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TST > SEC Filings for TST > Form 10-Q on 9-Aug-2013All Recent SEC Filings

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Form 10-Q for THESTREET, INC.


9-Aug-2013

Quarterly Report


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

Special Note Regarding Forward-Looking Statements - all statements contained in this quarterly report on Form 10-Q (the "Report") that are not descriptions of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those reflected in the forward-looking statements due to a number of factors, which include, but are not limited to, the factors set forth under the heading "Risk Factors" and elsewhere in this Report, and in other documents we file with the Securities and Exchange Commission from time to time, including, without limitation, the Company's annual report on Form 10-K for the year ended December 31, 2012 ("2012 Form 10-K"). Certain forward-looking statements may be identified by terms such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "forecasts," "potential," or "continue" or similar terms or the negative of these terms. All statements relating to our plans, strategies and objectives are deemed forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements speak only as of the date of the filing of this Report; we have no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise.

The following discussion and analysis should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto.

Overview

TheStreet, Inc., together with its wholly owned subsidiaries ("TheStreet", "we", "us" or the "Company"), is a leading digital media company focused on the financial and mergers and acquisitions environment. The Company's collection of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide investors and advisors with actionable ideas from the world of investing, finance and business, and dealmakers with sophisticated analysis of the mergers and acquisitions environment in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With a robust suite of digital services, TheStreet offers the tools and insights needed to make informed decisions about earning, investing, saving and spending money. Since our inception in 1996, we believe that we have distinguished ourselves from other digital media companies with our journalistic excellence, unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.

We report revenue in two categories: subscription services and media. Subscription services is comprised of subscriptions, licenses and fees for access to securities investment information, stock market

commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Media is comprised of fees charged for the placement of advertising and sponsorships within our services.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, the following:

useful lives of intangible assets,
useful lives of fixed assets,
the carrying value of goodwill, intangible assets and marketable securities,
allowances for doubtful accounts and deferred tax assets,
accrued expense estimates,
reserves for estimated tax liabilities,
estimates in connection with the allocation of the purchase price of The Deal, LLC and certain assets acquired from DealFlow Media, Inc. to the fair value of the assets acquired and liabilities assumed,
certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees, and
restructuring charges.

We perform annual impairment tests of goodwill and other intangible assets with indefinite lives as of September 30 each year or when circumstances arise that indicate a possible impairment might exist. Based upon our annual impairment test performed as of September 30, 2012, no impairment was indicated as the Company's fair value, inclusive of a control premium, exceeded its book value by approximately 13%. The fair value of the Company's goodwill was estimated using a market approach, based upon actual prices of the Company's Common Stock and the estimated fair value of the Company's outstanding Preferred Shares. The fair value of the Company's outstanding Preferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company's Preferred Stock, the Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event. Additionally, the holders of the Preferred Shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and, provided certain preferred share ownership levels are maintained, are entitled to representation on the Company's board of directors, and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the Common Stock. A decrease in the price of the Company's Common Stock, or changes in the estimated value of the Company's Preferred Shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company's financial position and results of operations.

As of December 31, 2012, the Company performed an interim impairment test of its goodwill due to certain potential impairment indicators, including the loss of certain key personnel. The fair value of the Company's goodwill was estimated using a market approach, based upon actual prices of the Company's Common Stock excluding any control premium, and the estimated fair value of the company's outstanding Preferred Shares. As a result of this December 31, 2012 impairment test, the Company concluded that goodwill was not impaired.

A summary of our critical accounting policies and estimates can be found in our 2012 Form 10-K.

Contingencies

Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's 2012 Form 10-K, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management's best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company would record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.

Results of Operations



Comparison of Three Months Ended June 30, 2013 and June 30, 2012



Revenue



                                   For the Three Months Ended June 30,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
Revenue:                    2013          Revenue          2012          Revenue       Change
Subscription services   $ 10,757,647            80 %   $  8,719,309            70 %          23 %
Media                      2,726,732            20 %      3,761,847            30 %         -28 %
Total revenue           $ 13,484,379           100 %   $ 12,481,156           100 %           8 %

Subscription services. Subscription services revenue is comprised of subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Revenue is recognized ratably over the contract period.

Subscription services revenue for the three months ended June 30, 2013 increased by approximately $2.0 million, or 23%, when compared to the three months ended June 30, 2012. The increase was primarily the result of approximately $2.3 million of revenue related to the operations of The Deal, LLC ("The Deal") and certain assets acquired from DealFlow Media, Inc. ("DealFlow"), which were acquired on September 11, 2012 and April 19, 2013, respectively, and therefore did not contribute any revenue in the prior year period. Excluding The Deal and DealFlow, revenue for the three months ended June 30, 2013 decreased by approximately $287 thousand, or 3%, when compared to the three months ended June 30, 2012. The decrease was primarily related to a 2% decline in the weighted-average number of subscriptions combined with a 1% decline in the average revenue recognized per subscription. The decrease in the weighted average number of subscriptions was primarily impacted by the trailing twelve

month trends of churn of our existing subscriber base and our ability to acquire new subscribers. While our average monthly churn rates for the trailing twelve months ended June 30, 2013, as compared to the trailing twelve months ended June 30, 2012, have shown an improvement, the number of new subscribers in the twelve months ended June 30, 2013 were not sufficient to offset the losses due to churn. The decrease in the average revenue recognized per subscription during the period was primarily the result of the mix of products sold.

Media. Media revenue is comprised of fees charged for the placement of advertising and sponsorships within our services.

Media revenue for the three months ended June 30, 2013 decreased by approximately $1.0 million, or 28%, when compared to the three months ended June 30, 2012. Media revenue associated with The Deal and DealFlow totaled approximately $418 thousand during the three months ended June 30, 2013 as compared to none in the prior year period. Excluding The Deal and DealFlow, revenue for the three months ended June 30, 2013 decreased by approximately $1.5 million, or 39%, when compared to the three months ended June 30, 2012. The decrease in media revenue was primarily the result of reduced demand from new advertisers, partially offset by increased demand from repeat advertisers. Media revenue includes approximately $63 thousand of barter revenue in the three months ended June 30, 2013. There was no barter revenue in the prior year period.

Operating Expense



                                            For the Three Months Ended June 30,
                                                   Percent                          Percent
                                                  of Total                         of Total        Percent
Operating expense:                 2013            Revenue           2012           Revenue         Change
Cost of services               $   6,903,838              51 %   $  5,699,899              46 %           21 %
Sales and marketing                3,702,606              27 %      3,268,859              26 %           13 %
General and administrative         3,011,825              22 %      3,277,171              26 %           -8 %
Depreciation and
amortization                         935,467               7 %      1,158,190               9 %          -19 %
Restructuring and other
charges                                    -               -        1,280,195              10 %         -100 %
Loss (gain) on disposition
of assets                             73,020               1 %       (220,000 )            -2 %          N/A
Total operating expense        $  14,626,756                     $ 14,464,314                              1 %

Cost of services. Cost of services expense includes compensation, benefits, outside contributor costs related to the creation of our content, licensed data and the technology required to publish our content.

Cost of services expense increased by approximately $1.2 million, or 21%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow, higher revenue share payments made to certain distribution partners and increased recruiting fees, the aggregate of which increased by approximately $1.6 million. These cost increases were partially offset by lower compensation expense due to a 6% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow) as well as reduced expenses relating to the use of nonemployee content providers and computer services and supplies costs, the aggregate of which decreased by approximately $362 thousand.

Sales and marketing. Sales and marketing expense consists primarily of compensation expense for the direct sales force, marketing services, and customer service departments, advertising and promotion expenses and credit card processing fees.

Sales and marketing expense increased by approximately $434 thousand, or 13%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow, the aggregate of which increased by approximately $1.0 million. These cost increases were partially offset by reduced compensation expense due to a 24% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow) combined with lower advertising and promotion related spending, public relations costs and recruiting fees, the aggregate of which decreased by approximately $490 thousand. Sales and marketing expense includes $63 thousand and $61 thousand of barter expense in the three month periods ended June 30, 2013 and 2012, respectively.

General and administrative. General and administrative expense consists primarily of compensation for general management, finance and administrative personnel, occupancy costs, professional fees, insurance and other office expenses.

General and administrative expense decreased by approximately $265 thousand, or 8%, over the periods. The decrease was primarily the result of reduced compensation expense due to an 18% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow), combined with lower occupancy, tax and third-party data costs, the aggregate sum of which decreased by approximately $546 thousand. These cost decreases were partially offset by costs associated with the operations of The Deal and DealFlow, combined with increased professional fees, the aggregate of which increased by approximately $286 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $223 thousand, or 19%, over the periods. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years combined with increased amortization during the three months ended June 30, 2012 resulting from reductions to the estimated useful life of certain capitalized Web site development projects. These reductions were partially offset by increased fixed asset depreciation and amortization of intangible assets related to The Deal and DealFlow.

Restructuring and other charges. The Company did not incur any restructuring and other charges during the three months ended June 30, 2013. In March 2012, the Company began a targeted reduction in force and committed to terminate use of certain vendor services and assets reflecting previously capitalized costs. The actions were taken after a review of the Company's cost structure with the goal of better aligning the cost structure with the Company's revenue base. As a result of these activities, the Company incurred restructuring and other charges of approximately $1.3 million during the three months ended June 30, 2012.

Net Interest Income

For the Three Months Ended
June 30, Percent
2013 2012 Change
Net interest income $ 65,968 $ 107,858 -39 %

The decrease in net interest income was primarily the result of reduced cash, marketable security and restricted cash balances combined with lower interest rates.

Net Loss

Net loss for the three months ended June 30, 2013 totaled approximately $1.1 million, or $0.03 per basic and diluted share, compared to net loss totaling approximately $1.9 million, or $0.06 per basic and diluted share, for the three months ended June 30, 2012.

Comparison of Six Months Ended June 30, 2013 and June 30, 2012



Revenue



                                    For the Six Months Ended June 30,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
Revenue:                    2013          Revenue          2012          Revenue       Change
Subscription services   $ 21,010,319            81 %   $ 17,828,193            70 %          18 %
Media                      5,054,261            19 %      7,468,790            30 %         -32 %
Total revenue           $ 26,064,580           100 %   $ 25,296,983           100 %           3 %

Subscription services. Subscription services revenue for the six months ended June 30, 2013 increased by approximately $3.2 million, or 18%, when compared to the six months ended June 30, 2012. The increase was primarily the result of approximately $4.2 million of revenue related to the operations of The Deal and DealFlow. Excluding The Deal and DealFlow, revenue for the six months ended June 30, 2013 decreased by approximately $1.0 million, or 6%, when compared to the six months ended June 30, 2012. The decrease was primarily related to a 6% decline in the weighted-average number of subscriptions which was partially offset by a 1% increase in the average revenue recognized per subscription. The decrease in the weighted average number of subscriptions was primarily impacted by the trailing twelve month trends of churn of our existing subscriber base and our ability to acquire new subscribers. While our average monthly churn rates for the trailing twelve months ended June 30, 2013, as compared to the trailing twelve months ended June 30, 2012, have shown an improvement, the number of new subscribers in the twelve months ended June 30, 2013 were not sufficient to offset the losses due to churn. The increase in the average revenue recognized per subscription during the period was primarily the result of the mix of products sold and higher product pricing.

Media. Media revenue for the six months ended June 30, 2013 decreased by approximately $2.4 million, or 32%, when compared to the six months ended June 30, 2012. Media revenue associated with The Deal and DealFlow totaled approximately $565 thousand during the six months ended June 30, 2013 as compared to none in the prior year period. Excluding The Deal and DealFlow, revenue for the six months ended June 30, 2013 decreased by approximately $3.0 million, or 40%, when compared to the six months ended June 30, 2012. The decrease in media revenue was primarily the result of reduced demand from both repeat advertisers as well as new advertisers. Media revenue includes approximately $63 thousand of barter revenue in the six months ended June 30, 2013. There was no barter revenue in the prior year period.

Operating Expense





                                             For the Six Months Ended June 30,
                                                  Percent                          Percent
                                                 of Total                         of Total        Percent
Operating expense:                 2013           Revenue           2012           Revenue         Change
Cost of services               $ 13,146,584              50 %   $ 12,135,061              48 %            8 %
Sales and marketing               7,118,753              27 %      7,359,108              29 %           -3 %
General and administrative        6,475,600              25 %      7,099,692              28 %           -9 %
Depreciation and
amortization                      1,878,523               7 %      2,445,452              10 %          -23 %
Restructuring and other
charges                             385,610               1 %      2,993,693              12 %          -87 %
Loss (gain) on disposition
of assets                            16,434               0 %       (220,000 )            -1 %          N/A
Total operating expense        $ 29,021,504                     $ 31,813,006                             -9 %

Cost of services. Cost of services expense increased by approximately $1.0 million, or 8%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow, combined with higher revenue share payments made to certain distribution partners, the aggregate of which increased by approximately $2.8 million. These cost increases were partially offset by lower compensation expense due to an 18% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow) as well as reduced expenses relating to computer services and supplies, the use of nonemployee content providers, data used on the Company's Web sites, and hosting and internet related costs, combined with increased reimbursed expenses relating to a third party services agreement, the aggregate of which decreased by approximately $1.8 million.

Sales and marketing. Sales and marketing expense decreased by approximately $240 thousand, or 3%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 28% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow) combined with lower advertising and promotion related spending, public relations costs, travel and entertainment expenses, recruiting fees and other minor variances, the aggregate of which decreased by approximately $2.2 million. These cost decreases were partially offset by costs associated with the operations of The Deal and DealFlow, the aggregate of which increased by approximately $2.0 million. Sales and marketing expense includes $63 thousand and $110 thousand of barter expense in the six month period ended June 30, 2013 and 2012, respectively.

General and administrative. General and administrative expense decreased by approximately $624 thousand, or 9%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 20% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow), combined with lower recruiting, third-party data and occupancy costs, the aggregate sum of which decreased by approximately $1.4 million. These cost decreases were partially offset by costs associated with the operations of The Deal and DealFlow, as well as increased professional and consulting fees, the aggregate of which increased by approximately $747 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $567 thousand, or 23%, over the periods. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years combined with increased amortization during the six months ended June 30, 2012 resulting from reductions to the estimated useful life of certain capitalized Web site development projects. These reductions were partially offset by increased fixed asset depreciation and amortization of intangible assets related to The Deal and DealFlow.

Restructuring and other charges. During the six months ended June 30, 2013, the Company recognized restructuring and other charges totaling approximately $386 thousand primarily related to noncash stock-based compensation costs in connection with the accelerated vesting of certain restricted stock units for a terminated employee. In March 2012, the Company began a targeted reduction in force and committed to terminate use of certain vendor services and assets reflecting previously capitalized costs. The actions were taken after a review of the Company's cost structure with the goal of better aligning the cost structure with the Company's revenue base. As a result of these activities, the Company incurred restructuring and other charges of approximately $3.0million during the six months ended June 30, 2012.

Net Interest Income



                        For the Six Months Ended
                                June 30,
                                                         Percent
                          2013              2012         Change
Net interest income   $     137,831       $ 203,945           -32 %

The decrease in net interest income was primarily the result of reduced cash, marketable security and restricted cash balancescombined with lower interest rates.

Net Loss

Net loss for the six months ended June 30, 2013 totaled approximately $2.8 million, or $0.08 per basic and diluted share, compared to net loss totaling approximately $6.3 million, or $0.19 per basic and diluted share, for the six months ended June 30, 2012.

Liquidity and Capital Resources

We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of June 30, 2013, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $59.4 million, representing 54% of total assets. Our cash and cash equivalents primarily consisted of money market funds and checking accounts. Our marketable securities of approximately $20.6 million consisted of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds and corporate floating rate notes, with a maximum maturity of three years, and two auction rate securities issued by the District of Columbia with a fair value of approximately $1.7 million that mature in the year 2038. Our total cash-related position is as follows:

. . .

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