XO Group Reports Second Quarter 2016 Financial Results;
Total revenue for the second quarter of 2016 was
"I'm really proud of the team's work during the quarter. Our national online advertising business delivered solid results, our guest products are continuing to drive value for our users and partners, and our recent marketplace product launches are starting to gain traction," said
Mike Steib, Chief Executive Officer.
Long-Term Financial Targets
The Company is reiterating its long-term financial targets of double digit revenue growth rates and gross margins of approximately 90-95%, yielding adjusted EBITDA margins of at least 20%.
XO GROUP INC. | ||||||||||||||||
Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||||||
2016 |
2015 |
2016 |
2015 | |||||||||||||
Net revenue: |
||||||||||||||||
Online advertising |
\\$ |
26,218 |
\\$ |
24,725 |
\\$ |
53,055 |
\\$ |
48,641 |
||||||||
Transactions |
6,431 |
4,163 |
10,635 |
6,457 |
||||||||||||
Merchandise |
— |
— |
— |
878 |
||||||||||||
Publishing and other |
6,059 |
7,302 |
10,687 |
12,816 |
||||||||||||
Total net revenue |
38,708 |
36,190 |
74,377 |
68,792 |
||||||||||||
Cost of revenue: |
||||||||||||||||
Online advertising |
684 |
551 |
1,184 |
905 |
||||||||||||
Merchandise |
— |
— |
— |
881 |
||||||||||||
Publishing and other |
2,072 |
2,295 |
3,182 |
3,715 |
||||||||||||
Total cost of revenue |
2,756 |
2,846 |
4,366 |
5,501 |
||||||||||||
Gross profit |
35,952 |
33,344 |
70,011 |
63,291 |
||||||||||||
Operating expenses: |
||||||||||||||||
Product and content development |
10,814 |
9,845 |
21,774 |
19,399 |
||||||||||||
Sales and marketing |
11,513 |
10,382 |
23,227 |
21,004 |
||||||||||||
General and administrative |
5,833 |
6,071 |
12,030 |
12,161 |
||||||||||||
Depreciation and amortization |
1,641 |
1,421 |
3,235 |
2,666 |
||||||||||||
Total operating expenses |
29,801 |
27,719 |
60,266 |
55,230 |
||||||||||||
Income from operations |
6,151 |
5,625 |
9,745 |
8,061 |
||||||||||||
Loss in equity interests |
(37) |
(30) |
(181) |
(36) |
||||||||||||
Interest and other expense, net |
(18) |
(25) |
(19) |
(48) |
||||||||||||
Income before income taxes |
6,096 |
5,570 |
9,545 |
7,977 |
||||||||||||
Income tax expense |
2,331 |
2,259 |
2,755 |
3,221 |
||||||||||||
Net income |
\\$ |
3,765 |
\\$ |
3,311 |
\\$ |
6,790 |
\\$ |
4,756 |
||||||||
Net income per share: |
||||||||||||||||
Basic |
\\$ |
0.15 |
\\$ |
0.13 |
\\$ |
0.27 |
\\$ |
0.19 |
||||||||
Diluted |
\\$ |
0.15 |
\\$ |
0.13 |
\\$ |
0.26 |
\\$ |
0.19 |
||||||||
Weighted average number of shares used in calculating net earnings per share: |
||||||||||||||||
Basic |
25,393 |
25,174 |
25,328 |
25,174 |
||||||||||||
Dilutive effect of: |
||||||||||||||||
Restricted stock |
260 |
352 |
291 |
389 |
||||||||||||
Employee Stock Purchase Plan |
3 |
— |
1 |
— |
||||||||||||
Options |
21 |
14 |
17 |
19 |
||||||||||||
Diluted |
25,677 |
25,540 |
25,637 |
25,582 |
XO GROUP INC. | |||||||
June 30, 2016 |
December 31, 2015 | ||||||
ASSETS |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
\\$ |
96,661 |
\\$ |
88,509 |
|||
Accounts receivable, net |
18,011 |
20,475 |
|||||
Prepaid expenses and other current assets |
5,353 |
5,341 |
|||||
Total current assets |
120,025 |
114,325 |
|||||
Long-term restricted cash |
2,598 |
2,598 |
|||||
Property and equipment, net |
12,514 |
13,251 |
|||||
Intangibles assets, net |
4,387 |
4,817 |
|||||
Goodwill |
47,396 |
47,396 |
|||||
Deferred tax assets, net |
10,888 |
11,578 |
|||||
Investments |
2,538 |
2,719 |
|||||
Other assets |
44 |
57 |
|||||
Total assets |
\\$ |
200,390 |
\\$ |
196,741 |
|||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||
Current liabilities: |
|||||||
Accrued compensation and employee benefits |
\\$ |
4,413 |
\\$ |
5,826 |
|||
Accounts payable and accrued expenses |
6,751 |
6,337 |
|||||
Deferred revenue |
15,681 |
18,640 |
|||||
Total current liabilities |
26,845 |
30,803 |
|||||
Deferred rent |
4,148 |
4,486 |
|||||
Other liabilities |
1,990 |
1,985 |
|||||
Total liabilities |
32,983 |
37,274 |
|||||
Commitments and contingencies |
|||||||
Stockholders' equity: |
|||||||
Preferred stock, \\$0.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively |
— |
— |
|||||
Common stock, \\$0.01 par value; 100,000,000 shares authorized and 26,476,396 and 26,235,824 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively |
265 |
264 |
|||||
Additional paid-in-capital |
175,573 |
173,564 |
|||||
Accumulated deficit |
(8,431) |
(14,361) |
|||||
Total stockholders' equity |
167,407 |
159,467 |
|||||
Total liabilities and stockholders' equity |
\\$ |
200,390 |
\\$ |
196,741 |
XO GROUP INC. | ||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
GAAP Actual |
Adjustments |
Non GAAP |
GAAP Actual |
Adjustments |
Non GAAP | |||||||||||||||||
Net revenue |
\\$ |
38,708 |
\\$ |
— |
\\$ |
38,708 |
\\$ |
36,190 |
\\$ |
— |
\\$ |
36,190 |
||||||||||
Cost of revenue |
2,756 |
— |
2,756 |
2,846 |
— |
2,846 |
||||||||||||||||
Operating expenses: |
||||||||||||||||||||||
Product and content development |
10,814 |
— |
10,814 |
9,845 |
— |
9,845 |
||||||||||||||||
Sales and marketing |
11,513 |
— |
11,513 |
10,382 |
— |
10,382 |
||||||||||||||||
General and administrative |
5,833 |
— |
5,833 |
6,071 |
— |
6,071 |
||||||||||||||||
Depreciation and amortization |
1,641 |
— |
1,641 |
1,421 |
— |
1,421 |
||||||||||||||||
Total operating expenses |
29,801 |
— |
29,801 |
27,719 |
— |
27,719 |
||||||||||||||||
Income from operations |
6,151 |
— |
6,151 |
5,625 |
— |
5,625 |
||||||||||||||||
Interest and other expense, net |
(18) |
— |
(18) |
(25) |
— |
(25) |
||||||||||||||||
Loss in equity interest |
(37) |
— |
(37) |
(30) |
— |
(30) |
||||||||||||||||
Income tax expense |
2,331 |
171 |
(b) |
2,502 |
2,259 |
— |
2,259 |
|||||||||||||||
Net income |
\\$ |
3,765 |
\\$ |
(171) |
\\$ |
3,594 |
\\$ |
3,311 |
\\$ |
— |
\\$ |
3,311 |
||||||||||
Net income per share - diluted |
\\$ |
0.15 |
\\$ |
(0.01) |
\\$ |
0.14 |
\\$ |
0.13 |
\\$ |
— |
\\$ |
0.13 |
||||||||||
Weighted average number of shares outstanding - diluted |
25,677 |
25,677 |
25,540 |
25,540 |
||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
GAAP Actual |
Adjustments |
Non GAAP |
GAAP Actual |
Adjustments |
Non GAAP | |||||||||||||||||
Income from operations |
\\$ |
6,151 |
\\$ |
— |
\\$ |
6,151 |
\\$ |
5,625 |
\\$ |
— |
\\$ |
5,625 |
||||||||||
Depreciation and amortization (c) |
1,641 |
— |
1,641 |
1,421 |
— |
1,421 |
||||||||||||||||
Stock-based compensation (d) |
1,988 |
— |
1,988 |
1,637 |
— |
1,637 |
||||||||||||||||
Adjusted EBITDA |
\\$ |
9,780 |
\\$ |
— |
\\$ |
9,780 |
\\$ |
8,683 |
\\$ |
— |
\\$ |
8,683 |
||||||||||
Free Cash Flow Reconciliation | ||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
Net cash provided by operating activities |
\\$ |
7,090 |
\\$ |
6,561 |
||||||||||||||||||
Less: capital expenditures |
(1,264) |
(801) |
||||||||||||||||||||
Free cash flow |
\\$ |
5,826 |
\\$ |
5,760 |
XO GROUP INC. | ||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
GAAP Actual |
Adjustments |
Non GAAP |
GAAP Actual |
Adjustments |
Non GAAP | |||||||||||||||||
Net revenue |
\\$ |
74,377 |
\\$ |
— |
\\$ |
74,377 |
\\$ |
68,792 |
\\$ |
— |
\\$ |
68,792 |
||||||||||
Cost of revenue |
4,366 |
— |
4,366 |
5,501 |
— |
5,501 |
||||||||||||||||
Operating expenses: |
||||||||||||||||||||||
Product and content development |
21,774 |
— |
21,774 |
19,399 |
(11) |
(a) |
19,388 |
|||||||||||||||
Sales and marketing |
23,227 |
— |
23,227 |
21,004 |
(265) |
(a) |
20,739 |
|||||||||||||||
General and administrative |
12,030 |
— |
12,030 |
12,161 |
(158) |
(a) |
12,003 |
|||||||||||||||
Depreciation and amortization |
3,235 |
— |
3,235 |
2,666 |
— |
2,666 |
||||||||||||||||
Total operating expenses |
60,266 |
— |
60,266 |
55,230 |
(434) |
54,796 |
||||||||||||||||
Income from operations |
9,745 |
— |
9,745 |
8,061 |
434 |
8,495 |
||||||||||||||||
Interest and other expense, net |
(19) |
— |
(19) |
(48) |
— |
(48) |
||||||||||||||||
Loss in equity interest |
(181) |
— |
(181) |
(36) |
— |
(36) |
||||||||||||||||
Income tax expense |
2,755 |
1,128 |
(b) |
3,883 |
3,221 |
177 |
(b) |
3,398 |
||||||||||||||
Net income |
\\$ |
6,790 |
\\$ |
(1,128) |
\\$ |
5,662 |
\\$ |
4,756 |
\\$ |
257 |
\\$ |
5,013 |
||||||||||
Net income per share - diluted |
\\$ |
0.26 |
\\$ |
(0.04) |
\\$ |
0.22 |
\\$ |
0.19 |
\\$ |
0.01 |
\\$ |
0.20 |
||||||||||
Weighted average number of shares outstanding - diluted |
25,637 |
25,637 |
25,582 |
25,582 |
||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
GAAP Actual |
Adjustments |
Non GAAP |
GAAP Actual |
Adjustments |
Non GAAP | |||||||||||||||||
Income from operations |
\\$ |
9,745 |
\\$ |
— |
\\$ |
9,745 |
\\$ |
8,061 |
\\$ |
434 |
\\$ |
8,495 |
||||||||||
Depreciation and amortization (c) |
3,235 |
— |
3,235 |
2,666 |
— |
2,666 |
||||||||||||||||
Stock-based compensation (d) |
3,644 |
— |
3,644 |
3,117 |
— |
3,117 |
||||||||||||||||
Adjusted EBITDA |
\\$ |
16,624 |
\\$ |
— |
\\$ |
16,624 |
\\$ |
13,844 |
\\$ |
434 |
\\$ |
14,278 |
||||||||||
Free Cash Flow Reconciliation | ||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||
2016 |
2015 | |||||||||||||||||||||
Net cash provided by operating activities |
\\$ |
12,633 |
\\$ |
7,445 |
||||||||||||||||||
Less: capital expenditures |
(1,986) |
(2,036) |
||||||||||||||||||||
Free cash flow |
\\$ |
10,647 |
\\$ |
5,409 |
(a) |
Costs impacting comparability included in operating expenses in the condensed consolidated statements of operations for the six months ended June 30, 2015 included costs related to the closure of our merchandise operations in Redding, CA. |
(b) |
Adjusted income tax expense was calculated using an effective tax rate of 41.0% and 40.7%, respectively, for the three and six months ended June 30, 2016 and 40.6% and 40.4%, respectively, for the three and six months ended June 30, 2015. The effective tax rate for the three months ended June 30, 2016 excludes a one-time benefit associated with a foreign tax incentive deduction. The effective tax rate for the six months ended June 30, 2016 excludes a one-time tax benefit associated with the resolution of an uncertain tax position for a former subsidiary in the 2016 period, as well as a one-time benefit associated with a foreign tax incentive deduction. |
(c) |
To eliminate depreciation and amortization expense. |
(d) |
To eliminate stock-based compensation expense. |
XO GROUP INC. | ||
TheKnot.com Local Online Advertising Metrics |
Q2 2016 |
Q2 2015 |
Vendor Count(a) |
24,241 |
23,789 |
Retention Rate(a);(b) |
69.7% |
76.4% |
Avg. Revenue/Vendor(a) |
\\$2,667 |
\\$2,547 |
(a) |
Calculated on a trailing twelve-month basis. |
(b) |
Previously disclosed as churn rate. Retention rate calculated as one less churn rate. |
Stock Based Compensation
The Company included total stock-based compensation expense related to all its stock awards in various operating expense categories for the three and six months ended June 30, 2016 and 2015, as follows:
Three Months Ended June 30, |
Six Months Ended June 30, | |||||||||||
2016 |
2015 |
2016 |
2015 | |||||||||
(Amounts in Thousands) | ||||||||||||
Product and content development |
556 |
513 |
961 |
1,097 |
||||||||
Sales and marketing |
438 |
353 |
848 |
723 |
||||||||
General and administrative |
994 |
771 |
1,835 |
1,297 |
||||||||
Total stock-based compensation |
1,988 |
1,637 |
3,644 |
3,117 |
Conference Call and Replay Information
A replay of the webcast will also be archived on the Company's website approximately two hours after the conference call ends.
About
Forward Looking Statements
This release may contain projections or other forward-looking statements regarding future events or our future financial performance or estimates regarding third parties. These statements are only estimates or predictions and reflect our current beliefs and expectations. Actual events or results may differ materially from those contained in the estimates, projections or forward-looking statements. It is routine for internal projections and expectations to change as the quarter progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of the quarter. Although these expectations may change, we will not necessarily inform you if they do. Our policy is to provide expectations not more than once per quarter, and not to update that information until the next quarter. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation, (i) our operating results may fluctuate, are difficult to predict and could fall below expectations, (ii) our transactions business is dependent on third party participants, whose lack of performance could adversely affect our results of operations, (iii) our ongoing investment in new businesses and new products, services, and technologies is inherently risky, and could disrupt our ongoing business and/or fail to generate the results we are expecting, (iv) we may be unable to develop solutions that generate revenue from advertising and other services delivered to mobile phones and wireless devices, (v) our businesses could be negatively affected by changes in Internet search engine algorithms, (vi) intense competition in our markets may adversely affect revenue and results of operations, (vii) we may be subject to legal liability associated with providing online services or content, (viii) fraudulent or unlawful activities on our marketplace could harm our business and consumer confidence in our marketplace, (ix) we are subject to payments-related risks, (x) we cannot assure you that our publications will be profitable, and (xi) other factors detailed in documents we file from time to time with the
Non-GAAP Financial Measures
This press release includes information about certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP" or "U.S. GAAP"), including adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Management defines its non-GAAP financial measures as follows:
- Adjusted EBITDA represents GAAP income from operations adjusted to exclude, if applicable: (1) depreciation and amortization, (2) stock-based compensation expense, (3) asset impairment charges, and (4) other items affecting comparability during the period.
- Adjusted net income represents GAAP net income, adjusted for items that impact comparability for incremental or unusual costs incurred in the current period, which may include: (1) asset impairment charges, (2) executive separation and other severance charges, (3) non-recurring foreign taxes, interest and penalties and (4) costs related to exit activities.
- Adjusted net income per diluted share represents adjusted net income (as defined above), divided by the diluted weighted-average number of shares outstanding for the period.
- Free cash flow represents GAAP net cash provided by operations, less capital expenditures.
Management believes that these non-GAAP financial measures, when viewed with our results under U.S. GAAP and the accompanying reconciliations, provide useful information about our period-over-period growth and provide additional information that is useful for evaluating our operating performance. However, adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow are not measures of financial performance under U.S. GAAP and, accordingly, should not be considered substitutes for or superior to net income and net income per diluted share and net cash provided by operating activities as indicators of operating performance.
A reconciliation of GAAP to Non-GAAP financial measures is included in this press release.
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