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TST > SEC Filings for TST > Form 10-Q on 6-Aug-2014All Recent SEC Filings

Show all filings for THESTREET, INC.

Form 10-Q for THESTREET, INC.


6-Aug-2014

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, 2013 (the "2013 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 TheStreet and our affiliated properties, our subscription and institutional services, and other miscellaneous revenue.

Due to an increase in the value of the Company's public float as of June 30, 2014, TheStreet, Inc. will become an accelerated filer commencing with its annual report on Form 10-K for the year ended December 31, 2014. This change in filing status requires the Company to have an audit of its internal control over financial reporting, which will increase fees related to the annual audit, and also require Form 10-K to be filed within 75 days after year-end instead of 90 days, and Form 10-Q's to be filed within 40 days after each quarter-end period rather than 45 days.

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,

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 and between annual tests whenever circumstances arise that indicate a possible impairment might exist. In conducting our annual 2013 impairment test through our independent appraisal firm, we used the market approach for the valuation of our common stock and the income approach for our preferred shares. We also performed an income approach by using the discounted cash flow ("DCF") method to confirm the reasonableness of the results of the common stock market approach. Based on these approaches, we determined the Company's business enterprise value (common equity plus preferred equity) exceeded its book value by approximately 51%. 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.

A summary of our critical accounting policies and estimates can be found in our 2013 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 2013 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, 2014 and June 30, 2013



Revenue



                                   For the Three Months Ended June 30,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
                            2014          Revenue          2013          Revenue       Change
Revenue:
Subscription services   $ 11,557,413            78 %   $ 10,757,647            80 %           7 %
Media                      3,204,841            22 %      2,726,732            20 %          18 %
Total revenue           $ 14,762,254           100 %   $ 13,484,379           100 %           9 %

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 increased by approximately $800 thousand, or 7%, over the periods. The increase was primarily related to an 18% increase in the weighted-average number of subscriptions, partially offset by a 8% decrease in the average revenue recognized per subscription. The increase in the weighted average number of subscriptions was due to new subscribers, primarily from the introduction of several new subscription products. The decrease in the average revenue recognized per subscription during the period was primarily the result of the mix of products sold, including the introduction of several subscription products at lower prices.

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 increased by approximately $478 thousand, or 18%, over the periods. The increase in media revenue was primarily the result of higher demand from repeat and non-repeat advertisers, partially offset by a decrease in other miscellaneous media revenue. Media revenue includes approximately $63 thousand of barter revenue in the three months ended June 30, 2013. There was no barter revenue in the current year period.

Operating Expense



                                             For the Three Months Ended June 30,
                                                    Percent                          Percent
                                                   of Total                         of Total        Percent
                                    2014            Revenue           2013           Revenue         Change
Operating expense:
Cost of services                $   7,676,619              52 %   $  6,903,838              51 %           11 %
Sales and marketing                 3,758,584              25 %      3,702,606              27 %            2 %
General and administrative          3,278,484              22 %      3,011,825              22 %            9 %
Depreciation and amortization         721,511               5 %        935,467               7 %          -23 %
Loss on disposition of assets               -               -           73,020               1 %         -100 %
Total operating expense         $  15,435,198                     $ 14,626,756                              6 %

Cost of services. Cost of services expense consists primarily of 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 $773 thousand, or 11%, over the periods. The increase was primarily the result of increased compensation and related expense due to an 8% increase in average headcount, fees paid to outside contributors, consulting fees and recruiting costs, the aggregate of which increased by approximately $1.3 million. These cost increases were partially offset by lower revenue share payments made to certain distribution partners, and computer services and supplies and data costs, the aggregate of which decreased by approximately $576 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 $56 thousand, or 2%, over the periods. The increase was primarily the result of increased advertisement serving, compensation and related costs, public relations, recruiting and credit card processing costs, the aggregate of which increased by $247 thousand, partially offset by reduced advertising and promotion related costs totaling approximately $161 thousand. Sales and marketing expense includes approximately $63 thousand of barter expense in the three months ended June 30, 2013. There was no barter expense in the current 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 increased by approximately $267 thousand, or 9%, over the periods. The increase was primarily the result of higher compensation and related costs, contributions made by the Company to its recently launched nonprofit organization, TheStreet Foundation, and costs to host an industry conference, the aggregate of which increased by approximately $454 thousand. These cost increases were partially offset by reduced professional fees and bad debt expense, the aggregate of which decreased by approximately $175 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $214 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 partially offset by increased amortization expense related to the purchase of assets from DealFlow Media, Inc.

Net Interest Income

For the Three Months Ended
June 30, Percent
2014 2013 Change
Net interest income $ 31,457 $ 65,968 -52 %

The decrease in net interest income was the result of reduced marketable securities 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 June 30, 2014 totaled approximately $641 thousand, or $0.02 per basic and diluted share, compared to net loss totaling approximately $1.1 million, or $0.03 per basic and diluted share, for the three months ended June 30, 2013.

Comparison of Six Months Ended June 30, 2014 and June 30, 2013



Revenue



                                    For the Six Months Ended June 30,
                                          Percent                        Percent
                                         of Total                       of Total       Percent
                            2014          Revenue          2013          Revenue       Change
Revenue:
Subscription services   $ 23,007,280            79 %   $ 21,010,319            81 %          10 %
Media                      6,144,052            21 %      5,054,261            19 %          22 %
Total revenue           $ 29,151,332           100 %   $ 26,064,580           100 %          12 %

Subscription services. Subscription services revenue increased by approximately $2.0 million, or 10%, over the periods. The increase was primarily related to an 18% increase in the weighted-average number of subscriptions, partially offset by a 7% decrease in the average revenue recognized per subscription. The increase in the weighted average number of subscriptions was due to new subscribers primarily from the introduction of several new subscription products. 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 of several subscription products at lower prices.

Media. Media revenue increased by approximately $1.1 million, or 22%, over the periods. The increase in media revenue was primarily the result of higher demand from repeat and non-repeat advertisers, as well as increases in other miscellaneous media revenue. Media revenue includes approximately $8 thousand of barter revenue in the six months ended June 30, 2014, as compared to approximately $63 thousand in the prior year period.

Operating Expense



                                                For the Six Months Ended June 30,
                                                     Percent                          Percent
                                                    of Total                         of Total        Percent
                                      2014           Revenue           2013           Revenue         Change
Operating expense:
Cost of services                  $ 15,414,584              53 %   $ 13,146,584              50 %           17 %
Sales and marketing                  7,859,869              27 %      7,118,753              27 %           10 %
General and administrative           6,257,054              21 %      6,475,600              25 %           -3 %
Depreciation and amortization        1,457,372               5 %      1,878,523               7 %          -22 %
Restructuring and other charges              -               -          385,610               1 %         -100 %
Loss on disposition of assets                -               -           16,434               0 %         -100 %
 Total operating expense          $ 30,988,879                     $ 29,021,504                              7 %

Cost of services. Cost of services expense increased by approximately $2.3 million, or 17%, over the periods. The increase was primarily the result of increased compensation and related expense due to a 9% increase in average headcount, fees paid to outside contributors, consulting fees and recruiting costs, the aggregate of which increased by approximately $2.9 million. These cost increases were partially offset by lower revenue share payments made to certain distribution partners, and reduced computer services and supplies and data costs, the aggregate of which decreased by approximately $822 thousand.

Sales and marketing. Sales and marketing expense increased by approximately $741 thousand, or 10%, over the periods. The increase was primarily the result of higher advertising and promotion, employee commission and benefit expenses, credit card processing fees and public relations expense, the aggregate of which increased by $1.1 million. These cost increases were partially offset by reduced salary costs due to a 3% decrease in average headcount, and lower consulting fees, the aggregate of which decreased by approximately $352 thousand. Sales and marketing expense includes approximately $8 thousand of barter expense in the six months ended June 30, 2014, as compared to approximately $63 thousand in the prior year period.

General and administrative. General and administrative expense decreased by approximately $219 thousand, or 3%, over the periods. The decrease was primarily the result of reduced professional fees, taxes and occupancy related costs, the aggregate of which decreased by approximately $668 thousand, partially offset by contributions made by the Company to its TheStreet Foundation, costs incurred to host an industry conference and higher compensation and related costs, the aggregate of which increased by approximately $440 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $421 thousand, or 22%, over the periods. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years partially offset by increased amortization expense related to the purchase of assets from DealFlow Media, Inc.

Restructuring and other charges. The Company did not incur any restructuring and other charges during the six months ended June 30, 2014. 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.

Net Interest Income

For the Six Months Ended
June 30, Percent
2014 2013 Change
Net interest income $ 69,935 $ 137,831 -49 %

The decrease in net interest income was the result of reduced marketable securities 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 six months ended June 30, 2014 totaled approximately $1.8 million, or $0.05 per basic and diluted share, compared to net loss totaling approximately $2.8 million, or $0.08 per basic and diluted share, for the six months ended June 30, 2013.

Liquidity and Capital Resources

Our current assets as of June 30, 2014 consisted primarily of cash and cash equivalents, marketable securities, and accounts receivable. Our current liabilities as of June 30, 2014 consisted primarily of deferred revenue, accrued expenses and accounts payable. As of June 30, 2014, our current assets totaled approximately $62.8 million, 2.0 times greater than our current liabilities. With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.

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, 2014, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $59.1 million, representing 55% of total assets. Our cash, cash equivalents and restricted cash primarily consist of money market funds and checking accounts. Our marketable securities consist of investment grade corporate bonds and floating rate notes, with a maximum maturity of three years, and two municipal auction rate securities issued by the District of Columbia with a par value of approximately $1.9 million and a fair value of approximately $1.5 million that mature in the year 2038. Our total cash-related position is as follows:

                                                          June 30,        December 31,
                                                            2014              2013
Cash and cash equivalents                               $ 50,224,059      $  45,443,759
Current and noncurrent marketable securities               7,606,800         13,097,735
Current and noncurrent restricted cash                     1,301,000          1,301,000
Total cash and cash equivalents, current and
noncurrent marketable securities and current and
noncurrent restricted cash                              $ 59,131,859      $  59,842,494

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in four domestic financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions.

Net cash provided by operating activities for the six-month period ended June 30, 2014 totaled approximately $2.0 million, as compared to net cash provided by operating activities totaling approximately $1.2 million for the six-month period ended June 30, 2013. The improvement in net cash used in operating activities was primarily related to a decrease in the net loss from operations of approximately $1.1 million, changes in the balances of accounts payable and accrued expenses over the periods and an increase in deferred revenue resulting from improved subscription sales. These improvements were partially offset by changes in the balances of accounts receivable and other receivables, combined with reduced noncash expenses.

Net cash provided by investing activities for the six-month period ended June 30, 2014 totaled approximately $4.6 million, as compared to net cash provided by investing activities totaling approximately $12.7 million for the six-month period ended June 30, 2013. The reduction in net cash provided by investing activities was primarily the result of fewer maturities of marketable securities as well as increased capital expenditures, partially offset by the absence of acquisition related costs incurred in the prior year period.

Net cash used in financing activities for the six-month period ended June 30, 2014 totaled approximately $1.8 million, as compared to net cash used in financing activities totaling approximately $125 thousand for the six-month period ended June 30, 2013. The increase in net cash used in investing activities was primarily the result of dividend payments totaling approximately $1.9 million in the current year. There were no dividend payments in the prior year period. These uses of cash were partially offset by reduced purchases of treasury stock retained upon the vesting of restricted stock units in connection with minimum tax withholding requirements, and by increased cash received from the exercise of stock options.

We have a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for office space in New York City.

We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $4.5 million through June 30, 2015, primarily related to operating leases and minimum payments due under an employment agreement.

As of December 31, 2013, we had approximately $156 million of federal and state net operating loss carryforwards, which results in deferred tax assets of approximately $64 million. Based on operating results for the six months ended June 30, 2014 and six month projections, management expects to generate a tax loss in 2014 and no tax benefit has been recorded. We maintain a full valuation allowance against our deferred tax assets as management concluded that it is . . .

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