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| ACTV > SEC Filings for ACTV > Form 10-Q on 2-Nov-2012 | All Recent SEC Filings |
2-Nov-2012
Quarterly Report
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and in our other public filings with the Securities and Exchange Commission ("SEC").
This Quarterly Report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "will," "plan," "project," "seek," "should," "target," "will," "would," and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified in "Part II - Item 1A. Risk Factors" below, and those discussed in our other public filings with the SEC. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are leaders in activity and participant management providing cloud computing applications serving a wide range of customer groups including business solutions, community activities, outdoors and sports. We provide applications that form an online network connecting a fragmented and diverse group of activity and event organizers with a large base of potential participants. Our proprietary technology platform transforms the way organizers manage their activities and events by automating online registrations and streamlining other critical management functions, while also driving consumer participation to their events.
We power a broad range of activities, such as reserving a campsite or tee time, signing up for a marathon or sports league, purchasing a fishing or hunting license, or participating in a community event or corporate conference. From the introduction of our platform in 1999, we have experienced significant growth and in 2011, we had over 51,000 customer organizations that drove over 80 million annual consumer registrations. Based on the results of a 2010 online survey we commissioned through Survey.com, we believe the organizations we target produce or organize activities and events for the majority of U.S. households. Our proprietary technology platform, ActiveWorks, provides cloud computing applications that reduce the cost and complexity of managing, organizing and promoting these activities and events.
Our business benefits from a powerful network effect. As more organizations use our platform, we increase the breadth and depth of activities and events offered through our platform. This more comprehensive offering of activities attracts more participants. As we attract more participants, we are able to drive increased demand for our customers' activities, thus increasing registrations and revenue for both organizers and us. This revenue growth enables us to develop enhanced functionality and services through ActiveWorks and our websites, further increasing participant engagement and attracting new organizers. In this way, we build increasing value for both organizations and participants.
We serve a wide range of customers including community and sports organizations, large corporations, small and medium-sized businesses, educational institutions, federal and state government agencies, non-profit organizations and other similar entities. We primarily generate revenue from technology fees paid by participants who register for our customers' activities through our cloud computing applications. During the nine months ended September 30, 2012, we generated revenue of $325.2 million, as compared to $261.3 million in the nine months ended September 30, 2011, an increase of 24%.
A large number of our customers are currently being served by our ActiveWorks architecture at varying levels of integration. We are in the process of transitioning to ActiveWorks certain customers who continue to use both our internally developed systems and acquired legacy systems. In addition, as part of our growth strategy, we expect to continue to make acquisitions and, thereby, acquire additional legacy systems. We will evaluate these systems to determine, based on their sophistication and compatibility, whether to integrate them into ActiveWorks or to migrate the customers using these systems to ActiveWorks. This process is time consuming and requires the investment of significant technical and human resources. During this process, we expect to continue to incur costs associated with maintaining multiple legacy systems.
In addition, our long-term strategic plan involves expanding our applications into new business areas within the activity and event registration and management market. A lack of market acceptance of such efforts or our inability to generate satisfactory revenue to offset the development costs could have a material adverse effect on our results of operations and future growth prospects. As we establish and expand our operational capabilities internationally, we will incur additional operating expenses and capital-related costs.
Our technology revenue was 89% of our total revenue for the nine months ended September 30, 2012. Net registration revenue was 76% of our technology revenue for the nine months ended September 30, 2012. During the nine months ended September 30, 2012, we processed approximately 71.5 million consumer registrations. Licensed software, maintenance, hosting and implementation revenue was 24% of our technology revenue for the nine months ended September 30, 2012. Our marketing services revenue was 11% of our total revenue for the nine months ended September 30, 2012.
Key Business Metrics
Net Registration Revenue. We calculate our net registration revenue by summing the technology fees generated by our registrations and revenue from the sale of pre-purchased registrations.
Registrations. We define a registration as when a participant registers one or more people for an event being held by an organization who is using our technology to register that participant. We determine that a registration has taken place when a participant registers one or more people for an activity or an event being held by one of our customers.
Three Months Ended September 30, Nine Months Ended September 30,
% %
2012 2011 Change 2012 2011 Change
(Unaudited) (Unaudited)
(In thousands) (In thousands)
Net registration revenue $ 72,703 $ 60,893 19 % $ 220,076 $ 182,067 21 %
Registrations 25,207 23,513 7 % 71,466 62,969 13 %
Net registration revenue per registration $ 2.88 $ 2.59 11 % $ 3.08 $ 2.89 7 %
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Registrations increased 1.7 million or 7% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 and 8.5 million, or 13%, for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. The increase was primarily due to higher registrations in our outdoors customer group driven by growth from both existing and new state customers, additional registrations from StarCite, a provider of a technology platform that delivers content and services for meetings and event planning, which we acquired in December 2011, and increased registrations in our community activities customer group from sales to existing and new organizations. The average revenue per registration increased 11% for the three months and 7% for the nine months ended September 30, 2012 compared to the three and nine months ended September 30, 2011.
Mobile Devices. During the three and nine months ended September 30, 2012 and 2011, less than 10% of our registrations were made on a mobile or tablet device. We anticipate that revenue attributable to mobile usage will increase in future years due to users increasingly accessing the Internet through mobile devices.
Basis of Presentation
General
The condensed consolidated financial statements include the accounts of The Active Network, Inc. and its wholly-owned subsidiaries. All intercompany balances have been eliminated.
Acquisitions that have been accounted for as purchase transactions are included in the condensed consolidated results from their date of purchase.
Revenue
We report our revenue in two segments:
Technology
Marketing services
The technology revenue segment is primarily composed of net registration revenue, which is primarily comprised of the technology fee we charge a participant when they register for one of our organization's events. Our technology revenue is generally derived from transactions where we are the merchant of record. Our merchant model provides consumers the ability to book a wide range of events online through our platform. The type of events we offer on our platform can be categorized into the following four primary groups: sports, community activities, outdoors and business solutions. We generate technology revenue for our services based on the technology fee we charge a consumer when they register for one of the events. Consumers generally pay us the registration fee at the time of booking, and we pay the event organizer at a later date. The technology fee is recognized as revenue net of the organization registration fee which is collected directly from our consumer and then we make payment to the event organizer typically on a two week basis. Net registration revenue is recognized when services are provided, net of estimated refunds and other chargebacks. The timing difference between when the cash is collected from our consumers and when payments are made to the event organizers improves our operating cash flow and represents a source of liquidity for us. Technology revenue also includes software licensing, installation, training, maintenance, hosting subscriptions and the sale of pre-purchased registrations. The marketing services revenue segment includes online services, field marketing services and membership programs. Registrations lead participants to our network of websites and create opportunities for us to sell our online commerce and other marketing services to participants. Our network of websites enables like-minded consumers to engage in our online communities.
Costs and Expenses
Cost of Revenue. Our cost of revenue consists of credit card processing fees for registrations, payroll and related costs including allocated facilities costs, stock-based compensation for employees associated with registration, subscription or software implementation, customer support and onsite event support including travel costs. Costs also include expenses related to our call center operations, amortization of capitalized software development costs and certain acquired intangibles including acquired technology, customer supply costs, inventory costs and internet hosting costs.
Sales and Marketing. Our sales and marketing costs are primarily salaries, benefits, incentive compensation, stock-based compensation and allocated facilities costs for our sales and marketing employees. Costs also include expenses for travel, trade shows and other promotional and marketing activities including direct and online marketing.
Research and Development. Our research and development costs are primarily salaries, benefits, incentive compensation, stock-based compensation and allocated facilities costs for employees and contractors engaged in the development and ongoing maintenance of our products and services.
General and Administrative. Our general and administrative costs are primarily salaries, benefits, incentive compensation, stock-based compensation and allocated facilities costs for employees engaged in support activities including executive, finance, accounting, human resources, legal and internal information technology support. Also included are professional fees and contractor costs for legal and accounting services. Software expenses and travel costs for support employees, taxes, fees and licenses are also included.
Amortization of Intangibles. Intangible assets with finite lives are amortized using a combination of straight-line and accelerated methods based on the expected cash flows from the asset over their estimated useful lives. This includes assets recorded in conjunction with certain acquisitions.
Other Income (Expense), Net. Other income (expense), net consists primarily of the interest income earned on our cash and cash equivalents, interest paid on our debt, foreign exchange gains and losses and other one-time gains and losses.
Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.
Adjusted EBITDA
To provide investors with additional information regarding our financial results, we have disclosed within this Quarterly Report on Form 10-Q Adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of Adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.
We have included Adjusted EBITDA in this Quarterly Report on Form 10-Q because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In
particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial measure used by the compensation committee of our board of directors in connection with the payment of bonuses to our executive officers. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.
Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect our cash expenditures for capital equipment, internally developed software costs or certain other contractual commitments;
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may need to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation to our management team or employees;
Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
other companies, including companies in our industry, may calculate Adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net loss and our other GAAP financial results.
The following table presents a reconciliation of Adjusted EBITDA for each of the three and nine month periods ended September 30, 2012 and September 30, 2011:
Three Months Ended September 30, Nine Months Ended September 30,
2012 2011 2012 2011
(Unaudited)
(in thousands)
Reconciliation of Adjusted
EBITDA to Net loss:
Net loss (6,022 ) (1,432 ) (28,685 ) (6,845 )
Interest expense, net 216 77 407 2,708
Provision for income taxes 1,982 910 5,062 2,490
Depreciation and amortization 15,033 11,146 45,127 32,654
Stock-based compensation 4,661 1,970 11,992 4,782
Other (income) expense, net (486 ) 33 (1,363 ) (109 )
Adjusted EBITDA 15,384 12,704 32,540 35,680
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Critical Accounting Policies
In presenting our condensed consolidated financial statements in conformity with U.S. generally accepting accounting principles, or GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.
Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.
We believe that the critical accounting policies listed below involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our condensed consolidated financial statements.
Revenue recognition
Allowance for doubtful accounts
Software development costs
Business combinations
Impairment of goodwill, indefinite-lived intangible assets and long-lived assets
Income taxes
Stock-based compensation
As of September 30, 2012, there have been no material changes to the items disclosed as critical accounting policies and estimates in "Management Discussion and Analysis of Financial Condition and Results of Operations" in
Results of Operations
The following tables set forth our results of operations for the periods
presented and those results as a percentage of our revenue. The period-to-period
comparison of financial results is not necessarily indicative of future results.
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(Unaudited)
(in thousands)
Net revenue:
Technology revenue $ 96,170 $ 76,341 $ 288,445 $ 225,002
Marketing services revenue 13,049 13,287 36,776 36,343
Total net revenue 109,219 89,628 325,221 261,345
Cost of net revenue:
Cost of technology revenue 45,571 38,291 142,038 109,986
Cost of marketing services revenue 1,826 1,599 5,257 4,241
Cost of net revenue 47,397 39,890 147,295 114,227
Gross profit 61,822 49,738 177,926 147,118
Operating expenses:
Sales and marketing 24,154 17,116 73,462 52,970
Research and development 20,624 17,628 62,954 50,181
General and administrative 15,862 11,737 49,309 34,633
Amortization of intangibles 5,492 3,669 16,780 11,090
Total operating expenses 66,132 50,150 202,505 148,874
Loss from operations (4,310 ) (412 ) (24,579 ) (1,756 )
Interest income 23 32 73 91
Interest expense (239 ) (109 ) (480 ) (2,799 )
Other income (expense), net 486 (33 ) 1,363 109
Loss before provision for income taxes (4,040 ) (522 ) (23,623 ) (4,355 )
Provision for income taxes 1,982 910 5,062 2,490
Net loss (6,022 ) (1,432 ) (28,685 ) (6,845 )
Accretion of redeemable convertible
preferred stock - - - (11,810 )
Net loss attributable to common
stockholders $ (6,022 ) $ (1,432 ) $ (28,685 ) $ (18,655 )
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Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
(Unaudited)
(As of percentage of net revenue)
Net Revenue 100 % 100 % 100 % 100 %
Cost of net revenue 43 45 45 44
Gross profit 57 55 55 56
Operating expenses:
Sales and marketing 22 19 23 20
Research and development 19 20 19 19
General and administrative 15 13 15 13
Amortization of intangibles 5 4 5 4
Total operating expenses 61 56 62 57
Loss from operations (4 ) 0 (8 ) (1 )
Interest income 0 0 0 0
Interest expense (0 ) (0 ) (0 ) (1 )
Other (expense) income, net 0 0 0 0
Loss before provision for income taxes (4 ) (1 ) (7 ) (2 )
Provision for income taxes 2 1 2 1
Net loss (6 %) (2 %) (9 %) (3 %)
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Three and Nine months ended September 30, 2012 and 2011
Net Revenue
Three Months Ended Nine Months Ended
September 30, September 30,
% %
2012 2011 Change 2012 2011 Change
(Unaudited) (Unaudited)
(In thousands) (In thousands)
Net revenue:
Technology revenue $ 96,170 $ 76,341 26 % $ 288,445 $ 225,002 28 %
Marketing services revenue 13,049 13,287 (2 %) 36,776 36,343 1 %
Net revenue $ 109,219 $ 89,628 22 % $ 325,221 $ 261,345 24 %
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Total revenue increased $19.6 million, or 22%, for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 and $63.9 million, or 24%, for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011 as discussed below.
Technology revenue. Net registration revenue increased $11.8 million or 19% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 and $38.0 million, or 21%, for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. The increase was driven by higher revenue in our business solutions customer group largely as a result of the StarCite acquisition, higher revenue from both existing and new state customers in our outdoors customer group, and growth in our community activities and sports customer groups. Software revenue increased $8.0 million or 52% for the three months ended September 30, 2012 compared to the three months ended September 30, 2011 and $25.4 million, or 59%, for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011, mainly as a result of additional revenue from our . . .
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