Add
JUPM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| JUPM > SEC Filings for JUPM > Form 10-Q on 12-Nov-2008 | All Recent SEC Filings |
12-Nov-2008
Quarterly Report
The following discussion should be read in conjunction with our unaudited consolidated condensed financial statements and the accompanying notes, which appear elsewhere in this filing. Statements in this Form 10-Q, which are not historical facts, are "forward-looking statements" that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The potential risks and uncertainties address a variety of subjects including, for example: the competitive environment in which Jupitermedia competes; the unpredictability of Jupitermedia's future revenues, expenses, cash flows and stock price; Jupitermedia's ability to integrate acquired businesses, products and personnel into its existing businesses; Jupitermedia's dependence on a limited number of advertisers; and Jupitermedia's ability to protect its intellectual property. For a more detailed discussion of such risks and uncertainties, refer to Jupitermedia's reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. The forward-looking statements included herein are made as of the date of this Form 10-Q, and we are under no obligation to update the forward-looking statements after the date hereof. The following Management Discussion and Analysis of Financial Condition and Results of Operations has been revised to reflect the effects of the restatement described in note 13 to the unaudited consolidated condensed financial statements.
Recent Developments
On October 22, 2008, we entered into a definitive stock purchase agreement (the "Agreement") to sell our Online images business to Getty Images, Inc. for an aggregate purchase price of $96.0 million in cash, subject to a working capital purchase price adjustment (the "Sale"). The consummation of the transaction is subject to approval by our stockholders and other customary closing conditions. As a result of the Agreement, we will account for the operations of our Online images business as a discontinued operation during the fourth quarter of 2008. We expect to incur a non-cash loss of approximately $55.0 million upon the closing of the Sale, less any additional impairment charges recorded prior to the closing of the Sale.
Effective as of October 24, 2008, Christopher Cardell resigned as the President and Chief Operating Officer of Jupitermedia and as a director of Jupitermedia to pursue other interests.
Overview
We are a leading global provider of images, original information, job boards and events for information technology ("IT"), business and creative professionals. Our operations are classified into two principal segments: Online images and Online media.
Online images. Jupiterimages, our Online images business, is one of the leading images companies in the world with over 10.0 million images online serving creative professionals with brands like BananaStock, Workbook Stock, Brand X Pictures, FoodPix, Botanica, Nonstock, The Beauty Archive, IFA Bilderteam, Comstock Images, Creatas Images, PictureQuest, Liquid Library, Thinkstock Images, Thinkstock Footage, Bigshot Media, Goodshoot, Polka Dot Images, Stock Image, Pixland, Photos.com, Ablestock.com, PhotoObjects.net, Clipart.com, AnimationFactory.com, JupiterGreetings.com, RoyaltyFreeMusic.com, StudioCutz.com, eStockMusic.com and Stockxpert.com.
We generate our Online images revenues from paid subscriptions that provide access to our image and music libraries. Customers may purchase subscriptions, which are offered based on a variety of prices and terms, to access our image and music libraries. Once a customer becomes a subscriber, they have the ability to download copies of images or music within our libraries. We recognize subscription revenue ratably over the period of the subscription.
We also derive revenue from granting rights to use images and music that are downloaded or delivered on CD-ROMs. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectibility is reasonably assured. For downloads, delivery occurs based on the availability of the image or music for downloading by the customer. For shipments of CD-ROM's, revenue is recognized and risk of loss is passed at the point of delivery to the customer via standard delivery methods of ground transportation or next day air delivery.
Our images and music are licensed online through our networks, through our direct sales force and through third party relationships. We have agreements with a number of distributors of images, music and footage clips, whereby the distributors make sales to third party customers and remit a percentage of the sales to us. We recognize the revenue from the sale by the distributor at the time of the sale.
We also license a portion of our content to third parties for royalties based on the licensee's revenues generated by the licensed content.
The principal costs of our Online images business relate to commissions paid to third party image suppliers, payroll costs for technology, production, sales and marketing personnel, advertising, technology infrastructure, lead generation fees for sales referrals and credit card processing fees.
Online media. The media segment of Jupitermedia consists of the JupiterOnlineMedia division, which operates five distinct networks: internet.com and EarthWeb.com for IT and business professionals; DevX.com for developers; and Mediabistro.com and Graphics.com for media and creative professionals. JupiterOnlineMedia includes more than 150 Web sites and 150 e-mail newsletters that are viewed by over 15 million users monthly. JupiterOnlineMedia includes specialized career Web sites for select professional communities, which can be found on Mediabistro.com and JustTechJobs.com. JupiterOnlineMedia also includes the STEP Inside Design and Dynamic Graphics print magazines. In addition, JupiterOnlineMedia, which includes JupiterEvents and Mediabistro's media-related events, produces offline conferences and trade shows focused on IT and business-specific topics.
We generate our Online media revenues from:
• advertising and custom publishing on our Web sites, e-mail newsletters and online discussion forums;
• e-commerce agreements, which generally include a fixed advertising fee;
• fees charged for online job postings;
• attendee registration fees for our online and in-person training courses;
• advertiser sponsorships for our Webcasts;
• subscription sales for our paid e-mail newsletters and services;
• advertising, subscriptions and newsstand sales for our print magazines;
• attendee registration fees to our conferences and trade shows;
• exhibition space fees and vendor sponsorships to our conferences and trade shows;
• renting our permission based opt-in e-mail list names; and
• licensing our editorial content and brands to third parties for fixed fees and royalties based on the licensee's revenues generated by the licensed property.
The principal costs of our Online media business relate to payroll for our editorial, technology, operations and sales personnel; technology related costs; facilities and equipment; paper and printing costs; and venue, speaker and advertising expenses for training and events.
Results of Operations
Revenues
The following tables sets forth, for the periods indicated, a comparison of our
revenues by segment (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, 2007 vs. 2008 September 30, 2007 vs. 2008
2007 2008 $ % 2007 2008 $ %
Online images $ 26,824 $ 23,467 $ (3,357 ) (13 )% $ 82,121 $ 75,699 $ (6,422 ) (8 )%
Online media 7,942 7,574 (368 ) (5 ) 22,085 24,888 2,803 13
$ 34,766 $ 31,041 $ (3,725 ) (11 )% $ 104,206 $ 100,587 $ (3,619 ) (3 )%
|
Online images. The decrease in revenues during the three and nine months ended September 30, 2008 is due primarily to declines in direct sales of royalty-free single images and CD-ROMs and in sales from third party distributors, partially offset by an increase in subscription revenues. This was mainly due to changes in the images industry, including the emergence of competitive image offerings such as micropayment. We are continually creating new product offerings to address the changes in the market.
The following table sets forth, for the three and nine months ended September 30, 2007 and 2008, the components of our Online images revenues (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2008 2007 2008
Single images and CD-ROMs $ 13,197 $ 10,913 $ 39,831 $ 36,074
Subscriptions 7,146 7,699 21,467 23,158
Distributors, licensing and other 6,481 4,855 20,823 16,467
Total Online images $ 26,824 $ 23,467 $ 82,121 $ 75,699
|
Online media. The decrease in revenues during the three months ended September 30, 2008 is due to a decrease in advertising revenue, which was due primarily to the downturn in the U.S. and global economy. The increase in revenues during the nine months ended September 30, 2008 is due to the acquisition of Mediabistro which added an additional $4.8 million in revenues. This was partially offset by a reduction in advertising revenues due to a decline in advertising spending by technology companies.
The following table sets forth a quarter-by-quarter comparison of the number of our Online media online advertisers and the average revenue derived from each advertiser (dollars in thousands):
Number Average Revenue
of Advertisers per Advertiser
March 31, 2007 219 $ 27
June 30, 2007 235 25
September 30, 2007 206 27
December 31, 2007 189 31
March 31, 2008 217 26
June 30, 2008 210 28
September 30, 2008 260 19
|
Cost of revenues
The following table sets forth, for the periods indicated, a comparison of our cost of revenues by segment (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, 2007 vs. 2008 September 30, 2007 vs. 2008
2007 2008 $ % 2007 2008 $ %
Online images $ 10,682 $ 9,827 $ (855 ) (8 )% $ 33,558 $ 31,801 $ (1,757 ) (5 )%
Online media 3,842 4,265 423 11 10,267 13,308 3,041 30
$ 14,524 $ 14,092 $ (432 ) (3 )% $ 43,825 $ 45,109 $ 1,284 3 %
|
Online images. Cost of revenues primarily consists of commissions paid to third party image suppliers, payroll and benefits costs for technology and production personnel, communications infrastructure, Web site hosting and storage for our image library. Cost of revenues excludes depreciation and amortization. The decrease in cost of revenues for the three months ended September 30, 2008 is due primarily to a decrease in commission expense of $795,000. The decrease in cost of revenues during the nine months ended September 30, 2008 is due primarily to a decrease in commission expense of $2.2 million due primarily to a decrease in sales and a shift in sales from third party content to wholly owned content. This decrease was partially offset by an increase in technology consulting expense of $427,000.
We intend to make investments through internal development. As we continue to make investments to increase the size of our image library, we may need to increase our spending for Web site hosting and storage costs.
Online media. Cost of revenues primarily consists of payroll and benefits costs for technology and editorial personnel, freelance costs, communications infrastructure and Web site hosting. Cost of revenues excludes depreciation and amortization. The increase in cost of revenues for the three months ended September 30, 2008 is due primarily to an increase of employee related costs. The increase in cost of revenues for the nine months ended September 30, 2008 is due primarily to the acquisition of Mediabistro on July 18, 2007, which added an additional $2.4 million to cost of revenues. The remaining increase is due primarily to increases in employee related costs of $904,000.
We intend to make investments through internal development and, where appropriate opportunities arise, acquisitions to continue to expand our content offerings. We may need to increase our spending in order to create additional content related to new topics or offerings.
Advertising, promotion and selling
The following table sets forth, for the periods indicated, a comparison of our advertising, promotion and selling expenses by segment (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, 2007 vs. 2008 September 30, 2007 vs. 2008
2007 2008 $ % 2007 2008 $ %
Online images $ 5,203 $ 4,914 $ (289 ) (6 )% $ 15,961 $ 16,072 $ 111 1 %
Online media 1,965 2,005 40 2 5,573 6,198 625 11
$ 7,168 $ 6,919 $ (249 ) (3 ) $ 21,534 $ 22,270 $ 736 3 %
|
Online images. Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel and advertising. The decrease in advertising, promotion and selling expense during the three months ended September 30, 2008 is due primarily to a decrease in advertising costs of $524,000, partially offset by an increase in employee related costs of $283,000.
The increase in advertising, promotion and selling expense during the nine months ended September 30, 2008 is due primarily to an increase in employee related costs of $1.1 million, partially offset by a decrease in advertising costs of $863,000.
Online media. Advertising, promotion and selling expenses primarily consist of payroll and benefits costs for sales and marketing personnel. The increase in advertising, promotion and selling expense during the three months ended September 30, 2008 is due primarily to an increase in advertising costs of $70,000, partially offset by a decrease in payroll related costs of $19,000. The increase in advertising, promotion and selling expenses for the nine months ended September 30, 2008 is due primarily to the acquisition of Mediabistro, which added an additional $604,000.
General and administrative
The following table sets forth, for the periods indicated, a comparison of our general and administrative expenses by segment (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, 2007 vs. 2008 September 30, 2007 vs. 2008
2007 2008 $ % 2007 2008 $ %
Online images $ 2,107 $ 2,509 $ 402 19 % $ 5,926 $ 6,419 $ 493 8 %
Online media 583 587 4 1 955 1,776 821 86
Other 3,821 3,901 80 2 14,340 14,476 136 1
$ 6,511 $ 6,997 $ 486 7 % $ 21,221 $ 22,671 $ 1,450 7 %
|
Online images. General and administrative expenses primarily consist of payroll and benefits costs for administrative personnel, office related costs, professional fees and provisions for losses on accounts receivable. The increase in general and administrative expenses during the three and nine months ended September 30, 2008 is due primarily to legal fees of $557,000 related to the stock purchase agreement with Getty Images, Inc. signed on October 22, 2008.
Online media. General and administrative expenses primarily consist of office related costs and provisions for losses on accounts receivable. The increase in general and administrative expenses during the three months ended September 30, 2008 is due primarily to an increase in payroll costs of $64,000, offset by a decrease in consulting expense of $32,000 and a decrease in office related costs of $28,000. The increase in general and administrative expenses during the nine months ended September 30, 2008 was due primarily to the acquisition of Mediabistro, which added an additional $661,000.
Other. General and administrative expenses primarily consist of payroll and benefits costs for administrative personnel, office related costs and professional fees. The increase in general and administrative expenses for the three months ended September 30, 2008 is primarily due to an increase of payroll related costs of $451,000 offset by a decrease in professional services of $389,000. The increase during the nine months ended September 30, 2008 is due primarily to an increase in stock-based compensation of $1.2 million, an increase in payroll related costs of $783,000 and an increase in professional consulting fees of $344,000, partially offset by a decrease in professional legal and tax services of $2.2 million. The nine months ended September 30, 2007 included legal and accounting fees of $1.9 million associated with discussions with Getty images, Inc. regarding a potential transaction which were terminated on March 7, 2007.
Depreciation and amortization
The following table sets forth, for the periods indicated, a comparison of our depreciation and amortization expenses (dollars in thousands):
Three Months Ended Nine Months Ended
September 30, 2007 vs. 2008 September 30, 2007 vs. 2008
2007 2008 $ % 2007 2008 $ %
Depreciation $ 1,128 $ 1,249 $ 121 11 % $ 3,353 $ 3,731 $ 378 11 %
Amortization 3,381 3,892 511 15 9,669 11,837 2,168 22
$ 4,509 $ 5,141 $ 632 14 % $ 13,022 $ 15,568 $ 2,546 20 %
|
Depreciation and amortization expense increased during the three and nine months ended September 30, 2008 due primarily to the acquisition of Mediabistro.
Our depreciation and amortization expenses may vary in future periods based upon a change in our capital expenditure levels or any future acquisitions.
Impairment of goodwill
Although we normally conduct our annual impairment review in the fourth quarter of each fiscal year, we have received offers from multiple market participants for our Online images business during the third quarter of 2008 and concluded that the offers being made were a trigger of impairment to goodwill as of September 30, 2008. Accordingly, we have recorded an estimated impairment charge of $40.0 million during the third quarter of 2008. In the fourth quarter of 2008, we will complete our valuation of impairment under SFAS No. 142 and SFAS No. 144, which will likely result in additional impairments of goodwill.
Other loss, net
Other loss of $853,000 during the three months ended September 30, 2008 and other loss of $58,000 during the nine months ended September 30, 2008 was due primarily to foreign currency transaction gains and losses.
Interest income and interest expense
The following table sets forth, for the periods indicated, a comparison of our interest income and interest expense (dollars in thousands):
Three Months Ended Nine Months Ended September 30, 2007 vs. 2008 September 30, 2007 vs. 2008 2007 2008 $ % 2007 2008 $ % Interest income $ 62 $ 70 $ 8 13 % $ 140 $ 176 $ 36 26 % Interest expense (2,328 ) (1,625 ) 703 30 % (5,232 ) (5,198 ) 34 1 %
Interest expense relates primarily to borrowings under our senior credit facilities (see Liquidity and Capital Resources).
Provision (benefit) for income taxes
A provision for income taxes of $233,000 and an income tax benefit of $113,000 were recorded for the three and nine months ended September 30, 2007, respectively. The income tax provision for the nine months ended September 30, 2007 was principally impacted by $1.9 million in legal and accounting fees associated with discussions with Getty Images, Inc., regarding a potential sale, which were terminated on March 7, 2007.
A provision for income taxes of $18.0 million and $16.8 million was recorded during the three and nine months ended September 30, 2008, respectively. The income tax provision is primarily related the establishment of a valuation allowance on certain deferred tax assets that were recorded as of December 31, 2007. The income tax provision is also impacted by income taxes accrued in foreign jurisdictions where we have income, partially offset by an income tax benefit related to losses incurred for United States federal income tax purposes that can be carried back.
Based on our most recent projections, we have concluded that it is more likely than not that we will have insufficient taxable income to allow recognition of certain of its deferred tax assets. Accordingly, a valuation allowance has been established against those deferred tax assets where there is uncertainty on future utilization as described below.
At December 31, 2007, we had federal, state and foreign net operating loss ("NOL") carryforwards of $4.1 million for which a valuation allowance of $800,000 had been established. Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. We have established an additional valuation allowance against $2.4 million of deferred tax assets attributable to NOL carryforwards in the third quarter.
At December 31, 2007, we had other deferred tax assets of $18.1 million which were primarily composed of amortization and impairment of intangible assets and reversals of book expense on stock-based compensation. Realization of the deferred tax assets is dependent on generating sufficient taxable income in future years. We have established a valuation allowance against $14.8 million of these deferred tax assets.
Minority interests, net
Minority interests represent the minority stockholders' proportionate share of profits or losses of our majority-owned Japanese and Hungarian subsidiaries. Japan.internet.com KK and Jupiterimages Japan represent our Online media and Online images businesses, respectively, focused on Japan. HAAP Media Ltd. is our micropayment Online images business based in Hungary.
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, a comparison of the
key components of our liquidity and capital resources (dollars in thousands):
Nine Months Ended
September 30, 2007 vs. 2008
2007
Restated 2008 $ %
Operating cash flows $ 10,022 $ 10,965 $ 943 9 %
Investing cash flows $ (34,107 ) $ (8,587 ) $ 25,520 75 %
Financing cash flows $ 22,355 $ (5,033 ) $ (27,388 ) (123 )%
Acquisitions of businesses, images and other $ (30,246 ) $ (3,325 ) $ 26,921 89 %
Purchases of property and equipment $ (4,003 ) $ (5,597 ) $ (1,594 ) (40 )%
As of 2007 vs. 2008
December 31, September 30,
2007 2008 $ %
Cash and cash equivalents $ 7,301 $ 4,424 $ (2,877 ) (39 )%
Accounts receivable, net $ 25,689 $ 21,410 $ (4,279 ) (17 )%
Working capital $ 1,999 $ (6,330 ) $ (8,329 ) (417 )%
Long-term debt $ 83,375 $ 78,350 $ (5,025 ) (6 )%
|
Since inception, we have funded operations through various means including our initial and follow-on public offerings of our common stock in June 1999, January 2000 and May 2004, the sales of our Events and Research businesses, through various credit agreements and through cash flows from operating activities. Our cash balance decreased from December 31, 2007 due primarily to payments made to reduce our debt. Cash decreased in 2007 due primarily to acquisitions of businesses partially offset by cash flows from operations.
Cash provided by operating activities increased during the nine months ended September 30, 2008 due primarily to decreases in accounts receivable and prepaid expenses and other assets.
The amounts of cash used in investing activities vary in correlation to the . . .
|
|