UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012
OR
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34357
OPENTABLE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
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94-3374049 |
(State or Other Jurisdiction of |
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(I.R.S. Employer |
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799 Market Street, 4th Floor, San Francisco, CA |
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94103 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(415) 344-4200
(Registrants Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 2, 2012, 22,723,400 shares of the registrants common stock were outstanding.
OPENTABLE, Inc.
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6 | |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
8 |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
18 | |
30 | ||
31 | ||
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34 | ||
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
OPENTABLE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, |
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December 31, |
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2012 |
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2011 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
85,158,000 |
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$ |
36,519,000 |
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Short-term investments |
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978,000 |
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13,411,000 |
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Accounts receivable, net of allowance for doubtful accounts of $1,696,000, and $1,315,000 at September 30, 2012 and December 31, 2011 |
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19,186,000 |
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18,795,000 |
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Prepaid expenses and other current assets |
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3,083,000 |
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2,708,000 |
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Deferred tax asset |
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10,960,000 |
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11,238,000 |
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Total current assets |
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119,365,000 |
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82,671,000 |
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Property, equipment and software, net |
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19,206,000 |
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16,150,000 |
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Goodwill |
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46,318,000 |
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42,312,000 |
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Intangibles, net |
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15,828,000 |
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16,403,000 |
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Deferred tax asset |
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11,925,000 |
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5,466,000 |
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Other assets |
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1,088,000 |
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813,000 |
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TOTAL ASSETS |
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$ |
213,730,000 |
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$ |
163,815,000 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
2,437,000 |
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$ |
2,210,000 |
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Accrued expenses |
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6,998,000 |
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4,794,000 |
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Accrued compensation |
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4,992,000 |
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4,518,000 |
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Deferred revenue |
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1,597,000 |
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1,752,000 |
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Deferred tax liability |
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107,000 |
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Dining rewards payable |
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25,899,000 |
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20,827,000 |
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Total current liabilities |
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42,030,000 |
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34,101,000 |
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Deferred revenue non-current |
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2,141,000 |
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2,249,000 |
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Deferred tax liability |
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3,933,000 |
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3,915,000 |
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Income tax liability |
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14,849,000 |
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13,215,000 |
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Other long-term liabilities |
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71,000 |
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108,000 |
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Total liabilities |
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63,024,000 |
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53,588,000 |
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COMMITMENTS AND CONTINGENCIES (Note 5) |
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STOCKHOLDERS EQUITY: |
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Common stock, $0.0001 par value 100,000,000 shares authorized; 24,237,039 and 24,009,404 shares issued, 22,715,819 and 22,709,857 shares outstanding at September 30, 2012 and December 31, 2011 |
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2,000 |
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2,000 |
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Additional paid-in capital |
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201,606,000 |
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171,465,000 |
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Treasury stock, at cost (1,521,220 and 1,299,547 shares at September 30, 2012 and December 31, 2011) |
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(50,673,000 |
) |
(41,963,000 |
) | ||
Accumulated other comprehensive income (loss) |
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905,000 |
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(1,634,000 |
) | ||
Accumulated deficit |
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(1,134,000 |
) |
(17,643,000 |
) | ||
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Total stockholders equity |
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150,706,000 |
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110,227,000 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
213,730,000 |
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$ |
163,815,000 |
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See notes to condensed consolidated financial statements.
OPENTABLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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REVENUES |
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$ |
39,738,000 |
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$ |
34,356,000 |
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$ |
118,665,000 |
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$ |
102,353,000 |
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COSTS AND EXPENSES: |
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Operations and support |
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10,544,000 |
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9,916,000 |
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31,402,000 |
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29,074,000 |
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Sales and marketing |
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8,216,000 |
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7,477,000 |
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25,559,000 |
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21,692,000 |
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Technology |
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3,741,000 |
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3,748,000 |
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10,599,000 |
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11,326,000 |
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General and administrative |
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8,072,000 |
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7,407,000 |
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25,673,000 |
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18,417,000 |
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Total costs and expenses |
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30,573,000 |
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28,548,000 |
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93,233,000 |
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80,509,000 |
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Income from operations |
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9,165,000 |
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5,808,000 |
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25,432,000 |
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21,844,000 |
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Other income, net |
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36,000 |
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23,000 |
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66,000 |
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68,000 |
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Income before taxes |
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9,201,000 |
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5,831,000 |
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25,498,000 |
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21,912,000 |
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Income tax expense |
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3,253,000 |
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1,775,000 |
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8,989,000 |
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7,346,000 |
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NET INCOME |
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$ |
5,948,000 |
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$ |
4,056,000 |
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$ |
16,509,000 |
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$ |
14,566,000 |
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Net income per share (See Note 7): |
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Basic |
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$ |
0.26 |
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$ |
0.17 |
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$ |
0.73 |
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$ |
0.62 |
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Diluted |
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$ |
0.26 |
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$ |
0.17 |
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$ |
0.71 |
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$ |
0.59 |
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Weighted average shares outstanding: |
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Basic |
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22,641,000 |
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23,695,000 |
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22,585,000 |
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23,530,000 |
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Diluted |
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23,261,000 |
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24,488,000 |
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23,188,000 |
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24,545,000 |
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See notes to condensed consolidated financial statements.
OPENTABLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2012 |
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2011 |
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2012 |
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2011 |
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Net Income |
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$ |
5,948,000 |
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$ |
4,056,000 |
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$ |
16,509,000 |
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$ |
14,566,000 |
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Foreign currency translation gain (loss) |
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2,081,000 |
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(1,631,000 |
) |
2,542,000 |
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402,000 |
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Unrealized gain (loss) on investments |
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(4,000 |
) |
(3,000 |
) |
3,000 |
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Other comprehensive gain (loss) |
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2,081,000 |
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(1,635,000 |
) |
2,539,000 |
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405,000 |
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COMPREHENSIVE INCOME |
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$ |
8,029,000 |
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$ |
2,421,000 |
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$ |
19,048,000 |
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$ |
14,971,000 |
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See notes to condensed consolidated financial statements (unaudited).
OPENTABLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended |
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September 30, |
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2012 |
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2011 |
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OPERATING ACTIVITIES: |
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Net income |
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$ |
16,509,000 |
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$ |
14,566,000 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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6,635,000 |
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5,842,000 |
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Amortization of intangibles |
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3,038,000 |
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2,986,000 |
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Provision for doubtful accounts |
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2,032,000 |
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1,328,000 |
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Stock-based compensation |
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16,087,000 |
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8,809,000 |
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Write-off of property, equipment and software |
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253,000 |
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853,000 |
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Deferred taxes |
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(6,009,000 |
) |
162,000 |
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Excess tax benefit related to stock compensation |
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(9,750,000 |
) |
(3,934,000 |
) | ||
Change in contingent liability |
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(21,000 |
) |
(1,085,000 |
) | ||
Changes in operating assets and liabilities: |
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Accounts receivable |
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(2,248,000 |
) |
(3,246,000 |
) | ||
Prepaid expenses and other current assets |
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(622,000 |
) |
(942,000 |
) | ||
Accounts payable and accrued expenses |
|
12,774,000 |
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3,691,000 |
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Accrued compensation |
|
455,000 |
|
318,000 |
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Deferred revenue |
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(282,000 |
) |
(299,000 |
) | ||
Long-term liabilities |
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1,404,000 |
|
3,015,000 |
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Dining rewards payable |
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5,063,000 |
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3,958,000 |
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Net cash provided by operating activities |
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45,318,000 |
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36,022,000 |
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INVESTING ACTIVITIES: |
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Purchases of property, equipment and software |
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(9,893,000 |
) |
(7,297,000 |
) | ||
Purchases of investments |
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(10,315,000 |
) |
(27,325,000 |
) | ||
Sales of investments |
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22,667,000 |
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15,231,000 |
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Acquisition of business |
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(4,000,000 |
) |
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Decrease in restricted cash |
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176,000 |
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Net cash used in investing activities |
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(1,541,000 |
) |
(19,215,000 |
) | ||
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FINANCING ACTIVITIES: |
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Excess tax benefit related to stock-based compensation |
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9,750,000 |
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3,934,000 |
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Proceeds from issuance of common stock upon exercise of employee stock options |
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3,726,000 |
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4,885,000 |
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Repurchases of common stock |
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(8,710,000 |
) |
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Net cash provided by financing activities |
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4,766,000 |
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8,819,000 |
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EFFECT OF EXCHANGE RATES ON CASH |
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96,000 |
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(180,000 |
) | ||
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NET INCREASE IN CASH AND CASH EQUIVALENTS |
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48,639,000 |
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25,446,000 |
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CASH AND CASH EQUIVALENTS Beginning of period |
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36,519,000 |
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33,444,000 |
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CASH AND CASH EQUIVALENTS End of period |
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$ |
85,158,000 |
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$ |
58,890,000 |
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(Continued) |
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OPENTABLE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
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Nine Months Ended |
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September 30, |
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2012 |
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2011 |
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SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION: |
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Cash paid for income taxes |
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$ |
1,474,000 |
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$ |
325,000 |
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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: |
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Purchase of property, equipment and software recorded in accounts payable and accrued expenses |
|
$ |
266,000 |
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$ |
364,000 |
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|
|
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Vesting of early exercised stock options |
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$ |
1,000 |
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$ |
543,000 |
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|
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See notes to condensed consolidated financial statements. |
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(Concluded) |
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OPENTABLE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Description of Business
OpenTable, Inc. (together with its subsidiaries, including toptable.co.uk Ltd. (toptable), OpenTable or the Company), was incorporated on October 13, 1998, and is a Delaware corporation. The Company provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. For restaurant customers, the Company provides a proprietary Electronic Reservation Book, or ERB, and Connect. The ERB combines proprietary software and computer hardware to deliver a solution that computerizes restaurant host-stand operations and replaces traditional pen-and-paper reservation books. The ERB streamlines and enhances a number of business-critical functions and processes for restaurants, including reservation management, table management, guest recognition and email marketing. For restaurants that do not require the operational benefits of the ERB, OpenTable offers Connect, a web-based solution that enables participating restaurants to receive reservations from OpenTable websites and mobile applications as well as the websites and mobile applications of OpenTables partners and restaurant customers. For diners, the Company operates www.opentable.com and www.toptable.co.uk, popular restaurant reservation websites, and also provides a variety of mobile applications. The Company refers to www.opentable.com, www.toptable.co.uk and related websites as the OpenTable websites. The OpenTable websites and mobile applications enable diners to find, choose and book tables at restaurants on the OpenTable network that use the ERB and Connect in real time, overcoming the inefficiencies associated with the traditional process of reserving by phone.
Certain Significant Risks and Uncertainties
The Company operates in a dynamic industry, and accordingly, can be affected by a variety of factors. For example, management of the Company believes that changes in any of the following areas could have a significant negative effect on the Companys future financial position, results of operations or cash flows: the ability to maintain an adequate rate of growth; the impact of the current economic climate on its business; the ability to effectively manage its growth; the ability to attract new restaurant customers; the ability to increase the number of visitors to its websites and convert those visitors into diners; and the ability to retain existing restaurant customers and diners or encourage repeat reservations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
These condensed consolidated financial statements include the accounts of OpenTable, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011, as filed on February 24, 2012 with the SEC (the 2011 Annual Report). The condensed consolidated balance sheet as of December 31, 2011, included herein was derived from the audited consolidated financial statements as of that date but does not include all disclosures required by GAAP, including notes to the consolidated financial statements.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Companys statement of financial position at September 30, 2012 and December 31, 2011, and the Companys results of operations for the three and nine months ended September 30, 2012 and 2011, and its cash flows for the nine months ended September 30, 2012 and 2011. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for any future period. All references to September 30, 2012 or to the three or nine months ended September 30, 2012 and 2011 in the notes to the condensed consolidated financial statements are unaudited.
Acquisition of Treat Technologies
In August 2012, the Company acquired Treat Technologies, Inc. (Treat), a provider of the Treatful-branded online gift card solutions for restaurants, for a purchase price of approximately $4,000,000 in cash. The Company recorded $2,264,000 of goodwill and $1,800,000 of identifiable intangible assets in connection with the acquisition which is being accounted for as a business combination. The Company has included the effects of the transaction within the results of operations prospectively from August 3, 2012, the date of acquisition. Pro forma financial information for this business combination has not been presented, as the effects were not material to the Companys historical consolidated financial statements.
Use of Estimates
The preparation of the Companys financial statements in conformity with GAAP 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 income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.
Recently Issued Accounting Standards
In June 2011, the FASB issued Topic 220Presentation of Comprehensive Income (Topic 220). Topic 220 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Topic 220 requires that all non-owner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amended guidance, which must be applied retroactively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted. The adoption of this standard changed the presentation of the Companys consolidated financial statements but had no effect on the reported amounts of comprehensive net income.
In September 2011, the FASB issued Accounting Standards Update No. 2011-08, Intangibles-Goodwill and Other (Topic 350)Testing Goodwill for Impairment. Topic 350 is intended to simplify goodwill impairment testing by adding a qualitative review step to assess whether the quantitative impairment analysis under the Standard is necessary. Topic 350 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. Topic 350 is effective for interim and annual periods beginning after December 15, 2011. The Company performs its annual impairment testing of goodwill in the third quarter of each year. For the test conducted as of August 31, 2012, the Company elected to bypass the qualitative assessment and perform only the quantitative assessment. The application of this Standard did not have an impact on the Companys reported results of operations.
3. Short-Term Investments and Fair Value Measurements
At September 30, 2012, short-term investments consisted entirely of certificates of deposit with an amortized cost and estimated fair market value of $978,000. Short-term investments as of December 31, 2011 are summarized as follows:
|
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Amortized |
|
Unrealized |
|
Unrealized |
|
Estimated Fair |
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|
|
Cost |
|
Gains |
|
Losses |
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Market Value |
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At December 31, 2011: |
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|
|
| ||||
U.S. government and agency securities |
|
$ |
10,538,000 |
|
$ |
3,000 |
|
$ |
(1,000 |
) |
$ |
10,540,000 |
|
Certificates of deposit |
|
2,871,000 |
|
|
|
|
|
2,871,000 |
| ||||
Total |
|
$ |
13,409,000 |
|
$ |
3,000 |
|
$ |
(1,000 |
) |
$ |
13,411,000 |
|
As of September 30, 2012, certain investments with a total estimated fair value of $487,000 had maturity dates of greater than one year. As of December 31, 2011, there were no investments that had maturity dates of greater than one year.
The Company records its financial assets and liabilities at fair value. The accounting standard for fair value provides a framework for measuring fair value, and defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting standard establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
· Level 1 Quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
· Level 2 Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
· Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The valuation of Level 3 investments requires the use of significant management judgments or estimation.
In accordance with Topic 820Fair Value Measurements and Disclosures, the following table represents the Companys fair value hierarchy for its financial assets:
|
|
September 30, 2012 |
|
December 31, 2011 |
| ||||||||||||||
|
|
Aggregate |
|
|
|
|
|
Aggregate |
|
|
|
|
| ||||||
|
|
Fair Value |
|
Level 1 |
|
Level 2 |
|
Fair Value |
|
Level 1 |
|
Level 2 |
| ||||||
U.S. government and agency securities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
10,540,000 |
|
$ |
|
|
$ |
10,540,000 |
|
Certificates of deposit |
|
978,000 |
|
|
|
978,000 |
|
2,871,000 |
|
|
|
2,871,000 |
| ||||||
Total short-term investments |
|
$ |
978,000 |
|
$ |
|
|
$ |
978,000 |
|
$ |
13,411,000 |
|
$ |
|
|
$ |
13,411,000 |
|
4. Goodwill and Intangible Assets
As of September 30, 2012, goodwill included $2,264,000 resulting from the acquisition of Treat, $39,493,000 resulting from the acquisition of toptable (adjusted by $843,000 for the change in foreign currency exchange rates from the date of acquisition through September 30, 2012), $2,756,000 resulting from the acquisition of Table Maestro, LLC (Table Maestro), and $1,805,000 resulting from the acquisition of GuestBridge, Inc. (Guestbridge). A summary of the carrying amount of goodwill by reporting segment as of September 30, 2012 and December 31, 2011 is as follows:
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
North America |
|
$ |
6,825,000 |
|
$ |
4,561,000 |
|
International |
|
39,493,000 |
|
37,751,000 |
| ||
|
|
|
|
|
| ||
Total Goodwill |
|
$ |
46,318,000 |
|
$ |
42,312,000 |
|
A summary of intangible assets as of September 30, 2012 and December 31, 2011 is as follows:
|
|
September 30, |
|
December 31, |
| ||||||||||||||
|
|
2012 |
|
2011 |
| ||||||||||||||
|
|
Gross Carrying |
|
Accumulated |
|
|
|
Gross Carrying |
|
Accumulated |
|
|
| ||||||
|
|
Value |
|
Amortization |
|
Total |
|
Value |
|
Amortization |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks - finite life |
|
$ |
132,000 |
|
$ |
70,000 |
|
$ |
62,000 |
|
$ |
132,000 |
|
$ |
51,000 |
|
$ |
81,000 |
|
Trademarks - indefinite life |
|
12,295,000 |
|
|
|
12,295,000 |
|
11,752,000 |
|
|
|
11,752,000 |
| ||||||
Customer relationships |
|
8,925,000 |
|
6,682,000 |
|
2,243,000 |
|
8,091,000 |
|
4,042,000 |
|
4,049,000 |
| ||||||
Developed technology |
|
2,867,000 |
|
1,639,000 |
|
1,228,000 |
|
1,514,000 |
|
993,000 |
|
521,000 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total intangible assets |
|
$ |
24,219,000 |
|
$ |
8,391,000 |
|
$ |
15,828,000 |
|
$ |
21,489,000 |
|
$ |
5,086,000 |
|
$ |
16,403,000 |
|
Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives which range from one to four years. Amortization of intangible assets was $1,089,000 and $993,000 for the three months ended September 30, 2012 and 2011, respectively. Amortization of intangible assets was $3,038,000 and $2,986,000 for the nine months ended September 30, 2012 and 2011, respectively. Based on the current amount of intangibles subject to amortization, estimated future annual amortization expense is as follows: 2012 (remainder): $603,000; 2013: $2,033,000; 2014: $645,000; 2015: $252,000. Intangible assets with indefinite lives are not amortized. Instead, they are reviewed for impairment
annually, or whenever events or changes in circumstances indicate the carrying amount exceeds its fair value. The Company has defined its annual intangible impairment evaluation date as August 31. The Company performed its annual indefinite life intangible asset impairment evaluation as of August 31, 2012 and determined that the carrying amount of the indefinite life intangible assets did not exceed the fair value. Additionally, there was no impairment of indefinite life intangible assets as of December 31, 2011.
For the annual impairment analysis, goodwill is evaluated at the reporting unit level. The evaluation for impairment is performed by comparing the reporting units carrying amount of goodwill to the fair value of the reporting unit. If the carrying amount exceeds the reporting unit fair value, then the second step of the impairment test is performed to determine the amount of the impairment loss. The Company has defined its annual goodwill impairment evaluation date as August 31. The Company performed its annual goodwill impairment evaluation as of August 31, 2012 and determined that the carrying amount of goodwill did not exceed the fair value of either reporting units. Additionally, there was no impairment of goodwill as of December 31, 2011.
5. Commitments and Contingencies
The Company leases its facilities under operating leases. These leases expire at various dates through 2020. The terms of the lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease period.
In September 2012, the Company entered into a new lease for our primary office space in San Francisco, California, which expires in 2020. The following table sets forth, as of September 30, 2012, payments due under all operating lease obligations:
|
|
Payments |
| |
|
|
(In thousands) |
| |
Year ending December 31: |
|
|
| |
2012 (remaining) |
|
$ |
496 |
|
2013 |
|
1,680 |
| |
2014 |
|
2,428 |
| |
2015 |
|
2,246 |
| |
2016 & thereafter |
|
9,803 |
| |
Total |
|
$ |
16,653 |
|
Litigation
The Company is subject to various legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes that the final disposition of such matters will not have a material adverse effect on the Companys business, financial position, results of operations or cash flows.
6. Stockholders Equity
Treasury Stock
In November 2011, the Board of Directors authorized the Company to purchase up to $50 million of its outstanding common stock. In January 2012, the Company completed the repurchase program with the purchase of 221,763 shares of stock for $8,710,000.
In August 2012, the Board of Directors authorized the Company to purchase up to an additional $50 million of its outstanding common stock. No purchases have been completed under the new repurchase program as of September 30, 2012.
Stock-Based Compensation
The Company accounts for stock-based compensation under Topic 718Stock Compensation (Topic 718), which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.
Under Topic 718, the fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.
The following table summarizes the assumptions relating to the Companys stock options for the three and nine months ended September 30, 2012 and 2011, respectively:
|
|
Three Months |
|
Nine Months |
| ||||
|
|
Ended |
|
Ended |
| ||||
|
|
September 30, |
|
September 30, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Dividend yield |
|
0% |
|
0% |
|
0% |
|
0% |
|
Volatility |
|
53% |
|
53%-54% |
|
52%-55% |
|
53%-54% |
|
Risk-free interest rate |
|
0.80%-0.89% |
|
0.79%-1.76% |
|
0.80%-1.27% |
|
0.79%-2.67% |
|
Expected term, in years |
|
6.02-6.08 |
|
5.00-6.08 |
|
5.27-6.55 |
|
5.00-6.08 |
|
The Company granted 214,572 and 16,311 stock options during the three months ended September 30, 2012 and 2011, respectively, and 1,425,481 and 124,701 stock options during the nine months ended September 30, 2012 and 2011, respectively. The Company recorded stock-based compensation expense related to stock options of $3,562,000 and $3,270,000 for three months ended September 30, 2012 and 2011, respectively, and $13,461,000 and $7,113,000 for the nine months ended September 30, 2012 and 2011, respectively.
Topic 718 requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduces net operating cash flows and increases net financing cash flows. For the three months ended September 30, 2012 and 2011, the Company recorded $1,802,000 and $2,022,000, respectively, of excess tax benefits from stock-based compensation and $9,750,000 and $3,934,000, for the nine months ended September 30, 2012 and 2011, respectively.
Restricted Stock Units
The Company began granting restricted stock units (RSUs) to its non-executive employees in November 2010. The cost of RSUs is determined using the fair value of the Companys common stock on the date of grant. RSUs typically vest and become exercisable annually, based on a one to four year total vesting term. Stock-based compensation expense is amortized using a graded vesting attribution method over the requisite service period.
The Company granted 24,358 and 12,733 RSUs during the three months ended September 30, 2012 and 2011, respectively, and 120,155 and 47,979 RSUs during the nine months ended September 30, 2012 and 2011, respectively. The Company recorded stock-based compensation expense related to RSUs of $1,348,000 and $699,000, respectively, for the three months ended September 30, 2012 and 2011, respectively, and $2,626,000 and $1,696,000 for the nine months ended September 30, 2012 and 2011, respectively.
7. Net Income Per Share
The Company calculates net income per share in accordance with Topic 260Earnings per Share. Basic and diluted net income per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Companys weighted average unvested shares subject to repurchase and settlement in shares of common stock upon vesting have the non-forfeitable right to receive dividends on an equal basis with common stock and therefore are considered participating securities that must be included in the calculation of net income per share using the two-class method in all presented periods. As of September 30, 2012, the Company had no further unvested shares remaining.
Non-vested performance-based awards are included in the diluted shares outstanding each period if established performance criteria have been met at the end of the respective periods. 98,000 and 220,000 shares were excluded from the dilutive shares outstanding for the three months ended September 30, 2012 and 2011, and 98,000 and 220,000 for the nine months ended September 30, 2012 and 2011, respectively, as the performance criteria had not been met as of the respective dates.
Anti-dilutive shares in the amounts of 1,414,000 and 198,000 were excluded from the dilutive shares outstanding for the three months ended September 30, 2012 and 2011, respectively. Anti-dilutive shares in the amounts of 1,500,000 and 99,000 were excluded from the dilutive shares outstanding for the nine months ended September 30, 2012 and 2011, respectively.
The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
|
|
Three Months |
|
Nine Months |
| ||||||||
|
|
Ended September 30, |
|
Ended September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic net income per common share calculation: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
5,948,000 |
|
$ |
4,056,000 |
|
$ |
16,509,000 |
|
$ |
14,566,000 |
|
Less: Undistributed earnings allocated to participating securities |
|
|
|
|
|
|
|
(18,000 |
) | ||||
Net income attributable to common shares - basic |
|
$ |
5,948,000 |
|
$ |
4,056,000 |
|
$ |
16,509,000 |
|
$ |
14,548,000 |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted average common shares outstanding |
|
22,641,000 |
|
23,695,000 |
|
22,585,000 |
|
23,530,000 |
| ||||
Basic net income per share |
|
$ |
0.26 |
|
$ |
0.17 |
|
$ |
0.73 |
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
| ||||
Diluted net income per common share calculation: |
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
5,948,000 |
|
$ |
4,056,000 |
|
$ |
16,509,000 |
|
$ |
14,566,000 |
|
Less: Undistributed earnings allocated to participating securities |
|
|
|
|
|
|
|
(11,000 |
) | ||||
Net income attributable to common shares - diluted |
|
$ |
5,948,000 |
|
$ |
4,056,000 |
|
$ |
16,509,000 |
|
$ |
14,555,000 |
|
Weighted average shares used to compute basic net income per share |
|
22,641,000 |
|
23,695,000 |
|
22,585,000 |
|
23,530,000 |
| ||||
Effect of potentially dilutive securities: |
|
|
|
|
|
|
|
|
| ||||
Unvested common shares subject to repurchase |
|
|
|
|
|
|
|
18,000 |
| ||||
Employee stock options |
|
547,000 |
|
784,000 |
|
548,000 |
|
989,000 |
| ||||
Employee stock awards |
|
73,000 |
|
9,000 |
|
55,000 |
|
8,000 |
| ||||
Weighted average shares used to compute diluted net income per share |
|
23,261,000 |
|
24,488,000 |
|
23,188,000 |
|
24,545,000 |
| ||||
Diluted net income per share |
|
$ |
0.26 |
|
$ |
0.17 |
|
$ |
0.71 |
|
$ |
0.59 |
|
8. Income Taxes
During the three and nine months ended September 30, 2012, the Company recorded income tax expense of $3,253,000 and $8,989,000, respectively, which resulted in an effective tax rate of 35% in each respective period. During the three and nine months ended September 30, 2011, the Company recorded income tax expense of $1,775,000 and $7,346,000, respectively, which resulted in an effective tax rate of 30% and 34%, respectively. The expected tax provision derived from applying the federal statutory rate to the Companys income before income tax provision for the three and nine months ended September 30, 2012 differed from the Companys recorded income tax provision primarily due to benefits resulting from the recognition of current year state research and development credits and the federal Domestic Manufacturing Deduction. The Companys effective tax rate for the three and nine months ended September 30, 2012 is not necessarily indicative of the effective tax rate that may be expected for fiscal year 2012.
Topic 740Income Taxes prescribes that a tax position is required to meet a minimum recognition threshold before being recognized in the financial statements. The Companys gross unrecognized tax benefits as of September 30, 2012 and December 31, 2011 were $18,026,000 and $17,648,000, respectively. As of September 30, 2012 and December 31, 2011, the Company recorded $378,000 and $200,000, respectively, of accrued interest. No significant penalties have been recorded to date.
9. Comprehensive Income (Loss)
In accordance with Topic 220Comprehensive Income, the Company reports by major components and, as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) consists of net income and accumulated other comprehensive income (loss), which includes certain changes in equity that are excluded from net income. Specifically, it includes cumulative foreign currency translation and the unrealized gain (loss) from investments.
Accumulated other comprehensive income of $905,000 as of September 30, 2012 was comprised entirely of foreign currency translation gains. Accumulated other comprehensive loss of $1,634,000 as of December 31, 2011 was comprised of $1,637,000 of foreign currency translation losses and $3,000 of unrealized gain on investments.
10. Segment Information
The Company operates in one industryonline restaurant reservations and guest management solutions for restaurants. The Company has two reportable segments: North America and International, as defined by Topic 280Segment Reporting. Reportable segments have been identified based on how management makes operating decisions, assesses performance and allocates resources. The Chief Executive Officer acts as the chief operating decision maker on behalf of both segments. The Company does not allocate assets discretely by reportable segments, and reviews asset information on a global basis, not by segment.
Summarized financial information concerning the reportable segments is as follows:
|
|
North America |
|
International |
|
Total |
| |||
Three months ended September 30, 2012 |
|
|
|
|
|
|
| |||
Revenuesreservations |
|
$ |
19,193,000 |
|
$ |
2,718,000 |
|
$ |
21,911,000 |
|
Revenuessubscription |
|
12,510,000 |
|
1,754,000 |
|
14,264,000 |
| |||
Revenuesother |
|
2,789,000 |
|
774,000 |
|
3,563,000 |
| |||
Income (loss) from operations |
|
11,581,000 |
|
(2,416,000 |
) |
9,165,000 |
| |||
Interest income |
|
22,000 |
|
|
|
22,000 |
| |||
Depreciation and amortization expense |
|
1,912,000 |
|
1,455,000 |
|
3,367,000 |
| |||
Purchases of property, equipment and software |
|
2,482,000 |
|
752,000 |
|
3,234,000 |
| |||
Three months ended September 30, 2011 |
|
|
|
|
|
|
| |||
Revenuesreservations |
|
$ |
15,154,000 |
|
$ |
2,861,000 |
|
$ |
18,015,000 |
|
Revenuessubscription |
|
11,406,000 |
|
1,531,000 |
|
12,937,000 |
| |||
Revenuesother |
|
2,521,000 |
|
883,000 |
|
3,404,000 |
| |||
Income (loss) from operations |
|
8,532,000 |
|
(2,724,000 |
) |
5,808,000 |
| |||
Interest income |
|
25,000 |
|
|
|
25,000 |
| |||
Depreciation and amortization expense |
|
1,726,000 |
|
1,321,000 |
|
3,047,000 |
| |||
Purchases of property, equipment and software |
|
2,036,000 |
|
609,000 |
|
2,645,000 |
| |||
Nine months ended September 30, 2012 |
|
|
|
|
|
|
| |||
Revenuesreservations |
|
$ |
58,128,000 |
|
$ |
8,421,000 |
|
$ |
66,549,000 |
|
Revenuessubscription |
|
36,675,000 |
|
5,056,000 |
|
41,731,000 |
| |||
Revenuesother |
|
7,884,000 |
|
2,501,000 |
|
10,385,000 |
| |||
Income (loss) from operations |
|
32,935,000 |
|
(7,503,000 |
) |
25,432,000 |
| |||
Interest income |
|
51,000 |
|
|
|
51,000 |
| |||
Depreciation and amortization expense |
|
5,460,000 |
|
4,213,000 |
|
9,673,000 |
| |||
Purchases of property, equipment and software |
|
6,704,000 |
|
3,189,000 |
|
9,893,000 |
| |||
Nine months ended September 30, 2011 |
|
|
|
|
|
|
| |||
Revenuesreservations |
|
$ |
45,690,000 |
|
$ |
8,228,000 |
|
$ |
53,918,000 |
|
Revenuessubscription |
|
33,117,000 |
|
4,400,000 |
|
37,517,000 |
| |||
Revenuesother |
|
8,290,000 |
|
2,628,000 |
|
10,918,000 |
| |||
Income (loss) from operations |
|
30,857,000 |
|
(9,013,000 |
) |
21,844,000 |
| |||
Interest income |
|
57,000 |
|
2,000 |
|
59,000 |
| |||
Depreciation and amortization expense |
|
5,162,000 |
|
3,666,000 |
|
8,828,000 |
| |||
Purchases of property, equipment and software |
|
5,332,000 |
|
1,965,000 |
|
7,297,000 |
|
(1) A significant majority of the Companys Technology costs are incurred in the United States and as such are allocated to the North America segment. There are no internal revenue transactions between the Companys reporting segments.
Geographical Information
The Company is domiciled in the United States and has international operations in Canada, Germany, Japan, Mexico and the United Kingdom. Information regarding the Companys operations by geographic area is presented below:
|
|
Three Months |
|
Nine Months |
| ||||||||
|
|
Ended September 30, |
|
Ended September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
United States |
|
$ |
32,322,000 |
|
$ |
27,249,000 |
|
$ |
96,447,000 |
|
$ |
81,771,000 |
|
United Kingdom |
|
3,986,000 |
|
4,297,000 |
|
12,415,000 |
|
12,569,000 |
| ||||
International - all others |
|
3,430,000 |
|
2,810,000 |
|
9,803,000 |
|
8,013,000 |
| ||||
|
|
$ |
39,738,000 |
|
$ |
34,356,000 |
|
$ |
118,665,000 |
|
$ |
102,353,000 |
|
|
|
As of |
|
As of |
| ||
|
|
September 30, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Long-lived assets(1): |
|
|
|
|
| ||
United States |
|
$ |
14,177,000 |
|
$ |
12,536,000 |
|
United Kingdom |
|
4,138,000 |
|
2,399,000 |
| ||
Internationalall others |
|
1,515,000 |
|
2,670,000 |
| ||
Total long-lived assets |
|
$ |
19,830,000 |
|
$ |
17,605,000 |
|
(1) Includes all non-current assets except deferred tax assets, goodwill, patents and intangible assets.
The Company had no customers that individually, or in the aggregate, exceeded 10% of revenues or accounts receivable as of and for any of the periods presented above.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2011 Annual Report.
This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are often identified by the use of words such as, but not limited to, anticipate, believe, can, continue, could, estimate, expect, intend, may, will, plan, project, seek, should, target, would and similar expressions or variations intended to identify forward-looking
statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled Risk Factors included below and in our 2011 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We provide solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. Our solutions for restaurants include our proprietary Electronic Reservation Book, or ERB, and Connect. Our solutions for diners include our popular restaurant reservation websites, www.opentable.com and www.toptable.co.uk, as well as a variety of mobile applications. We refer to www.opentable.com, www.toptable.co.uk and related websites as the OpenTable websites. The OpenTable network includes more than 26,000 OpenTable restaurant customers spanning all 50 states as well as select markets outside of the United States. Since our inception in 1998, we have seated over 385 million diners through OpenTable reservations, and during the three months ended September 30, 2012, we seated an average of approximately 10 million diners per month. Restaurants that use our ERB pay us a one-time installation fee for onsite installation and training, a monthly subscription fee for the use of our software and hardware and a fee for each restaurant guest seated through online reservations. Restaurants that use Connect pay us a fee for each restaurant guest seated through online reservations. Diners can use our online restaurant reservation service for free. For the three months ended September 30, 2012 and 2011, our net revenues were $39.7 million and $34.4 million, respectively. For the nine months ended September 30, 2012 and 2011, our net revenues were $118.7 million and $102.4 million, respectively. For the three months ended September 30, 2012 and 2011, our reservation revenues accounted for 55% and 52% of our total revenues, respectively, and 56% and 53% of total revenues for the nine months ended September 30, 2012 and 2011, respectively. For the three months ended September 30, 2012 and 2011, our subscription revenues accounted for 36% and 38% of our total revenues, respectively, and 35% and 37% of revenues for the nine months ended September 30, 2012 and 2011, respectively.
In 2004, we began to selectively expand outside of North America into countries that are characterized by large numbers of online consumer transactions and reservation-taking restaurants. To date, we have concentrated our international efforts in Germany, Japan and the United Kingdom. Our revenues outside of North America for the three months ended September 30, 2012 and 2011 represented 13% and 15% of our total revenues, respectively, and for the nine months ended September 30, 2012 and 2011, represented 13% and 15% of our total revenues, respectively. We intend to continue to incur substantial expenses in advance of recognizing material related revenues as we attempt to further penetrate our existing international markets and selectively enter new markets. Some international markets may fail to meet our expectations, and we may decide to realign our focus.
Basis of Presentation
General
We report consolidated operations in U.S. dollars and operate in two geographic segments: North America and International. The North America segment is comprised of all of our operations in the United States, Canada and Mexico, and the International segment is comprised of all non-North America operations, which includes operations in Europe and Asia.
Revenues
We generate substantially all of our revenues from our restaurant customers. Our revenues include monthly subscription fees, a fee for each restaurant guest seated through online reservations and other revenue, including installation fees for our ERB (including training). Subscription revenues are recognized on a straight-line basis during the contractual period over which the service is delivered to our restaurant customers. Revenues from online reservations are recognized on a transaction basis as the diners are seated by the restaurant. Installation fees are recognized on a straight-line basis over an estimated customer life of approximately three to six years. Revenues are shown net of redeemable Dining Points issued to diners. See Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesDining Rewards Loyalty Program in our 2011 Annual Report.
Costs and Expenses
Operations and support. Our operations and support expenses consist primarily of payroll and related costs, including bonuses and stock-based compensation, for those employees associated with installation, support and maintenance for our restaurant customers, as well as costs related to our outsourced call center. Operations and support expenses also include restaurant equipment costs, such as depreciation on restaurant-related hardware, shipping costs related to restaurant equipment, restaurant equipment costs that do not meet the capitalization threshold, referral payments and website connectivity costs. Operations and support expenses also include amortization of capitalized website and software development costs (see Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and EstimatesWebsite and Software Development Costs in our 2011 Annual Report). Also included in operations and support expenses are travel and related expenses incurred by the employees providing installation and support services for our restaurant customers, plus allocated facilities costs.
Sales and marketing. Our sales and marketing expenses consist primarily of salaries, benefits and incentive compensation for sales and marketing employees, including stock-based compensation. Also included are expenses for trade shows, public relations and other promotional and marketing activities, travel and entertainment expenses and allocated facilities costs.
Technology. Our technology expenses consist primarily of salaries and benefits, including bonuses and stock-based compensation, for employees and contractors engaged in the development and ongoing maintenance of our websites, infrastructure and software, as well as allocated facilities costs.
General and administrative. Our general and administrative costs consist primarily of salaries and benefits, including stock-based compensation, for general and administrative employees and contractors involved in executive, finance, accounting, risk management, human resources and legal roles. In addition, general and administrative costs include consulting, legal, accounting and other professional fees. Bad debt, third-party payment processor, credit card, bank processing fees and allocated facilities costs are also included in general and administrative expenses.
Headcount consists of full-time equivalent employees, including full-time equivalent temporary employees, in all of the sections noted below.
Other Income, Net
Other income, net consists primarily of the interest income earned on our cash, cash equivalents and short-term investments. Foreign exchange gains and losses are also included in other income, net.
Income Taxes
We are subject to income tax in the United States as well as other tax jurisdictions in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may also be subject to current U.S. income tax.
Our effective tax rates for the three and nine months ended September 30, 2012 are not necessarily indicative of the effective tax rate that may be expected for fiscal year 2012.
Critical Accounting Policies and Estimates
In presenting our financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.
Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.
We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements:
· Revenue Recognition;
· Dining Rewards Loyalty Program;
· Valuation of Long-Lived and Intangible Assets, Including Goodwill;
· Website and Software Development Costs;
· Income Taxes; and
· Stock-Based Compensation.
For a description of our critical and significant accounting policies, see below and in our 2011 Annual Report. There have been no material changes to our critical accounting policies during the nine months ended September 30, 2012.
Valuation of Long-Lived and Intangible Assets, Including Goodwill
Long-lived assets are reviewed for impairment whenever events or changes in circumstances or a triggering event, such as service discontinuance or technological obsolescence, may indicate that the carrying amount of the long-lived asset may not be recoverable. Determining whether a triggering event has occurred often involves significant judgment from management. When such events occur, we compare the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment exists, the amount of the impairment is calculated and a charge is recorded. The amount of the impairment is determined to be the difference between the carrying amount and the fair value of the asset. If a readily determinable market price does not exist for the asset, fair value is estimated using discounted expected cash flows attributable to the asset. Significant judgment and estimates are involved in any impairment evaluation and our estimates, including estimates used in determining future cash flows.
We test goodwill for impairment at least annually. We review goodwill for impairment as of August 31 and whenever events or changes in circumstances indicate that the carrying amount of this asset may exceed its fair value. Our assessment is performed at the reporting unit level. The goodwill evaluation for impairment is performed using a two-step process. The first step is to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value of a reporting unit exceeds the book value, goodwill is not considered impaired. If the book value exceeds the fair value, the second step of the process is performed to measure the amount of impairment. The process of evaluating goodwill for impairment under the two-step model involves the determination of the fair value of our reporting units. The fair value of the reporting units is determined using discounted future cash flows. Forecasts of future cash flow are based on managements best estimate of future revenues and operating expenses, based primarily on expected growth in installed restaurants, seated diners, pricing and general economic conditions. Changes in these forecasts could significantly change the amount of impairment recorded, if any.
Goodwill is tested for impairment at the reporting unit level and is based on the net assets for each unit, including goodwill and intangible assets. We assign goodwill to each operating segment as this represents the lowest level which constitutes a business and for which discrete financial information is available and management regularly reviews. We have determined that we have two geographical reporting units: North America and the United Kingdom.
As of August 31, 2012, the fair value of our North America reporting unit, which carries approximately $6.8 million in goodwill associated with the Treat, Guestbridge and Table Maestro acquisitions, exceeds the carrying value by a substantial amount, indicating no impairment in goodwill for the North America reporting unit. As of August 31, 2012, the fair value of the U.K. reporting unit, which carries approximately $39.5 million in goodwill associated with the toptable acquisition, exceeds the carrying value by a substantial amount, indicating no goodwill impairment for the U.K. reporting unit.
During the year, management monitored the actual performance of the business relative to the fair value assumptions used during our annual goodwill impairment test. For the periods presented, no triggering events were identified that required an update to our annual impairment test. As a measure of sensitivity, a 10% decrease in the fair value of either of our reporting units as of September 30, 2012 or December 31, 2011 would not have changed our assessment of the carrying value of goodwill.
Results of Operations
The following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(In thousands, except per share amounts) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
REVENUES |
|
$ |
39,738 |
|
$ |
34,356 |
|
$ |
118,665 |
|
$ |
102,353 |
|
|
|
|
|
|
|
|
|
|
| ||||
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
| ||||
Operations and support (1) |
|
10,544 |
|
9,916 |
|
31,402 |
|
29,074 |
| ||||
Sales and marketing (1) |
|
8,216 |
|
7,477 |
|
25,559 |
|
21,692 |
| ||||
Technology (1) |
|
3,741 |
|
3,748 |
|
10,599 |
|
11,326 |
| ||||
General and administrative (1) |
|
8,072 |
|
7,407 |
|
25,673 |
|
18,417 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total costs and expenses |
|
30,573 |
|
28,548 |
|
93,233 |
|
80,509 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income from operations |
|
9,165 |
|
5,808 |
|
25,432 |
|
21,844 |
| ||||
Other income, net |
|
36 |
|
23 |
|
66 |
|
68 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income before taxes |
|
9,201 |
|
5,831 |
|
25,498 |
|
21,912 |
| ||||
Income tax expense |
|
3,253 |
|
1,775 |
|
8,989 |
|
7,346 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
NET INCOME |
|
$ |
5,948 |
|
$ |
4,056 |
|
$ |
16,509 |
|
$ |
14,566 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per share: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.26 |
|
$ |
0.17 |
|
$ |
0.73 |
|
$ |
0.62 |
|
Diluted |
|
$ |
0.26 |
|
$ |
0.17 |
|
$ |
0.71 |
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
22,641 |
|
23,695 |
|
22,585 |
|
23,530 |
| ||||
Diluted |
|
23,261 |
|
24,488 |
|
23,188 |
|
24,545 |
| ||||
|
|
|
|
|
|
|
|
|
|
(1) Stock-based compensation included in above line items: |
|
|
|
|
|
|
|
|
| ||||
Operations and support |
|
$ |
332 |
|
$ |
431 |
|
$ |
966 |
|
$ |
1,289 |
|
Sales and marketing |
|
1,290 |
|
571 |
|
4,046 |
|
1,574 |
| ||||
Technology |
|
1,020 |
|
431 |
|
2,184 |
|
1,319 |
| ||||
General and administrative |
|
2,268 |
|
2,536 |
|
8,891 |
|
4,627 |
| ||||
|
|
$ |
4,910 |
|
$ |
3,969 |
|
$ |
16,087 |
|
$ |
8,809 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other Operational Data: |
|
|
|
|
|
|
|
|
| ||||
Installed restaurants (at period end): |
|
|
|
|
|
|
|
|
| ||||
North America |
|
18,975 |
|
16,237 |
|
18,975 |
|
16,237 |
| ||||
International |
|
7,385 |
|
7,629 |
|
7,385 |
|
7,629 |
| ||||
Total |
|
26,360 |
|
23,866 |
|
26,360 |
|
23,866 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Seated diners (in thousands): |
|
|
|
|
|
|
|
|
| ||||
North America |
|
27,438 |
|
21,818 |
|
83,192 |
|
64,884 |
| ||||
International |
|
2,302 |
|
1,768 |
|
6,800 |
|
4,939 |
| ||||
Total |
|
29,740 |
|
23,586 |
|
89,992 |
|
69,823 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Headcount (at period end): |
|
|
|
|
|
|
|
|
| ||||
North America |
|
425 |
|
403 |
|
425 |
|
403 |
| ||||
International |
|
162 |
|
165 |
|
162 |
|
165 |
| ||||
Total |
|
587 |
|
568 |
|
587 |
|
568 |
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
(In thousands, except per share amounts) |
| ||||||||||
|
|
|
|
|
|
|
|
|
| ||||
Additional Financial Data: |
|
|
|
|
|
|
|
|
| ||||
Revenues: |
|
|
|
|
|
|
|
|
| ||||
North America |
|
|
|
|
|
|
|
|
| ||||
Reservation |
|
$ |
19,193 |
|
$ |
15,154 |
|
$ |
58,128 |
|
$ |
45,690 |
|
Subscription |
|
12,510 |
|
11,406 |
|
36,675 |
|
33,117 |
| ||||
Other |
|
2,789 |
|
2,521 |
|
7,884 |
|
8,290 |
| ||||
Total North America Revenues |
|
$ |
34,492 |
|
$ |
29,081 |
|
$ |
102,687 |
|
$ |
87,097 |
|
International |
|
|
|
|
|
|
|
|
| ||||
Reservation |
|
$ |
2,718 |
|
$ |
2,861 |
|
$ |
8,421 |
|
$ |
8,228 |
|
Subscription |
|
1,754 |
|
1,531 |
|
5,056 |
|
4,400 |
| ||||
Other |
|
774 |
|
883 |
|
2,501 |
|
2,628 |
| ||||
Total International Revenues |
|
5,246 |
|
5,275 |
|
15,978 |
|
15,256 |
| ||||
Total Revenues |
|
$ |
39,738 |
|
$ |
34,356 |
|
$ |
118,665 |
|
$ |
102,353 |
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) from operations: |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
11,581 |
|
$ |
8,532 |
|
$ |
32,935 |
|
$ |
30,857 |
|
International |
|
(2,416 |
) |
(2,724 |
) |
(7,503 |
) |
(9,013 |
) | ||||
Total |
|
$ |
9,165 |
|
$ |
5,808 |
|
$ |
25,432 |
|
$ |
21,844 |
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
1,912 |
|
$ |
1,726 |
|
$ |
5,460 |
|
$ |
5,162 |
|
International |
|
1,455 |
|
1,321 |
|
4,213 |
|
3,666 |
| ||||
Total |
|
$ |
3,367 |
|
$ |
3,047 |
|
$ |
9,673 |
|
$ |
8,828 |
|
|
|
|
|
|
|
|
|
|
| ||||
Stock-based compensation: |
|
|
|
|
|
|
|
|
| ||||
North America |
|
$ |
4,221 |
|
$ |
3,295 |
|
$ |
14,447 |
|
$ |
6,176 |
|
International |
|
689 |
|
674 |
|
1,640 |
|
2,633 |
| ||||
Total |
|
$ |
4,910 |
|
$ |
3,969 |
|
$ |
16,087 |
|
$ |
8,809 |
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 30, |
| ||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
|
|
(as a percentage of revenue) |
| ||||||
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
Operations and support |
|
27 |
|
29 |
|
25 |
|
29 |
|
Sales and marketing |
|
21 |
|
22 |
|
22 |
|
21 |
|
Technology |
|
9 |
|
11 |
|
9 |
|
11 |
|
General and administrative |
|
20 |
|
21 |
|
22 |
|
18 |
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
77 |
|
83 |
|
78 |
|
79 |
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
23 |
|
17 |
|
22 |
|
21 |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
23 |
|
17 |
|
22 |
|
21 |
|
Income tax expense |
|
8 |
|
5 |
|
8 |
|
7 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
15 |
% |
12 |
% |
14 |
% |
14 |
% |
|
|
|
|
|
|
|
|
|
|
Segments
We have identified two reportable segments: North America and International. In both segments, we derive revenue primarily from online reservations and guest management solutions. Total North America revenues increased from $29.1 million for the three months ended September 30, 2011, to $34.5 million for the three months ended September 30, 2012, and increased from $87.1 million for the nine months ended September 30, 2011 to $102.7 million for the nine months ended September 30, 2012. North America reservation revenues increased from $15.2 million for the three months ended September 30, 2011, to $19.2 million for the three months ended September 30, 2012, and increased from $45.7 million for the nine
months ended September 30, 2011, to $58.1 million for the nine months ended September 30, 2012. North America reservation revenues increased as a result of an increase in seated diners. North America subscription revenues increased from $11.4 million for the three months ended September 30, 2011, to $12.5 million for the three months ended September 30, 2012, and increased from $33.1 million for the nine months ended September 30, 2011, to $36.7 million for the nine months ended September 30, 2012. North America subscription revenues increased as a result of an increase in installed restaurants. North America income from operations increased from $8.5 million for the three months ended September 30, 2011, to $11.6 million for the three months ended September 30, 2012, and increased from $30.8 million for the nine months ended September 30, 2011, to $32.9 million for the nine months ended September 30, 2012. The increase in income from operations is due to revenue increases exceeding the increase in expenses, due to operational efficiencies.
Total International revenues were $5.2 million for the three months ended September 30, 2011 and 2012, and increased from $15.3 million for the nine months ended September 30, 2011 to $16.0 million for the nine months ended September 30, 2012. International reservation revenues decreased from $2.9 million for the three months ended September 30, 2011, to $2.7 million for the three months ended September 30, 2012, and increased from $8.2 million for the nine months ended September 30, 2011, to $8.4 million for the nine months ended September 30, 2012. International reservation revenues decreased in the three months ended September 30, 2012 primarily driven by changes in per seated diner fees made at toptable earlier in the year. International subscription revenues increased from $1.5 million for the three months ended September 30, 2011, to $1.8 million for the three months ended September 30, 2012, and increased from $4.4 million for the nine months ended September 30, 2011, to $5.1 million for the nine months ended September 30, 2012. International subscription revenues increased as a result of an increase in installed restaurants. International loss from operations decreased from $2.7 million for the three months ended September 30, 2011, to $2.4 million for the three months ended September 30, 2012, and decreased from $9.0 million for the nine months ended September 30, 2011, to $7.5 million for the nine months ended September 30, 2012. The decrease in the loss from operations is due to decreases in marketing spending, specifically the purchasing of pay per click marketing. Refer to Note 10 to the consolidated financial statements for additional segment information.
Revenues
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
| ||||||||
|
|
September 30, |
|
September 30, |
|
Three Month |
|
Nine Month |
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|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
% Change |
|
% Change |
| ||||
|
|
(Dollars in thousands) |
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|
|
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Revenues by Type: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reservation |
|
$ |
21,911 |
|
$ |
18,015 |
|
$ |
66,549 |
|
$ |
53,918 |
|
22 |
% |
23 |
% |
Subscription |
|
14,264 |
|
12,937 |
|
41,731 |
|
37,517 |
|
10 |
% |
11 |
% | ||||
Other |
|
3,563 |
|
3,404 |
|
10,385 |
|
10,918 |
|
5 |
% |
-5 |
% | ||||
Total |
|
$ |
39,738 |
|
$ |
34,356 |
|
$ |
118,665 |
|
$ |
102,353 |
|
16 |
% |
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Percentage of Revenues by Type: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Reservation |
|
55 |
% |
52 |
% |
56 |
% |
53 |
% |
|
|
|
| ||||
Subscription |
|
36 |
% |
38 |
% |
35 |
% |
37 |
% |
|
|
|
| ||||
Other |
|
9 |
% |
10 |
% |
9 |
% |
10 |
% |
|
|
|
| ||||
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
|
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