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XOOM > SEC Filings for XOOM > Form 10-Q on 30-Apr-2013All Recent SEC Filings

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Form 10-Q for XOOM CORP


30-Apr-2013

Quarterly Report


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

The following discussion and analysis is intended to provide greater details of our results of operations and financial condition and should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this document. Certain statements in this Quarterly Report constitute forward-looking statements and as such, 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. Such forward-looking statements include any expectation of earnings, revenues or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements related to our ability to forecast demand for our services; statements related to competition; factors that may affect our operating results and business; statements related to our security; statements related to enhancements of existing services and our growth; our anticipated cash needs and our estimates regarding our operating and capital requirements and our needs for additional financing; our disclosure controls and procedures; statements related to intellectual property; statements related to legal proceedings; statements related to recruiting and retaining employees; statements related to future capital expenditures; statements related to future economic conditions or performance; statements as to industry trends; statements related to our and our disbursement partners' ability to comply with current and future regulations; statements related to our stock; and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may" or "will," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other 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 discussed in the section titled "Risk Factors" included in Item 1A of Part II of this Quarterly Report on Form 10-Q, and the risks discussed in our other filings with the Securities and Exchange Commission.

We urge you to consider these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. These statements are based on the beliefs and assumptions of our management based on information currently available to management. The forward-looking statements included in this Quarterly Report are made only as of the date of this Quarterly Report. All subsequent written or oral forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Overview

We are a pioneer and leader in the digital consumer-to-consumer international money transfer industry. Our customers use Xoom to send money to family and friends in 30 countries. Since January 1, 2008, our customers have used Xoom to send $7.7 billion, including $1.1 billion for the three months ended March 31, 2013. We believe we are creating significant value for our customers by providing a convenient, fast and cost-effective solution for international money transfers.

Our solutions are built on our proprietary technology which, combined with our risk management capabilities and global disbursement partner network, constitute our operating platform. Our technology enables easy-to-use online and mobile sender interfaces, effective risk management and seamless integration with our disbursement partners' systems.


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We believe our business model is characterized by predictable and recurring revenue from our large and growing base of new and repeat customers. Revenue from our repeat customers continued to be over 90% of our total revenue for the three months ended March 31, 2013. In the three months ended March 31, 2013, we experienced significant growth as compared to the same period in 2012 as our customer base expanded. Revenue increased from $16.9 million for the three months ended March 31, 2012 to $24.3 million for the three months ended March 31, 2013.

We launched our mobile strategy in November 2011 and continue to make product enhancements. During the three months ended March 31, 2013, 28% of the total number of transactions was sent via mobile devices compared to 15% in the same period in the prior year. During the three months ended March 31, 2013, approximately $187 million of our gross sending volume was sent from mobile devices which represented a growth of over 200% compared to the same period in the prior year.

During the three months ended March 31, 2013, we launched two new initiatives to enhance our customer experience:

StatusTrak, a new tracking center that provides customers a variety of ways to track their transfers by text message, email updates and 24/7 support; and

Pay Only When Received, or POWR, an initiative that gives customers assurance that we will only withdraw their money when it is received by their recipients.

On February 21, 2013, we completed our initial public offering, or IPO, whereby 7,273,750 shares of our common stock were sold to the public (inclusive of 948,750 shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters and 1,104,107 shares of common stock sold by selling stockholders) at a price of $16.00 per share. The aggregate net proceeds received by us from the offering were $88.5 million, net of underwriting discounts and commissions and offering expenses payable by us. Immediately prior to the completion of the IPO, all shares of our outstanding convertible preferred stock automatically converted into 21,444,251 shares of common stock.


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Key Metrics

In addition to the line items in our financial statements, we regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections, make strategic business decisions, and assess our marketing program efficacy, market share trends and working capital needs. We believe information on these metrics is useful for investors to understand the underlying trends in our business. The following table presents our key operating and financial metrics for the periods presented (unaudited):

                                                      Three Months Ended
                                                           March 31,
                                                    2013               2012
      Other Financial and Operational Data:
      Gross Sending Volume                     $ 1,055,847,000     $ 646,041,000
      Transactions                                   2,039,000         1,354,000
      Active Customers                                 841,819           576,446
      New Customers                                    109,631            92,316
      Cost Per Acquisition of a New Customer   $            40     $          40
      Adjusted EBITDA (in thousands)           $         1,574     $         420

Gross Sending Volume. We define gross sending volume, or GSV, as the total principal amount of funds sent by our customers in a given period, which does not include our fees. A percentage of GSV does not ultimately get paid out to recipients due to customer cancellations, our risk management decisions and customer error. In the periods presented, this percentage has ranged from 2.75% to 3.50%. Our GSV increased 63% for the three months ended March 31, 2013 compared to the same period in the prior year. Some of our customers transact more depending on the value of the local currency relative to the U.S. dollar.

Transactions. This represents the total number of transactions sent by our customers in a given period. A small percentage of transactions do not ultimately get paid out to recipients due to customer cancellations, our risk management decisions and customer error. Our transactions increased 51% for the three months ended March 31, 2013 compared to the same period in the prior year.

Active Customers. We define active customers as the number of customers who have sent at least one transaction during a trailing twelve month period. A new customer with one transaction during a trailing twelve month period would also be included as an active customer in the same period. Our active customers increased 46% for the three months ended March 31, 2013 compared to the same period in the prior year.

New Customers. We define new customers as those customers who have sent their first transaction in a given period. Our new customer growth increased by 19% for the three months ended March 31, 2013 compared to the same period in the prior year.

Cost Per Acquisition of a New Customer. We calculate cost per acquisition of a new customer, or CPA, in a reporting period as direct marketing cost, a portion of which is reflected in our cost of revenue, divided by new customers added in a given period. Our direct marketing cost does not include certain indirect marketing costs that are included in our marketing expense line item in our consolidated statements of operations. Examples of our indirect marketing costs include personnel-related costs, including stock-based compensation, and creative production costs.


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Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we calculate as net loss adjusted for provision for income taxes, interest expense, interest income, depreciation and amortization and stock-based compensation. We believe that adjusted EBITDA provides useful information to investors in understanding and evaluating our business in the same manner as our management and board of directors. Non-GAAP financial measures should be considered supplemental in nature and is not meant as a substitute for the related financial information prepared in accordance with GAAP. The following table presents a reconciliation of adjusted EBITDA for each of the periods presented:

                                                   Three Months Ended
                                                        March 31,
                                                    2013           2012
                                                     (in thousands)
                                                       (unaudited)
            Reconciliation of Adjusted EBITDA:
            Net loss                             $      (79 )     $ (494 )
            Provision for income taxes                    2            2
            Interest expense                            447          247
            Interest income                             (36 )        (21 )
            Depreciation and amortization               462          262
            Stock-based compensation                    778          424

            Adjusted EBITDA                      $    1,574       $  420

Basis of Presentation

Revenue. We generate revenue from transaction fees charged to customers, and foreign exchange spreads on transactions where the payout currency is other than U.S. dollars. Our revenue is derived from each transaction and may vary based on the size of the transaction, the funding method used, the currency to ultimately be disbursed and the countries to which the funds are transferred. Revenue is recognized net of cancellations and refunds. Revenue growth will depend on our ability to retain active customers and attract new customers.

Cost of Revenue. Our cost of revenue includes fees to our disbursement partners for paying funds to the recipient, fees to our payment processors for funding our transactions, a provision for transaction losses and the promotional expenses to acquire new customers that are referees described below under "-Marketing Expense." We expect our cost of revenue to increase on an absolute basis for the foreseeable future as we continue to grow our business.

Marketing Expense. Our marketing expense consists of business development costs, television, print, online and promotional advertising costs to acquire new customers, employee compensation and related costs to support the marketing process and allocated facilities and other supporting overhead costs. During 2011, we introduced a Refer-A-Friend incentive program where the referrer receives either a cash-type or non-cash award and the referee receives a non-cash award. Cash-type awards are considered to be cash-type because the referrer could use them as cash. The amount related to the referee is classified as cost of revenue for non-cash awards. Awards provided to the referrer are recorded in marketing expense as these payments are a reward for bringing a new customer to Xoom. We anticipate our marketing expense will vary from period to period due to the timing of when such programs occur.

Technology and Development Expense. Our technology and development expense consists of employee compensation and related costs for our engineers and developers, professional services and consulting, costs related to the development of new technologies, costs associated with the enhancements of existing technologies, amortization of capitalized internally-developed software and allocated facilities and other supporting overhead costs.
Internally-developed software costs are a combination of internal compensation costs of engineering time and costs of outside consultants and primarily relate to the development of specific enhancements such as the development of our mobile application. We intend to continue to invest in technology and development efforts to further improve our customer experience and to continue expanding our operating platform. As a result, we expect technology and development expense to increase on an absolute basis for the foreseeable future.


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Customer Service and Operations Expense. Our customer service and operations expense consists of outsourced customer call centers, employee compensation for our employees who support customer service calls, costs incurred for fraud detection, compliance operations, maintenance costs related to our outsourced customer call centers and allocated facilities and other supporting overhead costs. We expect customer service and operations expense to increase on an absolute basis for the foreseeable future to support the anticipated growth of our business.

General and Administrative Expense. Our general and administrative expense consists of employee compensation and related costs for our executives, finance, legal, compliance policy, human resources and other administrative employees, outside consulting, legal and accounting services and facilities and other supporting overhead costs not allocated to other departments. We expect to incur additional expenses associated with being a public company, including increased legal and accounting costs, compliance costs in connection with the Sarbanes-Oxley Act and investor relations costs.

Interest Expense. Interest expense represents interest incurred in connection with outstanding borrowings under our line of credit.

Interest Income. Interest income represents interest earned on our cash and cash equivalents and short-term investments.

Other Income (Expense). Other income (expense) consists of gains or losses on foreign currency balances held at month end.

Provision for Income Taxes. Provision for income taxes consists of federal and state income taxes in the United States. We have not been required to pay U.S. federal income taxes to date because of our current and accumulated net operating losses which totaled $56.6 million as of December 31, 2012. Since inception, we have only been required to pay minimal state income taxes. In the event we expand our operations outside the United States, we will become subject to foreign taxes and our effective tax rate could change accordingly.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with our reserve for transactions losses, income taxes and stock-based compensation have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Prospectus filed with the SEC on February 15, 2013 pursuant to Rule 424(b) under the Securities Act of 1933.


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Results of Operations

The following tables set forth our results of operations in dollars and as a
percentage of revenue for the periods presented. The period-to-period comparison
of financial results is not necessarily indicative of future results.



                                                        Three Months Ended
                                                             March 31,
                                                        2013           2012
                                                          (in thousands)
                                                            (unaudited)
        Consolidated Statements of Operations Data:
        Revenue                                       $  24,315      $ 16,945
        Cost of revenue                                   7,519         5,461

        Gross profit                                     16,796        11,484

        Marketing                                         5,692         4,288
        Technology and development                        4,834         3,623
        Customer service and operations                   3,017         2,197
        General and administrative                        2,923         1,678

        Total operating expense                          16,466        11,786

        Income (loss) from operations                       330          (302 )

        Other income (expense):
        Interest expense                                   (447 )        (247 )
        Interest income                                      36            21
        Other income                                          4            36

        Loss before provision for income taxes              (77 )        (492 )
        Provision for income taxes                            2             2

        Net loss                                      $     (79 )    $   (494 )

Three Months Ended March 31, 2013 and 2012

Revenue

Three Months Ended
March 31,
2013 2012 % Change
(in thousands)

(unaudited)

Revenue $ 24,315 $ 16,945 43 %

In the three months ended March 31, 2013, revenue increased $7.4 million, or 43%, compared to the three months ended March 31, 2012. The increase was primarily due to a 46% increase in active customers, which includes 109,631 new customers added during the three months ended March 31, 2013.


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Cost of Revenue



                                       Three Months Ended
                                            March 31,
                                       2013             2012         % Change
                                     (dollars in thousands)
                                           (unaudited)
           Cost of revenue         $      7,519        $ 5,461              38 %
           Percentage of revenue             31 %           32 %

In the three months ended March 31, 2013, cost of revenue increased $2.1 million, or 38%, compared to the three months ended March 31, 2012. The increase in cost of revenue was driven by a $1.4 million increase to $4.8 million in processing and disbursement costs to support the 51% increase in transactions and a $0.8 million increase in the provision for transaction losses due to the increase in our GSV. The decrease in cost of revenue as a percentage of revenue and corresponding increase in gross profit for the three months ended March 31, 2013 was primarily a result of a reduction in processing costs per transaction, due to more active customers funding their money transfers via bank account, which is less costly to us than if they fund via credit or debit card.

Marketing Expense



                                       Three Months Ended
                                            March 31,
                                       2013             2012         % Change
                                     (dollars in thousands)
                                           (unaudited)
           Marketing               $      5,692        $ 4,288              33 %
           Percentage of revenue             23 %           25 %

In the three months ended March 31, 2013, marketing expense increased $1.4 million, or 33%, compared to the three months ended March 31, 2012. The increase was primarily due to an expansion of our marketing programs to drive increased customer acquisition, including increasing television, online and incentive promotions by $1.1 million to $4.6 million during the three months ended March 31, 2013. The remaining increase was due to personnel-related costs (including stock-based compensation).

Technology and Development Expense



                                         Three Months Ended
                                              March 31,
                                         2013             2012         % Change
                                       (dollars in thousands)
                                             (unaudited)
        Technology and development   $      4,834        $ 3,623              33 %
        Percentage of revenue                  20 %           21 %

In the three months ended March 31, 2013, technology and development expense increased $1.2 million, or 33%, compared to the three months ended March 31, 2012. The increase was primarily the result of an increase in personnel-related costs of $0.9 million to $3.7 million (including stock-based compensation) due to an increase in headcount from 59 to 83 employees to expand and improve our service. The remaining increase was due to an increase in allocated overhead costs.


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Customer Service and Operations Expense



                                            Three Months Ended
                                                 March 31,
                                            2013             2012         % Change
                                          (dollars in thousands)
                                                (unaudited)
      Customer service and operations   $      3,017        $ 2,197              37 %
      Percentage of revenue                       12 %           13 %

In the three months ended March 31, 2013, customer service and operations expense increased $0.8 million, or 37%, compared to the three months ended March 31, 2012. The increase was primarily due to an increase in the volume of transactions we processed, resulting in an increase in costs of $0.6 million to $1.7 million associated with our outsourced customer call centers.

General and Administrative Expense



                                         Three Months Ended
                                              March 31,
                                         2013             2012         % Change
                                       (dollars in thousands)
                                             (unaudited)
        General and administrative   $      2,923        $ 1,678              74 %
        Percentage of revenue                  12 %           10 %

In the three months ended March 31, 2013, general and administrative expense increased $1.2 million, or 74%, compared to the three months ended March 31, 2012. The increase was primarily the result of an increase in personnel-related costs of $0.7 million to $1.7 million (including stock-based compensation) due to an increase in headcount from 21 to 34 employees to support our overall growth, and an increase in consulting and professional services of $0.4 million.

Interest Expense

In the three months ended March 31, 2013, interest expense increased $0.2 million as a result of the increase in average outstanding debt balances on our line of credit compared to the three months ended March 31, 2012.

Liquidity and Capital Resources

Since inception, we have financed our operations and capital expenditures through the sale of preferred and common stock and borrowings and, to a lesser extent, from exercise of stock options to purchase common stock. Our principal uses of cash are funding our operations and capital expenditures.

As of March 31, 2013, we had cash, cash equivalents, disbursement prefunding and short-term investments of $149.5 million, which consisted of cash, money market funds, U.S. government securities, commercial paper, certificates of deposit, corporate bonds and prefunded balances with some of our disbursement partners. All of our cash equivalents and short-term investments are held at U.S. financial institutions.


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If a period ends on a weekend or holiday, our cash, cash equivalents and disbursement prefunding is generally higher than if the period ends on a business day, because we will then prefund our disbursement partners for the entire weekend or through the holiday instead of for one business day as . . .

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