It's been seven months since CDNetworks acquired Panther Express and in that time, we've not heard anything from the company on how the integration is going, what their bigger plans are for the U.S. market and how all the recent management changes will affect the direction of the company. So last week, John Milburn, President of CDNetworks International, spend some time with me to answer my questions about their business and gave me an update on their balance sheet, projected revenue and their plans to take the company private.
While CDNetworks was starting to get some traction in the U.S. last year, over the past few quarters, the company has been pretty quiet and I've seen them lose some momentum as the look to continue to try and expand from their home base in Asia into the U.S. market. John explained that one of the major things that CDNetworks has working on over the past few quarters is finalizing their management structure with new hires and promotions. The company has hired a new VP of sales, Cameron Lorentz, hired a new VP of marketing, Jim Campbell, promoted Ian Van Hoven to VP of operations and named current board member John Milburn as the president of CDNetworks International, which includes operations in the Americas as well as Europe/Middle East/Africa (EMEA).
John said that the efforts in the U.S. are still a relatively recent development for the company even though they started to crack the U.S. market with a fairly low-level entry about three years ago. He said the recent Panther acquisition was an indication that the company was going to put a new focus on business in the U.S. and that their goal is to become a significant player in the U.S. market. John said that the real value they saw from the Panther acquisition was the self provision and caching platform as well as their mentality on how they built out their infrastructure. John admitted that Panther had some execution issues and said that part of the reason CDNetworks has been quiet in the market since announcing the acquisition was to "clean up" some of those problems, problems that were widely known by anyone who covers the CDN market.
On the subject of finances, one of the rumors I kept hearing in the market was that CDNetworks was close to running out of money, something that I think was started by CDNetworks competitors. John went on record to make it clear that of the $96.5M that CDNetworks raised nearly two years ago, the company still has over $50M of that cash in the bank. He said the only thing the company has done with that money to date is a share buy back and the Panther acquisition. He said the company continues to be profitable and cash flow positive and that there is no cash flow issue. While the company has not yet made the official announcement, John also said that CDNetworks is in the process of taking the company private, not due to any type of delisting, but rather as voluntary strategic decision. Post Panther acquisition the company has 90 employees now in the U.S. and Europe and 400 employees globally.
John said the company is on track to do north of $90M in revenue for 2009, with about $20M coming from the U.S. market and about two thirds of that $20M coming from the Panther acquisition. How much of the $90M actually comes from CDN services is unknown as the company counts their co-location and managed services revenue as part of their overall CDN revenue. CDNetworks considers 100% of their revenue to be "CDN" related which I would have to disagree with because even if you are doing managed hosting for a CDN customer; it's not CDN revenue.
John said that CDNetworks has been a bit quiet in the market on purpose as the new management team finalizes the company's bigger picture and while we'll see some of that in the market over the next few months, the real push comes early next year will the roll out new products and messaging. The company has also been hard at work on enhancing their systems internally and putting more resources in place where they were lacking. John made it clear that one of the main goals of the company is to ensure that they can provide the right kind of service and scale for the new applications and services they expect to roll out early next year. If there was one message that came through loud and clear in my chat with John, it's that the company is in no rush to put a service out in the market that they can't support and scale 100%.
The company has been hard at work on converting many of Panther's customers who were on month-to-month contracts over to yearly commits as well as providing these customers with 24 hour phone support, something Panther didn't offer. On the subject of CDNetworks sales force and how they plan to sell in
the U.S. market, John said that they just finished a pretty big revamp
of the sales structure and that the company will add some key channel
partners in the coming months. They also plan to introduce some new products into the enterprise market next year and John mentioned that they plan to go after some specific verticals where currently there is not a lot of competition.
From the time I got to spend with John, it was clear to me that CDNetworks does in fact have a plan in place that they are making sure they put everything in order, before really pushing hard into the U.S. market. I like their approach of not trying to dominate in the market by selling something that either is half-baked, or can't be supported at scale until they are truly ready. While they have been pretty quiet over the past year, clearly that's as a result of them just not being ready yet, as opposed to thinking they are just sitting still. While their story sounds good, in this business, it's all about execution. So we'll have to keep a close eye on them come next year when they start to make their major push into the U.S. market.
putting all of the building blocks in place to be able to support a real push in the U.S. market in the first half of next year.