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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2011

 

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 x No o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

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

 

Smaller reporting company o

 

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

 

As of October 31, 2011, 23,751,735 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 (Unaudited)

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

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

29

Item 4.

[Removed and Reserved]

29

Item 5.

Other Information

29

Item 6.

Exhibits

29

Signatures

31

 

2



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

58,890,000

 

$

33,444,000

 

Short-term investments

 

21,021,000

 

9,080,000

 

Accounts receivable, net of allowance for doubtful accounts of $1,025,000, and $1,260,000 at September 30, 2011 and December 31, 2010

 

15,216,000

 

13,292,000

 

Prepaid expenses and other current assets

 

3,534,000

 

2,919,000

 

Deferred tax asset

 

7,896,000

 

7,882,000

 

Restricted cash

 

 

167,000

 

 

 

 

 

 

 

Total current assets

 

106,557,000

 

66,784,000

 

 

 

 

 

 

 

Property, equipment and software, net

 

15,566,000

 

14,612,000

 

Goodwill

 

42,732,000

 

42,347,000

 

Intangibles, net

 

17,545,000

 

20,248,000

 

Deferred tax asset

 

5,377,000

 

5,539,000

 

Other assets

 

862,000

 

366,000

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

188,639,000

 

$

149,896,000

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

1,595,000

 

$

1,862,000

 

Accrued expenses

 

5,392,000

 

5,804,000

 

Accrued compensation

 

4,541,000

 

4,189,000

 

Deferred revenue

 

2,000,000

 

1,852,000

 

Dining rewards payable

 

19,363,000

 

15,398,000

 

Total current liabilities

 

32,891,000

 

29,105,000

 

 

 

 

 

 

 

Deferred revenue — non-current

 

2,343,000

 

2,802,000

 

Deferred tax liability

 

4,630,000

 

5,644,000

 

Income tax liability

 

12,758,000

 

8,577,000

 

Other long-term liabilities

 

444,000

 

1,623,000

 

 

 

 

 

 

 

Total liabilities

 

53,066,000

 

47,751,000

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 5)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Common stock, $0.0001 par value — 100,000,000 shares authorized; 23,948,317 and 23,507,765 shares issued, 23,738,070 and 23,297,518 shares outstanding at September 30, 2011 and December 31, 2010

 

2,000

 

2,000

 

Additional paid-in capital

 

161,749,000

 

143,292,000

 

Treasury stock, at cost (210,247 shares at September 30, 2011 and December 31, 2010)

 

(647,000

)

(647,000

)

Accumulated other comprehensive income (loss)

 

(900,000

)

(1,305,000

)

Accumulated deficit

 

(24,631,000

)

(39,197,000

)

 

 

 

 

 

 

Total stockholders’ equity

 

135,573,000

 

102,145,000

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

188,639,000

 

$

149,896,000

 

 

See notes to condensed consolidated financial statements.

 

3



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

34,356,000

 

$

24,520,000

 

$

102,353,000

 

$

68,224,000

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

9,916,000

 

6,769,000

 

29,074,000

 

19,095,000

 

Sales and marketing

 

7,477,000

 

5,185,000

 

21,692,000

 

14,971,000

 

Technology

 

3,748,000

 

2,967,000

 

11,326,000

 

8,707,000

 

General and administrative

 

7,407,000

 

5,045,000

 

18,417,000

 

12,947,000

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

28,548,000

 

19,966,000

 

80,509,000

 

55,720,000

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

5,808,000

 

4,554,000

 

21,844,000

 

12,504,000

 

Other income, net

 

23,000

 

67,000

 

68,000

 

209,000

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

5,831,000

 

4,621,000

 

21,912,000

 

12,713,000

 

Income tax expense

 

1,775,000

 

786,000

 

7,346,000

 

3,770,000

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

4,056,000

 

$

3,835,000

 

$

14,566,000

 

$

8,943,000

 

 

 

 

 

 

 

 

 

 

 

Net income per share (See Note 7):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.17

 

$

0.62

 

$

0.39

 

Diluted

 

$

0.17

 

$

0.16

 

$

0.59

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

23,695,000

 

22,706,000

 

23,530,000

 

22,471,000

 

Diluted

 

24,488,000

 

24,102,000

 

24,545,000

 

23,866,000

 

 

See notes to condensed consolidated financial statements.

 

4



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

14,566,000

 

$

8,943,000

 

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

 

 

 

 

 

Depreciation and amortization

 

5,842,000

 

4,653,000

 

Amortization of intangibles

 

2,986,000

 

227,000

 

Provision for doubtful accounts

 

1,328,000

 

858,000

 

Stock-based compensation

 

8,809,000

 

5,361,000

 

Write-off of property, equipment and software

 

853,000

 

383,000

 

Deferred taxes

 

162,000

 

(1,728,000

)

Excess tax benefit related to stock compensation

 

(3,934,000

)

(4,354,000

)

Change in contingent liability

 

(1,085,000

)

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(3,246,000

)

(3,087,000

)

Prepaid expenses and other current assets

 

(942,000

)

(1,000

)

Accounts payable and accrued expenses

 

3,691,000

 

5,582,000

 

Accrued compensation

 

318,000

 

835,000

 

Deferred revenue

 

(299,000

)

(264,000

)

Long-term liabilities

 

3,015,000

 

664,000

 

Dining rewards payable

 

3,958,000

 

2,473,000

 

 

 

 

 

 

 

Net cash provided by operating activities

 

36,022,000

 

20,545,000

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property, equipment and software

 

(7,297,000

)

(6,737,000

)

Purchases of investments

 

(27,325,000

)

(24,926,000

)

Sales of investments

 

15,231,000

 

60,993,000

 

Acquisition of business

 

 

(1,350,000

)

Decrease in restricted cash

 

176,000

 

 

 

 

 

 

 

 

Net cash (used in) provided by investing activities

 

(19,215,000

)

27,980,000

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Excess tax benefit related to stock-based compensation

 

3,934,000

 

4,354,000

 

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

 

4,885,000

 

2,626,000

 

Change in cash overdrafts

 

 

(988,000

)

 

 

 

 

 

 

Net cash provided by financing activities

 

8,819,000

 

5,992,000

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATES ON CASH

 

(180,000

)

(46,000

)

 

 

 

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

25,446,000

 

54,471,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — Beginning of period

 

33,444,000

 

19,807,000

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS — End of period

 

$

58,890,000

 

$

74,278,000

 

 

 

 

 

 

 

 

 

(Continued)

 

 

 

 

5



Table of Contents

 

OPENTABLE, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

 

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid for income taxes

 

$

325,000

 

$

683,000

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH OPERATING ACTIVITIES:

 

 

 

 

 

Contingent liability recorded in other long-term liabilities

 

$

 

$

1,526,000

 

 

 

 

 

 

 

Unpaid portion of acquisition purchase price recorded in accrued expenses

 

$

 

$

150,000

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

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

 

$

364,000

 

$

629,000

 

 

 

 

 

 

 

Vesting of early exercised stock options

 

$

543,000

 

$

896,000

 

 

 

 

 

 

 

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. (together with its subsidiaries, “OpenTable” or the “Company”), was incorporated on October 13, 1998, and is a Delaware corporation. The Company provides solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. For restaurant customers, the Company provides a proprietary Electronic Reservation Book, or ERB, and OpenTable Connect, or Connect. The ERB combines proprietary software and computer hardware to deliver a solution that computerizes restaurant host-stand operations and replaces traditional pen-and-paper reservation books. The ERB streamlines and enhances a number of business-critical functions and processes for restaurants, including reservation management, table management, guest recognition and email marketing. For restaurants that do not require the operational benefits of the ERB, the Company provides Connect, which enables restaurants to receive reservations from the OpenTable website and mobile applications as well as the websites of the Company’s partners and the restaurant’s own website. For diners, the Company operates www.opentable.com and www.toptable.com, popular restaurant reservation websites, and also provides a variety of mobile applications. The OpenTable website and mobile applications enable diners to find, choose and book tables at restaurants on the OpenTable network in real time, overcoming the inefficiencies associated with the traditional process of reserving by phone.

 

Certain Significant Risks and Uncertainties

 

The Company operates in a dynamic industry, and accordingly, can be affected by a variety of factors. For example, management of the Company believes that changes in any of the following areas could have a significant negative effect on the Company’s 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 of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the 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, 2010, as filed on March 9, 2011 with the SEC (the “2010 Annual Report”). The condensed consolidated balance sheet as of December 31, 2010 included herein was

 

7



Table of Contents

 

derived from the audited consolidated financial statements as of that date but does not include all disclosures required by GAAP, including notes to the financial statements.

 

The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the Company’s statement of financial position at September 30, 2011 and December 31, 2010, and the Company’s results of operations for the three and nine months ended September 30, 2011 and 2010, and its cash flows for the nine months ended September 30, 2011 and 2010. The results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for any future period. All references to September 30, 2011 or to the three or nine months ended September 30, 2011 and 2010 in the notes to the condensed consolidated financial statements are unaudited.

 

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 May 2011, the Financial Accounting Standards Board (“FASB”) issued Topic 820—Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Topic 820). Topic 820 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements to ensure consistency between U.S. GAAP and IFRS. Topic 820 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. Topic 820 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The Company anticipates that the adoption of this standard will not materially expand its consolidated financial statement footnote disclosures.

 

In June 2011, the FASB issued Topic 220—Presentation of Comprehensive Income (Topic 220). Topic 220 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. Topic 220 requires that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amended guidance, which must be applied retroactively, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with earlier adoption permitted. The adoption of this standard will change the presentation of the Company’s consolidated financial statements but will have no effect on the reported amounts of comprehensive net income.

 

In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance will be effective beginning January 1, 2012.

 

8



Table of Contents

 

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 September 30, 2011:

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

18,883,000

 

$

5,000

 

$

(1,000

)

$

18,887,000

 

Certificates of deposit

 

2,134,000

 

 

 

2,134,000

 

Total

 

$

21,017,000

 

$

5,000

 

$

(1,000

)

$

21,021,000

 

 

 

 

Amortized
Cost

 

Unrealized
Gains

 

Unrealized
Losses

 

Estimated Fair
Value

 

At December 31, 2010:

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

8,099,000

 

$

1,000

 

$

 

$

8,100,000

 

Certificates of deposit

 

980,000

 

 

 

980,000

 

Total

 

$

9,079,000

 

$

1,000

 

$

 

$

9,080,000

 

 

As of September 30, 2011, certain investments with a total estimated fair value of $4,421,000 had maturity dates of greater than one year. As of December 31, 2010, there were no investments that had maturity dates of greater than one year.

 

The Company classifies investments within Level 1 of the fair value hierarchy when the fair value is based on quoted prices in active markets for identical assets or liabilities. The Company considers a market to be active when transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

 

The Company classifies investments within Level 2 if the investments are valued using quoted prices for identical assets in markets that are not active, using quoted prices for similar assets in an active market, or using model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

 

Investments are classified within Level 3 of the fair value hierarchy if the fair value is determined using unobservable inputs that are not corroborated by market data. The valuation of Level 3 investments requires the use of significant management judgments or estimation.

 

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

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 

Aggregate

 

 

 

 

 

Aggregate

 

 

 

 

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Fair Value

 

Level 1

 

Level 2

 

U.S. government and agency securities

 

$

18,887,000

 

$

 

$

18,887,000

 

$

8,100,000

 

$

 

$

8,100,000

 

Certificates of deposit

 

2,134,000

 

 

2,134,000

 

980,000

 

 

980,000

 

Total short-term investments

 

$

21,021,000

 

$

 

$

21,021,000

 

$

9,080,000

 

$

 

$

9,080,000

 

 

Subsequent to the issuance of the Company’s 2010 consolidated financial statements, the Company determined that the $8,100,000 of investments in U.S. government and agency securities as of December 31, 2010 should be classified as Level 2 investments (rather than Level 1 investments as

 

9



Table of Contents

 

originally classified) as these specific securities are not actively traded. Accordingly, the Company has corrected the classification of these securities from Level 1 to Level 2 in the table of fair value measurements as of December 31, 2010.

 

4. Goodwill and Intangible Assets

 

A summary of the carrying amount of goodwill by business segment as of September 30, 2011 and December 31, 2010 is as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

North America

 

$

4,561,000

 

$

4,561,000

 

International

 

38,171,000

 

37,786,000

 

 

 

 

 

 

 

Total Goodwill

 

$

42,732,000

 

$

42,347,000

 

 

The increase in goodwill of $385,000 was due to the change in foreign currency exchange rates.

 

The Company evaluates goodwill for impairment annually on August 31 at the reporting unit level using a fair value approach. No impairment of goodwill was identified as of August 31, 2011.

 

A summary of intangible assets as of September 30, 2011 and December 31, 2010 is as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

 

 

Gross Carrying

 

Accumulated

 

 

 

Gross Carrying

 

Accumulated

 

 

 

 

 

Value

 

Amortization

 

Total

 

Value

 

Amortization

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

$

12,016,000

 

$

44,000

 

$

11,972,000

 

$

11,897,000

 

$

23,000

 

$

11,874,000

 

Customer relationships

 

8,172,000

 

3,299,000

 

4,873,000

 

8,098,000

 

940,000

 

7,158,000

 

Developed technology

 

1,526,000

 

826,000

 

700,000

 

1,515,000

 

299,000

 

1,216,000

 

Total intangible assets

 

$

21,714,000

 

$

4,169,000

 

$

17,545,000

 

$

21,510,000

 

$

1,262,000

 

$

20,248,000

 

 

Amortization of intangible assets was $993,000 and $79,000 for the three months ended September 30, 2011 and 2010, respectively. Amortization of intangible assets was $2,986,000 and $227,000 for the nine months ended September 30, 2011 and 2010, respectively. Based on the current amount of intangibles subject to amortization, estimated future annual amortization expense is as follows: 2011 (remainder): $967,000; 2012: $3,317,000; 2013: $1,312,000; 2014: $66,000.

 

Unaudited Pro Forma Condensed Combined Financial Information

 

In October 2010, the Company acquired toptable.com (“toptable”), a leading restaurant reservation site in the United Kingdom.

 

The unaudited pro forma financial information provided below, for the three and nine months ended September 30, 2011 and 2010, assumes the acquisition of toptable occurred on January 1, 2010 and includes the impact of amortizing certain purchase accounting adjustments, such as intangible assets and the pay down of outstanding third party debt, as of January 1, 2010.

 

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Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues

 

$

34,356,000

 

$

27,411,000

 

$

102,353,000

 

$

76,365,000

 

Income from operations

 

5,808,000

 

3,690,000

 

21,844,000

 

10,727,000

 

Net income

 

4,056,000

 

2,864,000

 

14,566,000

 

6,911,000

 

 

 

 

 

 

 

 

 

 

 

Net income per share

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.12

 

$

0.62

 

$

0.30

 

Diluted

 

$

0.17

 

$

0.12

 

$

0.59

 

$

0.29

 

 

5. Commitments and Contingencies

 

The Company leases its facilities under operating leases. These leases expire at various dates through 2016. 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. The Company denied Mount Hamilton’s allegations and asserted counterclaims seeking judicial declarations that the Mount Hamilton patent is not infringed, is unenforceable and is invalid. The Company and Mount Hamilton entered into a settlement agreement, effective as of June 30, 2011, and the claims between the parties were dismissed with prejudice on July 7, 2011.

 

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

 

Stock-Based Compensation

 

The Company accounts for stock-based compensation under Topic 718—Stock Compensation (Topic 718), which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value.

 

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

 

The following table summarizes the assumptions relating to the Company’s stock options for the three and nine months ended September 30, 2011 and 2010, respectively:

 

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Three Months
Ended
September 30,

 

Nine Months
Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Dividend yield

 

0%

 

0%

 

0%

 

0%

 

Volatility

 

53%-54%

 

52%

 

53%-54%

 

52%-53%

 

Risk-free interest rate

 

0.79%-1.76%

 

1.66%-1.68%

 

0.79%-2.67%

 

1.66%-2.95%

 

Expected term, in years

 

5.0-6.08

 

6.02-6.08

 

5.0-6.08

 

5.50-6.56

 

 

The Company granted 16,311 and 47,780 stock options during the three months ended September 30, 2011 and 2010, respectively, and 124,701 and 945,210 stock options during the nine months ended September 30, 2011 and 2010, respectively. The Company recorded stock-based compensation expense related to stock options of $3,270,000 and $2,027,000 for three months ended September 30, 2011 and 2010, respectively, and $7,113,000 and $5,361,000 for the nine months ended September 30, 3011 and 2010, 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 months ended September 30, 2011 and 2010, the Company recorded $2,022,000 and $1,620,000 respectively, of excess tax benefits from stock-based compensation and $3,934,000 and $4,354,000, respectively, for the nine months ended September 30, 2011 and 2010.

 

Restricted Stock Units

 

The Company began granting restricted stock units (“RSUs”) to its employees in November 2010. The cost of RSUs is determined using the fair value of the Company’s common stock on the date of grant. RSUs typically vest and become exercisable annually, based on a one to four year total vesting term. Stock-based compensation expense is amortized on a straight-line basis over the requisite service period.

 

The Company granted 12,733 and 47,979 RSUs, respectively, during the three and nine months ended September 30, 2011. The Company recorded stock-based compensation expense related to RSUs of $699,000 and $1,696,000, respectively, for the three and nine months ended September 30, 2011.

 

7. Net Income Per Share

 

The Company calculates net income per share in accordance with Topic 260—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 settlement 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 in all presented periods.

 

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. 220,000 shares were excluded from the dilutive shares outstanding for the three and nine months ended September 30, 2011, as the performance criteria had not been met as of the end of the respective periods. 220,000 shares were

 

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excluded from the dilutive shares outstanding for the three and nine months ended September 30, 2010, as the performance criteria had not been met as of the end of the respective periods. Anti-dilutive shares in the amounts of 198,000 and 111,000 were excluded from the dilutive shares outstanding for the three months ended September 30, 2011 and 2010, respectively. Anti-dilutive shares in the amounts of 99,000 and 71,000 were excluded from the dilutive shares outstanding for the nine months ended September 30, 2011 and 2010, respectively.

 

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

 

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Basic net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

4,056,000

 

$

3,835,000

 

$

14,566,000

 

$

8,943,000

 

Less: Undistributed earnings allocated to participating securities

 

 

(33,000

)

(18,000

)

(105,000

)

Net income attributable to common shares - basic

 

4,056,000

 

3,802,000

 

14,548,000

 

8,838,000

 

Basic weighted average common shares outstanding

 

23,695,000

 

22,706,000

 

23,530,000

 

22,471,000

 

Basic net income per share

 

$

0.17

 

$

0.17

 

$

0.62

 

$

0.39

 

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share calculation:

 

 

 

 

 

 

 

 

 

Net income

 

$

4,056,000

 

$

3,835,000

 

$

14,566,000

 

$

8,943,000

 

Less: Undistributed earnings allocated to participating securities

 

 

(20,000

)

(11,000

)

(68,000

)

Net income attributable to common shares - diluted

 

4,056,000

 

3,815,000

 

14,555,000

 

8,875,000

 

Weighted average shares used to compute basic net income per share

 

23,695,000

 

22,706,000

 

23,530,000

 

22,471,000

 

Effect of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Unvested common shares subject to repurchase

 

 

126,000

 

18,000

 

181,000

 

Employee stock options

 

784,000

 

1,270,000

 

989,000

 

1,214,000

 

Employee stock awards

 

9,000

 

 

8,000

 

 

Weighted average shares used to compute diluted net income per share

 

24,488,000

 

24,102,000

 

24,545,000

 

23,866,000

 

Diluted net income per share

 

$

0.17

 

$

0.16

 

$

0.59

 

$

0.37

 

 

8. Income Taxes

 

During the three and nine months ended September 30, 2011, the Company recorded income tax expense of $1,775,000 and $7,346,000, respectively, which resulted in an effective tax rate of 30% and 34%, respectively. During the three and nine months ended September 30, 2010, the Company recorded income tax expense of $786,000 and $3,770,000, respectively, which resulted in an effective tax rate of 17% and 30%, respectively. The expected tax provision (derived from applying the federal statutory rate to the Company’s income before income tax provision for the three and nine months ended September 30, 2011) differed from the Company’s recorded income tax provision primarily due to benefits resulting from the recognition of current year federal and state research and development credits, the federal Domestic Manufacturing Deduction and the re-measurement of deferred taxes previously recorded upon the acquisition of toptable (resulting from the change in the statutory income tax rate in the three months ended September 30, 2011), which were partially offset by the tax impact of certain stock-based compensation charges.

 

Topic 740—Income Taxes prescribes that a tax position is required to meet a minimum recognition threshold before being recognized in the financial statements. The Company’s gross unrecognized tax benefits as of September 30, 2011 and December 31, 2010 were $17,100,000 and $17,585,000, respectively. As of September 30, 2011 and December 31, 2010, the Company recorded $172,000 and $124,000, respectively, of accrued interest. No significant penalties have been recorded to date.

 

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9. Comprehensive Income (Loss)

 

In accordance with Topic 220—Comprehensive Income, the Company reports by major components and, as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) consists of net income and accumulated other comprehensive income (loss), which includes certain changes in equity that are excluded from net income. Specifically, it includes cumulative foreign currency translation and the unrealized gain (loss) from investments. Comprehensive income for the three months ended September 30, 2011 was $2,421,000 and comprehensive income for the three months ended September 30, 2010 was $3,973,000.

 

Accumulated other comprehensive loss of $900,000 as of September 30, 2011 was comprised of $904,000 of foreign currency translation losses and $4,000 of unrealized gain on investments. Accumulated other comprehensive loss of $1,305,000 as of December 31, 2010 was comprised of $1,306,000 of foreign currency translation losses and $1,000 of unrealized gain on investments.

 

10. Segment Information

 

The Company operates in one industry—online restaurant reservations and guest management solutions for restaurants. The Company has two reportable segments: North America and International, as defined by Topic 280—Segment Reporting. 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 September 30, 2011

 

 

 

 

 

 

 

Revenues—subscription

 

$

11,406,000

 

$

1,531,000

 

$

12,937,000

 

Revenues—reservations

 

15,154,000

 

2,861,000

 

18,015,000

 

Revenues—installation and other

 

2,521,000

 

883,000

 

3,404,000

 

Income (loss) from operations

 

8,532,000

 

(2,724,000

)

5,808,000

 

Interest income

 

25,000

 

 

25,000

 

Depreciation and amortization expense

 

1,726,000

 

1,321,000

 

3,047,000

 

Purchases of property, equipment and software

 

2,036,000

 

609,000

 

2,645,000

 

Three months ended September 30, 2010

 

 

 

 

 

 

 

Revenues—subscription

 

$

9,868,000

 

$

1,146,000

 

$

11,014,000

 

Revenues—reservations

 

11,059,000

 

323,000

 

11,382,000

 

Revenues—installation and other

 

2,101,000

 

23,000

 

2,124,000

 

Income (loss) from operations

 

6,646,000

 

(2,092,000

)

4,554,000

 

Interest income

 

59,000

 

 

59,000

 

Depreciation and amortization expense

 

1,546,000

 

163,000

 

1,709,000

 

Purchases of property, equipment and software

 

1,601,000

 

153,000

 

1,754,000

 

Nine months ended September 30, 2011

 

 

 

 

 

 

 

Revenues—subscription

 

$

33,117,000

 

$

4,400,000

 

$

37,517,000

 

Revenues—reservations

 

45,690,000

 

8,228,000

 

53,918,000

 

Revenues—installation and other

 

8,290,000

 

2,628,000

 

10,918,000

 

Income (loss) from operations

 

30,857,000

 

(9,013,000

)

21,844,000

 

Interest income

 

57,000

 

2,000

 

59,000

 

Depreciation and amortization expense

 

5,162,000

 

3,666,000

 

8,828,000

 

Purchases of property, equipment and software

 

5,332,000

 

1,965,000

 

7,297,000

 

Nine months ended September 30, 2010

 

 

 

 

 

 

 

Revenues—subscription

 

$

28,409,000

 

$

3,118,000

 

$

31,527,000

 

Revenues—reservations

 

31,325,000

 

825,000

 

32,150,000

 

Revenues—installation and other

 

4,474,000

 

73,000

 

4,547,000

 

Income (loss) from operations

 

17,592,000

 

(5,088,000

)

12,504,000

 

Interest income

 

196,000

 

 

196,000

 

Depreciation and amortization expense

 

4,444,000

 

436,000

 

4,880,000

 

Purchases of property, equipment and software

 

6,161,000

 

576,000

 

6,737,000

 

 


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

 

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Geographical Information

 

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

 

 

 

Three Months
Ended
September 30,

 

Nine Months
Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues:

 

 

 

 

 

 

 

 

 

United States

 

$

27,249,000

 

$

21,693,000

 

$

81,771,000

 

$

60,413,000

 

United Kingdom

 

4,297,000

 

871,000

 

12,569,000

 

2,400,000

 

International—all others

 

2,810,000

 

1,956,000

 

8,013,000

 

5,411,000

 

Total revenues

 

$

34,356,000

 

$

24,520,000

 

$

102,353,000

 

$

68,224,000

 

 

 

 

As of

 

As of

 

 

 

September 30,

 

December 31,

 

 

 

2011

 

2010

 

Long-lived assets(1):

 

 

 

 

 

United States

 

$

12,602,000

 

$

12,034,000

 

United Kingdom

 

2,293,000

 

1,229,000

 

International—all others

 

1,533,000

 

1,715,000

 

Total long-lived assets

 

$

16,428,000

 

$

14,978,000

 

 


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

 

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

 

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 2010 Annual Report.

 

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “will,” “plan,” “project,” “seek,” “should,” “target,” “would”  and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on

 

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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 2010 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Overview

 

We provide solutions that form an online network connecting reservation-taking restaurants and people who dine at those restaurants. Our solutions for restaurants include our proprietary Electronic Reservation Book, or ERB, and OpenTable Connect, or Connect. Our solutions for diners include www.opentable.com, our popular restaurant reservation website, as well as a variety of mobile applications. The OpenTable network includes more than 20,000 OpenTable restaurant customers spanning all 50 states as well as select markets outside of the United States. Since our inception in 1998, we have seated more than 250 million diners through OpenTable reservations, and during the three months ended September 30, 2011, we seated an average of nearly 8 million diners per month, including diners seated by toptable.com (“toptable”), which we acquired in October 2010. 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 fee for each restaurant guest seated through online reservations. Diners can use our online restaurant reservation service for free. For the three months ended September 30, 2011 and 2010, our net revenues were $34.4 million and $24.5 million, respectively. For the nine months ended September 30, 2011 and 2010, our net revenues were $102.4 million and $68.2 million, respectively. For the three months ended September 30, 2011 and 2010, our subscription revenues accounted for 38% and 45% of our total revenues, respectively, and 37% and 46% of total revenues for the nine months ended September 30, 2011 and 2010, respectively. For the three months ended September 30, 2011 and 2010, our reservation revenues accounted for 52% and 46% of our total revenues, respectively, and 53% and 47% of total revenues for the nine months ended September 30, 2011 and 2010, respectively.

 

In 2004, we began to selectively expand outside of North America into countries that are characterized by large numbers of online consumer transactions and reservation-taking restaurants. To date, we have concentrated our international efforts in Germany, Japan and the United Kingdom. Our revenues outside of North America for the three and nine months ended September 30, 2011 and 2010 represented 15% and 6% of our total revenues, respectively. On October 1, 2010, we acquired toptable, a leading restaurant reservation site in the United Kingdom, which contributed $2.9 million and $8.7 million to revenues for the three and nine months ended September 30, 2011, 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.

 

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Revenues

 

We generate substantially all of our revenues from our restaurant customers. Our revenues include installation fees for our ERB (including training), monthly subscription fees and a fee for each restaurant guest seated through online reservations. Installation fees are recognized on a straight-line basis over an estimated customer life of approximately four to 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 2010 Annual Report.

 

Costs and Expenses

 

Operations and support.    Our operations and support expenses consist primarily of payroll and related costs, including bonuses and stock-based compensation, for those employees associated with installation, support and maintenance for our restaurant customers, as well as costs related to our outsourced call center. Operations and support expenses also include restaurant equipment costs, such as depreciation on restaurant-related hardware, shipping costs related to restaurant equipment, restaurant equipment costs that do not meet the capitalization threshold, referral payments and website connectivity costs. Operations and support expenses also include amortization of 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 2010 Annual Report) and amortization of intangible assets. 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, including full-time equivalent temporary employees, in all of the sections noted below.

 

Other Income, Net

 

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

 

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Income Taxes

 

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

 

During the three and nine months ended September 30, 2011, we recorded income tax expense of $1.8 million and $7.3 million, respectively, which resulted in an effective tax rate of 30% and 34%, respectively. During the three and nine months ended September 30, 2010, we recorded income tax expense of $0.8 million and $3.8 million, respectively, which resulted in an effective tax rate of 17% and 30%, respectively. The tax provision and the effective tax rate for the three and nine months ended September 30, 2011 differed from those of the same period ended September 30, 2010, primarily due to the benefits resulting from the recognition of certain pre-2010 Federal and California research and development tax credits during the three months ended September 30, 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 the federal Domestic Manufacturing Deduction 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 of America, 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 described in our 2010 Annual Report. For further information on our critical and other significant accounting policies, see our 2010 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.

 

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.

 

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Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

34,356

 

$

24,520

 

$

102,353

 

$

68,224

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support (1)

 

9,916

 

6,769

 

29,074

 

19,095

 

Sales and marketing (1)

 

7,477

 

5,185

 

21,692

 

14,971

 

Technology (1)

 

3,748

 

2,967

 

11,326

 

8,707

 

General and administrative (1)

 

7,407

 

5,045

 

18,417

 

12,947

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

28,548

 

19,966

 

80,509

 

55,720

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

5,808

 

4,554

 

21,844

 

12,504

 

Other income, net

 

23

 

67

 

68

 

209

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

5,831

 

4,621

 

21,912

 

12,713

 

Income tax expense

 

1,775

 

786

 

7,346

 

3,770

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

4,056

 

$

3,835

 

$

14,566

 

$

8,943

 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.17

 

$

0.62

 

$

0.39

 

Diluted

 

$

0.17

 

$

0.16

 

$

0.59

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

23,695

 

22,706

 

23,530

 

22,471

 

Diluted

 

24,488

 

24,102

 

24,545

 

23,866

 

 


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

 

Operations and support

 

$

431

 

$

229

 

$

1,289

 

$

648

 

Sales and marketing

 

571

 

494

 

1,574

 

1,359

 

Technology

 

431

 

416

 

1,319

 

1,059

 

General and administrative

 

2,536

 

888

 

4,627

 

2,295

 

 

 

$

3,969

 

$

2,027

 

$

8,809

 

$

5,361

 

 

Other Operational Data:

 

 

 

 

 

 

 

 

 

Installed restaurants (at period end):

 

 

 

 

 

 

 

 

 

North America

 

16,237

 

13,025

 

16,237

 

13,025

 

International

 

7,629

 

2,221

 

7,629

 

2,221

 

Total

 

23,866

 

15,246

 

23,866

 

15,246

 

 

 

 

 

 

 

 

 

 

 

Seated diners (in thousands):

 

 

 

 

 

 

 

 

 

North America

 

21,818

 

15,368

 

64,884

 

44,591

 

International

 

1,768

 

531

 

4,939

 

1,403

 

Total

 

23,586

 

15,899

 

69,823

 

45,994

 

 

 

 

 

 

 

 

 

 

 

Headcount (at period end):

 

 

 

 

 

 

 

 

 

North America

 

403

 

302

 

403

 

302

 

International

 

165

 

74

 

165

 

74

 

Total

 

568

 

376

 

568

 

376

 

 

 

 

 

 

 

 

 

 

 

Additional Financial Data:

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

North America

 

$

29,081

 

$

23,028

 

$

87,097

 

$

64,208

 

International

 

5,275

 

1,492

 

15,256

 

4,016

 

Total

 

$

34,356

 

$

24,520

 

$

102,353

 

$

68,224

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

North America

 

$

8,532

 

$

6,646

 

$

30,857

 

$

17,592

 

International

 

(2,724

)

(2,092

)

(9,013

)

(5,088

)

Total

 

$

5,808

 

$

4,554

 

$

21,844

 

$

12,504

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

North America

 

$

1,726

 

$

1,546

 

$

5,162

 

$

4,444

 

International

 

1,321

 

163

 

3,666

 

436

 

Total

 

$

3,047

 

$

1,709

 

$

8,828

 

$

4,880

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation:

 

 

 

 

 

 

 

 

 

North America

 

$

3,295

 

$

1,932

 

$

6,176

 

$

5,100

 

International

 

674

 

95

 

2,633

 

261

 

Total

 

$

3,969

 

$

2,027

 

$

8,809

 

$

5,361

 

 

20



Table of Contents

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(as a percentage of revenue)

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

Operations and support

 

29

 

28

 

29

 

28

 

Sales and marketing

 

22

 

21

 

21

 

22

 

Technology

 

11

 

12

 

11

 

13

 

General and administrative

 

21

 

20

 

18

 

19

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

83

 

81

 

79

 

82

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

17

 

19

 

21

 

18

 

Other income, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before taxes

 

17

 

19

 

21

 

18

 

Income tax expense

 

5

 

3

 

7

 

5

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

12

%

16

%

14

%

13

%

 

Revenues

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

September 30,

 

Three Month

 

Nine Month

 

 

 

2011

 

2010

 

2011

 

2010

 

% Change

 

% Change

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

12,937

 

$

11,014

 

$

37,517

 

$

31,527

 

17

%

19

%

Reservation

 

18,015

 

11,382

 

53,918

 

32,150

 

58

%

68

%

Installation and other

 

3,404

 

2,124

 

10,918

 

4,547

 

60

%

140

%

Total

 

$

34,356

 

$

24,520

 

$

102,353

 

$

68,224

 

40

%

50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Type:

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

38

%

45

%

37

%

46

%

 

 

 

 

Reservation

 

52

%

46

%

53

%

47

%

 

 

 

 

Installation and other

 

10

%

9

%

10

%

7

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

29,081

 

$

23,028

 

$

87,097

 

$

64,208

 

26

%

36

%

International

 

5,275

 

1,492

 

15,256

 

4,016

 

254

%

280

%

Total

 

$

34,356

 

$

24,520

 

$

102,353

 

$

68,224

 

40

%

50

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Revenues by Location:

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

85

%

94

%

85

%

94

%

 

 

 

 

International

 

15

%

6

%

15

%

6

%

 

 

 

 

Total

 

100

%

100

%

100

%

100

%

 

 

 

 

 

Total revenues increased $9.8 million, or 40%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 and $34.1 million, or 50%, for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Subscription revenues increased $1.9 million, or 17%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 and $6.0 million, or 19%, for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Subscription revenues increased as a result of the increase in installed restaurants. Reservation revenues increased $6.6 million, or 58%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 and $21.8 million, or 68%, for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010. Reservation revenues increased as a result of the increase in seated diners, plus the addition of $2.0 million and $6.2 million for the three and nine months ended September 30, 2011, respectively, of reservation revenues resulting from the acquisition of toptable. Installation and other revenues increased $1.3 million, or 60%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 primarily as a result of an increase in revenue from other product

 

21



Table of Contents

 

offerings, including advertising sales, web service licensing and third-party restaurant coupon sales, plus the addition of $0.9 million of other revenues resulting from the acquisition of toptable. Installation and other revenues increased $6.4 million, or 140%, for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 primarily as a result of an increase in revenue from other product offerings, including advertising sales, web service licensing, featured private dining listings and third-party restaurant coupon sales, plus the addition of $2.5 million of other revenues resulting from the acquisition of toptable.

 

Costs and Expenses

 

Operations and Support

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three

 

Nine

 

 

 

September 30,

 

September 30,

 

Month

 

Month

 

 

 

2011

 

2010

 

2011

 

2010

 

% Change

 

% Change

 

 

 

(Dollars in thousands)