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

May 06, 2010 | About:
10qk

10qk

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CONSTANT CONTACT, INC. (CTCT) filed Quarterly Report for the period ended 2010-03-31.

Constant Contact, Inc. has a market cap of $662.3 million; its shares were traded at around $23.25 with and P/S ratio of 5.2. CTCT is in the portfolios of Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, RS Investment Management.

Highlight of Business Operations:

Cost of Revenue. Cost of revenue for the three months ended March 31, 2010 was $11.7 million, an increase of $3.6 million, or 44%, over cost of revenue of $8.1 million for the three months ended March 31, 2009. Of the increase in cost of revenue, $1.5 million resulted from increased depreciation, hosting and maintenance costs as a result of scaling and adding capacity to our hosting infrastructure. Additionally, $1.2 million and $342,000 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. Approximately $176,000 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 March 31, 2010 and 29% for the three months ended March 31, 2009. The increase as a percentage of revenue was due primarily to the 56% increase in depreciation, hosting and maintenance costs as compared to the 40% increase in revenue.

Sales and Marketing Expenses. Sales and marketing expenses for the three months ended March 31, 2010 were $18.7 million, an increase of $4.9 million, or 35%, over sales and marketing expenses of $13.8 million for the three months ended March 31, 2009. As a percentage of revenue, sales and marketing expenses were 47% for the three months ended March 31, 2010 and 49% for the three months ended March 31, 2009. The increase in absolute dollars was primarily due to increased advertising and promotional expenditures of $2.6 million due to continued expansion of our multi-channel marketing strategy including our national radio advertising campaign. Additionally, personnel related costs increased by $1.5 million because we added employees in an effort to generate sales leads and accommodate the growth in sales leads. Partner referral fees increased by $337,000 as the number of customers generated from our channel partners increased.

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 $6.5 million for the three months ended March 31, 2010 as compared to $6.3 million for the three months ended March 31, 2009. Net cash provided by operating activities for the three months ended March 31, 2010 consisted of the contributions from working capital accounts of $3.2 million and non-cash charges of $4.4 million partially offset by the net loss of $776,000 and a decrease in long-term accrued rent of $278,000. The contribution from working capital accounts was primarily due to an increase in deferred revenue of $2.5 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 $1.4 million. The non-cash charges consisted primarily of depreciation and amortization of $2.6 million and stock-based compensation expense of $1.7 million. Net cash provided by operating activities for the three months ended March 31, 2009 consisted of the contributions from working capital

accounts of $3.8 million, non-cash charges of $2.8 million and in increase in long-term accrued rent of $774,000 partially offset by the net loss of $1.0 million. The contribution from working capital accounts was primarily due to an increase in deferred revenue of $2.1 million, an increase in accounts payable and accrued expenses of $1.3 million and a decrease in prepaid expenses and other receivables of $426,000. The non-cash charges consisted primarily of depreciation and amortization of $1.8 million and stock-based compensation expense of $1.1 million.

Net cash used in investing activities was $33.4 million for the three months ended March 31, 2010 compared to $29.9 million for the three months ended March 31, 2009. Net cash used in investing activities during the three months ended March 31, 2010 consisted primarily of cash paid to purchase marketable securities of $43.8 million and property and equipment of $4.3 million partially offset by cash received from the maturities of marketable securities of $14.7 million. 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 three months ended March 31, 2009 consisted of the purchase of short-term marketable securities of $24.2 million and the acquisition of property and equipment of $5.7 million. 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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