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Limelight Networks Inc (NASDAQ:LLNW)
Q3 2019 Earnings Call
Oct 16, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon everyone and welcome to Limelight Networks Q3 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please also note, today's event is being recorded.

At this time, I like to turn the conference call over to Mr. Dan Boncel, Chief Accounting Officer. Sir, please go ahead.

Daniel Boncel -- Chief Accounting Officer

Good afternoon, and thank you for joining the Limelight Networks third quarter 2019 financial results conference call. This call is being recorded on October 16, 2019 and will be archived on our website for approximately 10 days.

Let me start by quickly covering the safe harbor. We would like to remind everyone that we will be making forward-looking statements on this call. Forward-looking statements are all statements that are not strictly statements of historical fact, such as our outlook for 2019 and beyond, our priorities, our expectations, our operational plans, business strategies, secular trends and product and feature functionality announcements. Actual results could differ materially from those contemplated by our forward-looking statements, and reported results should not be considered as an indication of future performance. For more information, please refer to the risk factors discussed in our periodic filings, including our most recent Annual Report on Form 10-K. The forward-looking statements on this call are based on information available to us as of today's date and we disclaim any obligation to update any forward-looking statements except as required by law.

Joining me on the call today are Bob Lento, our Chief Executive Officer; and Sajid Malhotra, our Chief Financial Officer. We will be available during the Q&A session at the end of prepared remarks from Bob and Sajid.

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

Robert A. Lento -- President, Chief Executive Officer And Director

Thanks, Dan, and good afternoon. This was an excellent quarter. We made great progress on multiple priorities during the quarter and set the foundation for a strong second half across many operational and financial measures. Before getting into the third quarter details, I would first like to thank everyone who attended on our recent Analyst Day at our new corporate headquarters in Scottsdale as well as those who joined us on the phone or webcast. It was a deeper dive into how we see the industry and how our strategy aligns with industry trends. Based on the feedback received, we believe it was a success, if you missed the event, you can view the presentation which is posted on our website.

Now onto third quarter results, revenue was up 4% year-over-year to $51.3 million, which was our highest third quarter revenue ever, and our second highest revenue in any quarter. GAAP net loss was $2.8 million, non-GAAP net income was $600,000 and adjusted EBITDA was $5.8 million. We are very pleased with these results. We made some tough strategic decisions last year, which negatively impacted revenue in the short term, but positioned us better for a long-term financial success. In the third quarter, our financial results began to show the benefits of those decisions, as we return to year-over-year revenue growth. We expect this growth to continue in the coming quarters, with increasing strength in the fourth quarter, when many of our new deals and initiatives are expected to have a more substantial impact.

During the third quarter, we delivered record traffic, which was almost 20% higher than our previous record set in the second quarter of this year. We're excited about this momentum in our business and expect it to continue in the fourth quarter and beyond. Customer acquisition accelerated in the third quarter with numerous new logos added across all regions. I'm also pleased that our customer churn count in the third quarter was down 25% from the third quarter 2018 levels. The decline in customer churn is consistent with our high levels of customer satisfaction, as evidenced by the results of our recently completed annual customer survey that generates our net promoter score.

As discussed during our Analyst Day, the strong demand we are seeing as a result of a number of factors, including the new sizable OTT offerings on the horizon. As we now know based on public announcements, Apple is set to launch Apple TV+ on November 1st, Disney plans to launch Disney+ on November 12th and others are slated for 2020. These are exciting events for the industry and we are pleased to be part of most, if not, all of these new major services.

We're also pleased with our progress in edge services, which leverages our infrastructure and software to address our customers' needs at the edge for low latency and connectivity. There are several initiatives that are under way that we believe add important capabilities that our customers care about. Let me describe a few that I believe are both important to our shareholders and our customers. The first use case is Limelight Realtime Streaming, which is the industry's first global scalable sub-second live video streaming solution that is natively supported by major browsers and devices. Realtime Streaming is a long-term opportunity for us and we are pleased that this new offering clearly establishes Limelight as the industry leader in sub-second global delivery.

Our partnership with Ericsson is another great example, where we are the exclusive provider of abilities for its global scale edge cloud platform. During the third quarter, we made good progress on executing our plan with Ericsson. We started the quarter with 19 existing Ericsson locations, and we expect that number to double in the next few months. All of these new locations will be next-generation PoPs, which are new build by Ericsson within a service provider utilizing our software and hardware specs. It is important as it provides Limelight with a low capex model for expanding capacity closer to the edge within service provider networks in locations that were previously hard for us to reach. We are very pleased with this accelerating momentum in our Ericsson partnership. The relationship continues to build and we're pleased with the execution and progress we're making together.

Another great example is our new serverless compute capabilities, also known as function as a service. This offering will provide a platform for our customers to deploy their own application functions into our network edge locations and run them on demand. We expect to be able to provide this service in the first half of 2020. As discussed that in length during our Analyst Day, we believe our platform aligns well with the requirements for edge services. We continue to evolve our edge platform through the third quarter, working to expand our ecosystem of partners and build out additional offerings for our customers.

In the third quarter, we continue to gain traction in the marketplace, as we closed a number of new edge service deals and have a strong and growing pipeline. Year-to-date, revenue from our edge services related offerings have increased 60% from 2018, and we expect the full year revenue from edge services to approximately double over the prior year. With these new service offerings, we expect to see continued acceleration in terms of dollars and as a percentage of prior period amounts in 2020 and beyond.

In addition to the capacity added through new Ericsson locations, we continue to focus on expanding our capacity through software enhancements and expansion of our network into new locations that are important to our customers and support key initiatives. During the third quarter, we completed the rollout of enhancements to our network software that were designed to drive increased performance and throughput. This project has been in development for the past two years and we're excited about its completion. The new software has increased throughput on our servers by over 30% and added over 12 terabits per second of edge server capacity on our network without any additional capex spend.

As we reported last quarter, we began 2019 with 28 terabits per second of edge server capacity. As a result of our initiatives, we now believe that we will more than double this capacity by the end of the year to around 60 terabits per second. While we're still in the planning stage for next year, we currently expect to increase our capacity in 2020 by an even higher amount in 2019, while reducing capex on a year-over-year basis. We believe this will be important in order to address and serve the strong demand we see in the marketplace. We expect these efforts to have a positive impact on our customers and drive revenue growth in the future.

In summary, this was an excellent quarter for Limelight. We are very pleased that we returned to a growth trajectory in the third quarter, with year-over-year and sequential revenue growth. We expect this growth to accelerate and believe our third quarter results are a precursor to a record performance in the fourth quarter, which we are confident we will deliver.

As I look forward, I see an exciting time in our industry. We're focusing our R&D and investment dollars in video delivery, where low latency and high quality matter, and to further strengthening our edge platform. We believe we are ideally positioned and well suited to take advantage of the trends in the industry and we expect this will translate into sustainable above market returns.

I would like to express my gratitude for the hard work of our global team and the momentum they together had generated this year. In addition to all of the initiatives I've already talked about, we also completed the complex project of moving our headquarter location into a new facility that will be our home for the next 10 years. And I'm more confident than ever that 2019 will be our best year on many fronts and will serve as a foundation for an even better 2020.

With that, I'll turn the call over to Sajid to discuss the third quarter financial performance in greater detail and our guidance for 2019.

Sajid Malhotra -- Chief Financial Officer

Thanks, Bob, and good afternoon. With the third quarter results, we are very pleased to report our return to top line growth and improving profitability. We believe we will show significant year-over-year and sequential growth in the fourth quarter and further improvements in the operating lines.

Revenue in the third quarter is $51.3 million, up 4% year-over-year and up 12% sequentially. On a year-over-year basis, we have sold through the contract renegotiations and our strategic customer decisions from the third quarter of last year. Sequentially, we have reported our highest revenue growth rate in over a decade, and it may be the highest in the industry. At $51.3 million, the third quarter is within $1 million of our highest ever revenue quarter. The business is showing strong momentum.

International customers accounted for 36% of total revenue in Q3 compared to 38% a year ago. This is based on where the customer is built. On the other hand, international traffic is approximately 47% of total traffic. Approximately 14% of our third quarter revenue was in non-U.S. dollar denominated currencies. Foreign exchange headwinds in the quarter amounted to approximately $200,000. Our top 20 customers account for approximately 74% of our total revenue.

With the second and third quarters seasonally being the lowest volume, and therefore, lower revenue quarters, we are particularly pleased with the reported revenue growth we have seen in each sequential quarter in 2019. During the third quarter, we delivered a record amount of petabytes. Also in the quarter, we had a highest peak traffic and had multiple days with the most petabytes delivered in our history. We believe we will continue to set new traffic delivery records for the foreseeable future, as we see healthy demand for our video-based edge services.

Moving onto expenses, we have been deploying capital throughout the year to expand our network capacity in order to deliver against the expectations of a steep ramp in traffic. The increase in co-location and bandwidth costs and depreciation expense is related to the near doubling of a network to almost 50 terabytes per second of capacity. We expect gross margins to continue to improve, as traffic ramps in locations where we see higher absorption of our newly deployed capacity. We are in a race to serve the customers, and the timing may not match perfectly, but the trend is healthy and the outcome should show continuous improvement.

Operating expenses decreased $700,000, while sales and marketing expenses increased due to expanded headcount. On a GAAP basis, we lost $0.02 per basic share this quarter compared to $0.06 loss last quarter and breakeven last year. Non-GAAP EPS was $0.01 this quarter compared to a loss of $0.03 last quarter and a positive $0.03 last year. Adjusted EBITDA was $5.8 million for the third quarter of 2019. We had cash and marketable securities of $18.1 million at the end of the third quarter. We used approximately $2 million in cash from operations in the quarter due to timing of payments, as accounts receivable increased by over $5 million. We spent $7.7 million in capital expenditures in the third quarter, bringing the total for the year to $24.2 million. Cash usage was also slightly elevated due to capitalized and expense items related to our headquarter move. At the end of the third quarter, DSO was 55 days compared to 52 days at the end of last year, within our expected range of 50 to 55 days.

Our balance sheet remained strong and we remain debt free. As of September 30, we had approximately 116.5 million shares outstanding. Total employee count at the end of the quarter was 609, up 58 from the end of third quarter last year, and up 15 from the end of last quarter. We believe the third quarter represents a turning point for the business. We have worked through the strategic customer decisions made in 2018, as shown in our year-over-year and sequential revenue gains. We are seeing momentum on multiple fronts that will lead to what we believe will be industry-leading revenue growth in the fourth quarter. The business is more video and edge services centric than it ever has been and we see this trend continue to grow.

We have positioned ourselves to take advantage of the continued creation and adoption of OTT services as well as the entry of new participants in this -- into this market. As these OTT providers test various vendors, along with our existing customers, we continue to receive feedback that we are performing as well, if not better, than any other vendor. Limelight is increasingly being recognized as a high quality and capable partner and not just a low price vendor. Our relationship with our partners is another key component of our CDN expansion and edge compute growth strategy. We continue to work with Ericsson to expand directly into telecom providers and content provider networks. This partnership has now gained some renewed traction and is moving in the right direction. Our total PoP count is approaching 120.

We are also working on ways to expand our product offerings with another partner New Star to help our customers with DDoS Protection and an expanding suite of Realtime Security Solutions. Our edge product is growing at a healthy rate and expected to double from prior year amounts. We are experiencing hyper growth supported by strong pipeline with existing and new customers. Our security solutions are also growing at a very good rate. Together, these two adjacencies with fractional incremental cost and a lot of use of our existing infrastructure are adding to our overall growth rate. The organic development of these businesses will serve us well for years to come.

With this in mind, we are leaving guidance for our revenue and operating results unchanged. Revenue is expected in the range of $200 million to $210 million. GAAP loss to be around $0.10 per share and non-GAAP EPS to be around breakeven. We are going to deploy more capital to support the demand we see in 2020 and now expect capex for the year to be approximately $30 million. Our headquarter move impacted our capex and opex for the year.

Our cost of adding a terabit of capacity is among the lowest in the industry and we see more improvements in that arena. Looking at competitive industry analogs, our capex is the lowest for the revenue delivered and our profitability far in excess of other companies our size. The business is getting better on multiple fronts, and as we projected at the start of the year, we continue to see significant sequential improvement through 2019.

Ending at the high note in 2019 is also very promising for a 2020 performance. I'm very pleased with the advancements we are making. I believe the deep discount in valuation compared to our industry averages creates a unique opportunity for our shareholders. We are working hard to achieve even higher levels of performance and get closer to our long-term goals.

With that, we'll open the call up for your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Robert Magic from Raymond James. Please go ahead with your question.

Robert Magic -- Raymond James -- Analyst

Hey guys, congrats on the results this quarter. Just wanted to ask you a question about programmability. At the Analyst Day, you highlighted your early progress toward offering a full API configuration and programmability. Can you just give us the latest update where we stand with that initiative? And perhaps more broadly, I would love to hear your opinion on how important you think those capabilities are to gain share long-term in CDN?

Robert A. Lento -- President, Chief Executive Officer And Director

This is Bob. Let me take the kind of the first part of that. So we think providing opportunities for our customers to have access to our data and also give them the ability to manage their traffic is important. We started building out and improving our suite of APIs earlier this year. It's one of the major initiatives we have for 2020. So we're on a path to providing what we believe will be best-in-class in terms of the extensibility of the network, and we believe that for a lot of our customers, that's becoming increasingly more important as they look for ways to better understand quality and consumer preference. The more data that we can provide to them, the better positioned they are to understand the quality and the experience that their consumers are having with their product and with their service. So we think it's important. We're making a lot -- we made a lot of progress this year, but there is more to do, and it is one of our top four priorities going into next year.

Robert Magic -- Raymond James -- Analyst

Appreciate it. And just maybe one more from me on OTT. Can you just walk us through the potential size of the incremental near-term opportunity for you there. And then maybe just walk us through what's driving your conviction level that you can win that amount of business in hitting your Q4 guide?

Robert A. Lento -- President, Chief Executive Officer And Director

So look, there's only so much capacity that exists in the world. Obviously, we and our competitors are trying to add more every day, but as new initiatives come into the market, especially those that have incremental content, so not just shifting -- people watching a title on Netflix to a title on somebody else. That's sort of better for us because Netflix runs their own network and we do not participate in that. And in most of the others, we do. So that is a shift that's good for us.

But in addition to that, the exciting thing is the number of new entrants that are coming to market with new content. So if you look at what Apple is doing and others, it's not only shifting from one viewing experience to the other, but bringing fresh new innovative content to market. And so we see the trend for that being very healthy and we are confident in our ability to participate in delivering for a variety of important customers around the world.

Sajid Malhotra -- Chief Financial Officer

And Robert, I would just kind of add, right. On one hand, I mean, there is a lot of capacity in the marketplace, but I think that is very different from quality capacity that is required to deliver video-centric solutions. And the choice that we made some time ago to focus our business on video and video-centric solutions, makes that much of a diff [Phonetic] today, when we get in front of our customers and are really talking about why it's so important for their customer experience to be perfect. Because they've spent a lot of time on content acquisition and customer acquisition comes at a very high premium, and you really don't want to go ahead and have anything less than perfect delivery capability. And so I think there's only a handful of us that can do well. There's others that have capacity but just having capacity does not equate well for some of the vendors that are looking for quality. And so we feel very fortunate that we took the steps that we did some time ago to position us well today.

And then kind of the next step, I mean, listen, I know what we have signed up for, right. So even at the low end of our guidance, we're suggesting 15% higher revenue sequentially. I mean, we're talking about a 35% growth rate year-over-year, numbers that we have not seen in our history, right. So we've been 5%, 8%, 10% and all of a sudden, we're talking about a 35% growth rate, which I think if we deliver, and that I'm talking about at the low end of our guidance. If I'm looking at analyst numbers, I don't think there's anybody else suggesting those kind of numbers. So that happens only one of two ways, either we're taking share in the market, right, or we're growing faster, and as the market is growing, we're getting a much larger share of that growth. And I think we're giving you this guidance based on our belief and based on the early conversations we are having and based on the projections we are seeing, that we should be able to deliver these results.

Robert Magic -- Raymond James -- Analyst

I appreciate it. Thanks a lot for the color.

Sajid Malhotra -- Chief Financial Officer

Thanks.

Operator

Our next question comes from Lee Krowl from B. Riley, FBR. Please go ahead with your question.

Lee Krowl -- B. Riley FBR -- Analyst

Hey, great. Thanks for taking my questions and congrats on a well-executed quarter. Real quick, just on gross margin, I can completely appreciate the commentary around building capacity and then some underutilization, really the seasonality, but ahead of a nice ramp. But could you maybe just talk kind of the gross margin profile of some of the newer products and maybe how those either aid in terms of utilization and maybe pricing and how gross margin will be impacted as you have some new edge and other lines of revenue contributing to the top line?

Sajid Malhotra -- Chief Financial Officer

Yeah, I think you've seen kind of the worst behind us, right. When we reported our gross margin in the fourth quarter and the first quarter in mid high 30%s, I mean that was kind of the low point for the company. Since then, when we began to see the opportunities that we saw and we build ahead of it and we had capacity and we had network [Indecipherable] and all the settlements that we had to do with the network providers. The cost is up, you have to build in advance of getting the revenue and you have some underutilized capacity. So we fully expect the base business to see a step up in its gross margins over the coming quarters. And again, I like to look at our business and where we are and the progress we are making, but I'm also equally riveted in terms of the competitive analogs.

And so the profitability profile of the company is much better now that we have at least two public companies our size, which report results in terms of where we are. And I think we will see an uptick in our gross margins, and again, suggestions from the analyst community suggest kind of a different trend for our peer group, but there is room over there. And then the news adjacencies that we're talking about, whether it is the edge services, the video-based services, the margin profile of those businesses is better, and I think that helps the overall corporate margin as we move forward. The security services business and our partnership with New Star, the Ericsson-related businesses and all the edge businesses, I mean, I continue to expect long-term improvement in our gross margin that should show up on a consistent basis. Again, I've said this before, not every quarter not perfectly, but the trend is intact, and I think we should continue to benefit from it.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. And then just on capex, trying to understand, obviously there is a lot of opportunities for you guys. So the incremental bump in $5 million to the $30 million guide. Is that a pull-forward from 2020 per your comments that you expect it to be down? Or is there kind of any additional opportunities you saw and just made the decisions to spend the money now as some of the opportunities come to fruition from customers?

Robert A. Lento -- President, Chief Executive Officer And Director

Yeah, so there's really three parts to why we believe capex will come down next year versus this year. A -- despite putting in more capacity. A, we're not doing another corporate headquarter move. So while we're not seeing that, I think, Akamai in their last quarter said they were going to spend $100 million, where we didn't do that. But we did spend an amount sort of in the $5 million-ish range, so that's obviously when you're only spending 25 to 30, it's pretty significant. We're not going to repeat that next year. So that's first thing.

Second thing, yes we are pulling forward some capacity spend into this year based on what we see happening toward the end of this quarter and into next year. And then lastly, the cost of us adding a terabit of capacity next year will be much lower than it was in the first few quarters this year, for example, before we put in that new software enhancement. And so the throughput that we're getting from the service is dramatically here. So you need less servers per terabit of capacity purchased and that's a big piece of capex. So I think there is several factors there, a little bit of pull forward, a big difference in the cost of adding a terabit and then no, obviously, not a repeatable headquarter move.

Sajid Malhotra -- Chief Financial Officer

And we will see some ongoing benefits from the investments we make in R&D to continuing to make the infrastructure we have better and more efficient and push more and make that more productive. And I think capex should go down back to the range that we've suggested, it should be in the 10% to 12% of revenue range. And so that's kind of the goal.

Lee Krowl -- B. Riley FBR -- Analyst

Got it. Thanks for the insight. And once again, glad to see the momentum back in the business.

Sajid Malhotra -- Chief Financial Officer

Thank you, Lee.

Robert A. Lento -- President, Chief Executive Officer And Director

Thanks, Lee.

Operator

Our next question comes from Jon Charbonneau from Cowen and Company. Please go ahead with your question.

Jon Charbonneau -- Cowen and Company -- Analyst

Great. Thanks for taking the questions. Was the record traffic you saw in the quarter fairly broad based or was it more driven by one or two larger customers or events? And what do you view as the biggest risk to not hitting at least the low end of 2019 revenue guidance? Thank you.

Robert A. Lento -- President, Chief Executive Officer And Director

So in terms of traffic in the quarter. The good news is it was not based on one or two or even three customers traffic accelerating at an abnormal rate compared to previous amounts. It was pretty broad based. Obviously, some of the largest brands in the world. So most of it came from our top 20 customers, but not a handful, for sure. And then in terms of looking at guidance and what's the risk in that, certainly, there are things outside of our control, if Apple at the last minute decides not April 1st, it's December 1st or you know or anything else like that or consumer adoption is dramatically lower than the estimates that we've been giving could certainly affect that. But as you can imagine, we try to be fairly conservative in our planning of what we -- to get to that low end of the guidance. So, excuse me, while there's certainly things that are risk factors and risk factors outside of our control, we feel fairly comfortable based on everything we know that that we can be confident in the numbers.

Jon Charbonneau -- Cowen and Company -- Analyst

Great. Thank you.

Sajid Malhotra -- Chief Financial Officer

And it is kind of platform as a service or infrastructure as a service business. So you've got your base business and your run rates established pretty much where you are going to be as a baseline. So no changes over there and no material contract negotiation, no year-end noise of all that category, and then all the buildup that you see in the business plus the seasonality of the fourth quarter. I mean, we are sitting over here mid-month -- in the first month of the three that we have to deliver against, and a lot of the revenue is kind of steady state already in and accounted for.

Jon Charbonneau -- Cowen and Company -- Analyst

Thanks.

Robert A. Lento -- President, Chief Executive Officer And Director

The good news is the one risk factor that we can control is performance and we feel very confident based on the data we get from customers that are willing to share data with us that we are always in the number one or number two slot for performance. We're never in the -- to have five CDNs that the deal with -- we're never in the four or five. We're always in top performing CDN depending on location. And so, obviously, we feel very good about our ability to manage that risk factor.

Jon Charbonneau -- Cowen and Company -- Analyst

Thanks.

Robert A. Lento -- President, Chief Executive Officer And Director

Thanks, Jon.

Operator

Our next question comes from Rishi Jaluria from D.A. Davidson. Please go ahead with your question.

Robert A. Lento -- President, Chief Executive Officer And Director

Hey, Rishi.

Hannah Rudoff -- D.A. Davidson -- Analyst

Hi, guys. This is Hannah on for Rishi today. Thanks for taking the questions.

Robert A. Lento -- President, Chief Executive Officer And Director

Hi, Hannah.

Hannah Rudoff -- D.A. Davidson -- Analyst

Hi. So with Ericsson partnership trending back in line with expectations or maybe even a little better, is it still expected to contribute low single-digits in millions to revenue in 2019?

Sajid Malhotra -- Chief Financial Officer

Correct.

Robert A. Lento -- President, Chief Executive Officer And Director

Correct. Yeah, I mean, as you know, in 2019, they had a leadership change that we talked about last quarter. We've been gaining momentum. We are feeling good about the path that we're on, but we're still two, three quarters behind where we thought we would be when we signed the deal last year at this time.

Sajid Malhotra -- Chief Financial Officer

No, I mean, we maybe announced that we were up to 100 PoPs. We're approaching 120 mark, if you recall, we were in the mid-80s at the end of the year. So took us 10 years to kind of get to 80 PoPs and with their help etc and our own buildout, we're expanding our presence quite rapidly in the marketplace.

Hannah Rudoff -- D.A. Davidson -- Analyst

All right, thank you. And then second question, could you just talk about the different levers you see for improving operating margins going forward?

Sajid Malhotra -- Chief Financial Officer

Yeah, I think we talked about this quite in detail when we had our Analyst Day. So I would not much has changed from that about a month ago to today. There are levers that we have, and I would just reference you to the slides because it's detailed, and nothing's changed from there, but we talk about it at the gross margin level. What we are doing from a capacity utilization standpoint, efficiency standpoint, attraction of better revenue streams and more stickier revenue streams down to having leverage in the expense model side and more effectiveness on the R&D side, more sales generation and better productivity and all the work, that Tom is doing in terms of his team. And then on, all the way downstream, I think that's pretty much the case that we've laid out. And we are executing against it.

Hannah Rudoff -- D.A. Davidson -- Analyst

Yeah. Thank you.

Sajid Malhotra -- Chief Financial Officer

All right. Thank you.

Operator

[Operator Instructions] Our next question comes from Jeff Van Rhee from Craig-Hallum Capital Group. Please go ahead with your question.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Hey guys, it's Rudy on for Jeff. So couple from me, starting out in terms of Ericsson and Tencent. So Ericsson, I know you just said probably going to do a couple of million this year. Is it lining up to probably do the original $79 million that $479 million [Phonetic] next year that you originally thought was going to come in '19. And then on Tencent, I think last quarter you guys said it just become revenue generating, what do you think that will contribute this year and also potentially next year?

Sajid Malhotra -- Chief Financial Officer

So I think, Rudy, here's what I don't want to do, right, because I think setting ourselves up for that was a huge disappointment for us and it's a lesson learned.

Robert A. Lento -- President, Chief Executive Officer And Director

Let's not do that again.

Sajid Malhotra -- Chief Financial Officer

So I don't want to kind of break it down what I would tell you is that first Ericsson small single-digit millions is the full year number, not in fourth quarter. So we have quite -- it is a growing number for us. We expect it to do well. We are trying very hard to get the business back on track and to catch up on the lost time. So there's momentum in the business, it is getting better with Ericsson and it's going to be the same for the other opportunities that we talked about. We'll give guidance for 2020 later on this quarter, and when we do, we'll talk about what the basis is for that. But I really don't want to jump ahead and start talking about bifurcating all of that, I'm -- I told as much as we can. And if more shows up, we'll be happy to report it.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Yep, fair enough. And then circling back around to the -- I think it's a 20% increase in traffic sequentially, I know you said it was broad based, it wasn't a handful of customers that was driving that. Is that more or so just overall or I guess in the quarter, was it more or so overall just industry increases in traffic or you guys gaining more share within customers?

Robert A. Lento -- President, Chief Executive Officer And Director

I think it's probably more to do with us gaining share based on numbers that are out there. For example, I just recently read a report that Cisco put out that it has the Internet traffic growing at 26% per year. And so obviously on a quarter-to-quarter basis, a lot less than that. And so 20% quarter-to-quarter certainly far exceeds that. So I think the good news is we're associated with a group of customers that are very successful in terms of what they do. So the pie might be growing faster than the Internet traffic overall, I think that's highly likely, but I also think we're getting a bigger piece of that pie, as customers get more sophisticated and better understand the quality of delivery. I think the better the data they have, the more we win.

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

Got it. Thanks.

Operator

And ladies and gentlemen, at this point, I'm showing no additional questions. I like to turn the conference call back over to management for any closing remarks.

Sajid Malhotra -- Chief Financial Officer

Perfect, thank you very much. All right, well, I mean, before I close it, I just want to say thank you to all the shareholders. I think you've been patient. I think we feel very good about where we are and about the second half that we are in. And with that, I'd also just let you know, if you want to schedule a visit, just call or write us, we'll be back on the road. As always, thank you again and we are available to answer any additional questions after the call. And with that, it'll conclude our call. Thank you.

Robert A. Lento -- President, Chief Executive Officer And Director

Thanks.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Daniel Boncel -- Chief Accounting Officer

Robert A. Lento -- President, Chief Executive Officer And Director

Sajid Malhotra -- Chief Financial Officer

Robert Magic -- Raymond James -- Analyst

Lee Krowl -- B. Riley FBR -- Analyst

Jon Charbonneau -- Cowen and Company -- Analyst

Hannah Rudoff -- D.A. Davidson -- Analyst

Rudy Kessinger -- Craig-Hallum Capital Group -- Analyst

More LLNW analysis

All earnings call transcripts

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