Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MM > SEC Filings for MM > Form 10-Q on 6-Nov-2012All Recent SEC Filings

Show all filings for MILLENNIAL MEDIA INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MILLENNIAL MEDIA INC.


6-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in this Quarterly Report on Form 10-Q may constitute 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. The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions, or the negative of such words or phrases, are intended to identify "forward-looking statements." We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in "Risk Factors," and our other filings with the Securities and Exchange Commission, or "SEC". Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes for the fiscal year ended December 31, 2011 appearing in our prospectus filed with the SEC on October 24, 2012.

Overview

We are the leading independent mobile advertising platform company and the second largest mobile display advertising platform overall in the United States. Our technology, tools and services help developers maximize their advertising revenue, acquire users for their apps and gain insight about their users. To advertisers, we offer significant audience reach, sophisticated targeting capabilities and the opportunity to deliver interactive and engaging ad experiences to consumers on their mobile connected devices. More than 38,000 apps are enabled to receive ads through our platform, and we can deliver ads on over 7,000 different mobile device types and models. Our platform is compatible with all major mobile operating systems, including Apple iOS, Android, Windows Phone, Blackberry and Symbian.

We help developers and advertisers remove complexity from mobile advertising. By working with us, developers gain access to our tools and services that allow their apps to display banner ads, interactive rich media ads and video ads from our platform. In return, developers supply us with space on their apps to deliver ads for our advertiser clients and also provide us with access to anonymous data associated with their apps and users. We analyze this data to build sophisticated user profiles and audience groups that, in combination with the real-time decisioning, optimization and targeting capabilities of our technology platform, enable us to deliver highly targeted advertising campaigns for our advertiser clients. Advertisers pay us to deliver their ads to mobile connected device users, and we pay developers a fee for the use of their ad space. As we deliver more ads, we are able to collect additional anonymous data about users, audiences and the effectiveness of particular ad campaigns, which in turn enhances our targeting capabilities and allows us to deliver better performance for advertisers and better opportunities for developers to increase their revenue streams.


Table of Contents

Key Operating and Financial Performance Metrics

We monitor the key operating and financial performance metrics set forth in the table below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess our operational efficiencies.

Three Months Ended September 30,

                        2011                  2012
                    (in thousands, except percentages)
Revenue           $          25,189     $          47,366
Gross margin                   39.3 %                40.9 %
Net loss          $            (242 )   $          (1,769 )
Adjusted EBITDA   $             582     $           2,138

Nine Months Ended September 30,

                        2011                 2012
                    (in thousands, except percentages)
Revenue           $          69,129    $         119,707
Gross margin                   38.5 %               40.1 %
Net loss          $            (417 )  $          (7,981 )
Adjusted EBITDA   $             650    $          (1,017 )

Gross margin is our gross profit, or revenue less cost of revenue, expressed as a percentage of our total revenue. Our gross margin has been and will continue to be primarily affected by our pricing terms with new and existing developers.

Adjusted EBITDA represents our earnings before net interest (income) expense, income taxes, depreciation and amortization, adjusted to eliminate stock-based compensation expense, which is a non-cash item. Adjusted EBITDA 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, we believe that the exclusion of the expenses eliminated 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 development of incentive-based compensation for 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.

Adjusted EBITDA is not a measure calculated in accordance with GAAP, and should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with GAAP. In addition, adjusted EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate adjusted EBITDA in the same manner that we do. Adjusted EBITDA eliminates the


Table of Contents

impact of stock-based compensation expense as we do not consider the inclusion of stock-based compensation expense to be indicative of our core operating performance.

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:

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;

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 or similarly titled measures differently, which reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider adjusted EBITDA alongside other GAAP-based 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 to net loss for each of the periods indicated:

                                          Three Months Ended
                                            September 30,
                                          2011         2012
                                            (in thousands)
Net loss                                $    (242 )  $  (1,769 )
Adjustments:
Interest expense, net                           1           14
Income tax (benefit) expense                   (2 )         36
Depreciation and amortization expense         220          631
Stock-based compensation expense              605        3,226
Total net adjustments                         824        3,907
Adjusted EBITDA                         $     582    $   2,138




                                          Nine Months Ended
                                            September 30,
                                          2011         2012
                                           (in thousands)
Net loss                                $    (417 )  $ (7,981 )
Adjustments:
Interest expense, net                           2          52
Income tax (benefit) expense                 (495 )        46
Depreciation and amortization expense         456       1,593
Stock-based compensation expense            1,104       5,273
Total net adjustments                       1,067       6,964
Adjusted EBITDA                         $     650    $ (1,017 )


Table of Contents

Components of Operating Results

Revenue

We generate revenue by charging advertisers to deliver ads to users of mobile connected devices. Depending on the specific terms of each advertising contract, we generally recognize revenue based on the activity of mobile users viewing these ads. Our fees from advertisers are commonly based on the number of ads delivered, views, clicks or actions by users on mobile advertisements we deliver, and we recognize revenue at the time the user views, clicks or otherwise acts on the ad. We sell ads on several bases: cost per thousand, or CPM, on which we charge advertisers for each ad delivered to a consumer; cost per click, or CPC, on which we charge advertisers for each ad clicked on by a user; and cost per action, or CPA, on which we charge advertisers each time a consumer takes a specified action, such as downloading an app.

Our brand advertiser clients, which currently comprise a majority of our revenue, generally use CPM pricing, although some brand advertisers use CPC pricing terms with us from time to time. On the other hand, our performance advertiser clients typically use CPC pricing, but sometimes use CPA pricing. The mix of revenue generated from brand advertisers and performance advertisers on our platform changes throughout the year. For example, we typically see a higher percentage of our revenue from brand advertisers in the second and fourth quarters of the year than we do during the first and third quarters. The overall mix of advertisers using CPM, CPC and CPA pricing models changes throughout the year, and we are not aware of any meaningful trends in our revenue resulting from each of these three categories at this time.

When we discuss new advertising clients for any period, we are referring to clients who first advertised on our platform after the end of the prior-year comparative period. When we discuss existing advertising clients for any period, we are referring to all other clients, specifically those who had advertised on our platform at any time before the end of the prior-year comparative period. If an existing client advertises a new brand on our platform, or a subsidiary of an existing client begins advertising on our platform, we also categorize those as existing clients.

Our revenue tends to be seasonal in nature, with the fourth quarter of each calendar year historically representing the largest percentage of our total revenue for the year. Many brand advertisers spend the largest portion of their advertising budgets during the fourth quarter, in preparation for the holiday season.

Cost of Revenue

Cost of revenue consists primarily of payments we make to developers for their advertising space on which we deliver mobile ads. These payments are typically either a percentage of the advertising revenue we earn from mobile ads placed on the developer's app or a fixed fee for the ad space. We recognize cost of revenue on a developer-by-developer basis at the same time as we recognize the associated revenue. Costs owed to developers but not yet paid are recorded on our consolidated balance sheets as accrued cost of revenue.

Operating Expenses

Operating expenses consist of sales and marketing, technology and development and general and administrative expenses. Salaries and personnel costs are the most significant component of each of these expense categories. We grew from 119 employees at December 31, 2010 to 323 employees at September 30, 2012, and we expect to continue to hire new employees in order to support our anticipated revenue growth. We include stock-based


Table of Contents

compensation expense in connection with the grant of stock options in the applicable operating expense category based on the respective equity award recipient's function.

Sales and marketing expense. Sales and marketing expense consists primarily of salaries and personnel costs for our advertiser-focused sales and marketing employees, including stock-based compensation, commissions and bonuses. Developer support salaries and personnel costs are included in general and administrative expenses. Additional expenses include marketing programs, consulting, travel and other related overhead. The number of employees in sales and marketing functions grew from 44 at December 31, 2010 to 107 at September 30, 2012, and we expect our sales and marketing expense to increase in the foreseeable future as we further increase the number of our sales and marketing professionals and expand our marketing activities.

Technology and development expense. Technology and development expense primarily consists of salaries and personnel costs for development employees, including stock-based compensation and bonuses. Technology and development employees are focused on new product and technology development. Additional expenses include costs related to the development, quality assurance and testing of new technology and enhancement of existing technology, amortization of internally developed software related to our technology infrastructure, consulting, travel and other related overhead. Other general IT costs are included in general and administrative expenses. We engage third-party consulting firms for various technology and development efforts, such as documentation, quality assurance and support. The number of employees in technology and development functions grew from 19 at December 31, 2010 to 73 at September 30, 2012. We intend to continue to invest in our technology and development efforts, by hiring additional development personnel and by using outside consulting firms for various technology and development efforts. We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.

General and administrative expense. General and administrative expense primarily consists of salaries and personnel costs for product, operations, developer support, business development, administration, finance and accounting, legal, information systems and human resources employees, including stock-based compensation and bonuses. Additional expenses include consulting and professional fees, travel, bad debt expense, insurance and other corporate expenses. The number of employees in general and administrative functions grew from 56 at December 31, 2010 to 143 at September 30, 2012, and we expect our general and administrative expenses to increase in the foreseeable future as we further increase the number of general and administrative personnel and expand our organization as a public registrant.

Other Expense

Other expense consists primarily of interest income, interest expense and changes in the fair value of our preferred stock warrant liability prior to its conversion to a common stock warrant on April 3, 2012. Interest income is derived from interest received on our cash and cash equivalents. Interest expense consists primarily of the fees incurred on the unused portion of our credit facilities.

Prior to our IPO in April 2012, the fair value of our preferred stock warrant liability was re-measured at the end of each reporting period and any changes in fair value were recognized in other income or expense. Upon the closing of our IPO in April 2012, the preferred stock warrant was automatically converted into a warrant to purchase common stock, which resulted in a reclassification of the preferred stock warrant liability to additional paid-in capital. Upon reclassification of the preferred stock warrant, no further changes in fair value will be recognized in other income or expense.


Table of Contents

Income Tax (Expense) Benefit

Income tax expense consists of U.S. federal, state and foreign income taxes. To date, we have not been required to pay U.S. federal income taxes because of our current and accumulated net operating losses. We incurred minimal state and foreign income tax liabilities for the three and nine month periods ended September 30, 2011 and 2012.

Income tax benefit consists of changes in judgment about the realizability of our deferred tax assets.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected. During the nine months ended September 30, 2012, there were no material changes to our critical accounting policies and use of estimates, which are disclosed in our audited consolidated financial statements for the year ended December 31, 2011 included in our prospectus filed with the SEC on October 24, 2012.

Results of Operations



The following table sets forth selected consolidated statement of operations
data for each of the periods indicated.



                                     Three Months Ended September 30,
                                     2011                        2012
                                              (in thousands)                          Period-to-Period Change
                                      Percentage of                Percentage of
Consolidated Statement
of Operations Data:         Amount       Revenue        Amount        Revenue         Amount        Percentage
Revenue                    $ 25,189           100.0 %  $  47,366           100.0 %  $    22,177             88.0 %
Cost of revenue              15,293            60.7       28,005            59.1         12,712             83.1
Gross profit                  9,896            39.3       19,361            40.9          9,465             95.6
Operating expenses:
Sales and marketing           3,203            12.7        5,922            12.5          2,719             84.9
Technology and
development                   1,518             6.0        4,667             9.9          3,149            207.4
General and
administrative                5,382            21.4       10,491            22.1          5,109             94.9
Total operating expenses     10,103            40.1       21,080            44.5         10,977            108.7
Loss from operations           (207 )          (0.8 )     (1,719 )          (3.6 )       (1,512 )          730.4
Other income (expense):
Interest expense                 (1 )           0.0          (14 )           0.0            (13 )        1,300.0
Other income (expense)          (36 )          (0.1 )          -             0.0             36           (100.0 )
Total other income
(expense)                       (37 )          (0.1 )        (14 )           0.0             23            (62.2 )
Loss before income taxes       (244 )          (1.0 )     (1,733 )          (3.7 )       (1,489 )          610.2
Income tax benefit
(expense)                         2             0.0          (36 )          (0.1 )          (38 )       (1,900.0 )
Net loss                   $   (242 )          (1.0 )% $  (1,769 )          (3.7 )% $    (1,527 )          631.0

Revenue. Revenue increased by $22.2 million, or 88.0%, from $25.2 million for the quarter ended September 30, 2011 to $47.4 million for the quarter ended September 30, 2012. This growth was primarily attributable to an increase in the number of advertiser clients using our platform as well as an increase in spending from our existing advertiser clients. Revenue from our existing advertiser clients increased by 141.6% during the quarter ended September 30, 2012 as compared to the quarter ended September 30, 2011 and represented 75.6% of


Table of Contents

our total revenue for the quarter ended September 30, 2012. The increase in revenue from existing clients was driven by additional campaigns from brands that had previously advertised with us, larger campaign sizes and new brands owned by existing clients that began advertising with us during the quarter. Revenue from new advertiser clients increased by 13.5% during the quarter ended September 30, 2012 as compared to the quarter ended September 30, 2011 and represented 24.4% of our total revenue for the quarter ended September 30, 2012.

Our revenue from international operations increased from $3.7 million, or 14.7% of total revenue, for the quarter ended September 30, 2011, to $6.2 million, or 13.2% of total revenue, for the quarter ended September 30, 2012. The revenue growth in our international operations during the quarter ended September 30, 2012 as compared to the quarter ended September 30, 2011 was primarily attributable to an increase in the size of our international sales force focused on generating revenue, principally in Europe.

We also increased the size of our overall sales force during the quarter ended September 30, 2012 compared to the same period in the prior year, allowing us to increase our number of advertising client relationships and the number of developer applications enabled to receive ads delivered through our platform.

Cost of revenue. Cost of revenue increased by $12.7 million, or 83.1%, from $15.3 million, or 60.7% of revenue, for the quarter ended September 30, 2011, to $28.0 million, or 59.1% of revenue, for the quarter ended September 30, 2012. The increase in cost of revenue was driven primarily by the need to purchase greater quantities of advertising inventory for use in delivering mobile ads. The decrease in cost of revenue as a percentage of revenue and corresponding increase in gross margin for the quarter ended September 30, 2012 was primarily the result of more favorable pricing terms with developers and improved optimization of our ad delivery process. In addition, we experienced increased usage of our self-service portal for developers, which is the primary interface for our developers that do not require a full-service solution. Fees paid to developers for ads placed through this portal are generally lower, especially for developers who do not qualify for volume-based discounts, resulting in higher gross margin from these ads.

Sales and marketing. Sales and marketing expense increased by $2.7 million, or 84.9%, from $3.2 million, or 12.7% of revenue, for the quarter ended September 30, 2011, to $5.9 million, or 12.5% of revenue, for the quarter ended September 30, 2012. The increase in sales and marketing expense was primarily attributable to a $2.0 million increase in salaries and personnel-related costs associated with an increase in headcount and stock-based compensation expense, as we increased the number of sales and marketing personnel to support our expanding client base and experienced higher commission costs associated with higher revenue. For the three months ended September 30, 2011 and 2012, the number of full-time sales and marketing employees increased from 61 to 107. The decrease in sales and marketing expense as a percentage of revenue for the quarter ended September 30, 2012 was primarily the result of our growth in revenue and improved efficiencies in our sales organization.

Technology and development. Technology and development expense increased by $3.1 million, or 207.4%, from $1.5 million, or 6.0% of revenue, for the quarter ended September 30, 2011, to $4.7 million, or 9.9% of revenue, for the quarter ended September 30, 2012. The increase in technology and development expense was primarily attributable to a $1.3 million increase in salaries and personnel-related costs associated with an increase in headcount, as well as an increase of $618,000 in stock-based compensation expense resulting from the Condaptive acquisition and an additional $1.0 million in one-time stock-based compensation expense related to the departure of certain employees in technology and development functions. The number of full-time technology and development employees increased from 34 at September 30, 2011 to 73 at September 30, 2012. Additionally, for the three months ended September 30, 2012, we incurred an additional $212,000 in amortization expense primarily related to our internally developed software. The increase in technology and development expense as a percentage of revenue for the quarter ended September 30, 2012 was primarily attributable to our increase in headcount and the one-time stock-based compensation expense described above.


Table of Contents

General and administrative. General and administrative expense increased by $5.1 million, or 94.9%, from $5.4 million, or 21.4% of revenue, for the quarter ended September 30, 2011, to $10.5 million, or 22.1% of revenue, for the quarter ended September 30, 2012. The increase in general and administrative expense was primarily attributable to a $2.3 million increase in salaries and personnel-related costs associated with an increase in headcount, along with the associated stock-based compensation expense for equity grants to new employees, as well as approximately $1.0 million in one-time expense related to the departure of certain employees in general and administrative functions. Additionally, we experienced an additional $532,000 in bad debt expense, an . . .

  Add MM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MM - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.