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llnw-20200930

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, 2020


☐			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

Limelight Networks, 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.)

1465 North Scottsdale Road, Suite 400

Scottsdale, AZ 85257

(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	LLNW	Nasdaq

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 October 15, 2020: 122,973,706 shares.

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LIMELIGHT NETWORKS, INC.

FORM 10-Q

Quarterly Period Ended September 30, 2020

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		Page
Note Regarding Forward-Looking Statements			3

PART I. FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	4
	Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019	5
	Unaudited Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019	6
	Unaudited Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2020 and 2019	7
	Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
Item 4.	CONTROLS AND PROCEDURES	33

PART II. OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS	34
Item 1A.	RISK FACTORS	34
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50
Item 3.	DEFAULTS UPON SENIOR SECURITIES	50
Item 4.	MINE SAFETY DISCLOSURES	50
Item 5.	OTHER INFORMATION	51
Item 6.	EXHIBITS	52
	SIGNATURES	53

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Special Note Regarding Forward-Looking Statement

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 and Section 21E of the Securities Exchange Act of 1934, as amended. 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, non-GAAP earnings per share, Adjusted EBITDA and capital expenditures;

•our plans regarding investing in our content delivery network, as well as other products and technologies;

•our beliefs regarding the growth of, and competition within, the content delivery industry;

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

•our expectations regarding headcount;

•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 estimations regarding taxes and belief regarding our tax reserves;

•our beliefs regarding the use of Non-GAAP financial measures;

•our approach to identifying, attracting and keeping new and existing customers, as well as our expectations regarding customer turnover;

•the sufficiency of and 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 customers;

•our beliefs regarding the impact of health epidemics and pandemics, including the recent outbreak of COVID-19, on our current and potential customers; and

•our beliefs regarding the impact of health epidemics and pandemics, including the recent outbreak of COVID-19, on our balance sheet, financial condition, and results of operations.

The risks included here are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors which could adversely affect our business and financial performance. Also, 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 (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 "Limelight," "we," "us," and "our" in this document refer to Limelight Networks, Inc., a Delaware corporation, and, where appropriate, its wholly owned subsidiaries. All information is presented in thousands, except per share amounts, customer count, headcount and where specifically noted.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Limelight Networks, Inc.

Consolidated Balance Sheets

(In thousands, except per share data)


	September 30, 2020		December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	75,169	$	18,335
Marketable securities	49,623		—
Accounts receivable, net	42,222		34,476
Income taxes receivable	81		82
Prepaid expenses and other current assets	12,561		9,920
Total current assets	179,656		62,813
Property and equipment, net	47,493		46,136
Operating lease right of use assets	10,844		12,842
Marketable securities, less current portion	40		40
Deferred income taxes	1,428		1,319
Goodwill	77,126		77,102
Other assets	7,459		9,117
Total assets	$	324,046	$	209,369
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,437	$	12,020
Deferred revenue	797		976
Operating lease liability obligations	2,654		2,056
Income taxes payable	153		178
Other current liabilities	17,584		13,398
Total current liabilities	33,625		28,628
Convertible senior notes, net	99,937		—
Operating lease liability obligations, less current portion	11,745		13,488
Deferred income taxes	251		239
Deferred revenue, less current portion	230		161
Other long-term liabilities	579		316
Total liabilities	146,367		42,832
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; 122,824 and 118,368 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	123		118
Additional paid-in capital	552,559		530,285
Accumulated other comprehensive loss	(9,379)		(9,210)
Accumulated deficit	(365,624)		(354,656)
Total stockholders’ equity	177,679		166,537
Total liabilities and stockholders’ equity	$	324,046	$	209,369

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

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Limelight Networks, Inc.

Unaudited Consolidated Statements of Operations

(In thousands, except per share data)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	59,243	$	51,321	$	174,801	$	140,505
Cost of revenue:
Cost of services	31,905		25,602		92,406		71,311
Depreciation — network	5,602		4,961		16,112		13,905
Total cost of revenue	37,507		30,563		108,518		85,216
Gross profit	21,736		20,758		66,283		55,289
Operating expenses:
General and administrative	7,751		7,356		23,820		23,231
Sales and marketing	10,456		10,713		33,279		32,679
Research and development	5,425		5,160		16,614		17,075
Depreciation and amortization	384		172		1,049		545
Total operating expenses	24,016		23,401		74,762		73,530
Operating loss	(2,280)		(2,643)		(8,479)		(18,241)
Other income (expense):
Interest expense	(1,674)		(10)		(1,756)		(30)
Interest income	10		81		40		402
Other, net	25		(13)		(396)		(89)
Total other (expense) income	(1,639)		58		(2,112)		283
Loss before income taxes	(3,919)		(2,585)		(10,591)		(17,958)
Income tax expense	66		166		377		544
Net loss	$	(3,985)	$	(2,751)	$	(10,968)	$	(18,502)

Net loss per share:
Basic	$	(0.03)	$	(0.02)	$	(0.09)	$	(0.16)
Diluted	$	(0.03)	$	(0.02)	$	(0.09)	$	(0.16)

Weighted average shares used in per share calculation:
Basic	122,363		116,270		120,519		115,318
Diluted	122,363		116,270		120,519		115,318

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

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Limelight Networks, Inc.

Unaudited Consolidated Statements of Comprehensive Loss

(In thousands)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Net loss	$	(3,985)	$	(2,751)	$	(10,968)	$	(18,502)
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on investments	(80)		2		(80)		39
Foreign currency translation gain (loss)	732		(357)		(89)		157
Other comprehensive income (loss)	652		(355)		(169)		196
Comprehensive loss	$	(3,333)	$	(3,106)	$	(11,137)	$	(18,306)

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

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Limelight Networks, Inc.

Unaudited Consolidated Statements of Stockholders' Equity

(In thousands)

For the Three Months Ended September 30, 2020


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
Balance June 30, 2020	121,692	$	122	$	541,363	$	(10,031)	$	(361,639)	$	169,815
Net loss	—	—		—		—		(3,985)		(3,985)
Change in unrealized loss on available-for-sale investments, net of taxes	—	—		—		(80)				(80)
Foreign currency translation adjustment, net of taxes	—	—		—		732		—		732
Exercise of common stock options	812	1		2,598		—		—		2,599
Vesting of restricted stock units	488	—		—		—		—		—
Restricted stock units surrendered in lieu of withholding taxes	(168)	—		(1,041)		—		—		(1,041)

Share-based compensation	—	—		4,305		—		—		4,305
Equity component of convertible senior notes, net	—	—		21,747		—		—		21,747
Purchase of capped calls related to issuance of convertible senior notes	—	—		(16,413)		—		—		(16,413)
Balance September 30, 2020	122,824	$	123	$	552,559	$	(9,379)	$	(365,624)	$	177,679

For the Three Months Ended September 30, 2019


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
Balance June 30, 2019	115,760	$	116	$	520,375	$	(9,482)	$	(354,363)	$	156,646
Net loss	—	—		—		—		(2,751)		(2,751)
Change in unrealized loss on available-for-sale investments, net of taxes	—	—		—		2		—		2
Foreign currency translation adjustment, net of taxes	—	—		—		(357)		—		(357)
Exercise of common stock options	5	—		13		—		—		13
Vesting of restricted stock units	1,129	1		(1)		—		—		—
Restricted stock units surrendered in lieu of withholding taxes	(381)	—		(1,015)		—		—		(1,015)
Share-based compensation	—	—		5,386		—		—		5,386
Balance September 30, 2019	116,513	$	117	$	524,758	$	(9,837)	$	(357,114)	$	157,924

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For the Nine Months Ended September 30, 2020


	Common Stock
	Shares	Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
Balance December 31, 2019	118,368	$	118	$	530,285	$	(9,210)	$	(354,656)	$	166,537
Net loss	—	—		—		—		(10,968)		(10,968)
Change in unrealized loss on available-for-sale investments, net of taxes	—	—		—		(80)		—		(80)
Foreign currency translation adjustment, net of taxes	—	—		—		(89)		—		(89)
Exercise of common stock options	2,672	3		7,607		—		—		7,610
Vesting of restricted stock units	2,233	2		5		—		—		7
Restricted stock units surrendered in lieu of withholding taxes	(749)	—		(3,986)		—		—		(3,986)
Issuance of common stock under employee stock purchase plan	300	—		1,074		—		—		1,074
Share-based compensation	—	—		12,240		—		—		12,240
Equity component of convertible senior notes, net	—	—		21,747		—		—		21,747
Purchase of capped calls related to issuance of convertible senior notes	—	—		(16,413)		—		—		(16,413)
Balance September 30, 2020	122,824	$	123	$	552,559	$	(9,379)	$	(365,624)	$	177,679

For the Nine Months Ended September 30, 2019


	Common Stock
	Shares	Amount	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total
Balance December 31, 2018	114,246	114	513,682	(10,033)	(338,612)	165,151
Net loss	—	—	—	—	(18,502)	(18,502)
Change in unrealized loss on available-for-sale investments, net of taxes	—	—	—	39	—	39
Foreign currency translation adjustment, net of taxes	—	—	—	157	—	157
Exercise of common stock options	10	—	21	—	—	21
Vesting of restricted stock units	2,695	3	(3)	—	—	—
Restricted stock units surrendered in lieu of withholding taxes	(887)	—	(2,528)	—	—	(2,528)
Issuance of common stock under employee stock purchase plan	449	—	1,095	—	—	1,095
Share-based compensation	—	—	12,491	—	—	12,491
Balance September 30, 2019	116,513	117	524,758	(9,837)	(357,114)	157,924

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

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Limelight Networks, Inc.

Unaudited Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30,
	2020		2019
Operating activities
Net loss	$	(10,968)	$	(18,502)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	17,161		14,450
Share-based compensation	12,238		10,463
Foreign currency remeasurement gain	(113)		(104)
Deferred income taxes	(80)		(30)
Gain on sale of property and equipment	(1)		(56)
Accounts receivable charges	476		1,274
Amortization of premium on marketable securities	87		29
Noncash interest expense	868		—
Changes in operating assets and liabilities:
Accounts receivable	(8,221)		(11,051)
Prepaid expenses and other current assets	(2,679)		(777)
Income taxes receivable	3		43
Other assets	2,504		(2,641)
Accounts payable and other current liabilities	8,159		3,675
Deferred revenue	(109)		(557)
Income taxes payable	(15)		204
Payments related to litigation, net	—		(3,040)
Other long term liabilities	265		(137)
Net cash provided by (used in) operating activities	19,575		(6,757)
Investing activities
Purchases of marketable securities	(52,690)		(10,279)
Sale and maturities of marketable securities	2,900		32,153
Purchases of property and equipment	(22,128)		(24,224)
Proceeds from sale of property and equipment	1		51
Net cash used in investing activities	(71,917)		(2,299)
Financing activities
Proceeds from issuance of debt, net	121,600		—
Purchase of capped calls	(16,413)		—
Payment of debt issuance costs	(784)		—
Payments of employee tax withholdings related to restricted stock vesting	(3,987)		(2,528)
Proceeds from employee stock plans	8,691		1,116
Net cash provided by (used in) financing activities	109,107		(1,412)
Effect of exchange rate changes on cash and cash equivalents	69		(83)
Net increase (decrease) in cash and cash equivalents	56,834		(10,551)
Cash and cash equivalents, beginning of period	18,335		25,383
Cash and cash equivalents, end of period	$	75,169	$	14,832
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	97	$	30
Cash paid during the period for income taxes, net of refunds	$	452	$	340

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

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Limelight Networks, Inc.

Notes to Unaudited Consolidated Financial Statements

September 30, 2020

1. Nature of Business

Limelight Networks Inc., a provider of digital content delivery, online video delivery, cloud security, edge computing and cloud storage services, empowers customers to provide exceptional digital experiences. Limelight’s edge services platform includes a globally distributed, high performance private network, intelligent software, and expert support services that enable current and future workflows.

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.

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 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 financial statements and footnotes included in our annual report on Form 10-K for the fiscal year ended December 31, 2019. All information is presented in thousands, except per share amounts and where specifically noted.

The consolidated financial statements include accounts of Limelight and our wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. In addition, certain other reclassifications have been made to prior year amounts to conform to the current year presentation.

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, 2020, or for any future periods.

Recent Accounting Standards

Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, which requires measurement and recognition of expected credit losses for financial assets held. The standard is to be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures and there was no cumulative-effect adjustment required.

In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. We adopted this guidance effective January 1, 2020, using a prospective approach. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, which removes, modifies and adds to the disclosure requirements on fair value measurements in Topic 820. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this updated guidance and delay adoption of the additional disclosures until their effective date. We adopted this guidance effective January

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1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments. We adopted this guidance effective January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12 to simplifying the accounting for income taxes. ASU 2019-12 is intended to simplify various aspects related to accounting for income taxes, eliminates certain exceptions to the general principles in the Accounting Standards Codification (ASC) Topic 740 related to intra-period tax allocation, simplifies when companies recognize deferred taxes in an interim period, and clarifies certain aspects of the current guidance to promote consistent application. This guidance is effective for public business entities for fiscal years beginning after December 15, 2020, and for interim periods within those fiscal years, with early adoption permitted. ASU 2019-12 requires a retrospective, modified retrospective or prospective transition approach for individual aspects of the ASU. This guidance is applicable to us for our fiscal year beginning January 1, 2021. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for convertible instruments. ASU 2020-06 eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. ASU 2020-06 also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. ASU 2020-06 is effective for our fiscal year beginning after December 15, 2021, including interim periods within this fiscal year. Early adoption is permitted, but no earlier than our fiscal year beginning after December 15, 2020, including interim periods within those fiscal years. This guidance can be applied using either a modified or full retrospective approach. We expect to early adopt this guidance, however at this time we are currently evaluating the impact this guidance will have on our consolidated financial statements.

Significant Accounting Policies

There have been no changes in the significant accounting policies from those that were disclosed in our Annual Report, except for convertible senior notes as described below:

Convertible Senior Notes

In July 2020, we issued $125,000 aggregate principal amount of 3.50% convertible senior notes. We separate our convertible senior notes (the Notes) into liability and equity components. The carrying amount of the liability component is calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option is determined by deducting the fair value of the liability component from the principal amount of the Notes. The excess of the principal amount of the Notes over the carrying amount of the liability component (debt discount) is amortized to interest expense at an effective interest rate over the contractual term of the Notes. The equity component is recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. We allocate the issuance costs to the liability and equity components of the Notes based on the proportion of the proceeds allocated to the debt and equity components. Issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the contractual terms of the Notes. Issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity.

Revenue Recognition

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

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For contracts that contain minimum commitments over the contractual term, we estimate an amount of variable consideration by using either the expected value method or the most likely amount method. We include estimates of variable consideration in revenue only when we have a high degree of confidence that revenue will not be reversed in a subsequent reporting period. We believe that the expected value method is the most appropriate estimate of the amount of variable consideration. These customers have entered into contracts with contract terms generally from one to four years. As of September 30, 2020, we have approximately $3,641 of remaining unsatisfied performance obligations. We recognized revenue of approximately $1,911 and $2,200, respectively, during the three months ended September 30, 2020 and 2019, related to these types of contracts with our customers. During the nine months ended September 30, 2020 and 2019, we recognized approximately $6,008 and $7,400, respectively. We expect to recognize approximately 37% of the remaining unsatisfied performance obligations in 2020, approximately 57% in 2021, and approximately 6% in 2022.

3. Investments in Marketable Securities

The following is a summary of marketable securities (designated as available-for-sale) at September 30, 2020.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Certificate of deposit	$	40	$	—	$	—	$	40
Corporate notes and bonds	46,705		—		78		46,627
Municipal securities	2,997		1		2		2,996
Total marketable securities	$	49,742	$	1	$	80	$	49,663

The amortized cost and estimated fair value of marketable securities at September 30, 2020, by maturity are shown below:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available-for-sale securities:
Due in one year or less	$	42,175	$	1	$	69	$	42,107
Due after one year and through five years	7,567		—		11		7,556
Total marketable securities	$	49,742	$	1	$	80	$	49,663

The following is a summary of marketable securities (designated as available-for-sale) at December 31, 2019.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Certificate of deposit	$	40	$	—	$	—	$	40

The amortized cost and estimated fair value of marketable securities at December 31, 2019, by maturity are shown below:


	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Available-for-sale securities:

Due after one year and through five years	40	—	—	40

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4. Accounts Receivable, net

Accounts receivable, net include:


	September 30,		December 31,
	2020		2019
Accounts receivable	$	43,306	$	35,619
Less: credit allowance	(200)		(170)
Less: allowance for doubtful accounts	(884)		(973)
Total accounts receivable, net	$	42,222	$	34,476

All trade receivables are reported on the Consolidated Balance Sheets at their amortized cost adjusted for any write-offs and net of allowances for credit losses. We maintain an allowance for credit losses, which represents an estimate of expected losses of our receivables considering current market conditions and estimates for supportable forecasts when appropriate. The estimate is a result of our ongoing assessments and evaluations of collectability, historical loss experience, and future expectations in estimating credit losses for our trade receivables. For trade receivables, we apply a reserve percentage to the specific age of the receivable to estimate the allowance for doubtful accounts. The reserve percentages are determined based on our historical write-off experience. Determination of the proper amount of allowance requires management to exercise judgment about the timing, frequency and severity of potential credit losses that could materially affect the provision for credit losses and, as a result, net earnings. The allowance takes into consideration numerous quantitative and qualitative factors that include receivable type, historical loss experience, delinquency trends, collection experience, current economic conditions, estimates for supportable forecasts, when appropriate, and credit risk characteristics.

We evaluate the credit risk of the customer when extending credit based on a combination of various financial and qualitative factors that may affect our customers’ ability to pay. These factors may include the customer’s financial condition, past payment experience, and credit bureau information.

The following is a roll-forward of the allowances for doubtful accounts related to trade accounts receivable for the nine months ended September 30, 2020:


			Nine Months Ended
			September 30, 2020
Beginning of period			973
Provision for credit losses			476
Write-offs			(565)
End of period			884

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include:


	September 30,		December 31,
	2020		2019
Prepaid bandwidth and backbone	1,324		1,717
VAT receivable	3,877		3,068
Prepaid expenses and insurance	2,731		1,685
Vendor deposits and other	4,629		3,450
Total prepaid expenses and other current assets	$	12,561	$	9,920

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6. Property and Equipment, net

Property and equipment, net include:


	September 30,		December 31,
	2020		2019
Network equipment	$	134,082	$	126,975
Computer equipment and software	7,293		7,603
Furniture and fixtures	1,785		1,906
Leasehold improvements	7,455		7,888
Other equipment	21		54
Total property and equipment	150,636		144,426
Less: accumulated depreciation	(103,143)		(98,290)
Total property and equipment, net	$	47,493	$	46,136

Cost of revenue depreciation expense related to property and equipment was approximately $5,602 and $4,961, respectively, for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, respectively, cost of revenue depreciation expense related to property and equipment was approximately $16,112 and $13,905, respectively.

Operating expense depreciation and amortization expense related to property and equipment was approximately $384 and $172, respectively, for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020 and 2019, respectively, operating expense depreciation and amortization expense related to property and equipment was approximately $1,049 and $545, respectively.