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TST > SEC Filings for TST > Form 10-K on 28-Feb-2014All Recent SEC Filings

Show all filings for THESTREET, INC.

Form 10-K for THESTREET, INC.


28-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Please refer to the Special Note Regarding Forward-Looking Statements appearing in Part I, Item 1 of this Report.

The following discussion and analysis should be read in conjunction with the Company's audited 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.

Subscription Services

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.

We believe we were one of the first companies to successfully create a large scale, consumer-focused, digital subscription services content business. We believe we have been able to successfully build our subscription services business because we have established a track record for over 17 years of providing high quality, independent investing ideas that have produced financial value for our readers. We believe our track record provides us with a competitive advantage and we will seek to enhance the value of our leading brand and our ability to monetize that value.

In addition to our consumer-focused subscription products, which include RealMoney, RealMoney Pro, Options Profits, Actions Alerts PLUS, Breakout Stocks, and Stocks Under $10, our subscription services business also includes information and transactional services revenue from RateWatch and The Deal.

RateWatch maintains a constantly-updated database of financial rate and fee data collected from more than 95,000 financial institutions (at the branch level), including certificate of deposit, money market account, savings account, checking account, home mortgage, home equity loan, credit card and auto loan rates. This information is licensed to financial institutions and government agencies on a subscription basis, in the form of standard and custom reports that outline the competitive landscape for our clients. The data collected by RateWatch also serves as the foundation for the information available on BankingMyWay, an advertising-supported Website that enables consumers to search for the most competitive local and national rates.

In September 2012, the Company acquired The Deal and transformed its business into a digital subscription platform that delivers sophisticated coverage of the mergers and acquisitions environment, primarily through The Deal Pipeline, a leading provider of transactional information services. In April 2013, the Company acquired The DealFlow Report, The Life Settlements Report and the PrivateRaise database from DealFlow Media, Inc to further its product offerings to institutional investors. These newsletters and database, and the employees providing their content, have been incorporated into The Deal.

Our subscription services revenue also includes revenue generated from syndication and licensing of data from TheStreet Ratings ("Ratings"), which tracks the risk-adjusted performance of more than 20,000 mutual funds and exchange-traded funds (ETFs) and more than 4,000 stocks. Subscription services contributed 80% of our total revenue in 2013, as compared to 73% in 2012 and 67% in 2011.

Media

Media is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, our subscription and institutional services, and other miscellaneous revenue.

Our advertising-supported properties, which include TheStreet, MainStreet, Stockpickr and Real Money, attract one of the largest and most affluent audiences of any digital publisher in our content vertical. TheStreet, with its enviable track record as a leading and distinctive digital voice in the financial category, is regarded as a must-buy for most of our core online brokerage advertisers and a highly effective means for other financial services companies and non-endemic advertisers to communicate with our engaged, affluent audience. Our direct sales team sells the full capabilities of TheStreet and its affiliated properties via sponsorships, custom programs, video, mobile, newsletters, audience targeting, native advertising, social amplification and distribution as well as programmatic direct and real time bidding.

Our media revenue also includes revenue generated from syndication and licensing of data as well as other miscellaneous, non-subscription related sources. Media contributed 20% of our total revenue in 2013, as compared to 27% in 2012 and 33% in 2011.

Results of Operations

Comparison of Fiscal Years Ended December 31, 2013 and 2012



Revenue



                                     For the Year Ended December 31,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
                            2013          Revenue          2012          Revenue       Change
Revenue:
Subscription services   $ 43,549,359            80 %   $ 37,149,143            73 %          17 %
Media                     10,901,052            20 %     13,571,660            27 %         -20 %
Total revenue           $ 54,450,411           100 %   $ 50,720,803           100 %           7 %

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 year ended December 31, 2013 increased by approximately $6.4 million, or 17%, when compared to the year ended December 31, 2012. The increase was the result of approximately $7.1 million of additional revenue related to the operations of The Deal and DealFlow. Excluding The Deal and DealFlow, revenue for the year ended December 31, 2013 decreased by approximately $715 thousand, or 2%, when compared to the year ended December 31, 2012. The decrease was primarily related to a 4% decrease in the average revenue recognized per subscription, partially offset by a 2% increase in the weighted-average number of subscriptions. 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. While we have been able to reduce our subscriber attrition rate, the number of new subscribers was not sufficient to offset the reduction in the average revenue recognized per subscription.

Media. Media revenue is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, our subscription and institutional services, and other miscellaneous revenue.

Media revenue for the year ended December 31, 2013 decreased by approximately $2.7 million, or 20%, when compared to the year ended December 31, 2012. The increase in media revenue associated with The Deal and DealFlow totaled approximately $470 thousand during the year ended December 31, 2013 as compared to the prior year period. Excluding The Deal and DealFlow, revenue for the year ended December 31, 2013 decreased by approximately $3.1 million, or 25%, when compared to the year ended December 31, 2012. The decrease in media revenue was primarily the result of reduced demand from non-repeat advertisers. Media revenue includes approximately $94 thousand of barter revenue in the year ended December 31, 2013. There was no barter revenue in the prior year period.

Operating Expense



                                              For the Year Ended December 31,
                                                  Percent                          Percent
                                                 of Total                         of Total        Percent
                                   2013           Revenue           2012           Revenue         Change
Operating expense:
Cost of services               $ 27,431,566              50 %   $ 24,886,142              49 %          -10 %
Sales and marketing              14,453,465              27 %     13,395,328              26 %           -8 %
General and administrative       12,218,964              22 %     13,637,895              27 %           10 %
Depreciation and
amortization                      3,768,536               7 %      5,512,299              11 %           32 %
Restructuring and other
charges                             385,610               1 %      6,589,792              13 %           94 %
Loss (gain) on disposition
of assets                           187,434               0 %       (232,989 )             0 %          N/A
Total operating expense        $ 58,445,575                     $ 63,788,467                              8 %

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 $2.5 million, or 10%, over the periods. The increase was primarily the result of costs associated with the operations of The Deal and DealFlow combined with higher fees paid to outside contributors and revenue share payments made to certain distribution partners, the aggregate of which increased by approximately $4.4 million. These cost increases were partially offset by lower compensation expense due to a 7% decrease in average headcount (excluding the impact of increased headcount of The Deal and DealFlow), as well as reduced expenses relating to computer services and supplies, data used on the Company's Websites, hosting, internet fees, 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 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 $1.1 million, or 8%, over the periods. The increase was the result of costs associated with the operations of The Deal and DealFlow, which increased by approximately $2.7 million. These costs were partially offset by reduced compensation expense due to an 18% decrease in average headcount (excluding the impact of increased headcount of The Deal and DealFlow) combined with lower advertising and promotion, public relations, consulting, and serving costs for third-party advertisers, the aggregate of which decreased by approximately $1.5 million. Sales and marketing expense includes $94 thousand of barter expense in the year ended December 31, 2013 and $183 thousand in the prior year period.

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

General and administrative expense decreased by approximately $1.4 million, or 10%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 17% decrease in average headcount, combined with lower third-party data and recruiting costs, the aggregate of which decreased by approximately $1.5 million.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $1.7 million, 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 year ended December 31, 2012 resulting from reductions to the estimated useful life of certain capitalized Website 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 year ended December 31, 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. During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. 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. These restructuring efforts resulted in restructuring and other charges from continuing operations of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company's acquisition of The Deal, the Company discontinued the use of The Deal's office space and implemented a reduction in force to eliminate redundant positions,

resulting in restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2012. These activities were offset by a reduction to previously estimated restructuring and other charges resulting in a net credit of approximately $289 thousand.

Loss (gain) on disposition of assets. During the year ended December 31, 2013, the Company sold certain non-strategic assets resulting in a loss of approximately $187 thousand. During the year ended December 31, 2012, the Company sold certain non-strategic assets resulting in a gain of approximately $233 thousand.

Net Interest Income



                          For the Year Ended December 31,
                                                                   Percent
                            2013                   2012            Change
Net interest income   $        209,463       $        352,713           -41 %

The decrease in net interest income was primarily the result of reduced average marketable security, cash and restricted cash balances during the year ended December 31, 2013 as compared to the prior year period, 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 year ended December 31, 2013 totaled $3.8 million, or $0.11 per basic and diluted share, compared to net loss totaling $12.7 million, or $0.38 per basic and diluted share, for the year ended December 31, 2012. The decrease in the net loss was primarily the result of restructuring and other charges recorded during the year ended December 31, 2012 that approximated $6.6 million.

Comparison of Fiscal Years Ended December 31, 2012 and 2011



Revenue



                                     For the Year Ended December 31,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
                            2012          Revenue          2011          Revenue       Change
Revenue:
Subscription services   $ 37,149,143            73 %   $ 38,901,289            67 %          -5 %
Media                     13,571,660            27 %     18,858,711            33 %         -28 %
Total revenue           $ 50,720,803           100 %   $ 57,760,000           100 %         -12 %

Subscription services. Subscription services revenue for the year ended December 31, 2012 decreased by 5% when compared to the year ended December 31, 2011. This decrease was primarily the result of a 15% decrease in the weighted-average number of subscriptions during the year ended December 31, 2012 as compared to the year ended December 31, 2011, partially offset by a 6% increase in the average revenue recognized per subscription during the year ended December 31, 2012 as compared to the year ended December 31, 2011, combined with approximately $2.9 million of revenue related to the operations of The Deal since its acquisition in September 2012. The decrease in the weighted average number of subscriptions was primarily impacted by the trailing twelve month trends of 1) churn of our existing subscriber base and 2) our ability to acquire new subscribers. While our average monthly churn rates for the trailing twelve months ended December 31, 2012, as compared to the same period in

the prior year, has remained relatively stable, we were unable to acquire a sufficient number of new subscribers in 2012 to offset the losses due to churn. The increase in the average revenue recognized per subscription during the period is primarily the result of the mix of products sold and higher product pricing.

Media. Media revenue for the year ended December 31, 2012 decreased by 28% when compared to the year ended December 31, 2011. The decrease in media revenue was primarily the result of reduced demand from repeat advertisers, the movement of Internet usage from desktop to tablets and mobile devices, where advertising rates are lower, and our inability to attract a sufficient amount of advertising revenue from new advertisers in 2012 to offset the losses. There was no barter revenue in the year ended December 31, 2012 as compared to approximately $410 thousand in the year ended December 31, 2011.

Operating Expense



                                                For the Year Ended December 31,
                                                     Percent                         Percent
                                                    of Total                         of Total       Percent
                                      2012           Revenue           2011          Revenue         Change
Operating expense:
Cost of services                  $ 24,886,142              49 %   $ 26,499,085             46 %           -6 %
Sales and marketing                 13,395,328              26 %     16,681,562             29 %          -20 %
General and administrative          13,637,895              27 %     15,810,994             27 %          -14 %
Depreciation and amortization        5,512,299              11 %      5,757,365             10 %           -4 %
Restructuring and other charges      6,589,792              13 %      1,825,799              3 %          261 %
Gain on disposition of assets         (232,989 )             0 %              -            N/A            N/A
Total operating expense           $ 63,788,467                     $ 66,574,805                            -4 %

Cost of services. Cost of services expense decreased by approximately $1.6 million, or 6%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 25% decrease in average headcount (excluding the impact of acquired headcount of The Deal), combined with lower costs related to computer services and supplies and data used on the Company's Websites, the aggregate of which decreased by approximately $4.4 million. These cost decreases were partially offset by costs associated with the operations of The Deal since its acquisition, increased costs related to revenue share payments made to certain distribution partners, as well as the use of nonemployee content providers as the Company has shifted its strategy more towards a contributor/freelance model with fewer full time editorial staff, the aggregate of which increased by approximately $2.8 million. Although the dollar amount of cost of services expense decreased over the periods, cost of services expense as a percentage of revenue increased to 49% in the year ended December 31, 2012, from 46% in the prior year period, as our cost cutting initiatives did not completely keep pace with the decline in revenue.

Sales and marketing. Sales and marketing expense decreased by approximately $3.3 million, or 20%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 22% decrease in average headcount (excluding the impact of headcount of The Deal), combined with reductions in advertising and promotion related spending, travel and entertainment costs, credit card processing fees, public relations costs and recruiting fees, the aggregate of which decreased by approximately $4.6 million. These cost decreases were partially offset by costs associated with the operations of The Deal since its acquisition as well as increased advertisement serving costs, the aggregate of which increased by approximately $1.3 million. Sales and marketing expense includes approximately $183 thousand and $303 thousand of barter expense in the years ended December 31, 2012 and 2011, respectively. Sales and

marketing expense as a percentage of revenue decreased to 26% in the year ended December 31, 2012, from 29% in the prior year period resulting from our cost cutting initiatives.

General and administrative. General and administrative expense decreased by approximately $2.2 million, or 14%, over the periods. The decrease was primarily the result of reduced compensation expense due to a 15% decrease in average headcount (excluding the impact of headcount of The Deal), combined with lower professional fees (inclusive of those relating to a review of certain accounting matters in our former Promotions.com subsidiary), occupancy, training and insurance costs, the aggregate sum of which decreased by approximately $2.7 million. These cost decreases were partially offset by costs related to the Company's acquisition and subsequent operation of The Deal since its acquisition combined with increased recruiting fees, the aggregate of which increased by approximately $709 thousand. General and administrative expense as a percentage of revenue approximated 27% in the year ended December 31, 2012, the same as in the prior year period, as our cost cutting initiatives were in line with the decline in revenue.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $245 thousand, or 4%, over the periods. Depreciation and amortization expense as a percentage of revenue approximated 11% in the year ended December 31, 2012, as compared to 10% in the prior year period.

Restructuring and other charges. During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in accessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. 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. These restructuring efforts resulted in restructuring and other charges from continuing operations of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company's acquisition of The Deal, the Company discontinued the use of The Deal's office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges from continuing operations of approximately $3.5 million during the year ended December 31, 2012. These activities were offset by a reduction to previously estimated restructuring and other charges resulting in a net credit of approximately $289 thousand.

Gain on disposition of assets. During the year ended December 31, 2012, the Company sold certain non-strategic assets resulting in a gain of approximately $233 thousand.

Net Interest Income



                          For the Year Ended December 31,
                                                                   Percent
                            2012                   2011            Change
Net interest income   $        352,713       $        667,822           -47 %

The decrease in net interest income was primarily the result of lower interest rates on bank deposits combined with reduced cash balances.

Net Loss

Net loss for the year ended December 31, 2012 totaled approximately $12.7 million, or $0.38 per basic and diluted share, compared to net loss totaling $8.2 million, or $0.26 per basic and diluted share, for the year ended December 31, 2011. The increase in the net loss was largely the result of restructuring

and other charges recorded during the year ended December 31, 2012 that approximated $6.6 million combined with reduced revenue, partially offset by expense cost cutting measures. Net loss for the year ended December 31, 2012 also included a net loss of approximately $753 thousand related to the operations of The Deal since its acquisition. Excluding noncash charges related to depreciation, and amortization of acquired intangible assets, net loss for The Deal would have approximated $438 thousand.

Critical Accounting Estimates

General

The Company's discussion and analysis of its financial condition and results of operations are based upon its 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 consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying consolidated financial statements include, but are not limited to, the following:

Revenue Recognition

We generate our revenue primarily from 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. Subscriptions are generally charged to customers' credit cards or are directly billed to corporate subscribers. These are generally billed in advance on a monthly or annual basis. We calculate net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to subscription fees for which amounts have been collected but for which revenue has not been recognized because services have not yet been provided.

Subscription revenue is subject to estimation and variability due to the fact . . .

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