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CONSTANT CONTACT, INC. Reports Operating Results (10-Q)

August 04, 2010 | About:
10qk

10qk

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CONSTANT CONTACT, INC. (CTCT) filed Quarterly Report for the period ended 2010-06-30.

Constant Contact, Inc. has a market cap of $530.4 million; its shares were traded at around $18.6 with and P/S ratio of 4.1. CTCT is in the portfolios of Columbia Wanger of Columbia Wanger Asset Management, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

Cost of Revenue. Cost of revenue for the three months ended June 30, 2010 was $12.7 million, an increase of $3.8 million, or 43%, over cost of revenue of $8.9 million for the three months ended June 30, 2009. Of the increase in cost of revenue, $1.6 million resulted from increased depreciation, hosting and maintenance costs as a result of scaling and adding capacity to our hosting infrastructure. Additionally, $1.1 million and $265,000 of the increase resulted from increased personnel costs attributable to additional employees in our customer support group and operations group, respectively, because we increased the number of employees to support our customer growth and manage our infrastructure. We also experienced an increase of $288,000 in our occupancy cost allocation due to the increase in employees in our customer support group. Outside facilities expense increased by $223,000 related to our experts program seminars. Approximately $160,000 of the increase related to higher credit card fees due to the higher volume of billing transactions. As a percentage of revenue, cost of revenue was 30% for the three months ended June 30, 2010 and 29% for the three months ended June 30, 2009. The increase as a percentage of revenue was due primarily to the 53% increase in depreciation, hosting and maintenance costs as compared to the 37% increase in revenue.

Cost of Revenue. Cost of revenue for the six months ended June 30, 2010 was $24.4 million, an increase of $7.4 million, or 43%, over cost of revenue of $17.0 million for the six months ended June 30, 2009. Of the increase in cost of revenue, $3.0 million resulted from increased depreciation, hosting and maintenance costs as a result of scaling and adding capacity to our hosting infrastructure. Additionally, $2.3 million and $607,000 of the increase resulted from increased personnel costs attributable to additional employees in our customer support group and operations group, respectively, because we increased the number of employees to support our customer growth and manage our infrastructure. We also experienced an increase of $562,000 in our occupancy cost allocation due to the increase in employees in our customer support group. Approximately $337,000 of the increase related to higher credit card fees due to the higher volume of billing transactions. Outside facilities expense increased by $251,000 related to our experts program seminars. As a percentage of revenue, cost of revenue was 30% for the six months ended June 30, 2010 and 29% for the six months ended June 30, 2009. The increase as a percentage of revenue was due primarily to the 54% increase in depreciation, hosting and maintenance costs as compared to the 39% increase in revenue.

General and Administrative Expenses. General and administrative expenses for the six months ended June 30, 2010 were $8.9 million, an increase of $2.4 million, or 37%, over general and administrative expenses of $6.5 million for the six months ended June 30, 2009. As a percentage of revenue, general and administrative expenses were 11% for each of the six-month periods ended June 30, 2010 and 2009. The increase in absolute dollars was primarily due to additional personnel related costs of $1.2 million because we increased the number of general and administrative employees to support our overall growth, and because our stock-based compensation expense increased due to additional stock option grants. We incurred increased professional fees and insurance of $598,000, primarily due to transaction costs associated with our acquisition of NutshellMail in May 2010, as well as increased systems consulting costs. We also experienced an increase of $310,000 in our occupancy cost allocation due primarily to the increase in employees.

At June 30, 2010, our principal sources of liquidity were cash and cash equivalents and marketable securities of $116 million. From our inception through the time of our initial public offering, we have financed our operations primarily through the sale of redeemable convertible preferred stock, issuance of convertible promissory notes, borrowings under credit facilities and, to a lesser extent, cash flow from operations. In October 2007, we completed our initial public offering, in which we issued and sold 6,199,845 shares of common stock at a price to the public of $16.00 per share. We raised approximately $90.4 million in net proceeds after deducting underwriting discounts and commissions and other offering costs. We used $2.6 million of proceeds to repay our outstanding principal and interest under our term loan facility. In April 2008, we completed a secondary public offering in which we issued and sold 314,465 shares of common stock at a price to the public of $16.00 per share. We raised approximately $4.0 million in net proceeds after deducting underwriting discounts and commissions and other offering costs. In the future, we anticipate that our primary sources of liquidity will be cash generated from our operating activities.

Net cash provided by operating activities was $11.2 million for the six months ended June 30, 2010 as compared to $9.6 million for the six months ended June 30, 2009. Net cash provided by operating activities for the six months ended June 30, 2010 consisted of the contributions from working capital accounts of $4.1 million and non-cash charges of $9.2 million partially offset by the net loss of $1.7 million and a decrease in long-term accrued rent of $404,000. The contribution from working capital accounts was primarily due to an increase in deferred revenue of $3.3 million and an increase in accounts payable and accrued expense of $2.1 million partially offset by an increase in prepaid expenses and other receivables of $1.3 million. The non-cash charges consisted primarily of depreciation and amortization of $5.5 million and stock-based compensation expense of $3.7 million. Net cash provided by operating activities for the six months ended June 30, 2009 consisted of the contributions from working capital accounts of $3.3 million, non-cash charges of $6.1 million and an increase in long-term accrued rent of $1.2 million, partially offset by the net loss of $968,000. The contribution from working capital accounts was primarily due to an increase in deferred revenue of $3.2 million, an increase in accrued expenses of $1.1 million and a decrease in prepaid expenses and other receivables of $295,000 partially offset by a decrease in accounts payable of $1.2 million. The non-cash charges consisted primarily of depreciation and amortization of $3.8 million and stock-based compensation expense of $2.3 million.

Net cash used in investing activities was $40.0 million for the six months ended June 30, 2010 compared to $44.2 million for the six months ended June 30, 2009. Net cash used in investing activities during the six months ended June 30, 2010 consisted primarily of cash paid to purchase marketable securities of $63.7 million partially offset by cash received from the maturities of marketable securities of $34.3 million. Cash paid to purchase property and equipment was $8.4 million and cash used for the acquisition of NutshellMail was $2.2 million, net of cash received. Property and equipment purchases consisted of hardware and software to support our product infrastructure, capitalization of certain software development costs, computer equipment for our employees and furniture and fixtures and leasehold improvements primarily related to additional office space. Net cash used in investing activities during the six months ended June 30, 2009 consisted of the purchase of marketable securities of $33.7 million and the acquisition of property and equipment of $10.0 million as well as an increase in restricted cash of $442,000 related to a new lease we signed in May 2009. Property and equipment purchases consisted of hardware and software to support our product infrastructure, capitalization of certain software development costs, computer equipment for our employees and equipment and leasehold improvements primarily related to our second sales and support office.

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