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Limelight Networks (LLNW) Q3 2021 Earnings Call Transcript

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LLNW earnings call for the period ending September 30, 2021.

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Limelight Networks (EGIO 1.99%)
Q3 2021 Earnings Call
Nov 04, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello, and thank you for joining today's call and for your patience. The Limelight Networks' Q3 2021 financial results conference call is happening. My name is Victoria, and I'm recording your call today. [Operator instructions] I will now hand over to your host, Sameet Sinha, from Limelight Networks to begin.

Sameet, please go ahead.

Sameet Sinha -- Vice President, Investor Relations

Thank you, operator. Good afternoon. Thank you for joining Limelight's third quarter financial results conference call. This call is being recorded today, November 4, 2021, and will be archived on our website for approximately 10 days.

Let me start by quickly covering the safe harbor. We'd 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 priorities, our expectations, our operational plans, business strategies, secular trends, product and feature functionalities, pro forma results, acquisition activities and contributions from acquired businesses. 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.

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For more information, please refer to the risk factors discussed in our periodic filings, including our most recent annual report on Form 10-K and quarterly reports on Form 10-Q. 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 Lyons, our president and chief executive officer; and Dan Boncel, our EVP and CFO. Bob will start today's call with a brief discussion of the results and an update on our improved Expand and Extend initiatives.

Dan will then review financial results and guidance. Following that, Bob will use the remainder of the call to discuss aspects of our strategy and corporate initiatives going forward. We will then open the call for Q&A. I will now turn the call over to Bob.

Bob Lyons -- President and Chief Executive Officer

Thank you, Sameet, and welcome, everyone. As expected, the third quarter marked a reversal from the second quarter for us as we saw strong sequential growth and margin expansion. Revenue for the quarter came in at $55.2 million, up 14% quarter-over-quarter. Cash gross margin was 40%, up more than 7% quarter-over-quarter and adjusted EBITDA margin was 11%, up from breakeven in the second quarter.

Consistent with our previously outlined strategy to regain and grow our competitive position, we have taken meaningful steps to improve the performance and cost of our globally scaled network, expand our client relationships and extend our edge-enabled solutions. These efforts have allowed us to improve our revenue, gross margin, adjusted EBITDA and free cash flow despite normalization of streaming patterns post COVID. We remain confident in our ability to continue building on this progress going forward. At our Strategy Summit in August, we presented a vision for Limelight 2.0, and we plan to execute against it.

We are on track to deliver on that plan and remain encouraged with our initial traction and momentum. As a quick reminder, our improved program is focused on network performance and operating costs. Our Expand program is focused on revenue growth with existing and new clients, and our Extend program is focused on introducing new edge-enabled solutions that increase network utilization, growth and gross margins. Let me highlight the progress we have made in the third quarter against our improved Expand and Extend framework.

Under our improved program, we have remediated the previously discussed network performance issues, and we continue to improve our cost model. Highlights include: third-party load balancing and data analytics firm, PerfOps, has rated Limelight as demonstrating top-rated performance globally in North America, South America and Europe. This is a great achievement, especially when compared to January of this year when we were not listed in the top 20. This is an important proof point of the improvements we are making to our network.

We have completed 90% of our $30 million in planned annualized cost savings. We have identified additional opportunities, and we'll continue to pursue these to help fund our planned growth initiatives. In this last quarter, we improved our client sentiment scores by 13 points quarter-over-quarter across our global top 20. Fittingly, our Expand program benefits from these operational and cost improvements by supporting the addition of new clients and expanding existing clients.

Highlights this quarter include in the third quarter, we closed two Tier 1 wins: one, a win back of a large software client who left us a couple of years ago; and the second, a large gaming company. We now support the three largest gaming console companies. Both of these clients began their ramp in late third quarter, providing additional momentum into Q4. Previously, we had discussed that two of our top 20 clients have meaningfully reduced our traffic due to performance concerns.

Both have begun to return traffic, albeit slower than we would have desired. You may recall that our largest client uses algorithms to allocate traffic based on performance and has been down year-over-year. We did not see the traffic rebound as rapidly as we hoped, but we do continue to see growth. We will continue to optimize our network performance to address their prioritized KPIs with the intent of gaining traffic share faster.

With this client, we have signed two new contracts for additional live sport venues and remain an integral strategic partner to them with ongoing discussions on additional initiatives. For the second quarter in a row, 18 of our top 20 customers grew revenues by more than 20% year-over-year. We have closed more than 30 new opportunities in the third quarter with 10 of those averaging more than $100,000 in annual contract value and two customers with ACVs of more than $1 million. We are ahead of plan to expand our growth capacity and have grown our sales team by 25%, including a channel leader to help us create more leverage in our sales organization.

We saw strong pipeline growth in the quarter, and our focus on new logos is paying off with new logo bookings up more than three times quarter-over-quarter. As highlighted during our strategy session, EdgeXtend is a key initiative that helps us extend our network, edge platform and solutions into a service provider's network and portfolio of offers. This key element of our strategy has outperformed our plans in the third quarter. On to our Expand program, we are pleased to announce the closing of our acquisition of Layer0.

This acquisition is critical to our evolution from a network company to a performance software technology company. Highlights of this acquisition include: we now have the world's first JavaScript configurable CDN that gives developers control over the edge from within their application. Layer0 utilizes server-side rendering, edge caching and optimizations across the browser, edge and serverless tiers to guarantee the best performance, all this with self-service provisioning and onboarding. This all supports our ability to deliver a best-in-class edge-enabled AppOps solution designed for the outcome buyer with integrated performance, productivity and protection.

Layer0 also brings us a highly talented applications and product development team who are excited to be building products on our global private edge platform. Ajay Kapur, Layer0's founder, has joined Limelight as chief technology officer and taking technology, product and operations in his charge. We will be announcing and launching new security and developer solutions in November and December. These solutions, enabled with our world-class edge network, position us to be a compelling competitor in the multibillion-dollar AppOps market.

Stay tuned for more exciting news to come on this front. The combination of Limelight's global network and Layer0's edge and application assets have quickly demonstrated value. During the quarter, we had a new logo win with a large mattress retailer, a global travel industry leader, tripled the number of sites with us. We renewed the business of a top-ranked U.S.

bank and launched the site of a $6 billion retail giant. The pipeline is growing, and we are adding resources to accelerate this momentum. Overall, we are very happy with the progress the team has made in such a short time. That being said, much work remains to be done.

We are steadfast in building on our recent progress and remain focused on the significant opportunity in front of us. We are committed to creating unmatched value for our clients, returning value to our shareholders and building a company culture that inspires our employees. We thank our investors for their continued support and look forward to, together, building a company we can all be proud of. At this time, I will turn the call over to Dan to report third quarter financials.

Dan?

Dan Boncel -- Executive Vice President and Chief Financial Officer

Thanks, Bob. Revenue for the third year was $55.2 million, a growth of 14% from the second quarter of 2021. Layer0 contributed less than $1 million based on the September close date. As Bob noted, we believe that operational improvements implemented over the last several months and the alignment of our client success team with the metrics that matter most to our clients position us well to participate in expanded market share and traffic gains as more and more new content is released.

While we have temporary headwinds with a couple of our clients and how fast we ramp traffic back, we are confident the actions we are taking are increasing our ability to grow profitable revenue over the long term. Our top 20 clients accounted for approximately 77% of total third quarter revenue, compared to 79% last year. Cash gross margins expanded to 39.8% from 32.7% in the second quarter due to revenue growth and previously announced cost cuts. Total cash operating expenses were $15.6 million, a decrease of 27% or almost $6 million year-over-year.

Restructuring and transition-related costs and acquisition and legal costs totaled $4 million in the third quarter. We have started to realize the savings anticipated from the actions taken in March of this year as well as improved management of all operating costs. We expect restructuring and transition-related charges to be approximately $1 million for the fourth quarter as we continue to evaluate opportunities to further optimize our performance and cost structure. The aforementioned operational improvements resulted in a meaningful sequential increase in adjusted EBITDA to $6.1 million from slightly above breakeven in the second quarter.

Cash and marketable securities totaled $75.6 million, a decrease of $44 million. We paid $31 million for the acquisition of Layer0 and $2.3 million for capital expenditures. DSO at the end of the quarter was 77 days compared to 47 days at the end of June. The increase in accounts receivable is related to timing of payments received as well as adding Layer0 receivables to our consolidated accounts.

We have already collected a significant portion of the receivable balance and anticipate DSO to normalize within our usual range of 50 to 60 days. On to guidance. Based on forecast from our larger clients and their view of their content and post-COVID traffic patterns, we believe the range of $60 million to $65 million represents the most likely fourth quarter revenue for Limelight and we feel it prudent to adjust our full year guidance accordingly. This represents a record revenue quarter for us with a return to organic year-over-year growth.

With existing products seeing traction and new products to be launched over the next few months, we are also accelerating investments in rebuilding our sales team. On a full year basis, and accordingly, are adjusting our guidance as per the following: revenue from $220 million to $230 million to $215 million to $220 million, adjusted EBITDA from $20 million to $30 million to $12 million to $15 million, and non-GAAP EPS loss range from $0.05 to $0.15 to a loss range of $0.12 to $0.17. This adjusted guidance aligns to consensus and falls within a range of what we view as highly likely expected outcome. Our adjustments include handicapping a few events for the timing risk, a more conservative view of traffic ramps and post-COVID fourth quarter seasonality traffic patterns.

Fourth quarter is seasonally the strongest quarter of the year, and we believe this year will be no different, but wanted to be thoughtful in helping the investment community understand the dynamics of the business and capture the variances, especially as our revenue diversification efforts gained traction in the third quarter. On adjusted EBITDA guidance, we are adjusting to reflect our better-than-expected progress in expanding our sales. Given our improved sales traction, as demonstrated with new logo bookings up 300% in the third quarter, our planned new product launches in November and December and our success with EdgeXtend, we feel it is in our shareholders' best interest to accelerate our growth expansion plan ahead of our offsetting cost-saving initiatives. All of this lays a solid foundation to build on in 2022.

A couple of housekeeping items. There is $2.3 million of acquisition and related legal fees and G&A, which is nonrecurring in nature and separate from the $1.8 million in restructuring and transition-related expenses. Second, we closed the acquisition of Layer0 in September and part of their compensation is in stock. So for modeling purposes, you should end the year with 134 million shares outstanding.

And based on current assumptions for Layer0 performance-based RSUs, we expect about 141 million shares outstanding at the end of 2022. We continue to expect Layer0 to contribute about $4 million to $5 million to our revenue for the year from its September close to approximately $20 million in 2022. With that, I will turn the call back to Bob.

Bob Lyons -- President and Chief Executive Officer

Thanks, Dan. We are seeing secular growth in our content delivery business, and with Layer0, we are expanding into the application CDN market. With our existing and soon to be extended products that leverage the strength of Limelight and Layer0, we will be a leading provider of edge-enabled SaaS solutions. This comprehensive set of tools for AppOps simplifies operations for the outcome buyers, offering unparalleled performance and integrated security along with superior unit economics and margins.

While we closed the acquisition of Layer0 just a few short weeks back, we are seeing material synergies across both companies. We continue to look for similar assets that make sense as a part of our portfolio and would benefit from our infrastructure. We have an underutilized network with significant capacity that we can put to work for our customers and our shareholders. We have a strong balance sheet and access to capital, and we'll continue to look for assets that will bolster our value proposition and platform.

With that, operator, please open the lines for the question-and-answer session.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Frank Louthan from Raymond James. Frank, please go ahead. Your line is open.

Frank Louthan -- Raymond James -- Analyst

Great, thank you. Just a couple of quick questions. One, talk to us a little bit about what you've been working on with the turnaround in sales force when you think you start to see some of that traction. And then, similarly, when do you think Layer0 begins to -- gets fully integrated and starts helping with selling the base business and driving new customer revenue? Thanks.

Bob Lyons -- President and Chief Executive Officer

Yeah. Thanks, Frank. I'll start with the latter as far as integration. It really was a pretty seamless integration.

We're almost fully integrated at this point. We -- before the deal, we spent a lot of time through the recording process really thinking through that. And so -- and most of the acquisition is -- revolves around the product and technology and the engineering side. And so that largely has been fully integrated.

Ajay is our CTO now, and he's normalized that team and sorted everything out, so you pretty much wouldn't even know the difference at this point if you were here in the office. As far as building up the sales team, we talked about the fact that we pared sales back earlier in the year given the lack of productivity and other challenges there, and we really had to do two things. We had to, one, get more products to sell that we thought would drive the performance -- financial performance that we wanted. And then secondarily, we wanted to build that back with a little bit of a different profile than what we had hired historically.

And so with the augment of Layer0 as well as some of the other things like EdgeXtend that we've launched, we have a really nice portfolio of things to sell, and we've been hiring accordingly. We've been averaging for, over Q3, about a hire a week for quota-carrying sales reps. And so the goal is really -- we decided we're having so much good success with that that we would accelerate that a little bit in this quarter, so that we can get the full year run rate of that capacity next year. So we're having pretty good success there.

Frank Louthan -- Raymond James -- Analyst

Great. Thank you very much.

Operator

Thank you, Frank. Our next question comes from Jeff Van Rhee from Craig-Hallum. Please go ahead.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great, thanks. Congrats on the quarter. A couple for me, guys. Just -- while you're on Layer0, I mean, I'm interested in the anecdotals that you've seen and you've heard in the field about your customers' reaction to the AppOps strategy.

Just any anecdotals that are worth calling out at this point?

Bob Lyons -- President and Chief Executive Officer

Jeff, not a problem. We've got plenty there. I'll give you one -- the most recent one. We had a meeting on Monday with a top 10 bank, who is not a current customer, is a customer of one of our competitors and was exploring this whole AppOps category that we talked about.

We spent a full day with them off site. We had their CISO, their CTO and their CIO, and we went through the full strategy. We talked about what they're doing. And at the end of the conversation, the feedback was, we really think this is cool, we can have immediate impact.

We went through and we measured their websites as an example, and we found that we can get that to be Google-compliant with performance and speed within 30 or 60 days, which they weren't today. And secondarily to that, we can really help them with their digital transformation. So the outcome from the conversation was, well, we can do some things immediately and have an impact. And then obviously, over the next few years, as we really transform our digital footprint, we think that this approach that you guys are taking is absolutely the right approach for us.

And so we're obviously excited to continue those types of conversations.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

That's helpful. On the sales side, it's such a quick pivot here to see progress out of the sales team. I mean, new additions and new customers were not common. The overall count was pretty steadily bleeding off.

Is that -- and just to be clear, that momentum is primarily, at this point, in the base business, not the acquired Layer0 or is it? And talk a bit more about just what's changed there. Why the success so quickly in terms of new pipe in the quarter?

Bob Lyons -- President and Chief Executive Officer

Yeah, I think a couple of things. I think one, Layer0 was actually growing pretty rapidly, although albeit small numbers and largely in the U.S. And so essentially, what we've been able to do is take their product, which was very hot and desirable, and build more capacity around that. So in some cases, where we have like in Asia Pac, our sales team is doing a phenomenal job -- always has, by the way.

That's one of the areas we didn't have to touch. And they've taken this new product and run with it. In some of the other regions, we have to build up capacity. And so it's really the combination of -- in places where we've already had a pretty good process in place, it's a really nice shot in the arm to have this kind of product.

And then in the places where we have need for more capacity, we're building that and able to do that pretty quickly. So it's a little bit of a momentum that they brought in with them and then us expanding on that momentum going forward.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Great. At the strategy day, you talked a lot about the outcomes-based buyer. You do a lot of homework to go find those people and describe who they were, what they were and that the opportunity of sort of targeted offering would be perfect for those people. To what extent have you had the ability to pivot the sales efforts in the pipeline build at those customers? Any feedback in the year with progress there?

Bob Lyons -- President and Chief Executive Officer

Yeah. I think it's hard really, at this stage, to track progress other than -- because really, the way you do it is it's really how you build your pipeline. That's how you're going to identify that. We've done a lot of work in understanding exactly how to target those customers and build the pipeline and create leads and demand gen, and so we're seeing that.

Our pipeline is growing pretty rapidly. And from the best we can tell, it's growing at the rate we expect. It's going to take a couple of quarters for us to see if that translates into higher close rates and more productivity from that. The other thing you'll start to see is us -- we're refreshing the brand and you'll see a lot of things starting probably as soon as next week, things that we'll do to refresh the brand that really kind of speaks to that kind of customer, messaging, branding and so forth.

And so I'm pretty confident we're doing all the right things and we're getting the right traction. Let's see how the next few quarters pan out and to put some numbers behind that, but all the leading indicators that we see are supporting our thesis.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Yup. One last, maybe just a numbers question, Dan. The -- in both Q4 and then out into '22, the extent you're willing to share, just Q4 and '22, how do you think about gross margins? And then '22, can you put any bounds around some initial thoughts on revenue?

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yeah. We won't get into '22 revenue just quite yet. We're still going through the budgeting process right now, and we'll have an update when we come out with Q4 numbers. As far as gross margins for Q4, we expect to see continued expansion in our margins sequentially for Q3.

We had a really good sequential expansion in margins from Q2 to Q3 of over 700 basis points, and we expect at least another couple of hundred basis points from Q3 to Q4.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

OK, great. Thanks for the color. I appreciate it.

Bob Lyons -- President and Chief Executive Officer

Jeff, one more data point I'll give you in the last question in regards to the outcome buyer. Interestingly, we also saw a report come out from Gartner in the last month, and they basically did their own analysis and came to the same claim, which is that over half of the buyers in this market are looking for an outcome-type solution. So that was a great validation of our strategy as well.

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

I appreciate it.

Operator

We will now move on to Eric Martinuzzi from Lake Street. Eric, please go ahead.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

I like the way your pronounced that. I had a question regarding the -- just the, I guess, the change in head count here. So if we go back to the March restructuring, we shed 96 employees. And then between the end of June and the end of September, we had 70 employees.

Is the bulk of that out with the old sales reps, in with the new sales reps? I don't need to go down kind of department by department, but help me understand the 96 gone and the 70 new arrivals.

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yeah. So the quarter-over-quarter expansion is with the Layer0 folks coming on board. And so when we did the action in Q1, it was about 96 people that we let go. There was some continued attrition over the next quarter or so as things kind of settled out.

And then now in Q3, we're again ramping that back up not only with the addition of the Layer0 folks, but as well as increasing our sales force again as well. As Bob mentioned, we're hiring at a pace, so approximately one person per week over the last couple of months. And so we feel really good about where we're at with our performance on the CDN side of things, as well as the expected launch of our Layer0 product over the next couple of weeks and where that's going. And the folks that are testing that out in beta right now seem very pleased, and so we're expecting a really good reaction to that once it gets released to the broader market.

And so we're ramping up with the sales folks in advance of that.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

OK. And then just on the guidance that you gave. If I look at that, the full year revision, on the revenue side, the midpoint declines by about $7.5 million. And then on the adjusted EBITDA, it's down by about $11.5 million.

The revenue, it sounds like, hey, the two large customers didn't come back with the same vigor that we had originally forecast. They are coming back, just not as quickly as we thought. Does that explain the bulk of the $7.5 million? And then I want to follow up on the adjusted EBITDA.

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yeah, you got that right. I think those two -- the two customers that we've highlighted in the past, we continue to see a slower ramp than expected, but we're also very encouraged by 18 of the other top 20 that are expanding at a very quick rate and quicker than what we've experienced here historically. And so on one hand, we're going to and we expect to be a continued strategic partner with those other two. But at the same point, we're happy that we're able to not only diversify our product offering with Layer0 acquisition and some of the other things that we're doing with EdgeXtend, but diversify into other customers as well to decrease the concentration risk that we've had over the years.

Bob Lyons -- President and Chief Executive Officer

And I'll add, Eric -- yeah, and I'll add to that. I've had a number of conversations with both of those clients and both very strong and bullish on us. But as you know, it goes faster then it comes back, and so we just have to be patient there. And it kind of speaks to what I said last quarter.

The biggest risk we have is timing, and I think this is a great example of that. It is definitely coming back. It's just not coming back as fast as we would like.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

All right. And then on the adjusted EBITDA, obviously, we have the revenue impact, but we also have the headcount impact. Maybe a better way to ask my original headcount question was with the addition of the new employees, I want to say Layer0 was around 40 to 45 employees. So is that to say that the delta would be sales adds?

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yeah, it was a little bit higher than that. It's in the 50s, and so yes, but the difference is primarily in sales. And in Q3, we had roughly an 85% flow-through of that incremental revenue from Q2 to Q3, flow-through down to adjusted EBITDA. And as we ramp up the -- with the sales folks, you don't get that significant amount of -- or percentage of flow-through.

But with our utilization being where it was in the first half of the year, in the lower teens and now creeping up into the mid-teens, we still feel that we have an opportunity to increase that utilization and that will have a significant flow-through. But again, like we said, as we add that salespeople, those sales folks and ramp that back up, it won't have that 85% flow-through, but it will have a significant flow-through.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Got it. Thanks for taking my questions.

Operator

Our next question comes from James Breen from William Blair. James, please go ahead, your line is open.

James Breen -- William Blair -- Analyst

Just another question sort of around the margins and the guidance. The implied guidance for the full year on EBITDA, the implied number in the fourth quarter is somewhere in that $9 million to $11 million range. That would be up another 400 basis points from an EBITDA margin perspective. What gives you confidence in keeping sort of that cost ramp improving, leverage on the cost side improving? And as you get to sort of the mid-teens, can you continue to go up from there over the next several quarters as the top line grows? Thanks.

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yes. Thanks for -- go ahead, Bob.

Bob Lyons -- President and Chief Executive Officer

Yeah. So let me just bring up the cost savings, and I'll take it back to the conversation we had last quarter. We identified three opportunities around cost savings in the company to run more productively. The first was more around operational.

That's largely the $30 million that we were capturing this year. We think the number actually is a much higher potential related to how we can improve our architecture and improve the technology overall in our PoPs and improved utilization, but that takes a little more time. You've got to make investments. You've got to put stuff in the field.

And so that's how we get confident that we're going to continue to see those savings as we go into next year for a number of quarters into the future. It's really identified things that -- where we have projects focused on. They just take a little bit more time. We actually, in our plan, had initially a slower ramp of salespeople and almost in line with those ability to cash in those savings, but we had the opportunity to get more quality salespeople.

And we thought that's a much better answer for next year, so we decided to take advantage of that.

James Breen -- William Blair -- Analyst

Yeah. And thanks for working in that point that gross margin expansion continued to be a couple of hundred points quarter-over-quarter. That was going to be my next point to you. Yeah, sorry, [Inaudible] gross margin and adjusted EBITDA.

Bob Lyons -- President and Chief Executive Officer

Yes. We just feel confident in the -- yes, I was going to say we do feel confident that the progress we've made from last quarter to this quarter will continue in the next quarter for the same reasons. And in fact, the other piece of your question, what gives us confidence in the continued growth. The other day, the two Tier 1 wins that we had in Q3, which were -- we only captured probably about a few weeks to a month of those.

And then, of course, Layer0, we only captured about a month of that as well. So all three of those things, which are all very material, we get the full benefit of it in Q4. And the three of those could range up to anywhere from $8 million to $10 million in Q4.

James Breen -- William Blair -- Analyst

So if adjusted EBITDA margins go up, call it, 400 basis points sequentially from the third quarter to fourth quarter, about half of that is coming from the gross margin line and the other half is coming from leveraging G&A, sales and marketing and R&D?

Dan Boncel -- Executive Vice President and Chief Financial Officer

I think that's right.

James Breen -- William Blair -- Analyst

OK, great. Thank you.

Operator

Thank you, James. And we will now move on to Colby Synesael from Cowen & Co. Colby, please go ahead.

Colby Synesael -- Cowen and Company -- Analyst

I was wondering if you could just expand and remind us the potential M&A targets or types of targets to what you're looking. It sounds like you remain pretty active in looking to bolt more things on. And then secondly, as it relates to the new products that you're intending to launch in November and December, how quickly do you think that those could actually start to have an impact in terms of revenue?

Bob Lyons -- President and Chief Executive Officer

Yeah. So I'll take the first one first, M&A. With a really tight strategy like we have now, we have a very clear sense of where we can accelerate that strategy. And essentially, our thesis is that where we can take advantage of our network platform and our edge platform and improve our scale, which translates into more gross margin, more EBITDA, we're going to focus on that.

And we're going to particularly focus on probably three areas. The first is security. I have not been shy about saying we had a much stronger security story, and so you'll see some organic things in the next month or two with releases there. But we also would be inquisitive in that area.

Secondarily, we think there's a big opportunity in software-based networking, point-to-point networking, to take advantage of all our latent capacity, so we're inquisitive there. And then third, anywhere we can really drive scale in our business and really take advantage of that scale, given our size, to have a cost advantage in the market. Those are the three areas we're focused on. As far as the ramps and the releases, the releases that you'll see in November, December are thematically, very similar to that.

One of the releases, the first one in November, is really focused on electronic that's already in production today. It's the Layer0 product and we have that working with our network, but this is the release that actually ties it together seamlessly so it's all part of the same package, if you will. So that's not really anything huge and new. It's really just more of a better version of what we're already doing.

And then secondarily is some features around developer tools and some security stuff that we're doing as well, and that's what we'll see in December and January. I think the ramp for those, we're already doing it. And that's why we're ramping our sales people. We're seeing success already as you saw from the new logo wins, which is much better than we've had in many quarters.

And so we expect that one to get better as we go forward given the products that do we have in there.

Colby Synesael -- Cowen and Company -- Analyst

And I guess, to your point, since the November Layer0 product in the Limelight network, the new features in December since effectively, these are products which you're already selling, your customers are already familiar with what you're doing with those, you're expecting the upsell, if you will, to be fairly quickly in terms of its success?

Bob Lyons -- President and Chief Executive Officer

Yup. Yeah, exactly. Yeah. And the leading indicators that we're seeing with client conversations, pipeline growth all supports that thesis.

Colby Synesael -- Cowen and Company -- Analyst

OK. Thank you.

Operator

Thank you, Colby. [Operator instructions] And our next question comes from Mike Latimore from Northland Capital. Please go ahead.

Aditya Dagaonkar -- Northland Securities -- Analyst

Hi, this is Aditya on behalf of Michael Latimore. Could you tell me how much did your top 5 customers contribute as a percentage of overall revenue?

Dan Boncel -- Executive Vice President and Chief Financial Officer

Yeah. We don't break out the top 5. As we mentioned, our top 20 is roughly 77% versus 79% in the year ago quarter. And we do have a couple of customers that are over 10% and those have, as we're required to disclose in our SEC filings, those have remained consistent year-over-year.

Aditya Dagaonkar -- Northland Securities -- Analyst

All right. And regarding your 18 of your 20 customers that are growing at a 20 percentage revenue, when do you expect the other two customers to catch up? On what time frame would you expect the other two customers to grow at 20 percentage revenue as well?

Bob Lyons -- President and Chief Executive Officer

Well, what I would say is they both have the potential to grow at that rate for sure. And so we were anxious to do that. I think in one case, it's largely going to be contingent on enough content coming out. They rely heavily on new releases, and there still wasn't a lot of content created during the COVID season, so that's going to be a big factor there.

They're trying to offset that with live events, but early stages with that. And then the second one is really just us earning the trust back. We're doing a good job doing that. The conversation I had with them was -- in fact, they weren't used with us -- it's kind of remarkable what you guys have done in six months.

Keep up the good work. But just know that we're going to be a little bit more patient coming back with you than we were last time for obvious reasons. So we're confident. We're doing all the right things.

It's just a matter of building that trust back and continuing to grow. So it's hard to have a crystal ball in both of those cases. I'd love to say next year, but that would be kind of irresponsible to do so. But definitely, that's what we're shooting for.

Aditya Dagaonkar -- Northland Securities -- Analyst

All right. Thank you.

Operator

[Operator instructions] We currently have no further questions. I will now pass over to Bob Lyons for final remarks.

Bob Lyons -- President and Chief Executive Officer

OK. Thank you, operator, and thank you, everyone, for joining us today. We look forward to communicating our progress in enhancing our communication with analysts and investors. We will be presenting at several investor conferences in the fourth quarter, and details can be found on the Investor Relations section of our website.

Thank you for joining us today.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Sameet Sinha -- Vice President, Investor Relations

Bob Lyons -- President and Chief Executive Officer

Dan Boncel -- Executive Vice President and Chief Financial Officer

Frank Louthan -- Raymond James -- Analyst

Jeff Van Rhee -- Craig-Hallum Capital Group -- Analyst

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

James Breen -- William Blair -- Analyst

Colby Synesael -- Cowen and Company -- Analyst

Aditya Dagaonkar -- Northland Securities -- Analyst

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