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

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TRMR > SEC Filings for TRMR > Form 10-Q on 14-Aug-2013All Recent SEC Filings

Show all filings for TREMOR VIDEO INC.

Form 10-Q for TREMOR VIDEO INC.


14-Aug-2013

Quarterly Report


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

The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited interim consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and (2) the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2012 included in our prospectus dated June 26, 2013, filed with the SEC on June 27, 2013 pursuant to Rule 424(b)(4) under the Securities Act (File No. 333-188813). This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled "Risk Factors", set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. You should not rely upon forward-looking statements as predictions of future events. 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

Tremor Video, Inc., or Tremor, we or us, is a leading provider of technology-driven video advertising solutions enabling brand advertisers to engage consumers across multiple internet-connected devices including computers, smartphones, tablets and connected TVs. Our clients include some of the largest brand advertisers in the world including all of the top 10 automakers and 9 of the top 10 consumer packaged goods companies. Our relationships with leading brand advertisers and their agencies have helped us create a robust online video ecosystem that includes more than 500 premium websites and mobile applications, over 200 of which partner with us on an exclusive basis. Our proprietary technology, VideoHub, analyzes in-stream video content, detects viewer and system attributes, and leverages our large repository of stored data to optimize video ad campaigns for brand-centric metrics. VideoHub also provides advertisers and agencies with advanced analytics and measurement tools enabling them to understand why, when and where viewers engage with their video ads.

Our VideoHub technology is the backbone of the Tremor Video Network through which we offer advertisers access to engaged consumers at scale in brand safe environments across multiple devices. We derive substantially all of our revenue by delivering in-stream video advertising on behalf of a diversified base of brand advertisers in the United States through the Tremor Video Network. For the three months ended June 30, 2012 and 2013, our in-stream video advertising revenue increased from $23.6 million to $34.4 million, or 45.8%, and for the six months ended June 30, 2012 and 2013, our in-stream video advertising revenue increased from $39.4 million to $58.4 million, or 48.2%.

To further align the Tremor Video Network with the needs of brand advertisers, we offer a number of performance-based pricing models for in-stream video advertisements. These models include cost per engagement, or CPE, pricing where we are compensated only when viewers actively engage with advertisers' campaigns, such as by interacting with the elements of the video ad through clicks or screen touches or by rolling over certain elements of the video ad for at least three seconds, and cost per video completion, or CPVC, pricing where we are compensated only when a viewer completes the video ad. We believe our performance-based pricing models offer higher gross margins than traditional cost per thousand impressions, or CPM, pricing models, which are based solely on the number of ad impressions delivered, because we are often able to serve our advertisers' performance goals with a lower number of purchased impressions. As viewers increase time spent viewing video on internet-connected devices such as smartphones and tablets, we expect brand advertisers to devote increasing amounts of advertising spend to these channels. Smartphones and tablets are inherently interactive and we believe that our in-stream advertising capabilities and higher margin CPE pricing model is well suited to address the growing market for


Table of Contents

mobile video ads. As a percentage of total revenue, revenue attributable to performance-based pricing, such as CPE and CPVC, for the three months ended June 30, 2012 and 2013 was 19.9% and 33.7%, respectively, and revenue attributable to performance-based pricing for the six months ended June 30, 2012 and 2013 was 17.7% and 34.7%, respectively. We are focused on continuing to increase the sales of video ad campaigns with performance-based pricing to drive revenue growth and increased margins.

In 2012, we also began licensing VideoHub technology to advertisers and agencies through an intuitive, customizable user interface, which we call VideoHub for Advertisers, or VHA. VHA affords advertisers transparency and analytical tools to measure the effectiveness of video ad campaigns across all of their video ad buys, whether or not those campaigns are run through the Tremor Video Network. We are also investing in the development of an enterprise solution for publishers to enable their direct sales force to better monetize their video ad inventory. In the three and six months ended June 30, 2013, we generated $0.9 million and $1.5 million, respectively, of licensing revenue from VHA and our publisher solutions, and we expect licensing revenue to increase in future periods. We believe that our margins on our licensing revenue will be higher than those for the Tremor Video Network.

For the three months ended June 30, 2012 as compared to the same period of 2013, our revenue increased from $25.2 million to $35.5 million, or 40.9%, our gross margin improved from 40.6% to 46.5% due in part to the contribution of revenue derived from CPE and CPVC sales, our net loss decreased from $4.8 million to $0.3 million and our Adjusted EBITDA (refer to "Key Metrics-Adjusted EBITDA") improved from a loss of $2.5 million to a gain of $2.0 million as we continued to improve the operating leverage in our business. For the six months ended June 30, 2012 as compared to the same period of 2013, our revenue increased from $42.5 million to $60.2 million, or 41.6%, our gross margin improved from 37.0% to 45.5% due in part to the contribution of revenue derived from CPE and CPVC sales, our net loss decreased from $13.9 million to $5.4 million and our Adjusted EBITDA improved from a loss of $9.2 million to a loss of $0.8 million as we continued to improve the operating leverage in our business.

On July 2, 2013, we issued and sold 7,500,000 shares of common stock in our initial public offering, or IPO. The net offering proceeds to us, after deducting underwriting discounts and commissions totaling approximately $5.3 million and offering expenses totaling approximately $2.9 million, were approximately $66.8 million.

Key Metrics



We monitor the key 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 June 30,          Six Months Ended June 30,
                                        2012              2013              2012             2013
                                                         (dollars in thousands)
Revenue                            $       25,206    $       35,465    $       42,478    $      60,230
Gross margin                                 40.6 %            46.5 %            37.0 %           45.5 %
Net loss                           $       (4,780 )  $         (273 )  $      (13,907 )  $      (5,432 )
In-stream advertising revenue      $       23,649    $       34,418    $       39,394    $      58,413
Adjusted EBITDA                    $       (2,502 )  $        2,027    $       (9,167 )  $        (770 )

Revenue and Gross Margin

In the past, we generated a significant portion of revenue from the delivery of video display and banner ads, or in-banner video ads. Beginning in 2011, we decided to focus our business on in-stream video advertising and to move away from in-banner video advertising. We believe in-stream video ads are better suited for brand advertisers because they can be served to viewers immediately prior to or during the publisher's content commanding attention when viewers are most engaged as opposed to in-banner video ads, which are served on the periphery of publisher content where viewers may not direct their attention. As a result, revenue from the delivery of in-stream video ads


Table of Contents

has increased year over year as a percentage of our total revenue, and revenue from the delivery of in-banner video ads has decreased. For the three months ended June 30, 2012 and 2013, our in-banner video advertising revenue was $1.1 million and $0.2 million, respectively, and for the six months ended June 30, 2012 and 2013, our in-banner video advertising revenue was $2.4 million and $0.3 million, respectively. On July 30, 2013, we announced that we would no longer sell in-banner video advertising and will focus solely on in-stream video advertising. Accordingly, we do not expect to generate meaningful revenue from in-banner video ads in future periods.

Historically, gross margin has been positively affected by campaigns priced on a performance basis. As a percentage of total revenue, revenue attributable to performance-based pricing, such as CPE and CPVC, for the three months ended June 30, 2012 and 2013 was 19.9% and 33.7%, respectively, and for the six months ended June 30, 2012 and 2013 was 17.7% and 34.7%, respectively. We anticipate that there will be a continued shift towards performance-based pricing.

In 2012, we also began to license VideoHub technology to advertisers and agencies through VHA. In the near-term, we are investing in the development of our publisher solution and programmatic buying solution, the enhancement of our VHA solution, and the expansion of our sales and support for these solutions. Over time we expect the licensing portion of our business to become a more significant contributor to our operating results, which we believe would have a positive impact on our gross margin.

Adjusted EBITDA

Adjusted EBITDA represents our net loss before net interest and other (expense) income, taxes, and depreciation and amortization, and adjusted to eliminate the impact of stock-based compensation expense, which is a non-cash item. Adjusted EBITDA is a key measure used by management to evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA facilitates operating performance comparisons on a period-to-period basis and, in the case of exclusion of the impact of stock-based compensation, excludes an item that we do not consider to be indicative of our core operating performance.

Adjusted EBITDA is a non-GAAP financial measure. 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: (a) although depreciation and amortization expense 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 and capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
(d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and (e) 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 our other GAAP-based financial performance measures, net loss and our other GAAP financial results. The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, for each of the periods indicated:

                                    Three Months Ended June 30,          Six Months Ended June 30,
                                       2012              2013              2012             2013
                                                            (in thousands)
Net loss                          $        (4,780 )  $        (273 )  $      (13,907 )  $      (5,432 )
Adjustments:
Depreciation and amortization
expense                                     1,480            1,493             2,958            2,995
Stock-based compensation
expense                                       691              762             1,491            1,501
Interest and other expense
(income), net                                  37             (108 )             151              (57 )
Income tax expense                             70              153               140              223
Total net adjustments                       2,278            2,300             4,740            4,662
Adjusted EBITDA                   $        (2,502 )  $       2,027    $       (9,167 )  $        (770 )


Table of Contents

Components of Operating Results

We operate in one segment, online video advertising services. The key elements of our operating results include:

Revenue

We generate revenue primarily by delivering in-stream video advertisements for brand advertisers and agencies through the Tremor Video Network. In 2012, we also began selling licenses to advertisers to use VHA.

We generally price delivery of our video ads on a CPM, CPE or CPVC basis. We recognize revenue for video ad delivery through the Tremor Video Network upon the delivery of impressions served for CPM-priced ad campaigns, engagement by the consumer with a video ad for CPE-priced ad campaigns and the completion of a video ad for CPVC-priced ad campaigns. The prices we charge our clients also vary depending upon the ad format chosen and the device type through which the campaign runs, but are generally consistent across computers, smartphones and tablets. We offer our Tremor Video Network solution to advertisers by entering into insertion orders with ad agencies on behalf of advertisers. These insertion orders are generally cancellable upon short notice and without penalty consistent with standard terms and conditions for the purchase of internet advertising for media buys one year or less published by the Interactive Advertising Bureau.

We recently began generating revenue from licenses of VHA to advertisers and agencies. We provide basic VHA access to advertisers with respect to their video ad campaigns running through the Tremor Video Network and charge a license fee for advanced analytics. We also license VHA for a fee to advertisers and agencies for video advertising campaigns running outside the Tremor Video Network. The license fee varies depending upon the level of access to our video advertising analytics and the volume of impressions being analyzed through VHA. We recognize revenue with respect to this solution on a CPM basis based upon the number of impressions being analyzed in a given month. In limited cases, we charge a minimum monthly fee. Typically, our license terms are for one year periods. In 2012 and for the first six months of 2013, we also generated licensing revenue from our publisher focused solutions, including certain assets acquired from Tube Mogul, Inc., or TubeMogul, in January 2012.

Cost of Revenue

Our cost of revenue primarily represents the video advertising inventory costs under our publisher contracts, research costs, third party hosting fees, and third party serving fees incurred to deliver the video ads run through the Tremor Video Network. Cost of revenue also includes costs from our licenses from third party data providers utilized in our VHA solution. Substantially all of our cost of revenue is attributable to video advertising inventory costs under our publisher contracts. We recognize cost of revenue on a publisher-by-publisher basis at the same time as we recognize the associated advertising revenue. Substantially all of our exclusive publisher contracts contain minimum percentage fill rates on qualified video ad requests, which effectively means that we must purchase this inventory from our exclusive publishers even if we lack a video advertising campaign to deliver. We recognize the difference between our contractually required fill rate and the number of video ads actually delivered by us on the publisher's website, if any, as a cost of revenue as of the end of each applicable monthly period. Historically, the impact of the difference between the contractually required fill rate and the number of ads delivered has not been material. Costs owed to publishers but not yet paid are recorded in our consolidated balance sheets as accounts payable and accrued expenses.

Operating Expenses

Operating expenses consist of technology and development, sales and marketing, general and administrative and depreciation and amortization expenses. Salaries, incentive compensation, stock-based compensation and other personnel-related costs are the most significant components of each of these expense categories other than depreciation and amortization expenses. We grew from 249 employees at March 31, 2013 to 263 employees at June 30, 2013, and we expect to continue to hire new employees in order to support our anticipated revenue growth. We


Table of Contents

include stock-based 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.

Technology and Development Expense. Technology and development expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for development, network operations and engineering personnel. Additional expenses in this category include costs related to the development, quality assurance and testing of new technology and maintenance and enhancement of existing technology and infrastructure as well as consulting, travel and other related overhead. We engage third-party consulting firms for various technology and development efforts, such as documentation, quality assurance and support. Due to the rapid development and changes in our business, we have expensed technology and development expenses in the same year that the costs are incurred. The number of employees in technology and development functions grew from 68 employees at March 31, 2013 to 72 employees at June 30, 2013. We intend to continue to invest in our technology and development efforts by hiring additional personnel and by using outside consulting firms for various initiatives. We believe continuing to invest in technology and development efforts is essential to maintaining our competitive position.

Sales and Marketing Expense. Sales and marketing expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for our marketing and creative employees and our advertiser focused, publisher focused and licensing solution focused sales and sales support employees. Additional expenses in this category include marketing programs, consulting, travel and other related overhead. The number of employees in sales and marketing functions grew from 154 employees at March 31, 2013 to 162 employees at June 30, 2013. We expect our sales and marketing expense to increase in the foreseeable future as we continue to grow the Tremor Video Network, further increase the number of our licensing solution focused sales and marketing professionals and expand our marketing activities.

General and Administrative Expense. General and administrative expense primarily consists of salaries, incentive compensation, stock-based compensation and other personnel-related costs for business operations, administration, finance and accounting, legal, information systems and human resources employees. Included in general and administrative expenses are consulting and professional fees, including legal, accounting and investor relations fees, insurance, costs associated with compliance with the Sarbanes-Oxley Act and other public company corporate expenses, travel and other related overhead. The number of employees in general and administrative functions grew from 27 employees at March 31, 2013 to 29 employees at June 30, 2013. We expect our general and administrative expenses to increase in absolute dollars as a result of becoming and operating as a public company and the continuing growth of our business.

Depreciation and Amortization Expense. Depreciation and amortization expense primarily consists of our depreciation expense related to investments in property, equipment and software as well as the amortization of intangible assets originating from our acquisitions of ScanScout, Inc., or ScanScout, in December 2010 and Transpera, Inc. in February 2011 and certain intangible assets from TubeMogul in January 2012. These acquired intangible assets include technology, customer relationships, trademarks and trade names and non-competition agreements.

Interest and Other (Expense) Income, Net

Interest and other (expense) income, net consist primarily of interest income, interest expense, foreign exchange transaction gains and losses, and mark-to-market income (expense). Interest income is derived from interest received on our cash and cash equivalents. Interest expense consists primarily of the interest incurred on outstanding borrowings under our credit facility.


Table of Contents

Results of Operations



Three and Six Months Ended June 30, 2012 and 2013



The following table is a summary of our consolidated statement of operations
data for each of the periods indicated.  The period-to-period comparisons of the
results are not necessarily indicative of our results for future periods.



                                    Three Months Ended                                 Six Months Ended
                                         June 30,                                          June 30,
                              2012                     2013                      2012                     2013
                                 Percentage               Percentage                Percentage               Percentage
                       Amount    of Revenue     Amount    of Revenue     Amount     of Revenue     Amount    of Revenue
                                                           (dollars in thousands)
Consolidated
Statement of
Operations Data:
Revenue               $ 25,206        100.0 %  $ 35,465        100.0 %  $  42,478        100.0 %  $ 60,230        100.0 %
Cost of revenue         14,980         59.4      18,971         53.5       26,749         63.0      32,812         54.5
Gross profit            10,226         40.6      16,494         46.5       15,729         37.0      27,418         45.5
Operating expenses:
Technology and
development              1,996          7.9       2,818          8.0        3,647          8.6       5,515          9.1
Sales and marketing      8,688         34.5       9,943         28.0       17,210         40.5      18,786         31.2
General and
administrative           2,735         10.8       2,468          7.0        5,530         13.0       5,388          8.9
Depreciation and
amortization             1,480          5.9       1,493          4.2        2,958          7.0       2,995          5.0
Total operating
expenses                14,899         59.1      16,722         47.2       29,345         69.1      32,684         54.2

Loss from
operations              (4,673 )      (18.5 )      (228 )       (0.7 )    (13,616 )      (32.1 )    (5,266 )       (8.7 )
Interest and other
(expense) income,
net                        (37 )       (0.1 )       108          0.3         (151 )       (0.3 )        57          0.1

Loss before income
taxes                   (4,710 )      (18.6 )      (120 )       (0.4 )    (13,767 )      (32.4 )    (5,209 )       (8.6 )
Income tax expense         (70 )       (0.4 )      (153 )       (0.4 )       (140 )       (0.3 )      (223 )       (0.4 )
Net loss              $ (4,780 )      (19.0 )% $   (273 )       (0.8 )% $ (13,907 )      (32.7 )% $ (5,432 )       (9.0 )%




Other Financial
Data:

In-stream
advertising
revenue (1)       $ 23,649     93.8 %  $ 34,418     97.0 %  $ 39,394     92.7 %  $ 58,413      97.0 %
Adjusted EBITDA   $ (2,502 )    N/A    $  2,027      N/A    $ (9,167 )    N/A    $   (770 )     N/A



(1) In-stream advertising revenue is revenue we generate solely from the sale of in-stream video ads.

Three Months Ended Change Six Months Ended Change June 30, Increase/(Decrease) June 30, Increase/(Decrease) 2012 2013 Amount Percentage 2012 2013 Amount Percentage

(dollars in thousands) (dollars in thousands)

Revenue $ 25,206 $ 35,465 $ 10,259 40.7 % $ 42,478 $ 60,230 $ 17,752 41.8 %

Revenue

The increase in revenue from the three months ended June 30, 2012 compared to the three months ended June 30, 2013 was primarily attributable to a $10.8 million increase in our in-stream video advertising revenue, representing 45.8% growth period-over-period, which included an increased mix of our performance-based ad


Table of Contents

products compared to our CPM-priced ad products, and a $0.4 million increase in revenue from licensing solutions. The increase in revenue was partially offset by a $0.9 million reduction in in-banner video advertising revenue to $0.2 million due to our decision in 2011 to focus on the sale of in-stream video . . .

  Add TRMR to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TRMR - All Recent SEC Filings
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.