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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from                          to                         

Commission file number 001-33508

 Item

Edgio, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware						20-1677033
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

11811 North Tatum Blvd., Suite 3031,

Phoenix, AZ 85028

(Address of principal executive offices, including Zip Code)

(602) 850-5000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act;

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, par value $0.001 per share			EGIO			Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☑    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☐			Accelerated filer			☑
Non-accelerated filer			☐			Smaller Reporting Company			☐
						Emerging Growth Company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☑

The number of shares outstanding of the registrant’s Common Stock, par value $0.001 per share, as of November 8, 2023: 225,546,807 shares.

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Table of Contents

EDGIO, INC.

FORM 10-Q

Quarterly Period Ended September 30, 2023

TABLE OF CONTENTS

						Page
Special Note Regarding Forward-Looking Statements						3
PART I. FINANCIAL INFORMATION
Item 1.			FINANCIAL STATEMENTS
			Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022			5
			Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022			6
			Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022			7
			Unaudited Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022			8
			Unaudited Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2023 and 2022			10
			Notes to Unaudited Consolidated Financial Statements			11
Item 2.			MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			36
Item 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			49
Item 4.			CONTROLS AND PROCEDURES			50
PART II. OTHER INFORMATION
Item 1.			LEGAL PROCEEDINGS			53
Item 1A.			RISK FACTORS			53
Item 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			55
Item 3.			DEFAULTS UPON SENIOR SECURITIES			55
Item 4.			MINE SAFETY DISCLOSURES			55
Item 5.			OTHER INFORMATION			56
Item 6.			EXHIBITS			57
			SIGNATURES			58

 

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. Forward-looking statements generally can be identified by the words “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events, as well as trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These statements include, among other things:

•our beliefs regarding delivery traffic growth trends and demand for digital content and edge services;

•our expectations regarding revenue, costs, expenses, gross margin, and capital expenditures;

•our plans regarding investing in our Media and Applications platforms, our coordinated complete solution to deliver instant, secure, and reliable digital experiences, as well as other products and technologies;

•our beliefs regarding the competition within the digital edge platform industry;

•our beliefs regarding the growth of our business and how that impacts our liquidity and capital resources requirements;

•our expectations regarding headcount and our ability to recruit personnel;

•the impact of certain new accounting standards and guidance as well as the time and cost of continued compliance with existing rules and standards;

•our plans with respect to investments in marketable securities;

•our expectations and strategies regarding acquisitions;

•our expectations regarding litigation and other pending or potential disputes;

•our ability to remediate the material weaknesses identified in internal control over financial reporting;

•our determination to restate the prior period consolidated financial statements and its impact on investor confidence and reputational issues;

•our ability to maintain an effective system of internal controls;

•our estimations regarding taxes and belief regarding our tax reserves;

•our approach to identifying, attracting and keeping new and existing clients, our focus on core market growth segments where we have a right-to-win, as well as our expectations regarding client turnover;

•the sufficiency of our sources of funding;

•our beliefs regarding our interest rate risk;

•our beliefs regarding inflation risks;

•our beliefs regarding expense and productivity of and competition for our sales force;

•our beliefs regarding the significance of our large clients;

•our beliefs regarding the United States and global economic and geopolitical conditions; and

•our beliefs regarding the impact of health epidemics and pandemics, such as the COVID-19 pandemic, on our current and potential clients, our balance sheet, financial condition, and results of operations.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the caption “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC”).

In addition, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

The forward-looking statements contained herein are based on our current expectations and assumptions and on information available as of the date of the filing of this Quarterly Report on Form 10-Q. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Unless expressly indicated or the context requires otherwise, the terms “Edgio,” “company,” “we,” “us,” and “our” in this document refer to Edgio, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries. All information is presented in thousands, except per share amounts, client count, headcount and where specifically noted.

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PART I. FINANCIAL INFORMATION

Item 1.        Financial Statements

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Edgio, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)

			September 30, 2023						December 31, 2022
			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	27,633					$	55,275
Marketable securities			—						18,734
Accounts receivable, net (1)			66,746						84,627
Income taxes receivable			1,339						105
Prepaid expenses and other current assets (1)			33,682						36,374
Total current assets			129,400						195,115
Property and equipment, net			70,170						73,467
Operating lease right of use assets			4,614						5,290
Deferred income taxes			2,759						2,338
Goodwill			168,547						169,156
Intangible assets, net			75,592						91,661
Other assets (1)			2,191						5,353
Total assets			$	453,273					$	542,380
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable (1)			$	78,252					$	52,776
Deferred revenue			8,972						9,286
Operating lease liability obligations			2,769						4,557
Income taxes payable			2,944						3,133
Financing obligations			9,234						6,346
Other current liabilities (1)			49,877						76,160
Total current liabilities			152,048						152,258
Convertible senior notes, net			123,292						122,631
Operating lease liability obligations, less current portion			7,465						9,181
Deferred income taxes			1,427						596
Deferred revenue, less current portion			1,555						2,949
Financing obligations, less current portion			13,030						13,784
Other long-term liabilities			855						1,658
Total liabilities			299,672						303,057
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 7,500 shares authorized; no shares issued   and outstanding			—						—
Common stock, $0.001 par value; 300,000 shares authorized; 225,533 and 222,232 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively			226						222
Common stock contingent consideration			16,300						16,300
Additional paid-in capital			817,390						807,507
Accumulated other comprehensive loss			(12,148)						(11,665)
Accumulated deficit			(668,167)						(573,041)
Total stockholders’ equity			153,601						239,323
Total liabilities and stockholders’ equity			$	453,273					$	542,380

(1)    Includes amounts due to/from related parties. See Notes 6, 9, and 20 for further details.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Edgio, Inc.

Unaudited Consolidated Statements of Operation

(In thousands, except per share data)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Revenue (1)			$	97,035					$	110,832					$	294,748					$	229,757
Cost of revenue:
Cost of services (1)			66,359						67,140						200,454						138,531
Depreciation — network			3,965						10,903						11,363						23,542
Amortization — technology			3,516						4,166						10,549						5,354
Total cost of revenue			73,840						82,209						222,366						167,427
Gross profit			23,195						28,623						72,382						62,330
Operating expenses:
General and administrative (1)			13,015						22,138						44,331						64,783
Sales and marketing (1)			15,433						14,448						51,222						32,909
Research and development (1)			15,958						32,462						55,713						54,211
Depreciation and amortization			2,126						1,777						6,392						3,129
Restructuring charges			72						4,070						3,908						9,136
Total operating expenses			46,604						74,895						161,566						164,168
Operating loss			(23,409)						(46,272)						(89,184)						(101,838)
Other income (expense):
Interest expense			(1,604)						(1,546)						(4,882)						(4,434)
Interest income			304						140						853						200
Other income (expense), net			705						(1,005)						(649)						(2,864)
Total other expense			(595)						(2,411)						(4,678)						(7,098)
Loss before income taxes			(24,004)						(48,683)						(93,862)						(108,936)
Income tax expense (benefit)			487						440						1,264						(18,943)
Net loss			$	(24,491)					$	(49,123)					$	(95,126)					$	(89,993)
Net loss per share:
Basic			$	(0.11)					$	(0.22)					$	(0.43)					$	(0.53)
Diluted			$	(0.11)					$	(0.22)					$	(0.43)					$	(0.53)
Weighted-average shares used in per share calculation:
Basic			223,657						220,194						223,011						169,166
Diluted			223,657						220,194						223,011						169,166

(1)Includes revenue and costs from related parties. See Note 20 for further details.

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Edgio, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(In thousands)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2023						2022						2023						2022
Net loss			$	(24,491)					$	(49,123)					$	(95,126)					$	(89,993)
Other comprehensive gain (loss), net of tax:
Unrealized gain (loss) on investments			—						46						(6)						13
Foreign currency translation loss			(827)						(2,095)						(477)						(5,130)
Other comprehensive loss			(827)						(2,049)						(483)						(5,117)
Comprehensive loss			$	(25,318)					$	(51,172)					$	(95,609)					$	(95,110)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Edgio, Inc.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands)

For the Three Months Ended September 30, 2023

			Common Stock												Common Stock Contingent Consideration						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total
			Shares						Amount
Balance June 30, 2023			223,380						$	223					$	16,300					$	814,405					$	(11,321)					$	(643,676)					$	175,931
Net loss			—						—						—						—						—						(24,491)						(24,491)
Foreign currency translation adjustment, net of taxes			—						—						—						—						(827)						—						(827)
Exercise of common stock options			13						—						—						5						—						—						5
Vesting of restricted stock units			2,175						3						—						(3)						—						—						—
Restricted stock units surrendered in lieu of withholding taxes			(815)						(1)						—						(675)						—						—						(676)
Issuance of common stock under employee stock purchase plan			780						1						—						550						—						—						551
Share-based compensation			—						—						—						3,108						—						—						3,108
Balance September 30, 2023			225,533						$	226					$	16,300					$	817,390					$	(12,148)					$	(668,167)					$	153,601

For the Three Months Ended September 30, 2022

			Common Stock												Common Stock Contingent Consideration						Additional Paid-In Capital						Accumulated Other Comprehensive Loss
			Shares						Amount																								Accumulated Deficit						Total
Balance June 30, 2022			219,706						$	220					$	16,900					$	793,969					$	(11,413)					$	(477,392)					$	322,284
Net loss			—						—						—						—						—						(49,123)						(49,123)
Change in unrealized loss on available-for-sale investments, net of taxes			—						—						—						—						46						—						46
Foreign currency translation adjustment, net of taxes			—						—						—						—						(2,095)						—						(2,095)
Exercise of common stock options			320						1						—						589						—						—						590
Vesting of restricted stock units			1,315						1						—						(1)						—						—						—
Restricted stock units surrendered in lieu of withholding taxes			(446)						—						—						(1,562)						—						—						(1,562)
Share-based compensation			688						—						—						4,960						—						—						4,960
Issuance of common stock for business acquisition			—						—						—						2,742						—						—						2,742
Common stock contingent consideration related to business acquisition			—						—						(600)						—						—						—						(600)
Balance September 30, 2022			221,583						$	222					$	16,300					$	800,697					$	(13,462)					$	(526,515)					$	277,242

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For the Nine Months Ended September 30, 2023

			Common Stock												Common Stock Contingent Consideration						Additional Paid-In Capital						Accumulated Other Comprehensive Loss						Accumulated Deficit						Total
			Shares						Amount
Balance December 31, 2022			222,232						$	222					$	16,300					$	807,507					$	(11,665)					$	(573,041)					$	239,323
Net loss			—						—						—						—						—						(95,126)						(95,126)
Change in unrealized gain on available-for-sale investments, net of taxes			—						—						—						—						(6)						—						(6)
Foreign currency translation adjustment, net of taxes			—						—						—						—						(477)						—						(477)
Exercise of common stock options			19						—						—						8						—						—						8
Vesting of restricted stock units			3,356						4						—						(4)						—						—						—
Restricted stock units surrendered in lieu of withholding taxes			(854)						(1)						—						(869)						—						—						(870)
Issuance of common stock under employee stock purchase plan			780						1						—						550						—						—						551
Share-based compensation			—						—						—						10,198						—						—						10,198
Balance September 30, 2023			225,533						$	226					$	16,300					$	817,390					$	(12,148)					$	(668,167)					$	153,601

For the Nine Months Ended September 30, 2022

			Common Stock												Common Stock Contingent Consideration						Additional Paid-In Capital						Accumulated Other Comprehensive Loss
			Shares						Amount																								Accumulated Deficit						Total
Balance December 31, 2021			134,337						$	134					$	—					$	576,807					$	(8,345)					$	(436,522)					$	132,074
Net loss			—						—						—						—						—						(89,993)						(89,993)
Change in unrealized loss on available-for-sale investments, net of taxes			—						—						—						—						13						—						13
Foreign currency translation adjustment, net of taxes			—						—						—						—						(5,130)						—						(5,130)
Exercise of common stock options			3,515						4						—						8,629						—						—						8,633
Vesting of restricted stock units			2,837						3						—						(3)						—						—						—
Restricted stock units surrendered in lieu of withholding taxes			(934)						—						—						(3,371)						—						—						(3,371)
Issuance of common stock under employee stock purchase plan			280						—						—						728						—						—						728
Share-based compensation			688						—						—						17,300						—						—						17,300
Capital Contributions			—						—						—						1,884						—						—						1,884
Issuance of common stock for business acquisition			76,968						77						—						189,308						—						—						189,385
Common stock contingent consideration related to business acquisition			—						—						16,300						—						—						—						16,300
Issuance of common stock for employee compensation arrangements			3,892						4						—						9,415						—						—						9,419
Balance September 30, 2022			221,583						$	222					$	16,300					$	800,697					$	(13,462)					$	(526,515)					$	277,242

-

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Edgio, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

			Nine Months Ended September 30,
			2023						2022
Operating activities
Net loss			$	(95,126)					$	(89,993)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			28,304						32,025
Share-based compensation			12,246						22,656
Foreign currency remeasurement loss			649						614
Deferred income taxes			—						(19,117)
Gain on sale of property and equipment			(33)						(47)
Accounts receivable charges			1,300						671
(Accretion) amortization of (discount) premium on marketable securities			(258)						526
Noncash interest expense			661						634
Noncash capital contribution from parent			—						3,189
Changes in operating assets and liabilities:
Accounts receivable			16,581						(22,391)
Prepaid expenses and other current assets			(3,194)						(3,475)
Income taxes receivable			(1,234)						(721)
Other assets			334						(200)
Accounts payable and other current liabilities			(5,058)						51,537
Deferred revenue			645						4,754
Income taxes payable			(2,132)						(424)
Other long term liabilities			(801)						(57)
Net cash used in operating activities			(47,116)						(19,819)
Investing activities
Purchases of marketable securities			(9,579)						(19,781)
Sale and maturities of marketable securities			28,565						45,191
Purchases of property and equipment			(6,620)						(30,212)
Proceeds from sale of property and equipment			33						47
Cash acquired from acquisition of business			—						29,829
Net cash provided by investing activities			12,399						25,074
Financing activities
Proceeds from capital contributions			2,135						—
Proceeds from financing obligations			1,733						12,604
Proceeds from related parties			6,027						—
Repayment of financing obligations			(2,910)						(3,807)
Payments of employee tax withholdings related to restricted stock vesting			(870)						(3,371)
Proceeds from employee stock plans			559						9,361
Net cash provided by financing activities			6,674						14,787
Effect of exchange rate changes on cash and cash equivalents			401						(2,654)
Net (decrease) increase in cash and cash equivalents			(27,642)						17,388
Cash and cash equivalents, beginning of period			55,275						41,918
Cash and cash equivalents, end of period			$	27,633					$	59,306
Supplemental disclosure of cash flow information
Cash paid during the period for interest			$	2,804					$	4,748
Cash paid during the period for income taxes, net of refunds			$	1,838					$	1,202
Common stock issued in connection with acquisition of business			$	—					$	186,196
Common stock contingent consideration related to business combination			$	—					$	16,300
Common stock issued for employee compensation arrangements			$	—					$	9,419
Noncash additions to financing receivables			$	4,558					$	11,865
Noncash additions to short-term financing liabilities			$	1,958					$	2,919
Noncash additions to long-term financing liabilities			$	2,600					$	8,946
Property and equipment remaining in accounts payable and other current liabilities			$	6,262					$	1,323

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Edgio, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2023

1. Nature of Business

Edgio, Inc. (“Edgio”) is a globally-scaled, edge-enabled solutions provider for fast, secure, and frictionless digital experiences. Our solutions include customer-focused edge platforms running on top of our Global Network, Media and Applications Platforms. The media platform enables companies to stream large files (video, software downloads, live events) across the globe in a fast and secure way. The Edgio applications platform enables our clients to build, secure, and accelerate their web-based applications.

We were incorporated in Delaware in 2003 and have operated in the Phoenix metropolitan area since 2001 and elsewhere throughout the United States since 2003. We began international operations in 2004. On June 15, 2022, we changed our corporate name from Limelight Networks, Inc. to Edgio, Inc.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities Exchange Commission (the “SEC”). They do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim periods presented and of a normal recurring nature. This quarterly report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and footnotes included in our annual report on Form 10-K for the fiscal year ended December 31, 2022. All information is presented in thousands, except per share amounts and where specifically noted.

The consolidated financial statements include accounts of Edgio and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Corrections of prior period presentation

In the third quarter of 2023, the company corrected its prior period presentation of amortization of acquired technology and reclassified amounts recorded for amortization of acquired technology from total operating expenses within the caption "depreciation and amortization” to cost of revenue within the caption "amortization - technology" in the consolidated statements of operations. The company's management believes that acquired technology directly relates to technology used to provide services to its customers, and therefore, it is appropriate to be included in cost of revenue within the consolidated statements of operations. The correction of its prior period presentation of amortization of acquired technology did not impact operating loss, net loss, or loss per share for any historical periods. These resulting reclassifications also did not impact the consolidated balance sheets, consolidated statements of stockholders’ equity, or consolidated statements of cash flows for any historical periods.

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The impact of the reclassifications for prior comparable periods are as follows:

			Three Months Ended September 30, 2022																		Nine Months Ended September 30, 2022
			Prior presentation						Amounts reclassified						Revised presentation						Prior presentation						Amounts reclassified						Revised presentation
Revenue			$	110,832					$	—					$	110,832					$	229,757					$	—					$	229,757
Cost of revenue:
Cost of services			67,140						—						67,140						138,531						—						138,531
Depreciation — network			10,903						—						10,903						23,542						—						23,542
Amortization — technology			—						4,166						4,166						—						5,354						5,354
Total cost of revenue			78,043						4,166						82,209						162,073						5,354						167,427
Gross profit			32,789						(4,166)						28,623						67,684						(5,354)						62,330
Operating expenses:
General and administrative			22,138						—						22,138						64,783						—						64,783
Sales and marketing			14,448						—						14,448						32,909						—						32,909
Research and development			32,462						—						32,462						54,211						—						54,211
Depreciation and amortization			5,943						(4,166)						1,777						8,483						(5,354)						3,129
Restructuring charges			4,070						—						4,070						9,136						—						9,136
Total operating expenses			79,061						(4,166)						74,895						169,522						(5,354)						164,168
Operating loss			$	(46,272)					$	—					$	(46,272)					$	(101,838)					$	—					$	(101,838)

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions, and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results and outcomes may differ from those estimates. The results of operations presented in this quarterly report on Form 10-Q are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or for any future periods.

In accordance with its accounting policies, the company reviews the estimated useful lives of its property and equipment on an ongoing basis. In January 2023, we completed an assessment of the useful lives of our network equipment and concluded to adjust our estimate of the useful life of our network equipment from three to five years due to advances in technology and improvements in how we operate our network equipment. The effect of this change in estimate, effective January 1, 2023, was a reduction of $2,692 and $9,826, primarily in depreciation - network expense in cost of services within our consolidated statement of operations, a decrease in net loss by approximately $2,622 and $9,472, and a decrease in basic and diluted loss per share by $0.01 and $0.04, for the three and nine months ended September 30, 2023, respectively.

Restatement of Previously Issued Consolidated Financial Statements

The company restated the consolidated financial statements for the years ended December 31, 2021 and 2020 presented in its Annual Report on Form 10-K for the year ended December 31, 2022, necessary to correct for the following errors: (i) accounting for certain financing arrangements (as failed sale leasebacks), (ii) accounting treatment for certain transitional services, and (iii) other immaterial adjustments. In addition, the company restated its unaudited quarterly financial data for the periods ended September 30, 2022 and 2021, June 30, 2022 and 2021, and March 31, 2022 and 2021. Such restated and unaudited quarterly financial data and related impacted amounts were presented in the company's Annual Report on Form 10-K for the year ended December 31, 2022. The discussion of financial results presented in this quarterly report on Form 10-Q reflects such restated amounts. There were no restatement related expenses for the three months ended September 30, 2023. For the nine months ended September 30, 2023, we incurred restatement related expenses of $4,763, included in general and administrative within our unaudited consolidated statement of operations.

Adopted Accounting Standards

None.

Recently Issued Accounting Standards applicable to Edgio, Inc.

None.

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Significant Accounting Policies

There have been no changes in the significant accounting policies from those that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Our contractual arrangements with customers generally specify monthly billing terms, and we apply the variable consideration allocation exception and record revenue based on actual usage during the month. Certain contracts contain minimum commitments over the contractual term; however, we generally have concluded that these commitments are not substantive. Accordingly, the consideration for these contracts is substantially considered variable and is recognized based on actual usage as we apply the variable consideration allocation exception to these contracts. These customers have entered into contracts with contract terms generally from one to ten years.

As of September 30, 2023, we had approximately $57,167 of remaining unsatisfied performance obligations for contracts with terms over one year. Of the remaining unsatisfied performance obligations, we expect to recognize 13% in 2023, 40% in 2024, 21% in 2025, 8% in 2026, and the remainder in 2027 and thereafter.

From time to time, we enter into arrangements in which we receive payments from customers based upon contractual billing schedules. We record accounts receivables when the right to consideration becomes unconditional. Contract liabilities primarily reflect deferred revenue from advance payments we have received from customers. We classify deferred revenue as current or non-current based on the timing of when we expect to recognize revenue. Revenue recognized in the three and nine months ended September 30, 2023 from amounts included in deferred revenue at the beginning of the period was $1,344 and $5,580, respectively. Revenue recognized in the three and nine months ended September 30, 2022 from amounts included in deferred revenue at the beginning of the period was $479 and $3,320, respectively.

Cost of revenue

Cost of revenue consists primarily of fees paid to network providers for bandwidth and backbone, costs incurred for non-settlement free peering and connection to ISP networks and fees paid to data center operators for housing network equipment in third party network data centers, also known as co-location costs. Cost of revenues also includes fees paid to Open Edge arrangement counterparties in excess of the financing liabilities and related interest, leased warehouse space and utilities, depreciation of network equipment used to deliver our content delivery services, amortization of technology used to provide services to its customers, payroll and related costs, and share-based compensation for our network operations and professional services personnel.

We enter into contracts for bandwidth with third party network providers with terms typically ranging from several months to three years, or five years for most Open Edge arrangements. These contracts generally commit us to pay minimum monthly fees plus additional fees for bandwidth usage above contracted minimums. A portion of the global computing platform traffic delivery is completed through direct connection to ISP networks, called peering.

General and Administrative

General and administrative expenses primarily consist of costs for corporate functions, including payroll and related employee costs, including share-based compensation, professional fess and outside services, acquisition and legal related expenses and other costs, such as fees and licenses.

Sales and marketing

Sales and marketing costs include marketing programs, including advertising and trade show costs, payroll and related expenses and share-based compensation for personnel engaged in marketing and selling activities, and other costs, including fees and licenses.

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Depreciation and amortization

The company records client relationships and trade name intangible assets in connection with its business combinations. Client relationships intangible assets primarily relate to the sales and marketing of the company’s products and services. Trade name intangible assets represent the name recognition value associated with acquired businesses. Both the client relationships and trade name intangible assets are a component of and integral to its sales processes and accordingly the company records amortization of its client relationships and trade name acquired intangible assets, along with depreciation expenses, within operating expenses as “depreciation and amortization” within the consolidated statements of operations.

3. Business Acquisitions

Edgecast Acquisition

On June 15, 2022, Edgio completed the acquisition (the “Edgecast Acquisition”) of 100% of the equity interests of Edgecast Inc., a California corporation (“Edgecast”), and certain Edgecast-related businesses and assets from College Parent for total purchase consideration of $199,837. The total purchase consideration included 75,842 shares of our common stock allocated to the Edgecast Acquisition. Edgecast is a leading provider of edge security, content delivery, and video services. Edgio accounted for the acquisition in accordance with ASC 805, Business Combinations, which requires the assets acquired and liabilities assumed to be recognized on the balance sheet at their fair values as of the acquisition date.

We retained an independent third-party valuation firm to assist in our valuation of the acquired assets and liabilities.

The following table presents the allocation of the purchase price consideration for Edgecast:

Consideration:
Common stock			$	192,956
Common stock - contingent consideration			16,300
Less: Consideration allocated to employee compensation arrangements			(9,419)
Total consideration allocated to Edgecast Acquisition			$	199,837

The fair value of our common stock consideration was based on the 79,734 shares issued to College Parent and the opening price of our common stock of $2.42 per share on the acquisition closing date. Inclusive within the common stock consideration, and pursuant to the purchase agreement, Edgio issued 7,287 shares of common stock in exchange for cash from College Parent of $30,000. As the economic substance of this issuance was to provide additional cash to Edgecast for liabilities that existed prior to the business combination and the transaction occurred on June 15, 2022, Edgio concluded that this was part of the business combination, and therefore, should be considered as part of the consideration transferred in exchange for the acquisition of Edgecast. The initial common stock purchase consideration of 79,734 shares was adjusted downward for 3,892 shares issued for employee compensation arrangements accounted for as separate transactions as further discussed below.

The purchase agreement contains an “earn-out” or contingent consideration provision in the event that the price of our common stock exceeds certain thresholds during the period ending on the third anniversary of the acquisition date of the transaction (the “Earnout Period”), Edgio will be required to issue approximately up to an additional 12,685 shares of our common stock to College Parent (the “common stock contingent consideration”). If during the Earnout Period, the closing share price of our common stock exceeds the following share prices for 10 trading days in any 30 consecutive trading day period the following number of shares of our common stock will be issued: (a) approximately 5,398 shares of our common stock if the closing share price of our common stock exceeds $6.1752 per share, (b) approximately 4,048 shares of our common stock if the closing share price of our common stock exceeds $8.2336 per share, and (c) approximately 3,239 shares of our common stock if the closing share price of our common stock exceeds $10.2920 per share. Edgio estimated that the fair value of the common stock contingent consideration, with the assistance of a third-party valuation specialist using a Monte Carlo simulation, and concluded it was $16,300 as of the acquisition date.

As a result of the Edgecast Acquisition, certain cash awards that existed for Edgecast’s employees require the transferred employee to provide services to Edgio in the post-combination period in order for the cash award to be earned. When the awards are earned, Edgio will either a) pay the employees the amount earned and will subsequently be reimbursed by College Parent or b) College Parent will directly pay the employee the amount earned. Edgio considered whether the employee awards were part of the Edgecast Acquisition's purchase consideration, or separate transactions, and not part of purchase accounting. Under ASC 805, a transaction entered into by or on behalf of the acquirer or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree (or its former owners) before the combination, is likely to be a separate transaction. The employee awards represent compensation for post-combination services

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rendered to Edgio and the reimbursement right was initiated by Edgio for the future economic benefit of the combined entity. Accordingly, Edgio concluded the employee awards represent transactions separate from the Edgecast Acquisition. Edgio allocated $9,419 of the total consideration transferred to College Parent to the employee compensation arrangements based on the post-combination fair value of the employee awards. As service is required to be rendered for the award to be earned, Edgio will recognize expense as the employee performs service. The employee compensation arrangements related to post-combination services and the related reimbursement right resulted in the recognition of $6,573 in prepaid expenses and other current assets and $2,846 in other assets on June 15, 2022.

During the three and nine months ended September 30, 2023, Edgio recorded $522 and $2,032, respectively, in compensation expense within our unaudited consolidated statements of operations as a result of the employee compensation arrangements. Of the $522 of compensation expense, $82, $103, $11, and $326 was recorded to cost of services, general and administrative, sales and marketing, and research and development, respectively. Of the $2,032 of compensation expense, $375, $270, $102, and $1,285 was recorded to cost of services, general and administrative, sales and marketing, and research and development, respectively. During the three and nine months ended September 30, 2022, Edgio recorded $3,865 and $4,863 in compensation expense within our unaudited consolidated statements of operations as a result of the employee compensation arrangements. Of the $3,865 of compensation expense, $674, $184, $292, and $2,715 was recorded to cost of services, general and administrative, sales and marketing, and research and development, respectively. Of the $4,863 of compensation expense, $880, $362, $333, and $3,288 was recorded to cost of services, general and administrative, sales and marketing, and research and development, respectively. The employee compensation arrangements are time-based vesting only and the unrecognized compensation expense was $664 as of September 30, 2023, of which $405 is expected to be recognized during the remainder of 2023 and the remainder in 2024.

The Edgecast Acquisition was accounted for under the acquisition method of accounting and the operating results of Edgecast have been included in our unaudited consolidated financial statements as of the acquisition date. Under the acquisition method of accounting, the aggregate amount of consideration paid by us was allocated to Edgecast’s net tangible assets and intangible assets based on their estimated fair values as of the acquisition date. The excess of the purchase price over the value of the net tangible assets and intangible assets was recorded to goodwill. The factors contributing to the recognition of goodwill were based upon our conclusion that there are strategic and synergistic benefits that are expected to be realized from the acquisition. Goodwill, which is non-deductible for tax purposes, represents expected synergies and the assembled workforce at the time of the acquisition.

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The following table summarizes the final allocation of the purchase consideration to the acquisition date fair value of the assets, including intangible assets, liabilities assumed and related goodwill acquired:

Cash (inclusive of $30,000 as described above)			$	30,037
Accounts receivable			48,669
Income taxes receivable			119
Prepaid expenses and other current assets			5,676
Property and equipment			32,185
Operating lease right of use assets			1,365
Goodwill			56,546
Intangible assets
Customer relationships			41,000
Technology			49,000
Other assets			1,220
Total assets acquired			265,817
Accounts payable and accrued liabilities			6,917
Deferred revenue			1,259
Operating lease liability obligations			3,071
Income taxes payable			2,465
Other current liabilities			27,500
Operating lease liability obligations, less current portion			2,531
Deferred income taxes			22,237
Total liabilities			65,980
Total purchase consideration			$	199,837

The fair value of acquired property and equipment was valued using the market approach and indirect cost approach and primarily consists of computer and networking equipment. The weighted-average depreciation period for the acquired property and equipment was 3.0 years at the acquisition date. The fair value of the acquired intangible assets was determined as follows, customer relationships, utilizing the excess earnings method, and technology, utilizing the relief from royalty method. The amortization period of the acquired intangible assets was 7.0 years for customer relationships and 4.0 for technology at the acquisition date. The deferred income tax liability was $22,237, primarily as a result of the fair value attributable to the identifiable intangible assets.

Transaction costs incurred by us in connection with the Edgecast Acquisition were $4,520 and $23,902 for the three and nine months ended September 30, 2022, respectively, and were recorded within general and administrative expenses within our unaudited consolidated statements of operations. There were no transaction costs incurred related to the Edgecast Acquisition for the three and nine months ended September 30, 2023.

Unaudited Pro Forma Financial Information

The following unaudited pro forma combined financial information presents combined results of Edgio and Edgecast as if the acquisition of Edgecast occurred on January 1, 2021:

									Three Months Ended September 30,												Nine Months Ended September 30,
									2022												2022
Revenue									$	110,832											$	376,289
Net loss									$	(38,941)											$	(101,431)

These unaudited pro forma combined financial statements include adjustments to reflect fair value adjustments related to property and equipment depreciation, customer relationships and technology amortization, compensation expense related to the employee compensation arrangements, exclusion of interest income related to loan receivables settled at the acquisition date, and the effects of the adjustments on income taxes and net loss. Additionally, the pro forma adjustments include adjustments to reflect non-recurring transaction costs of $4,520 and $23,902, incurred in the three and nine months ended September 30, 2022, respectively, and non-recurring restructuring charges related to the Edgecast Acquisition of $1,090 and

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$4,804 incurred in the three and nine months ended September 30, 2022, as of the beginning of the comparable prior reporting period.

The pro forma financial information is not intended to represent or be indicative of the actual results of operations of the combined business that would have been reported had the acquisition of Edgecast been completed at the beginning of the fiscal year 2021, nor is it representative of future operating results of Edgio.

4. Investments in Marketable Securities

The following is a summary of marketable securities (designated as available-for-sale) as of December 31, 2022:

			Amortized Cost												Gross Unrealized Losses						Estimated Fair Value
Agency bonds			$	486											$	—					$	486
Certificate of deposit			40												—						40
Commercial paper			5,884												—						5,884
Corporate notes and bonds			11,395												16						11,379
Treasury bills			985												—						985
Total marketable securities			$	18,790											$	16					$	18,774

The amortized cost and estimated fair value of marketable securities as of December 31, 2022, by maturity are shown below:

			Amortized Cost												Gross Unrealized Losses						Estimated Fair Value
Available-for-sale securities:
Due in one year or less			$	18,750											$	16					$	18,734
Due after one year and through five years (1)			40												—						40
Total marketable securities			$	18,790											$	16					$	18,774

(1) Classified in other assets.

5. Accounts Receivable, net

Accounts receivable, net include:

			September 30,						December 31,
			2023						2022
Accounts receivable			$	72,221					$	90,046
Less: credit allowance			(1,022)						(1,514)
Less: allowance for doubtful accounts			(4,453)						(3,905)
Total accounts receivable, net			$	66,746					$	84,627

The following is a roll-forward of the allowance for doubtful accounts related to trade accounts receivable for the nine months ended September 30, 2023 and the twelve months ended December 31, 2022:

			Nine Months Ended						Twelve Months Ended
			September 30, 2023						December 31, 2022
Beginning of period			$	3,905					$	1,500
Provision for credit losses			1,300						2,413
Recoveries/write-offs			(752)						(8)
End of period			$	4,453					$	3,905

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6. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include:

			September 30,						December 31,
			2023						2022
Prepaid bandwidth and backbone			$	7,475					$	7,431
VAT receivable			6,107						5,805
Prepaid expenses and insurance			2,588						5,352
Financing receivables			5,975						3,218
Related party receivable			1,792						7,962
Vendor deposits and other			9,745						6,606
Total prepaid expenses and other current assets			$	33,682					$	36,374

7. Property and Equipment, net

Property and equipment, net include:

			September 30,						December 31,
			2023						2022
Network equipment			$	177,977					$	176,899
Computer equipment and software			3,339						3,680
Furniture and fixtures			1,305						1,322
Leasehold improvements			5,984						6,017
Other equipment			15						17
Total property and equipment			188,620						187,935
Less: accumulated depreciation			(118,450)						(114,468)
Total property and equipment, net			$	70,170					$	73,467

Cost of revenue depreciation expense related to property and equipment was $3,965 and $10,903, for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, cost of revenue depreciation expense related to property and equipment was approximately $11,363 and $23,542, respectively.

Operating expense depreciation and amortization expense related to property and equipment was $286 and $1,026, for the three months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, operating expense depreciation and amortization expense related to property and equipment was $872 and $1,608, respectively.

8. Goodwill and Other Intangible Assets

We have recorded goodwill as a result of past business acquisitions. We review goodwill for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may exceed their fair value. We concluded that we have one reporting unit and assigned the entire balance of goodwill to this reporting unit as of September 30, 2023.

For the three months ended September 30, 2023, no indicators of goodwill impairment were identified by management. Management will continue to monitor the relevant goodwill impairment indicators to determine whether a goodwill impairment charge to earnings is appropriate, and such impairment charge, if any, could be material.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2023, were as follows:

Balance, December 31, 2022			$	169,156
Foreign currency translation adjustment			(609)
Balance, September 30, 2023			$	168,547

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Other intangible assets consisted of the following as of September 30, 2023:

			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Trade name			$	91					$	(63)					$	28
Client relationships			48,090						(10,457)						37,633
Technology			57,480						(19,549)						37,931
Total other intangible assets			$	105,661					$	(30,069)					$	75,592

Cost of revenue related to amortization of other intangible assets for the three and nine months ended September 30, 2023 was $3,516 and $10,549, respectively. Operating expense related to amortization of other intangible assets for the three and nine months ended September 30, 2023 was $1,840 and $5,520, respectively. There were no impairment charges incurred in the three and nine months ended September 30, 2023.

As of September 30, 2023, the weighted-average remaining useful lives of our acquired intangible assets were 0.9 years for trade name, 5.4 years for client relationships, and 2.7 years for technology, and 4.0 years in total, for all acquired intangible assets.

Other intangible assets consisted of the following as of December 31, 2022:

			Gross Carrying Amount						Accumulated Amortization						Net Carrying Amount
Trade name			$	91					$	(40)					$	51
Client relationships			48,090						(4,960)						43,130
Technology			57,480						(9,000)						48,480
Total other intangible assets			$	105,661					$	(14,000)					$	91,661

Cost of revenue related to amortization of other intangible assets for the three and nine months ended September 30, 2022 was $4,166 and $5,354, respectively. Operating expense related to amortization of other intangible assets for the three and nine months ended September 30, 2022 was $751 and $1,521, respectively. There were no impairment charges incurred in the three and nine months ended September 30, 2022.

As of December 31, 2022, the weighted-average remaining useful lives of our acquired intangible assets were 1.7 years for trade name, 6.1 years for client relationships, and 3.4 years for technology, and 4.7 years in total, for all acquired intangible assets.

As of September 30, 2023, future amortization expense related to our other intangible assets is expected to be recognized as follows:

Remainder of 2023						$	5,356
2024						21,415
2025						21,394
2026						13,141
2027						5,911
Thereafter						8,375
Total						$	75,592

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9. Other Current Liabilities

Other current liabilities include:

			September 30,						December 31,
			2023						2022
Accrued compensation and benefits			$	19,943					$	19,982
Accrued cost of revenue			15,893						27,422
Accrued interest payable			808						1,823
Related party payable			98						9,931
Restructuring charges and accrued legal fees			2,433						6,184
Other accrued expenses			10,702						10,818
Total other current liabilities			$	49,877					$	76,160

10. Debt

Convertible Senior Notes - Due 2025

On July 27, 2020, we issued $125,000 aggregate principal amount of 3.50% Convertible Senior Notes due 2025 (the “Notes”), including the initial purchasers’ exercise in full of their option to purchase an additional $15,000 principal amount of the Notes, in a private placement to qualified institutional buyers in an offering exempt from registration under the Securities Act of 1933, as amended. The net proceeds from the issuance of the Notes was $120,741 after deducting transaction costs.

The Notes are governed by an indenture (the “Indenture”) between us, as the issuer, and U.S. Bank, National Association, as trustee. The Notes are senior, unsecured obligations of ours and will be equal in right of payment with our senior, unsecured indebtedness; senior in right of payment to our indebtedness that is expressly subordinated to the notes; effectively subordinated to our senior, secured indebtedness, including future borrowings, if any, under our amended credit facility with First Citizens Bank (formerly Silicon Valley Bank) (“FCB”), to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all indebtedness and other liabilities, including trade payables, and (to the extent we are not a holder thereof) preferred equity, if any, of our subsidiaries. The Indenture includes customary covenants and sets forth certain events of default after which the Notes may be declared immediately due and payable and sets forth certain types of bankruptcy or insolvency events of default involving us after which the Notes become automatically due and payable.

As a result of the restatement of our previously issued consolidated financial statements described in Note 2, we were unable to file our Annual Report on Form 10-K for the year ended December 31, 2022 on a timely basis. For the same reason, we were also unable to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023. Pursuant to the terms of the Indenture, on April 12, 2023, we notified the Trustee that due to our failure to timely file with the SEC our Annual Report on Form 10-K for the year ended December 31, 2022, a default (as defined in the Indenture) had occurred.

On April 17, 2023, a holder of the Notes delivered a notice of default to U.S. Bank National Association (the “Trustee”) and the company notifying us that we were in breach of the Indenture for failing to provide the Trustee our Annual Report on Form 10-K for the year ended December 31, 2022. Under the terms of the Indenture, such default matured into an event of default (the “Reporting Event of Default”) on June 17, 2023. On July 21, 2023, the Trustee for the Notes delivered a notice of default to the company notifying us that we were in breach of the Indenture for failing to provide the Trustee our Quarterly Report on Form 10-Q for the three months ended March 31, 2023. Under the terms of the Indenture, such default was cured with the filing of such Quarterly Report on Form 10-Q on August 15, 2023.

By notice to the holders of the Notes and the Trustee on June 12, 2023 and in accordance with the Indenture, we notified the Trustee that due to our failure to timely file with the SEC our Annual Report on Form 10-K, the company elected that the sole remedy for the Reporting Event of Default during the period beginning on June 17, 2023 (the “Reporting Event of Default Date”) and ending on the earlier of (x) 365 calendar days after the Reporting Event of Default Date and (y) the date on which we deliver the Annual Report for the year ended December 31, 2022 to the Trustee will consist of the accrual of additional interest (“Special Interest”) at a rate equal to one quarter of one percent (0.25%) of the principal amount of the outstanding Notes for the first 180 calendar days on which Special Interest accrues and, thereafter, at a rate per annum equal to one half of one percent (0.50%) of the principal amount of the outstanding Notes. We delivered our Annual Report for the year ended December 31, 2022 to the Trustee on June 29, 2023. Special Interest charges for the three and nine months ended September 30, 2023 were immaterial.