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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

For the quarterly period ended June 30, 2010

 

OR

 

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

 

Commission File Number: 001-34357

 


 

OPENTABLE, INC.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Delaware

 

94-3374049

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

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

 

94103

(Address of Principal Executive Offices)

 

(Zip Code)

 

(415) 344-4200

(Registrant’s Telephone Number, Including Area Code)

 


 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o.

 

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter time period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x.

 

As of August 2, 2010, 22,860,247 shares of the registrant’s common stock were outstanding.

 

 

 



Table of Contents

 

OPENTABLE, Inc.

Table of Contents

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

3

 

Condensed Consolidated Statements of Operations

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

26

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

28

Item 4.

[Removed and Reserved]

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

Signatures

 

29

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

29,419,000

 

$

19,807,000

 

Short-term investments

 

51,691,000

 

50,221,000

 

Accounts receivable, net of allowance for doubtful accounts of $636,000, and $590,000 at June 30, 2010 and December 31, 2009

 

8,768,000

 

7,617,000

 

Prepaid expenses and other current assets

 

1,527,000

 

1,301,000

 

Deferred tax asset

 

6,024,000

 

6,024,000

 

Restricted cash

 

163,000

 

172,000

 

 

 

 

 

 

 

Total current assets

 

97,592,000

 

85,142,000

 

 

 

 

 

 

 

Property, equipment and software, net

 

13,139,000

 

11,516,000

 

Goodwill

 

1,805,000

 

1,805,000

 

Intangibles, net

 

845,000

 

992,000

 

Deferred tax asset

 

992,000

 

498,000

 

Other assets

 

432,000

 

378,000

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

114,805,000

 

$

100,331,000

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

1,084,000

 

$

1,385,000

 

Accrued expenses

 

4,136,000

 

5,827,000

 

Accrued compensation

 

3,374,000

 

2,993,000

 

Deferred revenue

 

1,842,000

 

1,538,000

 

Dining rewards payable

 

13,474,000

 

11,611,000

 

Total current liabilities

 

23,910,000

 

23,354,000

 

 

 

 

 

 

 

Deferred revenue — non-current

 

3,157,000

 

3,572,000

 

Other long-term liabilities

 

749,000

 

 

 

 

 

 

 

 

Total liabilities

 

27,816,000

 

26,926,000

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 5)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, $0.0001 par value — 100,000,000 shares authorized; 23,041,336 and 22,652,716 shares issued, 22,831,089 and 22,442,469 shares outstanding at June 30, 2010 and December 31, 2009

 

2,000

 

2,000

 

Additional paid-in capital

 

136,045,000

 

127,454,000

 

Treasury stock, at cost (210,247 shares at June 30, 2010 and December 31, 2009)

 

(647,000

)

(647,000

)

Accumulated other comprehensive loss

 

(243,000

)

(128,000

)

Accumulated deficit

 

(48,168,000

)

(53,276,000

)

 

 

 

 

 

 

Total stockholders’ equity

 

86,989,000

 

73,405,000

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

114,805,000

 

$

100,331,000

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

22,453,000

 

$

16,390,000

 

$

43,704,000

 

$

32,385,000

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

6,324,000

 

5,012,000

 

12,326,000

 

10,118,000

 

Sales and marketing

 

5,046,000

 

4,010,000

 

9,786,000

 

7,808,000

 

Technology

 

3,020,000

 

2,599,000

 

5,740,000

 

5,311,000

 

General and administrative

 

3,879,000

 

3,395,000

 

7,902,000

 

6,942,000

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

18,269,000

 

15,016,000

 

35,754,000

 

30,179,000

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

4,184,000

 

1,374,000

 

7,950,000

 

2,206,000

 

Other income, net

 

73,000

 

91,000

 

142,000

 

146,000

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

4,257,000

 

1,465,000

 

8,092,000

 

2,352,000

 

Income tax expense

 

1,673,000

 

773,000

 

2,984,000

 

1,294,000

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,584,000

 

$

692,000

 

$

5,108,000

 

$

1,058,000

 

 

 

 

 

 

 

 

 

 

 

Net income per share (See Note 7):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

$

0.04

 

$

0.23

 

$

0.08

 

Diluted

 

$

0.11

 

$

0.03

 

$

0.21

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

22,502,000

 

15,327,000

 

22,352,000

 

12,802,000

 

Diluted

 

23,801,000

 

22,247,000

 

23,648,000

 

21,602,000

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

5,108,000

 

$

1,058,000

 

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

 

 

 

 

 

Depreciation and amortization

 

3,023,000

 

2,537,000

 

Amortization of intangibles

 

148,000

 

 

Provision for doubtful accounts

 

497,000

 

1,115,000

 

Stock-based compensation

 

3,334,000

 

1,684,000

 

Write-off of property, equipment and software

 

266,000

 

342,000

 

Deferred taxes

 

(494,000

)

864,000

 

Excess tax benefit related to stock compensation

 

(2,734,000

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(1,662,000

)

(1,198,000

)

Prepaid expenses and other current assets

 

30,000

 

(645,000

)

Accounts payable

 

(134,000

)

282,000

 

Accrued expenses

 

2,573,000

 

(17,000

)

Accrued compensation

 

415,000

 

268,000

 

Deferred revenue

 

(111,000

)

3,000

 

Other long-term liabilities

 

749,000

 

 

Dining rewards payable

 

1,863,000

 

1,531,000

 

 

 

 

 

 

 

Net cash provided by operating activities

 

12,871,000

 

7,824,000

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property, equipment and software

 

(4,983,000

)

(2,732,000

)

Purchases of investments

 

(24,926,000

)

(33,128,000

)

Maturities of investments

 

23,175,000

 

7,700,000

 

Decrease in restricted cash

 

 

(1,000

)

 

 

 

 

 

 

Net cash used in investing activities

 

(6,734,000

)

(28,161,000

)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Excess tax benefit related to stock-based compensation

 

2,734,000

 

 

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

 

1,841,000

 

36,000

 

Proceeds from issuance of common stock in connection with initial public offering, net of offering costs

 

 

35,159,000

 

Cash overdrafts

 

(988,000

)

 

Proceeds from early exercise of common stock options

 

 

1,000

 

 

 

 

 

 

 

Net cash provided by financing activities

 

3,587,000

 

35,196,000

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATES ON CASH

 

(112,000

)

263,000

 

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

9,612,000

 

15,122,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

19,807,000

 

5,528,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — End of period

 

$

29,419,000

 

$

20,650,000

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

5



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

(Unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2010

 

2009

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for income taxes

 

$

390,000

 

$

772,000

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

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

 

$

192,000

 

$

277,000

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

595,000

 

$

626,000

 

 

 

 

 

 

 

Accrued offering costs

 

$

0

 

$

336,000

 

 

 

 

 

 

 

Conversion of convertible preferred stock to common stock

 

$

0

 

$

21,909,000

 

 

See notes to condensed consolidated financial statements.

 

(Concluded)

 

 

 

 

6



Table of Contents

 

OPENTABLE, INC.

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

1. Organization and Description of Business

 

OpenTable, Inc., a Delaware corporation (together with its wholly-owned subsidiaries, the “Company”), was formed on October 13, 1998. The Company provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. For restaurant customers, in addition to other products, the Company provides a proprietary Electronic Reservation Book (“ERB”), which combines proprietary software with computer hardware to deliver a solution that computerizes restaurant host-stand operations and replaces traditional pen-and-paper reservation books. The OpenTable ERB streamlines and enhances a number of business-critical functions and processes for restaurants, including reservation management, table management, guest recognition and email marketing. The Company also provides a web-based product for restaurants called OpenTable Connect (“Connect”). Like the ERB, Connect allows restaurants to take online reservations via the OpenTable website; however, Connect does not provide the operational benefits that the ERB delivers to reservation-intensive restaurants. For diners, the Company operates www.opentable.com, a popular restaurant reservation website. The OpenTable website enables diners to find, choose and book tables at restaurants on the OpenTable network, overcoming the inefficiencies associated with the traditional process of reserving by phone.

 

Certain Significant Risks and Uncertainties

 

The Company operates in a dynamic industry, and accordingly, can be affected by a variety of factors. For example, management of the Company believes that changes in any of the following areas could have a significant negative effect on the Company in terms of its future financial position, results of operations or cash flows: the ability to maintain an adequate rate of growth; the impact of the current economic climate on its business; the ability to effectively manage its growth; the ability to attract new restaurant customers; the ability to increase the number of visitors to its website and convert those visitors into diners; and the ability to retain existing restaurant customers and diners or encourage repeat reservations.

 

2. Summary of Significant Accounting Policies

 

Principles of Consolidation

 

These condensed consolidated financial statements include the accounts of OpenTable, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed on March 11, 2010 with the SEC (the “2009 Annual Report”). The condensed

 

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Table of Contents

 

consolidated balance sheet as of December 31, 2009, included herein was derived from the audited consolidated financial statements as of that date but does not include all disclosures including notes required by GAAP.

 

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at June 30, 2010 and December 31, 2009, and the Company’s results of operations for the three and six months ended June 30, 2010 and 2009, and its cash flows for the six months ended June 30, 2010 and 2009. The results for the three and six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010. All references to June 30, 2010 or to the three or six months ended June 30, 2010 and 2009 in the notes to the condensed consolidated financial statements are unaudited.

 

The Company has made a reclassification on its condensed consolidated statement of cash flows for the six months ended June 30, 2009 to conform the presentation of accounts payable and accrued expenses to the current period’s presentation. In addition, proceeds from issuance of common stock upon exercise of employee stock options have been included within a separate line item within financing activities.

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.

 

Recently Issued Accounting Standards

 

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

 

Effective January 1, 2010, the Company adopted the FASB’s updated guidance related to fair value measurements and disclosures which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. In addition, in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3 inputs, a reporting entity should disclose separately information about purchases, sales, issuances and settlements (that is, on a gross basis rather than one net number). The updated guidance also requires that an entity should provide fair value measurement disclosures for each class of assets and liabilities and disclosures about the valuation techniques and inputs used to measure fair value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair value measurements. The guidance is effective for interim or annual financial reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll

 

8



Table of Contents

 

forward activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. Adoption of the updated guidance did not have an impact on the Company’s consolidated results of operations or financial condition.

 

3. Short-Term Investments and Fair Value Measurements

 

Short-term investments are summarized as follows:

 

 

 

Amortized
Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Estimated Fair
Value

 

At June 30, 2010:

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

33,843,000

 

$

8,000

 

$

 

$

33,851,000

 

Certificates of deposit

 

17,842,000

 

2,000

 

(4,000

)

17,840,000

 

Total

 

$

51,685,000

 

$

10,000

 

$

(4,000

)

$

51,691,000

 

 

 

 

Amortized
Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Estimated Fair
Value

 

At December 31, 2009:

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

20,722,000

 

$

6,000

 

$

(7,000

)

$

20,721,000

 

Certificates of deposit

 

27,131,000

 

7,000

 

(38,000

)

27,100,000

 

Commercial paper

 

2,400,000

 

 

 

2,400,000

 

Total

 

$

50,253,000

 

$

13,000

 

$

(45,000

)

$

50,221,000

 

 

As of December 31, 2009, certain investments with a total estimated fair value of $976,000 had maturity dates of greater than one year. As of June 30, 2010, there were no investments that had maturity dates of greater than one year.

 

Investment instruments are classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. The types of instruments that are generally classified within Level 1 of the fair value hierarchy include money market securities, U.S. government and agency securities and commercial paper. The types of investments that are generally classified within Level 2 of the fair value hierarchy include certificates of deposit. The Company classifies items in Level 2 if the investments are valued using observable inputs to quoted market prices, or other inputs that are observable or can be corroborated by observable market data. Investments are held by a custodian who obtains investment prices from a third party pricing provider that uses standard inputs to models which vary by asset class.

 

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

 

 

 

June 30, 2010

 

December 31, 2009

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Fair Value

 

Level 1

 

Level 2

 

U.S. government and agency securities

 

$

33,851,000

 

$

33,851,000

 

$

 

$

20,721,000

 

$

20,721,000

 

$

 

Certificates of deposit

 

17,840,000

 

 

17,840,000

 

27,100,000

 

 

27,100,000

 

Commercial paper

 

 

 

 

2,400,000

 

2,400,000

 

 

Total short-term investments

 

$

51,691,000

 

$

33,851,000

 

$

17,840,000

 

$

50,221,000

 

$

23,121,000

 

$

27,100,000

 

 

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Table of Contents

 

The Company chose not to elect the fair value option as prescribed by Topic 825 — Financial Instruments (Statement of Financial Accounting Standards (“SFAS”) No. 159) for its financial assets and liabilities that had not been previously carried at fair value. Therefore, financial assets and liabilities not carried at fair value, such as accounts payable, are still reported at their carrying values.

 

4. Acquired Intangible Assets

 

As of June 30, 2010, intangible assets included customer relationships of $558,000 (net of accumulated of amortization of $119,000), developed technology of $281,000 (net of accumulated of amortization of $93,000) and trademarks of $6,000 (net of accumulated of amortization of $9,000). As of December 31, 2009, intangible assets included customer relationships of $637,000 (net of accumulated of amortization of $40,000), developed technology of $344,000 (net of accumulated of amortization of $30,000) and trademarks of $11,000 (net of accumulated of amortization of $4,000). Intangible assets are amortized on a straight-line basis over the estimated useful lives which range from one to four years. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for the succeeding four years is as follows: 2010 (remainder): $149,000; 2011: $284,000; 2012: $253,000; 2013: $159,000.

 

5. Commitments and Contingencies

 

The Company leases its facilities under operating leases. Leases expire at various dates through April 2013. The terms of the lease agreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease period.

 

Litigation

 

On May 12, 2009, a patent infringement lawsuit was filed against the Company by Mount Hamilton Partners, LLC (“Mount Hamilton”) in the United States District Court for the Northern District of California, seeking, among other things, a judgment that the Company has infringed a certain patent held by Mount Hamilton, an injunctive order against the alleged infringing activities and an award for damages. If an injunction is granted, it could force the Company to stop or alter certain of its business activities, such as certain aspects of the OpenTable Dining Rewards Program. The Company has denied Mount Hamilton’s allegations and asserted counterclaims seeking judicial declarations that the Mount Hamilton patent is not infringed, is unenforceable and is invalid. On October 6, 2009, the Company filed a petition for re-examination with the U.S. Patent and Trademark Office (“PTO”), asking the PTO to re-examine the patent in question and requesting that the claims of the Mount Hamilton patent be rejected. In addition, on October 21, 2009, the Company filed a motion in the district court asking the court to stay the current litigation pending the outcome of the requested re-examination proceeding. On December 7, 2009, the PTO granted the Company’s petition for re-examination, and in its first non-final office action, rejected all of the claims of the patent at issue. In addition, the district court has stayed all proceedings pending re-examination of the patent, which is currently ongoing. The Company is not currently able to estimate the potential loss, if any, that may result from this claim.

 

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

 

6. Stockholders’ Equity

 

Common Stock

 

On May 21, 2009, the Company completed its initial public offering whereby the Company sold 2,022,684 shares of common stock for a price of $20.00 per share. As part of the offering 1,427,316 shares were also sold by existing shareholders at a price of $20.00 per share. Approximately $5.8 million in offering costs were incurred and have been deducted from additional paid-in capital.

 

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Preferred Stock

 

Prior to the initial public offering, the Company had outstanding 6,898,187 shares of Series A convertible preferred stock and 2,177,550 shares of Series B convertible preferred stock. Each share of preferred stock was convertible into one share of common stock. The conversion of all shares of preferred stock into 9,075,737 shares of common stock occurred automatically upon the completion of the Company’s initial public offering on May 21, 2009.

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation under Topic 718 — Stock Compensation (SFAS No. 123R), which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.

 

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

 

The Company determined weighted average valuation assumptions as follows:

 

·                  Volatility—As the Company does not have an extensive trading history for its common stock, the expected stock price volatility for the Company’s common stock was estimated by taking the median historic price volatility for industry peers based on daily price observations over a period equivalent to the expected term of the stock option grants. Industry peers consist of several public companies in the technology industry similar in size, stage of life cycle and financial leverage. The Company did not rely on implied volatilities of traded options in its industry peers’ common stock because the volume of activity was relatively low.

 

·                  Expected term—The expected term was estimated using the simplified method allowed under Topic 718 (Securities and Exchange Commission Staff Accounting Bulletin No. 110, Share-Based Payment).

 

·                  Risk-free rate—The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group.

 

·                  Forfeiture rate—The Company estimated the forfeiture rate based on its historical experience with forfeitures. The Company reviews the estimated forfeiture rates each period end and makes changes as factors affecting the forfeiture rate calculations and assumptions change.

 

·                  Dividend yield—The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero.

 

The following table summarizes the assumptions relating to the Company’s stock options for the three and six months ended June 30, 2010:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2010

 

June 30, 2010

 

Dividend yield

 

0%

 

0%

 

Volatility

 

52%

 

52%-53%

 

Risk-free interest rate

 

2.15%-2.95%

 

2.15%-2.95%

 

Expected term, in years

 

5.50-6.08

 

5.50-6.56

 

 

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The Company granted 137,450 stock options during the three months ended June 30, 2010 and 897,430 stock options during the six months ended June 30, 2010. No stock options were granted in the three or six months ended June 30, 2009. The Company recorded stock-based compensation expense of $1,800,000 and $725,000 for three months ended June 30, 2010 and 2009, respectively, and $3,334,000 and $1,684,000 for the six months ended June 30, 2010 and 2009, respectively.

 

Topic 718 requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow, rather than as an operating cash flow. This requirement reduces net operating cash flows and increases net financing cash flows. For the three and six months ended June 30, 2010, the Company recorded $1,444,000 and $2,734,000, respectively, of excess tax benefits from stock-based compensation and none for the three and six months ended June 30, 2009.

 

7. Net Income Per Share

 

The Company calculates net income per share in accordance with Topic 260 — Earnings per Share (SFAS No. 128, Earnings Per Share). Basic and diluted net income per share attributable to common stockholders are presented in conformity with the “two-class method” required for participating securities. The Company’s weighted average unvested shares subject to repurchase and settle in shares of common stock upon vesting have the non-forfeitable right to receive dividends on an equal basis with common stock and therefore are considered participating securities that must be included in the calculation of net income per share using the two-class method.

 

Performance-Based Awards

 

Non-vested performance-based awards are included in the diluted shares outstanding each period if established performance criteria have been met at the end of the respective periods. 281,000 and 343,000 shares were excluded from the dilutive shares outstanding for the three months ended June 30, 2010 and 2009, respectively, as the performance criteria had not been met as of the respective dates. 281,000 and 343,000 shares were excluded from the dilutive shares outstanding for the six months ended June 30, 2010 and 2009, respectively, as the performance criteria had not been met as of the respective dates. Anti-dilutive shares in the amounts of 58,000 and 707,000 were excluded from the dilutive shares outstanding for the three months ended June 30, 2010 and 2009, respectively. Anti-dilutive shares in the amounts of 515,000 and 774,000 were excluded from the dilutive shares outstanding for the six months ended June 30, 2010 and 2009, respectively.

 

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The following table sets forth the computation of basic and diluted net income per share for the periods indicated:

 

 

 

Three Months

 

Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

2,584,000

 

$

692,000

 

$

5,108,000

 

$

1,058,000

 

Less: Undistributed earnings allocated to participating securities

 

(30,000

)

(25,000

)

(68,000

)

(50,000

)

Net income attributable to common shares - basic

 

2,554,000

 

667,000

 

5,040,000

 

1,008,000

 

Basic weighted average common shares outstanding

 

22,502,000

 

15,327,000

 

22,352,000

 

12,802,000

 

Basic net income per share

 

$

0.11

 

$

0.04

 

$

0.23

 

$

0.08

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

2,584,000

 

$

692,000

 

$

5,108,000

 

$

1,058,000

 

Less: Undistributed earnings allocated to participating securities

 

(20,000

)

(13,000

)

(45,000

)

(23,000

)

Net income attributable to common shares - diluted

 

2,564,000

 

679,000

 

5,063,000

 

1,035,000

 

Weighted average shares used to compute basic net income per share

 

22,502,000

 

15,327,000

 

22,352,000

 

12,802,000

 

Effect of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Unvested common shares subject to repurchase

 

180,000

 

426,000

 

208,000

 

466,000

 

Warrants to purchase convertible preferred stock

 

 

84,000

 

 

83,000

 

Employee stock options

 

1,119,000

 

1,368,000

 

1,088,000

 

1,192,000

 

Convertible preferred stock

 

 

5,042,000

 

 

7,059,000

 

Weighted average shares used to compute diluted net income per share

 

23,801,000

 

22,247,000

 

23,648,000

 

21,602,000

 

Diluted net income per share

 

$

0.11

 

$

0.03

 

$

0.21

 

$

0.05

 

 

Correction of Earnings Per Share Subsequent to the issuance of the Company’s interim financial statements as of June 30, 2009, management of the Company determined that the quarter ended June 30, 2009 basic and diluted net income per share was computed under the if-converted method rather than the required two-class method. Accordingly, a correction has been made herein to the previously reported basic net income per share amount for the quarter ended June 30, 2009. Basic net income per share for the quarter ended June 30, 2009 was previously reported as $0.05. Using the two-class method, basic net income per share for quarter ended June 30, 2009 is $0.04. The correction in the June 30, 2009 quarterly net income per share calculation did not impact the diluted net income per share amount or total net income previously reported for such period. The foregoing correction is not considered material by the Company.

 

8. Income Taxes

 

During the three and six months ended June 30, 2010, the Company recorded income tax expense of $1,673,000 and $2,984,000, respectively, which resulted in an effective tax rate of 39% and 37%, respectively. During the three and six months ended June 30, 2009, the Company recorded income tax expense of $773,000 and $1,294,000, respectively, which resulted in an effective tax rate of 53% and 55%, respectively. The tax provisions and the effective tax rates for the three and six months ended June 30, 2010 differed from those of the same periods ended June 30, 2009, primarily due to the increase in income before taxes  and a reduction in compensation expense related to non-deductible share-based payments in the current year. The expected tax provision derived from applying the federal statutory rate to the Company’s income before taxes for the three and six months ended June 30, 2010 differed from the Company’s recorded income tax provision primarily due to compensation expense related to non-deductible share-based payments offset by the benefits of the recognition of current year state research and development credits. The Company’s effective tax rate for the three and six months ended June 30, 2010 is not necessarily indicative of the effective tax rate that may be expected for fiscal year 2010.

 

Topic 740 — Income Taxes (SFAS No. 109) prescribes that a tax position is required to meet a minimum recognition threshold before being recognized in the financial statements. The Company’s gross unrecognized tax benefits as of June 30, 2010 and December 31, 2009 were $15,500,000 and $15,000,000, respectively. As of June 30, 2010 and December 31, 2009, the Company recorded $115,000 and $32,000, respectively, of accrued interest. No significant penalties have been recorded to date.

 

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9. Comprehensive Income (Loss)

 

In accordance with Topic 220 — Comprehensive Income (SFAS No. 130, Reporting Comprehensive Income), the Company reports by major components and as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) consists of net income and accumulated other comprehensive income (loss), which includes certain changes in equity that are excluded from net income. Specifically, it includes cumulative foreign currency translation and the unrealized gain (loss) from investments. Comprehensive income for the three months ended June 30, 2010 and 2009 was $2,498,000 and $897,000, respectively.

 

Accumulated other comprehensive loss of $243,000 as of June 30, 2010 was comprised of $6,000 of unrealized gain on investments and $249,000 of foreign currency translation losses. Accumulated other comprehensive loss of $128,000 as of December 31, 2009 was comprised of $32,000 of unrealized loss on investments and $96,000 of foreign currency translation losses.

 

10. Segment Information

 

The Company operates in one industry—online reservations and guest management solutions. The Company has two reportable segments: North America and International, as defined by Topic 280 — Segment Reporting (SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information). Reportable segments have been identified based on how management makes operating decisions, assesses performance and allocates resources. The Chief Executive Officer acts as the chief operating decision maker on behalf of both segments. The Company does not allocate assets discretely by reportable segments, and reviews asset information on a global basis, not by segment.

 

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Summarized financial information concerning the reportable segments is as follows:

 

 

 

North America
Segment(1)

 

International
Segment

 

Total
Consolidated

 

Three months ended June 30, 2010

 

 

 

 

 

 

 

Revenues—subscription

 

$

9,450,000

 

$

1,012,000

 

$

10,462,000

 

Revenues—reservations

 

10,468,000

 

263,000

 

10,731,000

 

Revenues—installation and other

 

1,238,000

 

22,000

 

1,260,000

 

Income (loss) from operations

 

5,653,000

 

(1,469,000

)

4,184,000

 

Interest income

 

72,000

 

 

72,000

 

Depreciation and amortization expense

 

1,495,000

 

135,000

 

1,630,000

 

Purchases of property, equipment and software

 

2,742,000

 

260,000

 

3,002,000

 

Three months ended June 30, 2009

 

 

 

 

 

 

 

Revenues—subscription

 

$

7,992,000

 

$

708,000

 

$

8,700,000

 

Revenues—reservations

 

6,800,000

 

128,000

 

6,928,000

 

Revenues—installation and other

 

743,000

 

19,000

 

762,000

 

Income (loss) from operations

 

2,958,000

 

(1,584,000

)

1,374,000

 

Interest income

 

81,000

 

 

81,000

 

Depreciation and amortization expense

 

1,163,000

 

111,000

 

1,274,000

 

Purchases of property, equipment and software

 

1,275,000

 

89,000

 

1,364,000

 

Six months ended June 30, 2010

 

 

 

 

 

 

 

Revenues—subscription

 

$

18,541,000

 

$

1,972,000

 

$

20,513,000

 

Revenues—reservations

 

20,266,000

 

502,000

 

20,768,000

 

Revenues—installation and other

 

2,373,000

 

50,000

 

2,423,000

 

Income (loss) from operations

 

10,946,000

 

(2,996,000

)

7,950,000

 

Interest income

 

137,000

 

 

137,000

 

Depreciation and amortization expense

 

2,898,000

 

273,000

 

3,171,000

 

Purchases of property, equipment and software

 

4,560,000

 

423,000

 

4,983,000

 

Six months ended June 30, 2009

 

 

 

 

 

 

 

Revenues—subscription

 

$

15,726,000

 

$

1,363,000

 

$

17,089,000

 

Revenues—reservations

 

13,590,000

 

242,000

 

13,832,000

 

Revenues—installation and other

 

1,408,000

 

56,000

 

1,464,000

 

Income (loss) from operations

 

5,284,000

 

(3,078,000

)

2,206,000

 

Interest income

 

167,000

 

 

167,000

 

Depreciation and amortization expense

 

2,322,000

 

215,000

 

2,537,000

 

Purchases of property, equipment and software

 

2,593,000

 

139,000

 

2,732,000

 

 


(1)                                 A significant majority of the Company’s “Technology” costs are incurred in the United States and as such are allocated to the North America segment. There are no internal revenue transactions between the Company’s reporting segments.

 

Geographical Information

 

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

 

 

 

Three Months
Ended
June 30,

 

Six Months
Ended
June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

Revenues:

 

 

 

 

 

 

 

 

 

United States

 

$

19,857,000

 

$

14,774,000

 

$

38,720,000

 

$

29,176,000

 

International—all others

 

2,596,000

 

1,616,000

 

4,984,000

 

3,209,000

 

Total revenues

 

$

22,453,000

 

$

16,390,000

 

$

43,704,000

 

$

32,385,000

 

 

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As of

 

As of

 

 

 

June 30,

 

December 31,

 

 

 

2010

 

2009

 

Long-lived assets(1):

 

 

 

 

 

United States

 

$

11,442,000

 

$

9,872,000

 

International—all others

 

2,129,000

 

2,022,000

 

Total long-lived assets

 

$

13,571,000

 

$

11,894,000

 

 


(1)                                 Includes all non-current assets except deferred tax assets, goodwill and intangible assets.

 

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

 

11. Subsequent Events

 

On August 2, 2010, the Company entered into an asset purchase agreement, pursuant to which the Company agreed to acquire substantially all of the assets and certain liabilities of Table Maestro, a provider of restaurant telephone reservation services and other dining-related services, for a purchase price of $1.5 million and additional performance-based payments. The consummation of the acquisition is subject to customary closing conditions.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward Looking Statements

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our 2009 Annual Report.

 

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “will,” “would”  and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included below and in our 2009 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

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Overview

 

We provide solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. Our solutions include our proprietary ERB and Connect for restaurant customers and www.opentable.com, a popular restaurant reservation website for diners. The OpenTable network includes approximately 14,000 OpenTable restaurant customers spanning all 50 states as well as select markets outside of the United States. Since our inception in 1998, we have seated approximately 160 million diners through OpenTable reservations. Restaurants that use our ERB pay us a one-time installation fee for onsite installation and training, a monthly subscription fee for the use of our software and hardware and a fee for each restaurant guest seated through online reservations. Restaurants that use Connect pay us a monthly subscription fee for the use of our software and a fee for each restaurant guest seated through online reservations. Our online restaurant reservation service is free to diners. For the three months ended June 30, 2010 and 2009, our net revenues were $22.5 million and $16.4 million, respectively. For the six months ended June 30, 2010 and 2009, our net revenues were $43.7 million and $32.4 million, respectively. For the three months ended June 30, 2010 and 2009, our subscription revenues accounted for 47% and 53% of our total revenues, respectively, and 47% and 53% of total revenue for the six months ended June 30, 2010 and 2009, respectively. For the three months ended June 30, 2010 and 2009, our reservation revenues accounted for 48% and 42% of our total revenues, respectively, and 48% and 43% of total revenue for the six months ended June 30, 2010 and 2009, respectively.

 

In 2004, we began to selectively expand outside of North America into countries that are characterized by large numbers of online consumer transactions and reservation-taking restaurants. To date, we have concentrated our international efforts in Germany, Japan and the United Kingdom. Our revenues outside of North America for the three months ended June 30, 2010 and 2009 represented 6% and 5% of our total revenues, respectively, and 6% and 5% of total revenue for the six months ended June 30, 2010 and 2009, respectively. We intend to continue to incur substantial expenses in advance of recognizing material related revenues as we attempt to further penetrate our existing international markets and selectively enter new markets. Some international markets may fail to meet our expectations, and we may decide to realign our focus, as we did when we closed our offices in Spain and France in the fourth quarter of 2008.

 

Basis of Presentation

 

General

 

We report consolidated operations in U.S. dollars and operate in two geographic segments: North America and International. The North America segment is comprised of all of our operations in the United States, Canada and Mexico, and the International segment is comprised of all non-North America operations, which includes operations in Europe and Asia.

 

Revenues

 

We generate substantially all of our revenues from our restaurant customers; we do not charge any fees to diners. Our revenues include installation fees for our ERB (including training), monthly subscription fees for our ERB and Connect and a fee for each restaurant guest seated through online reservations. Installation fees are recognized on a straight-line basis over an estimated customer life of approximately six years. Subscription revenues are recognized on a straight-line basis during the contractual period over which the service is delivered to our restaurant customers. Revenues from online reservations are recognized on a transaction basis as the diners are seated by the restaurant. Revenues are shown net of redeemable Dining Points issued to diners. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Dining Rewards Loyalty Program” in our 2009 Annual Report.

 

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Costs and Expenses

 

Operations and support.    Our operations and support expenses consist primarily of payroll and related costs, including bonuses and stock-based compensation, for those employees associated with installation, support and maintenance for our restaurant customers, as well as costs related to our outsourced call center. Operations and support expenses also include restaurant equipment costs, such as depreciation on restaurant-related hardware, shipping costs related to restaurant equipment, restaurant equipment costs that do not meet the capitalization threshold, referral payments and website connectivity costs. Operations and support expenses also include amortization of capitalized website and internal use software development costs (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Website and Software Development Costs” in our 2009 Annual Report). Also included in operations and support expenses are travel and related expenses incurred by the employees providing installation and support services for our restaurant customers, plus allocated facilities costs.

 

Sales and marketing.    Our sales and marketing expenses consist primarily of salaries, benefits and incentive compensation for sales and marketing employees, including stock-based compensation. Also included are expenses for trade shows, public relations and other promotional and marketing activities, travel and entertainment expenses and allocated facilities costs.

 

Technology.    Our technology expenses consist primarily of salaries and benefits, including bonuses and stock-based compensation, for employees and contractors engaged in the development and ongoing maintenance of our website, infrastructure and software, as well as allocated facilities costs.

 

General and administrative.    Our general and administrative costs consist primarily of salaries and benefits, including stock-based compensation, for general and administrative employees and contractors involved in executive, finance, accounting, risk management, human resources and legal roles. In addition, general and administrative costs include consulting, legal, accounting and other professional fees. Bad debt, third party payment processor, credit card, bank processing fees and allocated facilities costs are also included in general and administrative expenses.

 

Headcount consists of full-time equivalent employees, as well as full-time equivalent contractors, in all of the sections noted below.

 

Other Income, Net

 

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

 

Income Taxes

 

We are subject to income tax in the United States as well as other foreign tax jurisdictions in which we conduct business. Earnings from our foreign operations are subject to local jurisdictional income tax and may also be subject to current U.S. income tax.

 

During the three and six months ended June 30, 2010, we recorded income tax expense of $1.7 million and $3.0 million, respectively, which resulted in an effective tax rate of 39% and 37%, respectively. During the three and six months ended June 30, 2009, we recorded income tax expense of $0.8 million and $1.3 million, respectively, which resulted in an effective tax rate of 53% and 55%, respectively. The tax provisions and the effective tax rates for the three and six months ended June 30, 2010 differed from those of the same periods ended June 30, 2009, primarily due to the increase in income before taxes and a reduction in compensation expense related to non-deductible share-based payments in the current year. The expected tax provision derived from applying the federal statutory rate to our income before taxes for the

 

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three and six months ended June 30, 2010 differed from our recorded income tax provision primarily due to compensation expense related to non-deductible share-based payments offset by the benefits of the recognition of current year state research and development credits. Our effective tax rate for the three and six months ended June 30, 2010 is not necessarily indicative of the effective tax rate that may be expected for fiscal year 2010.

 

Factors that impact our income tax provision include, but are not limited to, the compensation expense related to non-deductible share-based payments, recognition of research and development tax benefits and discrete tax benefits arising from the disqualified disposition of certain stock-based compensation awards.

 

Critical Accounting Policies and Estimates

 

In presenting our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures.

 

Some of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. We base these estimates and assumptions on historical experience or on various other factors that we believe to be reasonable and appropriate under the circumstances. On an ongoing basis, we reconsider and evaluate our estimates and assumptions. Our future estimates may change if the underlying assumptions change. Actual results may differ significantly from these estimates.

 

There have been no material changes to our critical accounting policies. For further information on our critical and other significant accounting policies, see our 2009 Annual Report.

 

We believe that the following critical accounting policies involve our more significant judgments, assumptions and estimates and, therefore, could have the greatest potential impact on our consolidated financial statements:

 

·                  Revenue Recognition;

·                  Dining Rewards Loyalty Program;

·                  Website and Software Development Costs;

·                  Income Taxes; and

·                  Stock-Based Compensation.

 

19



Table of Contents

 

Results of Operations

 

The following tables set forth our results of operations for the periods presented and as a percentage of our revenues for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results.

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009 (2)

 

2010

 

2009

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

22,453

 

$

16,390

 

$

43,704

 

$

32,385

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support (1)

 

6,324

 

5,012

 

12,326

 

10,118

 

Sales and marketing (1)

 

5,046

 

4,010

 

9,786

 

7,808

 

Technology (1)

 

3,020

 

2,599

 

5,740

 

5,311

 

General and administrative (1)

 

3,879

 

3,395

 

7,902

 

6,942

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

18,269

 

15,016

 

35,754

 

30,179

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

4,184

 

1,374

 

7,950

 

2,206

 

Other income, net

 

73

 

91

 

142

 

146

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

4,257

 

1,465

 

8,092

 

2,352

 

Income tax expense

 

1,673

 

773

 

2,984

 

1,294

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,584

 

$

692

 

$

5,108

 

$

1,058

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

$

0.04

 

$

0.23

 

$

0.08

 

Diluted

 

$

0.11

 

$

0.03

 

$

0.21

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

22,502

 

15,327

 

22,352

 

12,802

 

Diluted

 

23,801

 

22,247

 

23,648

 

21,602

 

 


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

 

Operations and support

 

$

232

 

$

68

 

$

419

 

$

154

 

Sales and marketing

 

471

 

185

 

865

 

408

 

Technology

 

360

 

117

 

643

 

291

 

General and administrative

 

737

 

355

 

1,407

 

831

 

 

 

$

1,800

 

$

725

 

$

3,334

 

$

1,684

 

 

(2) Certain corrections have been made to previously reported Earnings Per Share amounts for the three months ended June 30, 2009. See Note 7 of the accompanying notes to our condensed consolidated financial statements.

 

Other Operational Data:

 

 

 

 

 

 

 

 

 

Installed restaurants (at period end):

 

 

 

 

 

 

 

 

 

North America

 

12,250

 

9,971

 

12,250

 

9,971

 

International

 

1,878

 

1,193

 

1,878

 

1,193

 

Total

 

14,128

 

11,164

 

14,128

 

11,164

 

 

 

 

 

 

 

 

 

 

 

Seated diners (in thousands):

 

 

 

 

 

 

 

 

 

North America

 

15,130

 

10,071

 

29,223

 

19,993

 

International

 

463

 

206

 

871

 

392

 

Total

 

15,593

 

10,277

 

30,094

 

20,385

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

North America

 

293

 

252

 

293

 

252

 

International

 

73

 

61

 

73

 

61

 

Total

 

366

 

313

 

366

 

313

 

 

 

 

 

 

 

 

 

 

 

Additional Financial Data:

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

North America

 

$

21,156

 

$

15,535

 

$

41,180

 

$

30,724

 

International

 

1,297

 

855

 

2,524

 

1,661

 

Total

 

$

22,453

 

$

16,390

 

$

43,704

 

$

32,385

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

North America

 

$

5,653

 

$

2,958

 

$

10,946

 

$

5,284

 

International

 

(1,469

)

(1,584

)

(2,996

)

(3,078

)

Total

 

$

4,184

 

$

1,374

 

$

7,950

 

$

2,206

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

North America

 

$

1,495

 

$

1,163

 

$

2,898

 

$

2,322

 

International

 

135

 

111

 

273

 

215

 

Total

 

$

1,630

 

$

1,274

 

$

3,171

 

$

2,537

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

North America

 

$

1,689

 

$

656

 

$

3,168

 

$

1,490

 

International

 

111

 

69

 

166

 

194

 

Total

 

$

1,800

 

$

725

 

$

3,334

 

$

1,684

 

 

20



Table of Contents

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(as a percentage of revenue)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

28

 

31

 

28

 

31

 

Sales and marketing

 

23

 

24

 

22

 

24

 

Technology

 

13

 

16

 

13

 

16

 

General and administrative

 

17

 

21

 

18

 

21

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

81

 

92

 

81

 

92

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

19

 

8

 

19

 

7

 

Other income, net

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

19

 

9

 

19

 

7

 

Income tax expense

 

7

 

5

 

7

 

4

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

12

%

4

%

12

%

3

%

 

Revenues

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

June 30,

 

Three Month

 

Six Month

 

 

 

2010

 

2009

 

2010

 

2009

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

10,462

 

$

8,700

 

$

20,513

 

$

17,089

 

20

%

20

%

Reservation

 

10,731

 

6,928

 

20,768

 

13,832

 

55

%

50

%

Installation and other

 

1,260

 

762

 

2,423

 

1,464

 

65

%

66

%

Total

 

$

22,453

 

$

16,390

 

$

43,704

 

$

32,385

 

37

%

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

47

%

53

%

47

%

53

%

 

 

 

 

Reservation

 

48

%

42

%

48

%

43

%

 

 

 

 

Installation and other

 

6

%

5

%

6

%

5

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

21,156

 

$

15,535

 

$

41,180

 

$

30,724

 

36

%

34

%

International

 

1,297

 

855

 

2,524

 

1,661

 

52

%

52

%

Total

 

$

22,453

 

$

16,390

 

$

43,704

 

$

32,385

 

37

%

35

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

94

%

95

%

94

%

95

%

 

 

 

 

International

 

6

%

5

%

6

%

5

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

Total revenues increased $6.1 million, or 37%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 and $11.3 million, or 35%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Subscription revenues increased $1.8 million, or 20%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 and $3.4 million, or 20%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Subscription revenues increased as a result of the increase in installed restaurants. Reservation revenues increased $3.8 million, or 55%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 and $6.9 million, or 50%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Reservation revenues increased as a result of the increase in seated diners.

 

21



Table of Contents

 

Costs and Expenses

 

Operations and Support

 

 

 

Three Months Ended

 

Six Months Ended

 

Three

 

Six

 

 

 

June 30,

 

June 30,

 

Month

 

Month

 

 

 

2010

 

2009

 

2010

 

2009

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations and support

 

$

6,324

 

$

5,012

 

$

12,326

 

$

10,118

 

26

%

22

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

84

 

76

 

84

 

76

 

11

%

11

%

International

 

33

 

26

 

33

 

26

 

27

%

27

%

Total

 

117

 

102

 

117

 

102

 

15

%

15

%

 

Our operations and support expenses increased $1.3 million, or 26%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009 and $2.2 million, or 22%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. The increase in operations and support expenses was primarily attributable to an increase of $0.8 million for the three months and $1.1 million for the six months in headcount related costs, related to the increase in operations and support headcount, as well as a $0.2 million increase for the three months and $0.5 million for the six months in depreciation and amortization, primarily related to capitalized website and software development costs and an increase of $0.2 million for the three months and $0.3 million for the six months in restaurant equipment shipping and depreciation expense, as a result of the increased installed base of restaurants.

 

Sales and Marketing

 

 

 

Three Months Ended

 

Six Months Ended

 

Three

 

Six

 

 

 

June 30,

 

June 30,

 

Month

 

Month

 

 

 

2010

 

2009

 

2010

 

2009

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

$

5,046

 

$

4,010

 

$

9,786

 

$

7,808

 

26

%

25

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

87

 

59