EDGIO, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2021 , included in Part II of our annual report on Form 10-K, as filed with theSEC , onFebruary 17, 2022 .
Prior period information has been modified to conform to current year presentation. All information in this Item 2 is presented in thousands, except per share amounts and client count and where otherwise specifically noted.
Overview
We were founded in 2001 as a provider of content delivery network services to deliver digital content over the internet. We began development of our infrastructure in 2001 and began generating meaningful revenue in 2002. Today, we are a leading provider of content delivery services and AppOps. Our coordinated complete solution delivers instant, secure website applications that provides powerful tools and we provide a client-first approach to optimize and deliver digital experiences at the edge. We are a trusted partner to some of the world's notable brands and serve their global customers with experiences such as livestream sporting events, global movie launches, video games, and file downloads for new phone applications. We offer one of the largest, best-optimized private networks coupled with a global team of industry experts to provide edge services that are fast, secure, and reliable. Our mission is to securely manage and globally deliver digital content, building client satisfaction through exceptional reliability and performance. Our business is dependent on creating an exceptional digital experience by providing our clients with fast, safe, efficient, and reliable edge access, distribution of content delivery and digital asset management services over the internet every minute of every day. Because of this, we operate a globally distributed network with services that are available 24 hours a day, seven days a week, and 365 days a year. Our sophisticated and powerful network is fully redundant and includes extensive diversity through data center and telecommunication suppliers within and across regions. Our delivery services represented approximately 75% of our total revenue during the three months endedMarch 31, 2022 . We also generate revenue through the sale of professional services and other infrastructure services, such as transit, rack space services, and hardware to help our clients build out edge solutions. In early 2020, theWorld Health Organization ("WHO") declared COVID-19 as a global pandemic. This pandemic has disrupted the normal operations of many businesses, including ours. Despite such disruption, our level of client service has remained uninterrupted. There also has been no material impact to our financial reporting systems, internal control over financial reporting, and disclosure controls and procedures. The future impacts of the COVID-19 pandemic remain uncertain and while it is difficult to predict what the world will look like when this pandemic has run its course, we currently do not expect the COVID-19 pandemic to have a material adverse impact on our balance sheet, financial condition, and results of operations, nor do we expect any impairment of goodwill, long-lived assets or right of use assets. We provide our services in a highly competitive industry in which differentiation is primarily measured by performance and cost and the difference between providers can be as small as a fraction of a percent. We have experienced the commoditization of our once innovative and highly valued content delivery service, which, when combined with the low switching costs in a multi-CDN environment, results in on-going price compression, despite the large, unmet market need for our services. During the first three months of 2022, we continued to see a decline in our average selling price, primarily due to the on-going price compression with our multi-CDN clients. InFebruary 2021 ,Bob Lyons joined the company as Chief Executive Officer and Director. Since that date and underMr. Lyon's leadership, we have implemented a go-forward strategy designed to simultaneously address short-term headwinds and to position us to achieve near- and long-term success by building upon and more fully leveraging our ultra-low latency, global network, and operational expertise. We are focused on three key areas: • Improving our core: Our ability to consistently grow revenue requires us to do a better job at managing the cost structure of our network while anticipating and providing our clients with the tools and reliable performance they need and to do it sooner and better than our competitors. Our recent revenue and profitability trends have been adversely impacted by our costs of services and operating expenses. Our operating expenses are largely driven by payroll and related employee costs. Our employee headcount increased from 552 onDecember 31, 2021 , to 556 onMarch 31, 2022 . We implemented a broader and more detailed operating model in 2021, built on metrics, process discipline, and improvements to client satisfaction, performance, and cost. We are building an internal culture that embraces speed, transparency, and accountability. We recorded 24
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restructuring charges of$698 during the three months endedMarch 31, 2022 . We are also continuously seeking opportunities to be more efficient and productive in order to achieve cost savings and improve our profitability. • Expanding our core: We have redesigned our commercial and product approaches to strengthen and broaden our key client relationships, to support a land and expand strategy. We believe that this, coupled with new edge-based tools and solutions we anticipate bringing to market, will assist in our ability to re-accelerate growth. Key elements of our plan to Expand the Core include tightening the alignment between our Sales and Marketing organizations, moving to a "client success" model that pairs client relationship managers with client performance managers to ensure proactive client success and exploring ways to dynamically optimize how we price our services that gives us more flexibility - and a renewed ability to sell more broadly into our existing client base. • Extending our core: Longer term, we believe we can drive meaningful improvements to profitability and growth by diversifying our capabilities, clients, and revenue mix. We need to enable digital builders to easily load content faster, personalize it more and protect it outside of a controlled environment. We believe we have an opportunity of extending the use of our network to new clients with new solutions that utilize non-peak traffic solutions. InSeptember 2021 , we acquiredMoov Corporation ("Moov"), aCalifornia corporation doing business as Layer0, a sub-scale SaaS based application acceleration and developer platform. We believe this platform coupled with our global CDN network will be a catalyst in our pursuit of positioning us as an Edge Solutions platform. InMarch 2022 , we announced that we had entered into a definitive agreement to acquire Yahoo'sEdgecast, Inc. ("Edgecast"), a leading provider of edge security, content delivery and video services, in an all-stock transaction. Edgecast is a business unit of Yahoo, which is owned by funds managed by affiliates ofApollo and Verizon Communications. In anticipation of the transaction, Limelight will rebrand as Edgio, with the combined company continuing to operate as Edgio following close, delivering significantly increased scale and scope with diversified revenue across products, clients, geographies, and channels. The combination will create a globally scaled, edge enabled software solutions provider with pro forma 2021 revenue of more than$500 million across cloud security and web applications, content delivery and edge video platform in an expanded total addressable market of$40 billion . We are committed to helping our clients deliver better digital experiences to their customers, create better returns for our shareholders, and provide our employees an environment in which they can grow, develop, and win. The following table summarizes our revenue, costs, and expenses for the three months endedMarch 31, 2022 and 2021 (in thousands of dollars and as a percentage of total revenue): Three Months Ended March 31, 2022 2021 Revenue$ 57,959 100.0 %$ 51,195 100.0 % Cost of revenue 40,159 69.3 % 38,700 75.6 % Gross profit 17,800 30.7 % 12,495 24.4 % Operating expenses 34,069 58.8 % 29,436 57.5 % Restructuring charges 698 1.2 % 6,873 13.4 % Operating loss (16,967) (29.3) % (23,814) (46.5) % Total other income (expense) (1,999) (3.4) % (1,455) (2.8) % Loss before income taxes (18,966) (32.7) % (25,269) (49.4) % Income tax expense 206 0.4 % 260 0.5 % Net loss$ (19,172) (33.1) %$ (25,529) (49.9) %
Use of Non-GAAP Financial Measures
To evaluate our business, we consider and use non-generally accepted accounting
principles ("Non-GAAP") net income (loss), EBITDA and Adjusted EBITDA as
supplemental measures of operating performance. These measures include the same
adjustments that our management takes into account when it reviews and assesses
operating performance on a period-to-period basis. We consider Non-GAAP net
income (loss) to be an important indicator of overall business performance. We
define Non-GAAP net income (loss) to be U.S. GAAP net income (loss), adjusted to
exclude share-based compensation, non-cash interest expense, restructuring and
transition related charges, acquisition and legal related expenses, and
amortization of intangible assets. We believe that EBITDA provides a useful
metric to investors to compare us with other companies within our industry and
across industries. We define EBITDA as U.S. GAAP net income (loss), adjusted to
exclude depreciation and amortization, interest expense, interest and other
(income) expense, and income tax expense. We define Adjusted EBITDA as EBITDA
adjusted to exclude share-based compensation, restructuring and transition
related charges, and acquisition and legal
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related expenses. We use Adjusted EBITDA as a supplemental measure to review and assess operating performance. Our management uses these Non-GAAP financial measures because, collectively, they provide valuable information on the performance of our on-going operations, excluding non-cash charges, taxes and non-core activities (including interest payments related to financing activities). These measures also enable our management to compare the results of our on-going operations from period to period, and allow management to review the performance of our on-going operations against our peer companies and against other companies in our industry and adjacent industries. We believe these measures also provide similar insights to investors, and enable investors to review our results of operations "through the eyes of management." Furthermore, our management uses these Non-GAAP financial measures to assist them in making decisions regarding our strategic priorities and areas for future investment and focus. In ourApril 28, 2022 , earnings press release, as furnished on Form 8-K, we included Non-GAAP net income (loss), EBITDA and Adjusted EBITDA. The terms Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are not defined underU.S. GAAP, and are not measures of operating income, operating performance or liquidity presented in accordance withU.S. GAAP. Our Non-GAAP net income (loss), EBITDA and Adjusted EBITDA have limitations as analytical tools, and when assessing our operating performance, Non-GAAP net income (loss), EBITDA and Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance withU.S. GAAP. Some of these limitations include, but are not limited to:
•EBITDA and Adjusted EBITDA do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
•These measures do not reflect changes in, or cash requirements for, our working capital needs;
•Non- GAAP net income (loss) and Adjusted EBITDA do not reflect the cash requirements necessary for litigation costs, including provision for litigation and litigation expenses;
•These measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur;
•These measures do not reflect income taxes or the cash requirements for any tax payments;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will be replaced sometime in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; •While share-based compensation is a component of operating expense, the impact on our financial statements compared to other companies can vary significantly due to such factors as the assumed life of the options and the assumed volatility of our common stock; and
•other companies may calculate Non-GAAP net income (loss), EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by relying primarily on ourU.S. GAAP results and using Non-GAAP net income (loss), EBITDA, and Adjusted EBITDA only as supplemental support for management's analysis of business performance. Non-GAAP net income (loss), EBITDA and Adjusted EBITDA are calculated as follows for the periods presented.
Reconciliation of Non-GAAP Financial Measures
In accordance with the requirements of Item 10(e) of Regulation S-K, we are
presenting the most directly comparable
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Reconciliation of U.S. GAAP Net Loss to Non-GAAP Net Income (Loss)
(Unaudited)
Three Months Ended
March 31, December 31, March 31,
2022 2021 2021
U.S. GAAP net loss $ (19,172) $ (5,429) $ (25,529)
Share-based compensation 7,012 4,257 2,644
Non-cash interest expense 209 207 199
Restructuring and transition related charges 698 2,627 11,700
Acquisition and legal related expenses 5,107 377 - Amortization of intangible assets 786 727 - Non-GAAP net (loss) income$ (5,360) $
2,766
Reconciliation of U.S. GAAP Net Loss to EBITDA to Adjusted EBITDA
(Unaudited)
Three Months Ended
March 31, December 31, March 31,
2022 2021 2021
U.S. GAAP net loss $ (19,172) $ (5,429) $ (25,529)
Depreciation and amortization 6,121 6,191 6,219
Interest expense 1,313
1,346 1,286
Interest and other (income) expense 686 213 169 Income tax expense 206 435 260 EBITDA$ (10,846) $ 2,756 $ (17,595) Share-based compensation 7,012 4,257 2,644 Restructuring and transition related charges 698
2,627 11,700
Acquisition and legal related expenses 5,107 377 - Adjusted EBITDA$ 1,971 $ 10,017 $ (3,251)
Critical Accounting Policies and Estimates
Please see Note 2 of Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of changes in significant accounting policies. In addition, our critical accounting policies and estimates are disclosed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . During the three months endedMarch 31, 2022 , there have been no other significant changes in our critical accounting policies and estimates.
Results of Operations
Revenue
We derive revenue primarily from the sale of our digital content delivery, video delivery, website development and acceleration, cloud security, edge compute, and origin storage services. We also generate revenue through the sale of professional services and other infrastructure services, such as transit, rack space services, and hardware to help our clients build out edge solutions.
The following table reflects our revenue for the three months ended
Three Months Ended March 31,
$ %
2022 2021 Change Change
Revenue $ 57,959 $ 51,195 $ 6,764 13 %
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Our revenue increased during the three months endedMarch 31, 2022 , versus the comparable 2021 period, primarily due to an increase in our delivery services, application operations, and advanced services revenue. The increase in delivery services revenue was primarily due to increased traffic volumes as a result of new content released for consumption. We continue to see price compression, which is expected in the industry. We believe that we have improved our performance with many of our largest clients, and we are positioned to take advantage of volume growth as additional new content is released. Our active clients worldwide increased to 577 as ofMarch 31, 2022 , compared to 527 as ofMarch 31, 2021 . The increase was primarily driven by our acquisition ofMoov Corporation inSeptember 2021 . During the three months endedMarch 31, 2022 and 2021, sales to our top 20 clients accounted for approximately 76% and 79%, respectively, of our total revenue. The clients that comprised our top 20 clients change from time to time, and our large clients may not continue to be as significant going forward as they have been in the past.
During the three months ended
Revenue by geography is based on the location of the client from which the
revenue is earned. The following table sets forth revenue by geographic area (in
thousands and as a percentage of total revenue):
Three Months Ended March 31,
2022 2021
Americas $ 33,806 58 % $ 28,690 56 %
EMEA 6,534 11 % 9,253 18 %
Asia Pacific 17,619 31 % 13,252 26 %
Total revenue $ 57,959 100 % $ 51,195 100 %
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 internet service providers, and fees paid to data center operators
for housing of our network equipment in third party network data centers, also
known as co-location costs. Cost of revenue also includes leased warehouse space
and utilities, depreciation of network equipment used to deliver our content
delivery services, payroll and related costs, and share-based compensation for
our network operations and professional services personnel. Other costs include
hardware costs, professional fees and outside services, travel and
travel-related expenses, and royalty expenses.
Cost of revenue was composed of the following (in thousands and as a percentage of total revenue):
Three Months Ended
2022 2021
Bandwidth and co-location fees $ 24,449 42.2 % $ 23,743 46.4 %
Depreciation - network 5,089 8.8 % 5,679 11.1 %
Payroll and related employee costs 2,274 3.9 % 4,674 9.1 %
Share-based compensation 408 0.7 % 246 0.5 %
Other costs 7,939 13.7 % 4,358 8.5 %
Total cost of revenue $ 40,159 69.3 % $ 38,700 75.6 %
Our cost of revenue increased in aggregate dollars and decreased as a percentage
of total revenue for the three months ended March 31, 2022 , versus the
comparable 2021 period. The changes in cost of revenue were primarily a result
of the following:
•Bandwidth and co-location fees increased in aggregate dollars due to higher
transit fees, increased variable bandwidth costs as a result of an increase in
traffic, as well as continued expansion in existing and new geographies.
•Depreciation expense decreased due to less deployments of capital equipment.
•Payroll and related employee costs were lower as a result of decreased network
operations and professional services personnel and lower variable compensation.
We have also increased the use of third party consultants to
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augment direct staffing expense.
•Share-based compensation increased during the three months endedMarch 31, 2022 , primarily due to an increase in estimated 2022 annual variable compensation compared to the first quarter of 2021, that will be paid out in restricted stock units in 2023, provided certain financial goals and objectives are achieved.
•Other costs increased primarily due to costs associated with increased international re-seller costs, professional fees including third party consultants, and increased fees and licenses. These increases were partially off-set by decreased facilities costs and contract royalties.
General and Administrative
General and administrative expense was composed of the following (in thousands and as a percentage of total revenue):
Three Months Ended
2022 2021
Payroll and related employee costs $ 4,871 8.4 % $ 3,977 7.8 %
Professional fees and outside services 2,002 3.5 % 1,227 2.4 %
Share-based compensation 2,103 3.6 % 6,028 11.8 %
Acquisition and legal related expenses 5,107 8.8 % - - %
Other costs 1,750 3.0 % 1,716 3.4 %
Total general and administrative $ 15,833 27.3 % $ 12,948 25.3 %
Our general and administrative expense increased in both aggregate dollars and
as a percentage of total revenue for the three months ended March 31, 2022 ,
versus the comparable 2021 period. The increase in aggregate dollars for the
three months ended March 31, 2022 , versus the comparable 2021 period was
primarily driven by an increase in acquisition and legal related expenses,
professional fees, and payroll and related employee costs. The increase in
acquisition and legal related expenses is the result of expenses that have been
incurred regarding our acquisition of Edgecast. The increase in professional
fees is due to increased costs for recruiting and casual labor and the increase
in payroll and related employee costs is due to increased headcount. The
decrease in share-based compensation was the result of a transition agreement
entered into between us and our former Chief Executive Officer who retired in
January 2021 , and for a sign-on bonus converted from cash to restricted stock
units for our new Chief Executive Officer.
We expect our general and administrative expenses for 2022 to increase in both
aggregate dollars and as a percentage of total revenue primarily due to expenses
supporting the pending Edgecast acquisition.
Sales and Marketing
Sales and marketing expense was composed of the following (in thousands and as a percentage of total revenue):
Three Months Ended
2022 2021
Payroll and related employee costs $ 4,879 8.4 % $ 7,488 14.6 %
Share-based compensation 1,181 2.0 % 563 1.1 %
Marketing programs 471 0.8 % 433 0.8 %
Other costs 1,096 1.9 % 1,351 2.6 %
Total sales and marketing $ 7,627 13.2 % $ 9,835 19.2 %
Our sales and marketing expense decreased in both aggregate dollars and as a
percentage of total revenue for the three months ended March 31, 2022 , versus
the comparable 2021 period. The decrease in aggregate dollars for the three
months ended March 31, 2022 , versus the comparable 2021 periods was primarily
driven by decreased headcount from our reduction in workforce in 2021 which
decreased payroll and related employee costs, and other costs. The decrease in
other costs was due to decreased facility costs, decreased other employee costs
and decreased fees and licenses, off-set by increased professional fees (casual
labor) and travel and entertainment. Share-based compensation increased
primarily a result of our acquisition of Moov Corporation in September 2021 .
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We expect our sales and marketing expenses for 2022 to increase in both aggregate dollars and as a percentage of total revenue.
Research and Development
Research and development expense was composed of the following (in thousands and as a percentage of total revenue):
Three Months Ended
2022 2021
Payroll and related employee costs $ 4,089 7.1 % $ 4,159 8.1 %
Share-based compensation 3,320 5.7 % 371 0.7 %
Other costs 2,168 3.7 % 1,583 3.1 %
Total research and development $ 9,577 16.5 % $ 6,113 11.9 %
Our research and development expense increased in both aggregate dollars and
as a percentage of total revenue for the three months ended March 31, 2022 ,
versus the comparable 2021 period. The increase in aggregate dollars during the
three months ended March 31, 2022 , versus the comparable 2021 periods was
primarily driven by an increase in share-based compensation and other costs.
Share-based compensation increased primarily a result of our acquisition of Moov
Corporation in September 2021 . The increase in other costs, was primarily due to
increased professional fees (casual labor, consulting) and increased fees and
licenses, off-set by lower facilities costs.
We expect our research and development expenses for 2022 to increase in both aggregate dollars and as a percentage of total revenue.
Depreciation and Amortization (Operating Expenses)
Depreciation expense consists of depreciation on equipment and furnishings used by general administrative, sales and marketing, and research and development personnel. Amortization expense consists of amortization of acquired intangible assets.
Depreciation and amortization expense was
The increase in depreciation and amortization expense for the three months ended
Restructuring Charges
The restructuring charge for the three month period endedMarch 31, 2022 , was the result of management's commitment to restructure certain parts of the company to focus on cost efficiencies, improved growth and profitability, and align our workforce and facility requirements with our continued investment in the business. As a result, we are incurring certain charges for facilities, right of use assets, outside service contracts, and professional fees. Please refer to Note 11 "Restructuring Charge" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We expect to incur approximately$1,800 of additional restructure charges primarily for consulting fees to restructure our datacenter architecture over the next 12 months. Interest Expense Interest expense was$1,313 for the three months endedMarch 31, 2022 , versus$1,286 for the comparable 2021 period. Interest expense includes expense associated with the issuance of our senior convertible notes inJuly 2020 and fees associated with the Loan and Security Agreement (as amended, the Credit Agreement) withSilicon Valley Bank ("SVB") originally entered into inNovember 2015 . Interest Income
Interest income was
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Other Income (Expense)
Other expense was$713 for the three months endedMarch 31, 2022 , versus other expense of$214 for the comparable 2021 period. For the three months endedMarch 31, 2022 , other income/expense consisted primarily of foreign currency transaction gains and losses. For the three months endedMarch 31, 2021 , other income/expense consisted primarily of foreign currency transaction gains and losses, and the gain/loss on sale of fixed assets.
Income Tax Expense
Based on an estimated annual effective tax rate and discrete items, the estimated income tax expense for the three months endedMarch 31, 2022 was$206 , versus$260 for the comparable 2021 period. Income tax expense on our income (loss) before income taxes was different than the statutory income tax rate primarily due to our providing for a valuation allowance on deferred tax assets in certain jurisdictions, and recording of state and foreign tax expense for the quarter. The effective income tax rate is based primarily upon forecasted income or loss for the year, the composition of the income or loss in different countries, and adjustments, if any, for the potential tax consequences, benefits or resolutions for tax audits.
Liquidity and Capital Resources
As ofMarch 31, 2022 , our cash, cash equivalents, and marketable securities classified as current totaled$61,926 . Included in this amount is approximately$9,840 of cash and cash equivalents held outsidethe United States . Changes in cash, cash equivalents and marketable securities are dependent upon changes in, among other things, working capital items such as deferred revenues, accounts payable, accounts receivable, accrued provision for litigation, and various accrued expenses, as well as purchases of property and equipment and changes in our capital and financial structure due to debt repurchases and issuances, stock option exercises, sales of equity investments, and similar events. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled "Risk Factors". However, we believe that our existing cash, cash equivalents, and marketable securities, and available borrowing capacity will be sufficient to meet our anticipated cash needs for at least the next 12 months. If the assumptions underlying our business plan regarding future revenue and expenses change or if unexpected opportunities or needs arise, we may seek to raise additional cash by selling equity or debt securities.
The major components of changes in cash flows for the three months ended
Operating Activities
Net cash used in operating activities was$18,471 for the three months endedMarch 31, 2022 , versus net cash used in operating activities of$1,492 for the comparable 2021 period, an increase of$16,979 . Changes in operating assets and liabilities of$(13,433) during the three months endedMarch 31, 2022 , versus$8,063 in the comparable 2021 period, were primarily due to: •accounts receivable increased$13,095 during the three months endedMarch 31, 2022 , as a result of timing of collections as compared to a$2,059 decrease in the comparable 2021 period; •prepaid expenses and other current assets increased$3,174 during the three months endedMarch 31, 2022 , primarily due to increases in, prepaid bandwidth and backbone expenses, prepaid expenses and insurance, vendor deposits and other, and VAT receivable, compared to a decrease of$446 in the comparable 2021 period; •accounts payable and other current liabilities increased$3,625 during the three months endedMarch 31, 2022 , versus an increase of$5,209 for the comparable 2021 period primarily due to accrued legal fees, and our restructuring charge accrual, off-set by the timing of variable compensation, interest and vendor payments. Cash provided by operating activities may not be sufficient to cover new purchases of property and equipment during the remainder of 2022 and beyond. The timing and amount of future working capital changes and our ability to manage our days sales outstanding will also affect the future amount of cash used in or provided by operating activities.
Investing Activities
Net cash used in investing activities was$2,610 for the three months endedMarch 31, 2022 , versus net cash used in investing activities of$11,605 for the comparable 2021 period. For the three months endedMarch 31, 2022 , net cash used in investing activities was related to the purchase of marketable securities, and capital expenditures primarily for servers and network equipment associated with the build-out and expansion of our global computing platform, offset by cash received from 31
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the sale and maturities of marketable securities. For the three months ended
We expect to have ongoing capital expenditure requirements as we continue to invest in and expand our network. During the three months endedMarch 31, 2022 , we made capital expenditures of$5,350 , which represented approximately 9% of our total revenue. We currently expect capital expenditures in 2022 to be approximately 10% of revenue, as we continue to increase the capacity of our global network and re-fresh our systems.
Financing Activities
Net cash provided by financing activities was$6,701 for the three months endedMarch 31, 2022 , versus net cash provided by financing activities of$2,176 for the comparable 2021 period. Net cash provided by financing activities in the three months endedMarch 31, 2022 , primarily relates to cash received from the exercise of stock options of$7,986 , offset by the payments of employee tax withholdings related to the net settlement of vested restricted stock units of$1,285 . Net cash provided by financing activities in the three months endedMarch 31, 2021 , primarily relates to cash received from the exercise of stock options of$2,847 , offset by the payments of employee tax withholdings related to the net settlement of vested restricted stock units of$671 .
Convertible Senior Notes and Capped Call Transactions
InJuly 2020 , we issued$125,000 aggregate principal amount of 3.50% Convertible Senior Notes due 2025 (the "Notes"), with an initial conversion rate of 117.2367 shares of our common stock (equal to an initial conversion rate of$8.53 per share), subject to adjustment in some events. The Notes will be 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$20,000 credit facility with SVB, 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 Notes are governed by an indenture (the Indenture) between us, as the issuer, andU.S. Bank, National Association , as trustee. The Indenture does not contain any financial covenants. The Notes mature onAugust 1, 2025 , unless earlier converted, redeemed or repurchased in accordance with their term prior to the maturity date. Interest is payable semiannually in arrears onFebruary 1 andAugust 1 of each year, beginning onFebruary 1, 2021 . We may not redeem the Notes prior toAugust 4, 2023 . On or afterAugust 4, 2023 , and on or before the 40th scheduled trading day immediately before the maturity date, we may redeem for cash all or any portion of the Notes if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption. The redemption price will equal 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
As of
In connection with the offering of the Notes, we also entered into privately negotiated capped call transactions (collectively, the "Capped Calls"). The Capped Calls have an initial strike price of approximately$8.53 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have an initial cap price of$13.38 per share, subject to certain adjustments. The capped call transactions cover, subject to anti-dilution adjustments, approximately 14.7 million shares of our common stock and are expected to offset the potential economic dilution to our common stock up to the initial cap price.
Line of Credit
InNovember 2015 we entered into the Credit Agreement with SVB. Since the inception, there have been eight amendments, with the most recent amendment being inSeptember 2021 . The maximum principal commitment amount remains at$20,000 . Our borrowing capacity is the lesser of the commitment amount or 80% of eligible accounts receivable. All outstanding borrowings owed under the Credit Agreement become due and payable no later than the final maturity date ofNovember 2, 2022 . As long as our Adjusted Quick Ratio remains above 1.5 to 1, we no longer are required to submit quarterly borrowing base reports. 32
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As ofMarch 31, 2022 , borrowings under the Credit Agreement bear interest at the current prime rate minus 0.25%. In the event of default, obligations shall bear interest at a rate per annum which is 3% above the then applicable rate. As ofMarch 31, 2022 , andDecember 31, 2021 , we had no outstanding borrowings, and we had availability under the Credit Agreement of$20,000 and$20,000 , respectively.
Financial Covenants and Borrowing Limitations
The Credit Agreement requires, and any future credit facilities will likely require, us to comply with specified financial requirements that may limit the amount we can borrow. A breach of any of these covenants could result in a default. Our ability to satisfy those covenants depends principally upon our ability to meet or exceed certain financial performance results. Any debt agreements we enter into in the future may further limit our ability to enter into certain types of transactions. We are required to maintain an Adjusted Quick Ratio of at least 1.0 to 1.0. We are also subject to certain customary limitations on our ability to, among other things, incur debt, grant liens, make acquisitions and other investments, make certain restricted payments such as dividends, dispose of assets or undergo a change in control. As ofMarch 31, 2022 , we were in compliance with our covenant under the Credit Agreement.
For a more detailed discussion regarding our Credit Agreement, please refer to Note 10 "Debt - Line of Credit" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by restrictive covenants within the Credit Agreement. These restrictions may also limit our ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect our ability to finance our operations, enter into acquisitions, execute our business strategy, effectively compete with companies that are not similarly restricted or engage in other business activities that would be in our interest. In the future, we may also incur debt obligations that might subject us to additional and different restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that we will be granted waivers or amendments to the indenture governing the Credit Agreement, or such other debt obligations if for any reason we are unable to comply with our obligations thereunder or that we will be able to refinance our debt on acceptable terms, or at all, should we seek to do so. Any such limitations on borrowing under the Credit Agreement, including payments related to litigation, could have a material adverse impact on our liquidity and our ability to continue as a going concern could be impaired. Share Repurchases OnMarch 14, 2017 , our board of directors authorized a$25,000 share repurchase program. Any shares repurchased under this program will be canceled and returned to authorized but unissued status. During the three months endedMarch 31, 2022 and 2021, we did not repurchase any shares under the repurchase program. As ofMarch 31, 2022 , there remained$21,200 under this share repurchase program.
Contractual Obligations, Contingent Liabilities, and Commercial Commitments
In the normal course of business, we make certain long-term commitments for right-of-use (ROU) assets, (primarily office facilities) and purchase commitments for bandwidth and computer rack space. These commitments expire on various dates ranging from 2022 to 2030. We expect that the growth of our business will require us to continue to add to and increase our ROU assets and long-term commitments in 2022 and beyond. As a result of our growth strategies, we believe that our liquidity and capital resources requirements will grow.
The following table presents our contractual obligations and commercial
commitments, as of
Payments Due by Period
Less than More than
Total 1 year 1-3 years 3-5 years 5 years
Purchase Commitments
Bandwidth commitments $ 93,538 $ 38,441 $ 34,612 $ 20,329 $ 156
Rack space commitments 12,462 9,273 3,189 - -
Total purchase commitments 106,000 47,714 37,801 20,329 156
Right-of-use assets and other operating
leases 13,482 2,479 3,092 2,923 4,988
Total commitments $ 119,482 $ 50,193 $ 40,893 $ 23,252 $ 5,144
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Off Balance Sheet Arrangements
As of
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