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TST > SEC Filings for TST > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for THESTREET, INC.

Form 10-Q for THESTREET, INC.


8-Nov-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 (the "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 its inception in 1996, TheStreet believes it has distinguished itself from other digital media companies with its 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 and other miscellaneous revenue.

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, 2013 and 2012, no impairment was indicated as the Company's fair value, inclusive of a control premium, exceeded its book value by approximately 51% and 13%, respectively. 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. We also performed a discounted cash flow analysis, the results of which confirmed that no impairment existed at September 30, 2013. 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.

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 September 30, 2013 and September 30, 2012



Revenue



                                           For the Three Months Ended September 30,
                                                      Percent                          Percent
                                                      of Total                         of Total        Percent
                                    2013              Revenue           2012           Revenue         Change
Revenue:
Subscription services          $    11,169,084               82 %   $  8,956,184              77 %            25 %
Media                                2,415,644               18 %      2,641,571              23 %            -9 %
Total revenue                  $    13,584,728              100 %   $ 11,597,755             100 %            17 %

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 September 30, 2013 increased by approximately $2.2 million, or 25%, when compared to the three months ended September 30, 2012. The increase was the result of additional revenue related to the operations of The Deal, LLC ("The Deal"), which was acquired on September 11, 2012, and certain assets acquired from DealFlow Media, Inc. ("DealFlow"), which were acquired on April 19, 2013. Excluding The Deal and DealFlow, revenue for the three months ended September 30, 2013 was essentially flat when compared to the three months ended September 30, 2012, resulting from an offsetting increase in the weighted-average number of subscriptions and a decline in the average revenue recognized per subscription. The increase in the weighted average number of subscriptions was due to new subscribers and lower attrition rates. The decrease in the average revenue recognized per subscription was primarily the result of the mix of products sold and the introduction during the current year of several subscription products at lower prices.

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

Media revenue for the three months ended September 30, 2013 decreased by approximately $226 thousand, or 9%, when compared to the three months ended September 30, 2012. The increase in media revenue associated with The Deal and DealFlow totaled approximately $143 thousand during the three months ended September 30, 2013 as compared to the prior year period. Excluding The Deal and DealFlow, Media revenue for the three months ended September 30, 2013 decreased by approximately $369 thousand, or 15%, when compared to the three months ended September 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 $15 thousand of barter revenue in the three months ended September 30, 2013. There was no barter revenue in the prior year period.

Operating Expense



                                               For the Three Months Ended September 30,
                                                          Percent                           Percent
                                                          of Total                         of Total        Percent
                                       2013               Revenue            2012           Revenue         Change
Operating expense:
Cost of services                  $     7,460,950                 55 %   $  5,699,275              49 %           31 %
Sales and marketing                     3,525,520                 26 %      2,717,794              23 %           30 %
General and administrative              2,755,016                 20 %      3,143,160              27 %          -12 %
Depreciation and amortization             883,760                  7 %      1,295,197              11 %          -32 %
Restructuring and other charges                 -                  -        3,046,104              26 %         -100 %
Loss on disposition of assets             171,000                  1 %         14,011               0 %         1120 %
Total operating expense           $    14,796,246                        $ 15,915,541                             -7 %

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 $1.8 million, or 31%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow, increased compensation expense due to a 7% increase in average headcount (excluding the impact of headcount of The Deal and DealFlow), higher revenue share payments made to certain distribution partners and increased fees paid to outside contributors, the aggregate of which increased by approximately $2.1 million. These cost increases were partially offset by lower computer services and supplies costs, hosting and internet fees, the aggregate of which decreased by approximately $271 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 $808 thousand, or 30%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow combined with increased compensation expense primarily related to higher benefit and noncash compensation costs (excluding the impact of headcount of The Deal and DealFlow), the aggregate of which increased by approximately $942 thousand. These cost increases were partially offset by lower consulting, advertising and promotion related fees, the aggregate of which decreased by approximately $129 thousand. Sales and marketing expense includes $15 thousand of barter expense in the three month period ended September 30, 2013 and $17 thousand in the prior year period.

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

General and administrative expense decreased by approximately $388 thousand, or 12%, over the periods. The decrease was primarily the result of reduced professional fees mainly resulting from costs incurred in the prior year period related to the acquisition of The Deal, combined with lower compensation expense due to an 8% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow), the aggregate of which decreased by approximately $557 thousand. These cost decreases were partially offset by costs associated with the operations of The Deal and DealFlow, and increased occupancy costs, the aggregate of which increased by approximately $147 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $411 thousand, or 32%, 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 September 30, 2012 resulting from reductions to the estimated useful life of certain capitalized Web site development projects. These reductions were partially offset by increased depreciation and amortization expense 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 September 30, 2013. In March 2012, the Company began a targeted reduction in force and committed to terminate the use of certain vendor services and assets reflecting previously capitalized costs. As a result of these activities, the Company incurred restructuring and other charges of approximately $3.0 million during the three months ended September 30, 2012.

Net Interest Income

For the Three Months Ended
September 30, Percent
2013 2012 Change
Net interest income $ 32,053 $ 91,271 -65 %

The decrease in net interest income was the result of reduced marketable securities, cash and restricted cash balances, lower interest rates, and interest expense related to the net present value calculation of certain restructuring costs that were recorded during 2012.

Net Loss

Net loss for the three months ended September 30, 2013 totaled approximately $1.2 million, or $0.03 per basic and diluted share, compared to net loss totaling approximately $4.2 million, or $0.13 per basic and diluted share, for the three months ended September 30, 2012.

Comparison of Nine Months Ended September 30, 2013 and September 30, 2012



Revenue



                                          For the Nine Months Ended September 30,
                                                    Percent                         Percent
                                                    of Total                        of Total       Percent
                                    2013            Revenue           2012          Revenue         Change
Revenue:
Subscription services          $   32,179,403              81 %   $ 26,784,377             73 %           20 %
Media                               7,469,905              19 %     10,110,361             27 %          -26 %
Total revenue                  $   39,649,308             100 %   $ 36,894,738            100 %            7 %

Subscription services. Subscription services revenue for the nine months ended September 30, 2013 increased by approximately $5.4 million, or 20%, when compared to the nine months ended September 30, 2012. The increase was the result of approximately $6.4 million of additional revenue related to the operations of The Deal and DealFlow. Excluding The Deal and DealFlow, revenue for the nine months ended September 30, 2013 decreased by approximately $986 thousand, or 4%, when compared to the nine months ended September 30, 2012. The decrease was primarily related to a 2% decline in the weighted-average number of subscriptions combined with a 2% decrease in the average revenue recognized per subscription. While we have been able to reduce our subscriber attrition rate, the number of new subscribers was not sufficient to offset these losses. The decrease in the average revenue recognized per

subscription during the period was primarily the result of the mix of products sold and the introduction during the current year of several subscription products at lower prices.

Media. Media revenue for the nine months ended September 30, 2013 decreased by approximately $2.6 million, or 26%, when compared to the nine months ended September 30, 2012. The increase in media revenue associated with The Deal and DealFlow totaled approximately $708 thousand during the nine months ended September 30, 2013 as compared to the prior year period. Excluding The Deal and DealFlow, revenue for the nine months ended September 30, 2013 decreased by approximately $3.3 million, or 33%, when compared to the nine months ended September 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 $78 thousand of barter revenue in the nine months ended September 30, 2013. There was no barter revenue in the prior year period.

Operating Expense



                                            For the Nine Months Ended September 30,
                                                       Percent                          Percent
                                                      of Total                         of Total        Percent
                                    2013               Revenue           2012           Revenue         Change
Operating expense:
Cost of services               $    20,607,534                52 %   $ 17,834,336              48 %           16 %
Sales and marketing                 10,644,273                27 %     10,076,902              27 %            6 %
General and administrative           9,230,616                23 %     10,242,852              28 %          -10 %
Depreciation and
amortization                         2,762,283                 7 %      3,740,649              10 %          -26 %
Restructuring and other
charges                                385,610                 1 %      6,039,797              16 %          -94 %
Loss (gain) on disposition
of assets                              187,434                 0 %       (205,989 )            -1 %          N/A
Total operating expense        $    43,817,750                       $ 47,728,547                             -8 %

Cost of services. Cost of services expense increased by approximately $2.8 million, or 16%, 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 $4.6 million. These cost increases were partially offset by lower compensation expense due to a 12% 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, hosting, internet fees, data used on the Company's Web sites, the use of outside contributors, and increased reimbursed expenses relating to a third party services agreement, the aggregate of which decreased by approximately $1.7 million.

Sales and marketing. Sales and marketing expense increased by approximately $567 thousand, or 6%, over the periods. The increase was the result of costs associated with the operations of The Deal and DealFlow, which increased by approximately $2.8 million. These costs were partially offset by reduced compensation expense due to a 20% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow) combined with lower advertising and promotion, public relations, serving costs for third-party advertisers, travel and entertainment, recruiting and consulting fees, the aggregate of which decreased by approximately $2.2 million. Sales and marketing expense includes $78 thousand of barter expense in the nine month period ended September 30, 2013 and $127 thousand in the prior year period.

General and administrative. General and administrative expense decreased by approximately $1.0 million, or 10%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 16% decrease in average headcount (excluding the impact of headcount of The Deal and DealFlow), combined with lower recruiting and third-party data costs, the aggregate of which decreased by approximately $1.5 million. These cost decreases were partially offset by costs associated with the

operations of The Deal and DealFlow as well as increased consulting fees, the aggregate of which increased by approximately $460 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $978 thousand, or 26%, 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 nine months ended September 30, 2012 resulting from reductions to the estimated useful life of certain capitalized Web site development projects. These reductions were partially offset by increased depreciation and amortization expense related to The Deal and DealFlow.

Restructuring and other charges. During the nine months ended September 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 the use of certain vendor services and assets reflecting previously capitalized costs. As a result of these activities, the Company incurred restructuring and other charges of approximately $6.0 million during the nine months ended September 30, 2012.

Net Interest Income

For the Nine Months Ended
September 30, Percent
2013 2012 Change
Net interest income $ 169,884 $ 295,216 -42 %

The decrease in net interest income was primarily the result of reduced marketable securities, cash and restricted cash balances, lower interest rates, and interest expense related to the net present value calculation of certain restructuring costs that were recorded during 2012.

Net Loss

Net loss for the nine months ended September 30, 2013 totaled approximately $4.0 million, or $0.12 per basic and diluted share, compared to net loss totaling approximately $10.5 million, or $0.32 per basic and diluted share, for the nine months ended September 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 September 30, 2013, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $58.4 million, representing 54% of total assets. Our cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts. Our marketable securities 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 $1.6 million that mature in the year 2038. Our total cash-related position is as follows:

                                                         September 30,       December 31,
                                                             2013                2012
Cash and cash equivalents                               $    39,625,879      $  23,845,360
Current and noncurrent marketable securities                 17,434,880         35,394,318
Restricted cash                                               1,301,000          1,301,000
Total cash and cash equivalents, current and
noncurrent marketable securities and restricted cash    $    58,361,759      $  60,540,678

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our . . .

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