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EI

Edgio, Inc. (EGIO)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 revenue was $95.8M (down 6.1% QoQ from $101.9M; up 51% YoY). GAAP gross margin compressed to 26.4% (from 30.4% in Q1) as seasonal volume and fixed-cost mix weighed on margins; Adjusted EBITDA loss improved slightly to $(13.4)M from $(14.4)M in Q1 .
  • Management reiterated full-year 2023 guidance: revenue $392–$398M, Adjusted EBITDA $(37)–$(31)M (−9.5% to −8% margin), capex $10–$13M (2.5%–3.5% of revenue), and continues to target Adjusted EBITDA breakeven in Q4 2023 .
  • Leading indicators improved: customer churn fell to 1% vs 4% in 4Q22; Applications bookings QTD in 3Q were already above 2Q and more than double 1Q levels, supporting sequential revenue growth expectations for 2H23 .
  • Compliance and liquidity: with the 10-Q filing, EGIO regained Nasdaq compliance; concurrently, its lender waived a quarter-end covenant breach and filing-timing defaults, underscoring near-term balance sheet flexibility while transformation continues .
  • Stock catalysts: reaffirmed path to Q4 Adjusted EBITDA breakeven, improved churn/bookings trajectory, and cost-savings execution (on track for $85–$90M run-rate savings by YE23) support a “self-help” narrative into 2H23; margin inflection is the key watch item .

What Went Well and What Went Wrong

  • What Went Well
    • “Stronger than expected second quarter” with improved leading indicators; Applications bookings accelerated (QTD 3Q > 2Q; >2x 1Q), churn fell to 1%, and logo churn declined 40% vs 4Q22 .
    • Cost actions tracking to ~$85–$90M run-rate savings by YE23; cash opex declined QoQ as savings realized, with management reiterating Adjusted EBITDA breakeven in Q4 2023 .
    • Regained Nasdaq listing compliance with the Q2 10-Q filing, removing an overhang from the restatement period .
  • What Went Wrong
    • Sequential revenue decline (−6.1%) and margin compression (GAAP GM 26.4% vs 30.4% in Q1; cash GM 30.8% vs 34.7%) on summer seasonality and prior churn/elongated sales cycles; Adjusted EBITDA remained negative at $(13.4)M .
    • Pricing “reset” with a very large social media customer pressured revenue near-term, though management noted a multi-year renewal and return to growth with that customer thereafter .
    • Bank covenant waivers required for an adjusted quick ratio breach and reporting timing, highlighting tight near-term liquidity (cash, cash equivalents, and marketable securities $36.2M at Q2-end) .

Financial Results

MetricQ4 2022Q1 2023Q2 2023
Revenue ($M)$108.8 $101.9 $95.8
GAAP Gross Margin %36.6% 30.4% 26.4%
Non-GAAP Gross Margin %38.1% 31.2% 26.9%
Cash Gross Margin %42.3% 34.7% 30.8%
GAAP Operating Loss ($M)$(46.0) $(32.6) $(33.2)
Adjusted EBITDA ($M)$(10.1) $(14.4) $(13.4)
GAAP EPS (Diluted)$(0.21) $(0.16) $(0.16)
Non-GAAP EPS (Diluted)$(0.06) $(0.09) $(0.09)
Cash, Cash Equivalents, and Marketable Securities ($M)$74.0 $48.2 $36.2

Notes:

  • Q2 sequential revenue decline (−6.1%) driven by normal summer seasonality, prior churn, and elongated booking cycles; YoY growth +51% due to Edgecast inclusion .
  • Cash flow from operations used $(12.4)M in Q2; YTD capex $2.6M (~1.3% of revenue) reflecting discipline and lower capex intensity of software .

KPIs

KPIQ4 2022Q1 2023Q2 2023
Approximate active clients954 900 888
Employees & equivalents980 893 862
Customer churn4% n/a1%
Logo churn vs 4Q22Baseline n/a−40% vs 4Q22

Segment breakdown: Not disclosed in the Q2 press release/financial tables and not broken out on the call; management commentary focused on Applications momentum and media pricing dynamics .

Guidance Changes

MetricPeriodPrevious Guidance (Aug 15, 2023)Current Guidance (Sep 12, 2023)Change
RevenueFY 2023$392–$398M $392–$398M Maintained
Adjusted EBITDAFY 2023$(37)–$(31)M; margin −9.5% to −8% $(37)–$(31)M; margin −9.5% to −8% Maintained
Capital ExpenditureFY 2023$10–$13M (2.5%–3.5% of revenue) $10–$13M (2.5%–3.5% of revenue) Maintained
Q4 Adjusted EBITDA inflection4Q23Breakeven targeted Breakeven reiterated Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022)Previous Mentions (Q1 2023)Current Period (Q2 2023)Trend
Cost savings/run-rateTargeting $85–$90M run-rate savings by YE23 On track; savings driving lower cash opex Still on track; further opex step-down realized Improving execution
Bookings/pipelineApplications pipeline +~80% YTD; strong wins QTD 3Q Apps bookings > 2Q; +90% vs 1Q QTD 3Q Apps bookings > 2Q; >2x 1Q Improving
Churn trajectory4% customer churn in 4Q22 baseline —1% churn in Q2; logo churn −40% vs 4Q22 Improving
Pricing/mixIndustry competition; media pricing pressure —One-time “pricing reset” with a large social customer; renewal multi-year, back to growth; pricing environment stabilizing with low single-digit market growth Stabilizing
Compliance/restatementRestatement completed; business update call Expected 10-Qs filing in Sept 10-Q filed; Nasdaq compliance regained Resolved

Management Commentary

  • CEO Bob Lyons: “We had a stronger than expected second quarter with better financial performance and significant improvements in leading indicators… we expect second quarter revenue to be the low point for the year… [and] deliver substantial year over year improvements in Adjusted EBITDA and free cash flow in 2024.”
  • CFO Stephen Cumming: “We expect sequential revenue growth for the rest of the year, with associated improvements in cash gross margins… we reiterate our expectation for Adjusted EBITDA break even in the fourth quarter.”
  • On pricing reset with a large social media customer: “We had one very large social media customer… we had to take that haircut… we were able to renew them for multiple years, and we’re actually back to growth with that customer today” .

Q&A Highlights

  • Margin cadence: High fixed-cost network amplified seasonal pressure in Q2; management expects sequential improvement in cash gross margins in 2H23 as volumes recover and savings flow through .
  • Pricing environment: Competitive pricing pressure has “settled down” amid slower industry growth (3%–5%) and consolidation; focus is on ROIC rather than price-led share grabs .
  • Churn/bookings: Q2 churn 1% (vs 4% in 4Q22) and stronger Applications bookings underpin outlook for sequential revenue growth through 2H23 .
  • Liquidity/cash: Cash and marketable securities of $36.2M at Q2-end; disciplined cash management with capex YTD at $2.6M (1.3% of revenue) .
  • Guidance: FY23 revenue, Adjusted EBITDA, and capex ranges all reiterated; Q4 Adjusted EBITDA breakeven reiterated .

Estimates Context

  • S&P Global (Capital IQ) consensus data was unavailable via our feed for EGIO at the time of this analysis; therefore, we do not present official S&P Global estimate comparisons for Q2 2023 (Values retrieved from S&P Global were unavailable due to a mapping issue).
  • Third-party transcript pages indicate a modest EPS miss and a small revenue beat vs non-SPGI consensus around the print, but we do not anchor on these figures in lieu of S&P Global data .

Key Takeaways for Investors

  • Sequential trough likely behind: management framed Q2 as the low point for 2023 with sequential revenue and cash gross margin improvement expected in 2H23, supported by bookings momentum and lower churn .
  • Cost-savings execution is working: continued opex step-down and progress toward $85–$90M run-rate savings underpin the Q4 Adjusted EBITDA breakeven target; delivery here is the core near-term stock driver .
  • Margin watch: GAAP/non-GAAP/cash gross margins compressed in Q2; seasonal recovery and mix improvements must materialize to validate the 2H trajectory .
  • Pricing reset appears contained: the large-customer pricing action was characterized as a one-time reset with renewal and return to growth; broader pricing viewed as stabilizing amid slower industry growth and consolidation .
  • Liquidity/covenants: lender waivers mitigated a quarter-specific covenant breach and reporting timing issues; cash fell to $36.2M, keeping execution and working-capital discipline in focus .
  • Compliance overhang removed: with the Q2 10-Q filed, EGIO regained Nasdaq compliance, aiding investor engagement and potentially narrowing the valuation discount associated with restatement risk .
  • 2H setup: If sequential growth and margin improvement arrive as guided, the narrative shifts from stabilization to margin inflection heading into 2024, where management targets substantial YoY improvements in Adjusted EBITDA and FCF .