in the first half of this year as we did all of last year at a fraction of last year's cost. This achievement is tied directly to the investments we have made in R&D and profit enhancements and there is more efficiency to be gained.

DSO at the end of June 30, 2016, was 48 days versus 65 days at the end of the second quarter of 2015 and 52 days at the end of the fourth quarter. Based on our global revenue distribution, we typically expect DSO in the range of 50 to 55 days. As of June 30, we had approximately 104 million shares outstanding. Total headcount at the end of the quarter was 512, up 11 from the end of the first quarter 2016 and down 51 from the year-ago quarter.

So from a financial progress standpoint, this is a very noteworthy quarter. Coupled with the operational and business aspects, we are very pleased with our results this quarter. As I look back and compare the second quarter of 2015 to the second quarter of this year or the first six months of last year compared to this year, we have a very pronounced swing in our profitability profile and cash generation ability over this period. We have exceeded external expectations on key financial items that we can directly control such as gross margin, operating expenses, and non-GAAP earnings per share. Additionally, we have been able to increase our capacity through software enhancements while reducing CapEx. Based on performance data received from independent third party, Cedexis, we believe our infrastructure is operating more efficiently than our direct competitors and performing at levels that allows us to compete favorably in the market. As a result, with a smaller, more efficient footprint, our future capital requirement will continue to be lower than our competitors as we continue to refresh and expand our network. As an example, we believe in approximate terms, we deliver one-fifth the traffic, using one-twentieth the infrastructure when compared to our largest competitor. This gives us a marked advantage in our capital requirement to refresh [outlook]. It also makes us a lot greener in our energy footprint and utilization.

With that, let me move to forward guidance. After six months in this role, here is how I think of our business performance. Those are clearly elements over which we have less control, namely revenue and pricing, but we can be and need to be disciplined in these areas and we have been. Then, there are things we have a better control over such as cost, gross margin, expense management, R&D investments and capital deployment.

Based on the segment we target, our largest competitors are Akamai, Level 3 CDN and Verizon EdgeCast businesses. There are other regional and subsegment competitors, but these are the three that show up often and have similar capabilities and global footprint.

Two of the three of them have no public financial performance data. Akamai does provide detailed financial reporting and therefore is a good proxy for the industry in which we compete. In the near term, next two to three years, success should be measured in the form of revenue growth rates at or above our industry growth rate and gross margin and operating margin expansion at a high rate than our competitors. To us, that would be success and we set that as our goal.

Based on current market conditions, we can provide forward guidance as follows. For the balance of the year and after declining in first half of 2016, we expect revenue to grow in the single-digit percentage wise in the second half of this year compared to the second half of 2015. We plan to be disciplined in our approach to revenue generation and we believe this expected revenue growth rates will result in us continuing our gains in market share that we have already seen in the first half of this year. I take full responsibility for [tempering] our revenue growth as we pursue profitability.

We take a lot of pride in our cash generation because six months ago, we were being asked if we would survive as a Company based on our cash consumption history. In the first half of 2015, we consumed $4 million of cash from operations. In the first half of this year, we generated $10 million of cash which is a $14 million swing in cash generated from operating activity. This has very few [annals] in our industry or any industry. Everyone at Limelight has contributed in the phenomenal success of turning us from a cash-consuming to a cash-generating enterprise. We believe industry traffic will continue to grow at a healthy rate for the foreseeable future. We believe that during the first half, there was excess capacity in the industry. We did not and will not be value our services and sacrifice margin for revenue growth. This will better position us for the future.

Turning to gross margin, even with slightly lower revenue, we are increasing our expectation for gross margin improvement. We previously communicated we expect gross margins to increase in excess of 200 basis points for the year. We now expect gross margins to increase in excess of 250 basis points for the year. We are also moving up the lower end of our expectations for non-GAAP earnings per share. We previously expected non-GAAP EPS to be between negative $0.05 and positive $0.05 for 2016. We currently expected to be between breakeven to $0.05 positive.

Our non-GAAP guidance excludes the provision for litigation, litigation-related expenses and stock-based compensation. We expect CapEx to be below $17 million for the year, inclusive of any vendor financing, down from our previous expectation of less than $20 million. Excluding the payment of $51 million judgment, we expect to continue to generate cash from operations throughout the year. As a reminder, at the start of the year, we had planned on being cash flow positive excluding litigation-related expenses. This is a milestone year for Limelight and we want to be able to complete this turnaround in a sustainable and decisive way over the near term. We believe this fast builds of strong balance sheet generates cash flows from a growing business and is one that creates long shareholder value.

With that, we can open the call up to questions. Operator?

Thank you. (Operator Instructions) Jon Charbonneau, Cowen and Company.

Great, thanks for taking the questions. Obviously, there continues to be a lot of concern around very large customers increasingly shifting our traffic in-house, especially following Akamai's results last night. Can you give us an update on the trends you're seeing with your largest customers and has there been any notable change over the past couple of months? Thanks.

Well, I did say in the script, Jon, that we focus on the largest customers and they have been growing at a faster rate than the overall Company growth in terms of traffic and revenue, and our sequential revenue growth was 4.4%. So that is evidence of what we are seeing and I think it is quite different than what some in the marketplace are experiencing.

Yes, and I think Akamai when I read their transcript, they specifically named six customers, some of those customers are customers of ours and some are not; the ones that are , we do see them building in-house capacity, but we don't see them moving exclusively to in-house capabilities and so where they might have been exclusive with namely, in this case, Akamai, previously, they are likely to move to a mix between in-house delivery as well as third-party CDNs and we believe that we can participate in delivering for those customers in the future.

And then, just real quickly, if I may, can you just talk about kind of the pricing trends you did see in the second quarter? Did you see those three big competitors you noted? Did you see them get even more aggressive in pricing than what you saw, I guess in the first quarter? Thanks.

So, we have seen more aggressive pricing in the market. We believe that as you look at things like Akamai announced last night with many customers, reducing or leaving them, I don't remember the exact words they used, but I think there's excess capacity in the industry and the prices we've seen over the last few months have been lower than the historical price depreciation that you would normally see. And so, I think that price compression has accelerated and I think it's based on capacity that is idle in the industry. So I think it's a short-term phenomenon and as Sajid has said, we are trying to be very disciplined in terms of how we participate in those kinds of opportunities, both last quarter and going forward.

And Jon, just kind of bear in mind, I mean price compression is characteristic of our industry. So we expect some. I think what you should take away from our results is that our ability to costs out is actually exceeding our price compression and that's why we are not hesitant to raise our gross margins from 200 basis points which we've been saying over the last six months to now 250 basis points for the full year.

So we will do the catch up and more and so if you can stay disciplined, if you've got the right opportunities and if you stay focused on cost and can continue to go take that out, you have to do that. At some level, price compression creates new business models and that leads to more traffic and all of the things that we witnessed for many, many, many years in our history and expect to continue to see those trends going out in the future. I think there are ebbs and flows, it's just a given.

Great. Thank you.

Michael Turits, Raymond James & Associates.

This is (inaudible) for Michael Turits. Congrats on the quarter. Talk about any updates. You mentioned last quarter, some customers were a little slow to move to platforms, [then they're] moving on to your platform as expected? Thanks.

Yes. Customers, I mean by in large, this is -- again, this is not so much an excuse, but you planned for the best and hope for it and then you'll wait, because things happens in long way, I mean this is no different than any other industry. There are some events that don't move around, so you can take the Olympics for an example or sports events and there is a calendar and you know there is traffic and that's going to happen. But when you get to things like a launch of a software or a game, which is big business for us, if it moves from March to April, you do notice revenue move along with it and so, that's that. I wouldn't kind of dwell anymore on it except that that's what we dealt with, for the most part, it is the nature of our business. Also it is the reason to explain some of the revenue and then some of it is that nothing more disciplined.

Great. Thanks guys.

Rishi Jaluria, JMP Securities.

Hey, guys. Thank you for taking my questions and congrats on a solid quarter. A couple of questions, just wanted to get a little bit of clarity around. First, it looks like employee count increased from quarter to quarter where it's been decreasing, I mean is this kind of an anticipation of upcoming demand and seen that revenue kind of acceleration in the back half of the year that you guided to?

It's really more tied to the execution plan that we put in place at the beginning of the year in billing positions that will help us to achieve our goals, whether it would be on the sales, but more importantly on the operations side continuing to drive the efficiency improvements that we're looking to drive. It's not -- it's kind of material amount of additions and I don't think -- yes, I think we're more likely to remain fairly flat for the rest of the year, but there were positions that we been to is necessary to helping us achieve our goals.

Got it. And I wanted to get a little bit of clarity on the guidance, so we're expecting a single-digit revenue growth in Q3 and Q4 on a year-over-year basis, so that I guess implies, just looking at doing the math, low-single digit revenue full-year growth, which would be a little bit below 2015 and that's understandable, just given the turnaround and desire to be fiscally disciplined. I guess, can we start to expect revenue to continue to accelerate looking out to 2017 as the turnaround continues and as you get more efficiency out of the colocation projects?

Rishi, I think I've been very explicit. We are very fortunate to be in an industry with traffic growth and it grows year after year and it grows for different reasons, but it does grow. There are new businesses, there is efficiencies, there is quality of video, there is 4K, 6K, virtual reality, I mean you've got so many different events and a conference of all of these that creates a healthy environment for the industry. So there is no reason to believe that traffic growth will change, you just hope that it keeps in step with pricing. From time to time, industry has excess capacity, this isn't the first time and when it does, it needs to work its way through and from time to time the industry [startup] growth capacity and those are times when pricing goes through and begins to go up, so I think this is kind of a constant, but I do not see anything that would justify that traffic growth is not a multi-multi-year phenomenon.

Okay, and I wanted to get a little bit of clarity around the gross margin guidance, so you're guiding gross margins higher than what you expected, in spite of maybe lower revenue growth than you initially looked for and part of this is going to be the colocation and the software improvements. Are there any other drivers that's giving you confidence in raising that gross margin guidance?

Gross margin is a function up a couple of different things. We start off with the revenue and what pricing to hit on, and then you work your way down. So the people cost is essentially flat, maybe even up a little bit. The DNA as you can see has just been relatively flat as well. And so the rest of it is all coming from cloud and that is made up of bandwidth, which we've told you has actually gone up a little bit and then the rest of it is in co-location and we have done -- I mean, look at the capital expenditures. Co-location is a function of equipment that's out there and how efficiently you can use that equipment.

And through the efficiency of what we can do with the equipment that we have deployed, we've been able to add almost as much capacity in six months without the equivalent capital expenditure as we did all of last year.

And 2015 was a record year for adding capacity?

Yes. So this is largely driven by what we've been able to achieve and we've laid it out on the Investor Day, if you go and you can pull off some of the sites and what we've been able to do, you get a run rate of that, you get more, you get more. We're feeling good about what we've been able to do.

Okay, great. And last question from me and I'll jump off, but I mean with 40 percent-ish of your revenue coming from overseas, have you seen any or planned for any initial impact on it from a business perspective from the Brexit vote?

No, except for the fact that the currency, I mean we've got exposure to the pound at some overall as a Company, we don't have too much exposure to international currencies, but when I look at that blend, the big exposures are to the yen, to the euro, and to the pound. And so, what happens with the pound matters at some level to us. But I think it's very manageable and we've got costs in there as well. So to the extent it impacts revenue, it helps on the cost front a little, because we do pay rent and colo fees and all that in local currencies in those markets as well.

Okay. Great. Thank you so much.

Thanks, Rishi.

Mark Kelleher, D.A. Davidson.

Thanks.

Thank you, Mike.

Hi. Yes, I just wanted to -- you've put behind you the 703 litigation, but there are still some outstanding patent issues between you and Akamai. You've got some things asserted to them and they've got some things still asserted to you and that's all seems to be coming to head next January. Could you just kind of run through the timing of what's happening there and maybe the scope of possible outcomes that might happen?

We don't really know the scope of the possible outcomes yet. The next sort of two big steps in the case are damages, reports are due by the experts by the end of August. So we will get use into that and at the same time, the claim construction hearings will happen. So within the next sort of think of it as 45 days, we will know what claim construction looks like on both sides. We will know what the damages reports from the experts look like on both sides and then in October, there is a court-mandated mediation. Obviously, the goal of that is try to avoid a trial. If that's not successful, then there will be a trial that starts at January 3, it will last approximately three weeks. So those are the facts and then, the only thing I would add is truly opinion, we feel very, very good about the team that is representing us and the strength of our patents and our ability to come out as a [net] plaintiff.

Okay. And should we assume some increasing litigation costs in the operating line as we run through --?

We had $1.3 million last quarter, I think it was about $1.2 million in Q1. So I think as we move forward, it's likely that that number will increase, but not a ton. I think something in the kind of less than $2 million range, more likely in the $1.5 million-ish on average, so something in that range is likely.

And Mark, just as a reminder, when we started the year, we had said we would be cash flow positive excluding that expense. Given our view of what that expense is and how much it can be and what the business is doing, we have revised our guidance to say we will be cash flow positive, including that expense.

Okay, great, thanks.

Thank you so much.

Sameet Sinha, B. Riley.

Yes, thank you very much. Couple of questions here. So Sajid, you made a statement about excess capacity that needs to be worked through and you spoke about that in context of the second half guidance. So are you implying that there are certain businesses -- I'm sorry -- so pricing is coming down obviously and are you participating in that or are you not participating, you're staying away from those sort of contracts and that's why your revenue is being impacted?

Look, pricing comes down every year for as long as I can do a look back on this business, pricing comes down. At some time --

I mean the incremental price decline.

Yes, so sometimes it's a little bit faster and sometimes it's a little bit slower. Mostly, it's a function of capacity and somebody's desire to move share around or the inability of some people to both supply and price points or whatever it might be, but that's kind of an industry phenomenon. For us, we are being more disciplined. I am trying to solve for multiple things as we go ahead and get to the right outcome and this year, the most important thing for us, at least when we started the year, was to stay disciplined on the pricing and make sure that we can get to cash generation.

I mean, keep in mind, the Company was using $20 million of cash literally every year as you look back and we needed to turn that around and turn that around quickly, because at the start of the year, we were looking at total cash balance of around $23 million. So the priorities changed and as they did, we focused more on this and brought a little bit more discipline around it. And we knew well then that the ramification of that could be that if revenue did not come at the right point, we would be willing to stay disciplined around that and so we have. That doesn't mean we haven't gone up with some strategic accounts, that does not mean we've not taken on some business. But that does mean that what would be a normal course and [speed], we've kind of gone ahead and altered that and tried to put more discipline around what kind of business and at what margin.

Got it, thank you. So, looking at your top 20 customers, revenue growth was about 8% in Q1, was about 5% in the second quarter, how should we think about that, because I'm looking at the customers outside of the top 20 and there, revenue is declining on a year-over-year basis. So as we look into the second half, considering what we heard from Akamai yesterday, is most of the growth in the second half going to continue to come from your top 20 or are there customers in there which might be slowing down the spend or maybe even bring it down?

We have at least over the course of last two, three years placed a much greater emphasis on the largest customers. So you won't come in the top 100 to move into the top 50, you want some from the top 50 to move into the top 20. But there is a pronounced effort to go ahead and get a larger wallet share of the spend with our largest customers. And so we see that. Now, when you report flat revenue in the first half of this year, we were down compared to first half of last year, that just implies that if one segment is growing at a good rate, the rest must be not be growing at the equivalent rates, that just got to be the reason to make the math for it. So I think that begins to change some, but it's a gradual change.

Got it.

And I would say that the traffic trend is a different answer than the revenue trend, right, because the health of the industry in some ways should be measured by the traffic that's available in addition to the money that somebody gets in exchange for delivering that traffic. And the traffic trends are healthy, both across the subsegments within the customer base.

Got it. Thank you. Now in terms of Neustar, can you elaborate on that relationship? How do you see that building out, kind of the go- to-market strategy, is this going to be a combined sales team, if you can elaborate in terms of what would be the size of the customers that you are going after?

So I think it's going to take us a good two to three quarters to get the network fully enabled from a Neustar technology perspective. So you're looking at sort of Q1 of next year until they're fully enabled on our network, they have currently a base of customers that would be transitioned onto our network from their internal network and then they will continue to market their security offerings in the market. And every time they make a sale, that customer we put on our infrastructure, that's good for us, it's good for them. Additionally, once we are fully enabled, we will start to work with Neustar and work on some joint sales opportunities, but as I said, we are a few quarters away from that activity.

Okay. One final question. Can you tell us what is the revenues from Microsoft in the same quarter last year?

No, we do not break out, but it was less than 10%. So --

Right. There is not a comparative number, but clearly it's grown to a point where on flat revenue, they've become a larger portion of the [rural] number.

Great. Thank you very much.

Thanks so much.

At this time, I'm showing no further questions. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now all disconnect. Everyone, have a great day.