Table of Contents

 

 

 

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, 2013

 

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

 

94-3374049

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer
Identification No.)

 

One Montgomery Street, 7th Floor, San Francisco,

 

 

CA

 

94104

(Address of Principal Executive Offices)

 

(Zip Code)

 

(415) 344-4200

(Registrant’s 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

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company o

 

 

 

 

(Do not check if a smaller reporting

 

 

 

 

 

 

company)

 

 

 

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 4, 2013, 23,271,351 shares of the registrant’s common stock were outstanding.

 

 

 



Table of Contents

 

OPENTABLE, Inc.

Table of Contents

 

 

Page

 

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Income

4

 

Condensed Consolidated Statements of Comprehensive Income

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

Index to Exhibits

 

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

90,467,000

 

$

102,772,000

 

Short-term investments

 

12,283,000

 

733,000

 

Accounts receivable, net of allowance for doubtful accounts of $1,416,000 and $1,551,000 at September 30, 2013 and December 31, 2012

 

22,807,000

 

22,015,000

 

Prepaid expenses and other current assets

 

7,024,000

 

2,924,000

 

Deferred tax asset

 

17,210,000

 

14,353,000

 

 

 

 

 

 

 

Total current assets

 

149,791,000

 

142,797,000

 

 

 

 

 

 

 

Property, equipment and software, net

 

29,854,000

 

21,271,000

 

Goodwill

 

69,798,000

 

46,304,000

 

Intagible assets

 

21,454,000

 

15,226,000

 

Deferred tax asset

 

14,724,000

 

10,628,000

 

Other assets

 

894,000

 

1,021,000

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

286,515,000

 

$

237,247,000

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

3,389,000

 

$

2,985,000

 

Accrued expenses

 

6,453,000

 

10,862,000

 

Accrued compensation

 

5,968,000

 

5,167,000

 

Deferred revenue

 

2,003,000

 

1,563,000

 

Deferred tax liabilities

 

49,000

 

107,000

 

Dining rewards payable

 

35,165,000

 

27,611,000

 

Total current liabilities

 

53,027,000

 

48,295,000

 

 

 

 

 

 

 

Deferred revenue — non-current

 

1,922,000

 

2,054,000

 

Deferred tax liabilities

 

3,673,000

 

3,268,000

 

Income tax liabilities

 

14,737,000

 

15,639,000

 

Other long-term liabilities

 

3,248,000

 

76,000

 

 

 

 

 

 

 

Total liabilities

 

76,607,000

 

69,332,000

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 5)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, $0.0001 par value — 100,000,000 shares authorized; 25,160,685 and 24,219,627 shares issued, 23,236,210 and 22,898,107 shares outstanding at September 30, 2013 and December 31, 2012

 

2,000

 

2,000

 

Additional paid-in capital

 

254,204,000

 

211,408,000

 

Treasury stock, at cost (1,924,475 and 1,521,520 shares at September 30, 2013 and December 31, 2012)

 

(74,247,000

)

(50,685,000

)

Accumulated other comprehensive income

 

549,000

 

861,000

 

Retained earnings

 

29,400,000

 

6,329,000

 

 

 

 

 

 

 

Total stockholders’ equity

 

209,908,000

 

167,915,000

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

286,515,000

 

$

237,247,000

 

 

See notes to condensed consolidated financial statements (unaudited).

 

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OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

46,693,000

 

$

39,738,000

 

$

137,759,000

 

$

118,665,000

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

12,829,000

 

10,544,000

 

35,650,000

 

31,402,000

 

Sales and marketing

 

10,070,000

 

8,216,000

 

29,527,000

 

25,559,000

 

Technology

 

5,194,000

 

3,741,000

 

14,305,000

 

10,599,000

 

General and administrative

 

8,385,000

 

8,072,000

 

25,075,000

 

25,673,000

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

36,478,000

 

30,573,000

 

104,557,000

 

93,233,000

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

10,215,000

 

9,165,000

 

33,202,000

 

25,432,000

 

Other income, net

 

(30,000

)

36,000

 

(19,000

)

66,000

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

10,185,000

 

9,201,000

 

33,183,000

 

25,498,000

 

Income tax expense

 

2,571,000

 

3,253,000

 

10,112,000

 

8,989,000

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

7,614,000

 

$

5,948,000

 

$

23,071,000

 

$

16,509,000

 

 

 

 

 

 

 

 

 

 

 

Net income per share (See Note 7):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.26

 

$

1.01

 

$

0.73

 

Diluted

 

$

0.32

 

$

0.26

 

$

0.97

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

23,093,000

 

22,641,000

 

22,953,000

 

22,585,000

 

Diluted

 

24,043,000

 

23,261,000

 

23,868,000

 

23,188,000

 

 

See notes to condensed consolidated financial statements (unaudited).

 

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OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

7,614,000

 

$

5,948,000

 

$

23,071,000

 

$

16,509,000

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

3,455,000

 

2,081,000

 

(310,000

)

2,542,000

 

Unrealized loss on investments

 

 

 

(2,000

)

(3,000

)

Other comprehensive income (loss)

 

3,455,000

 

2,081,000

 

(312,000

)

2,539,000

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

$

11,069,000

 

$

8,029,000

 

$

22,759,000

 

$

19,048,000

 

 

See notes to condensed consolidated financial statements (unaudited).

 

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OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

23,071,000

 

$

16,509,000

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

8,825,000

 

6,635,000

 

Amortization of intangibles

 

3,604,000

 

3,038,000

 

Provision for doubtful accounts

 

1,982,000

 

2,032,000

 

Stock-based compensation

 

12,541,000

 

16,087,000

 

Write-off of property, equipment and software

 

530,000

 

253,000

 

Deferred taxes

 

(7,018,000

)

(6,009,000

)

Excess tax benefit related to stock compensation

 

(5,351,000

)

(9,750,000

)

Change in contingent liability

 

 

(21,000

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,721,000

)

(2,248,000

)

Prepaid expenses and other current assets

 

(4,777,000

)

(622,000

)

Accounts payable and accrued expenses

 

1,357,000

 

12,774,000

 

Accrued compensation

 

837,000

 

455,000

 

Deferred revenue

 

331,000

 

(282,000

)

Long-term liabilities

 

1,048,000

 

1,404,000

 

Dining rewards payable

 

7,539,000

 

5,063,000

 

 

 

 

 

 

 

Net cash provided by operating activities

 

42,798,000

 

45,318,000

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property, equipment and software

 

(16,516,000

)

(9,893,000

)

Purchases of investments

 

(14,346,000

)

(10,315,000

)

Sales and maturities of investments

 

2,660,000

 

22,667,000

 

Acquisition of businesses, net of cash acquired

 

(24,243,000

)

(4,000,000

)

 

 

 

 

 

 

Net cash used in investing activities

 

(52,445,000

)

(1,541,000

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Excess tax benefit related to stock-based compensation

 

5,351,000

 

9,750,000

 

Proceeds from issuance of common stock upon exercise of employee stock options

 

15,681,000

 

3,726,000

 

Repurchases of common stock

 

(23,562,000

)

(8,710,000

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(2,530,000

)

4,766,000

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATES ON CASH

 

(128,000

)

96,000

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(12,305,000

)

48,639,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

102,772,000

 

36,519,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — End of period

 

$

90,467,000

 

$

85,158,000

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

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Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for income taxes

 

$

23,050,000

 

$

1,474,000

 

Cash paid for interest expense

 

$

80,000

 

$

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING

 

 

 

 

 

AND FINANCING ACTIVITIES:

 

 

 

 

 

Purchase of property, equipment and software recorded in accounts payable and accrued expenses

 

$

1,629,000

 

$

266,000

 

 

 

 

 

 

 

Issuance of common stock in connection with acquisition of a business

 

$

8,224,000

 

$

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

 

$

1,000

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements (unaudited).

 

(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, “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 (“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’s websites and mobile applications (“apps”) as well as the websites and mobile applications of OpenTable’s partners and restaurant customers. For diners, the Company operates popular restaurant reservation websites and mobile apps. OpenTable’s websites and mobile apps enable diners to find, choose and book tables at restaurants on the OpenTable network, 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 Company’s future financial position, results of operations or cash flows: the ability to accurately forecast revenues and appropriately plan its expenses; the impact of the current economic climate on its business; the ability to maintain an adequate rate of growth; 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 mobile apps 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed on February 26, 2013 with the SEC. The

 

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condensed consolidated balance sheet as of December 31, 2012, 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 Company’s statement of financial position at September 30, 2013 and December 31, 2012, and the Company’s results of operations for the three and nine months ended September 30, 2013 and 2012, and its cash flows for the nine months ended September 30, 2013 and 2012. The results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for any future period. All references to September 30, 2013 or to the three or nine months ended September 30, 2013 and 2012 in the notes to the condensed consolidated financial statements are unaudited.

 

Acquisition of Foodspotting, Inc.

 

In February 2013, the Company acquired all of the outstanding shares of capital stock of Foodspotting, Inc., a provider of a mobile app for finding and sharing photos of food, for a purchase price of $10,100,000 in cash. The Company recorded $6,227,000 of goodwill and $4,300,000 of developed technology which is being amortized over two years. The Company has included the effects of the transaction within the results of operations prospectively from February 6, 2013, the date of acquisition. Pro forma financial information for this business combination has not been presented, as the effects were not material to the Company’s historical consolidated financial statements.

 

Acquisition of JustChalo

 

In June 2013, the Company acquired JustChalo Inc., a mobile technology company, for a purchase price of $11,000,000, of which $2,300,000 was paid in cash and the remainder through the issuance of 121,909 shares of common stock and an option to purchase 6,478 shares of common stock. The Company recorded $9,644,000 of goodwill and $1,200,000 of developed technology which is being amortized over two years. The Company has included the effects of the transaction within the results of operations prospectively from June 10, 2013, the date of acquisition. Pro forma financial information for this business combination has not been presented, as the effects were not material to the Company’s historical consolidated financial statements.

 

Acquisition of Rezbook

 

In July 2013, the Company acquired certain assets and liabilities of the Rezbook business from Urbanspoon, an operating business of IAC/InterActiveCorp, for $12,000,000 in cash. Rezbook is a reservation management system for restaurants. The Company recorded $7,683,000 of goodwill in connection with this acquisition. Additionally, the Company recorded $3,000,000 in customer relationships and $1,400,000 of developed technology which are being amortized over five and two years, respectively. The Company has included the effects of the transaction within the results of operations prospectively from July 31, 2013, the date of acquisition. Pro forma financial information for this business combination has not been presented, as the effects were not material to the Company’s historical consolidated financial statements.

 

Use of Estimates

 

The preparation of the Company’s 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.

 

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Recently Issued Accounting Standards

 

As of September 30, 2013, the Company believes that there are no recently issued accounting pronouncements not yet effective that will have an impact on the Company’s condensed consolidated financial statements.

 

3. Short-Term Investments and Fair Value Measurements

 

Short-term investments as of September 30, 2013 and December 31, 2012 are summarized as follows:

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated Fair

 

 

 

Cost

 

Gains

 

Losses

 

Market Value

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2013:

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

10,079,000

 

$

 

$

 

$

10,079,000

 

Certificates of deposit

 

2,204,000

 

 

 

2,204,000

 

Total

 

$

12,283,000

 

$

 

$

 

$

12,283,000

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated Fair

 

 

 

Cost

 

Gains

 

Losses

 

Market Value

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012:

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

$

733,000

 

$

 

$

 

$

733,000

 

Total

 

$

733,000

 

$

 

$

 

$

733,000

 

 

As of December 31, 2012, certain investments with a total estimated fair value of $487,000 had maturity dates of greater than one year but less than five years. As of September 30, 2013, there were no investments that had maturity dates of greater than one year.

 

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The following table represents the Company’s fair value hierarchy for its financial assets:

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Fair Value

 

Level 1

 

Level 2

 

U.S. government and agency securities

 

$

10,079,000

 

$

 

$

10,079,000

 

$

 

$

 

$

 

Certificates of deposit

 

2,204,000

 

 

2,204,000

 

733,000

 

 

733,000

 

Total short-term investments

 

$

12,283,000

 

$

 

$

12,283,000

 

$

733,000

 

$

 

$

733,000

 

 

The Company chose not to elect the fair value option as prescribed by ASC Topic 825—Financial Instruments for its financial assets and liabilities that had not been previously carried at fair value. Therefore, financial assets and liabilities not carried at fair value, such as accounts payable, are still reported at their carrying values.

 

4. Goodwill and Intangible Assets

 

The following table summarizes the changes in the Company’s goodwill by geographical reporting unit:

 

 

 

North America

 

United Kingdom

 

Consolidated

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2012

 

$

6,814,000

 

$

39,490,000

 

$

46,304,000

 

Goodwill related to acquisitions

 

23,554,000

 

 

23,554,000

 

Foreign exchange rate adjustment

 

 

(60,000

)

(60,000

)

 

 

 

 

 

 

 

 

Total Goodwill as of September 30, 2013

 

$

30,368,000

 

$

39,430,000

 

$

69,798,000

 

 

A summary of intangible assets as of September 30, 2013 and December 31, 2012 is as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

Gross Carrying

 

Accumulated

 

 

 

Gross Carrying

 

Accumulated

 

 

 

 

 

Value

 

Amortization

 

Total

 

Value

 

Amortization

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks - finite life

 

$

132,000

 

$

99,000

 

$

33,000

 

$

132,000

 

$

77,000

 

$

55,000

 

Trademarks - indefinite life

 

12,276,000

 

 

12,276,000

 

12,294,000

 

 

12,294,000

 

Customer relationships

 

11,913,000

 

8,712,000

 

3,201,000

 

8,924,000

 

7,164,000

 

1,760,000

 

Developed technology

 

9,764,000

 

3,820,000

 

5,944,000

 

2,867,000

 

1,750,000

 

1,117,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

34,085,000

 

$

12,631,000

 

$

21,454,000

 

$

24,217,000

 

$

8,991,000

 

$

15,226,000

 

 

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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 $1,488,000 and $1,089,000 for the three months ended September 30, 2013 and 2012, respectively, and $3,604,000 and $3,038,000 for the nine months ended September 30, 2013 and 2012, respectively. Based on the current amount of intangibles subject to amortization, estimated future annual amortization expense is as follows: 2013 (remainder): $1,243,000; 2014: $4,695,000; 2015: $1,690,000; 2016: $600,000; 2017: $600,000 and 2018: 350,000. 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 intangible impairment evaluation as of August 31, 2013 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, 2012 or September 30, 2013.

 

For the annual impairment analysis, goodwill is evaluated at the reporting unit level. The evaluation for impairment is performed by comparing the reporting unit’s 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, 2013 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, 2012 or September 30, 2013.

 

5. Commitments and Contingencies

 

Contractual Obligations

 

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 its primary office space in San Francisco, California, which expires in 2020. In connection with the lease, the property owner provided a lease inducement to the Company in the form of a $2.4 million tenant improvement allowance. Construction was completed and the Company moved into the new office space in April 2013. The leasehold improvement asset and the lease incentive liability are being amortized on a straight-line basis over the term of the lease as depreciation expense and as an offset to rent expense, respectively. Effective as of May 2013, the Company entered into an amendment to its primary office space lease for additional space.

 

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 Company’s business, financial position, results of operations or cash flows.

 

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6. Stockholders’ Equity

 

Treasury Stock

 

In November 2011, the Company announced that the Board of Directors authorized the Company to purchase up to $50 million of its outstanding common stock.  During the nine months ended September 30, 2012, the Company purchased 221,763 shares of stock for $8,710,000 (including commissions) under this share repurchase program. This share repurchase program was completed in January 2012.

 

In August 2012, the Company announced that the Board of Directors authorized the Company to purchase up to an additional $50 million of its outstanding common stock. During the nine months ended September 30, 2013, the Company purchased 402,955 shares of stock for $23,562,000 (including commissions) under this share repurchase program.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation under Topic 718—Stock 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.

 

Stock Options

 

Under Topic 718, the fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.

 

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The following table summarizes the assumptions relating to the Company’s stock options for the three and nine months ended September 30, 2013 and 2012, respectively:

 

 

 

Three Months

 

Nine Months

 

 

 

Ended

 

Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

Dividend yield

 

0

%

0%

 

0%

 

0%

 

Volatility

 

47

%

53%

 

47%-54%

 

52%-55%

 

Risk-free interest rate

 

1.71

%

0.80%-0.89%

 

1.02%-1.71%

 

0.80%-1.27%

 

Expected term, in years

 

6.08

 

6.02-6.08

 

5.50-6.08

 

5.27-6.55

 

 

The Company granted 47,097 and 214,572 stock options during the three months ended September 30, 2013 and 2012, respectively, and 179,068 and 1,425,481 stock options during the nine months ended September 30, 2013 and 2012, respectively. The Company recorded stock-based compensation expense related to stock options of $2,873,000 and $3,562,000 for three months ended September 30, 2013 and 2012, respectively, and $9,442,000 and $13,461,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

Restricted Stock Units

 

The Company began granting restricted stock units (“RSUs”) to its employees in November 2010. The cost of RSUs is determined using the fair value of the Company’s 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 23,561 and 24,358 RSUs during the three months ended September 30, 2013 and 2012, respectively, and 202,227 and 120,155 RSUs during the nine months ended September 30, 2013 and 2012, respectively. The Company recorded stock-based compensation expense related to RSUs of $1,797,000 and $1,348,000, respectively, for the three months ended September 30, 2013 and 2012, respectively, and $3,099,000 and $2,626,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

Excess Tax Benefits

 

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. For the three months ended September 30, 2013 and 2012, the Company recorded $4,132,000 and $1,802,000, respectively, of excess tax benefits from stock-based compensation and $5,351,000 and $9,750,000, for the nine months ended September 30, 2013 and 2012, respectively.

 

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7. Net Income Per Share

 

The Company calculates net income per share in accordance with Topic 260—Earnings per Share.

 

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 such period. 98,000 shares were excluded from the dilutive shares outstanding for the three and nine months ended September 30, 2012, as the performance criteria had not been met as of such date. In June 2013, all remaining non-vested performance-based awards were cancelled. As such, no such shares were included in the dilutive shares outstanding for the three and nine months ended September 30, 2013.

 

Anti-dilutive shares in the amounts of 213,000 and 1,414,000 were excluded from the dilutive shares outstanding for the three months ended September 30, 2013 and 2012, respectively. Anti-dilutive shares in the amounts of 252,000 and 1,500,000 were excluded from the dilutive shares outstanding for the nine months ended September 30, 2013 and 2012, 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,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

7,614,000

 

$

5,948,000

 

$

23,071,000

 

$

16,509,000

 

Basic weighted average common shares outstanding

 

23,093,000

 

22,641,000

 

22,953,000

 

22,585,000

 

Basic net income per share

 

$

0.33

 

$

0.26

 

$

1.01

 

$

0.73

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

7,614,000

 

$

5,948,000

 

$

23,071,000

 

$

16,509,000

 

Weighted average shares used to compute basic net income per share

 

23,093,000

 

22,641,000

 

22,953,000

 

22,585,000

 

Effect of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Employee stock options

 

803,000

 

547,000

 

783,000

 

548,000

 

Employee stock awards

 

147,000

 

73,000

 

132,000

 

55,000

 

Weighted average shares used to compute diluted net income per share

 

24,043,000

 

23,261,000

 

23,868,000

 

23,188,000

 

Diluted net income per share

 

$

0.32

 

$

0.26

 

$

0.97

 

$

0.71

 

 

8. Income Taxes

 

During the three and nine months ended September 30, 2013, the Company recorded income tax expense of $2,571,000 and $10,112,000, respectively, which resulted in an effective tax rate of 25% and 30% in each respective period. 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. The expected tax provision (derived from applying the federal statutory rate to the Company’s income before income tax provision for the three and nine months ended September 30, 2013) differed from the Company’s recorded income tax provision primarily due to discrete items resulting from the reinstatement of the 2012 federal research and development tax credit in January 2013 and the expiration of a statute of limitations on previously filed returns, the remeasurement of deferred taxes previously recorded upon the acquisition of toptable.co.uk Ltd., now known as OpenTable International Limited (“toptable”), and certain foreign provision to return true-ups. The Company’s effective tax rate for the three and nine months ended September 30, 2013 is not necessarily indicative of the effective tax rate that may be expected for fiscal year 2013.

 

Topic 740—Income Taxes prescribes that a tax position is required to meet a minimum recognition threshold before being recognized in the financial statements. The Company’s gross unrecognized tax benefits as of September 30, 2013 and December 31, 2012 were $17,401,000 and $18,362,000, respectively. As of September 30, 2013 and December 31, 2012, the Company recorded $535,000 and $777,000, respectively, of accrued interest. No significant penalties have been recorded to date.

 

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9. Comprehensive Income (Loss)

 

In accordance with Topic 220—Comprehensive 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 unrealized gains (losses) from investments.

 

Accumulated other comprehensive income of $549,000 and $861,000 as of September 30, 2013 and December 31, 2012, respectively, was comprised entirely of foreign currency translation gains.

 

10. Segment Information

 

The Company operates in one industry—online restaurant reservations and guest management solutions. The Company has two reportable segments as defined by Topic 280 — Segment Reporting: North America and International. 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 for both segments. The Company does not allocate assets discretely by reportable segments, and reviews asset information on a global basis, not by segment.

 

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Summarized financial information concerning the reportable segments is as follows:

 

 

 

North America 
Segment(1)

 

International 
Segment

 

Total 
Consolidated

 

Three months ended September 30, 2013

 

 

 

 

 

 

 

Revenues—reservations

 

$

23,768,000

 

$

4,080,000

 

$

27,848,000

 

Revenues—subscription

 

13,910,000

 

1,900,000

 

15,810,000

 

Revenues—other

 

2,933,000

 

102,000

 

3,035,000

 

Income (loss) from operations

 

12,028,000

 

(1,813,000

)

10,215,000

 

Interest income

 

14,000

 

 

14,000

 

Depreciation and amortization expense

 

3,734,000

 

1,035,000

 

4,769,000

 

Purchases of property, equipment and software

 

5,922,000

 

459,000

 

6,381,000

 

Three months ended September 30, 2012

 

 

 

 

 

 

 

Revenues—reservations

 

$

19,193,000

 

$

2,718,000

 

$

21,911,000

 

Revenues—subscription

 

12,510,000

 

1,754,000

 

14,264,000

 

Revenues—other

 

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

 

Nine months ended September 30, 2013

 

 

 

 

 

 

 

Revenues—reservations

 

$

71,012,000

 

$

11,578,000

 

$

82,590,000

 

Revenues—subscription

 

40,098,000

 

5,447,000

 

45,545,000

 

Revenues—other

 

8,672,000

 

952,000

 

9,624,000

 

Income (loss) from operations

 

39,839,000

 

(6,637,000

)

33,202,000

 

Interest income

 

45,000

 

 

45,000

 

Depreciation and amortization expense

 

9,419,000

 

3,010,000

 

12,429,000

 

Purchases of property, equipment and software

 

15,198,000

 

1,318,000

 

16,516,000

 

Nine months ended September 30, 2012

 

 

 

 

 

 

 

Revenues—reservations

 

$

58,128,000

 

$

8,421,000

 

$

66,549,000

 

Revenues—subscription

 

36,675,000

 

5,056,000

 

41,731,000

 

Revenues—other

 

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

 

 


(1)                                 A significant majority of the Company’s “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 Company’s reporting segments.

 

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Geographical Information

 

The Company is domiciled in the United States and has international operations in Canada, Germany, India, Japan, Mexico and the United Kingdom. Information regarding the Company’s operations by geographic area is presented below:

 

 

 

Three Months

 

Nine Months

 

 

 

Ended September 30,

 

Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

United States

 

$

38,227,000

 

$

32,322,000

 

$

112,584,000

 

$

96,447,000

 

United Kingdom

 

4,573,000

 

3,986,000

 

13,638,000

 

12,415,000

 

International - all others

 

3,893,000

 

3,430,000

 

11,537,000

 

9,803,000

 

 

 

$

46,693,000

 

$

39,738,000

 

$

137,759,000

 

$

118,665,000

 

 

 

 

As of

 

As of

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

Long-lived assets(1):

 

 

 

 

 

United States

 

$

25,628,000

 

$

16,308,000

 

United Kingdom

 

3,370,000

 

4,083,000

 

International—all others

 

1,355,000

 

1,454,000

 

Total long-lived assets

 

$

30,353,000

 

$

21,845,000

 

 


(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.

 

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ITEM 2. MANAGEMENT’S 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 2012 Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed on February 26, 2013 with the SEC (the “2012 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 2012 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, as well as a number of related products and services. Our solutions for diners include our popular restaurant reservation websites and mobile applications, or apps. The OpenTable network includes more than 30,000 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 more than 530 million diners through OpenTable reservations, and during the three months ended September 30, 2013, we seated an average of approximately 12.8 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, as applicable. 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, 2013 and 2012, our net revenues were $46.7 million and $39.7 million, respectively. For the nine months ended September 30, 2013 and 2012, our net revenues were $137.8 million and $118.7 million, respectively. For the three months ended September 30, 2013 and 2012, our reservation revenues accounted for 60% and 55% of our total revenues, respectively, and 60% and 56% of total revenues for the nine months ended September 30, 2013 and 2012, respectively. For the three months ended September 30, 2013 and 2012, our subscription revenues accounted for 34% and 36% of our total revenues, respectively, and 33% and 35% of revenues for the nine months ended September 30, 2013 and 2012, 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 and nine months ended September 30, 2013 and 2012 represented 13% of our total revenues. 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.

 

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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. 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. Revenues are reported net of redeemable Dining Points issued to diners. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Dining Rewards Loyalty Programs” in our 2012 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 intangibles, resulting from various acquisitions, and capitalized website and software development costs (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Website and Software Development Costs” in our 2012 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 online and offline marketing, 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.

 

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Other Income, Net

 

Other income, net consists primarily of interest income earned on our cash accounts and interest expense associated with our line of credit and letter of credit on our San Francisco, California office lease. 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.

 

During the three and nine months ended September 30, 2013, we recorded income tax expense of $2.6 million and $10.1 million, respectively, which resulted in an effective tax rate of 25% for the three months ended September 30, 2013 and 30% for the nine months ended September 30, 2013. During the three and nine months ended September 30, 2012, we recorded income tax expense of $3.3 million and $9.0 million, respectively, which resulted in an effective tax rate of 35% for each respective period. The tax provision and the effective tax rate for the three and nine months ended September 30, 2013 differ from those of the same periods ended September 30, 2012 primarily due to discrete items resulting from the reinstatement of the 2012 federal research and development tax credit in January 2013, the expiration of a statute of limitations on previously filed returns, the re-measurement of deferred taxes previously recorded upon the acquisition of toptable.co.uk Ltd. (now known as OpenTable International Limited), or toptable, and certain foreign provision to return true-ups. Our effective tax rates for the three and nine months ended September 30, 2013 are not necessarily indicative of the effective tax rate that may be expected for fiscal year 2013.

 

Factors that impact our income tax provision include, but are not limited to, recognition of federal and state research and development tax benefits and the federal Domestic Manufacturing Deduction.

 

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 Programs;

·                  Valuation of Long-Lived and Intangible Assets, Including Goodwill;

·                  Website and Software Development Costs;

·                  Income Taxes; and

·                  Stock-Based Compensation.

 

There have been no material changes to our critical accounting policies described in our 2012 Annual Report. For further information on our critical and other significant accounting policies, see our 2012 Annual Report.

 

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Table of Contents

 

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,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

46,693

 

$

39,738

 

$

137,759

 

$

118,665

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support (1)

 

12,829

 

10,544

 

35,650

 

31,402

 

Sales and marketing (1)

 

10,070

 

8,216

 

29,527

 

25,559

 

Technology (1)

 

5,194

 

3,741

 

14,305

 

10,599

 

General and administrative (1)

 

8,385

 

8,072

 

25,075

 

25,673

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

36,478

 

30,573

 

104,557

 

93,233

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

10,215

 

9,165

 

33,202

 

25,432

 

Other income, net

 

(30

)

36

 

(19

)

66

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

10,185

 

9,201

 

33,183

 

25,498

 

Income tax expense

 

2,571

 

3,253

 

10,112

 

8,989

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

7,614

 

$

5,948

 

$

23,071

 

$

16,509

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

$

0.26

 

$

1.01

 

$

0.73

 

Diluted

 

$

0.32

 

$

0.26

 

$

0.97

 

$

0.71

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

23,093

 

22,641

 

22,953

 

22,585

 

Diluted

 

24,043

 

23,261

 

23,868

 

23,188

 

 


(1) Stock-based compensation included in above line items:

 

 

 

 

 

 

 

 

Operations and support

 

$

261

 

$

332

 

$

507

 

$

966

 

Sales and marketing

 

997

 

1,290

 

2,703

 

4,046

 

Technology

 

1,535

 

1,020

 

3,765

 

2,184

 

General and administrative

 

1,877

 

2,268

 

5,566

 

8,891

 

 

 

$

4,670

 

$

4,910

 

$

12,541

 

$

16,087

 

 

 

 

 

 

 

 

 

 

 

Other Operational Data:

 

 

 

 

 

 

 

 

 

Installed restaurants (at period end):

 

 

 

 

 

 

 

 

 

North America

 

23,287

 

18,975

 

23,287

 

18,975

 

International

 

7,677

 

7,385

 

7,677

 

7,385

 

Total

 

30,964

 

26,360

 

30,964

 

26,360

 

 

 

 

 

 

 

 

 

 

 

Seated diners (in thousands):

 

 

 

 

 

 

 

 

 

North America

 

35,150

 

27,438

 

104,373

 

83,192

 

International

 

3,364

 

2,302

 

9,723

 

6,800

 

Total

 

38,514

 

29,740

 

114,096

 

89,992

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

North America

 

438

 

425

 

438

 

425

 

International

 

166

 

162

 

166

 

162

 

Total

 

604

 

587

 

604

 

587

 

 

22



Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Additional Financial Data:

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

Reservation

 

$

23,768

 

$

19,193

 

$

71,012

 

$

58,128

 

Subscription

 

13,910

 

12,510

 

40,098

 

36,675

 

Other

 

2,933

 

2,789

 

8,672

 

7,884

 

Total North America Revenues

 

$

40,611

 

$

34,492

 

$

119,782

 

$

102,687

 

International

 

 

 

 

 

 

 

 

 

Reservation

 

$

4,080

 

$

2,718

 

$

11,578

 

$

8,421

 

Subscription

 

1,900

 

1,754

 

5,447

 

5,056

 

Other

 

102

 

774

 

952

 

2,501

 

Total International Revenues

 

6,082

 

5,246

 

17,977

 

15,978

 

Total Revenues

 

$

46,693

 

$

39,738

 

$

137,759

 

$

118,665

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

North America

 

$

12,028

 

$

11,581

 

$

39,839

 

$

32,935

 

International

 

(1,813

)

(2,416

)

(6,637

)

(7,503

)

Total

 

$

10,215

 

$

9,165

 

$

33,202

 

$

25,432

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

North America

 

$

3,734

 

$

1,912

 

$

9,419

 

$

5,460

 

International

 

1,035

 

1,455

 

3,010

 

4,213

 

Total

 

$

4,769

 

$

3,367

 

$

12,429

 

$

9,673

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

North America

 

$

4,297

 

$

4,221

 

$

11,407

 

$

14,447

 

International

 

373

 

689

 

1,134

 

1,640

 

Total

 

$

4,670

 

$

4,910

 

$

12,541

 

$

16,087

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(as a percentage of revenue)

 

REVENUES

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

27

 

27

 

26

 

25

 

Sales and marketing

 

22

 

21

 

22

 

22

 

Technology

 

11

 

9

 

10

 

9

 

General and administrative

 

18

 

20

 

18

 

22

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

78

 

77

 

76

 

78

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

22

 

23

 

24

 

22

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

22

 

23

 

24

 

22

 

Income tax expense

 

6

 

8

 

7

 

8

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

16

%

15

%

17

%

14

%

 

Segments

 

We have 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 $34.5 million for the three months ended September 30, 2012, to $40.6 million for the three months ended September 30, 2013, and increased from $102.7 million for the nine months ended September 30, 2012 to $119.8 million for the nine months ended September 30, 2013. North America reservation revenues increased from $19.2 million for the three months ended September 30, 2012, to $23.8 million for the three months ended September 30, 2013, and increased from $58.1 million for the nine

 

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Table of Contents

 

months ended September 30, 2012, to $71.0 million for the nine months ended September 30, 2013. North America reservation revenues increased as a result of an increase in seated diners. North America subscription revenues increased from $12.5 million for the three months ended September 30, 2012, to $13.9 million for the three months ended September 30, 2013, and increased from $36.7 million for the nine months ended September 30, 2012, to $40.1 million for the nine months ended September 30, 2013. North America subscription revenues increased as a result of an increase in installed restaurants. North America income from operations increased from $11.6 million for the three months ended September 30, 2012, to $12.0 million for the three months ended September 30, 2013, and increased from $32.9 million for the nine months ended September 30, 2012, to $39.8 million for the nine months ended September 30, 2013. The increase in income from operations is due to revenue increases exceeding the increase in expenses, due to operational efficiencies.

 

Total International revenues increased from $5.2 million for the three months ended September 30, 2012, to $6.1 million for the three months ended September 30, 2013, and increased from $16.0 million for the nine months ended September 30, 2012 to $18.0 million for the nine months ended September 30, 2013.  International reservation revenues increased from $2.7 million for the three months ended September 30, 2012, to $4.1 million for the three months ended September 30, 2013, and increased from $8.4 million for the nine months ended September 30, 2012, to $11.6 million for the nine months ended September 30, 2013. International reservation revenues increased as a result of an increase in seated diners. International subscription revenues increased from $1.8 million for the three months ended September 30, 2012, to $1.9 million for the three months ended September 30, 2013, and increased from $5.1 million for the nine months ended September 30, 2012, to $5.4 million for the nine months ended September 30, 2013. International subscription revenues increased as a result of an increase in installed restaurants. International other revenues decreased from $0.8 million for the three months ended September 30, 2012 to $0.1 million for the three months ended September 30, 2013, and decreased from $2.5 million for the nine months ended September 30, 2012 to $1.0 million for the nine months ended September 30, 2013 due to a change in the pricing of our promotional products from a flat rate to a pay-for-performance model, which is now classified as reservation revenues.

 

International loss from operations decreased from $2.4 million for the three months ended September 30, 2012, to $1.8 million for the three months ended September 30, 2013, and decreased from $7.5 million for the nine months ended September 30, 2012, to $6.6 million for the nine months ended September 30, 2013.  The decrease in the loss from operations is due to increases in revenue partially offset by increases in marketing spending, specifically the purchasing of pay per click marketing and an offline marketing campaign.  Refer to Note 10 to the condensed consolidated financial statements for additional segment information.

 

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Table of Contents

 

Revenues

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

September 30,

 

Three Month

 

Nine Month

 

 

 

2013

 

2012

 

2013

 

2012

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservation

 

$

27,848

 

$

21,911

 

$

82,590

 

$

66,549

 

27

%

24

%

Subscription

 

15,810

 

14,264

 

45,545

 

41,731

 

11

%

9

%

Other

 

3,035

 

3,563

 

9,624

 

10,385

 

-15

%

-7

%

Total

 

$

46,693

 

$

39,738

 

$

137,759

 

$

118,665

 

18

%

16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reservation

 

60

%

55

%

60

%

56

%

 

 

 

 

Subscription

 

34

%

36

%

33

%

35

%

 

 

 

 

Other

 

6

%

9

%

7

%

9

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

40,611

 

$

34,492

 

$

119,782