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8-K - FORM 8-K - Constant Contact, Inc.d806505d8k.htm

Exhibit 99.1

 

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Constant Contact Announces Third Quarter 2014 Financial Results

Revenue of $83.5 million increased 16% year-over-year

Adjusted EBITDA of $18.1 million increased 24% year-over-year

WALTHAM, MA – October 23, 2014Constant Contact®, Inc. (Nasdaq: CTCT), which helps more than 600,000 small organizations create and grow customer relationships through a suite of online marketing tools, today announced its financial results for the third quarter ended September 30, 2014.

“We delivered another strong quarter, punctuated by accelerating revenue growth, expanding profitability and an increase in customer additions,” said Gail Goodman, chief executive officer of Constant Contact. “We are on track to deliver on our goal of sustained long term revenue growth greater than 20% and expanding profitability margins greater than 20%.”

“Our focus remains on the Constant Contact Toolkit™. We continue to refine, test and iterate Toolkit and we are making progress establishing it as the platform for small business marketing that best meets the needs of our varied customers,” continued Goodman. “We believe an all-in-one marketing platform will differentiate us in the small business marketplace, while providing meaningful long-term growth opportunities.”

Third Quarter 2014 Financial Metrics

 

    Revenue was $83.5 million, an increase of 15.9% compared to revenue of $72.0 million for the comparable period in 2013.

 

    Gross margin was 72.2%, compared to 71.6% for the comparable period in 2013.

 

    Adjusted EBITDA was $18.1 million, a 23.6% increase compared to adjusted EBITDA of $14.7 million for the comparable period in 2013. Adjusted EBITDA margin was 21.7%, compared to 20.4% for the comparable period in 2013.

 

    GAAP net income was $5.2 million, or $0.16 per diluted share, compared to GAAP net income of $3.3 million, or $0.11 per diluted share, for the comparable period in 2013.

 

    Non-GAAP net income was $11.8 million, or $0.36 per diluted share, compared to non-GAAP net income of $8.9 million, or $0.28 per diluted share, for the comparable period in 2013.

 

    Cash flow from operations was $18.4 million, compared to $13.7 million for the comparable period in 2013.

 

    Capital expenditures were $7.0 million, compared to $4.4 million for the comparable period in 2013.

 

    Free cash flow was $11.4 million, compared to $9.2 million for the comparable period in 2013.

 

    The company had $154 million in cash, cash equivalents and marketable securities at September 30, 2014, compared to $140 million at June 30, 2014.

Third Quarter 2014 Operating Metrics

 

    Added 50,000 gross new unique customers in the third quarter, compared to 50,000 in the second quarter of 2014 and 45,000 in the third quarter of 2013. (*)

 

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    Ended the third quarter with 625,000 unique customers, an increase from 615,000 unique customers at the end of the second quarter of 2014 and 585,000 unique customers at the end of the third quarter of 2013. (*)

 

    Average monthly revenue per unique customer (ARPU) in the third quarter was $44.89, up from $44.40 in the second quarter of 2014 and up from $41.40 in the third quarter of 2013.

 

    Monthly retention rate of unique paying customers remained in its historical range of 97.8%, plus or minus 0.5%, for each month during the third quarter.

 

(*) Unique customers are rounded to the nearest 5,000. We define unique customers as customers of all of our products and services, inclusive of both subscription and transaction-based products. Transactional customers are included in the customer count for the period if they transacted within the prior 12-month period. A customer of multiple products and services is counted as one unique customer.

Other Recent Highlights

 

    Launched the latest wave of television advertising with a new Toolkit-focused advertising campaign. The three 15 second spots and one 30 second spot began airing nationally as part of the fall wave of advertising, targeting small businesses as they begin to ramp up their marketing efforts in advance of their busy holiday season. All four television commercials can be viewed by visiting: http://conta.cc/tv.

 

    Announced the expansion of the Constant Contact local education program in terms of both territory and staffing, as part of the company’s continued commitment to educating small businesses. The growth and expansion of the Constant Contact local education program is in response to continued demand for marketing education in local communities.

 

    Hosted OneCon, the second annual gathering of Constant Contact solution providers and authorized local experts. More than 200 attendees participated in this two-day educational event focused on helping partners grow their business with Constant Contact’s products and services. For more information please visit: http://www.onecon.com/2014, http://conta.cc/OneConRecap or #OneCon2014.

 

    Added Steve Shipley as a vice president of customer support. Steve joins Constant Contact with a wealth of customer support experience, leading customer support organizations at Monster Worldwide, The Home Shopping Network and Expedia. Steve will be leading teams responsible for ensuring that Constant Contact’s more than 625,000 customers have exceptional experiences with the company’s free, unlimited phone and online support and are empowered to be successful with Constant Contact’s products and services.

 

    Under the company’s previously announced $30 million stock repurchase program, the company repurchased 246,700 shares of common stock in the third quarter for approximately $7.4 million at an average purchase price of approximately $29.84 per share.

“Third quarter results continued our two-year track record of delivering consistently good results. Accelerating revenue growth and expanding margins have been the hallmark of this year, and in the quarter, revenue growth, margins and free cash flow all showed meaningful gains,” said Harpreet Grewal, chief financial officer of Constant Contact. “Our preliminary expectations for 2015 show an acceleration of revenue growth for the second consecutive year while meaningfully expanding margins.”

 

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Business Outlook

Based on information available as of October 23, 2014, Constant Contact is issuing guidance for the fourth quarter and full year 2014 and full year 2015 as follows:

Fourth Quarter 2014:

 

     Current Guidance (10/23/2014)

Total revenue

   $87.4 m - $87.8 m

Adjusted EBITDA margin

   20.5% - 20.9%

Adjusted EBITDA

   $17.9 m - $18.4 m

Stock-based compensation expense

   $4.3 m

GAAP net income

   $4.0 m - $4.3 m

GAAP net income per share

   $0.12 - $0.13

Non-GAAP net income per share*

   $0.30 - $0.32

Diluted weighted average shares outstanding

   32.9 m

Full Year 2014:

 

     Prior Guidance
(7/24/2014)
   Current Guidance
(10/23/2014)

Total revenue

   ~$331 m    $331.0 - 331.4 m

Adjusted EBITDA margin

   ~18.2%    18.2% - 18.3%

Adjusted EBITDA

   ~$60 m    $60.3 m - $60.8m

Stock-based compensation expense

   ~$16.5 m    $16.4 m

GAAP net income

   ~$11.4 m    $12.1 m - $12.4 m

GAAP net income per share

   ~$0.35    $0.37 - $0.38

Non-GAAP net income per share*

   ~$1.02    $1.04 - $1.05

Diluted weighted average shares outstanding

   32.7 m    32.7 m

Full Year Estimated effective tax rate

   40%    ~40%

Full Year Estimated cash tax rate

   10%    ~10%

 

* Non-GAAP net income per share calculated using an estimated cash tax rate (10%).

Preliminary 2015 Expectations:

 

Total revenue

  

~17% annual revenue growth

Adjusted EBITDA margin

  

~150 basis points of annual Adjusted EBITDA margin expansion

Non-GAAP Financial Measures and Other Financial Information

This press release contains the following non-GAAP financial measures: Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per share, estimated cash tax rate and free cash flow.

Adjusted EBITDA is a non-GAAP financial measure that is defined as GAAP net income before income taxes, interest and other income (expense), net, depreciation and amortization, stock-based compensation, and litigation contingency accruals. Adjusted EBITDA margin is a non-GAAP financial measure that is calculated by dividing adjusted EBITDA by revenue.

 

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Non-GAAP net income is a non-GAAP financial measure that is defined as GAAP net income before the non-cash portion of income taxes, stock-based compensation expense, and litigation contingency accruals. Non-GAAP net income per share is a non-GAAP financial measure that is calculated by dividing non-GAAP net income by the weighted average shares outstanding.

Estimated cash tax rate is calculated by dividing estimated taxes to be paid by estimated full year income before taxes.

Free cash flow is calculated by subtracting cash paid for the acquisition of property and equipment from net cash provided by operating activities.

Constant Contact believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Constant Contact’s financial condition and results of operations. The company’s management uses these non-GAAP measures to compare the company’s performance to that of prior periods for trend analyses, for purposes of determining executive and senior management incentive compensation, and for budgeting and planning purposes. These measures are used in monthly financial reports prepared for management and in monthly and quarterly financial reports presented to the company’s board of directors. The company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s financial measures with other software-as-a-service companies, many of which present similar non-GAAP financial measures to investors.

Management of the company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income is that these non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the company’s financial statements. In addition, these non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents these non-GAAP financial measures in connection with GAAP results. Constant Contact urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the company’s business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

Conference Call Information

 

What:    Constant Contact third quarter 2014 financial results conference call
When:    Thursday, October 23, 2014
Time:    5:00 p.m. ET
Live Call:    (877) 334-1974, domestic
   (760) 666-3590, international

 

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Replay:    (855) 859-2056, domestic
   (404) 537-3406, international
Webcast:    http://investor.constantcontact.com/ (live and replay)

Live and replay conference ID code: 14263137

The webcast will be archived on Constant Contact’s website for a period of three months.

About Constant Contact, Inc.

Constant Contact helps small businesses do more business. We have been revolutionizing the success formula for small businesses, nonprofits, and associations since 1998, and today work with more than 600,000 customers worldwide. The company offers the only all-in-one online marketing platform that helps small businesses drive repeat business and find new customers. It features multi-channel marketing campaigns (newsletters/announcements, offers/promotions, online listings, events/registration, and feedback) combined with shared content, contacts, and reporting; free award-winning coaching and product support; and integrations with critical business tools – all from a single login. The company’s extensive network of educators, consultants/resellers, technology providers, franchises, and national associations offer further support to help small organizations succeed and grow. Through its Innovation Loft, Constant Contact is fueling the next generation of small business technology.

Constant Contact and the Constant Contact Logo are registered trademarks of Constant Contact, Inc. All Constant Contact product names and other brand names mentioned herein are trademarks or registered trademarks of Constant Contact, Inc. All other company and product names may be trademarks or service marks of their respective owners.

Cautionary Language Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding the company’s ability to deliver sustained revenue growth of greater than 20% and expanding profitability margins greater than 20%, accelerating revenue growth, meaningfully expanding margins, the company’s Toolkit offering, the company’s long-term growth opportunity, the company’s stock repurchase program and the financial guidance for the fourth quarter of 2014, the full year 2014 and full year 2015. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “suggest,” “might,” “could,” “intend,” variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Constant Contact’s control. Constant Contact’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, the company’s ability to attract new customers and retain existing customers, the company’s dependence on the market for email marketing services for small organizations, the success of Constant Contact Toolkit, adverse economic conditions in general and adverse economic

 

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conditions specifically affecting the markets in which the company operates, the company’s ability to successfully develop and introduce new offerings or enhancements to existing products and integrate its products in an effective manner, adverse regulatory or legal developments, litigation risk and expense, the company’s ability to continue to promote and maintain its brand in a cost-effective manner, changes in the competitive environment, the company’s ability to compete effectively, the company’s ability to attract and retain key personnel, the company’s ability to protect its intellectual property and other proprietary rights, and other risks detailed in Constant Contact’s most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission as well as other documents that may be filed by the company from time to time with the Securities and Exchange Commission. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Constant Contact’s views as of the date of this press release. The company anticipates that subsequent events and developments will cause its views to change. Constant Contact undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Constant Contact’s views as of any date subsequent to the date of this press release.

# # #

(CTCT-F)

Media Contact:

Erika Tower

Constant Contact

(781) 482-7039

pr@constantcontact.com

Investor Contact:

Jeremiah Sisitsky

Constant Contact

(339) 222-5740

ir@constantcontact.com

 

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Constant Contact, Inc.

Consolidated Condensed Statements of Operations (unaudited)

(In thousands, except per share data)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  

Revenue

   $ 83,494      $ 72,039      $ 243,624      $ 210,452   

Cost of revenue

     23,223        20,478        67,050        60,964   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     60,271        51,561        176,574        149,488   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Research and development

     13,417        12,133        39,341        34,400   

Sales and marketing

     28,406        24,608        94,319        83,214   

General and administrative

     10,365        9,312        30,671        29,077   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     52,188        46,053        164,331        146,691   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     8,083        5,508        12,243        2,797   

Interest income and other income (expense), net

     339        133        387        116   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,422        5,641        12,630        2,913   

Income tax expense

     (3,224     (2,321     (4,563     (215
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,198      $ 3,320      $ 8,067      $ 2,698   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share:

        

Basic

   $ 0.16      $ 0.11      $ 0.26      $ 0.09   

Diluted

   $ 0.16      $ 0.11      $ 0.25      $ 0.09   

Weighted average shares outstanding used in computing per share amounts:

        

Basic

     31,893        30,696        31,557        30,672   

Diluted

     33,180        31,324        32,750        31,140   

 

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Constant Contact, Inc.

Calculation of Adjusted EBITDA and Adjusted EBITDA Margin (unaudited)

(In thousands)

 

     Three Months Ended     Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  

Net income

   $ 5,198      $ 3,320      $ 8,067      $ 2,698   

Income tax expense

     3,224        2,321        4,563        215   

Interest income and other (income) expense, net

     (339     (133     (387     (116

Depreciation and amortization

     6,234        5,687        18,041        16,438   

Stock-based compensation expense

     3,810        3,473        12,134        11,144   

Litigation contingency accrual

     —          —          —          820   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 18,127      $ 14,668      $ 42,418      $ 31,199   
  

 

 

   

 

 

   

 

 

   

 

 

 

Divide by:

        

Revenue

   $ 83,494      $ 72,039      $ 243,624      $ 210,452   

Adjusted EBITDA margin

     21.7     20.4     17.4     14.8

 

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Constant Contact, Inc.

Calculation of Non-GAAP Net Income and Non-GAAP Net Income per Share (unaudited)

(In thousands, except per share data)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

Net income

   $ 5,198       $ 3,320       $ 8,067       $ 2,698   

Non-cash portion of income tax expense (benefit)

     2,773         2,071         3,896         (535

Stock-based compensation expense

     3,810         3,473         12,134         11,144   

Litigation contingency accrual

     —           —           —           820   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income

   $ 11,781       $ 8,864       $ 24,097       $ 14,127   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP net income per share: diluted

   $ 0.36       $ 0.28       $ 0.74       $ 0.45   

Weighted average shares outstanding used in computing per share amounts

     33,180         31,324         32,750         31,140   

Constant Contact, Inc.

Calculation of Free Cash Flow (unaudited)

(In thousands)

 

     Three Months Ended      Nine Months Ended  
     September 30,      September 30,  
     2014      2013      2014      2013  

Net cash provided by operating activities

   $ 18,347       $ 13,665       $ 41,307       $ 30,095   

Subtract:

           

Acquisition of property and equipment

     6,958         4,445         21,013         14,134   
  

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

   $ 11,389       $ 9,220       $ 20,294       $ 15,961   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Constant Contact, Inc.

Consolidated Condensed Statements of Cash Flows (unaudited)

(In thousands)

 

     Nine Months Ended  
     September 30,  
     2014     2013  

Cash flows from operating activities

    

Net income

   $ 8,067      $ 2,698   

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

    

Depreciation and amortization

     18,041        16,438   

Amortization of premiums on investments

     187        146   

Stock-based compensation expense

     12,134        11,144   

Provision for (recovery of) bad debts

     (7     13   

Gain on sales of marketable securities

     (1     —     

Deferred income taxes

     (512     222   

Income tax benefit from the exercise of stock options

     (1,666     (34

Taxes paid related to net share settlement of restricted stock units

     (2,341     (1,128

Loss on sublease

     259        —     

Change in operating assets & liabilities:

    

Accounts receivable

     49        (71

Prepaid expenses and other current assets

     (527     (1,695

Other assets

     54        269   

Accounts payable

     (250     (4,607

Accrued expenses

     4,287        4,689   

Deferred revenue

     2,542        2,025   

Other long-term liabilities

     991        (14
  

 

 

   

 

 

 

Net cash provided by operating activities

     41,307        30,095   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of marketable securities

     (27,276     (15,834

Proceeds from maturities of marketable securities

     14,665        11,534   

Proceeds from sales of marketable securities

     633        4,000   

Increase in restricted cash

     —          (550

Acquisition of property and equipment

     (21,013     (14,134
  

 

 

   

 

 

 

Net cash used in investing activities

     (32,991     (14,984
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from issuance of common stock pursuant to the exercise of stock options

     16,016        2,461   

Income tax benefit from the exercise of stock options

     1,666        28   

Proceeds from issuance of common stock pursuant to employee stock purchase plan

     831        484   

Repurchase of common stock

     (7,360     (4,529
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     11,153        (1,556
  

 

 

   

 

 

 

Effects of exchange rates on cash

     (4     1   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     19,465        13,556   

Cash and cash equivalents, beginning of period

     82,478        67,775   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 101,943      $ 81,331   
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing and financing activities

    

Capitalization of stock-based compensation

   $ 148      $ 351   

 

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Constant Contact, Inc.

Consolidated Condensed Balance Sheets (unaudited)

(In thousands)

 

     September 30,
2014
     December 31,
2013
 

Assets

     

Current assets

     

Cash and cash equivalents

   $ 101,943       $ 82,478   

Marketable securities

     52,515         40,723   

Accounts receivable, net

     138         180   

Prepaid expenses and other current assets

     10,213         9,175   
  

 

 

    

 

 

 

Total current assets

     164,809         132,556   

Property and equipment, net

     44,022         39,238   

Restricted cash

     1,300         1,300   

Goodwill

     95,505         95,505   

Acquired intangible assets, net

     2,691         4,355   

Deferred tax assets

     10,088         9,574   

Other assets

     2,291         2,345   
  

 

 

    

 

 

 

Total assets

   $ 320,706       $ 284,873   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

     

Current liabilities

     

Accounts payable

   $ 6,533       $ 6,783   

Accrued expenses

     14,384         10,903   

Deferred revenue

     37,798         35,256   
  

 

 

    

 

 

 

Total current liabilities

     58,715         52,942   

Other long-term liabilities

     3,251         2,060   
  

 

 

    

 

 

 

Total liabilities

     61,966         55,002   
  

 

 

    

 

 

 

Stockholders’ Equity

     

Common stock

     319         312   

Additional paid-in capital

     250,254         229,457   

Accumulated other comprehensive income

     12         14   

Retained earnings

     8,155         88   
  

 

 

    

 

 

 

Total stockholders’ equity

     258,740         229,871   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 320,706       $ 284,873   
  

 

 

    

 

 

 

 

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