UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
001-33707
CONSTANT CONTACT,
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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04-3285398
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1601 Trapelo Road, Suite 329
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02451
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Waltham, Massachusetts
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(Zip code)
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(Address of principal executive
offices)
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(781) 472-8100
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, $.01 par value
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NASDAQ Global Market
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark 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 period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
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 the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of
the Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price
at which the common equity was last sold on the NASDAQ Global
Market on June 30, 2009 was $526,133,032.
As of March 8, 2010, the registrant had
28,483,641 shares of Common Stock, $0.01 par value per
share, outstanding.
Documents Incorporated by Reference
Portions of the registrants definitive proxy statement to
be filed with the Securities and Exchange Commission for the
registrants 2010 annual stockholders meeting to be
held on June 1, 2010 are incorporated by reference into
Items 10, 11, 12, 13 and 14 of Part III of this Annual
Report on
Form 10-K.
CONSTANT
CONTACT, INC.
INDEX
Forward-Looking
Statements
Matters discussed in this Annual Report on
Form 10-K
relating to future events or our future performance, including
any discussion, express or implied, of our anticipated growth,
operating results, future earnings per share, market
opportunity, plans and objectives, are forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements are often, but not
always, identified by the words believe,
positioned, estimate,
project, target, continue,
intend, expect, future,
anticipates, objectives, and similar
expressions that are not statements of historical fact. These
statements are not guarantees of future events or future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Our actual results
and timing of events could differ materially from those
anticipated in these forward-looking statements as a result of
certain factors, including, but not limited to, those set forth
under Item 1A Risk Factors and
those included elsewhere in this Annual Report on
Form 10-K
and in our other public filings with the Securities and Exchange
Commission. It is routine for internal projections and
expectations to change as the year or each quarter in the year
progresses, and therefore it should be clearly understood that
all forward-looking statements and the internal projections,
judgments and beliefs upon which we base our expectations
included in this Annual Report on
Form 10-K,
other periodic reports or otherwise are made only as of the date
made and may change. While we may elect to update
forward-looking statements at some point in the future, we do
not undertake any obligation to update any forward-looking
statements whether as a result of new information, future events
or otherwise.
References in this Annual Report on
Form 10-K
to Constant Contact, the Company,
we or us means Constant Contact, Inc.
and its wholly-owned subsidiary, Constant Contact Securities
Corporation.
PART I
Overview
Constant Contact is a leading provider of on-demand email
marketing, event marketing and online survey solutions for small
organizations, including small businesses, associations and
non-profits. Our customers use our email marketing product to
more effectively and efficiently create, send and track
professional and affordable permission-based email marketing
campaigns. With these campaigns, our customers can build
stronger relationships with their customers, clients and
members, increase sales and expand membership. Our email
marketing product incorporates a wide range of customizable
templates to assist in campaign creation, user-friendly tools to
import and manage contact lists and intuitive reporting to track
campaign effectiveness. As of December 31, 2009, we had
347,548 email marketing customers. We also offer an online
survey product that enables our customers to easily create and
send surveys and effectively analyze responses. In the fourth
quarter of 2009, we launched an event marketing product that
allows our customers to promote and manage events, track event
registrations and collect online payments. Our products are
complementary and fully integrated.
We provide our products on an on-demand basis, meaning that our
customers can access and use our products through a standard web
browser. This model enables us to deploy and maintain a secure
and scalable application that is easy for our customers to
implement at compelling prices. Our email marketing customers
pay a monthly subscription fee that generally ranges between $15
per month and $150 per month based on the size of their contact
lists and, in some cases, volume of mailings. Our event
marketing customers pay a monthly fee of $15 for up to five
concurrent events. Our survey customers pay a flat monthly fee
of $15 that enables them to receive and track a maximum of 5,000
survey responses per month. We offer discounts for multiple
product purchases and prepayments and to non-profits. For the
year ended December 31, 2009, the average monthly amount
that we charged a customer for our email marketing solution
alone was $33.73. In addition, in 2009, our average monthly
total revenue per email marketing customer, including all
sources of revenue, was $35.55. We believe that the simplicity
of on-demand deployment combined with our affordable
subscription fees and functionality facilitate adoption of our
products by our target customers.
Our email marketing customer base has grown steadily from
approximately 25,000 at the end of 2004 to over 347,500 as of
December 31, 2009. Our customers include varied types of
small organizations including retailers, restaurants, day spas,
law firms, consultants, non-profits, religious organizations and
alumni associations. Customers in more than 140 countries and
territories currently use our email marketing product. We
estimate that approximately two-thirds of our customers have
fewer than ten employees and, in the year ended
December 31, 2009, our top 100 email marketing customers
accounted for less than 1% of our total email marketing revenue.
Our customers have displayed a high degree of loyalty. From
January 2005 through December 2009, at least 97.4% of our
customers in a given month have continued to subscribe to our
email marketing product in the following month.
We market our products and acquire our customers through a
variety of sources including online advertising, channel
partnerships, national radio advertising, limited television
advertising, regional initiatives, referrals, print advertising
and general brand awareness. Our online advertising includes
search engine marketing, including
pay-per-click
advertising, and advertising on online networks and other
websites, including banner advertising. Our channel partnerships
consist of contractual relationships with over 5,100 active
partners, which include national small business service
providers such as Network Solutions, LLC and American Express
Company, as well as local small business service providers such
as web developers and marketing agencies, who refer customers to
us through links on their websites and outbound promotions to
their customers. National radio advertising, which we launched
in September 2008, is designed to raise awareness of the
benefits of email marketing and our brand. Our regional
initiatives include local seminars and local advertising,
including print and online. Referral customers come from
word-of-mouth
from our customer base and the inclusion of a link to our
website in the footer of substantially all of the approximately
1.9 billion
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emails currently sent by our customers each month. Finally, we
believe our general brand awareness, press and thought
leadership initiatives and visibility drive prospects to us.
We were incorporated in Massachusetts in August 1995 under the
name Roving Software Incorporated. We reincorporated in Delaware
in July 2000 and changed our name to Constant Contact, Inc. in
December 2006. Our on-demand email marketing product was first
offered commercially in 2000.
Our principal executive offices are located at 1601 Trapelo
Road, Suite 329, Waltham, Massachusetts 02451. Our
telephone number is
(781) 472-8100.
Our website address is www.constantcontact.com. We are
not including the information contained on our website or any
information that may be accessed by links on our website as part
of, or incorporating it by reference into, this Annual Report on
Form 10-K.
Through a link on the Investor Relations section of our website,
we make available our filings with the Securities and Exchange
Commission, or SEC, after they are electronically filed with or
furnished to the SEC. All such filings are available free of
charge. These filings are also available, free of charge, at
www.sec.gov.
Industry
Background
Benefits
of Email Marketing
We believe small organizations are increasingly turning to email
marketing as a means to communicate with their customers,
clients and members. Key benefits that drive adoption of email
marketing include the following:
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Targeted. Email marketing enables
organizations to tailor messages to specific audiences and
enables recipients to respond through links to websites.
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Timely. The cycle from concept through design
and execution for email marketing is much shorter than direct
mail because there is no need to print and mail. Reducing cycle
time allows organizations to rapidly respond to market
conditions and opportunities.
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Efficient. Email marketing combines low cost
with measurable responses leading to an attractive return on
investment.
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Constant
Contact Market Opportunity
We believe email marketing is an excellent fit for small
organizations. We also believe small businesses and non-profits
tend to rely heavily on repeat sales and referrals to grow their
businesses and expand their membership bases, and we believe
email marketing is a cost effective way to reach these audiences.
Small organizations also represent a large market opportunity.
The U.S. Small Business Administration estimated that there
were approximately 29.6 million small businesses in the
United States in 2008. In 2009, the National Center of
Charitable Statistics estimated that there were approximately
1.5 million non-profits in the United States. Other small
organizations that use email marketing include online auction
sellers, independent musicians, community organizations, school
districts, parent/teacher associations and sports leagues. Based
on these estimates, we believe our email marketing product could
potentially address the needs of more than 31 million small
organizations domestically. We believe that all small
organizations could benefit by communicating regularly with
their constituents and, further, that email marketing with our
product is an effective and affordable method to facilitate this
type of communication.
At the same time, small organizations have generally been slower
than larger organizations to adopt email marketing as part of
their marketing mix. We believe they face unique challenges when
adopting email marketing including:
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Unfamiliar with Email Marketing. Many small
organizations are not familiar with the benefits of email
marketing and do not understand how to effectively build a
permission-based contact list, develop an effective email
marketing campaign and measure its effectiveness.
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Lack of Technical Expertise. Small
organizations often do not have the technical expertise to
implement email marketing software or to design and execute
effective email marketing campaigns.
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Limited Budgets. Small organizations typically
have small marketing budgets. They generally cannot afford to
hire in-house staff or engage an outside marketing agency to
develop, execute and evaluate an email marketing campaign,
particularly during times of economic distress.
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We also believe most existing alternatives for email marketing
are poorly suited to meet the needs of small organizations. Some
of these existing alternatives include:
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General Email Applications. General email
applications and services such as
Microsoft®
Outlook®,
Google
Gmail®,
America
Online®
and
Microsoft®
Hotmail®
are generally designed for
one-to-one
emails. They do not easily incorporate the formatting, graphics,
and links necessary to produce professional-looking email
marketing campaigns. They also limit the number of recipients
per email and do not have the reporting capabilities to allow
users to evaluate the effectiveness of their email marketing
campaigns. Finally, they do not provide regulatory compliance
tools to assist the sender in complying with anti-spam
requirements.
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Enterprise Service Providers. Enterprise
service providers, such as Epsilon Data Management LLC (a
subsidiary of Alliance Data Systems Corporation), ExactTarget,
Inc., Responsys Inc. and Silverpop Systems Inc. focus on large
organizations with sizeable marketing budgets. These providers
offer sophisticated, Internet-based marketing services and tools
with professional and customized execution and reporting at a
price and scale that is generally beyond the scope of most small
organizations.
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As a result, we believe there is an opportunity for an email
marketing solution tailored to the needs of small organizations.
These users seek an affordable, easy-to-use email marketing
solution with a professional appearance and reliable performance.
Business
Strengths
We believe that the following business strengths differentiate
us from competitors and are key to our success:
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Focus on Small Organizations. We have
maintained a consistent and exclusive focus on small
organizations, which has enabled us to design a full customer
experience tuned to their unique needs. Through the website
experience, product usability, affordable price point and
personal touch of our communications consultants and customer
support representatives, we work to ensure that small
organizations feel that we are committed to their success.
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Efficient Customer Acquisition Model. We
believe that we have developed an efficient customer acquisition
model that generates an attractive return on our sales and
marketing expenditures. We utilize a variety of marketing
channels to acquire new customers including online advertising,
channel partnerships, national radio advertising, targeted
television advertising, referrals, print advertising, in-person
seminars and public relations and other brand awareness
programs. In 2009, our cost of email marketing customer
acquisition, which we define as our total annual sales and
marketing expense divided by the gross number of email marketing
customers added during the year, was approximately $350 per
email marketing customer. For 2009, our average monthly total
revenue per email marketing customer, including all sources of
revenue, was $35.55, implying payback on a revenue basis in less
than one year.
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High Degree of Recurring Revenue. We benefit
from a high level of customer loyalty. From January 2005 through
December 2009, at least 97.4% of customers in a given month have
continued to subscribe to our email marketing product in the
following month. We believe this represents a high level of
customer retention, particularly given the transient nature of
many small organizations. These customers provide us with a
significant base of recurring revenue and generate new customer
referrals.
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Consistent Commitment to Customer Service. We
seek to provide our customers with a high level of customer
support in order to encourage trials and ongoing usage of our
products. We conduct online webinars and in-person events to
educate potential customers about the benefits of email
marketing. In addition, our communications consultants seek to
contact all new U.S., Canadian and United Kingdom
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based trial customers to help them launch an initial campaign
and address any questions or concerns. We believe we have a
highly satisfied customer base.
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Software-as-a-Service Delivery. We provide our
product on an on-demand basis, meaning that our customers can
access and use our product through a standard web browser. This
enables our customers to rapidly begin using our product with
few up-front costs and limited technical expertise. It also
enables us to serve additional customers with little incremental
expense and to deploy new applications and upgrades quickly and
efficiently to our existing customers.
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Integrated Multiple Product Offering. In 2007,
we launched our online survey product and, in 2009, we launched
our event marketing product. These products are fully integrated
with our email marketing product. As a result, all of our
products share a common contact management system, in which all
information resides in one place that streamlines the management
of customer contact information across all products. When used
in combination, our products provide our customers with a
unified, efficient, and effective marketing solution that
enhances their ability to build and strengthen customer
relationships.
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Growth
Strategy
Our objective is to increase our market leadership through the
following strategies:
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Acquire New Customers. We aggressively seek to
continue to attract new customers by promoting the Constant
Contact brand, educating prospects on the benefits of email
marketing, event marketing and online surveys and encouraging
small organizations to try our products.
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Increase Revenue Per Customer. As of
December 31, 2009, we had in excess of 347,500 email
marketing customers. We seek to increase revenue from each email
marketing customer through cross-selling our event marketing and
survey products and through add-on services we offer, such as
image hosting and email archiving, which enhance our products,
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Provide Additional Products. We plan to
continue to invest in research and development to maintain our
leadership position in email marketing and to develop and
provide our customers with complementary products that are easy
to use, effective and affordable. We believe that we have a
significant opportunity to sell our event marketing and survey
products to our email marketing customers. As new customers
adopt our event marketing and survey products, we will also have
the opportunity to cross-sell our email marketing product.
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Pursue Complementary Acquisitions. We follow
industry developments and technology advancements and intend to
evaluate and potentially acquire technologies or businesses to
enhance our products, offer new products and access new
customers or markets, or both.
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Expand Internationally. We currently sell our
products to customers in over 140 countries and territories,
despite limited marketing efforts outside of the United States.
We also offer certain customer support services in Spanish,
including email marketing templates and webinars. We believe
that opportunities exist to more aggressively market our
products in English and Spanish-speaking countries.
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Our
Products and Services
Email
Marketing
Our email marketing product allows customers to easily create,
send and track professional-looking email campaigns. Our email
marketing product provides customers with the following features:
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Campaign Creation Wizard. This comprehensive,
easy-to-use interface enables our customers to create and edit
email campaigns. Through intuitive controls, customers can
readily change colors, fonts, borders and backgrounds and insert
images and logos to help ensure that their emails appear
polished and professional. The wizard operates on a
what-you-see-is-what-you-get basis whereby a
customer
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can move paragraphs and blocks of content within the draft email
quickly and view the message from the perspective of intended
recipients.
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Professionally Developed Templates. These
pre-designed email message forms help customers quickly create
attractive and professional campaigns. Over 420 templates
provide ideas about the kinds of emails customers can send,
including newsletters, business letters, promotions and
announcements, and demonstrate, through the use of color and
format, the creativity and professionalism of a potential
campaign. Our advanced editing functionality enables customers
to easily modify the templates. We also provide templates
designed to appeal to specific vertical markets. For example, we
offer a restaurant template that includes a pre-formatted menu
section and a retail template designed to promote mens
apparel.
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Contact List Growth and Management. These
tools help customers build and manage their email contact lists.
Our contact list building tools include file and spreadsheet
import functionality as well as software plug-ins to import
contact lists maintained in
Microsoft®
Outlook®,
Microsoft®
Outlook
Express®,
Intuit®
QuickBooks®,
ACT!®
by Sage Software and
Salesforce®.
We also offer a Contact Capture Tool that enables customers to
add and update contacts directly from a computer or point of
sale device. Finally, we provide customers the ability to add a
Join My Mailing List application on the
customers website and
Facebook®
page, which can be used to gather new contacts. Our list
management tools enable a customer to target or segment contacts
for all or specific campaigns and monitor email addresses to
which previous campaigns could not be delivered. In addition to
their constituents names and email addresses, several
additional customizable fields are available for the purposes of
personalizing email messages. Unsubscribe requests are
automatically processed to help ensure ongoing compliance with
government regulations and email marketing best practices.
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Email Tracking and Reporting. These features
enable our customers to review and analyze the overall
effectiveness of a campaign by tracking and reporting aggregate
information including how many emails were delivered, how many
were opened, and which links were clicked on. These features
also enable our customers to identify on an individual basis
which contacts received an email, opened an email and clicked on
particular links within the message.
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Email Delivery Management. These tools are
incorporated throughout our product and are designed to maintain
our high deliverability rates. Some of these tools are readily
apparent to our customers, such as in-depth delivery tracking.
Others are delivered through back-office processes, such as a
spam content check and address validation. To further improve
the percentage of emails delivered, we work closely with
Internet service providers, or ISPs, on spam prevention issues.
We also include processes and verifications that greatly
increase compliance with anti-spam standards. According to data
measured by an independent third party, approximately 98% of our
customers emails were delivered past any spam filters or
controls to their target email inboxes in the United States
during 2009.
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Image Hosting. We enable customers to store up
to five images for free, view and edit these images and resize
them as necessary for use in their email campaigns. For
customers who elect to purchase our premium image hosting
option, we offer them access to our stock image gallery with
thousands of images to choose from and allow them to store up to
approximately 1,200 personal images (25 megabytes).
The premium image hosting option costs an additional $5.00 per
month. By adding images to an email message, a customer can make
the campaign more compelling and visually appealing.
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Email Archive. We offer our customers the
ability to create a hosted version of current and past email
communications on our system and make them readily available to
their constituents via a link on a customers website or on
Facebook®
or
Twittertm.
The service, which is available for an additional $5.00 per
month, extends the life of up to 100 email communications and
provides our customers an ability to showcase on their website
and social media sites the extent and breadth of their
communication efforts.
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Security and Privacy. We protect our
customers data at a higher level than we believe many of
our customers do themselves. We do not use our customers
confidential information, including their contact lists, except
in the delivery of our product, nor do we share, sell or rent
this information. In addition, we require that our customers
adopt a privacy policy to assist them in complying with
government regulations and email marketing best practices.
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Event
Marketing
Our event marketing product, which we launched in the fourth
quarter of 2009, allows our customers to promote and manage
events, invite potential attendees, capture and track
registrations, collect online payments and communicate with
registrants. Customers can use our product to create an event
homepage, email invitations, and keep an online calendar of
events. An event link can be included on any website, blog or
social networking site. Our event marketing product enables our
customers to send professional looking communications to event
registrants such as reminders, updates, and confirmations. Our
event marketing product allows our customers to use our
pre-designed registration forms or to customize a form to
capture more data from registrants and enables credit card
processing via
PayPal®.
Our customers can also track registration, payment, attendance
and other information about their events in real-time. Similar
to our email marketing product, our event marketing product
includes an event creation wizard, over 50 different
preformatted and customizable event theme templates, list
management capabilities and access to customer support.
Survey
Our online survey product enables our customers to survey their
customers, clients or members and analyze the responses. By
selecting one of our customizable templates and editing our
template questions or entering their own questions, our
customers can easily create a professionally formatted survey.
Similar to our email marketing product, our survey product
includes a survey creation wizard, over 40 different
preformatted and customizable survey templates, list management
capabilities and access to customer support.
By incorporating a real-time and comprehensive reporting
function, our survey product enables our customers to analyze
overall survey results and specific answers submitted by
individual respondents. Our survey product includes analytic
features that enable our customers to segment results based on
survey responses, easily edit filters for slice and
dice analysis and view the results in intuitive,
easy-to-understand
graphical and detailed data formats. Results can be exported to
a
Microsoft®
Excel®
file for additional analysis. Our customers can identify the
respondents associated with filtered results and create a unique
contact list of these respondents who can then be targeted with
a specific message or
follow-up
email campaign. In addition, we offer an online polling feature
that enables our customers to create online polls for use on
their websites. Responses can be viewed immediately.
Customer
Support
Our customer support organization includes customer support,
customer operations training and compliance.
We provide free unlimited customer support to all customers via
phone, chat or email. In the fourth quarter of 2009, our
customer support employees answered approximately 2,700 calls
per day with an average wait time of less than two minutes. Our
phone and chat support teams are located both at our
headquarters in Waltham, Massachusetts and at our sales and
support call center in Loveland, Colorado. We outsource a
portion of our email support to a third party based in
Bangalore, India. We complement our customer support with free
daily product tours offered via our website, an archive of
frequently asked questions, or FAQs, and webinars that explain
the benefits of email marketing, event marketing and survey.
Our compliance group is responsible for enforcing our permission
and prohibited content policies. We work closely with customers
who have higher than average spam complaint rates or bounced
emails, and with customers whose emails are flagged by our
system as possibly including prohibited content or spam, to
assist them in complying with our policies. If we cannot resolve
outstanding concerns, we terminate our agreement with the
customer.
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As of December 31, 2009, we had 251 employees working
in our customer support organization.
Ancillary
Services
We also offer our customers the following ancillary services:
Professional Services. Although the majority
of our customers select the do-it-yourself approach,
we also offer professional services to customers who would like
their email campaigns, event promotions or surveys prepared for
them. Our professional service offerings range from a low-cost
getting started service to custom campaign creation.
Experts Program. In 2009, we launched the
Constant Contact Experts Program. Under this program, we offer a
free self-paced online training program designed to educate
participants on email marketing best practices. We also offer a
one- or
two-day paid
workshop program that provides attendees with a comprehensive
email marketing training program that emphasizes the use of our
email marketing product.
Pricing
Every customer experience starts with a free
60-day
trial. The only requirement for the free trial is that the trial
customer must enter a valid email address that we verify before
they can send an initial campaign. The trial experience is
designed to introduce our products to potential customers and is
subject to certain use limitations. For example, email marketing
trial customers are limited to a contact list size of 100 email
addresses, event marketing trial customers are limited to 10
event registrants and may not collect online payments and survey
trial customers are limited to 100 responses and may not export
survey results. All of our customer support resources are
available during the free trial period. At the conclusion of the
60-day trial
(or earlier if the trial customers use of the products
exceeds these use limitations), we ask the customer to provide
payment information in order to begin billing for continued use
of our products.
Once the customers free trial experience has ended and the
customer becomes a paying customer, we price our email marketing
product based upon the number of unique email addresses in a
customers account. Set forth below are the first several
pricing tiers:
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Number of Unique Email Addresses
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Monthly Pricing
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Up to 500
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$
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15.00
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501-2,500
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$
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30.00
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2,501-5,000
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$
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50.00
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5,001-10,000
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$
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75.00
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10,001-25,000
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$
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150.00
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Customers in these pricing tiers may send an unlimited number of
emails per month. During 2009, approximately 80% of our email
marketing customers were in our two lowest pricing tiers, $15.00
and $30.00 per month. We offer additional pricing tiers for
large list customers. These large list customers are limited as
to the number of emails they can send per month for a fixed
monthly fee, with overage charges assessed on emails exceeding
the monthly limit.
Our event marketing product is priced at $15 per month for up to
five concurrent events. Pricing is based solely on the number of
active events. Our survey product is priced at a flat fee of $15
per month, subject to a maximum of 5,000 survey responses per
month. We offer our premium image hosting services for $5.00 per
month for customers with less than 350,000 unique email
addresses and our email archive service for $5.00 per month. We
offer discounted rates to non-profits and for customers who
purchase multiple products and discounted pricing options for
those customers that pay for six or twelve months in advance.
Customers
We have maintained a consistent and exclusive focus on small
organizations. As of December 31, 2009, we served a large
and diverse group of over 347,500 email marketing customers,
over 3,100 event marketing customers and over 26,300 survey
customers. Substantially all of our event marketing and survey
customers
8
were also email marketing customers as of that date. This
customer base is comprised of
business-to-business
users,
business-to-consumer
users and non-profits and associations. We serve a wide range of
business-to-business
customers including law firms, accountants, marketing and public
relations firms, recruiters and independent consultants. They
typically use our product to illustrate their subject matter
knowledge by communicating their recent activities and to
educate their audiences by sending informational newsletters and
announcements about their company or industry. We also serve a
diverse base of
business-to-consumer
customers including on-and off-line retailers, restaurants,
realtors, travel and tourism businesses and day spas. These
customers typically use our product to promote their offerings
with the goal of generating regular, repeat business from their
customers and prospects. Finally, we serve a variety of
non-profits and associations, including religious organizations,
charities, trade associations, alumni associations and other
non-profits. They typically use our product to maintain regular
communications with their members and inform them about news and
events pertaining to their groups, as well as to drive event
attendance, volunteer participation and fundraising efforts. We
estimate that approximately two-thirds of our customers have
fewer than ten employees. For the year ended December 31,
2009, the average monthly amount that we charged a customer for
our email marketing product alone was $33.73. In addition, in
2009, our average monthly total revenue per email marketing
customer, including revenue from all sources, was $35.55. We
have low customer concentration as our top 100 email marketing
customers in 2009 accounted for less than 1% of our total email
marketing revenue.
We measure customer satisfaction on a monthly basis by surveying
our customers. Based on these surveys, we believe that our
overall customer satisfaction is strong. We believe that another
indication of our strong customer satisfaction is our low
customer attrition rate.
Sales and
Marketing
Our sales and marketing efforts are designed to attract
potential customers to our website, to enroll them in a free
trial, to convert them to paying customers, to introduce and
cross sell our multiple products and add-ons and to retain them
as ongoing paying customers. We believe there are significant
opportunities to increase the number of customers who try our
products through additional sales and marketing initiatives. We
employ sophisticated strategies to acquire our customers by
using a variety of sources including, but not limited to, online
advertising, channel partnerships, national radio advertising,
limited television advertising, regional initiatives, referrals,
print advertising and general brand awareness. We also invest in
public relations and thought leadership in an effort to build
our overall brand and visibility. We are constantly seeking and
testing new methods to reach and convert more customers.
Customer
Acquisition Sources
Online Advertising. We advertise online
through
pay-per-click
advertising with search engines (including Google, Yahoo! and
Bingtm)
and banner advertising with online advertising networks and
other websites likely to be frequented by small organizations.
We are generally able to identify customers generated through
these efforts because they click on our advertisements before
visiting our site.
Channel Partners. We have contractual
relationships with over 5,100 active channel partners who refer
customers to us through links on their websites and outbound
promotions to their customers. These channel partners include
national small business service providers with broad reach
including Network Solutions, LLC and American Express Company,
smaller companies with narrow reach but high influence, such as
web designers and marketing agencies, and large and small
franchise organizations. Most of our channel partners either
share a percentage of the cash received by us or receive a
one-time referral fee. Previously, a website design and hosting
company, Web.com Group, Inc., bundled our services and provided
them directly to its customers. Web.com Group, Inc. paid us
monthly royalties, which contributed less than one percent of
our total revenue during 2009. This arrangement terminated in
early 2010.
Through our
AppConnecttm
Program, we offer tools, or Application Programming Interfaces
(APIs), that permit third parties to develop interfaces that
integrate their offerings with our email marketing product. We
promote these integrated solutions in our online user community.
9
Radio Advertising. Our radio advertising is
designed to build awareness of the Constant Contact brand and
drive market awareness of email marketing. In September 2008, we
launched a national radio campaign on several major national
radio networks that was designed to reach the majority of radio
markets in the United States. That campaign continued in 2009
and is expected to continue throughout most of 2010.
Print Advertising. Our print advertising is
comprised of advertisements in national publications such as
Entrepreneur as well as local business publications in
our geographically targeted metro regions. Our geographically
targeted print advertising supports our local evangelism efforts.
Word-of-Mouth
Referrals. We frequently hear from new customers
that they heard about us from a current customer. We also offer
our paying customers a referral incentive consisting of a $30
credit for them and for the customer they referred. The majority
of referral customers do not use the incentive program.
Footer Click-Throughs. New customers also come
to us by clicking on the Constant Contact link included in the
footer of substantially all of the approximately
1.9 billion emails currently sent by our existing customers
each month.
Sales
Efforts
Communications Consultants. As of
December 31, 2009, we employed a team of 58 phone-based
sales professionals who call U.S., Canadian and United Kingdom
based trial customers to assist them in their initial use of our
products and encourage conversion to a paid subscription.
Local Evangelism. As of December 31,
2009, we employed a team of 17 regional development directors
who are focused on educating small organizations as to the
benefits of our products in their local markets. These employees
are located across the United States and typically provide free
local seminars to chambers of commerce and other small business
groups about email marketing, event marketing, survey and
related topics.
Distance Learning. We offer free online
webinars to prospects and customers on a wide variety of topics
designed to educate them about the benefits of email marketing,
event marketing and surveys and guide them in the use of our
products.
Other
Marketing Initiatives
Press Relations and Thought Leadership. We
leverage our customer base as a survey panel to assess small
business expectations around major press cycles such as
Valentines Day and the December holiday season. We publish
the results and seek to get print and radio coverage of our
results. We also publish email marketing, event marketing and
survey best practices and advice through our
Hints & Tips newsletters and a monthly column
in Entrepreneur.com. In addition, in 2009, one of our executive
officers authored The Constant Contact Guide to Email
Marketing, which was published by Wiley Publishing. These
efforts enhance our brand awareness and industry leadership.
Website Marketing. We continuously measure
both website
visitor-to-trial
conversion and
trial-to-paying
conversion. We test messaging, graphics and layout alternatives
in order to improve conversion from website visitor to trial
customer and from trial customer to paying customer. We also
seek to customize our website with vertical or usage-specific
messaging whenever possible. We carefully analyze website and
trial customer usage to understand and overcome barriers to
conversion.
Vertical Marketing. We specifically develop
marketing programs and target public relations efforts at
certain vertical markets that have demonstrated an affinity for
our products. We adjust our target vertical markets based on our
existing customer base, market opportunity and overall value to
our business.
Community. We maintain an online user
community for both trial and paying customers with discussion
boards, a resource center, member spotlights and other features.
As of December 31, 2009, we had in excess of 33,000 members
of the community.
10
Small Business Organization Initiatives. We
partner with chambers of commerce, small business development
centers and SCORE chapters to offer our products, educational
resources and knowledge base to their members. We typically
offer the chamber, center or chapter a free account and
discounts to their members.
In the years ended December 31, 2009, 2008 and 2007, we
spent approximately $61.0 million, $42.9 million and
$27.4 million, respectively, on sales and marketing. Our
cost of customer acquisition during the years ended
December 31, 2009, 2008 and 2007 was approximately $350,
$304 and $257, respectively, per email marketing customer,
defined as our total annual sales and marketing expense divided
by the gross number of email marketing customers added during
the year.
Technology
and Operations
Our on-demand products use a central application and a single
software code base with unique accounts for each customer. As a
result, we are able to spread the cost of providing our products
across our entire customer base. In addition, because we have
one central application, we believe we are able to scale our
business to meet increases in demand for our products.
Scalability is achieved through advanced use of application
partitioning to allow for horizontal scaling across multiple
sets of applications. This enables individual application
subsystems to scale independently as required by volume and
usage.
Our production system hardware and the disaster recovery
hardware for our production system are each co-located in
third-party hosting facilities located in Eastern Massachusetts.
One facility is owned and operated by Digital 55 Middlesex, LLC,
an affiliate of Digital Realty Trust, Inc., and they provide
services to us under an agreement that expires in December 2013.
The second facility is owned and operated by Internap Network
Services Corporation and they provide services to us under an
agreement that expires in March 2011. Both facilities provide
around-the-clock
security personnel, video surveillance and access controls, and
are serviced by onsite electrical generators, fire detection and
suppression systems. Both facilities also have multiple
Tier 1 interconnects to the Internet.
We own all of the hardware deployed in support of our platform.
We continuously monitor the performance and availability of our
products. We have a highly available, scalable infrastructure
that utilizes load-balanced web server pools, redundant
interconnected network switches and firewalls, replicated
databases, and fault-tolerant storage devices. Production data
is backed up on a daily basis and stored in multiple locations
to ensure transactional integrity and restoration capability.
Changes to our production environment are tracked and managed
through a formal maintenance request process. Production
hardware changes are handled much the same as software product
releases and are first tested on a quality system, then verified
in a staging environment, and finally deployed to the production
system, which we generally seek to accomplish without system
downtime. As of December 31, 2009, we had 36 employees
working in our operations organization.
Research
and Development
We have made substantial investments in research and
development, and expect to continue to do so as a part of our
strategy to continually improve the ease of use and
technological scalability of our existing products as well as to
develop new features and product offerings. As of
December 31, 2009, we had 129 employees working in our
engineering and product strategy organizations. Our product
strategy organization, which directs our research and
development efforts, includes market analysts, product managers,
and website and user interface designers. This group also
performs competitive and market analysis and oversees product
pricing as well as systematic product usability testing.
In 2009, we launched Constant Contact Labs. Guided by the longer
term needs of our business, Constant Contact Labs researches,
experiments and prototypes new technologies and introduces these
new technologies to the mainstream development and operations
teams for use and inclusion in future product delivery. In 2009,
Constant Contact Labs developed an application for the
iPhone®
that enables our customers to review the status of their email
campaigns in detail and add new contacts. Constant Contact Labs
also developed a
11
Facebook Join My List application that enables our
customers, who are also using Facebook, to easily add email
addresses of their friends and fans to their contact lists.
Our research and development expense totaled approximately
$18.4 million for 2009, $15.1 million for 2008 and
$10.3 million for 2007.
Competition
The market for email marketing vendors is fragmented,
competitive and evolving. We believe the following are the
principal competitive factors in the email marketing market:
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product functionality, performance and reliability;
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integrated solutions;
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customer support and education;
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email deliverability rates;
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product scalability;
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ease of use; and
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cost.
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The email marketing market is divided into two
segments vendors who are focused on the small to
medium size business, or SMB, market and vendors who are focused
on the enterprise market. We primarily compete with vendors
focused on the SMB market. Some of the vendors who are focused
on the SMB market include: Vertical Response, Inc., iContact
Corporation, AWeber Systems, Inc., Protus, Inc.
(Campaigner®),
Emma, Inc., The Rocket Science Group LLC
(MailChimptm)
and Vistaprint N.V. These vendors typically charge a low monthly
entry fee or a low fee per number of emails sent.
Vendors that are focused on the enterprise market include
Alterian Inc., ExactTarget, Inc., Responsys Inc., Silverpop
Systems Inc., StrongMail Systems, Inc. and CheetahMail, Inc. (a
subsidiary of Experian Group Limited). We believe enterprise
email marketing vendors charge their customers significantly
more per month than we do and provide a full-service model,
which generally includes an account executive and creative team
who often assist with content development. While we currently do
not generally compete with vendors focusing on enterprise
customers, we may face competition from them in the future.
We may also face future competition in the email marketing
market from new companies entering our market, which may include
large, established companies, such as Microsoft Corporation,
Google Inc. or Yahoo! Inc.
Barriers to entry into our market are relatively low, which
allows new entrants to enter the market without significant
impediments and large, established companies to develop their
own competitive products or acquire or establish cooperative
relationships with our competitors. In addition, these companies
may have significantly greater financial, technical, marketing
and other resources than we do and may be able to devote greater
resources to the development, promotion, sale and support of
their products. These potential competitors may be in a stronger
position to respond quickly to new technologies and may be able
to undertake more extensive marketing campaigns. These
competitors may have more extensive customer bases and broader
customer relationships than we do that they could leverage to
obtain a significant portion of the email marketing market. In
addition, these competitors may have longer operating histories
and greater name recognition than we do. Moreover, if one or
more of our competitors were to merge or partner with another of
our competitors or a new market entrant, the change in
competitive landscape could adversely affect our ability to
compete effectively. Finally, one or more of these businesses
could decide to offer a competitive email marketing product at
no cost or low cost in order to generate revenue as part of a
larger product offering.
Our new event marketing product competes with offerings by
Eventbrite, Inc., Evite, LLC (a wholly-owned, operating business
of IAC/InterActiveCorp), Regonline, (a division of The Active
Network, Inc.), 123Signup AMS, Inc., Pingg Corp., Acteva.com,
Punchbowl Software, Inc., BonaSource Inc. (Wild
Apricottm)
and with r.s.v.p offerings from some of our email marketing
competitors. Our survey product competes with similar
12
offerings by Zoomerang (a division of Market Tools, Inc.) and
Surveymonkey.com Corporation and with offerings from some of our
email marketing competitors.
Government
Regulation
The Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or CAN-SPAM Act, establishes requirements
for commercial email and specifies penalties for commercial
email that violates the Act. In addition, the CAN-SPAM Act gives
consumers the right to require emailers to stop sending them
commercial email.
The CAN-SPAM Act covers email sent for the primary purpose of
advertising or promoting a commercial product, service, or
Internet website. The U.S. Federal Trade Commission, a
federal consumer protection agency, is primarily responsible for
enforcing the CAN-SPAM Act, and the U.S. Department of
Justice, other federal agencies, State Attorneys General, and
ISPs also have authority to enforce certain of its provisions.
The CAN-SPAM Acts main provisions include:
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prohibiting false or misleading email header information;
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prohibiting the use of deceptive subject lines;
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ensuring that recipients may, for at least 30 days after an
email is sent, opt out of receiving future commercial email
messages from the sender, with the opt-out effective within
10 days of the request;
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requiring that commercial email be identified as a solicitation
or advertisement unless the recipient affirmatively permitted
the message; and
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requiring that the sender include a valid postal address in the
email message.
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The CAN-SPAM Act also prohibits unlawful acquisition of email
addresses, such as through directory harvesting, and
transmission of commercial emails by unauthorized means, such as
through relaying messages with the intent to deceive recipients
as to the origin of such messages.
Violations of the CAN-SPAM Acts provisions can result in
criminal and civil penalties, including statutory penalties that
can be based in part upon the number of emails sent, with
enhanced penalties for commercial emailers who harvest email
addresses, use dictionary attack patterns to generate email
addresses,
and/or relay
emails through a network without permission.
The CAN-SPAM Act acknowledges that the Internet offers unique
opportunities for the development and growth of frictionless
commerce, and the CAN-SPAM Act was passed, in part, to enhance
the likelihood that wanted commercial email messages would be
received. We believe we are a leader in developing policies and
practices affecting our industry and that our permission-based
email marketing model and our anti-spam policy are compatible
with current CAN-SPAM Act regulatory requirements. We are a
founding member of the Email Sender and Provider Coalition, or
ESPC, a cooperative industry organization founded to develop and
implement industry-wide improvements in spam protection and
solutions to prevent inadvertent blocking of legitimate
commercial email. We maintain high standards that apply to all
of our customers, including non-profits and political
organizations, whether or not they are covered by the CAN-SPAM
Act.
The CAN-SPAM Act preempts, or blocks, most state restrictions
specific to email, except for rules against falsity or deception
in commercial email, fraud and computer crime. The scope of
these exceptions, however, is not settled, and some states have
adopted email regulations that, if upheld, could impose
liabilities and compliance burdens on us and on our customers in
addition to those imposed by the CAN-SPAM Act.
Moreover, some foreign countries, including the countries of the
European Union and Israel, have regulated the distribution of
commercial email and the online collection and disclosure of
personal information. Foreign governments may attempt to apply
their laws extraterritorially or through treaties or other
arrangements with U.S. governmental entities.
Our customers may be subject to the requirements of the CAN-SPAM
Act, and/or
other applicable state or foreign laws and regulations affecting
email marketing. If our customers email campaigns are
alleged to
13
violate applicable email laws or regulations and we are deemed
to be responsible for such violations, or if we were deemed to
be directly subject to and in violation of these requirements,
we could be exposed to liability.
Our standard terms and conditions require our customers to
comply with laws and regulations applicable to their email
marketing campaigns and to implement any required regulatory
safeguards. We take additional steps to facilitate our
customers compliance with the CAN-SPAM Act, including the
following:
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new customers signing up for our services must agree that they
will send email through our service only to persons who have
given their permission;
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when an email contact list is uploaded, the customer must
certify that it has permission to email each of the addressees;
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when an individual indicates that they want to be added to a
mailing list, they may receive a confirmation email and may be
required to confirm their intent to be added to the contact
list, through a process called double opt-in;
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we electronically inspect all of our customers email
contact lists to check for spam traps, dictionary attack
patterns and lists that fail to meet our permission
standards; and
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for customers with large email address lists, we conduct list
review interviews to verify that the list is properly acquired
and permission-based and that the proposed messages meet our
content standards. Initial campaigns using such lists are
conducted in stages, so that we can terminate the campaign early
if the use of the list generates an unusually high number of
complaints.
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Intellectual
Property
Our intellectual property rights are important to our business.
We rely on a combination of copyright, trade secret, trademark,
patent and other rights in the United States and other
jurisdictions, as well as confidentiality procedures and
contractual provisions to protect our proprietary technology,
processes and other intellectual property. We have filed one
pending patent application.
Others may develop products that are similar to our technology.
We enter into confidentiality and other written agreements with
our employees, consultants and partners, and through these and
other written agreements, we attempt to control access to and
distribution of our software, documentation and other
proprietary technology and other information. These
confidentiality and other written agreements, however, offer
only limited protection, and we may not be able to enforce our
rights under such agreements. Despite our efforts to protect our
proprietary rights, third parties may, in an unauthorized
manner, attempt to use, copy or otherwise obtain and market or
distribute our intellectual property rights or technology or
otherwise develop a product with the same functionality as our
product. Policing unauthorized use of our products and
intellectual property rights is difficult and nearly impossible
on a worldwide basis. Therefore, we cannot be certain that the
steps we have taken or will take in the future will prevent
misappropriations of our technology or intellectual property
rights.
Constant
Contact®
is a registered trademark in the United States and in the
European Union. We also hold trademarks and service marks
identifying certain of our products or features of our products.
Employees
As of December 31, 2009, we employed a total of
625 employees. None of our employees is represented by a
labor union. We have not experienced any work stoppages and
believe that our relations with our employees are good.
Facilities
Our corporate headquarters, including our principal
administrative, marketing, sales and support and research and
development organizations, is located in Waltham, Massachusetts.
We currently lease approximately 111,000 square feet in
this facility under a lease agreement that expires in September,
2015 with one five-year extension option. We expect to occupy
additional space in this facility under the current lease
agreement. As
14
of December 31, 2009, 480 of our employees were based in
this facility. We also lease approximately 50,000 square
feet of office space in Loveland, Colorado under a lease
agreement that will expire in April 2019 with three
three-year extension options. We occupy approximately
25,000 square feet of the facility and expect to occupy the
remainder of the facility in April 2010. This facility is used
for sales and support personnel and, as of December 31,
2009, 122 employees were based in this location. We also
lease a small amount of general office space in Delray, Florida
under a lease agreement that expires in July 2012. This facility
is used for research and development personnel and, as of
December 31, 2009, five employees were based in this
location. If we require additional space, we believe that we
will be able to obtain such space on acceptable, commercially
reasonable terms.
Our business is subject to numerous risks. We caution you
that the following important factors, among others, could cause
our actual results to differ materially from those expressed in
forward-looking statements made by us or on our behalf in
filings with the SEC, press releases, communications with
investors and oral statements. Any or all of our forward-looking
statements in this Annual Report on
Form 10-K
and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions we might
make or by known or unknown risks and uncertainties. Many
factors mentioned in the discussion below will be important in
determining future results. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary
materially from those anticipated in forward-looking statements.
We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any
further disclosure we make in our reports filed with the SEC.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
If we
are unable to attract new customers and retain existing
customers on a cost-effective basis, our business and results of
operations will be affected adversely.
To succeed, we must continue to attract and retain a large
number of customers on a cost-effective basis, many of whom have
not previously used an email marketing service. We rely on a
variety of methods to attract new customers, such as paying
providers of online services, search engines, directories and
other websites to provide content, advertising banners and other
links that direct customers to our website, national radio
advertising, television advertising and including a link to our
website in substantially all of our customers emails. In
addition, we are committed to providing our customers with a
high level of support. As a result, we believe many of our new
customers are referred to us by existing customers. If we are
unable to use any of our current marketing initiatives or the
cost of such initiatives were to significantly increase or such
initiatives or our efforts to satisfy our existing customers are
not successful, we may not be able to attract new customers or
retain existing customers on a cost-effective basis and, as a
result, our revenue and results of operations would be affected
adversely.
Current
economic conditions may further negatively affect the small
business sector, which may cause our customers to terminate
existing accounts with us or cause potential customers to fail
to purchase our products, resulting in a decrease in our revenue
and impairing our ability to operate profitably.
Our email marketing, event marketing and survey products are
designed specifically for small organizations, including small
businesses, associations and non-profits that frequently have
limited budgets and may be more likely to be significantly
affected by economic downturns than their larger, more
established counterparts. Small organizations may choose to
spend the limited funds that they have on items other than our
products and may experience higher failure rates. Moreover, if
small organizations experience economic hardship, they may be
unwilling or unable to expend resources on marketing, including
email marketing, which would negatively affect the overall
demand for our products, increase customer attrition and could
cause our revenue to decline. In addition, we have limited
experience operating our business during an economic downturn.
Accordingly, we do not know if our current business model will
continue to operate effectively during the current economic
downturn. Furthermore, we are unable to predict the likely
duration and severity of the
15
current adverse economic conditions in the U.S. and other
countries, but the longer the duration the greater risks we face
in operating our business. There can be no assurance, therefore,
that current economic conditions or worsening economic
conditions, or a prolonged or recurring recession, will not have
a significant adverse impact on our operating and financial
results.
Our
business is substantially dependent on the market for email
marketing services for small organizations.
We derive, and expect to continue to derive, substantially all
of our revenue from our email marketing product for small
organizations, including small businesses, associations and
non-profits. As a result, widespread acceptance of email
marketing among small organizations is critical to our future
growth and success. The overall market for email marketing and
related services is relatively new and still evolving, and small
organizations have generally been slower than larger
organizations to adopt email marketing as part of their
marketing mix. There is no certainty regarding how or whether
this market will develop, or whether it will experience any
significant contractions. Our ability to attract and retain
customers will depend in part on our ability to make email
marketing convenient, effective and affordable. If small
organizations determine that email marketing does not
sufficiently benefit them or utilize alternative or new
electronic methods of communicating with their customers,
existing customers may cancel their accounts and potential
customers may decide not to adopt email marketing. In addition,
many small organizations lack the technical expertise to
effectively send email marketing campaigns. As technology
advances, however, small organizations may establish the
capability to manage their own email marketing and therefore may
have no need for our email marketing product. If the market for
email marketing services fails to grow or grows more slowly than
we currently anticipate, demand for our services may decline and
our revenue would suffer.
U.S.
federal legislation entitled Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003 imposes
certain obligations on the senders of commercial emails, which
could minimize the effectiveness of our email marketing product,
and establishes financial penalties for non-compliance, which
could increase the costs of our business.
The Controlling the Assault of Non-Solicited Pornography and
Marketing Act of 2003, or CAN-SPAM Act, establishes certain
requirements for commercial email messages and specifies
penalties for the transmission of commercial email messages that
are intended to deceive the recipient as to source or content.
The CAN-SPAM Act, among other things, obligates the sender of
commercial emails to provide recipients with the ability to opt
out of receiving future emails from the sender. In addition,
some states have passed laws regulating commercial email
practices that are significantly more punitive and difficult to
comply with than the CAN-SPAM Act, particularly Utah and
Michigan, which have enacted do-not-email registries listing
minors who do not wish to receive unsolicited commercial email
that markets certain covered content, such as adult or other
harmful products. Some portions of these state laws may not be
preempted by the CAN-SPAM Act. The ability of our
customers constituents to opt out of receiving commercial
emails may minimize the effectiveness of our email marketing
product. Moreover, non-compliance with the CAN-SPAM Act carries
significant financial penalties. If we were found to be in
violation of the CAN-SPAM Act, applicable state laws not
preempted by the CAN-SPAM Act, or foreign laws regulating the
distribution of commercial email, whether as a result of
violations by our customers or if we were deemed to be directly
subject to and in violation of these requirements, we could be
required to pay penalties, which would adversely affect our
financial performance and significantly harm our business, and
our reputation would suffer. We also may be required to change
one or more aspects of the way we operate our business, which
could impair our ability to attract and retain customers or
increase our operating costs.
In the
event we are unable to minimize the loss of our existing
customers or to grow our customer base by adding new customers,
our operating results will be adversely affected.
Our growth strategy requires us to minimize the loss of our
existing customers and grow our customer base by adding new
customers. Customers cancel their accounts for many reasons,
including economic concerns, business failure or a perception
that they do not use our product effectively, the service is a
poor value and they can manage their email campaigns without our
product. In some cases, we terminate an account because
16
the customer fails to comply with our standard terms and
conditions. We must continually add new customers to replace
customers whose accounts are cancelled or terminated, which may
involve significantly higher marketing expenditures than we
currently anticipate. If too many of our customers cancel our
service, or if we are unable to attract new customers in numbers
sufficient to grow our business, our operating results would be
adversely affected.
If the
security of our customers confidential information stored
in our systems is breached or otherwise subjected to
unauthorized access, our reputation may be severely harmed, we
may be exposed to liability and we may lose the ability to offer
our customers a credit card payment option.
Our system stores our customers proprietary email
distribution lists, credit card information and other critical
data. Any accidental or willful security breaches or other
unauthorized access could expose us to liability for the loss of
such information, adverse regulatory action by federal and state
governments, time-consuming and expensive litigation and other
possible liabilities as well as negative publicity, which could
severely damage our reputation. If security measures are
breached because of third-party action, employee error,
malfeasance or otherwise, or if design flaws in our software are
exposed and exploited, and, as a result, a third party obtains
unauthorized access to any of our customers data, our
relationships with our customers will be severely damaged, and
we could incur significant liability. Because techniques used to
obtain unauthorized access or to sabotage systems change
frequently and generally are not recognized until they are
launched against a target, we and our third-party hosting
facilities may be unable to anticipate these techniques or to
implement adequate preventative measures. In addition, as we
continue to grow our customer base and our brand becomes more
widely known and recognized, we may become a more inviting
target for third parties seeking to compromise our security
systems. Many states, including Massachusetts, have enacted laws
requiring companies to notify individuals of data security
breaches involving certain types of personal data. These
mandatory disclosures regarding a security breach often lead to
widespread negative publicity, which may cause our customers to
lose confidence in the effectiveness of our data security
measures. Any security breach, whether actual or perceived,
would harm our reputation, and we could lose customers and fail
to acquire new customers. If we fail to maintain our compliance
with the data protection policy documentation standards adopted
by the major credit card issuers, we could lose our ability to
offer our customers a credit card payment option. Any loss of
our ability to offer our customers a credit card payment option
would make our products less attractive to many small
organizations by negatively impacting our customer experience
and significantly increasing our administrative costs related to
customer payment processing.
Our existing general liability insurance may not cover any, or
only a portion of any potential claims to which we are exposed
or may not be adequate to indemnify us for all or any portion of
liabilities that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance
coverage would increase our operating losses and reduce our net
worth and working capital.
Evolving
regulations concerning data privacy may restrict our
customers ability to solicit, collect, process and use
data necessary to conduct email marketing campaigns or to send
surveys and analyze the results or may increase their costs,
which could harm our business.
Federal, state and foreign governments have enacted, and may in
the future enact, laws and regulations concerning the
solicitation, collection, processing or use of consumers
personal information. Such laws and regulations may require
companies to implement privacy and security policies, permit
users to access, correct and delete personal information stored
or maintained by such companies, inform individuals of security
breaches that affect their personal information, and, in some
cases, obtain individuals consent to use personal
information for certain purposes. Other proposed legislation
could, if enacted, prohibit or limit the use of certain
technologies that track individuals activities on web
pages or that record when individuals click through to an
Internet address contained in an email message. Such laws and
regulations could restrict our customers ability to
collect and use email addresses, page viewing data, and personal
information, which may reduce demand for our products. They may
also negatively impact our ability to effectively market our
products.
17
As
Internet commerce develops, federal, state and foreign
governments may adopt new laws to regulate Internet commerce,
which may negatively affect our business.
As Internet commerce continues to evolve, increasing regulation
by federal, state or foreign governments becomes more likely.
Our business could be negatively impacted by the application of
existing laws and regulations or the enactment of new laws
applicable to our products. The cost to comply with such laws or
regulations could be significant and would increase our
operating expenses, and we may be unable to pass along those
costs to our customers in the form of increased subscription
fees. In addition, federal, state and foreign governmental or
regulatory agencies may decide to impose taxes on services
provided over the Internet or via email. Such taxes could
discourage the use of the Internet and email as a means of
commercial marketing, which would adversely affect the viability
of our products.
As we
attempt to expand our customer base through our marketing
efforts, our new customers may use our products differently than
our existing customers and, accordingly, our business model may
not be as efficient at attracting and retaining new
customers.
As we attempt to expand our customer base, our new customers may
use our products differently than our existing customers. For
example, a greater percentage of new customers may take
advantage of the free trial period we offer but ultimately
choose to use another form of marketing to reach their
constituents. If our new customers are not as loyal as our
existing customers, our attrition rate will increase and our
customer referrals will decrease, which would have an adverse
effect on our results of operations. In addition, as we seek to
expand our customer base, we expect to increase our spending on
sales and marketing activities in order to attract new
customers, which will increase our operating costs. There can be
no assurance that these sales and marketing efforts will be
successful.
The
market in which we participate is highly competitive and, if we
do not compete effectively, our operating results could be
harmed.
The market for our products is highly competitive and rapidly
changing, and the barriers to entry are relatively low. With the
introduction of new technologies and the influx of new entrants
to the market, we expect competition to persist and intensify in
the future, which could harm our ability to increase sales,
limit customer attrition and maintain our prices.
Our principal email marketing competitors include providers of
email marketing products for small to medium size businesses
such as Vertical Response, Inc., iContact Corporation, AWeber
Systems, Inc., Protus, Inc.
(Campaigner®),
Emma, Inc., The Rocket Science Group LLC
(MailChimptm)
and VistaPrint Limited, as well as the in-house information
technology capabilities of prospective customers. Competition
could result in reduced sales, reduced margins or the failure of
our email marketing product to achieve or maintain more
widespread market acceptance, any of which could harm our
business. In addition, there are a number of other vendors that
are focused on providing email marketing products for larger
organizations, including Alterian Inc., ExactTarget, Inc.,
Responsys Inc., Silverpop Systems Inc., StrongMail Systems, Inc.
and CheetahMail, Inc. (a subsidiary of Experian Group Limited).
While we do not compete currently with vendors of email
marketing products serving larger customers, we may face future
competition from these providers if they determine that our
target market presents an opportunity for them. Finally, in the
future, our email marketing product may experience competition
from Internet Service Providers, or ISPs, advertising and direct
marketing agencies and other large established businesses, such
as Microsoft Corporation, Google Inc. or Yahoo! Inc., possessing
large, existing customer bases, substantial financial resources
and established distribution channels. If these companies decide
to develop, market or resell competitive email marketing
products, acquire one of our existing competitors or form a
strategic alliance with one of our competitors, our ability to
compete effectively could be significantly compromised and our
operating results could be harmed. In addition, one or more of
these entities could decide to offer a competitive email
marketing product at no cost or low cost in order to generate
revenue as part of a larger product offering.
In addition, our other products face intense competition. Our
new event marketing product competes with offerings by
Eventbrite, Inc., Evite, LLC (a wholly-owned, operating business
of IAC/InterActiveCorp),
18
Regonline, (a division of The Active Network, Inc.), 123Signup
AMS, Inc., Pingg Corp., Acteva.com, Punchbowl Software, Inc.,
BonaSource Inc. (Wild
Apricottm)
and with r.s.v.p offerings from some of our email marketing
competitors. Our survey product competes with similar offerings
by Zoomerang (a division of Market Tools, Inc.) and
Surveymonkey.com Corporation and with similar offerings from
some of our email marketing competitors.
Our current and potential competitors may have significantly
more financial, technical, marketing and other resources than we
do and may be able to devote greater resources to the
development, promotion, sale and support of their products. Our
current and potential competitors may have more extensive
customer bases and broader customer relationships than we have.
In addition, these companies may have longer operating histories
and greater name recognition than we have and may be able to
bundle email marketing, event marketing or survey products with
other products that have already gained widespread market
acceptance and offer them at no cost or low cost. These
competitors may be better able to respond quickly to new
technologies and to undertake more extensive marketing
campaigns. If we are unable to compete with such companies, the
demand for our products could substantially decline.
Any
significant disruption in service on our website or in our
computer systems, or in our customer support services, could
reduce the attractiveness of our products and result in a loss
of customers.
The satisfactory performance, reliability and availability of
our technology and our underlying network infrastructure are
critical to our operations, level of customer service,
reputation and ability to attract new customers and retain
existing customers. Our production system hardware and the
disaster recovery operations for our production system hardware
are co-located in third-party hosting facilities. One facility
is owned and operated by Digital 55 Middlesex, LLC, an affiliate
of Digital Realty Trust, Inc., and is located in Bedford,
Massachusetts. The other facility is owned and operated by
Internap Network Services Corporation and is located in
Somerville, Massachusetts. Neither Digital nor Internap
guarantees that our customers access to our products will
be uninterrupted, error-free or secure. Our operations depend on
Digitals and Internaps ability to protect their and
our systems in their facilities against damage or interruption
from natural disasters, power or telecommunications failures,
air quality, temperature, humidity and other environmental
concerns, computer viruses or other attempts to harm our
systems, criminal acts and similar events. In the event that our
arrangement with Digital or Internap is terminated, or there is
a lapse of service or damage to the Digital or Internap
facilities, we could experience interruptions in our service as
well as delays and additional expense in arranging new
facilities. In addition, our customer support services, which
are located at our headquarters in Waltham, Massachusetts and at
our sales and support office in Loveland, Colorado, would
experience interruptions as a result of any disruption of
electrical, phone or any other similar facility support
services. Any interruptions or delays in access to our products
or customer support, whether as a result of Digital, Internap,
or other third-party error, our own error, natural disasters,
security breaches or malicious actions, such as
denial-of-service
or similar attacks, whether accidental or willful, could harm
our relationships with customers and our reputation. Also, in
the event of damage or interruption, our insurance policies may
not adequately compensate us for any losses that we may incur.
These factors could damage our brand and reputation, divert our
employees attention, reduce our revenue, subject us to
liability and cause customers to cancel their accounts, any of
which could adversely affect our business, financial condition
and results of operations.
Our production disaster recovery system is located at one of our
third-party hosting facilities. Our corporate disaster recovery
system is located at our headquarters in Waltham, Massachusetts.
Neither system provides real time backup or has been tested
under actual disaster conditions and neither system may have
sufficient capacity to recover all data and services in the
event of an outage. In the event of a disaster in which our
production system hardware and the disaster recovery operations
for our production system hardware are irreparably damaged or
destroyed, we would experience interruptions in access to our
products. Moreover, our headquarters, our production system
hardware and the disaster recovery operations for our production
system hardware are all located within several miles of each
other. As a result, any regional disaster could affect all three
locations equally. Any or all of these events could cause our
customers to lose access to our products.
19
If the
delivery of our customers emails is limited or blocked,
the fees we may be able to charge for our email marketing
product may not be accepted by the market and customers may
cancel their accounts.
ISPs can block emails from reaching their users. The
implementation of new or more restrictive policies by ISPs may
make it more difficult to deliver our customers emails. We
continually improve our own technology and work closely with
ISPs to maintain our deliverability rates. If ISPs materially
limit or halt the delivery of our customers emails, or if
we fail to deliver our customers emails in a manner
compatible with ISPs email handling or authentication
technologies or other policies, then the fees we charge for our
email marketing product may not be accepted by the market, and
customers may cancel their accounts. Some of the internet
protocol addresses associated with our products are owned and
controlled by Internap Network Services Corporation. We are
currently migrating to internet protocol addresses owned and
controlled solely by us. If we experience difficulties with this
migration, our deliverability rates could suffer and it could
undermine the effectiveness of our customers email
marketing campaigns. This, in turn, could harm our business and
financial performance.
If we
fail to promote and maintain our brand in a cost-effective
manner, we may lose market share and our revenue may
decrease.
We believe that developing and maintaining awareness of the
Constant Contact brand in a cost-effective manner is critical to
our goal of achieving widespread acceptance of our existing and
future products and attracting new customers. Furthermore, we
believe that the importance of brand recognition will increase
as competition in our industry increases. Successful promotion
of our brand will depend largely on the effectiveness of our
marketing efforts and the effectiveness and affordability of our
products for our target customer demographic. Historically, our
efforts to build our brand have involved significant expense,
and it is likely that our future marketing efforts will require
us to incur additional significant expenses. Such brand
promotion activities may not yield increased revenue and, even
if they do, any revenue increases may not offset the expenses we
incur to promote our brand. If we fail to successfully promote
and maintain our brand, or if we incur substantial expenses in
an unsuccessful attempt to promote and maintain our brand, we
may lose our existing customers to our competitors or be unable
to attract new customers, which would cause our revenue to
decrease.
We
depend on search engines to attract a significant percentage of
our customers, and if those search engines change their listings
or our relationship with them deteriorates or terminates, we may
be unable to attract new customers, which would adversely affect
our business and results of operations.
Many of our customers located our website by clicking through on
search results displayed by search engines such as Google,
Yahoo! and
Bingtm.
Search engines typically provide two types of search results,
algorithmic and purchased listings. Algorithmic listings cannot
be purchased, and instead are determined and displayed solely by
a set of formulas designed by the search engine. Purchased
listings can be purchased by advertisers in order to attract
users to their websites. We rely on both algorithmic and
purchased listings to attract a significant percentage of the
customers we serve to our website. Search engines revise their
algorithms from time to time in an attempt to optimize their
search result listings. If search engines on which we rely for
algorithmic listings modify their algorithms, this could result
in fewer customers clicking through to our website, requiring us
to resort to other costly resources to replace this traffic,
which, in turn, could reduce our revenue and negatively impact
our operating results, harming our business. If one or more
search engines on which we rely for purchased listings modifies
or terminates its relationship with us, our expenses could rise,
or our revenue could decline and our business may suffer. The
cost of purchased search listing advertising fluctuates and may
increase as demand for these channels grows, and any such
increases could negatively affect our financial results.
20
The
success of our business depends on the continued growth and
acceptance of email as a communications tool, and the related
expansion and reliability of the Internet infrastructure. If
consumers do not continue to use email or alternative
communications tools gain popularity, demand for our email
marketing products may decline.
The future success of our business depends on the continued and
widespread adoption of email as a primary means of
communication. Security problems such as viruses,
worms and other malicious programs or reliability
issues arising from outages and damage to the Internet
infrastructure could create the perception that email is not a
safe and reliable means of communication, which would discourage
businesses and consumers from using email. Use of email by
businesses and consumers also depends on the ability of ISPs to
prevent unsolicited bulk email, or spam, from
overwhelming consumers inboxes. In recent years, ISPs have
developed new technologies to filter unwanted messages before
they reach users inboxes. In response, spammers have
employed more sophisticated techniques to reach consumers
inboxes. Although companies in the anti-spam industry have
started to address the techniques used by spammers, if security
problems become widespread or frequent or if ISPs cannot
effectively control spam, the use of email as a means of
communication may decline as consumers find alternative ways to
communicate. In addition, if alternative communications tools,
such as those available on social networking sites, gain
widespread acceptance, the need for email may lessen. Any
decrease in the use of email would reduce demand for our email
marketing product and harm our business.
Various
private spam blacklists have in the past interfered with, and
may in the future interfere with, the effectiveness of our
products and our ability to conduct business.
We depend on email to market to and communicate with our
customers, and our customers rely on email to communicate with
their customers and members. Various private entities attempt to
regulate the use of email for commercial solicitation. These
entities often advocate standards of conduct or practice that
significantly exceed current legal requirements and classify
certain email solicitations that comply with current legal
requirements as spam. Some of these entities maintain
blacklists of companies and individuals, and the
websites, ISPs and Internet protocol addresses associated with
those entities or individuals that do not adhere to those
standards of conduct or practices for commercial email
solicitations that the blacklisting entity believes are
appropriate. If a companys Internet protocol addresses are
listed by a blacklisting entity, emails sent from those
addresses may be blocked if they are sent to any Internet domain
or Internet address that subscribes to the blacklisting
entitys service or purchases its blacklist.
Some of our Internet protocol addresses currently are listed
with one or more blacklisting entities and, in the future, our
other Internet protocol addresses may also be listed with these
and other blacklisting entities. There can be no guarantee that
we will not continue to be blacklisted or that we will be able
to successfully remove ourselves from those lists. Blacklisting
of this type could interfere with our ability to market our
products and services and communicate with our customers and
could undermine the effectiveness of our customers email
marketing campaigns, all of which could have a material negative
impact on our business and results of operations.
Any
efforts we may make in the future to promote our services to
market segments other than small organizations or to expand our
product offerings beyond email marketing may not
succeed.
To date, we have largely focused our business on providing our
email marketing product for small organizations, but we may in
the future seek to serve other market segments and expand our
service offerings. In 2007, we introduced our survey product and
our add-on email archive service that enables our customers to
archive their past email campaigns. In the fourth quarter of
2009, we launched our event marketing product. Any efforts to
expand beyond the small organization market or to introduce new
products beyond our email marketing product, including our event
marketing and survey products, may not result in revenue growth,
may divert management resources from our existing operations and
require us to commit significant financial resources to an
unproven business or product, which may harm our financial
performance.
21
Our
customers use of our products and website to transmit
negative messages or website links to harmful applications could
damage our reputation, and we may face liability for
unauthorized, inaccurate or fraudulent information distributed
via our products.
Our customers could use our products or website to transmit
negative messages or website links to harmful applications,
reproduce and distribute copyrighted and trademarked material
without permission, or report inaccurate or fraudulent data or
information. Any such use of our products could damage our
reputation and we could face claims for damages, copyright or
trademark infringement, defamation, negligence or fraud.
Moreover, our customers promotion of their products and
services through our products may not comply with federal, state
and foreign laws. We cannot predict whether our role in
facilitating these activities would expose us to liability under
these laws. Even if claims asserted against us do not result in
liability, we may incur substantial costs in investigating and
defending such claims. If we are found liable for our
customers activities, we could be required to pay fines or
penalties, redesign business methods or otherwise expend
resources to remedy any damages caused by such actions and to
avoid future liability.
Our existing general liability insurance may not cover any, or
only a portion of any potential claims to which we are exposed
or may not be adequate to indemnify us for all or any portion of
liabilities that may be imposed. Any imposition of liability
that is not covered by insurance or is in excess of insurance
coverage would adversely affect our results of operations and
reduce our net worth and working capital.
Our
business may be negatively impacted by seasonal
trends.
Sales of our products are impacted by seasonality. Typically,
the fourth calendar quarter is our strongest quarter for
customer growth because our prospective customers communicate
more frequently with their customers and members during this
time. Accordingly, we increase our sales and marketing
activities at the end of the third quarter and during the fourth
quarter. Our customer growth in the second and third quarters is
typically slower as we move into the summer months, and in
response, we moderate certain of our customer acquisition
activities, which may magnify the seasonal trends. If these
seasonality trends change materially, our financial and
operating results for any given quarter may be negatively
impacted and may differ materially from results in prior
quarterly periods.
If we
fail to enhance our existing products or develop new products,
our products may become obsolete or less competitive and we
could lose customers.
If we are unable to enhance our existing products or develop new
products that keep pace with rapid technological developments
and meet our customers needs, our business will be harmed.
Creating and designing such enhancements and new products entail
significant technical and business risks and require substantial
expenditures and lead-time, and there is no guarantee that such
enhancements and new products will be completed in a timely
fashion. Nor is there any guarantee that any new product
offerings will gain acceptance among our email marketing
customers or by the broader market. For example, our existing
email marketing customers may not view any new product as
complementary to our email product offerings and therefore
decide not to purchase such product. If we cannot enhance our
existing services or develop new products or if we are not
successful in selling such enhancements and new products to our
customers, we could lose customers or have difficulty attracting
new customers, which would adversely impact our financial
performance.
Our
relationships with our channel partners may be terminated or may
not continue to be beneficial in generating new email marketing
customers, which could adversely affect our ability to increase
our customer base.
We maintain a network of active channel partners, which include
national small business service providers and local small
business service providers such as web developers and marketing
agencies, which refer customers to us through links on their
websites and outbound promotion to their customers. If we are
unable to maintain our contractual relationships with existing
channel partners or establish new contractual relationships with
potential channel partners, we may experience delays and
increased costs in adding customers, which could
22
have a material adverse effect on us. The number of customers we
are able to add through these marketing relationships is
dependent on the marketing efforts of our partners over which we
exercise very little control, and a significant decrease in the
number of gross customer additions generated through these
relationships could adversely affect the size of our customer
base and revenue.
Competition
for employees in our industry is intense, and we may not be able
to attract and retain the highly skilled employees whom we need
to support our business.
Competition for highly skilled technical and marketing personnel
is intense and we continue to face difficulty identifying and
hiring qualified personnel in certain areas of our business. We
may not be able to hire and retain such personnel at
compensation levels consistent with our existing compensation
and salary structure. Many of the companies with which we
compete for experienced employees have greater resources than we
have and may be able to offer more attractive terms of
employment. In particular, candidates making employment
decisions, particularly in high-technology industries, often
consider the value of any equity they may receive in connection
with their employment. As a result, any significant volatility
in the price of our stock may adversely affect our ability to
attract or retain highly skilled technical and marketing
personnel.
In addition, we invest significant time and expense in training
our employees, which increases their value to competitors who
may seek to recruit them. If we fail to retain our employees, we
could incur significant expenses in hiring and training their
replacements and the quality of our services and our ability to
serve our customers could diminish, resulting in a material
adverse effect on our business.
Our
anticipated growth could strain our personnel resources and
infrastructure, and if we are unable to implement appropriate
controls and procedures to manage our anticipated growth, we may
not be able to successfully implement our business
plan.
We are currently experiencing a period of rapid growth in our
headcount and operations, which has placed, and will continue to
place, to the extent that we are able to sustain such growth, a
significant strain on our management and our administrative,
operational and financial reporting infrastructure.
Our success will depend in part on the ability of our senior
management to manage this expected growth effectively. To do so,
we believe we will need to continue to hire, train and manage
new employees as needed. If our new hires perform poorly, or if
we are unsuccessful in hiring, training, managing and
integrating these new employees, or if we are not successful in
retaining our existing employees, our business may be harmed. To
manage the expected growth of our operations and personnel, we
will need to continue to improve our operational and financial
controls and update our reporting procedures and systems, which
includes fully migrating to a new customer billing system in
2010. The expected addition of new employees and the capital
investments that we anticipate will be necessary to manage our
anticipated growth will increase our cost base, which will make
it more difficult for us to offset any future revenue shortfalls
by reducing expenses in the short term. If we fail to
successfully manage our anticipated growth, we will be unable to
execute our business plan.
If we
fail to retain our key personnel, we may not be able to achieve
our anticipated level of growth and our business could
suffer.
Our future depends, in part, on our ability to attract and
retain key personnel. Our future also depends on the continued
contributions of our executive officers and other key technical
and marketing personnel, each of whom would be difficult to
replace. In particular, Gail F. Goodman, our Chairman, President
and Chief Executive Officer, is critical to the management of
our business and operations and the development of our strategic
direction. The loss of the services of Ms. Goodman or other
executive officers or key personnel and the process to replace
any of our key personnel would involve significant time and
expense, may take longer than anticipated and may significantly
delay or prevent the achievement of our business objectives.
23
We
rely on third-party computer hardware and software that may be
difficult to replace or that could cause errors or failures of
our service and that requires us to closely monitor our usage to
ensure that we remain in compliance with any applicable
licensing requirements.
We rely on computer hardware purchased and software licensed
from third parties in order to offer our products, including
hardware and software from such large vendors as International
Business Machines Corporation, Dell Computer Corporation, 3PAR
Inc., Oracle Corporation, Juniper Networks, Inc. and EMC
Corporation. This hardware and software may not continue to be
available on commercially reasonable terms, or at all. If we
lose the right to use any of this hardware or software or such
hardware or software malfunctions, our customers could
experience delays or be unable to access our services until we
can obtain and integrate equivalent technology or repair the
cause of the malfunctioning hardware or software. Any delays or
failures associated with our services could upset our customers
and harm our business. In addition, if we fail to remain in
compliance with the licensing requirements related to any
third-party computer hardware and software we use, we may be
subject to unanticipated expenses, auditing costs, penalties and
the loss of such hardware and software, all of which could have
a material adverse effect on our financial condition and results
of operations.
If we
are unable to protect the confidentiality of our unpatented
proprietary information, processes and know-how and trade
secrets, the value of our technology and products could be
adversely affected.
We rely upon unpatented proprietary technology, processes and
know-how and trade secrets. Although we try to protect this
information in part by executing confidentiality agreements with
our employees, consultants and third parties, such agreements
may offer only limited protection and may be breached. Any
unauthorized disclosure or dissemination of our proprietary
technology, processes and know-how or our trade secrets, whether
by breach of a confidentiality agreement or otherwise, may cause
irreparable harm to our business, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may
otherwise be independently developed by our competitors or other
third parties. If we are unable to protect the confidentiality
of our proprietary information, processes and know-how or our
trade secrets are disclosed, the value of our technology and
services could be adversely affected, which could negatively
impact our business, financial condition and results of
operations.
Our
use of open source software could impose limitations on our
ability to commercialize our products.
We incorporate open source software into our products. Although
we monitor our use of open source software closely, the terms of
many open source licenses to which we are subject have not been
interpreted by United States or foreign courts, and there is a
risk that such licenses could be construed in a manner that
imposes unanticipated conditions or restrictions on our ability
to commercialize our products. In such event, we could be
required to seek licenses from third parties in order to
continue offering our products, to re-engineer our products or
to discontinue sales of our products, or to release our software
code under the terms of an open source license, any of which
could materially adversely affect our business. Given the nature
of open source software, there is also a risk that third parties
may assert copyright and other intellectual property
infringement claims against us based on our use of certain open
source software programs. The risks associated with intellectual
property infringement claims are discussed immediately below.
If a
third party asserts that we are infringing its intellectual
property, whether successful or not, it could subject us to
costly and time-consuming litigation or require us to obtain
expensive licenses, and our business may be adversely
affected.
The software and Internet industries are characterized by the
existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of
infringement or other violations of intellectual property
rights. Third parties may assert patent and other intellectual
property infringement claims against us in the form of lawsuits,
letters or other forms of communication. These claims, whether
or not successful, could:
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|
|
divert managements attention;
|
24
|
|
|
|
|
result in costly and time-consuming litigation;
|
|
|
|
require us to enter into royalty or licensing agreements, which
may not be available on acceptable terms, or at all;
|
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|
|
in the case of open source software-related claims, require us
to release our software code under the terms of an open source
license; or
|
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|
|
require us to redesign our software and services to avoid
infringement.
|
As a result, any third-party intellectual property claims
against us could increase our expenses and adversely affect our
business. In addition, many of our agreements with our channel
partners require us to indemnify them for third-party
intellectual property infringement claims, which would increase
the cost to us resulting from an adverse ruling on any such
claim. Even if we have not infringed any third parties
intellectual property rights, we cannot be sure our legal
defenses will be successful, and even if we are successful in
defending against such claims, our legal defense could require
significant financial resources and management time. Finally, if
a third party successfully asserts a claim that our products
infringe its proprietary rights, royalty or licensing agreements
might not be available on terms we find acceptable or at all and
we may be required to pay significant monetary damages to such
third party.
Providing
our products to customers outside the United States exposes us
to risks inherent in international business.
Customers in more than 140 countries and territories currently
use our email marketing product, and we expect to expand our
international operations in the future. Accordingly, we are
subject to risks and challenges that we would otherwise not face
if we conducted our business only in the United States. The
risks and challenges associated with providing our products to
customers outside the United States include:
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|
|
localization of our products, including translation into foreign
languages and associated expenses;
|
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|
|
laws and business practices favoring local competitors;
|
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|
|
compliance with multiple, conflicting and changing governmental
laws and regulations, including tax, email marketing, privacy
and data protection laws and regulations;
|
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|
foreign currency fluctuations;
|
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|
different pricing environments;
|
|
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|
difficulties in staffing and maintaining foreign
operations; and
|
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|
|
regional economic and political conditions.
|
We
have incurred net losses in the past and expect to incur net
losses in the future.
We have incurred net losses in the past and we expect to incur
net losses in the future. As of December 31, 2009, our
accumulated deficit was $46.1 million. Our recent net
losses were $1.3 million for the year ended
December 31, 2009, $2.1 million for the year ended
December 31, 2008 and $8.3 million for the year ended
December 31, 2007. Our quarters ended September 30,
2009, June 30, 2009 and March 31, 2008 were the only
quarters in which we generated a profit. There is no guarantee
we will be profitable in the future. In addition, we expect our
operating expenses to increase in the future as we expand our
operations. If our operating expenses exceed our expectations,
our financial performance could be adversely affected. If our
revenue does not grow to offset these increased expenses, we may
not be profitable in any future period. Our recent revenue
growth may not be indicative of our future performance. In
future periods, we may not have any revenue growth, or our
revenue could decline.
25
We are
incurring significant costs as a result of operating as a public
company, and our management has been, and will continue to be,
required to devote substantial time to compliance
initiatives.
The Sarbanes-Oxley Act of 2002, and rules subsequently
implemented by the SEC and the NASDAQ Stock Market, require
public companies to meet certain corporate governance standards.
Our management and other personnel are devoting a substantial
amount of time to these compliance initiatives. Moreover, as a
public company, these rules and regulations have increased our
legal and financial compliance costs and have made some
activities more time-consuming and costly. In addition, the
Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal control over financial reporting and
disclosure controls and procedures. In order to comply with
Section 404 of the Sarbanes-Oxley Acts requirements
relating to internal control over financial reporting, we incur
substantial accounting expense and expend significant management
time on compliance-related issues. We expect to continue to
incur such expenses and expend such time in the future. In
addition, we will continue to hire additional accounting and
financial staff with appropriate public company experience and
technical accounting knowledge. If in the future we are not able
to comply with the requirements of Section 404 in a timely
manner, or if we or our independent registered public accounting
firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses,
the market price of our stock would likely decline and we could
be subject to sanctions or investigations by the NASDAQ Stock
Market, the SEC or other regulatory authorities, which would
require additional financial and management resources.
Our
ability to use net operating loss carryforwards in the United
States may be limited.
As of December 31, 2009 we had net operating loss
carryforwards of $39.2 million for U.S. federal tax
purposes and $9.3 million for state tax purposes. These
loss carryforwards expire at varying dates between 2010 and
2029. To the extent available, we intend to use these net
operating loss carryforwards to reduce the corporate income tax
liability associated with our operations, if any.
Section 382 of the Internal Revenue Code generally imposes
an annual limitation on the amount of net operating loss
carryforwards that may be used to offset taxable income when a
corporation has undergone significant changes in stock
ownership. While we do not believe that our public stock
offerings and prior private financings have resulted in
ownership changes that would limit our ability to utilize net
operating loss carryforwards, any subsequent ownership changes
could result in such a limitation. To the extent our use of net
operating loss carryforwards is significantly limited, our
income could be subject to corporate income tax earlier than it
would if we were able to use net operating loss carryforwards,
which could have a negative effect on our financial results.
Our
quarterly results may fluctuate and if we fail to meet the
expectations of analysts or investors, our stock price could
decline substantially.
Our quarterly operating results may fluctuate, and if we fail to
meet or exceed the expectations of securities analysts or
investors, the trading price of our common stock could decline.
Some of the important factors that could cause our revenue and
operating results to fluctuate from quarter to quarter include:
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|
our ability to retain existing customers, attract new customers
and satisfy our customers requirements;
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|
|
general economic conditions;
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|
|
changes in our pricing policies;
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|
|
our ability to expand our business;
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|
|
the effectiveness of our personnel;
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|
|
new product and service introductions;
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|
|
technical difficulties or interruptions in our services as a
result of our actions or those of third parties;
|
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|
|
the timing of additional investments in our hardware and
software systems;
|
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|
|
the seasonal trends in our business;
|
26
|
|
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|
|
regulatory compliance costs;
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|
|
costs associated with future acquisitions of technologies and
businesses; and
|
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|
|
extraordinary expenses such as litigation or other
dispute-related settlement payments.
|
Some of these factors are not within our control, and the
occurrence of one or more of them may cause our operating
results to vary widely. As such, we believe that
quarter-to-quarter
comparisons of our revenue and operating results may not be
meaningful and should not be relied upon as an indication of
future performance.
We may
need additional capital in the future, which may not be
available to us on favorable terms, or at all, and may dilute
the ownership of our existing stockholders.
We have historically relied on outside financing and cash from
operations to fund our operations, capital expenditures and
growth. We may require additional capital from equity or debt
financing in the future to:
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|
fund our operations;
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|
|
respond to competitive pressures;
|
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|
|
take advantage of strategic opportunities, including more rapid
expansion of our business or the acquisition of complementary
products, technologies or businesses; and
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|
|
develop new products or enhancements to existing products.
|
We may not be able to secure timely additional financing on
favorable terms, or at all. The terms of any additional
financing may place limits on our financial and operating
flexibility. If we raise additional funds through issuances of
equity, convertible debt securities or other securities
convertible into equity, our existing stockholders could suffer
significant dilution, and any new securities we issue could have
rights, preferences and privileges senior to those of our common
stock. If we are unable to obtain adequate financing or
financing on terms satisfactory to us, if and when we require
it, our ability to grow or support our business and to respond
to business challenges could be significantly limited.
We may
engage in future acquisitions that could disrupt our business,
dilute stockholder value and harm our business, operating
results or financial condition.
We have, from time to time, evaluated acquisition opportunities
and may pursue acquisition opportunities in the future. We have
not made any material acquisitions to date and, therefore, our
ability as an organization to make and integrate significant
acquisitions is unproven. Moreover, acquisitions involve
numerous risks, including:
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|
an inability to locate a suitable acquisition candidate or
technology or acquire a desirable candidate or technology on
favorable terms;
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|
difficulties in integrating personnel and operations from the
acquired business or acquired technology with our existing
technology and products and in retaining and motivating key
personnel from the business;
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|
disruptions in our ongoing operations and the diversion of our
managements attention from their
day-to-day
responsibilities associated with operating our business;
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|
|
increases in our expenses that adversely impact our business,
operating results and financial condition;
|
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|
|
potential write-offs of acquired assets and increased
amortization expense related to identifiable assets
acquired; and
|
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|
|
potentially dilutive issuances of equity securities or the
incurrence of debt.
|
In addition, any acquisition we complete may not ultimately
strengthen our competitive position or achieve our goals, or
such an acquisition may be viewed negatively by our customers,
stockholders or the financial markets.
27
RISKS
RELATED TO THE OWNERSHIP OF OUR COMMON STOCK
The
market price of our common stock has been and may continue to be
volatile.
The trading price of our common stock has been and may continue
to be highly volatile and could be subject to wide fluctuations
in response to various factors. Some of the factors that may
cause the market price of our common stock to fluctuate include:
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|
|
fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
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|
|
changes in estimates of our financial results or recommendations
by securities analysts;
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|
|
changes in general economic, industry and market conditions;
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|
|
|
failure of any of our products to achieve or maintain market
acceptance;
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|
|
changes in market valuations of similar companies;
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|
|
success of competitive products;
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|
|
changes in our capital structure, such as future issuances of
securities or the incurrence of debt;
|
|
|
|
announcements by us or our competitors of significant products,
contracts, acquisitions or strategic alliances;
|
|
|
|
regulatory developments in the United States, foreign countries
or both;
|
|
|
|
litigation involving our company, our general industry or both;
|
|
|
|
additions or departures of key personnel; and
|
|
|
|
investors general perception of us.
|
In addition, if the market for technology stocks or the stock
market in general experiences a loss of investor confidence, the
trading price of our common stock could decline for reasons
unrelated to our business, financial condition or results of
operations. If any of the foregoing occurs, it could cause our
stock price to fall and may expose us to class action lawsuits
that, even if unsuccessful, could be costly to defend and a
distraction to management.
If
securities or industry analysts do not continue to publish
research or publish inaccurate or unfavorable research about our
business, our stock price and trading volume could
decline.
The trading market for our common stock depends in part on the
research and reports that securities or industry analysts
publish about us or our business. We do not control these
analysts. If one or more of the analysts who covers us
downgrades our stock or publishes inaccurate or unfavorable
research about our business, our stock price would likely
decline. If one or more of these analysts ceases coverage of our
company or fails to publish reports on us regularly, demand for
our stock could decrease, which could cause our stock price and
trading volume to decline.
Anti-takeover
provisions in our charter documents and Delaware law could
discourage, delay or prevent a change of control of our company
and may affect the trading price of our common
stock.
We are a Delaware corporation and the anti-takeover provisions
of the Delaware General Corporation Law may discourage, delay or
prevent a change of control by prohibiting us from engaging in a
business combination with an interested stockholder for a period
of three years after the person becomes an interested
stockholder, even if a change of control would be beneficial to
our existing stockholders. In addition, our restated certificate
of incorporation and second amended and restated bylaws may
discourage, delay or prevent
28
a change in our management or control over us that stockholders
may consider favorable. Among other things, our restated
certificate of incorporation and second amended and restated
bylaws:
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|
|
authorize the issuance of blank check preferred
stock that could be issued by our board of directors to impede
or delay a takeover attempt;
|
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|
|
establish a classified board of directors, as a result of which
the successors to the directors whose terms have expired will be
elected to serve from the time of election and qualification
until the third annual meeting following their election;
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|
|
require that directors only be removed from office for cause and
only upon a supermajority stockholder vote;
|
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|
|
provide that vacancies on our board of directors, including
newly created directorships, may be filled only by a majority
vote of directors then in office;
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|
limit who may call special meetings of stockholders;
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|
|
prohibit stockholder action by written consent, requiring all
actions to be taken at a meeting of the stockholders; and
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|
|
require supermajority stockholder voting to effect certain
amendments to our restated certificate of incorporation and
second amended and restated bylaws.
|
We do
not currently intend to pay dividends on our common stock and,
consequently, the ability to achieve a return on an investment
in our common stock will depend on appreciation in the price of
our common stock.
We do not expect to pay cash dividends on our common stock. Any
future dividend payments are within the absolute discretion of
our board of directors and will depend on, among other things,
our results of operations, working capital requirements, capital
expenditure requirements, financial condition, contractual
restrictions, business opportunities, anticipated cash needs,
provisions of applicable law and other factors that our board of
directors may deem relevant. We may not generate sufficient cash
from operations in the future to pay dividends on our common
stock.
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|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We conduct our operations in leased facilities. We currently
lease approximately 111,000 square feet of office space in
Waltham, Massachusetts pursuant to a lease agreement that
expires in September 2015 with one five-year extension option.
This facility serves as our corporate headquarters. The
functions performed at our headquarters include finance, human
resources, legal, marketing, sales, customer support,
operations, product strategy and research and development. We
expect to occupy additional space in this facility under our
current lease agreement over the next three years.
In Loveland, Colorado, we lease approximately 50,000 square
feet of office space under a lease agreement that will expire in
April 2019 with three three-year extension options. We occupy
approximately 25,000 square feet of the facility and expect
to occupy the remainder of the office space in April 2010. This
facility is used for sales and support personnel. In addition,
we lease approximately 2,000 square feet of office space in
Delray, Florida pursuant to a lease agreement that expires in
July 2012 for research and development personnel.
Our production system hardware and the disaster recovery
hardware for our production system are each co-located in
third-party hosting facilities located in Eastern Massachusetts.
One facility is owned and operated by Digital 55 Middlesex, LLC,
an affiliate of Digital Realty Trust, Inc., which provides
services to us under an agreement that expires in December 2013.
The other facility is owned and operated by Internap Network
Services Corporation, which provides services to us under an
agreement that expires in March 2011.
We believe that the total space available to us in the
facilities under our current leases and third-party hosting
arrangements or obtainable by us on commercially reasonable
terms, will meet our needs for the foreseeable future.
29
For more information about our lease and third-party hosting
commitments, see Note 10 to our consolidated financial
statements, Commitments and Contingencies, included
elsewhere in this Annual Report on
Form 10-K.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
From time to time, we may become involved in legal proceedings
arising in the ordinary course of our business. We are not
presently a party to any legal proceedings that, in our opinion,
would have a material adverse effect on our business, results of
operations or financial condition.
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Certain
Information Regarding the Trading of Our Common Stock
Our common stock trades under the symbol CTCT on the
NASDAQ Global Market. The following table sets forth, for the
periods indicated, the high and low sale price per share of our
common stock on the NASDAQ Global Market:
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|
|
High
|
|
Low
|
|
2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
25.24
|
|
|
$
|
14.13
|
|
Second Quarter
|
|
$
|
20.19
|
|
|
$
|
14.09
|
|
Third Quarter
|
|
$
|
21.24
|
|
|
$
|
16.25
|
|
Fourth Quarter
|
|
$
|
17.95
|
|
|
$
|
10.31
|
|
2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
17.25
|
|
|
$
|
12.37
|
|
Second Quarter
|
|
$
|
20.95
|
|
|
$
|
13.67
|
|
Third Quarter
|
|
$
|
23.09
|
|
|
$
|
18.03
|
|
Fourth Quarter
|
|
$
|
20.54
|
|
|
$
|
14.70
|
|
2010:
|
|
|
|
|
|
|
|
|
First Quarter (through March 8, 2010)
|
|
$
|
20.45
|
|
|
$
|
16.36
|
|
Holders
of Our Common Stock
As of March 8, 2010, there were 76 holders of record
of shares of our common stock. This number does not include
stockholders for whom shares are held in nominee or
street name.
Dividends;
Equity Repurchases
We have never paid or declared any cash dividends on our common
stock and do not anticipate paying any cash dividends in the
foreseeable future. We currently intend to retain all future
earnings, if any, for use in the operation of our business.
Neither we nor any affiliated purchaser or anyone acting on
behalf of us made any purchases of shares of our common stock in
the fourth quarter of 2009.
Recent
Sales of Unregistered Securities; Use of Proceeds from
Registered Securities
We did not sell any unregistered securities during the year
ended December 31, 2009.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Information regarding our equity compensation plans and the
securities authorized for issuance thereunder is set forth
herein under Part III, Item 12 below.
30
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected statements of operations data for the years ended
December 31, 2009, 2008 and 2007 and the balance sheet data
as of December 31, 2009 and 2008 have been derived from our
audited consolidated financial statements, which are included
elsewhere in this Annual Report on consolidated
Form 10-K.
The selected statements of operations data for the years ended
December 31, 2006 and 2005 and the balance sheet data as of
December 31, 2007, 2006 and 2005 have been derived from our
audited financial statements, which are not included in this
Annual Report on
Form 10-K.
The selected financial data set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and related notes included
elsewhere in this Annual Report on
Form 10-K.
The historical results are not necessarily indicative of the
results to be expected in any future period.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share and customer data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
129,061
|
|
|
$
|
87,268
|
|
|
$
|
50,495
|
|
|
$
|
27,552
|
|
|
$
|
14,658
|
|
Cost of revenue(1)
|
|
|
37,692
|
|
|
|
24,251
|
|
|
|
13,031
|
|
|
|
7,801
|
|
|
|
3,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
91,369
|
|
|
|
63,017
|
|
|
|
37,464
|
|
|
|
19,751
|
|
|
|
10,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
18,367
|
|
|
|
15,123
|
|
|
|
10,341
|
|
|
|
6,172
|
|
|
|
3,355
|
|
Sales and marketing
|
|
|
61,023
|
|
|
|
42,851
|
|
|
|
27,376
|
|
|
|
18,592
|
|
|
|
7,460
|
|
General and administrative
|
|
|
13,749
|
|
|
|
9,508
|
|
|
|
5,445
|
|
|
|
2,623
|
|
|
|
1,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
93,139
|
|
|
|
67,482
|
|
|
|
43,162
|
|
|
|
27,387
|
|
|
|
12,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,770
|
)
|
|
|
(4,465
|
)
|
|
|
(5,698
|
)
|
|
|
(7,636
|
)
|
|
|
(1,230
|
)
|
Interest and other income (expense), net
|
|
|
510
|
|
|
|
2,409
|
|
|
|
(2,556
|
)
|
|
|
(203
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,260
|
)
|
|
|
(2,056
|
)
|
|
|
(8,254
|
)
|
|
|
(7,839
|
)
|
|
|
(1,254
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(816
|
)
|
|
|
(3,788
|
)
|
|
|
(5,743
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,260
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
(9,070
|
)
|
|
$
|
(11,627
|
)
|
|
$
|
(6,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.97
|
)
|
|
$
|
(3.38
|
)
|
|
$
|
(2.49
|
)
|
Weighted average shares outstanding used in computing per share
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
28,253
|
|
|
|
27,879
|
|
|
|
9,366
|
|
|
|
3,438
|
|
|
|
2,813
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period number of email marketing customers(2)
|
|
|
347,548
|
|
|
|
253,421
|
|
|
|
164,669
|
|
|
|
89,323
|
|
|
|
47,730
|
|
|
|
|
(1) |
|
Amounts include stock-based compensation expense, as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cost of revenue
|
|
$
|
706
|
|
|
$
|
354
|
|
|
$
|
81
|
|
|
$
|
25
|
|
|
$
|
|
|
Research and development
|
|
|
1,150
|
|
|
|
737
|
|
|
|
170
|
|
|
|
27
|
|
|
|
|
|
Sales and marketing
|
|
|
1,134
|
|
|
|
648
|
|
|
|
133
|
|
|
|
19
|
|
|
|
|
|
General and administrative
|
|
|
2,094
|
|
|
|
1,117
|
|
|
|
261
|
|
|
|
12
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,084
|
|
|
$
|
2,856
|
|
|
$
|
645
|
|
|
$
|
83
|
|
|
$
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2) |
|
We define our end of period number of email marketing customers
as email marketing customers that we billed directly during the
last month of the period. |
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term marketable securities
|
|
$
|
113,102
|
|
|
$
|
107,175
|
|
|
$
|
101,535
|
|
|
$
|
12,790
|
|
|
$
|
2,784
|
|
Total assets
|
|
|
141,488
|
|
|
|
127,142
|
|
|
|
111,845
|
|
|
|
18,481
|
|
|
|
5,545
|
|
Deferred revenue
|
|
|
20,341
|
|
|
|
15,052
|
|
|
|
10,354
|
|
|
|
5,476
|
|
|
|
2,827
|
|
Redeemable convertible preferred stock warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
628
|
|
|
|
|
|
Notes payable and capital lease obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
702
|
|
|
|
1,326
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,322
|
|
|
|
16,657
|
|
Total stockholders equity (deficit)
|
|
|
104,968
|
|
|
|
99,990
|
|
|
|
94,354
|
|
|
|
(28,629
|
)
|
|
|
(17,237
|
)
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
You should read the following discussion and analysis of our
financial condition and results of operations together with our
consolidated financial statements and the related notes and
other financial information included elsewhere in this Annual
Report on
Form 10-K.
Some of the information contained in this discussion and
analysis or set forth elsewhere in this Annual Report on
Form 10-K
including information with respect to our plans and strategy for
our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should
review the Risk Factors section of this Annual
Report on
Form 10-K
for a discussion of important factors that could cause actual
results to differ materially from the results described in or
implied by the forward-looking statements contained in the
following discussion and analysis.
Business
Overview
We are a leading provider of on-demand email marketing, event
marketing and online survey solutions for small organizations,
including small businesses, associations and non-profits. Our
customers use our email marketing product to more effectively
and efficiently create, send and track professional and
affordable permission-based email marketing campaigns. We also
offer an online survey product that complements our email
marketing product and enables our customers to easily create and
send surveys and effectively analyze responses. In the fourth
quarter of 2009, we launched an event marketing product. We
provide our products on an on-demand basis through a web
browser. Our email marketing customers pay a monthly
subscription fee that generally ranges between $15 per month and
$150 per month based on the size of their contact lists and, in
some cases, volume of mailings. Our survey customers pay a flat
monthly fee of $15 that enables them to receive and track a
maximum of 5,000 survey responses. Our event marketing customers
pay a fee of $15 per month to manage up to five concurrent
events. We offer discounts for multiple product purchases and
prepayments and to non-profits. At December 31, 2009, we
had 347,548 email marketing customers. We measure our customer
base as the number of email marketing customers that we bill
directly in the last month of a period. We market our products
and acquire our customers through a variety of sources including
online marketing through search engines and advertising on
online networks and other websites, offline marketing through
radio advertising, local seminars and other marketing efforts,
contractual relationships with our channel partners, referrals
from our growing customer base, general brand awareness and the
inclusion of a link to our website in the footer of emails sent
by our customers. In 2009, our cost of customer acquisition,
which we define as our total sales and marketing expense divided
by the gross number of email marketing customers added during
the year, was approximately $350 per email marketing customer,
implying payback on a revenue basis in less than a year. This
implied payback is calculated by dividing the acquisition cost
per email marketing customer by the average monthly total
revenue per email marketing customer, which was $35.55 in 2009.
32
Our on-demand email marketing product was first offered
commercially in 2000. In 2009, our revenue was
$129.1 million and our net loss was $1.3 million.
On October 9, 2007, we completed our initial public
offering, in which we sold and issued 6,199,845 shares of
common stock at a price of $16.00 per share. We raised
$90.4 million in net proceeds after deducting underwriting
discounts and commissions and other offering costs. On
April 30, 2008, we completed a secondary public offering of
5,221,000 shares of common stock, of which
314,465 shares were sold by us and 4,906,535 shares
were sold by existing stockholders, at a price to the public of
$16.00 per share. We raised $4.0 million in net proceeds
after deducting underwriting discounts and commissions and other
offering costs.
Key
Financial and Operating Metrics
In connection with the ongoing operation of our business, our
management regularly reviews key financial and operating metrics
including revenue, expenses, average monthly revenue growth,
average revenue per email marketing customer, cost of
acquisition, gross and net customer additions, trialer growth,
conversion rates for our website visitors and our trialers,
customer attrition, customer satisfaction rates, average speed
of answer for customer support calls, email deliverability
rates, and capital expenditures, among others. Management
considers these financial and operating metrics critical to
understanding and improving our business, reviewing our
historical performance, benchmarking our performance versus
other companies and identifying current and future trends, and
for planning purposes.
In addition, we consider the following non-GAAP financial
measures to be key indicators of our financial performance:
|
|
|
|
|
adjusted EBITDA, which we define as GAAP net income
(loss) plus depreciation and amortization and stock-based
compensation and minus net interest income;
|
|
|
|
adjusted EBITDA margin, which we define as adjusted
EBITDA divided by revenue; and
|
|
|
|
free cash flow, which we define as net cash flow
from operating activities less acquisition of property and
equipment.
|
We believe that these non-GAAP financial measures are useful to
management and investors in evaluating our operating performance
for the periods presented and provide a tool for evaluating our
ongoing operations. These non-GAAP financial measures, however,
are not a measure of financial performance under accounting
principles generally accepted in the United States of America
(GAAP) and should not be considered a substitute for
GAAP financial measures, including but not limited to net income
(loss) or cash flows from operating, investing and financing
activities and may not be comparable to similarly titled
measures reported by other companies.
Certain
Trends and Uncertainties
The following represents a summary of certain trends and
uncertainties, which could have a significant impact on our
financial condition and results of operations. This summary is
not intended to be a complete list of potential trends and
uncertainties that could impact our business in the long or
short term. The summary should be considered along with the
factors identified in the section titled Risk
Factors set forth in Part I, Item 1A of this
Annual Report on
Form 10-K
and elsewhere in this report.
|
|
|
|
|
We continue to closely monitor current adverse economic
conditions, particularly as they impact small businesses,
associations and non-profits. We are unable to predict the
likely duration and severity of the current adverse economic
conditions in the U.S. and other countries, but the longer
the duration the greater risks we face in operating our business.
|
|
|
|
We believe that given the size of our potential market and the
relatively low barriers to entry, competition will continue to
increase. Increased competition could result from existing
competitors or new competitors that enter the market because of
the potential opportunity. We will continue to closely monitor
competitive activity and respond accordingly. Increased
competition could have an adverse effect on our financial
condition and results of operations.
|
33
|
|
|
|
|
We believe that as we continue to grow revenue at expected
rates, our cost of revenue and operating expenses, including
sales and marketing, research and development and general and
administrative expenses, will increase in absolute dollar
amounts. For a description of the general trends we anticipate
in various expense categories, see Cost of Revenue and
Operating Expenses below.
|
|
|
|
As of December 31, 2009, we had cash and cash equivalents
and short-term marketable securities of $113 million.
During 2009, we experienced a substantial decline in our
investment income as a result of the reduction in interest rates
generally.
|
Sources
of Revenue
We derive our revenue principally from subscription fees from
our customers. Our revenue is driven primarily by the number of
paying customers and the subscription fees for our products and
is not concentrated within any one customer or group of
customers. In 2009, our top 100 email marketing customers
accounted for less than 1% of our total email marketing revenue.
We do not require our customers to commit to a contractual term;
however, our customers are required to prepay for subscriptions
on a monthly, semi-annual, or annual basis by providing a credit
card or check form of payment. Fees are recorded initially as
deferred revenue and then recognized as revenue on a daily basis
over the prepaid subscription period.
We also generate a small amount of revenue from ancillary
services related to our products, which primarily consist of
professional services and training through our experts program.
Revenue generated from professional services and training
accounted for approximately 1% of gross revenue for each of the
years ended December 31, 2009, 2008 and 2007.
Cost of
Revenue and Operating Expenses
We allocate certain occupancy and general office related
expenses, such as rent, utilities, office supplies and
depreciation of general office assets to cost of revenue and
operating expense categories based on headcount. As a result, an
occupancy expense allocation is reflected in cost of revenue and
each operating expense category.
Cost of Revenue. Cost of revenue consists
primarily of wages and benefits for software operations and
customer support personnel, credit card processing fees, and
depreciation and amortization, maintenance and hosting of our
software applications underlying our product offerings. We
allocate a portion of customer support costs relating to
assisting trial customers to sales and marketing expense.
The expenses related to our hosted software applications are
affected by the number of customers who subscribe to our
products and the complexity and redundancy of our software
applications and hosting infrastructure. We expect cost of
revenue to increase in absolute dollars as we expect to increase
our number of customers, but decrease slightly as a percentage
of revenue due to efficiencies created by our expected revenue
growth.
Research and Development. Research and
development expenses consist primarily of wages and benefits for
product strategy and development personnel. We have focused our
research and development efforts on improving ease of use,
functionality and technological scalability of our existing
products as well as on developing new offerings. We primarily
expense research and development costs. However, direct
development costs related to software enhancements that add
functionality are capitalized and depreciated over their useful
life. We expect that on an annual basis research and development
expenses will increase in absolute dollars as we continue to
enhance and expand our product offerings, but remain generally
consistent or decline slightly as a percentage of revenue as we
expect to continue to grow our revenue at a similar rate.
Sales and Marketing. Sales and marketing
expenses consist primarily of advertising and promotional costs,
wages and benefits for sales and marketing personnel, partner
referral fees, and the portion of customer support costs that
relate to assisting trial customers. Advertising costs consist
primarily of
pay-per-click
advertising with search engines, other online and offline
advertising media, including radio and print advertisements, as
well as the costs to create and produce these advertisements.
Advertising costs are expensed as incurred. Promotional costs
consist primarily of public relations, memberships, and event
costs. Our
34
advertising and promotional expenses have historically been
highest in the fourth quarter of each year as this reflects a
period of increased sales and marketing activity for many small
organizations. In order to continue to grow our business and
brand and category awareness, we expect that we will continue to
commit substantial resources to our sales and marketing efforts.
As a result, we expect that on an annual basis sales and
marketing expenses will increase in absolute dollars, but
decrease as a percentage of revenue as we expect to continue to
grow our revenue at a faster rate.
General and Administrative. General and
administrative expenses consist primarily of wages and benefits
for administrative, human resources, internal information
technology support, finance and accounting personnel,
professional fees, certain taxes and other corporate expenses.
We expect that general and administrative expenses will increase
as we continue to add personnel in connection with the
anticipated growth of our business and incur costs related to
operating as a public company. Therefore, we expect that our
general and administrative expenses will increase in absolute
dollars, but remain generally consistent or decline slightly as
a percentage of revenue as we expect to continue to grow our
revenue at a similar rate.
Critical
Accounting Policies
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of our financial statements and related
disclosures requires us to make estimates, assumptions and
judgments that affect the reported amount of assets,
liabilities, revenue, costs and expenses, and related
disclosures. We believe that the estimates, assumptions and
judgments involved in the accounting policies described below
may have the greatest potential impact on our financial
statements and, therefore, consider these to be our critical
accounting policies. Accordingly, we evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ
from these estimates under different assumptions and conditions.
See Note 2 to our consolidated financial statements
included elsewhere in this Annual Report on
Form 10-K
for information about these critical accounting policies, as
well as a description of our other significant accounting
policies.
Revenue Recognition. We provide access to our
products through subscription arrangements whereby our customers
are charged a fee for access to our products. Subscription
arrangements include access to use our software via the Internet
and support services, such as telephone support. When there is
evidence of an arrangement, the fee is fixed or determinable and
collectability is deemed reasonably assured, we recognize
revenue on a daily basis over the subscription period as the
services are delivered. Delivery is considered to have occurred
at the time the customer has paid for the products and has
access to their account via a log-in and password.
We also offer ancillary services to our customers related to our
products such as professional services and training through our
experts program. Professional services and training revenue is
accounted for separately from subscription revenue as those
services have value on a standalone basis, do not involve a
significant degree of risk or unique acceptance criteria and as
the fair value of our subscription services is evidenced by
their availability on a standalone basis. Professional services
and training revenue is recognized as the services and training
are performed.
Income Taxes. Income taxes are provided for
tax effects of transactions reported in the financial statements
and consist of income taxes currently due plus deferred income
taxes related to timing differences between the basis of certain
assets and liabilities for financial statements and income tax
reporting. Deferred taxes are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse. A valuation
allowance for the net deferred tax assets is provided if, based
upon the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be
realized.
Software and Website Development
Costs. Relative to development costs of our
on-demand products and website, in accordance with authoritative
guidance, we capitalize certain direct costs to develop
functionality as well as certain upgrades and enhancements that
are probable to result in additional functionality. The costs
incurred in the preliminary stages of development are expensed
as incurred. Once an application has reached the development
stage, internal and external costs, if direct and incremental,
are capitalized as part of property
35
and equipment until the software is substantially complete and
ready for its intended use. Capitalized software is amortized
over a three year period and the expense is reflected in the
expense category to which the software relates.
Redeemable Convertible Preferred Stock
Warrant. We accounted for the freestanding
warrant to purchase redeemable convertible preferred stock that
was outstanding until its exercise in October 2007 as a
liability that was recorded at fair value. The fair value of the
warrant was subject to remeasurement at each balance sheet date
prior to its exercise in October 2007. The changes in fair value
(determined using the Black-Scholes option pricing model) were
recognized as other expense.
Stock-Based Compensation. We value all
stock-based compensation, including grants of stock options, at
fair value on the date of grant, and expense the fair value over
the applicable service period. The straight-line method is
applied to all grants with service conditions, while the graded
vesting method is applied to all grants with both service and
performance conditions.
Commencing in the fourth quarter 2007, we based the fair value
of common stock on the quoted market price of our stock. Because
there was no public market for our common stock prior to the
initial public offering, our board of directors determined the
fair value of common stock for those earlier periods by taking
into account our most recently available valuation of common
stock. The fair value of each stock option grant was estimated
on the date of grant using the Black-Scholes option-pricing
model. Because the Company has a limited history of operating as
a public company, the expected term assumption was based on the
simplified method for estimating expected term for
awards that qualify as plain-vanilla options under
authoritative guidance. Expected volatility was based on
historical volatility of the publicly traded stock of a peer
group of companies, inclusive of the Company, commencing October
2007. The risk-free interest rate was determined by reference to
U.S. Treasury yields at or near the time of grant for time
periods similar to the expected term of the award. The relevant
data used to determine the value of the stock option grants is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average risk-free interest rate
|
|
|
2.64
|
%
|
|
|
2.24
|
%
|
|
|
4.23
|
%
|
Expected term (in years)
|
|
|
6.1
|
|
|
|
6.1
|
|
|
|
6.1
|
|
Weighted average expected volatility
|
|
|
53.8
|
%
|
|
|
54.37
|
%
|
|
|
62.1
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
These assumptions represented our best estimates, but the
estimates involve inherent uncertainties and the application of
our judgment. As a result, if factors change and we use
significantly different assumptions or estimates, our
stock-based compensation expense could be materially different.
Authoritative guidance requires that we recognize compensation
expense for only the portion of options that are expected to
vest. In developing a forfeiture rate estimate, we have
considered our historical experience to estimate pre-vesting
option forfeitures. If our actual forfeiture rate is materially
different from the estimate, our stock-based compensation
expense could be significantly different from what we have
recorded in the current period. We have unrecognized
compensation expense associated with outstanding stock options
at December 31, 2009 of $16.9 million, which is
expected to be recognized over a weighted-average period of
2.97 years.
36
Results
of Operations
The following table sets forth selected statements of operations
data for each of the periods indicated as a percentage of total
revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Cost of revenue
|
|
|
29
|
|
|
|
28
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
71
|
|
|
|
72
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
14
|
|
|
|
17
|
|
|
|
20
|
|
Sales and marketing
|
|
|
47
|
|
|
|
49
|
|
|
|
54
|
|
General and administrative
|
|
|
11
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
72
|
|
|
|
77
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
(11
|
)
|
Interest and other income (expense), net
|
|
|
|
|
|
|
3
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1
|
)%
|
|
|
(2
|
)%
|
|
|
(16
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of Years Ended December 31, 2009 and 2008
Revenue. Revenue for 2009 was
$129.1 million, an increase of $41.8 million, or 48%,
over revenue of $87.3 million for 2008. The increase in
revenue resulted primarily from a 46% increase in the number of
average monthly email marketing customers and an increase in
average revenue per customer. Average monthly email marketing
customers increased to 302,516 in 2009 from 207,716 in 2008,
while average revenue per customer in 2009 increased to $35.55
from $35.01 in 2008. We expect our average revenue per customer
to increase over time as we expect to generate additional
revenue from our email marketing customers for add-ons to the
email marketing product and from our event marketing and survey
products.
Cost of Revenue. Cost of revenue for 2009 was
$37.7 million, an increase of $13.4 million, or 55%,
over cost of revenue of $24.3 million for 2008. Of the
increase in cost of revenue, $5.1 million resulted from
increased depreciation, hosting and maintenance costs as a
result of scaling and adding capacity to our hosting
infrastructure, inclusive of the impact of operating our second
third-party hosting facility that we opened in 2008.
Additionally, $3.9 million and $2.0 million of the
increase resulted from increased personnel costs attributable to
additional employees in our customer support group and
operations group, respectively, because we increased the number
of employees to support our customer growth and manage our
infrastructure. Approximately $1.2 million of the increase
related to higher credit card fees due to the higher volume of
billing transactions. As a percentage of revenue, cost of
revenue was 29% and 28% for 2009 and 2008, respectively. The
increase as a percentage of revenue was due primarily to the 67%
increase in depreciation, hosting and maintenance costs and the
80% increase in personnel costs in our operations group as
compared to the 48% increase in revenue.
Research and Development Expenses. Research
and development expenses for 2009 were $18.4 million, an
increase of $3.3 million, or 21%, over research and
development expenses of $15.1 million for 2008. As a
percentage of revenue, research and development expenses were
14% for 2009 and 17% for 2008. The increase in absolute dollars
was primarily due to additional personnel related costs of
$2.7 million because we increased the number of research
and development employees to further enhance our products and
develop new products.
Sales and Marketing Expenses. Sales and
marketing expenses for 2009 were $61.0 million, an increase
of $18.1 million, or 42%, over sales and marketing expenses
of $42.9 million for 2008. As a percentage of revenue,
sales and marketing expenses were 47% for 2009 and 49% for 2008.
The increase in absolute dollars
37
was primarily due to increased advertising and promotional
expenditures of $10.5 million due to continued expansion of
our multi-channel marketing strategy including our national
radio advertising campaign. Additionally, personnel related
costs increased by $4.8 million because we added employees
in an effort to generate sales leads and accommodate the growth
in sales leads. Partner referral fees also increased by
$1.4 million as the number of new customers generated from
our channel partners increased.
General and Administrative Expenses. General
and administrative expenses for 2009 were $13.7 million, an
increase of $4.2 million, or 45%, over general and
administrative expenses of $9.5 million for 2008. General
and administrative expenses were 11% of revenue for both 2009
and 2008. The increase in absolute dollars was primarily due to
additional personnel related costs of $3.3 million because
we increased the number of general and administrative employees
to support our overall growth, and because our stock-based
compensation expense increased due to additional stock option
grants.
Interest and Other Income (Expense),
Net. Interest and other income (expense), net for
2009 consisted primarily of interest income of $504,000, which
represented a decrease of $1.9 million from interest income
of $2.4 million for 2008. The decrease was due to the
decrease in interest rates earned on our cash equivalents and
short-term marketable securities during 2009 as compared to 2008.
Comparison
of Years Ended December 31, 2008 and 2007
Revenue. Revenue for 2008 was
$87.3 million, an increase of $36.8 million, or 73%,
over revenue of $50.5 million for 2007. The increase in
revenue resulted primarily from a 66% increase in the number of
average monthly email marketing customers as well as an increase
in average revenue per customer. Average monthly email marketing
customers increased to 207,716 in 2008 from 125,130 in 2007,
while average revenue per customer in 2008 increased to $35.01
from $33.63 in 2007.
Cost of Revenue. Cost of revenue for 2008 was
$24.3 million, an increase of $11.3 million, or 86%,
over cost of revenue of $13.0 million for 2007. As a
percentage of revenue, cost of revenue was 28% in 2008 compared
to 26% in 2007. The increase resulted from a 66% increase in the
number of average monthly email marketing customers, which
resulted in increased hosting and operations expense and
customer support costs. Additionally, we opened a second
third-party hosting facility in the first quarter of 2008 and a
second sales and customer support office in the third quarter of
2008. Our cost of revenue increased due to the impact of opening
these two facilities during the year. Of the increase in cost of
revenue, $4.6 million resulted from increased depreciation,
hosting and maintenance costs as a result of scaling and adding
capacity to our hosting infrastructure, inclusive of the impact
of opening our second third-party hosting facility, and
$4.4 million resulted from increased personnel costs
attributable to additional employees in our customer support and
operations groups to support customer growth during the period.
We also experienced an increase of $1.0 million in
occupancy costs due to the increase in employees in our customer
support and operations group and from opening a second sales and
customer support office. Additionally, $1.0 million of the
increase related to increased credit card processing fees due to
a higher volume of billing transactions.
Research and Development Expenses. Research
and development expenses for 2008 were $15.1 million, an
increase of $4.8 million, or 46%, over research and
development expenses of $10.3 million for 2007. As a
percentage of revenue, research and development expenses were
17% and 20% for the years ended December 31, 2008 and 2007,
respectively. The increase in absolute dollars was primarily due
to additional personnel related costs of $3.5 million
because we increased the number of research and development
employees to further enhance our products. Additionally,
$816,000 of the increase resulted from increased occupancy costs
due to the increase in employees in research and development.
Sales and Marketing Expenses. Sales and
marketing expenses for 2008 were $42.9 million, an increase
of $15.5 million, or 57%, over sales and marketing expenses
of $27.4 million for 2007. As a percentage of revenue,
sales and marketing expenses were 49% and 54% for the years
ended December 31, 2008 and 2007, respectively. The
increase in absolute dollars was primarily due to increased
advertising and promotional expenditures of $9.2 million
due to continued expansion of our multi-channel marketing
strategy and the rollout of a national radio advertising
campaign. Additionally, personnel related costs increased by
$3.1 million because we added employees in an effort to
generate sales leads and accommodate the growth in sales leads.
38
The increase in employees in sales and marketing also led to an
increase of $779,000 in occupancy costs. Partner referral fees
increased by $1.1 million as the number of customers
generated from our channel partners increased.
General and Administrative Expenses. General
and administrative expenses for 2008 were $9.5 million, an
increase of $4.1 million, or 75%, over general and
administrative expenses of $5.4 million for 2007. As a
percentage of revenue, general and administrative expenses were
11% in both years. The increase in absolute dollars was
primarily due to additional personnel related costs of
$2.3 million because we increased the number of general and
administrative employees to support our overall growth, and
because our stock-based compensation expense increased due to
additional option grants. We also incurred increased insurance
and professional fees of $1.7 million to support the
reporting and regulatory requirements of being a public company,
including the costs of complying with Section 404 of the
Sarbanes Oxley-Act for the first time in 2008.
Interest and Other Income (Expense),
Net. Interest and other income (expense), net for
2008 was $2.4 million, an improvement of $5.0 million
from interest and other income (expense), net of
$(2.6) million for 2007. The increase was primarily due to
an expense of $3.9 million we recorded in 2007 relating to
an outstanding redeemable convertible preferred stock warrant
that we accounted for as a liability held at fair market with
changes in value recorded as other expense. As a result of the
exercise of the warrant in the fourth quarter of 2007, we no
longer record warrant related charges. Additionally, $866,000 of
the increase was due to increased interest income from
investments in marketable securities and cash equivalents
primarily due to an increase in the balance of investments and
cash equivalents as a result of the proceeds we received in our
public offerings, which were completed in the fourth quarter of
2007 and the second quarter of 2008.
Liquidity
and Capital Resources
At December 31, 2009, our principal sources of liquidity
were cash and cash equivalents and short-term marketable
securities of $113.1 million.
Since our inception we have financed our operations primarily
through the sale of redeemable convertible preferred stock, the
issuance of convertible promissory notes, borrowings under
credit facilities and, to a lesser extent, cash flow from
operations. On October 9, 2007, we completed our initial
public offering, in which we issued and sold
6,199,845 shares of common stock at a price to the public
of $16.00 per share. We raised $90.4 million in net
proceeds after deducting underwriting discounts and commissions
and other offering costs. We used $2.6 million of proceeds
to repay our outstanding principal and interest under our term
loan facility. In the second quarter of 2008, we completed a
secondary public offering in which we issued and sold
314,465 shares of common stock at a price to the public of
$16.00 per share. We raised $4.0 million in net proceeds
after deducting underwriting discounts and commissions and other
offering costs. In the future, we anticipate that our primary
source of liquidity will be cash generated from our operating
activities.
Our operating activities provided cash of $21.9 million in
2009, $13.9 million in 2008 and $4.3 million in 2007.
Net cash inflows resulted primarily from our operating losses
offset by non-cash charges for depreciation and amortization,
stock-based compensation charges and changes in fair value of a
previously outstanding preferred stock warrant in 2007 as well
as changes in our working capital accounts. Operating losses
were primarily due to increased sales and marketing efforts and
additional employees in all areas, which also led to increased
occupancy costs for each of the three years in the period ended
December 31, 2009, as well as the opening of our second
hosting facility in the first quarter of 2008.
Changes in current assets consisted primarily of changes in
prepaid expenses and other current assets. Prepaid expenses and
other current assets decreased by $250,000 in 2009. Prepaid
expenses and other current assets increased $2.0 million in
2008 and $1.3 million in 2007 primarily due to an increase
in prepaid software and maintenance contracts as well as
increased volume of business.
39
The increases in current liability accounts consisted primarily
of the following:
Changes in deferred revenue as follows:
|
|
|
|
|
during 2009, deferred revenue increased $5.2 million from
$15.1 million to $20.3 million;
|
|
|
|
during 2008, deferred revenue increased $4.7 million from
$10.4 million to $15.1 million; and
|
|
|
|
during 2007, deferred revenue increased $4.9 million from
$5.5 million to $10.4 million.
|
The increases in deferred revenue were due to continued growth
in unearned prepaid subscriptions. The growth in prepaid
subscriptions was primarily due to the increase in the number of
customers.
Changes in accrued expenses and other current liabilities as
follows:
|
|
|
|
|
during 2009, accrued expenses increased $1.7 million from
$5.5 million to $7.2 million primarily due to
increased marketing costs;
|
|
|
|
during 2008, accrued expenses increased $2.6 million from
$2.9 million to $5.5 million primarily due to
increased employee related costs as a result of personnel
additions and approximately $250,000 related to the acquisition
of property and equipment included in accrued expenses at
December 31, 2008; and
|
|
|
|
during 2007, accrued expenses increased $522,000 from
$2.4 million to $2.9 million.
|
Changes in accounts payable as follows:
|
|
|
|
|
during 2009, accounts payable increased $1.0 million from
$4.8 million to $5.8 million;
|
|
|
|
during 2008, accounts payable increased $928,000 from
$3.9 million to $4.8 million; and
|
|
|
|
during 2007, accounts payable increased $1.3 million from
$2.6 million to $3.9 million.
|
The changes in accounts payable were due to increased expense
levels due to growth in the business, net of the impact of the
timing of payments to vendors.
The following non-cash charges are added back as adjustments to
reconcile net loss to net cash used in or provided by operating
activities:
|
|
|
|
|
depreciation and amortization expense of $8.6 million,
$5.6 million and $2.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively;
|
|
|
|
stock-based compensation expense of $5.1 million,
$2.9 million and $645,000 for the years ended
December 31, 2009, 2008 and 2007, respectively; and
|
|
|
|
change in fair value of a preferred stock warrant of
$3.9 million for the year ended December 31, 2007.
|
The increase in depreciation and amortization expense was due to
increased acquisitions of property and equipment required to
support the continued growth of our business. The increase in
stock-based compensation expense was due to the increase in the
value of the common stock into which these options were
exercisable as well as due to an increase in the number of
options granted. The change in fair value of the warrant to
purchase Series B redeemable convertible preferred stock
was due to the increase in the value of the underlying common
stock into which this warrant was ultimately convertible. The
warrant was subject to re-measurement at each balance sheet date
and changes in fair value were recognized as a component of
other expense until the warrant was exercised in October 2007.
As of December 31, 2009, we had federal and state net
operating loss carry-forwards of $39.2 million and
$9.3 million, respectively, which may be available to
offset potential payments of future federal and state income tax
liabilities and which, if unused, expire at various dates
through 2029 for federal income tax purposes and at various
dates through 2014 for state income tax purposes.
Net cash used in investing activities was $36.5 million,
$42.4 million and $6.0 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Net cash
used in investing activities during the years ended
40
December 31, 2009, 2008 and 2007 consisted primarily of net
cash paid to purchase marketable securities and property and
equipment, partially offset by the sales and maturities of
marketable securities. Acquisition of property and equipment of
$16.6 million, $13.1 million and $5.7 million in
2009, 2008 and 2007, respectively, consisted of the purchase of
infrastructure for our products, computer equipment for our
employees, equipment and furniture and leasehold improvements
primarily related to additional office space, as well as the
capitalization of certain software development costs. During
2009, 2008 and 2007, we capitalized $3.3 million,
$1.1 million and $382,000 of costs associated with the
development of internal use software. Additionally in 2009 and
2008, we acquired property and equipment to outfit our second
sales and support office.
Net cash provided by financing activities was $1.1 million,
$4.7 million and $90.0 million for the years ended
December 31, 2009, 2008, and 2007, respectively. Net cash
provided by financing activities for 2009 consisted of proceeds
from stock issued in conjunction with our employee stock
purchase plan of $674,000 and proceeds from stock issued
pursuant to the exercise of stock options of $468,000. Net cash
provided by financing activities in 2008 consisted primarily of
net proceeds of $4.0 million from our secondary public
offering of common stock completed in April 2008. Additionally,
we received proceeds of $497,000 from stock issued in
conjunction with our employee stock purchase plan and proceeds
of $236,000 from the issuance of our stock pursuant to the
exercise of stock options. Net cash provided by financing
activities for 2007 consisted primarily of net proceeds of
approximately $90.4 million from our initial public
offering. We also received proceeds of $2.8 million from
additional borrowings under a term loan facility and repaid
$900,000 of borrowings during the first nine months of 2007.
After our initial public offering, we used proceeds of
$2.6 million to repay the remaining outstanding borrowings.
Additional cash was provided by cash received in connection with
exercises of outstanding stock options and warrants in 2007.
We opened a second third-party hosting facility in the first
quarter of 2008 to serve as our primary co-location facility and
to provide increased scalability for our product infrastructure.
We made capital expenditures in 2007 and 2008 to build out this
facility. We made additional capital expenditures in 2009 for
equipment used in our product infrastructure. We opened a second
sales and support office in temporary space in July 2008 until
our long-term office space was ready for us to occupy in April
2009. We made capital expenditures in 2008 and 2009 to outfit
both the temporary and long-term space. In 2009, we signed a new
lease for our corporate headquarters that extends our occupancy
through September 2015 and increases the square footage
throughout the duration of the lease. We increased the amount of
space we occupied in 2009 and expect to occupy additional space
as it is made available to us. In 2010, we anticipate capital
expenditures of approximately $17 million to
$19 million, which will consist primarily of hardware and
software purchases, capitalization of internal use software, and
furniture and leasehold improvements related to our additional
office space.
Our future capital requirements may vary materially from those
now planned and will depend on many factors, including, but not
limited to, development of new products, market acceptance of
our products, the levels of advertising and promotion required
to launch additional products and improve our competitive
position in the marketplace, the expansion of our sales, support
and marketing organizations, the establishment of additional
offices in the United States and worldwide and the building of
infrastructure necessary to support our anticipated growth, the
response of competitors to our products and our relationships
with suppliers and clients. Since the introduction of our
on-demand email marketing product in 2000, we have experienced
increases in our expenditures consistent with the growth in our
operations and personnel, and we anticipate that our
expenditures will continue to increase on an absolute dollar
basis in the future.
We believe that our current cash, cash equivalents and
marketable securities and operating cash flows will be
sufficient to meet our working capital and capital expenditure
requirements for at least the next twelve months. Thereafter, we
may need to raise additional funds through public or private
financings or borrowings to fund our operations, develop or
enhance products, to fund expansion, to respond to competitive
pressures or to acquire complementary products, businesses or
technologies. If required, additional financing may not be
available on terms that are favorable to us, or at all. If we
raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of our
stockholders will be reduced and these securities might have
rights, preferences and privileges senior to those of our
current stockholders or we may be subject to covenants that
restrict how we conduct our business. No assurance can be given
that additional financing will be available or that, if
available, such financing can be obtained on terms favorable to
our stockholders and us.
41
The markets in which we operate continue to suffer from the
effects of the economic recession. We have limited experience
operating our business during an economic downturn. We do not
know if our current business model will operate as effectively
during an economic downturn. Furthermore, we are unable to
predict the likely duration and severity of the current adverse
economic conditions in the U.S. and other countries, but
the longer the duration the greater risks we face in operating
our business. Therefore, the current economic conditions could
have a significant adverse impact on our operating results and
working capital.
During the last three years, inflation and changing prices have
not had a material effect on our business. In light of the
current economic recession, we are unable to predict whether
inflation or changing prices will materially affect our business
in the foreseeable future.
Off-Balance
Sheet Arrangements
We do not engage in any off-balance sheet financing activities.
We do not have any interest in entities referred to as variable
interest entities, which include special purpose entities and
other structured finance entities.
New
Accounting Guidance
In September 2009, the Financial Accounting Standards Board
issued authoritative guidance on revenue arrangements with
multiple deliverables. This guidance provides another
alternative for establishing fair value for a deliverable. When
vendor specific objective evidence or third-party evidence for
deliverables in an arrangement cannot be determined, companies
will be required to develop a best estimate of the selling price
for separate deliverables and allocate arrangement consideration
using the relative selling price method. This guidance is
effective January 1, 2011, and early adoption is permitted.
We are currently evaluating the impact, if any, of this guidance
on our consolidated financial statements.
Contractual
Obligations
In May 2009, we signed a new noncancelable real estate operating
lease that superseded the original lease for our headquarters.
The new lease incorporates both the space we were occupying
under the original lease as well as additional space that will
be made available to us through the term of the lease. The new
lease is effective through September 2015. In May 2008, we
entered into two lease agreements with two related lessors in
connection with opening a second sales and support office. The
first agreement provided for temporary space and terminated in
April 2009. The second agreement provides for long-term space
for a period that began in April 2009 and expires in April 2019.
We have agreements with two vendors to provide specialized space
and related services from which we host our software
application. The agreements include payment commitments that
expire at various dates through 2013.
As of December 31, 2009, we had issued both cancellable and
non-cancellable purchase orders to various vendors and entered
into contractual commitments with various vendors totaling
approximately $15.7 million. This amount relates primarily
to marketing programs and other non-marketing related goods and
services to be delivered over the next twelve months.
The following table summarizes our contractual obligations at
December 31, 2009 and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
$
|
32,592
|
|
|
$
|
4,203
|
|
|
$
|
10,040
|
|
|
$
|
10,811
|
|
|
$
|
7,538
|
|
Hosting commitments
|
|
|
7,590
|
|
|
|
3,255
|
|
|
|
3,561
|
|
|
|
774
|
|
|
|
|
|
Vendor commitments
|
|
|
15,657
|
|
|
|
15,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
55,839
|
|
|
$
|
23,115
|
|
|
$
|
13,601
|
|
|
$
|
11,585
|
|
|
$
|
7,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Foreign Currency Exchange Risk. We bill for
our products in U.S. dollars and receive payment in
U.S. dollars and our operating expenses are paid
predominantly in U.S. dollars. Accordingly, our results of
operations and cash flows are not subject to material
fluctuations due to changes in foreign currency exchange rates.
Interest Rate Sensitivity. We had cash and
cash equivalents and marketable securities of
$113.1 million at December 31, 2009, which consisted
of cash, short-term government securities, corporate and agency
bonds, certificates of deposit and money market instruments.
Interest income is sensitive to changes in the general level of
U.S. interest rates; however, due to the short-term nature
of these investments, we do not believe that we have any
material exposure to changes in the fair value of our investment
portfolio as a result of changes in interest rates. Declines in
interest rates have significantly reduced our interest income in
2009 as compared to 2008.
43
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Constant
Contact, Inc.
Index to
Consolidated Financial Statements
|
|
|
|
|
|
|
Page(s)
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
44
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Constant Contact, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Constant Contact, Inc. and its
subsidiary (the Company) at December 31, 2009
and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for these
financial statements, for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in Managements Annual Report on Internal Control
over Financial Reporting appearing under item 9A. Our
responsibility is to express opinions on these financial
statements and on the Companys internal control over
financial reporting based on our audits (which were integrated
audits in 2009 and 2008). We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2010
45
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
59,822
|
|
|
$
|
73,243
|
|
Short-term marketable securities
|
|
|
53,280
|
|
|
|
33,932
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
53
|
|
|
|
40
|
|
Prepaid expenses and other current assets
|
|
|
3,420
|
|
|
|
3,670
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
116,575
|
|
|
|
110,885
|
|
Property and equipment, net
|
|
|
23,891
|
|
|
|
15,799
|
|
Restricted cash
|
|
|
750
|
|
|
|
308
|
|
Other assets
|
|
|
272
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
141,488
|
|
|
$
|
127,142
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,806
|
|
|
$
|
4,786
|
|
Accrued expenses
|
|
|
7,211
|
|
|
|
5,461
|
|
Deferred revenue
|
|
|
20,341
|
|
|
|
15,052
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
33,358
|
|
|
|
25,299
|
|
Long-term accrued rent
|
|
|
3,162
|
|
|
|
1,853
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
36,520
|
|
|
|
27,152
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred stock; $0.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding at December 31,
2009 and 2008
|
|
|
|
|
|
|
|
|
Common stock; $0.01 par value; 100,000,000 shares
authorized at December 31, 2009 and 2008; 28,403,673 and
28,170,812 shares issued and outstanding at
December 31, 2009 and 2008, respectively
|
|
|
284
|
|
|
|
282
|
|
Additional paid-in capital
|
|
|
150,716
|
|
|
|
144,414
|
|
Accumulated other comprehensive income
|
|
|
40
|
|
|
|
106
|
|
Accumulated deficit
|
|
|
(46,072
|
)
|
|
|
(44,812
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
104,968
|
|
|
|
99,990
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
141,488
|
|
|
$
|
127,142
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
46
Constant
Contact, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenue
|
|
$
|
129,061
|
|
|
$
|
87,268
|
|
|
$
|
50,495
|
|
Cost of revenue
|
|
|
37,692
|
|
|
|
24,251
|
|
|
|
13,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
91,369
|
|
|
|
63,017
|
|
|
|
37,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
18,367
|
|
|
|
15,123
|
|
|
|
10,341
|
|
Sales and marketing
|
|
|
61,023
|
|
|
|
42,851
|
|
|
|
27,376
|
|
General and administrative
|
|
|
13,749
|
|
|
|
9,508
|
|
|
|
5,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
93,139
|
|
|
|
67,482
|
|
|
|
43,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,770
|
)
|
|
|
(4,465
|
)
|
|
|
(5,698
|
)
|
Interest income
|
|
|
504
|
|
|
|
2,409
|
|
|
|
1,543
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(188
|
)
|
Other income and expense, net
|
|
|
6
|
|
|
|
|
|
|
|
(3,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(1,260
|
)
|
|
|
(2,056
|
)
|
|
|
(8,254
|
)
|
Accretion of redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(816
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(1,260
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
(9,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders per share: basic
and diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.97
|
)
|
Weighted average shares outstanding used in computing per share
amounts: basic and diluted
|
|
|
28,253
|
|
|
|
27,879
|
|
|
|
9,366
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
47
Constant
Contact, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series B
|
|
|
Series C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
Redeemable
|
|
|
Total Redeemable
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Equity
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
1,026,680
|
|
|
$
|
14,049
|
|
|
|
9,641,666
|
|
|
$
|
6,376
|
|
|
|
2,521,432
|
|
|
$
|
14,897
|
|
|
|
13,189,778
|
|
|
$
|
35,322
|
|
|
|
|
3,788,944
|
|
|
$
|
38
|
|
|
$
|
5,835
|
|
|
$
|
|
|
|
$
|
(34,502
|
)
|
|
$
|
(28,629
|
)
|
|
|
|
|
Issuance of common stock in connection with stock option
exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199,824
|
|
|
|
2
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
71
|
|
|
|
|
|
Issuance of common stock in connection with warrant exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,704
|
|
|
|
1
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
156
|
|
|
|
|
|
Issuance of common stock in connection with initial public
offering, net of issuance costs of $1,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,199,845
|
|
|
|
62
|
|
|
|
90,374
|
|
|
|
|
|
|
|
|
|
|
|
90,436
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
|
|
|
|
|
|
|
|
645
|
|
|
|
|
|
Accretion of Series A, B and C redeemable convertible
preferred stock to redemption value
|
|
|
|
|
|
|
718
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
816
|
|
|
|
|
|
|
|
|
|
|
|
|
(816
|
)
|
|
|
|
|
|
|
|
|
|
|
(816
|
)
|
|
|
|
|
Issuance of redeemable convertible preferred stock in connection
with warrant exercise
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
4,605
|
|
|
|
|
|
|
|
|
|
|
|
120,000
|
|
|
|
4,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock to common
stock upon close of initial public offering
|
|
|
(1,026,680
|
)
|
|
|
(14,767
|
)
|
|
|
(9,761,666
|
)
|
|
|
(11,055
|
)
|
|
|
(2,521,432
|
)
|
|
|
(14,921
|
)
|
|
|
(13,309,778
|
)
|
|
|
(40,743
|
)
|
|
|
|
17,302,697
|
|
|
|
173
|
|
|
|
40,570
|
|
|
|
|
|
|
|
|
|
|
|
40,743
|
|
|
|
|
|
Unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
$
|
2
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,254
|
)
|
|
|
(8,254
|
)
|
|
|
(8,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,617,014
|
|
|
|
276
|
|
|
|
136,832
|
|
|
|
2
|
|
|
|
(42,756
|
)
|
|
|
94,354
|
|
|
|
|
|
Issuance of common stock in connection with stock option
exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,300
|
|
|
|
2
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
236
|
|
|
|
|
|
Issuance of common stock in connection with employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,033
|
|
|
|
1
|
|
|
|
496
|
|
|
|
|
|
|
|
|
|
|
|
497
|
|
|
|
|
|
Issuance of common stock in connection with secondary public
offering, net of issuance costs of $756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,465
|
|
|
|
3
|
|
|
|
3,996
|
|
|
|
|
|
|
|
|
|
|
|
3,999
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,856
|
|
|
|
|
|
|
|
|
|
|
|
2,856
|
|
|
|
|
|
Unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104
|
|
|
|
|
|
|
|
104
|
|
|
$
|
104
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,056
|
)
|
|
|
(2,056
|
)
|
|
|
(2,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,170,812
|
|
|
|
282
|
|
|
|
144,414
|
|
|
|
106
|
|
|
|
(44,812
|
)
|
|
|
99,990
|
|
|
|
|
|
Issuance of common stock in connection with stock option
exercises
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
187,283
|
|
|
|
2
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
468
|
|
|
|
|
|
Issuance of common stock in connection with employee stock
purchase plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,578
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,162
|
|
|
|
|
|
|
|
|
|
|
|
5,162
|
|
|
|
|
|
Unrealized loss on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
(60
|
)
|
|
$
|
(60
|
)
|
Reclassification adjustment for realized gains on
available-for-sale
securities included in net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,260
|
)
|
|
|
(1,260
|
)
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,326
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
28,403,673
|
|
|
$
|
284
|
|
|
$
|
150,716
|
|
|
$
|
40
|
|
|
$
|
(46,072
|
)
|
|
$
|
104,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
48
Constant
Contact, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,260
|
)
|
|
$
|
(2,056
|
)
|
|
$
|
(8,254
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
8,572
|
|
|
|
5,558
|
|
|
|
2,631
|
|
Amortization (accretion) of premium (discount) on investments
|
|
|
72
|
|
|
|
(46
|
)
|
|
|
(151
|
)
|
Stock-based compensation expense
|
|
|
5,084
|
|
|
|
2,856
|
|
|
|
645
|
|
Changes in fair value of redeemable convertible preferred stock
warrant
|
|
|
|
|
|
|
|
|
|
|
3,918
|
|
(Recovery of) provision for bad debts
|
|
|
(8
|
)
|
|
|
6
|
|
|
|
8
|
|
Gain on sales of marketable securities
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
Gain on sale of equipment
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(5
|
)
|
|
|
16
|
|
|
|
(29
|
)
|
Prepaid expenses and other current assets
|
|
|
250
|
|
|
|
(1,969
|
)
|
|
|
(1,290
|
)
|
Other assets
|
|
|
(122
|
)
|
|
|
103
|
|
|
|
(237
|
)
|
Accounts payable
|
|
|
1,020
|
|
|
|
928
|
|
|
|
1,282
|
|
Accrued expenses
|
|
|
1,750
|
|
|
|
2,283
|
|
|
|
522
|
|
Deferred revenue
|
|
|
5,289
|
|
|
|
4,698
|
|
|
|
4,878
|
|
Long-term accrued rent
|
|
|
1,309
|
|
|
|
1,502
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
21,945
|
|
|
|
13,879
|
|
|
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of short-term marketable securities
|
|
|
(65,739
|
)
|
|
|
(33,798
|
)
|
|
|
(9,327
|
)
|
Proceeds from maturities of short-term marketable securities
|
|
|
33,750
|
|
|
|
4,500
|
|
|
|
9,000
|
|
Proceeds from sales of short-term marketable securities
|
|
|
12,509
|
|
|
|
|
|
|
|
|
|
Net increase in restricted cash
|
|
|
(442
|
)
|
|
|
|
|
|
|
(42
|
)
|
Proceeds from sale of equipment
|
|
|
|
|
|
|
|
|
|
|
12
|
|
Acquisition of property and equipment, including costs
capitalized for development of internal use software
|
|
|
(16,586
|
)
|
|
|
(13,121
|
)
|
|
|
(5,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(36,508
|
)
|
|
|
(42,419
|
)
|
|
|
(6,023
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
|
|
|
|
|
|
|
|
2,788
|
|
Repayments of notes payable
|
|
|
|
|
|
|
|
|
|
|
(3,490
|
)
|
Proceeds from issuance of common stock pursuant to exercise of
stock options and warrants
|
|
|
468
|
|
|
|
236
|
|
|
|
227
|
|
Proceeds from issuance of preferred stock pursuant to exercise
of a warrant
|
|
|
|
|
|
|
|
|
|
|
59
|
|
Proceeds from issuance of common stock pursuant to employee
stock purchase plan
|
|
|
674
|
|
|
|
497
|
|
|
|
|
|
Proceeds from issuance of common stock in connection with
initial public offering, net of issuance costs of $1,804
|
|
|
|
|
|
|
|
|
|
|
90,436
|
|
Proceeds from issuance of common stock in connection with
secondary public offering, net of issuance costs of $756
|
|
|
|
|
|
|
3,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,142
|
|
|
|
4,732
|
|
|
|
90,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(13,421
|
)
|
|
|
(23,808
|
)
|
|
|
88,265
|
|
Cash and cash equivalents, beginning of year
|
|
|
73,243
|
|
|
|
97,051
|
|
|
|
8,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
59,822
|
|
|
$
|
73,243
|
|
|
$
|
97,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
194
|
|
Supplemental disclosure of noncash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment included in accrued
expenses
|
|
$
|
|
|
|
$
|
250
|
|
|
$
|
|
|
Capitalization of stock-based compensation
|
|
|
78
|
|
|
|
|
|
|
|
|
|
Conversion of redeemable convertible preferred stock to common
stock
|
|
|
|
|
|
|
|
|
|
|
40,743
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
Constant
Contact, Inc.
(in
thousands, except share and per share amounts)
|
|
1.
|
Nature of
the Business
|
Constant Contact, Inc. (the Company) was
incorporated as a Massachusetts corporation on August 25,
1995. The Company reincorporated in the State of Delaware in
2000. The Company is a leading provider of on-demand email
marketing, event marketing and online survey products to small
organizations, including small businesses, associations and
nonprofits, located primarily in the U.S. The
Companys email marketing product allows customers to
create, send and track email marketing campaigns. The
Companys online survey product enables customers to create
and send surveys and analyze the responses. The Companys
event marketing product, launched in the fourth quarter of 2009,
enables customers to promote and manage events, track event
registrations and collect online payments. These products are
designed and priced for small organizations and are marketed
directly by the Company and through a wide variety of channel
partners.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The accompanying consolidated financial statements include those
of the Company and its subsidiary, Constant Contact Securities
Corporation, a Massachusetts corporation, after elimination of
all intercompany accounts and transactions. The accompanying
consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America (GAAP).
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and
expenses during the reporting period. On an ongoing basis,
management evaluates these estimates, judgments and assumptions,
including those related to revenue recognition, stock-based
compensation and income taxes. The Company bases these estimates
on historical and anticipated results and trends and on various
other assumptions that the Company believes are reasonable under
the circumstances, including assumptions as to future events.
These estimates form the basis for making judgments about the
carrying values of assets and liabilities and recorded revenue
and expenses that are not readily apparent from other sources.
Actual results could differ from these estimates.
Fair
Value of Financial Instruments
The Company applies the authoritative guidance in measuring
assets and liabilities that are carried at fair value. Fair
value under the guidance is defined as the exchange price that
would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used
to measure fair value must maximize the use of observable inputs
and minimize the use of unobservable inputs. A fair value
hierarchy based on three levels of inputs, of which the first
two are considered observable and the last is considered
unobservable, are used to measure fair value:
|
|
|
|
|
Level 1 Quoted prices in active markets for
identical assets or liabilities.
|
|
|
|
Level 2 Inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
|
50
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
|
|
|
|
|
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets or liabilities
|
The Companys cash equivalents of $49,630 as of
December 31, 2009, which were invested in money market
instruments, were carried at fair value based on quoted market
prices. The Companys marketable securities of $53,280
which were invested in short-term government securities,
corporate and agency bonds and certificates of deposit that
mature within one year were carried at fair value based on
quoted market prices. The Companys cash equivalents of
$68,791 and marketable securities of $33,932 as of
December 31, 2008, which were invested in money market
instruments and U.S. Treasury Bills, respectively, were carried
at fair value based on quoted market prices. Quoted market
prices are a level 1 measurement in the hierarchy of fair
value measurements.
Fair
Value Option for Financial Assets and Financial
Liabilities
Authoritative guidance allows companies to choose to measure
many financial instruments and certain other items at fair
value. The Company has elected not to apply the fair value
option.
Cash
and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less at the time of
acquisition to be cash equivalents. The Company also considers
receivables related to credit card purchases of $1,006 and $918
at December 31, 2009 and 2008, respectively to be
equivalent to cash. Cash equivalents are stated at fair value.
Marketable
Securities
The Company follows authoritative guidance in determining the
classification of and accounting for its marketable securities.
The Companys marketable securities are classified as
available-for-sale
and are carried at fair value with the unrealized gains and
losses, net of tax, reported as a component of accumulated other
comprehensive income in stockholders equity. Realized
gains and losses and declines in value judged to be other than
temporary are included as a component of interest income based
on the specific identification method. Fair value is determined
based on quoted market prices.
At December 31, 2009, marketable securities by security
type consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
U.S. Treasury Bills
|
|
$
|
31,928
|
|
|
|
22
|
|
|
$
|
(3
|
)
|
|
$
|
31, 947
|
|
Corporate and Agency Bonds
|
|
|
17,712
|
|
|
|
21
|
|
|
|
|
|
|
|
17,733
|
|
Certificates of Deposit
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,240
|
|
|
$
|
43
|
|
|
$
|
(3
|
)
|
|
$
|
53,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, marketable securities consisted of
U.S. Treasury Bills with an amortized cost basis of
$33,826, $106 of unrealized gains, no unrealized losses and an
estimated fair value of $33,932. At December 31, 2009 and
2008, marketable securities consisted of investments that mature
within one year.
Accounts
Receivable
Management reviews accounts receivable on a periodic basis to
determine if any receivables will potentially be uncollectible.
The Company reserves for receivables that are determined to be
uncollectible, if any, in its
51
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
allowance for doubtful accounts. After the Company has exhausted
all collection efforts, the outstanding receivable is written
off against the allowance.
Concentration
of Credit Risk and Significant Customers
Financial instruments that potentially expose the Company to
concentrations of credit risk consist primarily of cash, cash
equivalents and short-term marketable securities. At
December 31, 2009 and 2008, the Company had substantially
all cash balances at certain financial institutions without or
in excess of federally insured limits, however, the Company
maintains its cash balances and custody of its marketable
securities with accredited financial institutions. The Company
does not believe that it is subject to unusual credit risk
beyond the normal credit risk associated with commercial banking
relationships.
For the years ended December 31, 2009, 2008 and 2007, there
were no customers that accounted for more than 10% of total
revenue.
Property
and Equipment
Property and equipment are recorded at cost and depreciated
using the straight-line method over the estimated useful life of
the assets or, where applicable and if shorter, over the lease
term. Upon retirement or sale, the cost of assets disposed of
and the related accumulated depreciation are eliminated from the
accounts and any resulting gain or loss is credited or charged
to operations. Repairs and maintenance costs are expensed as
incurred.
Estimated useful lives of assets are as follows:
|
|
|
Computer equipment
|
|
3 years
|
Software
|
|
3 years
|
Furniture and fixtures
|
|
5 years
|
Leasehold improvements
|
|
Shorter of life of lease or
estimated useful life
|
Long-Lived
Assets
The Company reviews the carrying values of its long-lived assets
for possible impairment whenever events or changes in
circumstance indicate that the related carrying amount may not
be recoverable. Undiscounted cash flows are compared to the
carrying value and when required, impairment losses on assets to
be held and used are recognized based on the excess of the
assets carrying amount over the fair value of the asset.
Long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.
Revenue
Recognition
The Company provides access to its products through subscription
arrangements whereby the customer is charged a fee for access to
its products. Subscription arrangements include access to use
the Companys software via the Internet and support
services, such as telephone support.
When there is evidence of an arrangement, the fee is fixed or
determinable and collectability is deemed reasonably assured,
the Company recognizes revenue on a daily basis over the
subscription period as the services are delivered. Delivery is
considered to have occurred at the time the customer has paid
for the products and has access to the account via a log-in and
password.
The Company also offers ancillary services to its customers
related to its products such as professional services and
training. Professional services and training revenue is
accounted for separate from subscription
52
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
revenue as those services have value on a standalone basis, do
not involve a significant degree of risk or unique acceptance
criteria and as the fair value of the Companys
subscription services is evidenced by their availability on a
standalone basis. Professional services and training revenue is
recognized as the services are performed.
Deferred
Revenue
Deferred revenue consists of payments received in advance of
revenue recognition of the Companys on-demand products
described above and is recognized as the revenue recognition
criteria are met. The Companys customers pay for services
in advance on a monthly, semiannual or annual basis.
Software
and WebSite Development Costs
Relative to development costs of its on-demand products and
website, in accordance with authoritative guidance, the Company
capitalizes certain direct costs to develop functionality as
well as certain upgrades and enhancements that are probable to
result in additional functionality. The costs incurred in the
preliminary stages of development are expensed as incurred. Once
an application has reached the development stage, internal and
external costs, if direct and incremental, are capitalized as
part of property and equipment until the software is
substantially complete and ready for its intended use.
Capitalized software is amortized over a three year period in
the expense category to which the software relates.
Redeemable
Convertible Preferred Stock Warrant
The Company accounted for the freestanding warrant to purchase
redeemable convertible preferred stock that was outstanding
until its exercise in October 2007 as a liability that was
recorded at fair value. The fair value of the warrant was
subject to remeasurement at each balance sheet date and changes
in fair value (determined using the Black-Scholes option pricing
model) were recognized as other expense.
Comprehensive
Loss
Comprehensive loss includes net loss, as well as other changes
in stockholders equity that result from transactions and
economic events other than those with stockholders. The
Companys only element of other comprehensive income (loss)
is unrealized gains and losses on
available-for-sale
securities. The Company had gross unrealized gains and losses of
$43 and ($3), respectively, as of December 31, 2009 and
gross unrealized gains of $106 and no unrealized losses as of
December 31, 2008. The Company had realized gains of $6 in
2009 related to the sales of marketable securities. There were
no realized gains or losses recorded to net loss for the years
ended December 31, 2008 and 2007.
Segment
Data
The Company manages its operations as a single segment for
purposes of assessing performance and making operating
decisions. Revenue is generated predominately in the
U.S. and all significant assets are held in the U.S.
Net
Loss Attributable to Common Stockholders Per Share
Basic and diluted net loss attributable to common stockholders
per share is computed by dividing net loss attributable to
common stockholders by the weighted average number of
nonrestricted common shares outstanding for the period.
53
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
For the years ended December 31, 2009, 2008 and 2007, the
Company excluded certain common stock equivalents from the
computation of diluted earnings per share as the effect would
have been anti-dilutive as the Company had a net loss for the
periods.
The following common stock equivalents were excluded from the
computation of diluted net loss per share attributable to common
stockholders because they had an anti-dilutive impact:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Options to purchase common stock
|
|
|
3,394,377
|
|
|
|
2,366,010
|
|
|
|
1,773,259
|
|
Warrants to purchase common or redeemable convertible preferred
stock
|
|
|
520
|
|
|
|
520
|
|
|
|
199,583
|
|
Restricted shares
|
|
|
27,321
|
|
|
|
75,206
|
|
|
|
122,802
|
|
Redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
13,200,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options, warrants, restricted shares and redeemable
convertible preferred stock exercisable or convertible into
common stock
|
|
|
3,422,218
|
|
|
|
2,441,736
|
|
|
|
15,296,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
Expense
The Company expenses advertising as incurred. Advertising
expense was $31,664, $22,388 and $13,891 during the years ended
December 31, 2009, 2008 and 2007, respectively.
Accounting
for Stock-Based Compensation
The Company values all stock-based compensation, including
grants of stock options, at fair value on the date of grant, and
expenses the fair value over the applicable service period. The
straight-line method is applied to all grants with service
conditions, while the graded vesting method is applied to all
grants with both service and performance conditions.
Income
Taxes
Income taxes are provided for tax effects of transactions
reported in the financial statements and consist of income taxes
currently due plus deferred income taxes related to timing
differences between the basis of certain assets and liabilities
for financial statement and income tax reporting. Deferred taxes
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are
expected to reverse. A valuation allowance is provided if, based
upon the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be
realized.
The Company applies the authoritative guidance in accounting for
uncertainty in income taxes recognized in the financial
statements. This guidance prescribes a two-step process to
determine the amount of tax benefit to be recognized. First, the
tax position must be evaluated to determine the likelihood that
it will be sustained upon external examination. If the tax
position is deemed more-likely-than-not to be
sustained, the tax position is then assessed to determine the
amount of benefit to recognize in the financial statements. The
amount of the benefit that may be recognized is the largest
amount that has a greater than 50% likelihood of being realized
upon ultimate settlement.
54
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
Recently
Adopted Accounting Guidance
In June 2008, the Financial Accounting Standards Board (the
FASB) issued new authoritative guidance related to
whether unvested share-based payment awards that contain
non-forfeitable rights to dividends are participating securities
and must be included in the computation of earnings per share
pursuant to the two-class method. Under this guidance, our
unvested restricted stock grants are now considered
participating securities. The two-class method requires earnings
to be allocated between common shareholders and holders of
unvested restricted stock grants. As of the adoption of this
guidance on January 1, 2009, the Company retrospectively
recomputed earnings per common share for all periods presented,
but the modified calculation resulted in no change to the
historically reported earnings per common share.
In May 2009, the FASB issued authoritative guidance establishing
general standards of accounting and disclosure for events that
occur after the balance sheet date but before the financial
statements are issued. This new standard was effective beginning
with the Companys second quarter financial reporting and
did not have a material impact on the Companys
consolidated financial statements.
New
Accounting Guidance
In September 2009, the FASB issued authoritative guidance on
revenue arrangements with multiple deliverables that are not
covered by software revenue guidance. This guidance provides
another alternative for establishing fair value for a
deliverable when vendor specific objective evidence or
third-party evidence for deliverables in an arrangement cannot
be determined. Under this guidance, companies will be required
to develop a best estimate of the selling price for separate
deliverables. Arrangement consideration will need to be
allocated using the relative selling price method as the
residual method will no longer be permitted. This guidance is
effective January 1, 2011, and early adoption is permitted.
The Company is currently evaluating the impact, if any, of this
guidance on its consolidated financial statements.
|
|
3.
|
Property
and Equipment
|
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Computer equipment
|
|
$
|
21,129
|
|
|
$
|
15,172
|
|
Software
|
|
|
13,266
|
|
|
|
6,886
|
|
Furniture and fixtures
|
|
|
3,751
|
|
|
|
2,022
|
|
Leasehold improvements
|
|
|
5,982
|
|
|
|
3,384
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
44,128
|
|
|
|
27,464
|
|
Less: Accumulated depreciation and amortization
|
|
|
20,237
|
|
|
|
11,665
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
23,891
|
|
|
$
|
15,799
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $8,572, $5,558 and
$2,631 for the years ended December 31, 2009, 2008 and
2007, respectively. During 2008, the Company retired assets that
had a gross book value of $65 and no net book value. During
2007, the Company retired and sold assets that had a gross book
value of $574 and a net book value of $6, for proceeds of $12.
The resulting gain of $6 was recorded to other income.
The Company capitalized costs associated with the development of
internal use software of $3,266, $1,134 and $382 and recorded
related amortization expense of $776, $340 and $157 during the
years ended December 31, 2009, 2008 and 2007, respectively.
The remaining net book value of capitalized software costs was
$4,026 and $1,536 as of December 31, 2009 and 2008,
respectively.
55
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
The Company had a Loan and Security Agreement (the
Agreement) with a financial institution for a term
loan for the acquisition of property and equipment. In October
2007, the Company used approximately $2,600 of proceeds from its
initial public offering to repay all outstanding debt under the
term loan facility (Note 5). No amounts remained
outstanding or available for borrowing under the term loan at
December 31, 2009 or 2008.
In connection with entering into the Agreement in 2003, the
Company issued a warrant to purchase 520 shares of the
Companys common stock at an exercise price of $0.38 per
share. This warrant remained outstanding at December 31,
2009.
|
|
5.
|
Redeemable
Convertible Preferred Stock and Stockholders Equity
(Deficit)
|
Public
Offerings
On October 9, 2007, the Company closed its initial public
offering of 7,705,000 shares of common stock at an offering
price of $16.00 per share, of which 6,199,845 shares were
sold by the Company and 1,505,155 shares were sold by
selling stockholders, raising proceeds to the Company of
$90,436, net of underwriting discounts and offering costs. At
the close of the initial public offering, the Companys
outstanding shares of redeemable convertible preferred stock
were automatically converted into common stock and the
Companys charter was amended and restated to authorize
100,000,000 shares of common stock, par value $0.01 per
share, and 5,000,000 shares of preferred stock, par value
$0.01 per share, all of which preferred stock is undesignated.
On April 30, 2008, the Company closed a secondary public
offering of 5,221,000 shares of common stock, of which
314,465 shares were sold by the Company and
4,906,535 shares were sold by existing stockholders, at a
price to the public of $16.00 per share. Proceeds to the Company
were $3,999, net of underwriting discounts and offering costs.
Common
Stock
In August 2007, the pricing committee of the Companys
board of directors, pursuant to delegated authority, approved a
1.3-for-1 stock split of the Companys common stock, which
became effective in September 2007. All references to share and
per share amounts have been adjusted retroactively to reflect
the stock split.
Each share of common stock is entitled to one vote. The holders
of common stock are also entitled to receive dividends whenever
funds are legally available and when declared by the board of
directors, subject to the prior rights of holders of all classes
of preferred stock outstanding.
Redeemable
Convertible Preferred Stock
Prior to the Companys initial public offering in 2007, the
Company had authorized 1,026,680 shares,
9,761,666 shares and 2,521,432 shares of Series A
redeemable convertible preferred stock
(Series A), Series B redeemable
convertible preferred stock (Series B) and
Series C redeemable convertible preferred stock
(Series C), respectively. In connection with
the initial public offering all outstanding shares of redeemable
convertible preferred stock were converted to common stock.
The holders of the redeemable convertible preferred stock that
was authorized and outstanding prior to the Companys
initial public offering had certain voting rights, liquidation
preferences and conversion ratios applicable to each series. In
addition, the holders of at least a majority of the voting power
of the then outstanding Series B and Series C shares
(voting together as a single class), by written request at any
time after May 12, 2010 (the
Redemption Date), could have required the
Company to redeem the preferred stock by paying in cash a sum
equal to 100% of the original purchase price of the
Series A, Series B and Series C
56
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
plus accrued but unpaid dividends on Series B and declared
but unpaid dividends on Series C, in three (3) annual
installments. The Company recorded dividends and accretion
through a charge to stockholders equity (deficit) of $816
in 2007 in connection with the redemption rights.
Warrants
In connection with certain equity financings, the Company
granted warrants to purchase common stock at exercise prices
ranging from $1.21-$1.38 per share. The remaining outstanding
warrants to purchase 125,704 shares of common stock were
exercised during 2007 and no warrants remained outstanding as of
December 31, 2007.
In connection with the Series B financing, the Company
granted to a consultant a warrant to purchase
120,000 shares of Series B at a price of $0.50 per
share. The Company accounted for the Series B warrant as a
liability reported at fair value each reporting period until the
warrant was exercised. During 2007, the Company recorded charges
to other expense of $3,918 relating to the changes in carrying
value of the Series B warrant. As of the close of the
Companys initial public offering in October 2007, the
warrant was exercised for 120,000 shares of redeemable
convertible preferred stock, which automatically converted into
156,000 shares of common stock.
Prior to the adoption of a new plan in 2007, the Company granted
options to employees, officers, directors, consultants and
advisors of the Company under the 1999 Stock Option/Stock
Issuance Plan (the 1999 Plan). In conjunction with
the adoption of the 2007 Stock Incentive Plan, the board of
directors voted that no further stock options or other
equity-based awards shall be granted under the 1999 Plan.
In 2007, the Companys board of directors adopted and the
stockholders approved the 2007 Stock Incentive Plan (the
2007 Plan). The 2007 Plan permits the Company to
make grants of incentive stock options, non-statutory stock
options, restricted stock, restricted stock units, stock
appreciation rights and other stock-based awards with a maximum
term of ten years. These awards may be granted to the
Companys employees, officers, directors, consultants, and
advisors. The Company reserved 1,500,000 shares of its
common stock for issuance under the 2007 Plan as well as an
additional 700,000 shares of common stock previously
reserved for issuance under the 1999 Plan. The 2007 Plan also
contains an evergreen provision that allows for an annual
increase in the number of shares available for issuance on the
first day of each year beginning in 2008 and ending on the
second day of 2017. The increase is based on a formula and
cannot exceed 700,000 shares of common stock per year. As
of December 31, 2009, 783,106 shares of common stock
were available for issuance under the 2007 Plan.
The Company applies the fair value recognition provisions for
all stock-based payments granted or modified on or subsequent to
January 1, 2006 in accordance with authoritative guidance.
Under this guidance the Company records compensation costs over
the requisite service period of the award based on the
grant-date fair value. The straight-line method is applied to
all grants with service conditions, while the graded vesting
method is applied to all grants with both service and
performance conditions.
Stock
Options
During the years ended December 31, 2009, 2008 and 2007,
the Company granted 1,369,350, 1,109,900 and 860,296 stock
options, respectively, to certain employees and directors. The
vesting of most of these awards is time-based and the
restrictions typically lapse 25% after one year and quarterly
thereafter for the next 36 months in the case of employees
and 33% after one year and quarterly thereafter for the next
24 months in the case of directors. A certain number of
awards granted in 2009 have both performance-based and time-
57
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
based vesting criteria. The vesting of these options is
determined by the achievement of a two-tiered revenue growth
target. If either target is achieved, a corresponding number of
options vest at year-end, with the remaining vesting quarterly
over 36 months. If neither of the performance objectives is
achieved, the options will be cancelled.
Through December 31, 2009, stock options were granted with
exercise prices equal to the fair value of the Companys
common stock on the date of grant. Commencing in the fourth
quarter of 2007, the Company based fair value of common stock on
the quoted market price. Because there was no public market for
the Companys common stock prior to the initial public
offering (Note 5), the Companys board of directors
determined the fair value of common stock for those earlier
periods by taking into account the Companys most recently
available valuation of common stock.
The fair value of each stock option grant was estimated on the
date of grant using the Black-Scholes option-pricing model.
Because the Company has a limited history of operating as a
public company, the expected term assumption was based on the
simplified method for estimating expected term for
awards that qualify as plain-vanilla options under
authoritative guidance. Expected volatility was based on
historical volatility of the publicly traded stock of a peer
group of companies, inclusive of the Company commencing October
2007. The risk-free interest rate was determined by reference to
U.S. Treasury yields at or near the time of grant for time
periods similar to the expected term of the award. The relevant
data used to determine the value of the stock option grants is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
Weighted average risk-free interest rate
|
|
|
2.64
|
%
|
|
|
2.24
|
%
|
|
|
4.23
|
%
|
Expected term (in years)
|
|
|
6.1
|
|
|
|
6.1
|
|
|
|
6.1
|
|
Weighted average expected volatility
|
|
|
53.8
|
%
|
|
|
54.37
|
%
|
|
|
62.1
|
%
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
58
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
(In Years)
|
|
|
Value
|
|
|
Balance at December 31, 2006
|
|
|
1,702,007
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
860,296
|
|
|
|
13.36
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(199,824
|
)
|
|
|
0.35
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(161,857
|
)
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
2,200,622
|
|
|
|
6.32
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,109,900
|
|
|
|
15.44
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(201,300
|
)
|
|
|
1.17
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(88,051
|
)
|
|
|
10.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
3,021,171
|
|
|
$
|
9.91
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,369,350
|
|
|
|
16.87
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(187,283
|
)
|
|
|
17.96
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(55,926
|
)
|
|
|
13.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
4,147,312
|
|
|
$
|
12.49
|
|
|
|
8.14
|
|
|
$
|
20,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
3,982,376
|
|
|
$
|
12.39
|
|
|
|
8.06
|
|
|
$
|
20,017
|
|
Exercisable at December 31, 2009
|
|
|
1,635,886
|
|
|
$
|
7.66
|
|
|
|
6.76
|
|
|
$
|
15,546
|
|
The aggregate intrinsic value was calculated based on the
positive differences between the market value of the
Companys common stock on December 31, 2009 of $16.00
per share and the exercise prices of the options.
The weighted average grant-date fair value of grants of stock
options was $9.02, $8.22 and $8.06 per share for the years ended
December 31, 2009, 2008 and 2007, respectively.
The total intrinsic value of stock options exercised was $2,877,
$3,250 and $978 for the years ended December 31, 2009, 2008
and 2007, respectively.
Compensation expense of $5,084, $2,856 and $645 was recognized
for stock-based compensation for the years ended
December 31, 2009, 2008 and 2007, respectively. The
unrecognized compensation expense associated with outstanding
stock options at December 31, 2009 was $16,897, which is
expected to be recognized over a weighted-average period of
2.97 years
The Company recognized stock-based compensation expense on all
awards in the following categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of revenue
|
|
$
|
706
|
|
|
$
|
354
|
|
|
$
|
81
|
|
Research and development
|
|
|
1,150
|
|
|
|
737
|
|
|
|
170
|
|
Sales and marketing
|
|
|
1,134
|
|
|
|
648
|
|
|
|
133
|
|
General and administrative
|
|
|
2,094
|
|
|
|
1,117
|
|
|
|
261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,084
|
|
|
$
|
2,856
|
|
|
$
|
645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
Additionally, the Company capitalized $78 of stock-based
compensation related to the development of internal use software
for the year ended December 31, 2009. No stock-based
compensation expense was capitalized during the years ended
December 31, 2008 or 2007.
Stock
Purchase Plan
The Companys 2007 Employee Stock Purchase Plan, as amended
(the Purchase Plan), became effective upon the
completion of the Companys initial public offering.
Six-month offering periods begin on January 1 and July 1 of each
year during which employees may elect to purchase shares of the
Companys common stock according to the terms of the
offering. The per share purchase price for offerings is equal to
85% of the closing market price of the Companys common
stock at the end of the offering period. Stock based
compensation was determined based on the discount of 15% from
the per share market price on the last day of the purchase
period. During 2008, 38,033 shares of common stock were
purchased for total proceeds to the Company of $497. During
2009, 45,578 shares of common stock were purchased for
total proceeds to the Company of $674. As of December 31,
2009, 266,389 shares of common stock were available for
issuance to participating employees under the Purchase Plan.
Restricted
Stock
During the year ended December 31, 2005, the Company sold
192,010 shares of restricted stock to a certain employee.
The vesting of this award was time-based with restrictions
lapsing evenly over four years. The Company did not record
compensation expense as the shares were sold at fair value. At
December 31, 2008, 48,008 shares remained unvested all
of which vested during 2009. The total fair value of shares
vested during the years ended December 31, 2009, 2008 and
2007 was $849, $798 and $494, respectively.
As a result of losses incurred, the Company did not provide for
any income taxes in the years ended December 31, 2009, 2008
and 2007. A reconciliation of the Companys effective tax
rate to the statutory federal income tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
34
|
%
|
Increase in valuation allowance
|
|
|
(41
|
)
|
|
|
(27
|
)
|
|
|
(44
|
)
|
State taxes, net of federal benefit
|
|
|
(11
|
)
|
|
|
19
|
|
|
|
6
|
|
Impact of permanent differences
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
|
|
Stock options
|
|
|
(64
|
)
|
|
|
(20
|
)
|
|
|
|
|
Expiration of state net operating losses
|
|
|
|
|
|
|
(3
|
)
|
|
|
(5
|
)
|
Tax credits
|
|
|
94
|
|
|
|
17
|
|
|
|
8
|
|
Impact of change in effective state tax rates
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
Other
|
|
|
(6
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
The Company had net deferred tax assets related to temporary
differences and operating loss carryforwards as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
640
|
|
|
$
|
304
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
640
|
|
|
|
304
|
|
|
|
|
|
|
|
|
|
|
Noncurrent:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
11,146
|
|
|
|
12,583
|
|
Depreciation and capitalized research and development
|
|
|
776
|
|
|
|
724
|
|
Research and development credit carryforwards
|
|
|
4,143
|
|
|
|
2,392
|
|
Stock options
|
|
|
1,827
|
|
|
|
895
|
|
Other
|
|
|
26
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent
|
|
|
17,918
|
|
|
|
16,604
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
18,558
|
|
|
|
16,908
|
|
Deferred tax asset valuation allowance
|
|
|
(17,062
|
)
|
|
|
(16,559
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
1,496
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities-non-current
|
|
|
|
|
|
|
|
|
Depreciation and capitalized research and development
|
|
|
(1,496
|
)
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities non-current
|
|
|
(1,496
|
)
|
|
|
(349
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The Company has provided a valuation allowance for the full
amount of its net deferred tax assets because at
December 31, 2009 and 2008 it is not more likely than not
that any future benefit from deductible temporary differences
and net operating loss and tax credit carryforwards would be
realized. The change in valuation allowance for the year ended
December 31, 2009 of $503 was attributable primarily to the
increase in research and development credit carryforwards and
stock options partially offset by a decrease in net operating
loss carryforwards due to the usage of state net operating
losses and an increase in the Companys deferred tax
liability for capitalized research and development. The change
in valuation allowance for the year ended December 31, 2008
of $523 was attributable primarily to the increase in research
and development credit carryforwards partially offset by the
decrease in net operating loss carryforwards due to the
expiration of state net operating loss carryforwards.
At December 31, 2009, the Company had federal and state net
operating loss carryforwards of approximately $39,249 and
$9,348, respectively, which expire at varying dates through 2029
for federal income tax purposes and at varying dates through
2014 for state income tax purposes. At December 31, 2009,
$7,285 of federal and state net operating loss carryforwards
relate to deductions for stock option compensation for which the
associated tax benefit will be credited to additional paid-in
capital when realized. This amount is tracked separately and not
included in the Companys deferred tax assets.
At December 31, 2009, the Company had federal and state
research and development credit carryforwards of $2,405 and
$2,633, respectively, which will expire at varying dates through
2029 for federal income tax purposes and at varying dates
through 2024 for state income tax purposes.
61
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
The Company had an unrecognized tax benefit of $303 as of
January 1, 2007. As of December 31, 2007 the Company
reduced its deferred tax assets by this amount and therefore had
no unrecognized tax benefit as of December 31, 2007. There
were no increases or decreases to the amount of unrecognized tax
benefits during the years ended December 31, 2009 or 2008.
Additionally, the Company does not expect any increase or
decrease to its unrecognized tax benefits during the next twelve
months.
The Companys policy is to record estimated interest and
penalties related to the underpayment of income taxes as a
component of its income tax provision. As of December 31,
2009 and 2008, the Company had no accrued interest or tax
penalties recorded. The Companys income tax return
reporting periods since December 31, 2005 are open to
income tax audit examination by the federal and state tax
authorities. In addition, because the Company has net operating
loss carryforwards, the Internal Revenue Service is permitted to
audit earlier years and propose adjustments up to the amount of
net operating loss generated in those years.
The Company has performed an analysis of its changes in
ownership under Internal Revenue Code Section 382 and has
determined that any ownership changes which have occurred do not
result in a permanent limitation on usage of the Companys
federal and state net operating losses.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Payroll and payroll related
|
|
$
|
1,984
|
|
|
$
|
2,211
|
|
Licensed software and maintenance
|
|
|
1,106
|
|
|
|
981
|
|
Marketing programs
|
|
|
2,014
|
|
|
|
569
|
|
Other accrued expenses
|
|
|
2,107
|
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,211
|
|
|
$
|
5,461
|
|
|
|
|
|
|
|
|
|
|
The Company has a defined contribution savings plan under
Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees who meet minimum age and
service requirements and allows participants to defer a portion
of their annual compensation on a pre-tax basis. Company
contributions to the plan may be made at the discretion of the
Board of Directors. The Company elected to make matching
contributions for the plan year ending December 31, 2009 at
a rate of 100% of each employees contribution up to a
maximum matching contribution of 3% of the employees
compensation and at a rate of 50% of each employees
contribution in excess of 3% up to a maximum of 5% of the
employees compensation.
The Company made matching contributions of an aggregate of
$1,287 and $639 for the years ended December 31, 2009 and
2008, respectively. There were no contributions made to the plan
by the Company during the year ended December 31, 2007.
|
|
10.
|
Commitments
and Contingencies
|
Operating
Leases
The Company leased its headquarters under a noncancelable
operating lease effectively signed in 2005 and amended at
various points to modify the terms of the lease and to increase
the amount of space through the term of the lease (the
original lease). The original lease included certain
lease incentives, payment escalations and rent holidays, the net
effect of which was accrued and was being recognized as a
reduction to rent expense such that rent expense would be
recognized on a straight-line basis over the term of occupancy.
62
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
In May 2009, the Company entered into a new lease (the new
lease) that superseded the original lease. The new lease,
effective through September 30, 2015 with one five-year
extension option, includes the space under the original lease as
well as additional space that will be made available to the
Company at various points during the term of the new lease. The
new lease also includes payment escalations and rent holidays,
the net effect of which has been accrued and, together with the
remaining balance of the accrued lease incentives from the
original lease, is being recognized as a reduction to rent
expense such that rent expense per square foot is recognized on
a straight-line basis over the term of occupancy. Under the new
lease, the landlord is responsible for making certain
improvements to the leased space at an agreed upon cost to the
landlord. If the landlord and the Company mutually agree to make
improvements that cost in excess of the agreed upon landlord
cost, the landlord will bill that excess cost to the Company as
additional rent. This additional rent, if and when incurred,
will be included in the net calculation of lease incentives, so
that rent expense per square foot will be recognized on a
straight-line basis over the remaining term of occupancy.
In May 2008, the Company entered into two lease agreements in
connection with a second sales and support office. The first
agreement provided for temporary space through April 2009. The
second agreement provides for the lease of long-term space
through April 2019 with three three-year extension options. The
agreement for long-term space contains certain lease incentives
and payment escalations, the net effect of which has been
accrued such that rent expense is being recognized on a
straight-line basis over the term of occupancy.
The Company also leases a small amount of general office space
in Florida under a lease agreement that expires in July 2012.
The aggregate accrued rent balance was $3,248 at
December 31, 2009 of which $86 was included in accrued
expenses and $3,162 was included in long-term accrued rent. The
accrued rent balance was $2,210 at December 31, 2008, of
which $357 was included in accrued expense and $1,853 was
included in long-term accrued rent
Total rent expense under operating leases was $3,791, $2,295 and
$1,167 for the years ended December 31, 2009, 2008 and
2007, respectively.
As of December 31, 2009, future minimum lease payments
under noncancelable operating leases are as follows:
|
|
|
|
|
2010
|
|
$
|
4,201
|
|
2011
|
|
|
4,831
|
|
2012
|
|
|
5,209
|
|
2013
|
|
|
5,352
|
|
2014 and thereafter
|
|
|
12,999
|
|
|
|
|
|
|
Total
|
|
$
|
32,592
|
|
|
|
|
|
|
63
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
Hosting
Services
The Company has agreements with two vendors to provide
specialized space and related services from which the Company
hosts its software applications. The agreements include payment
commitments that expire at various dates through 2013. As of
December 31, 2009, future minimum payments under the
agreements are as follows:
|
|
|
|
|
2010
|
|
|
3,255
|
|
2011
|
|
|
1,900
|
|
2012
|
|
|
1,661
|
|
2013
|
|
|
774
|
|
|
|
|
|
|
Total
|
|
$
|
7,590
|
|
|
|
|
|
|
Vendor
Commitments
As of December 31, 2009, the Company had issued both
cancellable and non-cancellable purchase orders to various
vendors and entered into contractual commitments with various
vendors totaling $15,657 related primarily to marketing programs
and other non-marketing goods and services to be delivered
during 2010.
Letters
of Credit and Restricted Cash
As of December 31, 2009 and 2008, the Company maintained a
letter of credit totaling $750 and $308, respectively, for the
benefit of the landlord of the Companys corporate
headquarters lease. The landlord can draw against the
letter of credit in the event of default by the Company. The
Company was required to maintain a cash balance of at least $750
and $308 as of December 31, 2009 and 2008, respectively, to
secure the letter of credit. This amount was classified as
restricted cash in the balance sheet at December 31, 2009
and 2008.
Indemnification
Obligations
The Company enters into standard indemnification agreements with
the Companys channel partners and certain other third
parties in the ordinary course of business. Pursuant to these
agreements, the Company indemnifies and agrees to reimburse the
indemnified party for losses incurred by the indemnified party
in connection with certain intellectual property infringement
and other claims by any third party with respect to the
Companys business and technology. Based on historical
information and information known as of December 31, 2009,
the Company does not expect it will incur any significant
liabilities under these indemnification agreements.
|
|
11.
|
Related
Party Transactions
|
One of the Companys directors is a general partner of a
venture capital firm that owned, through affiliated investment
entities, approximately 7% of the outstanding common stock of
one of the Companys vendors as of December 31, 2007.
During a portion of 2007, another of the general partners of
that venture capital firm was a director of that same vendor. In
the year ended December 31, 2007, the Companys
aggregate payments to this vendor were $508.
64
Constant
Contact, Inc.
Notes to
Consolidated Financial
Statements (Continued)
(in
thousands, except share and per share amounts)
|
|
12.
|
Quarterly
Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Dec. 31,
|
|
Sept. 30,
|
|
June 30,
|
|
March 31,
|
|
Dec. 31,
|
|
Sept. 30,
|
|
June 30,
|
|
March 31,
|
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36,455
|
|
|
$
|
33,533
|
|
|
$
|
30,955
|
|
|
$
|
28,118
|
|
|
$
|
25,471
|
|
|
$
|
22,859
|
|
|
$
|
20,771
|
|
|
$
|
18,167
|
|
Gross profit
|
|
|
25,716
|
|
|
|
23,606
|
|
|
|
22,058
|
|
|
|
19,989
|
|
|
|
18,206
|
|
|
|
16,305
|
|
|
|
15,122
|
|
|
|
13,384
|
|
(Loss)/income from operations
|
|
|
(1,858
|
)
|
|
|
1,342
|
|
|
|
(121
|
)
|
|
|
(1,133
|
)
|
|
|
(1,716
|
)
|
|
|
(1,013
|
)
|
|
|
(1,098
|
)
|
|
|
(638
|
)
|
Net (loss)/income
|
|
|
(1,762
|
)
|
|
|
1,470
|
|
|
|
39
|
|
|
|
(1,007
|
)
|
|
|
(1,606
|
)
|
|
|
(399
|
)
|
|
|
(389
|
)
|
|
|
338
|
|
Basic and diluted net (loss)/income per share
|
|
$
|
(0.06
|
)
|
|
$
|
0.05
|
|
|
$
|
0.00
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
65
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2009. The term disclosure controls and
procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, means controls and other procedures of
a company that are designed to ensure that information required
to be disclosed by a company in the reports that it files or
submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in
the Securities and Exchange Commissions rules and forms.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and
communicated to the companys management, including its
principal executive and principal financial officers or persons
performing similar functions, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2009, our chief
executive officer and chief financial officer concluded that, as
of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act as a process designed by, or under the
supervision of, our principal executive and principal financial
officer and effected by our board of directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles and includes those
policies and procedures that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of our management and
directors; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management,
including our principal executive and financial officers, we
assessed our internal control over financial reporting as of
December 31, 2009, based on criteria for effective internal
control over financial reporting established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
66
Based on this assessment, management concluded that we
maintained effective internal control over financial reporting
as of December 31, 2009 based on the specified criteria.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, our independent registered public
accounting firm, as stated in their report, which is included
under Item 8 in this Annual Report on
Form 10-K.
Changes
in Internal Control Over Financial Reporting
No change in our internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) occurred during the quarter ended
December 31, 2009 that has materially affected, or is
reasonably likely to materially affect, the Companys
internal control over financial reporting.
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Information required by this item is incorporated by reference
from the information in our proxy statement for the 2010 Annual
Meeting of Stockholders, which we will file with the Securities
and Exchange Commission within 120 days of
December 31, 2009.
We have adopted a code of ethics, called the Code of Business
Conduct and Ethics, that applies to our officers, including our
principal executive, financial and accounting officers, and our
directors and employees. We have posted the Code of Business
Conduct and Ethics on our website at www.constantcontact.com
under the Investor Relations Corporate
Governance section of the website. We intend to make all
required disclosures concerning any amendments to, or waivers
from, the Code of Business Conduct and Ethics on our website.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Information required by this item is incorporated by reference
from the information in our proxy statement for the 2010 Annual
Meeting of Stockholders, which we will file with the Securities
and Exchange Commission within 120 days of
December 31, 2009.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Information required by this item and by Part II,
Item 5 is incorporated by reference from the information in
our proxy statement for the 2010 Annual Meeting of Stockholders,
which we will file with the Securities and Exchange Commission
within 120 days of December 31, 2009.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Information required by this item is incorporated by reference
from the information in our proxy statement for the 2010 Annual
Meeting of Stockholders, which we will file with the Securities
and Exchange Commission within 120 days of
December 31, 2009.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Information required by this item is incorporated by reference
from the information in our proxy statement for the 2010 Annual
Meeting of Stockholders, which we will file with the Securities
and Exchange Commission within 120 days of
December 31, 2009.
67
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements
For a list of the consolidated financial statements included
herein, see Index to the Consolidated Financial Statements on
page 44 of this Annual Report on
Form 10-K.
(b) Exhibits
See Exhibit Index on page 70 of this Annual Report on
Form 10-K
incorporated into this item by reference.
(c) Financial Statement Schedules
No financial statement schedules have been submitted because
they are not required or are not applicable or because the
information required is included in the consolidated financial
statements or the notes thereto.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CONSTANT CONTACT, INC.
Gail F. Goodman
President and Chief Executive Officer
Date: March 10, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Gail
F. Goodman
Gail
F. Goodman
|
|
Chairman, President and Chief Executive Officer (Principal
Executive Officer)
|
|
March 10, 2010
|
|
|
|
|
|
/s/ Thomas
Anderson
Thomas
Anderson
|
|
Director
|
|
March 4, 2010
|
|
|
|
|
|
/s/ Robert
P. Badavas
Robert
P. Badavas
|
|
Director
|
|
March 10, 2010
|
|
|
|
|
|
/s/ John
Campbell
John
Campbell
|
|
Director
|
|
March 4, 2010
|
|
|
|
|
|
/s/ Michael
T. Fitzgerald
Michael
T. Fitzgerald
|
|
Director
|
|
March 10, 2010
|
|
|
|
|
|
/s/ William
S. Kaiser
William
S. Kaiser
|
|
Director
|
|
March 4, 2010
|
|
|
|
|
|
/s/ Daniel
T. H. Nye
Daniel
T. H. Nye
|
|
Director
|
|
March 10, 2010
|
|
|
|
|
|
/s/ Steven
R. Wasserman
Steven
R. Wasserman
|
|
Vice President and Chief Financial Officer (Principal Financial
and Accounting Officer)
|
|
March 10, 2010
|
69
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1(1)
|
|
Restated Certificate of Incorporation of the Company.
|
|
3
|
.2(1)
|
|
Second Amended and Restated Bylaws of the Company.
|
|
4
|
.1(1)
|
|
Specimen Certificate evidencing shares of common stock.
|
|
10
|
.1(1)#
|
|
1999 Stock Option/Stock Issuance Plan, as amended.
|
|
10
|
.2(1)#
|
|
Form of Non-Qualified Stock Option Agreement with Executive
Officers under the 1999 Stock Option/Stock Issuance Plan.
|
|
10
|
.3(1)#
|
|
Form of Non-Qualified Stock Option Agreement under the 1999
Stock Option/Stock Issuance Plan.
|
|
10
|
.4(1) #
|
|
Restricted Stock Agreement, dated December 12, 2005,
between the Company and Steven R. Wasserman.
|
|
10
|
.5(1)#
|
|
2007 Stock Incentive Plan.
|
|
10
|
.6(1)#
|
|
Forms of Incentive Stock Option Agreement, under the 2007 Stock
Incentive Plan.
|
|
10
|
.7(1)#
|
|
Forms of Non-Qualified Stock Option Agreement, under the 2007
Stock Incentive Plan.
|
|
10
|
.8(1)#
|
|
2007 Employee Stock Purchase Plan.
|
|
10
|
.9(1)#
|
|
Letter Agreement, dated April 14, 1999, between the Company
and Gail F. Goodman.
|
|
10
|
.10(1)#
|
|
Letter Agreement, dated December 1, 2005, between the
Company and Steven R. Wasserman.
|
|
10
|
.11(1)#
|
|
Form of Director and Officer Indemnification Agreement.
|
|
10
|
.12(1)
|
|
Amended and Restated Investors Rights Agreement, dated as
of August 9, 2001, among the Company and the investors
listed therein.
|
|
10
|
.13(1)
|
|
Amended and Restated Preferred Investors Rights Agreement,
dated as of May 12, 2006, among the Company and the parties
listed therein.
|
|
10
|
.14(1)
|
|
Lease Agreement, dated as of July 9, 2002, as amended,
between the Company and Boston Properties Limited Partnership.
|
|
10
|
.15(2)
|
|
Fourth Amendment to Lease, dated as of November 26, 2007,
between the Company and Boston Properties Limited Partnership.
|
|
10
|
.16(1)
|
|
Form of Indemnification Agreement between the Company and
certain entities that sold stock in the Companys initial
public offering.
|
|
10
|
.17(3)
|
|
Master Services Agreement dated July 19, 2007 by and
between the Company and Sentinel Properties-Bedford, LLC, as
amended.
|
|
10
|
.18(4)
|
|
Fifth Amendment to Lease, dated as of April 14, 2008,
between the Company and Boston Properties Limited Partnership.
|
|
10
|
.19(5)
|
|
Lease, dated as of May 30, 2008, between the Company and
Centerra Office Tech I, LLC.
|
|
10
|
.20(5)
|
|
Lease, dated as of May 30, 2008, between the Company and
McWhinney 409CC, LLC.
|
|
10
|
.21(6)#
|
|
Amendment No. 1 to 2007 Employee Stock Purchase Plan.
|
|
10
|
.22(7)
|
|
First Amendment to Lease, dated as of October 8, 2008,
between the Company and McWhinney 409CC, LLC.
|
|
10
|
.23(8)#
|
|
Letter Agreement dated December 9, 2008 between the Company
and Gail F. Goodman.
|
|
10
|
.24(8)#
|
|
Letter Agreement dated December 9, 2008 between the Company
and Steven R. Wasserman.
|
|
10
|
.25(1)
|
|
Loan and Security Agreement, dated February 27, 2003, as
amended, between the Company and Silicon Valley Bank.
|
|
10
|
.26(9)#
|
|
2009 Executive Cash Incentive Bonus Plan.
|
|
10
|
.27(10)#
|
|
Letter Agreement, dated March 7, 2007, between the Company
and Robert P. Nault.
|
|
10
|
.28(8)#
|
|
Letter Agreement, dated December 9, 2008, between the
Company and Robert P. Nault.
|
|
10
|
.29(8)#
|
|
Letter Agreement, dated December 9, 2008, between the
Company and Ellen Brezniak.
|
|
10
|
.30(9)#
|
|
Letter Agreement, dated December 9, 2008, between the
Company and Nancie Freitas, amending a Letter Agreement, dated
November 17, 2005 between the Company and Nancie Freitas.
|
|
10
|
.31(11)
|
|
Lease, dated May 29, 2009, between the Company and Boston
Properties Limited Partnership.
|
|
10
|
.32(12)#
|
|
Transition Agreement, dated December 1, 2009, between the
Company and Steven R. Wasserman.
|
|
10
|
.33(13)
|
|
Amendment No. 2 to 2007 Employee Stock Purchase Plan.
|
70
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.34*#
|
|
2010 Executive Cash Incentive Bonus Plan
|
|
10
|
.35*#
|
|
Form of Performance Stock Option Agreement, under the 2007 Stock
Incentive Plan.
|
|
10
|
.36*#
|
|
Letter Agreement, dated September 3, 2008, between the
Company and John J. Walsh, Jr., as amended.
|
|
21
|
.1*
|
|
Subsidiaries of the Company.
|
|
23
|
.1*
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
31
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1*
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
* |
|
Filed herewith. |
|
# |
|
Management contract or compensatory plan required to be filed as
an exhibit pursuant to Item 15(b) of this Annual Report on
Form 10-K. |
|
(1) |
|
Incorporated by reference to the Companys Registration
Statement on
Form S-1,
as amended (Registration Number
333-144381)
filed with the Securities and Exchange Commission. |
|
(2) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
November 28, 2007. |
|
(3) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2007 filed with the
Securities and Exchange Commission on March 14, 2008. |
|
(4) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
April 18, 2008. |
|
(5) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
June 4, 2008. |
|
(6) |
|
Incorporated by reference to the Companys Quarterly Report
on
Form 10-Q
for the quarter ended June 30, 2008 filed with the
Securities and Exchange Commission on August 13, 2008. |
|
(7) |
|
Incorporated by reference to the Companys Quarterly Report
on
Form 10-Q
for the quarter ended September 30, 2008 filed with the
Securities and Exchange Commission on November 7, 2008. |
|
(8) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
December 10, 2008. |
|
(9) |
|
Incorporated by reference to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 filed with the
Securities and Exchange Commission on March 12, 2009. |
|
(10) |
|
Incorporated by reference to the Companys Registration
Statement on
Form S-1,
as amended (Registration Number
333-149918)
filed with the Securities and Exchange Commission. |
|
(11) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
June 4, 2009. |
|
(12) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
December 1, 2009. |
|
(13) |
|
Incorporated by reference to the Companys Current Report
on
Form 8-K
filed with the Securities and Exchange Commission on
December 2, 2009. |
71