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CVT > SEC Filings for CVT > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for CVENT INC

Form 10-Q for CVENT INC


8-Aug-2014

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 and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2013. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors." In Part I, Item IA of our Annual Report on Form 10-K, as may be updated in our subsequent Quarterly Reports on Form 10-Q. The words "may," "believe," "could," "anticipate," "would," "might," "plan," "expect," "will," "intend," "potential," "objective," "strategy," "goal," "should," "vision," "designed," and similar expressions or the negative of these terms are intended to identify forward-looking statements. Consolidated financial data referenced in this section as of and for the three and six months ended June 30, 2014 and 2013 are derived from our unaudited consolidated financial statements. The unaudited consolidated financial data as of and for the three and six months ended June 30, 2014 and 2013 includes all adjustments, consisting only of normal recurring accruals, that are necessary in the opinion of our management for a fair presentation of our financial position and results of operations for these periods.

Overview

We are a leading cloud-based enterprise event management platform. We provide solutions for both sides of the events and meetings value chain: (i) event and meeting planners, and (ii) hotels and venues. Our integrated, cloud-based solutions address the entire event lifecycle by allowing event and meeting planners to organize, market and manage their meetings, conferences, tradeshows and other events. Our online marketplace connects event planners and venues through our vertical search engine that accesses our proprietary database of detailed venue information. The combination of these solutions creates an integrated platform that allows us to generate revenue from both sides of the events and meetings value chain.

Our event and meeting planner customers include enterprises such as corporations, associations, not-for-profits, government agencies and universities. These customers enter into annual and multi-year subscription contracts to utilize part or all of our cloud-based software solutions to plan, manage and execute enterprise events and meetings including external events, such as conferences, tradeshows, and customer events, as well as internal events, such as sales meetings, training seminars and team-building events. Revenue from our event and meeting planning platform subscription solutions was $24.2 million and $45.9 million for the three and six months ended June 30, 2014, or 71% and 70% of our total revenue, respectively. Revenue from our event and meeting planning platform subscription solutions was $18.8 million and $35.9 million for the three and six months ended June 30, 2013, or 70% of our total revenue for both periods. We generally recognize revenue from these contracts ratably over the term of the contract.

On the other side of the event value chain, hotels and venues utilize our online marketing solutions to generate more visibility with ready-to-transact event and meeting planners. Our online marketplace, the Cvent Supplier Network, or CSN, connects tens of thousands of event and meeting planners seeking the best venue for their event with more than 250,000 venues in our proprietary database. We believe that our CSN contains the world's largest, most accurate and searchable database of detailed meeting venue information with listings of hotels, conference centers, convention centers, resorts, restaurants, museums, country clubs, wineries, castles and other special event venues in more than 175 countries. Hotels and venues enter into annual and multi-year advertising contracts with us for marketing solutions that increase the prominence of their properties in our CSN; we recognize the revenue from these marketing solutions over the term of the solution or marketing agreement based on the estimated selling prices of each solution. Revenue from our marketing solutions was $9.9 million and $19.6 million for the three and six months ended June 30, 2014, or 29% and 30% of our total revenue during the period, and $8.1 million and $15.4 million for the three and six months ended June 30, 2013, or 30% of our total revenue during both periods.

Financial Operations Overview

Revenue

Platform Subscriptions. We generate the majority of our revenue through subscriptions for our event management solutions platform, pricing for which is based on the features and functionality selected. Our Strategic Meetings Management solution is targeted towards the large enterprise market, and includes the full functionality of our platform. Our Event Management solution, which is targeted towards mid-market and smaller enterprises, has many of the same features as our Strategic Meetings Management solution but does not include some of the advanced features and functionality required by larger organizations. The number of attendee registrations available to customers subscribing to the registration functionality is contractually fixed, and registrations above the contracted amount result in additional fees paid by the customer.

Our customer contracts are typically not cancellable without cause and typically range in length from one to three years. We generally recognize revenue from platform subscriptions ratably over the term of the agreement. Customers are typically invoiced in advance on a quarterly or annual basis. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized as revenue ratably over the subscription period. We refer to contractual amounts that have not been invoiced as unbilled contract value. Unbilled contract value is not reflected in our consolidated financial statements.


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Platform subscription revenue also includes revenue from our mobile event apps, ticketing and web survey products.

Marketing Solutions. Marketing solutions revenue is generated through the delivery of various forms of advertising sold through annual or multi-year contracts to marketers, principally hotels and venues. Such solutions include prominent display of a customer's venue within the CSN, the Cvent Destination Guide or in various electronic newsletters. Pricing for the advertisements is based on the term of the advertisement, targeted geography, number of advertisements and prominence of the ad placement.

We generally recognize the revenue from these marketing solutions over the period the advertisements are delivered. Customer contracts are typically not cancellable without cause and typically range in length from one to two years. We generally invoice our customers in advance in annual installments. Amounts that have been invoiced are initially recorded as deferred revenue and are recognized as revenue over the contract period. Contractual amounts that have not been invoiced, which we refer to as unbilled contract value, are not reflected in our consolidated financial statements.

Cost of Revenue

Cost of revenue primarily consists of employee-related expenses, including salaries, benefits, bonuses and stock-based compensation, related to providing support and hosting our applications, costs of data center capacity, software license fees and amortization expense associated with capitalized software. In addition, we allocate a portion of overhead, such as rent, information technology costs, depreciation and amortization to cost of revenue based on head count.

We are invested in the success of our customers and as such, we will continue to invest in providing support and expanding our capacity to support our growth, which in the near-term will result in higher cost of revenue in absolute dollars and as a percentage of revenue.

Operating Expenses

Sales and Marketing

Sales and marketing expenses primarily consist of personnel and related expenses for our sales and marketing staff, including salaries, benefits, bonuses, commissions and stock-based compensation. Commissions are expensed when the customer contract is signed. In addition to staff costs, our cost of marketing includes product marketing and other brand-building activities, such as trade shows, product seminars and online marketing.

We intend to continue to invest in sales and marketing and expect spending in these areas to increase in the near-term in absolute dollars as we continue to expand our business both domestically and internationally. We expect sales and marketing expenses to continue to be among the most significant components of our operating expenses.

Research and Development

Research and development expenses consist primarily of personnel and related expenses for our research and development staff, including salaries, benefits, bonuses and stock-based compensation and the cost of certain third-party contractors. Research and development costs, other than software development expenses qualifying for capitalization, are expensed as incurred.

With the exception of our three acquisitions, we maintain a unified software code base for our entire platform, which we believe improves the efficiency of our research and development activities. Notwithstanding, we expect research and development expenses to increase in the near-term in absolute dollars and as a percentage of revenue as we add new functionality on the platform and expand our cloud-delivery infrastructure.

General and Administrative

General and administrative expenses consist primarily of personnel and related expenses for administrative, finance, legal and human resource staffs, including salaries, benefits, bonuses and stock-based compensation, as well as professional fees, insurance premiums, other corporate expenses, and overhead.

We expect our general and administrative expenses to increase in absolute dollars and as a percentage of revenue over the long-term as we continue to expand our operations and hire additional personnel. As a new public company, we expect to incur additional expenses related to outside legal counsel, accounting and auditing activities, compliance with public company reporting and corporate governance requirements, increased insurance requirements and enhancing our internal control environment.


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Critical Accounting Policies and Estimates

Our unaudited financial statements and the related notes included elsewhere in this Current Report on Form 10-Q are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, cost of revenue, operating expenses, other income and expenses, provision for income taxes and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from our estimates. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. During the six months ended June 30, 2014, there were no material changes to our critical accounting policies and use of estimates, which are disclosed in our audited consolidated financial statements for the year ended December 31, 2013 included in our Annual Report on form 10K dated March 21, 2014, and filed with the SEC.

In May 2014, the FASB and the International Accounting Standards Board (IASB) issued joint guidance to improve and converge the financial reporting requirements for revenue from contracts with customers. ASU 2014-9, Revenue from Contracts with Customers, prescribes a five-step model for revenue recognition that will replace most existing revenue recognition guidance under U.S. GAAP. The new standard supersedes nearly all existing revenue recognition guidance under U.S. GAAP, and requires companies to recognize revenue when it transfers goods or services to a customer in an amount that reflects the consideration to which a company expects to be entitled for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 allows for either full retrospective or modified retrospective adoption and will become effective in the first quarter of 2017. Early adoption is prohibited. Management is currently evaluating which adoption method we will use and assessing the effect the adoption of this standard will have on the consolidated financial statements.

Results of Operations

The following table sets forth selected consolidated statement of operations
data for each of the periods indicated.



                                           Three months ended June 30,             Six months ended June 30,
                                            2014                 2013               2014                2013
                                                                    (In thousands)
Revenue                                $       34,133       $       26,935      $     65,534        $     51,295
Costs of revenue                                9,039                7,172            18,247              13,176

Gross profit                                   25,094               19,763            47,287              38,119
Operating expenses:
Sales and marketing                            15,977               12,131            29,644              23,651
Research and development                        3,284                2,789             6,473               5,292
General and administrative                      4,953                6,154             9,650              10,800

Total operating expenses                       24,214               21,074            45,767              39,743

Income (loss) from operations                     880               (1,311 )           1,520              (1,624 )
Interest income                                   362                  123               641                 383

Income (loss) from operations before
income taxes                                    1,242               (1,188 )           2,161              (1,241 )
Provision for (benefit from) income
taxes                                             250                1,099              (472 )               736

Net income (loss)                      $          992       $       (2,287 )    $      2,633        $     (1,977 )

The following table sets forth our consolidated statement of operations data as a percentage of revenue for each of the periods indicated.

                                                 Three months ended June 30,              Six months ended June 30,
                                                 2014                   2013             2014                  2013
Revenue                                               100 %                  100 %            100 %                 100 %
Costs of revenue                                       26                     27               28                    26

Gross profit                                           74                     73               72                    74


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                                                Three months ended June 30,             Six months ended June 30,
                                                 2014                  2013             2014                  2013
Operating expenses:
Sales and marketing                                   47                    45               45                    46
Research and development                              10                    10               10                    10
General and administrative                            14                    23               15                    21

Total operating expenses                              71                    78               70                    77

Income (loss) from operations                          3                    (5 )              2                    (3 )
Interest income                                        1                    -                 1                     1

Income (loss) from operations before income
taxes                                                  4                    (5 )              3                    (2 )
Provision for (benefit from) income taxes              1                     4               (1 )                   1

Net income (loss)                                      3 %                  (9 )%             4 %                  (3 )%

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

Revenue



                                                Three months ended June 30,                                            Six months ended June 30,
                                                2014                  2013            Variance       % Change           2014                2013          Variance       % Change
Revenue by product:
Platform subscriptions                      $      24,244         $      18,793      $    5,451             29 %    $     45,923        $     35,916      $  10,007             28 %
Marketing solutions                                 9,889                 8,142           1,747             21 %          19,611              15,379          4,232             28 %

Total revenue                               $      34,133         $      26,935      $    7,198             27 %    $     65,534        $     51,295      $  14,239             28 %

Percentage of revenue:
Platform subscriptions                                 71 %                  70 %                                             70 %                70 %
Marketing solutions                                    29 %                  30 %                                             30 %                30 %

Total revenue                                         100 %                 100 %                                            100 %               100 %

Total revenue increased $7.2 million during the three months ended June 30, 2014 compared to the same period in 2013, primarily driven by an increase of $7.3 million of revenue from sales of features and functionality and new advertising products to new customers, primarily offset by customers lost during the three months ended June 30, 2014.

Platform subscription revenue increased $5.5 million during the three months ended June 30, 2014 compared to the same quarter in 2013 primarily due to a $5.7 million increase in revenue from sales of event planning subscriptions to new customers in 2014. Revenue from sales of additional features and functionality to existing customers, increased registrations and a full quarter of revenue from customers that originated during the three months ended June 30, 2013, contributed $2.0 million in platform subscription revenue during the three months ended June 30, 2014. These increases were primarily offset by customers lost during the three months ended June 30, 2014.

Marketing solutions revenue increased $1.7 million during the three months ended June 30, 2014 compared to the same quarter in 2013 primarily due to recognition of $1.5 million in revenue from sales to new customers. Net revenue recognized from sales of additional marketing solutions and price increases contributed an additional $1.1 million during the three months ended June 30, 2014. These amounts were primarily offset by customers lost during the three months ended June 30, 2014.

Total revenue increased $14.2 million during the six months ended June 30, 2014 compared to the same period in 2013, primarily driven by a $12.1 million increase in revenue from sales of features and functionality to new customers and new advertising products to new customers, primarily offset by customers lost during the six months ended June 30, 2014.

Platform subscription revenue increased $10.0 million during the six months ended June 30, 2014 compared to the same quarter in 2013 primarily due to a $9.4 million increase in revenue from sales of event planning subscriptions to new customers in 2014. Revenue from sales of additional features and functionality to existing customers, increased registrations and a full quarter of revenue from customers that originated during the six months ended June 30, 2013 contributed $4.7 million in platform subscription revenue during the six months ended June 30, 2014. These increases were primarily offset by customers lost during the six months ended June 30, 2014.


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Marketing solutions revenue increased $4.2 million during the six months ended June 30, 2014 compared to the same quarter in 2013 primarily due to recognition of $2.7 million in revenue from sales to new customers. Revenue recognized from sales of additional marketing solutions and price increases contributed and additional $3.1 million during the six months ended June 30, 2014. These amounts were primarily offset by customers lost during the six months ended June 30, 2014.

We generate the majority of our revenue from North America with revenue from outside North America accounting for 12% of total revenue for each of the three and six months ended June 30, 2014 and 2013. We expect our growth outside of North America to continue, resulting in increasing revenue over time. As a result, we expect that the proportion of total revenue from outside of North America will grow in the future.

Cost of Revenue



                                          Three months ended June 30,                                              Six months ended June 30,
                                           2014                 2013            Variance        % Change            2014                2013            Variance        % Change
Cost of revenue                        $      9,039         $      7,172       $    1,867              26 %     $     18,247        $     13,176       $    5,071              38 %
Percentage of revenue                            26 %                 27 %                                                28 %                26 %

Cost of revenue increased by $1.9 million during the three months ended June 30, 2014 compared to the corresponding quarter in 2013. This increase was primarily due to a $1.8 million increase in technology maintenance expense. The increase was related to personnel costs for maintenance of technology and systems supporting the expanded features and functionality of our products.

Cost of revenue increased by $5.1 million during the six months ended June 30, 2014 compared to the corresponding quarter in 2013. This increase was primarily due to an increase in technology maintenance expense of $3.2 million and an increase in customer service support costs of $0.5 million. Both of these increases were driven by additional personnel costs, relating to increased headcount, for maintenance of technology and systems as well as customer support for the expanded features and functionality of our products supporting the expanded features and functionality of our products. In addition, rent expense included in cost of revenue increased $0.7 million and amortization of capitalized software and acquired technology included in cost of revenue increased by $0.6 million.


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Operating Expenses



                                                  Three months ended June 30,                                            Six months ended June 30,
                                                  2014                  2013           Variance       % Change            2014                2013          Variance       % Change
Operating expenses:
Sales and marketing                           $      15,977         $      12,131      $   3,846             32 %     $     29,644        $     23,651      $   5,993             25 %
Research and development                              3,284                 2,789            495             18 %            6,473               5,292          1,181             22 %
General and administrative                            4,953                 6,154         (1,201 )          (20 )%           9,650              10,800         (1,150 )          (11 )%

Total operating expenses                      $      24,214         $      21,074      $   3,140             15 %     $     45,767        $     39,743      $   6,024             15 %

Percentage of revenue:
Sales and marketing                                      47 %                  45 %                                             45 %                46 %
Research and development                                 10 %                  10 %                                             10 %                10 %
General and administrative                               14 %                  23 %                                             15 %                21 %

Total operating expenses                                 71 %                  78 %                                             70 %                77 %

Sales and Marketing

Sales and marketing expenses increased by $3.8 million for the three months ended June 30, 2014 over the corresponding quarter in 2013. The increase is primarily due to increased head count and expansion of our marketing efforts. Total head count of our sales and marketing personnel increased by 14% from June 30, 2013 to June 30, 2014, to support revenue growth and expanded marketing efforts. This increase contributed $2.2 million of additional expenses in the three months ended June 30, 2014. Costs related to expanded marketing efforts contributed an additional $1.4 million to the period-over-period difference.

Sales and marketing expenses increased by $6.0 million for the six months ended June 30, 2014 over the corresponding period in 2013. The increase is primarily due to increased head count and expansion of our marketing efforts. Total head count of our sales and marketing personnel increased by 14% from June 30, 2013 to June 30, 2014, to support revenue growth and expanded features and functionality. This increase contributed $4.0 million of additional expenses in the six months ended June 30, 2014. Costs related to expanded marketing efforts and partnership fees contributed an additional $2.0 million to the period-over-period difference.

Research and Development

Research and development expenses increased by $0.5 million for the three months . . .

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