Pro Forma Financial Information
Exhibit 99.1
Pro Forma Financial Information
Introductory Note. On August 30, 2011, Limelight Networks, Inc. (the “Company”), together with Limelight Networks Germany GmbH, a German limited liability corporation (Gesellschaft mit beschränkter Haftung) and a wholly-owned subsidiary of the Company, entered into a Purchase Agreement (the “Purchase Agreement”) to sell EyeWonder, LLC and chors GmbH, video and rich media advertising companies and subsidiaries of the Company, to DG FastChannel, Inc. for approximately $66 million in cash, subject to certain adjustments. On September 1, 2011, the parties consummated the transactions contemplated by the Purchase Agreement. The pro forma financial data set forth herein gives effect to the sale of EyeWonder, LLC and chors GmbH (the “Transaction”).
The above summary of the Purchase Agreement is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which is attached as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on September 6, 2011.
Summary Unaudited Pro Forma Consolidated Financial Data. The following tables set forth summary unaudited pro forma condensed consolidated statements of operations for the Company for the year ended December 31, 2010 and for the six months ended June 30, 2011 and its unaudited pro forma condensed consolidated balance sheet at June 30, 2011.
The summary unaudited pro forma consolidated statements of operations for the year ended December 31, 2010 and for the six months ended June 30, 2011 give effect to the Transaction as if it had occurred on January 1, 2010. The summary unaudited pro forma consolidated balance sheet gives effect to the Transaction as if it had occurred on June 30, 2011.
This information should be read in conjunction with Selected Consolidated Financial Data and the audited consolidated financial statements and the related notes filed as part of the Annual Report on Form 10-K of the Company for the year ended December 31, 2010 and the unaudited condensed consolidated financial statements and the related notes filed as part of the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011. This summary unaudited pro forma consolidated financial data is not necessarily indicative of either our financial position or results of operations that will be achieved in the future. This summary unaudited pro forma condensed consolidated financial data has been included herein for informational and comparative purposes only. Our future results are subject to economic and industry specific conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2011 has been presented after giving effect to the completion of the Transaction as if it had occurred on June 30, 2011.
The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2011 and the year ended December 31, 2010, have been presented after giving effect to the completion of the Transaction as if it had occurred on January 1, 2010.
The unaudited pro forma condensed consolidated financial information as of and for the respective periods presented have been derived primarily from the historical audited consolidated financial statements of Limelight Networks, Inc. (“Limelight”), contained in its Annual Report on Form 10-K for the year ended December 31, 2010 as well as the unaudited consolidated financial statements of Limelight contained in its quarterly report on Form 10-Q for the quarter ended June 30, 2011. The unaudited pro forma condensed consolidated financial information is based upon available information and assumptions that Limelight believes are reasonable under the circumstances and were prepared to illustrate the estimated effects of the Transaction, if the Transaction occurred as of and on the dates specified above. As Limelight has not finalized its accounting for discontinued operations for the periods presented herein, and therefore amounts reported in future financial statements with the Securities and Exchange Commission for the periods presented herein could differ from these pro forma estimates.
The unaudited pro forma condensed consolidated financial information have been provided for informational purposes and should not be considered indicative of the financial condition or results of operations that would have been achieved had the Transaction occurred as of or for the periods presented. In addition, the unaudited pro forma condensed consolidated financial information do not purport to indicate financial position or results of operations as of any future date or for any future period, including expected benefits and incremental earnings that may arise, if any, from the Transaction. The unaudited pro forma financial information, including the related notes, should be read in conjunction with the historical audited consolidated financial statements contained in Limelight’s Annual Report on Form 10-K for the year ended December 31, 2010 and the historical unaudited condensed consolidated financial statements included in Limelight’s quarterly report on Form 10-Q for the quarter ended June 30, 2011.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
| June 30, 2011 |
Adjustments | June 30, 2011 |
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| Historical | Pro Forma | |||||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: |
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| Cash and cash equivalents |
$ | 109,973 | $ | 57,997 | A | $ | 167,970 | |||||||||
| Marketable securities |
6,474 | — | 6,474 | |||||||||||||
| Accounts receivable, net |
37,008 | (10,685 | ) | A | 26,323 | |||||||||||
| Income taxes receivable |
946 | (500 | ) | A | 446 | |||||||||||
| Prepaid expenses and other current assets |
12,540 | 10,855 | A | 23,395 | ||||||||||||
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| Total current assets |
166,941 | 57,667 | 224,608 | |||||||||||||
| Property and equipment, net |
63,555 | (1,688 | ) | A | 61,867 | |||||||||||
| Marketable securities, less current portion |
1,567 | (1,464 | ) | A | 103 | |||||||||||
| Deferred income tax, less current portion |
944 | — | 944 | |||||||||||||
| Goodwill |
113,006 | (92,507 | ) | A | 20,499 | |||||||||||
| Other intangible assets, net |
26,755 | (14,912 | ) | A | 11,843 | |||||||||||
| Other assets |
10,978 | (347 | ) | A | 10,631 | |||||||||||
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| Total assets |
$ | 383,746 | $ | (53,251 | ) | $ | 330,495 | |||||||||
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| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: |
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| Accounts payable |
$ | 11,596 | $ | (1,065 | ) | A | $ | 10,531 | ||||||||
| Deferred revenue |
6,595 | (354 | ) | A | 6,241 | |||||||||||
| Capital lease obligations, current portion |
1,477 | (115 | ) | A | 1,362 | |||||||||||
| Other current liabilities |
19,429 | (570 | ) | A | 18,859 | |||||||||||
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| Total current liabilities |
39,097 | (2,104 | ) | 36,993 | ||||||||||||
| Capital lease obligations, less current portion |
2,065 | (49 | ) | A | 2,016 | |||||||||||
| Deferred income tax, less current portion |
1,786 | (1,163 | ) | A | 623 | |||||||||||
| Other long term liabilities |
8,774 | (53 | ) | A | 8,721 | |||||||||||
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| Total liabilities |
51,722 | (3,369 | ) | 48,353 | ||||||||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
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| Preferred stock |
— | — | — | |||||||||||||
| Common stock |
114 | — | 114 | |||||||||||||
| Additional paid-in capital |
479,645 | — | 479,645 | |||||||||||||
| Contingent consideration |
219 | — | 219 | |||||||||||||
| Accumulated other comprehensive income (loss) |
2,065 | (673 | ) | A | 1,392 | |||||||||||
| Accumulated deficit |
(150,019 | ) | (49,209 | ) | B | (199,228 | ) | |||||||||
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| Total stockholders’ equity |
332,024 | (49,882 | ) | 282,142 | ||||||||||||
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| Total liabilities and stockholders’ equity |
$ | 383,746 | $ | (53,251 | ) | $ | 330,495 | |||||||||
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The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
Adjustment A.
On August 30, 2011 we entered into an agreement with DG FastChannel, Inc. (“DG”), and on September 1, 2011 (the “Closing Date”) we consummated the sale of our EyeWonder LLC and subsidiaries and chors GmbH operations (“EyeWonder and chors”) for net cash proceeds of $61.0 million ($66.0 million gross cash proceeds less $5.0 million held in escrow) plus an $11.7 million estimated net receivable from DG (the “Net Receivable from DG”). We estimate that we will incur approximately $0.6 million in state income taxes related to the Transaction and have sufficient federal net operating loss carryforwards to offset the federal taxable income associated with the Transaction. We estimate we incurred approximately $0.8 million in legal fees and transaction related expenses in connection with the sale.
The adjustments presented represent the receipt of net cash proceeds, the addition of the Net Receivable from DG, the removal of the book value of assets, liabilities and other comprehensive income based on carrying amounts at June 30, 2011, and recognition of the resulting loss on the sale including related income taxes.
The resulting loss from the Transaction is estimated as follows based on net cash proceeds, the estimated Net Receivable from DG and the estimated book value of net assets sold and liabilities and other comprehensive income released as of June 30, 2011 (also see Adjustment B). All such amounts are subject to change. The estimated book value of net assets sold includes the carrying value of the goodwill recorded in purchase accounting related to the EyeWonder and chors acquisitions. For purposes of calculating the loss on sale, the $5.0 million held in escrow is not anticipated to be collected. We are responsible for the payment of certain Closing Date current liabilities of EyeWonder and chors which will be settled in accordance with the terms of the Purchase Agreement with certain Closing Date current assets of EyeWonder and chors. Upon settlement of all such current liabilities, the estimated excess cash will be remitted to us by DG. The Net Receivable from DG is the estimate of the excess cash that will be remitted to us which has been determined based on information as of July 31, 2011. This estimate may materially differ from the final amount to be computed based on balances as of the Closing Date.
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| Gross cash proceeds |
$ | 66,000 | ||
| Less: escrow holdback |
(5,000 | ) | ||
| Plus: estimated net receivable from DG |
11,706 | |||
| Less: estimated income taxes |
(640 | ) | ||
| Less: estimated selling expenses |
(810 | ) | ||
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| Estimated net proceeds |
71,256 | |||
| Less: book value of assets sold |
(125,957 | ) | ||
| Add: book value of liabilities and other comprehensive income balances released |
5,492 | |||
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| Estimated loss on sale |
$ | (49,209 | ) | |
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Adjustment B.
As described in the introductory note, the historical information presented in this Form 8-K reflects the historical results of operations and financial position of Limelight. The accounting adjustments related to the Transaction will be recorded by Limelight during the third quarter of 2011. The actual gain or loss to be recognized will be dependent on the related accounting adjustments and may be materially different than the amount computed above. The unaudited pro forma condensed consolidated financial statements included herein should not be relied upon as indicative of the actual gain or loss to be recorded.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| For the
Year Ended December 31, 2010 |
Adjustments (C) | For the Year Ended December 31, 2010 |
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| Historical | Pro Forma | |||||||||||
| Revenues |
$ | 183,327 | $ | (29,273 | ) | $ | 154,054 | |||||
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| Cost of revenue: |
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| Cost of services (exclusive of amortization) |
80,352 | (7,994 | ) | 72,358 | ||||||||
| Depreciation — network |
22,367 | (143 | ) | 22,224 | ||||||||
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| Total cost of revenue |
102,719 | (8,137 | ) | 94,582 | ||||||||
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| Gross profit |
80,608 | (21,136 | ) | 59,472 | ||||||||
| Operating expenses: |
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| General and administrative |
35,760 | (5,134 | ) | 30,626 | ||||||||
| Sales and marketing |
46,752 | (8,138 | ) | 38,614 | ||||||||
| Research and development |
15,755 | (5,357 | ) | 10,398 | ||||||||
| Depreciation and amortization |
6,359 | (3,901 | ) | 2,458 | ||||||||
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| Total operating expenses |
104,626 | (22,530 | ) | 82,096 | ||||||||
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| Operating loss |
(24,018 | ) | 1,394 | (22,624 | ) | |||||||
| Other income (expense): |
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| Interest expense |
(77 | ) | 15 | (62 | ) | |||||||
| Interest income |
914 | 377 | 1,291 | |||||||||
| Other expense |
(222 | ) | (28 | ) | (250 | ) | ||||||
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| Total other income |
615 | 364 | 979 | |||||||||
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| Loss before income taxes |
(23,403 | ) | 1,758 | (21,645 | ) | |||||||
| Income tax expense (benefit) |
(3,052 | ) | 3,646 | 594 | ||||||||
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| Net loss |
$ | (20,351 | ) | $ | (1,888 | ) | $ | (22,239 | ) | |||
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| Net loss per weighted average share: |
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| Basic |
$ | (0.22 | ) | $ | (0.24 | ) | ||||||
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| Diluted |
$ | (0.22 | ) | $ | (0.24 | ) | ||||||
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| Shares used in per weighted average share calculations: |
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| Basic |
94,300 | 94,300 | ||||||||||
| Diluted |
94,300 | 94,300 | ||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| For the Six Months Ended June 30, 2011 |
Adjustments (C) | For the Six Months Ended June 30, 2011 |
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| Historical | Pro Forma | |||||||||||
| Revenues |
$ | 100,355 | $ | (17,633 | ) | $ | 82,722 | |||||
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| Cost of revenue: |
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| Cost of services (exclusive of amortization) |
47,117 | (6,447 | ) | 40,670 | ||||||||
| Depreciation — network |
14,156 | (183 | ) | 13,973 | ||||||||
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| Total cost of revenue |
61,273 | (6,630 | ) | 54,643 | ||||||||
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| Gross profit |
39,082 | (11,003 | ) | 28,079 | ||||||||
| Operating expenses: |
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| General and administrative |
19,244 | (4,161 | ) | 15,083 | ||||||||
| Sales and marketing |
26,916 | (6,189 | ) | 20,727 | ||||||||
| Research and development |
11,898 | (4,455 | ) | 7,443 | ||||||||
| Depreciation and amortization |
4,574 | (2,820 | ) | 1,754 | ||||||||
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| Total operating expenses |
62,632 | (17,625 | ) | 45,007 | ||||||||
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| Operating loss |
(23,550 | ) | 6,622 | (16,928 | ) | |||||||
| Other income (expense): |
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| Interest expense |
(147 | ) | 12 | (135 | ) | |||||||
| Interest income |
446 | 230 | 676 | |||||||||
| Other income |
64 | (28 | ) | 36 | ||||||||
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| Total other income (expense) |
363 | 214 | 577 | |||||||||
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| Loss before income taxes |
(23,187 | ) | 6,836 | (16,351 | ) | |||||||
| Income tax expense (benefit) |
566 | 92 | 658 | |||||||||
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| Net loss |
$ | (23,753 | ) | $ | 6,744 | $ | (17,009 | ) | ||||
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| Net loss per weighted average share: |
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| Basic |
$ | (0.22 | ) | $ | (0.16 | ) | ||||||
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| Diluted |
$ | (0.22 | ) | $ | (0.16 | ) | ||||||
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| Shares used in per weighted average share calculations: |
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| Basic |
108,515 | 108,515 | ||||||||||
| Diluted |
108,515 | 108,515 | ||||||||||
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Adjustment C.
These adjustments reflect the elimination of the estimated historical operations of EyeWonder and chors for the six months ended June 30, 2011 and the twelve months ended December 31, 2010 and estimated legal fees and transaction related expenses of $0.8 million in the twelve months ended December 31, 2010. Interest income was assumed to be earned on the net proceeds in the pro forma results of operations presentation.
