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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, 2009

 

 

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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.)

 

 

 

799 Market Street, 4th Floor, San Francisco, CA

 

94103

(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 o  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 o

 

Accelerated filer o

 

 

 

Non-accelerated filer x
(Do not check if a smaller reporting company)

 

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 October 31, 2009, 22,373,315 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
September 30, 2009 and December 31, 2008

 

3

 

 

Condensed Consolidated Statements of Operations
Three and nine months ended September 30, 2009 and 2008

 

4

 

 

Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2009 and 2008

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

7

Item 2.

 

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

 

15

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

Item 1A.

 

Risk Factors

 

26

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

Item 3.

 

Defaults Upon Senior Securities

 

40

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

40

Item 5.

 

Other Information

 

41

Item 6.

 

Exhibits

 

41

Signatures

 

 

 

42

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2009

 

2008

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

18,117,000

 

$

5,528,000

 

Short-term investments

 

49,330,000

 

17,259,000

 

Accounts receivable, net of allowance for doubtful accounts of $564,000, and $543,000 at September 30, 2009 and December 31, 2008

 

6,689,000

 

6,331,000

 

Prepaid expenses and other current assets

 

2,089,000

 

942,000

 

Deferred tax asset

 

4,828,000

 

4,828,000

 

Restricted cash

 

172,000

 

156,000

 

 

 

 

 

 

 

Total current assets

 

81,225,000

 

35,044,000

 

 

 

 

 

 

 

Property and equipment, net

 

11,264,000

 

11,125,000

 

Deferred tax asset

 

1,375,000

 

3,343,000

 

Other assets

 

188,000

 

1,371,000

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

94,052,000

 

$

50,883,000

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable and accrued expenses

 

$

7,611,000

 

$

7,855,000

 

Accrued compensation

 

3,094,000

 

2,772,000

 

Deferred revenue

 

1,474,000

 

1,210,000

 

Dining rewards payable

 

10,754,000

 

8,462,000

 

Total current liabilities

 

22,933,000

 

20,299,000

 

 

 

 

 

 

 

DEFERRED REVENUE - Less current portion

 

3,638,000

 

3,900,000

 

 

 

 

 

 

 

Total liabilities

 

26,571,000

 

24,199,000

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Convertible preferred stock, Series A, $0.0001 par value— 0 and 7,040,000 shares authorized; 0 and 6,898,187 shares issued and outstanding at September 30, 2009 and December 31, 2008; aggregate liquidation preference of $7,000,000

 

 

6,925,000

 

Convertible preferred stock, Series B, $0.0001 par value— 0 and 2,240,000 shares authorized; 0 and 2,177,550 shares issued and outstanding at September 30, 2009 and December 31, 2008; aggregate liquidation preference of $15,000,000

 

 

14,984,000

 

Preferred stock, $0.0001 par value—5,000,000 and 0 shares authorized; 0 shares issued and outstanding at September 30, 2009 and December 31, 2008

 

 

 

Common stock, $0.0001 par value — 100,000,000 and 24,000,000 shares authorized; 22,498,224 and 11,154,668 shares issued, 22,287,977 and 10,944,421 shares outstanding at September 30, 2009 and December 31, 2008

 

2,000

 

1,000

 

Additional paid-in capital

 

124,549,000

 

64,060,000

 

Treasury stock, at cost (210,247 shares at September 30, 2009 and December 31, 2008)

 

(647,000

)

(647,000

)

Accumulated other comprehensive loss

 

(34,000

)

(296,000

)

Accumulated deficit

 

(56,389,000

)

(58,343,000

)

 

 

 

 

 

 

Total stockholders’ equity

 

67,481,000

 

26,684,000

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

94,052,000

 

$

50,883,000

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

17,042,000

 

$

14,181,000

 

$

49,427,000

 

$

41,302,000

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

5,077,000

 

4,580,000

 

15,195,000

 

12,925,000

 

Sales and marketing

 

3,845,000

 

3,755,000

 

11,652,000

 

11,065,000

 

Technology

 

2,378,000

 

2,467,000

 

7,689,000

 

7,046,000

 

General and administrative

 

3,379,000

 

3,449,000

 

10,321,000

 

10,005,000

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

14,679,000

 

14,251,000

 

44,857,000

 

41,041,000

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

2,363,000

 

(70,000

)

4,570,000

 

261,000

 

Other income, net

 

111,000

 

117,000

 

256,000

 

440,000

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

2,474,000

 

47,000

 

4,826,000

 

701,000

 

Income tax expense

 

1,578,000

 

337,000

 

2,872,000

 

850,000

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

896,000

 

$

(290,000

)

$

1,954,000

 

$

(149,000

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

(0.03

)

$

0.12

 

$

(0.01

)

Diluted

 

$

0.04

 

$

(0.03

)

$

0.09

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

21,640,000

 

10,071,000

 

15,791,000

 

9,962,000

 

Diluted

 

23,713,000

 

10,071,000

 

22,360,000

 

9,962,000

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income (loss)

 

$

1,954,000

 

$

(149,000

)

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

 

 

 

 

 

Depreciation and amortization

 

3,796,000

 

3,148,000

 

Provision for doubtful accounts

 

1,462,000

 

842,000

 

Stock-based compensation

 

2,330,000

 

3,115,000

 

Write-off of property, equipment and software

 

521,000

 

213,000

 

Deferred taxes

 

1,968,000

 

528,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,771,000

)

(1,346,000

)

Prepaid expenses and other current assets

 

(1,129,000

)

(303,000

)

Accounts payable and accrued expenses

 

1,556,000

 

(2,067,000

)

Accrued compensation

 

305,000

 

503,000

 

Deferred revenue

 

(43,000

)

457,000

 

Dining rewards payable

 

2,293,000

 

2,066,000

 

 

 

 

 

 

 

Net cash provided by operating activities

 

13,242,000

 

7,007,000

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property, equipment and software

 

(4,220,000

)

(5,514,000

)

Purchases of investments

 

(48,183,000

)

(6,548,000

)

Proceeds from the sale of investments

 

16,048,000

 

900,000

 

Decrease in restricted cash

 

 

(8,000

)

 

 

 

 

 

 

Net cash used in investing activities

 

(36,355,000

)

(11,170,000

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

35,442,000

 

73,000

 

Proceeds from early exercise of common stock options

 

 

28,000

 

 

 

 

 

 

 

Net cash provided by financing activities

 

35,442,000

 

101,000

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATES ON CASH

 

260,000

 

(147,000

)

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

12,589,000

 

(4,209,000

)

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

5,528,000

 

21,661,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — End of period

 

$

18,117,000

 

$

17,452,000

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

5



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2009

 

2008

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for interest

 

$

1,000

 

$

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

883,000

 

$

154,000

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 Purchase of property and equipment recorded in accounts payable

 

$

301,000

 

$

200,000

 

 

 

 

 

 

 

 Vesting of early exercised stock options

 

$

935,000

 

$

1,054,000

 

 

 

 

 

 

 

 Accrued offering costs

 

$

11,000

 

$

923,000

 

 

 

 

 

 

 

 Conversion of convertible preferred stock to common stock

 

$

21,909,000

 

$

 

 

 

 

 

 

 

 

 

(Concluded)

 

 

 

 

See notes to condensed consolidated financial statements.

 

6



Table of Contents

 

OPENTABLE, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

1. Organization and Description of Business

 

OpenTable, Inc. and subsidiaries (collectively, the “Company”), a Delaware corporation, was formed on October 13, 1998. 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, which 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 OpenTable 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 diners, the Company operates www.opentable.com, a popular restaurant reservation website. The OpenTable website enables diners to find, choose and book tables at restaurants on the OpenTable network 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 Company in terms of its 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 website 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 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“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 financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the “Securities Act”) with the SEC on September 23, 2009 (the “Prospectus”). The condensed consolidated balance sheet as of December 31, 2008, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.

 

7



Table of Contents

 

The unaudited interim 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, 2009 and December 31, 2008, the Company’s results of operations for the three and nine months ended September 30, 2009 and 2008, and its cash flows for the nine months ended September 30, 2009 and 2008. The results for the three and nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009. All references to September 30, 2009 or to the three or nine months ended September 30, 2009 and 2008 in the notes to the condensed consolidated financial statements are unaudited.

 

The Company has evaluated subsequent events through November 5, 2009, the date its condensed consolidated financial statements were issued via their inclusion in the Company’s periodic report on Form 10-Q for the quarter ended September 30, 2009.

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America 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.

 

Foreign Currency Translation

 

The Company’s operations are conducted in various countries around the world and the financial statements of its foreign subsidiaries are reported in the applicable foreign currencies (functional currencies). Financial information is translated from the applicable functional currency to the U.S. dollar, the reporting currency, for inclusion in the Company’s consolidated financial statements. Income, expenses and cash flows are translated at average exchange rates prevailing during the fiscal period, and assets and liabilities are translated at fiscal period-end exchange rates. Resulting translation adjustments are included as a component of accumulated other comprehensive loss, net, in stockholders’ equity. Foreign exchange transaction gains and losses are included in Other Income, net in the accompanying condensed consolidated statements of operations. Exchange gains and losses on intercompany balances that are considered permanently invested are also included as a component of accumulated other comprehensive loss, in stockholders’ equity.

 

Concentrations of Credit Risk

 

Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash and cash equivalents, restricted cash, short-term investments and accounts receivable. The Company places its cash and cash equivalents, short-term investments and restricted cash with major financial institutions throughout the world, which management assesses to be of high credit quality, in order to limit the exposure of each investment.

 

Credit risk with respect to accounts receivable is dispersed due to the large number of customers. In addition, the Company’s credit risk is mitigated by the relatively short collection period. Collateral is not required for accounts receivable. The Company maintains an allowance for doubtful accounts receivable balances. The allowance is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential risk of loss associated with problem accounts. Accounts receivable written-off against the allowance for doubtful accounts for the three months ended September 30, 2009 and 2008 were $496,000 and $303,000, respectively, and $1,406,000 and $519,000 for the nine months ended September 30, 2009 and 2008, respectively.

 

8



Table of Contents

 

Revenue Recognition

 

The Company’s revenues include installation fees for the Company’s ERB (including training), monthly subscription fees and a per-seated diner fee for each diner seated through the Company’s online reservation system. As the Company provides its application as a service, the Company follows Topic 605 – Revenue Recognition (the provisions of Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition and Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with Multiple Deliverables). The Company recognizes revenue when all of the following conditions are met: there is persuasive evidence of an arrangement; the service has been provided to the customer; the collection of the fees is reasonably assured; and the amount of fees to be paid by the customer is fixed or determinable. Amounts paid by the customer include the right to use Company hardware during the service period. Proportionate revenue related to the right to use Company hardware accounts for less than 10% of revenue for all periods presented.

 

Revenue from the installation of the ERB is recognized on a straight-line basis over the estimated customer life, commencing with customer acceptance. The estimated customer life is approximately six years, based on historical restaurant customer termination activity. To date, the impact of changes in the estimated customer life has not been material to the Company’s results of operations or financial position. Subscription revenues are recognized on a straight-line basis during the contractual period over which the service is delivered. Reservation revenues (or per-seated diner fees) are recognized on a transaction-by-transaction basis, as diners are seated by restaurant customers. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenues, depending on whether the revenue recognition criteria have been met. Revenues are shown net of $1,729,000 and $1,382,000 for the three months ended September 30, 2009 and 2008, respectively, and $5,018,000 and $3,937,000 for the nine months ended September 30, 2009 and 2008, respectively, related to redeemable Dining Points issued to diners during the respective periods.

 

Revenue is recognized net of any taxes collected from customers and subsequently remitted to governmental authorities.

 

Dining Point Loyalty Program

 

The Company provides a points-based loyalty program, “OpenTable Dining Rewards,” to registered diners who book and honor reservations through the OpenTable website. OpenTable Dining Rewards involves the issuance of “Dining Points” which can be accumulated and redeemed for “Dining Cheques.” When a diner accumulates a defined minimum number of points, he or she may redeem them for a Dining Cheque. Diners may present Dining Cheques at any OpenTable restaurant and their bill is reduced by the cheque amount. If a diner does not make a seated reservation within any 12-month period, then his or her account is considered inactive and the accumulated Dining Points for the diner are reset to zero.

 

The Company recognizes the cost associated with Dining Points as contra-revenue in accordance with 605-50 – Revenue Recognition-Customer Payments and Incentives (EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products), and EITF No. 00-22, Accounting for “Points” and Certain Other Time- or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future).

 

The recorded contra-revenue is an estimate of the eventual cash outlay related to the issued Dining Points and is booked at the time the points are earned by the diner (when the diner is “seated” by the restaurant). The Company estimates the expense for the issued Dining Points by analyzing the historical patterns of redemption and cheque cashing activity.

 

Net Income (Loss) Per Share

 

The Company calculates net loss per share in accordance with Topic 260 – Earnings per Share (SFAS No. 128, Earnings Per Share). Basic net income per share attributed to common shares is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period as reduced by the weighted average unvested common shares subject to repurchase by the Company. Diluted net income (loss) per share is computed by dividing the net income

 

9



Table of Contents

 

(loss) for the period by the weighted average number of common and potential dilutive shares outstanding during the period, to the extent such potential dilutive shares are dilutive. Potential dilutive shares are composed of incremental common shares issuable upon the exercise of stock options and warrants, unvested common shares subject to repurchase and convertible preferred stock. 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. A total of 281,000 shares were excluded from the dilutive shares outstanding for the three and nine months ended September 30, 2009 and 343,000 shares were excluded from the dilutive shares outstanding for the three and nine months ended September 30, 2008, as the performance criteria had not been met as of the respective dates. Anti-dilutive shares in the amounts of 15,000 and 10.8 million were excluded from the dilutive shares outstanding for the three months ended September 30, 2009 and 2008, respectively. Anti-dilutive shares in the amounts of 355,000 and 10.7 million were excluded from the dilutive shares outstanding for the nine months ended September 30, 2009 and 2008, 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,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

896,000

 

$

(290,000

)

$

1,954,000

 

$

(149,000

)

 

 

 

 

 

 

 

 

 

 

Basic shares:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

21,640,000

 

10,071,000

 

15,791,000

 

9,962,000

 

 

 

 

 

 

 

 

 

 

 

Diluted shares:

 

 

 

 

 

 

 

 

 

Weighted average shares used to compute basic net income per share

 

21,640,000

 

10,071,000

 

15,791,000

 

9,962,000

 

Effect of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Unvested common shares subject to repurchase

 

352,000

 

 

424,000

 

 

Warrants to purchase convertible preferred stock

 

86,000

 

 

84,000

 

 

Employee stock options

 

1,635,000

 

 

1,390,000

 

 

Convertible preferred stock

 

 

 

4,671,000

 

 

Weighted average shares used to compute diluted net income (loss) per share

 

23,713,000

 

10,071,000

 

22,360,000

 

9,962,000

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

(0.03

)

$

0.12

 

$

(0.01

)

Diluted

 

$

0.04

 

$

(0.03

)

$

0.09

 

$

(0.01

)

 

Net income available to participating securities was not significant for the three and nine months ended September 30, 2009.

 

Comprehensive Income (Loss)

 

In accordance with Topic 220 – Comprehensive Income (SFAS No. 130, Reporting 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 the unrealized gain (loss) from investments.

 

Accumulated other comprehensive loss of $34,000 as of September 30, 2009 was comprised of $9,000 of unrealized gain on investments and $43,000 of foreign currency translation losses.

 

Income Taxes

 

The Company records income taxes using the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax

 

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consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law, and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

 

Recently Issued Accounting Standards

 

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (Topic 805 – Business Combinations). Topic 805 – Business Combinations establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. Topic 805 – Business Combinations also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company adopted Topic 805 – Business Combinations for the fiscal year beginning January 1, 2009. The adoption of Topic 805 – Business Combinations did not have a material impact on the Company’s financial position or results of operations at the time of adoption.

 

In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements (Topic 810 – Consolidation) which amends Accounting Research Bulletin No. 51, Consolidated Financial Statements (Topic 810 – Consolidation), to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity separate and apart from the parent’s equity in the consolidated financial statements. In addition to the amendments to Topic 810 – Consolidation, this statement amends SFAS No. 128, Earnings Per Share (Topic 260 – Earnings per Share), so that earnings per share data will continue to be calculated the same way those data were calculated before this statements was issued. Topic 810 – Consolidation is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The adoption of Topic 810 – Consolidation did not have a material impact on the Company’s financial position or results of operations at the time of adoption.

 

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (Topic 855 – Subsequent Events).  Topic 855 – Subsequent Events is intended to establish general standards of the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for selecting that date, that is, whether that date represents the date the financial statements were issued. Topic 855 – Subsequent Events is effective for interim or annual financial periods ending after June 15, 2009 and was adopted by the Company during the quarter ended June 30, 2009.

 

In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards Codification” and the Hierarchy of Generally Accepted Accounting Principles (Topic 105-10 – Generally Accepted Accounting Principles – Overall). This standard replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles, and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the Codification will become nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. References made to FASB guidance throughout this document have been updated for the Codification.

 

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In October 2009, the FASB issued EITF 08-1, Multiple-Deliverable Revenue Arrangements, (amendments to FASB Topic 605, Revenue Recognition) (Topic 605 – Revenue Recognition) and EITF 09-3, Certain Arrangements That Include Software Elements, (amendments to FASB Topic 985, Software) (Topic 985 - Software). Topic 605 – Revenue Recognition requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. Topic 985 – Software removes tangible products from the scope of software revenue guidance and provides guidance on determining whether software deliverables in an arrangement that includes a tangible product are covered by the scope of the software revenue guidance. Topic 605 – Revenue Recognition and Topic 985 – Software should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of Topic 605 – Revenue Recognition and Topic 985 – Software on its consolidated financial statements.

 

3. Short-Term Investments and Fair Value Measurements

 

Short-term investments, all of which have a term of less than one year, are summarized as follows:

 

 

 

Amortized
Cost

 

Unrealized
Gains
(Losses)

 

Estimated Fair
Market Value

 

At September 30, 2009:

 

 

 

 

 

 

 

Commercial paper

 

$

14,996,000

 

(1,000

)

$

14,995,000

 

U.S. government and agency securities

 

25,844,000

 

10,000

 

25,854,000

 

Certificates of deposit

 

8,481,000

 

 

8,481,000

 

Total

 

$

49,321,000

 

$

9,000

 

$

49,330,000

 

 

 

 

Amortized
Cost

 

Unrealized
Gains

 

Estimated Fair
Market Value

 

At December 31, 2008:

 

 

 

 

 

 

 

Commercial paper

 

$

898,000

 

$

1,000

 

$

899,000

 

U.S. government and agency securities

 

10,595,000

 

65,000

 

10,660,000

 

Certificates of deposit

 

5,700,000

 

 

5,700,000

 

Total

 

$

17,193,000

 

$

66,000

 

$

17,259,000

 

 

Topic 820 – Fair Value Measurements and Disclosures (SFAS No. 157) clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, Topic 820 – Fair Value Measurements and Disclosures establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level 3) significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures its marketable securities at fair value.

 

Investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments that are generally classified within Level 1 of the fair value hierarchy include money market securities and U.S. government and agency securities. The types of investments that are generally classified within Level 2 of the fair value hierarchy include corporate securities and certificates of deposit.

 

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In accordance with Topic 820 — Fair Value Measurements and Disclosures, the following table represents the Company’s fair value hierarchy for its financial assets:

 

 

 

September 30, 2009

 

December 31, 2008

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Fair Value

 

Level 1

 

Level 2

 

Commercial paper

 

$

14,995,000

 

$

14,995,000

 

$

 

$

899,000

 

$

899,000

 

$

 

U.S. government and agency securities.

 

25,854,000

 

25,854,000

 

 

10,660,000

 

10,660,000

 

 

Certificates of deposit

 

8,481,000

 

 

8,481,000

 

5,700,000

 

 

5,700,000

 

Total short-term investments.

 

$

49,330,000

 

$

40,849,000

 

$

8,481,000

 

$

17,259,000

 

$

11,559,000

 

$

5,700,000

 

 

The Company chose not to elect the fair value option as prescribed by Topic 825 — Financial Instruments (SFAS No. 159) 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. Commitments and Contingencies

 

The Company leases its facilities under operating leases. Leases expire at various dates through April 2013.

 

Litigation

 

On May 12, 2009, a patent infringement lawsuit was filed against the Company by Mount Hamilton Partners, LLC (“Mount Hamilton”). Mount Hamilton seeks damages and injunctive relief. If an injunction is granted, it could force the Company to stop or alter certain of its business activities, such as certain aspects of the OpenTable Dining Rewards Program. The Company believes it has substantial and meritorious defenses to these claims and intends to vigorously defend its position. On October 6, 2009, the Company filed a petition for reexamination with the U.S. Patent and Trademark Office (“PTO”), asking the PTO to reexamine the patent in question and requesting that the claims of the Mount Hamilton patent be cancelled. In addition, on October 21, 2009, the Company filed a motion in the district court asking the court to stay the current litigation pending the outcome of the requested reexamination proceeding. Both the petition for reexamination and the motion to stay are pending. The Company is not currently able to estimate the loss, if any, that may result from this claim.

 

The Company is also subject to various other legal proceedings and claims arising in the ordinary course of business. Although occasional adverse decisions or settlements may occur, management believes there is no litigation pending that could, individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

 

5. Stockholders’ Equity

 

Stock Based Compensation under Topic 718 — Stock Compensation (SFAS No. 123R)

 

Effective January 1, 2006, the Company adopted Topic 718 — Stock Compensation, 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 — Stock Compensation, 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 Company granted 53,487 stock options in the three and nine months ended September 30, 2009.  The following table summarizes the assumptions relating to the Company’s employee options for the three and nine months ended September 30, 2009:

 

 

 

Three and Nine Months Ended,

 

 

 

September 30, 2009

 

 

 

(Unaudited)

 

Dividend yield

 

0%

 

Volatility

 

53%

 

Risk free interest rate

 

2.63%-2.65%

 

Expected term, in years

 

6.02-6.08

 

 

The Company recorded net stock-based compensation expense of $647,000 and $984,000 for three months ended September 30, 2009 and 2008, respectively, and $2,330,000 and $3,115,000 for the nine months ended September 30, 2009 and 2008, respectively.

 

6. Segment Information

 

The Company has concluded that it operates in one industry—online reservations and guest management solutions. The Company has two reportable segments: North America and International, as defined by Topic 280 — Segment Reporting (SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information). 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. Management reviews asset information on a global basis, not by segment.

 

Summarized financial information concerning the reportable segments is as follows:

 

 

 

North
America
Segment(1)

 

International
Segment

 

Total
Consolidated

 

Three months ended September 30, 2009

 

 

 

 

 

 

 

Revenues—subscription

 

$

8,321,000

 

$

820,000

 

$

9,141,000

 

Revenues—reservations

 

6,932,000

 

143,000

 

7,075,000

 

Revenues—installation and other

 

797,000

 

29,000

 

826,000

 

Income (loss) from operations

 

3,972,000

 

(1,609,000

)

2,363,000

 

Interest income

 

100,000

 

 

100,000

 

Depreciation and amortization expense

 

1,138,000

 

124,000

 

1,262,000

 

Purchases of property, equipment and software

 

1,302,000

 

185,000

 

1,487,000

 

Three months ended September 30, 2008

 

 

 

 

 

 

 

Revenues—subscription

 

$

7,227,000

 

$

627,000

 

$

7,854,000

 

Revenues—reservations

 

5,582,000

 

87,000

 

5,669,000

 

Revenues—installation and other

 

622,000

 

36,000

 

658,000

 

Income (loss) from operations

 

2,187,000

 

(2,257,000

)

(70,000

)

Interest income

 

120,000

 

8,000

 

128,000

 

Depreciation and amortization expense

 

1,060,000

 

92,000

 

1,152,000

 

Purchases of property, equipment and software

 

1,705,000

 

256,000

 

1,961,000

 

Nine months ended September 30, 2009

 

 

 

 

 

 

 

Revenues—subscription

 

$

24,048,000

 

$

2,182,000

 

$

26,230,000

 

Revenues—reservations

 

20,522,000

 

386,000

 

20,908,000

 

Revenues—installation and other

 

2,205,000

 

84,000

 

2,289,000

 

Income (loss) from operations

 

9,256,000

 

(4,686,000

)

4,570,000

 

Interest income

 

267,000

 

 

267,000

 

Depreciation and amortization expense

 

3,457,000

 

339,000

 

3,796,000

 

Purchases of property, equipment and software

 

3,896,000

 

324,000

 

4,220,000

 

Nine months ended September 30, 2008

 

 

 

 

 

 

 

Revenues—subscription

 

$

20,468,000

 

$

1,690,000

 

$

22,158,000

 

Revenues—reservations

 

17,053,000

 

282,000

 

17,335,000

 

Revenues—installation and other

 

1,733,000

 

76,000

 

1,809,000

 

Income (loss) from operations

 

6,767,000

 

(6,506,000

)

261,000

 

Interest income

 

423,000

 

9,000

 

432,000

 

Depreciation and amortization expense

 

2,896,000

 

252,000

 

3,148,000

 

Purchases of property, equipment and software

 

4,811,000

 

703,000

 

5,514,000

 

 


(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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Table of Contents

 

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 Company’s operations by geographic area is presented below:

 

 

 

Three Months
Ended
September 30,

 

Nine months
Ended
September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

Revenues:

 

 

 

 

 

 

 

 

 

United States

 

$

15,162,000

 

$

12,721,000

 

$

44,338,000

 

$

37,134,000

 

International—all others

 

1,880,000

 

1,460,000

 

5,089,000

 

4,168,000

 

Total revenues

 

$

17,042,000

 

$

14,181,000

 

$

49,427,000

 

$

41,302,000

 

 

 

 

As of

 

As of

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

 

 

2009

 

2008

 

 

 

 

 

Long-lived assets(1):

 

 

 

 

 

 

 

 

 

United States

 

$

9,513,000

 

$

10,619,000

 

 

 

 

 

 

 

International—all others

 

1,939,000

 

1,877,000

 

 

 

 

 

Total long-lived assets

 

$

11,452,000

 

$

12,496,000

 

 

 

 

 

 

 

 


(1)                                  Includes all non-current assets except deferred tax assets.

 

The Company has no customers that individually, or in the aggregate, which exceed 10% of revenues or accounts receivable as of and for any of the period presented above.

 

7. Subsequent Events

 

On October 7, 2009, the Company acquired substantially all of the assets and certain liabilities of GuestBridge, Inc., a provider of guest management solutions, for approximately $3.0 million.

 

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 Prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on September 23, 2009.

 

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Table of Contents

 

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,” “will,” “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 in our Prospectus filed pursuant to Rule 424(b) under the Securities Act with the Securities and Exchange Commission on September 23, 2009. 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 include our proprietary Electronic Reservation Book, or ERB, for restaurant customers and www.opentable.com, a popular restaurant reservation website for diners. The OpenTable network includes approximately 11,000 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 approximately 120 million diners through OpenTable reservations; during the three months ended September 30, 2009, we seated an average of approximately three million diners per month. Restaurants 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. Our online restaurant reservation service is free to diners. For the three months ended September 30, 2009 and 2008, our net revenues were $17.0 million and $14.2 million, respectively. For the nine months ended September 30, 2009 and 2008, our net revenues were $49.4 million and $41.3 million, respectively. For the three months ended September 30, 2009 and 2008, our subscription revenues accounted for 54% and 55% of our total revenues, respectively, and 53% and 54% of total revenue for the nine months ended September 30, 2009 and 2008, respectively. For the three months ended September 30, 2009 and 2008, our reservation revenues accounted for 41% and 40% of our total revenues, respectively, and 42% of total revenues for the nine months ended September 30, 2009 and 2008.

 

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, 2009 and 2008 represented 6% and 5% 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, as we did when we closed our offices in Spain and France in the fourth quarter of 2008.

 

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Table of Contents

 

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; we do not charge any fees to diners. Our revenues include installation fees for our ERB (including training), monthly subscription fees and a fee for each restaurant guest seated through online reservations. Installation fees are recognized on a straight-line basis over an estimated customer life of approximately six years. 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 shown net of redeemable Dining Points issued to diners. See “Critical Accounting Policies and Estimates—Dining Rewards Loyalty Program” in our Prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on September 23, 2009.

 

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 development costs (see “Critical Accounting Policies and Estimates—Website and Software Development Costs” in our Prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on September 23, 2009). 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 website, 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, as well as full-time equivalent contractors, in all of the sections noted below.

 

Other Income, Net

 

Other income, net consists primarily of the interest income earned on our cash accounts. Foreign exchange gains and losses are also included in other income, net.

 

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Table of Contents

 

Income Taxes

 

We are subject to tax in the United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to current U.S. income tax.

 

As of December 31, 2008, for federal and state tax purposes, we had $10.4 million of federal and $9.8 million of state net operating loss carryforwards available to reduce future taxable income. These net operating loss carryforwards begin to expire in 2023 and 2009 for federal and state tax purposes, respectively. Our ability to use our net operating loss carryforwards to offset any future taxable income will be subject to limitations attributable to equity transactions that resulted in a change of ownership as defined by Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. We have $15.0 million in unrecognized tax benefits primarily as a result of the limitations on our net operating loss carryforwards. In the event that any unrecognized tax benefits are recognized, the effective tax rate will be affected. Approximately $14.3 million of the unrecognized tax benefit would impact the effective tax rate if recognized. Our policy is to classify interest accrued or penalties related to unrecognized tax benefits as a component of income tax expense. No such interest or penalties have been recorded to date.

 

Our net deferred tax assets consist primarily of net operating loss carryforwards generated before we achieved profitability. We will assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the deferred tax asset valuation allowance would be recorded in the income statement of the periods that the adjustment is determined to be required.

 

Critical Accounting Policies and Estimates

 

In presenting our financial statements in conformity with accounting principles generally accepted in the United States, 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.

 

There have been no material changes to our critical accounting policies. For further information on our critical and other significant accounting policies, see our Prospectus filed pursuant to Rule 424(b) under the Securities Act with the SEC on September 23, 2009.

 

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

·                  Website and Software Development Costs

·                  Income Taxes

·                  Stock-based Compensation

 

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.

 

18



Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

17,042

 

$

14,181

 

$

49,427

 

$

41,302

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support (1)

 

5,077

 

4,580

 

15,195

 

12,925

 

Sales and marketing (1)

 

3,845

 

3,755

 

11,652

 

11,065

 

Technology (1)

 

2,378

 

2,467

 

7,689

 

7,046

 

General and administrative (1)

 

3,379

 

3,449

 

10,321

 

10,005

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

14,679

 

14,251

 

44,857

 

41,041

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

2,363

 

(70

)

4,570

 

261

 

Other income, net

 

111

 

117

 

256

 

440

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

2,474

 

47

 

4,826

 

701

 

Income tax expense

 

1,578

 

337

 

2,872

 

850

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

896

 

$

(290

)

$

1,954

 

$

(149

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

(0.03

)

$

0.12

 

$

(0.01

)

Diluted

 

$

0.04

 

$

(0.03

)

$

0.09

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

21,640

 

10,071

 

15,791

 

9,962

 

Diluted

 

23,713

 

10,071

 

22,360

 

9,962

 

 


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

 

Operations and support

 

$

79

 

$

89

 

$

232

 

$

262

 

Sales and marketing

 

180

 

215

 

588

 

681

 

Technology

 

91

 

188

 

382

 

549

 

General and administrative

 

297

 

492

 

1,128

 

1,623

 

 

 

$

647

 

$

984

 

$

2,330

 

$

3,115

 

 

 

 

 

 

 

 

 

 

 

Other Operational Data:

 

 

 

 

 

 

 

 

 

Installed restaurants (at period end):

 

 

 

 

 

 

 

 

 

North America

 

10,338

 

8,788

 

10,338

 

8,788

 

International

 

1,337

 

921

 

1,337

 

921

 

Total

 

11,675

 

9,709

 

11,675

 

9,709

 

 

 

 

 

 

 

 

 

 

 

Seated diners (in thousands):

 

 

 

 

 

 

 

 

 

North America

 

10,114

 

8,272

 

30,106

 

25,121

 

International

 

227

 

120

 

620

 

373

 

Total

 

10,341

 

8,392

 

30,726

 

25,494

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

North America

 

247

 

234

 

247

 

234

 

International

 

63

 

58

 

63

 

58

 

Total

 

310

 

292

 

310

 

292

 

 

 

 

 

 

 

 

 

 

 

Additional Financial Data:

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

North America

 

$

16,050

 

$

13,431

 

$

46,775

 

$

39,254

 

International

 

992

 

750

 

2,652

 

2,048

 

Total

 

$

17,042

 

$

14,181

 

$

49,427

 

$

41,302

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

North America

 

$

3,972

 

$

2,187

 

$

9,256

 

$

6,767

 

International

 

(1,609

)

(2,257

)

(4,686

)

(6,506

)

Total

 

$

2,363

 

$

(70

)

$

4,570

 

$

261

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

North America

 

$

1,138

 

$

1,060

 

$

3,457

 

$

2,896

 

International

 

124

 

92

 

339

 

252

 

Total

 

$

1,262

 

$

1,152

 

$

3,796

 

$

3,148

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

North America

 

$

559

 

$

892

 

$

2,049

 

$

2,799

 

International

 

88

 

92

 

281

 

316

 

Total

 

$

647

 

$

984

 

$

2,330

 

$

3,115

 

 

19



Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(as a percentage of revenue)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

30

 

32

 

31

 

31

 

Sales and marketing

 

22

 

27

 

24

 

27

 

Technology

 

14

 

17

 

15

 

17

 

General and administrative

 

20

 

24

 

21

 

24

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

86

 

100

 

91

 

99

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

14

 

 

9

 

1

 

Other income, net

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

14

 

 

9

 

2

 

Income tax expense

 

9

 

2

 

5

 

2

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

5

%

-2

%

4

%

0

%

 

Revenues

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

September 30,

 

Three Month

 

Nine Month

 

 

 

2009

 

2008

 

2009

 

2008

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

9,141

 

$

7,854

 

26,230

 

$

22,158

 

16

%

18

%

Reservation

 

7,075

 

5,669

 

20,908

 

17,335

 

25

%

21

%

Installation and other

 

826

 

658

 

2,289

 

1,809

 

26

%

27

%

Total

 

$

17,042

 

$

14,181

 

$

49,427

 

$

41,302

 

20

%

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

54

%

55

%

53

%

54

%

 

 

 

 

Reservation

 

41

%

40

%

42

%

42

%

 

 

 

 

Installation and other

 

5

%

5

%

5

%

4

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

16,050

 

$

13,431

 

$

46,775

 

$

39,254

 

19

%

19

%

International

 

992

 

750

 

2,652

 

2,048

 

32

%

29

%

Total

 

$

17,042

 

$

14,181

 

$

49,427

 

$

41,302

 

20

%

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

94

%

95

%

95

%

95

%

 

 

 

 

International

 

6

%

5

%

5

%

5

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

Total revenues increased $2.9 million, or 20%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and $8.1 million, or 20%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Subscription revenues increased $1.3 million, or 16%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and $4.1 million, or 18%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Subscription revenues increased as a result of the increase in installed restaurants. Reservation revenues increased $1.4 million, or 25%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, and $3.6 million, or 21%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Reservation revenues increased as a result of the increase in seated diners.

 

20



Table of Contents

 

Costs and Expenses

 

Operations and Support

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three

 

Nine

 

 

 

September 30,

 

September 30,

 

Month

 

Month

 

 

 

2009

 

2008

 

2009

 

2008

 

% Change

 

% Change

&nb