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Limelight Boosts Guidance

Limelight Networks Inc. (Nasdaq: LLNW) revised its guidance yesterday after a financial review found that the company was owed more revenue than it had previously reported. (See Limelight Ups Q3 Estimates.)

The content delivery network (CDN) said it expects revenues for the third quarter to be in the range of $28.6 million to $29.1 million, up from previous guidance of $27.5 million to $28.0 million.

The new guidance was also above Wall Street estimates. Analysts, on average, expected sales of $26.1 million for the quarter, according to Thomson Financial .

Limelight also said it would restate previous earnings for fiscal year 2006 and the first two quarters of 2007.

The revised guidance and earnings restatements were announced after Limelight found two issues with its accounting.

After a customer inquiry prompted Limelight to review its monthly customer billings, it found that over the course of 15 months it had under-billed one customer to the tune of $1.7 million.

The company will attribute about $900,000 of that to fiscal 2006, with approximately $500,000 and $200,000 being added to the first and second quarters of 2006, respectively. Limelight will also add approximately $100,000 to its third-quarter sales as a result of the correction.

The other issue came in the calculation of stock-based compensation. In the course of implementing a stock option administration system, Limelight found that it had miscalculated the period under which stock-based compensation expenses would be recognized.

As a result, Limelight will be increasing stock-based compensation expenses by $100,000 in fiscal 2006, and reducing previously reported stock-based compensation expenses by approximately $500,000 and $400,000 for the first and second quarters of 2007, respectively.

Morgan Stanley analyst Peter Kuper says, "A minor restatement isn't the end of the world."

Kuper feels Limelight's accounting issues are due to its rush to go public. "When you're a private company growing as fast as they were, accounting is the last thing on your mind. You're just happy to be selling deals and doing a good job."

What's most disconcerting to investors, Kuper says, is the increase in competition in the CDN market. A number of new entrants and a rash of discounting has some investors concerned about future results. (See CDNs See 3 Price Pressures and More CDN Pressures Ahead.)

Kuper notes that, despite the revised guidance, Limelight shares have only moderately risen. "The stock is bouncing back a little bit, but it's really not ripping. It's just sort of hanging in."

In mid-afternoon trading, Limelight shares had risen $0.27 (2.32%) to $11.91, but that was down from the day's high of $12.75 earlier in the session.

— Ryan Lawler, Reporter, Light Reading

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