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OPENTABLE INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge) You should read the following discussion of our financial condition and
results of operations in conjunction with the financial statements and the notes
thereto included elsewhere in this report. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this report,
particularly in "Risk Factors."
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 Connect, as well as a number of related products and services. Our
solutions for diners include our popular restaurant reservation websites and
mobile applications, or apps. The OpenTable network includes more than 27,000
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 over
400 million diners through OpenTable reservations, and during the three months
ended December 31, 2012, we seated an average of approximately 10.9 million
diners per month. 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, as applicable. 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 twelve months ended
December 31, 2012 and 2011, our net revenues were $161.6 million and
$139.5 million, respectively. For the twelve months ended December 31, 2012 and
2011, our reservation revenues accounted for 56% and 53% of our total revenues,
respectively, our subscription revenues accounted for 35% and 36% of our total
revenues, respectively, and our other revenues accounted for 9% and 11% of our
total revenues, 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 twelve months ended December 31, 2012 and 2011
were $22.3 million and $20.9 million, respectively, or 14% and 15% of our total
revenues, respectively. We intend to continue to incur substantial expenses in
advance of recognizing material related revenues as we attempt to further
penetrate our existing international markets and selectively enter new markets.
Some international markets may fail to meet our expectations, and we may decide
to realign our focus, as we did when we closed our offices in Spain and France
in the fourth quarter of 2008.
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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 select countries in Europe and Asia.
Revenues
We generate substantially all of our revenues from our restaurant customers.
Our revenues include monthly subscription fees, a fee for each restaurant guest
seated through online reservations and other revenue, including installation
fees for our ERB (including training). 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.
Installation fees are recognized on a straight-line basis over an estimated
customer life of approximately three to six years. Revenues are shown net of
redeemable Dining Points issued to diners as described in "Critical Accounting
Policies and Estimates-Dining Rewards Loyalty Programs" below.
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 of restaurant-related hardware, shipping
costs related to restaurant equipment, restaurant equipment costs that do not
meet the capitalization threshold, referral payments and website connectivity
costs. Operations and support expenses also include amortization of capitalized
website and development costs (see "Critical Accounting Policies and
Estimates-Website and Software Development Costs" below). 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 websites,
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.
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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 tax in the United States as well as other tax
jurisdictions or countries in which we conduct business. Earnings from our
non-U.S. activities are subject to local country income tax and may be subject
to current U.S. income tax.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with U.S.
Generally Accepted Accounting Principles (GAAP). The preparation of these
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures. We evaluate our estimates and assumptions on an ongoing
basis. Our estimates are based on historical experience and various other
assumptions that we believe to be reasonable under the circumstances. Our actual
results could differ from these estimates.
We believe that the assumptions and estimates associated with revenue
recognition, the points-based loyalty program, website and software development
costs, income taxes and stock-based compensation have the greatest potential
impact on our consolidated financial statements. Therefore, we consider these to
be our critical accounting policies and estimates. For further information on
all of our significant accounting policies, please see Note 2 of the
accompanying notes to our consolidated financial statements.
Revenue Recognition
Our revenues include monthly subscription fees, a fee for each restaurant
guest seated through online reservations and other revenue, including
installation fees for our ERB (including training). We provide our application
as a service, and follow the provisions of Accounting Standards Codification
("ASC") Topic 605-Revenue Recognition. We recognize revenue when all of the
following conditions are met: there is persuasive evidence of an arrangement;
the service has been provided to the customer; the collection of the fees is
reasonably assured; and the amount of fees to be paid by the customer is fixed
or determinable. Amounts paid by the customer include the right to use our
hardware during the service period. Proportionate revenue related to the right
to use our hardware accounts for less than 10% of revenues for the periods
presented.
Subscription revenues are recognized on a straight-line basis during the
contractual period over which the service is delivered. Reservation revenues (or
per seated diner fees) are recognized on a transaction-by-transaction basis as
diners are seated by our restaurant customers. Amounts that have been invoiced
are recorded in accounts receivable and in deferred revenues or revenues,
depending on whether the revenue recognition criteria have been met. Revenues
are shown net of redeemable Dining Points issued to diners (as described below).
Revenues from the installation of our ERB are recognized on a straight-line
basis over the estimated customer life, commencing with customer acceptance. The
estimated customer life is approximately three to six years, based on historical
restaurant customer termination activity. Estimates made by us may differ from
actual customer lives. These differences may materially affect other revenue by
increasing or decreasing revenue, depending on whether the estimated customer
life decreases or increases. A change in the estimated customer life by one year
in either direction would have a minimal impact to total revenue of less than
1%. To date, the impact of changes in the estimated customer life has not been
material to our results of operations or financial position.
Revenue is recognized net of any taxes collected from customers and
subsequently remitted to governmental authorities.
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Dining Rewards Loyalty Programs
In the U.S. and certain of our international markets, we provide
points-based loyalty programs, OpenTable Dining Rewards, to registered diners
who book and honor reservations through our websites and mobile apps. OpenTable
Dining Rewards involves the issuance of "Dining Points," which can be
accumulated and redeemed for "Dining Checks." For example, in the U.S., the
standard award is 100 points per reservation, but diners can earn 1,000 points
for reservations during featured times under the OpenTable Dining Rewards
program. When a diner accumulates a minimum of 2,000 points, he or she may
redeem them for a $20 Dining Check. Every 100 Dining Points is equal to one
dollar. Diners may present Dining Checks at any OpenTable restaurant and their
bill is reduced by the check amount. The restaurant then deposits the Dining
Check to its bank. The features of the OpenTable Dining Rewards program in each
international market, such as the amount for which points may be redeemed, vary
by country.
If a diner does not make a seated reservation within any 12-month period,
then his or her account is considered inactive and the Dining Points balance is
reset to zero. As is typical with points-based incentive programs, many Dining
Points expire unused. In addition, some Dining Checks are never used. The
recorded contra-revenue is an estimate of the eventual cash outlay related to
the issued Dining Points and is booked at the time the points are earned by the
diner (i.e., when the diner is "seated" by the restaurant). We estimate the
liability for the issued Dining Points by analyzing historical patterns of
redemption and check-cashing activity. These historical patterns are evaluated
in light of any current or proposed program changes that may impact future point
redemption. Actual redemption rates could differ from our estimates used in
assessing the contra-revenue amounts and corresponding liability, particularly
if participation in our premium listings programs, with higher point awards,
increases. These differences could materially affect reservation revenues. For
example, an increase of 10% in the redemption rate as of December 31, 2012 would
result in a reduction in revenues for the year of $5.2 million and an increase
in the dining rewards payable liability at year end of 19%.
We recognize the corresponding liability associated with Dining Points as
contra-revenue in accordance with ASC Topic 605-50-Revenue Recognition-Customer
Payments and Incentives.
Valuation of Long-Lived and Intangible Assets, Including Goodwill
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances or a triggering event, such as service discontinuance or
technological obsolescence, indicate that the carrying amount of the long-lived
asset may not be recoverable. Determining whether a triggering event has
occurred often involves significant judgment from management. When such events
occur, we compare the carrying amount of the asset to the undiscounted expected
future cash flows related to the asset. If the comparison indicates that an
impairment exists, the amount of the impairment is calculated and a charge is
recorded. The amount of the impairment is determined to be the difference
between the carrying amount and the fair value of the asset. If a readily
determinable market price does not exist for the asset, fair value is estimated
using discounted expected cash flows attributable to the asset. Significant
judgment and estimates are involved in any impairment evaluation and our
estimates, including estimates used in determining future cash flows.
We test goodwill for impairment at least annually. We review goodwill for
impairment as of August 31 and whenever events or changes in circumstances
indicate that the carrying amount of this asset may exceed its fair value. Our
assessment is performed at the reporting unit level. The goodwill evaluation for
impairment is performed using a two-step process. The first step is to identify
potential impairment by comparing the fair value of a reporting unit to the book
value, including goodwill. If the fair value of a reporting unit exceeds the
book value, goodwill is not considered impaired. If the book value exceeds the
fair value, the second step of the process is performed to measure the amount of
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impairment. The process of evaluating goodwill for impairment under the two-step
model involves the determination of the fair value of our reporting units. The
fair value of the reporting units is determined using discounted future cash
flows. Forecasts of future cash flow are based on management's best estimate of
future revenues and operating expenses, based primarily on expected growth in
installed restaurants, seated diners, pricing and general economic conditions.
Changes in these forecasts could significantly change the amount of impairment
recorded, if any.
Goodwill is tested for impairment at the reporting unit level and is based
on the net assets for each unit, including goodwill and intangible assets. We
assign goodwill to each operating segment as this represent the lowest level
which constitutes a business and for which discrete financial information is
available and management regularly reviews. We have determined that we have two
geographical reporting units: North America and the United Kingdom.
The fair value of our North America reporting unit, which carries
approximately $6.8 million in goodwill associated with the acquisitions with
respect to Guestbridge, Inc., Table Maestro LLC, or Table Maestro, and Treat
Technologies, Inc., or Treat, exceeds the carrying value significantly,
indicating no impairment in goodwill for the North America reporting unit. The
fair value of the U.K. reporting unit, which carries approximately $39.5 million
in goodwill associated with the toptable acquisition, exceeds the carrying
value, indicating no goodwill impairment for the U.K. reporting unit.
During the year, management monitored the actual performance of the business
relative to the fair value assumptions used during our annual goodwill
impairment test. For the periods presented, no triggering events were identified
that required an update to our annual impairment test. As a measure of
sensitivity, a 10% decrease in the fair value of either of our reporting units
as of December 31, 2012 would have had no impact on the carrying value of our
goodwill.
Website and Software Development Costs
Costs related to website and internal-use software are accounted for in
accordance with ASC Topic 350-50-Intangibles-Website Development Costs ("Topic
350-50"). Such software is primarily related to our websites and mobile apps,
including support systems. We capitalize our costs to develop software when
preliminary development efforts are successfully completed, management has
authorized and committed project funding, and it is probable that the project
will be completed and the software will be used as intended. Costs incurred
prior to meeting these criteria are expensed as incurred. Capitalized costs are
amortized when the project is completed and placed in service on a straight-line
basis over the estimated useful life of the related asset, generally estimated
between two to three years. Costs incurred for enhancements that are expected to
result in additional features or functionality are capitalized and amortized
over the estimated useful life of the enhancements.
We follow the guidance in ASC Topic 985-Software in accounting for costs
incurred in connection with development of the software contained in the ERB
used by all restaurant customers, and in a limited number of certain
transactions we sell reservation systems that do not include our ongoing
service. All costs incurred to establish the technological feasibility of a
computer product to be sold, leased or otherwise marketed are expensed as
incurred. Costs incurred subsequent to establishing technological feasibility
and through general product release are capitalized and amortized over the
estimated product life. The period between technological feasibility and general
product release is generally short, and the costs incurred during this stage are
not considered to be material and are expensed as incurred.
Income Taxes
We record income taxes using the asset and liability method of accounting
for income taxes in accordance with ASC Topic 740-Income Taxes ("Topic 740").
Under this method, income tax expense or benefit is recognized for the amount of
taxes payable or refundable for the current year and for
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deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in our consolidated financial statements or tax
returns. We account for any income tax contingencies in accordance with Topic
740. The measurement of current and deferred tax assets and liabilities is based
on provisions of currently enacted tax laws. The effects of any future changes
in tax laws or rates have not been considered.
For the preparation of our consolidated financial statements included
herein, we estimate our income taxes and tax contingencies in each of the tax
jurisdictions in which we operate prior to the completion and filing of our tax
returns. This process involves estimating actual current tax expense together
with assessing temporary differences resulting from differing treatment of
items, such as deferred revenue, for tax and accounting purposes. These
differences result in net deferred tax assets and liabilities. We must then
assess the likelihood that the deferred tax assets will be realizable, and to
the extent we believe that realizability is not likely, we must establish a
valuation allowance. In assessing the need for any additional valuation
allowance, we consider all the evidence available to us, both positive and
negative, including historical levels of income, legislative developments,
expectations and risks associated with estimates of future taxable income, and
ongoing prudent and feasible tax planning strategies.
As of December 31, 2012, it was considered "more likely than not" that our
deferred tax assets would be realized, with the exception of certain foreign tax
credit carryforwards and certain foreign net operating losses which did not meet
the "more likely than not" realizability threshold. A valuation allowance of
approximately $1.2 million as of December 31, 2012 will result in an income tax
benefit if and when we conclude it is more likely than not that the related
deferred tax assets will be realized.
Stock-based Compensation
We measure stock-based awards at fair value and recognize compensation
expense for all share-based payment awards made to our employees and directors,
including employee stock options and restricted stock units in accordance with
ASC Topic 718-Stock Compensation.
We estimate the fair value of stock options granted using the Black-Scholes
valuation model. This model requires us to make estimates and assumptions
including, among other things, estimates regarding the length of time an
employee will retain vested stock options before exercising them, the estimated
volatility of our common stock price and the number of options that will be
forfeited prior to vesting. The fair value is then amortized using a graded
vesting attribution method over the requisite service periods of the awards,
which is generally the vesting period. Changes in these estimates and
assumptions can materially affect the determination of the fair value of
stock-based compensation and consequently, the related amount recognized in our
consolidated income statements.
The cost of restricted stock units is determined using the fair value of our
common stock on the date of grant. Stock-based compensation expense is
recognized using a graded vesting attribution method over the vesting period.
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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.
Years Ended December 31,
2012 2011 2010
(In thousands, except per share
amounts)
REVENUES $ 161,632 $ 139,518 $ 98,991
COSTS AND EXPENSES:
Operations and support(1) 41,908 39,350 27,803
Sales and marketing(1) 34,531 28,697 21,673
Technology(1) 14,564 14,691 12,345
General and administrative(1) 34,080 24,157 19,252
Total costs and expenses 125,083 106,895 81,073
Income from operations 36,549 32,623 17,918
Other income, net 99 98 241
Income before taxes 36,648 32,721 18,159
Income tax expense 12,676 11,167 4,080
NET INCOME $ 23,972 $ 21,554 $ 14,079
Net income per share:
Basic $ 1.06 $ 0.92 $ 0.62
Diluted $ 1.03 $ 0.88 $ 0.58
Weighted average shares outstanding:
Basic 22,639 23,525 22,602
Diluted 23,249 24,436 23,979
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º (1)
º Stock-based compensation included in above line items:
Operations and support $ 1,297 $ 1,665 $ 943
Sales and marketing 5,174 2,054 1,872
Technology 3,285 1,703 1,547
General and administrative 10,890 5,307 3,689
$ 20,646 $ 10,729 $ 8,051
Other Operational Data:
Installed restaurants (at period end):
North America 19,801 17,150 13,795
International 7,716 7,969 6,254
Total 27,517 25,119 20,049
Seated diners (in thousands):
North America 113,053 89,533 62,430
International 9,771 7,141 2,925
Total 122,824 96,674 65,355
Headcount (at period end):
North America 423 398 344
International 157 160 149
Total 580 558 493
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Years Ended December 31,
2012 2011 2010
(In thousands)
Additional Financial Data:
Revenues:
North America
Reservation $ 78,929 $ 62,751 $ 43,920
Subscription 49,371 44,784 38,711
Other 11,038 11,119 7,477
Total North America Revenues 139,338 118,654 90,108
International
Reservation $ 12,099 $ 11,464 $ 3,600
Subscription 6,890 5,983 4,414
Other 3,305 3,417 869
Total International Revenues 22,294 20,864 8,883
Total Revenues $ 161,632 $ 139,518 $ 98,991
Income (loss) from operations:
North America $ 45,674 $ 44,007 $ 26,039
International (9,125 ) (11,384 ) (8,121 )
Total $ 36,549 $ 32,623 $ 17,918
Depreciation and amortization:
North America $ 7,532 $ 6,852 $ 6,036
International 5,216 5,153 1,532
Total $ 12,748 $ 12,005 $ 7,568
Stock-based compensation:
North America $ 18,493 $ 7,713 $ 7,117
International 2,153 3,016 934
Total $ 20,646 $ 10,729 $ 8,051
Years Ended
December 31,
2012 2011 2010
REVENUES 100 % 100 % 100 %
COSTS AND EXPENSES:
Operations and support 26 % 28 % 28 %
Sales and marketing 21 % 21 % 22 %
Technology 9 % 11 % 13 %
General and administrative 21 % 17 % 19 %
Total costs and expenses 77 % 77 % 82 %
Income from operations 23 % 23 % 18 %
Other income, net 0 % 0 % 0 %
Income before taxes 23 % 23 % 18 %
Income tax expense 8 % 8 % 4 %
NET INCOME 15 % 15 % 14 %
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Segments
We have identified two reporting segments: North America and International.
In both segments, we derive revenue primarily from online reservations and guest
management solutions. Total North America revenues increased from $90.1 million
in 2010, to $118.7 million in 2011, to $139.3 million in 2012. North America
reservation revenues increased from $43.9 million in 2010, to $62.8 million in
2011, to $78.9 million in 2012. North America reservation revenues increased as
a result of an increase in seated diners. North America subscription revenues
increased from $38.7 million in 2010, to $44.8 million in 2011, to $49.4 million
in 2012. North America subscription revenues increased as a result of an
increase in installed restaurants. North America income from operations
increased from $26.0 million in 2010, to $44.0 million in 2011, to $45.7 million
in 2012. The increase in North America income from operations is due to revenue
increases exceeding the increase in expenses, due to operational efficiencies.
Total International revenues increased from $8.9 million in 2010, to
$20.9 million in 2011, to $22.3 million in 2012. International reservation
revenues increased from $3.6 million in 2010, to $11.5 million in 2011, to
$12.1 million in 2012. International reservation revenues increased as a result
of an increase in seated diners. International subscription revenues increased
from $4.4 million in 2010, to $6.0 million in 2011, to $6.9 million in 2012.
International subscription revenues increased in 2012 despite an overall
decrease in the number of installed restaurants, as a result of an increase in
the number of installed restaurants from which we generated meaningful revenues.
In the second quarter of 2012, we relaunched the toptable site and
simultaneously removed restaurants from our installed restaurant base that did
not migrate to OpenTable technology. Most of the restaurants that did not
migrate were restaurants from which we had been generating little to no
revenues. After adjusting for this one-time event, installed restaurants on
OpenTable technology increased 62% from December 31, 2011 to December 31, 2012.
International loss from operations increased from $8.1 million in 2010, to
$11.4 million in 2011, and decreased to $9.1 million in 2012. The increase in
the loss from operations in years 2010 and 2011 is due to the ongoing investment
in our international expansion efforts. We increased headcount and acquired
toptable in the fourth quarter of 2010. The decrease in the loss in 2012 was due
primarily to the increase in revenue, as a result of the increase in seated
diners. Refer to Note 13 to the consolidated financial statements for additional
segment information.
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Years ended December 31, 2012, 2011 and 2010
Revenues
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Installed restaurants (at period
end):
North America 19,801 17,150 13,795 15 % 24 %
International 7,716 7,969 6,254 -3 % 27 %
Total 27,517 25,119 20,049 10 % 25 %
Seated diners (in thousands):
North America 113,053 89,533 62,430 26 % 43 %
International 9,771 7,141 2,925 37 % 144 %
Total 122,824 96,674 65,355 27 % 48 %
Revenues by type:
Reservation $ 91,028 $ 74,215 $ 47,520 23 % 56 %
Subscription 56,261 50,767 43,125 11 % 18 %
Other 14,343 14,536 8,346 -1 % 74 %
Total $ 161,632 $ 139,518 $ 98,991 16 % 41 %
Percentage of revenues by type:
Reservation 56 % 53 % 48 %
Subscription 35 % 36 % 44 %
Other 9 % 11 % 8 %
Total 100 % 100 % 100 %
Revenues by location:
North America $ 139,338 $ 118,654 $ 90,108 17 % 32 %
International 22,294 20,864 8,883 7 % 135 %
Total $ 161,632 $ 139,518 $ 98,991 16 % 41 %
Percentage of revenues by
location:
North America 86 % 85 % 91 %
International 14 % 15 % 9 %
Total 100 % 100 % 100 %
2012 compared to 2011. Total revenues increased by $22.1 million, or 16%,
from the year ended December 31, 2011 to the year ended December 31, 2012.
Reservation revenues increased to $91.0 million in the year ended December 31,
2012 from $74.2 million in the year ended December 31, 2011, an increase of
$16.8 million, or 23%. Reservation revenues increased as a result of an increase
in seated diners. Subscription revenues increased to $56.3 million in the year
ended December 31, 2012 from $50.8 million in the year ended December 31, 2011,
an increase of $5.5 million, or 11%. Subscription revenues increased due to the
increase in installed ERB restaurants. Other revenues decreased slightly to
$14.3 million in the year ended December 31, 2012 from $14.5 million in the year
ended December 31, 2011, a decrease of $0.2 million, or 1%. Other revenues
decreased primarily as a result of a decrease in sales of third-party restaurant
coupons, which we stopped selling at the end of 2011, partially offset by an
increase in revenue from other product offerings, including advertising sales,
featured private dining listings and gift card sales, which we began selling in
August 2012.
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2011 compared to 2010. Total revenues increased by $40.5 million, or 41%,
from the year ended December 31, 2010 to the year ended December 31, 2011.
Reservation revenues increased to $74.2 million in the year ended December 31,
2011 from $47.5 million in the year ended December 31, 2010, an increase of
$26.7 million, or 56%. Reservation revenues increased as a result of an increase
in seated diners. Subscription revenues increased to $50.8 million in the year
ended December 31, 2011 from $43.1 million in the year ended December 31, 2010,
an increase of $7.7 million, or 18%. Subscription revenues increased due to the
increase in installed ERB restaurants. Other revenues increased to $14.5 million
in the year ended December 31, 2011 from $8.3 million in the year ended
December 31, 2010, an increase of $6.2 million, or 74%. Other revenues increased
primarily as a result of an increase in revenue from other product offerings,
including advertising sales, featured private dining listings and third-party
restaurant coupon sales. International revenues increased by $12.0 million, or
135%, from the year ended December 31, 2010 to the year ended December 31, 2011
primarily due to the inclusion for a full year of the operations of toptable in
the U.K., which was acquired on October 1, 2010.
Costs and Expenses
Operations and Support
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Operations and support $ 41,908 $ 39,350 $ 27,803 7 % 42 %
Headcount (at period end):
North America 149 138 112 8 % 23 %
International 55 54 54 2 % 0 %
Total 204 192 166 6 % 16 %
2012 compared to 2011. Operations and support expenses for the year ended
December 31, 2012 were $41.9 million compared to $39.4 million for the year
ended December 31, 2011, an increase of $2.6 million, or 7%. The increase in
operations and support expenses was primarily attributable to a $2.0 million
increase in headcount-related expenses, including stock-based compensation
expense. Also contributing to the increase was a $0.7 million increase in
amortization of capitalized website and software development costs, plus a
$0.5 million increase in depreciation expense. These increases were partially
offset by a decrease in costs associated with sales of third-party restaurant
coupons, which we stopped selling at the end of 2011.
2011 compared to 2010. Operations and support expenses for the year ended
December 31, 2011 were $39.4 million compared to $27.8 million for the year
ended December 31, 2010, an increase of $11.6 million, or 42%. The increase in
operations and support expenses was primarily attributable to a $4.8 million
increase in headcount-related expenses, including stock-based compensation
expense, and a $1.0 million increase in cost at our outsourced customer support
center. Also contributing to the increase was a $2.7 million increase in
amortization of intangible assets, a $1.1 million increase in depreciation of
capitalized website and software development costs, plus an increase in
restaurant equipment costs, including depreciation on restaurant hardware, and
equipment and shipping costs in connection with the increase in the installed
base.
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Sales and Marketing
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Sales and marketing $ 34,531 $ 28,697 $ 21,673 20 % 32 %
Headcount (at period end):
North America 122 112 98 9 % 14 %
International 57 68 62 -16 % 10 %
Total 179 180 160 -1 % 13 %
2012 compared to 2011. Sales and marketing expenses for the year ended
December 31, 2012 were $34.5 million compared to $28.7 million for the year
ended December 31, 2011, an increase of $5.8 million, or 20%. The increase in
sales and marketing expenses was primarily attributable to a $5.6 million
increase in headcount-related costs, including stock-based compensation expense,
commissions and bonuses.
2011 compared to 2010. Sales and marketing expenses for the year ended
December 31, 2011 were $28.7 million compared to $21.7 million for the year
ended December 31, 2010, an increase of $7.0 million, or 32%. The increase in
sales and marketing expenses was primarily attributable to a $4.8 million
increase in headcount-related costs, including stock-based compensation expense,
plus an increase of $1.2 million for pay per click marketing expenses incurred
by toptable.
Technology
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Technology $ 14,564 $ 14,691 $ 12,345 -1 % 19 %
Headcount (at period end):
North America 90 87 85 3 % 2 %
International 23 16 11 44 % 45 %
Total 113 103 96 10 % 7 %
2012 compared to 2011. Technology expenses for the year ended December 31,
2012 were $14.6 million compared to $14.7 million for the year ended
December 31, 2011, a decrease of $0.1 million, or 1%. The decrease in technology
expenses was primarily attributable to a $0.1 million decrease in
headcount-related costs, including stock-based compensation expense.
2011 compared to 2010. Technology expenses for the year ended December 31,
2011 were $14.7 million compared to $12.3 million for the year ended
December 31, 2010, an increase of $2.4 million, or 19%. The increase in
technology expenses was primarily attributable to a $1.9 million increase in
headcount-related costs, including stock-based compensation expense.
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General and Administrative
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
General and administrative $ 34,080 $ 24,157 $ 19,252 41 % 25 %
Headcount (at period end):
North America 62 61 49 2 % 24 %
International 22 22 22 0 % 0 %
Total 84 83 71 1 % 17 %
2012 compared to 2011. General and administrative expenses for the year
ended December 31, 2012 were $34.1 million compared to $24.2 million for the
year ended December 31, 2011, an increase of $9.9 million, or 41%. The increase
in general and administrative expenses was primarily attributable to an
$8.3 million increase in headcount-related costs, including stock-based
compensation expense. Also contributing to the increase was an increase of
$0.7 million in professional services which was comprised of a $1.3 million
increase in tax and accounting services, offset by a decrease from a one-time
legal settlement that occurred in 2011, and an increase in bad debt expense of
$0.5 million.
2011 compared to 2010. General and administrative expenses for the year
ended December 31, 2011 were $24.2 million compared to $19.3 million for the
year ended December 31, 2010, an increase of $4.9 million, or 25%. The increase
in general and administrative expenses was primarily attributable to a
$2.7 million increase in headcount-related costs, including stock-based
compensation expense. Also contributing to the increase was an increase of
$0.6 million in professional services, primarily related to a one-time legal
settlement expense in the second quarter of 2011.
Other Income, Net
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Other income, net $ 99 $ 98 $ 241 1 % -59 %
2012 compared to 2011. Other income, net for the year ended December 31,
2012 remained consistent at $0.1 million compared to the year ended December 31,
2011. The largest component of other income, net is interest income earned on
cash, cash equivalents and short-term investments. While cash balances as of
December 31, 2012 were significantly higher than cash balances as of
December 31, 2011, average balances for each year were comparable, resulting in
similar amounts of interest income earned.
2011 compared to 2010. Other income, net for the year ended December 31,
2011 was $0.1 million compared to $0.2 million for the year ended December 31,
2010, a decrease of $0.1 million, or 59%. The decrease in other income, net was
primarily the result of a $0.1 million decrease in interest income earned on
cash, cash equivalents and short-term investments as a result of experiencing
lower short-term borrowing interest rates.
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Income Taxes
Years Ended December 31, 2011 to 2010 to
2012% 2011%
2012 2011 2010 Change Change
(Dollars in thousands)
Income tax expense $ 12,676 $ 11,167 $ 4,080 14 % 174 %
2012 compared to 2011. Income tax expense for the year ended December 31,
2012 was $12.7 million compared to income tax expense of $11.2 million for the
year ended December 31, 2011. Our effective income tax rate in 2012 was 34.6% up
slightly from 34.1% in 2011.
2011 compared to 2010. Income tax expense for the year ended December 31,
2011 was $11.2 million compared to income tax expense of $4.1 million for the
year ended December 31, 2010. Our effective income tax rate in 2011 was 34.1% up
from 22.5% in 2010. Our effective tax rate increased in 2011 as compared to 2010
due to the recognition of certain prior years Federal and California research
and development tax credit benefits in the year ended December 31, 2010.
Liquidity and Capital Resources
Years Ended December 31,
2012 2011 2010
(In thousands)
Consolidated Statements of Cash Flows Data:
Purchases of property and equipment $ 13,438 $ 9,584 $ 9,327
Depreciation and amortization
North America 7,532 6,852 6,036
International 5,216 5,153 1,532
Total depreciation and amortization 12,748 12,005 7,568
Cash flows from operating activities 61,269 42,071 33,356
Cash flows from investing activities (4,841 ) (13,931 ) (24,938 )
Cash flows from financing activities 9,740 (24,781 ) 5,352
As of December 31, 2012, we had cash and cash equivalents of $102.8 million
and short-term investments of $0.7 million. Cash and cash equivalents consist of
cash, money market accounts, certificates of deposit and U.S. government agency
securities. Short-term investments consist of U.S. government agency securities
and certificates of deposit.
Amounts deposited with third-party financial institutions exceed the Federal
Deposit Insurance Corporation, or FDIC, and Securities Investor Protection
Corporation, or SIPC, insurance limits, as applicable. These cash, cash
equivalents and short-term investment balances could be affected if the
underlying financial institutions fail or are subjected to other adverse
conditions in the financial markets. To date we have experienced no loss or lack
of access to our cash, cash equivalents or short-term investments; however, we
can provide no assurances that access to our invested cash, cash equivalents and
short-term investments will not be impacted by adverse conditions in the
financial markets.
In January 2013, we entered into a credit agreement, which provides for a
senior secured revolving credit facility of $50.0 million to fund working
capital and other general corporate purposes. This revolving credit facility
expires in January 2016.
Our initial public offering in 2009 raised approximately $34.6 million.
Since then, we have been able to finance our operations, including international
expansion, through cash from North America operating activities and proceeds
from the exercise of employee stock options. We had cash and cash
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equivalents of $102.8 million at December 31, 2012, and we believe we will have
sufficient cash to support our operating activities and capital expenditures for
at least the next twelve months.
Operating Activities
For the twelve months ended December 31, 2012, operating activities provided
$61.3 million in cash, primarily as a result of net income of $24.0 million,
$20.6 million in stock-based compensation, $12.7 million in depreciation and
amortization and $2.7 million in provision for bad debts.
For the twelve months ended December 31, 2011, operating activities provided
$42.1 million in cash, as a result of net income of $21.6 million, $10.7 million
in stock-based compensation, $12.0 million in depreciation and amortization and
$2.1 million in provision for bad debts. These amounts were partially offset by
a cash usage of $7.7 million as a result of an increased accounts receivable
balance.
For the twelve months ended December 31, 2010, operating activities provided
$33.4 million in cash, as a result of net income of $14.1 million, $8.1 million
in stock-based compensation, $7.6 million in depreciation and amortization and
$1.5 million in provision for bad debts. These amounts were partially offset by
a cash usage of $4.9 million as a result of an increased accounts receivable
balance.
Investing Activities
Our primary investing activities have consisted of purchases and sales of
short-term investments, purchases of property, equipment and software and the
investment in business acquisitions. We expect to have ongoing capital
expenditure requirements to support our growing restaurant installed base and
other infrastructure needs. We expect to fund this investment with our existing
cash, cash equivalents and short-term investments.
During the twelve months ended December 31, 2012, we purchased $13.4 million
of property, equipment and software, net, and we paid $4.0 million to acquire
Treat. Also in the twelve months ended December 31, 2012, we sold $12.6 million
(net of purchases) of short-term investments.
During the twelve months ended December 31, 2011, we purchased $9.6 million
of property, equipment and software, net. Also in the twelve months ended
December 31, 2011, we purchased $4.5 million (net of sales) of short-term
investments.
During the twelve months ended December 31, 2010, we acquired toptable for
approximately $55.3 million in cash and also paid $1.5 million in cash to
acquire substantially all of the assets and certain liabilities of Table
Maestro. In addition to these business acquisitions, we purchased $9.3 million
of property, equipment and software, net. Also in the twelve months ended
December 31, 2010, we sold $40.6 million (net of purchases) of short-term
investments.
Financing Activities
Our financing activities have primarily consisted of proceeds from the
issuance of common stock pursuant to our equity incentive plans and the excess
tax benefit related to stock compensation, as well as repurchases of common
stock, beginning in 2011, under our share repurchase programs.
During the twelve months ended December 31, 2012, we repurchased
$8.7 million of common shares under our share repurchase programs.
During the twelve months ended December 31, 2011, we repurchased
$41.3 million of common shares under the share repurchase program that we
concluded in January 2012.
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Off Balance Sheet Arrangements
As of December 31, 2012, we did not have any off balance sheet arrangements.
Contractual Obligations
We lease our primary office space in San Francisco, California and other
locations under various non-cancelable operating leases that expire in or prior
to 2020. We have no debt obligations, other than a $50.0 million senior secured
revolving credit facility for working capital and other general corporate
purposes, under which we have not borrowed to date. This revolving credit
facility expires in January 2016. Additionally, all property, equipment and
software have been purchased for cash, and accordingly we have no capital lease
obligations. Finally, we have no material long-term purchase obligations
outstanding with any vendors or third parties, or any other long-term
liabilities. The following table sets forth, as of December 31, 2012, payments
due under our operating lease obligations.
Payments Under
Operating Leases
(In thousands)
Year ending December 31:
2013 $ 1,744
2014 2,454
2015 2,246
2016 2,210
2017 2,223
Thereafter 5,370
Total $ 16,247
As of December 31, 2012, in addition to the obligations in the table above,
we had approximately $15.5 million of income tax liabilities, including interest
and penalties, related to uncertain tax positions. Due to the high degree of
uncertainty regarding the settlement of these liabilities, we are unable to
estimate the years in which future cash outflows may occur.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board ("FASB") issued ASC
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 adoption of
this standard did not change our consolidated financial statement footnote
disclosures.
In June 2011, the FASB issued ASC 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 changed the presentation of our consolidated
financial statements but had no effect on the reported amounts of comprehensive
income.
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In September 2011, the FASB issued Accounting Standards Update No. 2011-08,
Intangibles-Goodwill and Other (Topic 350)-Testing Goodwill for Impairment.
Topic 350 is intended to simplify goodwill impairment testing by adding a
qualitative review step to assess whether the required quantitative impairment
analysis that exists today is necessary. Topic 350 permits an entity 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 value. If it
is concluded that this is the case, it is necessary to perform the currently
prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill
impairment test is not required. Topic 350 is effective for interim and annual
periods beginning after December 15, 2011 and earlier adoption is permitted. The
Company performs its annual impairment testing of goodwill in the third quarter
of each year. For the test conducted as of August 31, 2012, the Company elected
to bypass the qualitative assessment and perform only the quantitative
assessment. The adoption of this standard did not have an effect on our
consolidated financial statements.
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