ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Cautionary Note Regarding Forward-Looking Statements
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is set forth below. Certain statements in this report may be considered to be “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. In particular, these forward-looking statements include, among others, statements about:
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our expectations regarding user engagement patterns;
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our expectations regarding mobile usage by our users;
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the impact of increased mobile usage and Social Theater competition on revenues and financial results;
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the impact of seasonality on our operating results;
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our expectations relating to advertising and the effects of advertising and mobile monetization on our revenues;
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our expectations regarding our ability to manage and fill our advertising inventory internally;
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our plans regarding product development, international growth and personnel;
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our liquidity and expectations regarding uses of cash;
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our expectations regarding payments relating to cost reduction initiatives;
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our ability to successfully pursue collection actions;
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our expectations regarding the cost and outcome of our current and future litigation;
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the impact of new accounting policies; and
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our plans for capital expenditures for the remainder of the year ending December 31, 2016.
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All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy, plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Important factors that could cause actual results to differ from those in the forward-looking statements include users’ willingness to try new product offerings and engage in our App upgrades and new features, the risk that unanticipated events affect the functionality of our App with popular mobile operating systems, any changes in such operating systems that degrade our App’s functionality and other unexpected issues which could adversely affect usage on mobile devices, the risk that the mobile advertising market will not grow, the ongoing existence of such demand and the willingness of our users to complete mobile offers or pay for Credits. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
You should read the following discussion in conjunction with our audited historical consolidated financial statements. MD&A 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 elsewhere in
“Risk Factors,”
located at Part II, Item 1A of this report and in our Form 10-K for the year ended December 31, 2015 and the Current Report on Form 8-K filed on June 3, 2015. Additional risks that we do not presently know or that we currently believe are immaterial could materially and adversely affect any of our business, financial position, future results or prospects.
MD&A is provided as a supplement to and should be read in conjunction with our audited consolidated financial statements, and the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2015 (“Annual Report”), as well as our condensed consolidated financial statements and the accompanying notes included in this report.
Company Overview
MeetMe is a location-based social network for meeting new people on mobile platforms, including on iPhone, Android, iPad and other tablets, and the web that facilitates interactions among users and encourages users to connect with each other. MeetMe monetizes through advertising, in-app purchases and paid subscriptions. MeetMe provides users with access to an expansive, multilingual menu of resources that promote social interaction, information sharing, and other topics of interest. The Company offers online marketing capabilities, which enable marketers to display their advertisements in different formats and in different locations. The Company works with its advertisers to maximize the effectiveness of their campaigns by optimizing advertisement formats and placement.
Just as Facebook has established itself as the social network of friends and family, and LinkedIn as the social network of colleagues and business professionals, MeetMe is creating the social network not of the people you know but of the people you want to know. We believe meeting new people is a basic human need, especially for users aged 18-30, when so many long-lasting relationships are made.
We believe that we have significant growth opportunities as people increasingly use their mobile devices to discover the people around them. Given the importance of establishing connections within a user’s geographic proximity, we believe it is critical to establish a high density of users within the geographic regions we serve. As the MeetMe network grows and the number of users in a location increases, we believe that users who are seeking to meet new people will incrementally benefit from the quantity of relevant connections.
Operating Metrics
We measure website and application activity in terms of monthly active users (“MAUs”) and daily active users (“DAUs”). We define MAU as a registered user of one of our platforms who has logged in and visited within the last month of measurement. We define DAU as a registered user of one of our platforms who has logged in and visited within the day of measurement. For the quarters ended March 31, 2016 and 2015, the total MeetMe MAUs were approximately 5.33 million and 5.21 million, respectively, and total MeetMe DAUs were approximately 1.22 million and 1.18 million, respectively. The aggregate total of registered users on MeetMe platforms was approximately 143 million and 117 million for the three months ended March 31, 2016 and 2015, respectively.
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Monthly Average for the
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Quarter Ended March 31,
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2016
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2015
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MAU- MeetMe
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5,330,978
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5,207,496
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For the Quarter Ended
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March 31,
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2016
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2015
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DAU- MeetMe
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1,220,830
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1,177,550
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Trends in Our Metrics
In addition to MAUs and DAUs, we measure activity on MeetMe in terms of average revenue per user (“ARPU”) and average daily revenue per daily active user (“ARPDAU”). We define ARPU as the average quarterly revenue per MAU. We define ARPDAU as the average quarterly revenue per DAU. We define mobile MAU as a user who accessed our sites by a one of our mobile applications or by the mobile optimized version of our website, whether on a mobile phone or tablet during the month of measurement. We define a mobile DAU as a user who accessed our sites by one of our mobile applications or by the mobile optimized version of our website, whether on a mobile phone or tablet during the day of measurement. Visits represent the number of times during the measurement period that users came to the website or mobile applications for distinct sessions. A page view is a page that a user views during a visit.
In the quarter ended March 31, 2016, MeetMe averaged 4.40 million mobile MAUs and 5.33 million total MAUs on average, as compared to 3.54 million mobile MAUs and 5.21 million total MAUs on average in the quarter ended March 31, 2015, a net increase of 860,000 or 24% for mobile MAUs, and a net increase of 123,000 or 2% for total MeetMe MAUs. Mobile DAUs were 1.14 million for the quarter ended March 31, 2016, an 11% increase, from 1.03 million in the quarter ended March 31, 2015. For the quarter ended March 31, 2016, MeetMe averaged 1.22 million total DAUs, as compared to 1.18 million total DAUs on average for the quarter ended March 31, 2015, a net increase of approximately 43,000 total DAUs, or 4%.
We believe the shift of our audience from web to mobile is an important driver of our business. Although decreasing web traffic has resulted in declining web revenue, we have successfully increased our mobile revenue by 43% and our mobile ARPDAU by 27% to $11.7 million and $0.113, respectively, for the quarter ended March 31, 2016 from $8.24 million and $0.089, respectively, for the quarter ended March 31, 2015. We believe our ability to continue to grow our mobile audience and our mobile monetization at a faster pace than the decline in our web revenue will impact the performance of our business.
In the quarter ended March 31, 2016, MeetMe earned an average of $0.51 ARPU on the web and $2.67 ARPU in our mobile applications, as compared to $0.78 in web ARPU and $2.33 in mobile ARPU for the quarter ended March 31, 2015. In the quarter ended March 31, 2016, MeetMe earned an average of $0.068 in web ARPDAU and $0.113 in mobile ARPDAU, as compared to $0.102 in web ARPDAU and $0.089 in mobile ARPDAU for the quarter ended March 31, 2015.
First Quarter of 2016 Highlights
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Mobile revenue was $11.7 million in the first quarter of 2016, up 42% from $8.2 million in the corresponding period in 2015.
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Adjusted EBITDA was $3.7 million for the first quarter of 2016. Net income for the first quarter of 2016 was $2.4 million. (See the important discussion about the presentation of non-GAAP financial measures, and reconciliation to the most directly comparable GAAP financial measures, below.)
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Cash and Cash Equivalents totaled $26.4 million at March 31, 2016, an increase of $7.1 million, from $19.3 million at December 31, 2015.
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Factors Affecting Our Performance
We believe the following factors affect our performance:
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Number of MAUs and DAUs:
We believe our ability to grow web and mobile MAUs and DAUs affects our revenue and financial results by influencing the number of advertisements we are able to show, the value of those advertisements, and the volume of in-app purchases, as well as our expenses and capital expenditures.
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User Engagement:
We believe changes in user engagement patterns affect our revenue and financial performance. Specifically, the number of visits and page views each MAU or DAU generates affects the number of advertisements we are able to display and therefore the rate at which we are able to monetize our active user base. We continue to create new features and enhance existing features to drive additional engagement.
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Advertising Rates:
We believe our revenue and financial results are materially dependent on industry trends, and any changes to the revenue we earn per thousand advertising impressions (CPM) could affect our revenue and financial results. We expect to continue investing in new types of advertising and new placements, especially in our mobile applications. Additionally, we are prioritizing initiatives that generate revenue directly from users, including new virtual currency products and a premium subscription product, in part to reduce our dependency on advertising revenue.
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User Geography:
The geography of our users influences our revenue and financial results because we currently monetize users in distinct geographies at varying average rates. For example, ARPU in the United States and Canada is significantly higher than in Latin America. We laid the foundation for future international growth by localizing the core MeetMe service into twelve languages in addition to English. We plan to continue to invest in user growth across the world, including in geographies where current per user monetization rates are relatively lower than in the United States and Canada.
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New User Sources:
The percentage of our new users that are acquired through inorganic, paid sources impacts our financial performance, specifically with regard to ARPU for web and mobile. Inorganically acquired users tend to have lower engagement rates, tend to generate fewer visits and ad impressions and to be less likely to make in-app purchases. When paid marketing campaigns are ongoing, our overall usage and traffic increases due to the influx of inorganically acquired users, but the rate at which we monetize the average active user overall declines as a result.
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Ad Inventory Management:
Our revenue trends are affected by advertisement inventory management changes affecting the number, size, or prominence of advertisements we display. In general, more prominently displayed advertising units generate more revenue per impression. Our Social Theater campaign expenses are materially dependent on the percentage of Social Theater campaigns that run on MeetMe versus the percentage that run on other networks. We work to maximize the share of Social Theater campaigns that run on MeetMe and run campaigns on other networks only when necessary.
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Increased Social Theater Competition:
A significant portion of the revenue generated by the Social Theater is derived from advertising campaigns, powered by Social Theater technology, that run on networks other than MeetMe. A recent increase in competitors offering similar technology solutions, and in some cases their own cross-platform distribution networks, has made it more difficult to compete on price and win business. We expect this downward pressure on price to continue and impact our operating results in the future.
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Seasonality:
Advertising spending is traditionally seasonal with a peak in the fourth quarter of each year. We believe that this seasonality in advertising spending affects our quarterly results, which generally reflect a growth in advertising revenue between the third and fourth quarters and a decline in advertising spending between the fourth and subsequent first and second quarters each year.
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Growth trends in web and mobile MAUs and DAUs affect our revenue and financial results by influencing the number of advertisements we are able to show, the value of those advertisements, the volume of payments transactions, as well as our expenses and capital expenditures.
Changes in user engagement patterns from web to mobile and international diversification also affect our revenue and financial performance. We believe that overall engagement as measured by the percentage of users who create content (such as status posts, messages, or photos) or generate feedback increases as our user base grows. We continue to create new and improved features to drive social sharing and increase monetization. The launch of additional languages to the platform facilitates international user growth.
We believe our revenue trends are also affected by advertisement inventory management changes affecting the number, size, or prominence of the advertisements we display and traditional seasonality. Social Theater is a revenue product for the MeetMe platform and on third-party sites. Social Theater growth may be affected by large brand penetration, the ability to grow the advertiser base, and advertiser spending budgets.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 8, 2016. We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31, 2016, compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
("ASU 2014-09")
.
ASU 2014-09 supersedes the revenue recognition requirements of FASB ASC Topic 605,
Revenue Recognition
and most industry-specific guidance throughout the ASC, resulting in the creation of FASB ASC Topic 606,
Revenue from Contracts with Customers
. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers, Deferral of the Effective Date
("ASU 2015-14"). ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
("ASU 2016-08") clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing
clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improves the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity's promise to grant a license provides a customer with either a right to use the entity's intellectual property (which is satisfied at a point in time) or a right to access the entity's intellectual property (which is satisfied over time). The effective date and transition requirements for ASU 2016-08 and ASU 2016-10 are the same as the effective date and transition requirements for ASU 2014-09. The Company is currently assessing the potential impact of adopting ASU 2014-09, ASU 2016-08 and ASU 2016-10 on its financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09. As a result, this guidance will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the new guidance and have not determined the impact this standard may have on our consolidated financial statements, nor decided upon the method of adoption.
In June 2014, the FASB issued ASU No. 2014-12,
Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
, or ASU 2014-12. ASU 2014-12 requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. ASU 2014-12 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The adoption of ASU 2014-12 had no material impact on our consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15,
Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 explicitly requires management to evaluate, at each annual or interim reporting period, whether there are conditions or events that exist which raise substantial doubt about an entity’s ability to continue as a going concern and to provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and annual and interim periods thereafter, with early adoption permitted. We are currently evaluating the impact of adopting this new standard on our consolidated financial statement disclosures.
In April 2015, the FASB issued ASU 2015-03
, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. The new standard requires debt issuance costs, related to a recognized debt liability, be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. The update requires the guidance to be applied retrospectively. The update is effective for fiscal years beginning after December 15. The adoption of ASU 2015-03 had no material impact on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes
, which will require entities to present all deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) as non-current on the balance sheet. This guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted, and entities may choose whether to adopt this update prospectively or retrospectively. On December 31, 2015, we elected to adopt ASU 2015-17 and changed our method of classifying DTAs and DTLs as either current or non-current to classifying all DTAs and DTLs as non-current, using a prospective method. Prior balance sheets were not retrospectively adjusted. The adoption did not have a material effect on our financial position.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. ASU 2016-01 will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2017 and early adoption is not permitted. The adoption of ASU 2016-01 is not expected to have a material effect on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 84
2
).
The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, and annual and interim periods thereafter, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact that the adoption of this new standard will have on our consolidated financial statements.
The following table sets forth our Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 that is used in the following discussions of our results of operations:
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2016
|
|
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2015
|
|
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2015 to 2016
Change ($)
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2015 to 2016
Change (%)
|
|
Revenues
|
|
$
|
13,321,671
|
|
|
$
|
11,628,976
|
|
|
$
|
1,692,695
|
|
|
|
15
|
%
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
2,321,423
|
|
|
|
1,215,320
|
|
|
|
1,106,103
|
|
|
|
91
|
%
|
Product development and content
|
|
|
5,708,100
|
|
|
|
6,319,804
|
|
|
|
(611,704
|
)
|
|
|
-10
|
%
|
General and administrative
|
|
|
2,348,168
|
|
|
|
1,619,904
|
|
|
|
728,264
|
|
|
|
45
|
%
|
Depreciation and amortization
|
|
|
751,264
|
|
|
|
815,915
|
|
|
|
(64,651
|
)
|
|
|
-8
|
%
|
Total Operating Costs and Expenses
|
|
|
11,128,955
|
|
|
|
9,970,943
|
|
|
|
1,158,012
|
|
|
|
12
|
%
|
Income from Operations
|
|
|
2,192,716
|
|
|
|
1,658,033
|
|
|
|
534,683
|
|
|
|
32
|
%
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
5,115
|
|
|
|
5,186
|
|
|
|
(71
|
)
|
|
|
-1
|
%
|
Interest expense
|
|
|
(6,745
|
)
|
|
|
(158,866
|
)
|
|
|
152,121
|
|
|
|
96
|
%
|
Change in warrant liability
|
|
|
241,777
|
|
|
|
(95,728
|
)
|
|
|
337,505
|
|
|
|
353
|
%
|
Loss on cumulative foreign currency translation adjustment
|
|
|
16,352
|
|
|
|
(794,704
|
)
|
|
|
811,056
|
|
|
|
102
|
%
|
Gain on sale of asset
|
|
|
—
|
|
|
|
163,333
|
|
|
|
(163,333
|
)
|
|
|
-100
|
%
|
Total Other Income (Expense)
|
|
|
256,499
|
|
|
|
(880,779
|
)
|
|
|
1,137,278
|
|
|
|
129
|
%
|
Income before Income Taxes
|
|
|
2,449,215
|
|
|
|
777,254
|
|
|
|
1,671,961
|
|
|
|
215
|
%
|
Income taxes
|
|
|
(94,317
|
)
|
|
|
(55,200
|
)
|
|
|
(39,117
|
)
|
|
|
71
|
%
|
Net Income
|
|
$
|
2,354,898
|
|
|
$
|
722,054
|
|
|
$
|
1,632,844
|
|
|
|
226
|
%
|
Comparison of the three months ended
March 31, 2016
and 2015
Revenues
Our revenues were approximately $13.3 million for the three months ended March 31, 2016, an increase of $1.7 million or 15% compared to $11.6 million for the same period in 2015. The increase in revenue is attributable to a $3.5 million increase in mobile revenue, partially offset by a $1.8 million decrease in web advertising and cross platform revenue. We believe the increase in mobile revenue is due to increased advertising rates on mobile devices. We believe the decrease in web advertising revenue is attributable to the decline in web DAUs.
Operating Costs and Expenses
Sales and Marketing:
Sales and marketing expenses increased approximately $1.1 million, or 91%, to $2.3 million for the three months ended March 31, 2016 from $1.2 million for the same period in 2015. Increased sales and marketing expenses are primarily attributable to an increase in advertising and marketing spend.
Product Development and Content:
Product development and content expenses decreased approximately $612,000, or 10%, to $5.7 million for the three months ended March 31, 2016 from $6.3 million for the same period in 2015. The net decrease in product development and content expense is primarily attributable to a net decrease of $551,000 in technical operations expenses as a result of the consolidation of servers in our data center.
General and Administrative:
General and administrative expenses increased $728,000 or 45%, to $2.3 million for the three months ended March 31, 2016 from $1.6 million for the same period in 2015. The aggregate increase in general and administrative costs is attributable to an increase of $300,000 in professional fees, $150,000 in travel and entertainment expenses, and stock compensation expense of $136,000.
Comparison of Stock-Based Compensation and Other Costs and Expenses
Stock-Based Compensation
Stock-based compensation expense, included in the operating expense by category, increased approximately $113,000 to $0.7 million for the three months ended March 31, 2016 from $0.6 million for the three months ended March 31, 2015. Stock-based compensation expense represented 7% and 6% of operating expenses for the three months ended March 31, 2016 and 2015, respectively.
As of March 31, 2016, there was approximately $3.8 million and $2.7 million of unrecognized compensation cost related to stock options and unvested restricted stock awards, respectively, which is expected to be recognized over a period of approximately two years.
|
|
For the Three Months Ended March 31,
|
|
|
2015 to 2016
|
|
|
|
2016
|
|
|
2015
|
|
|
Changes ($)
|
|
Sales and marketing
|
|
$
|
60,437
|
|
|
$
|
66,826
|
|
|
$
|
(6,389
|
)
|
Product development and content
|
|
|
303,697
|
|
|
|
320,835
|
|
|
|
(17,138
|
)
|
General and administrative
|
|
|
363,646
|
|
|
|
227,604
|
|
|
|
136,042
|
|
Total stock-based compensation expense
|
|
$
|
727,780
|
|
|
$
|
615,265
|
|
|
$
|
112,515
|
|
Depreciation and Amortization Expense
Depreciation and amortization expense was $751,000 and $816,000 for the three months ended March 31, 2016 and 2015, respectively.
Liquidity and Capital Resources
|
|
For the Three Months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net cash provided by (used in) operating activities
|
|
$
|
6,884,392
|
|
|
$
|
(946,027
|
)
|
Net cash used in investing activities
|
|
|
(110,280
|
)
|
|
|
(409,780
|
)
|
Net cash provided by (used in) financing activities
|
|
|
322,726
|
|
|
|
(771,980
|
)
|
|
|
$
|
7,096,838
|
|
|
$
|
(2,127,787
|
)
|
Net cash provided by operations was approximately $6.9 million for the three months ended March 31, 2016 compared to net cash used in operations of approximately $946,000 for the same period in 2015.
For the three months ended March 31, 2016, net cash provided by operations consisted primarily of net income of approximately $2.4 million adjusted for certain non-cash expenses of approximately $751,000 of depreciation and amortization expense, $728,000 related to stock based compensation for the vesting of stock options, $16,000 related to gain on cumulative foreign currency translation adjustment, and $242,000 for change in warrant liability. Additionally, changes in working capital increased the net cash used in operations. These changes included decreases in accounts receivable of approximately $5.9 million resulting from collections, $56,000 in prepaid expenses, and other current assets and other assets, and accounts payable and accrued liabilities of $2.7 million.
Net cash used in investing activities in the three months ended March 31, 2016 of approximately $110,000, was due to capital expenditures of $110,000 for computer equipment to increase capacity and improve performance.
Net cash provided by financing activities in the three months ended March 31, 2016 of approximately $322,000 was due to approximately $434,000 of proceeds from exercise of stock options, partially offset by $112,000 of capital lease payments.
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cash and cash equivalents
|
|
$
|
26,411,228
|
|
|
$
|
19,298,038
|
|
Total assets
|
|
$
|
111,991,568
|
|
|
$
|
111,490,673
|
|
Percentage of total assets
|
|
|
24
|
%
|
|
|
17
|
%
|
Our cash balances are kept liquid to support our growing infrastructure needs for operational expansion. The majority of our cash is concentrated in two large financial institutions.
As of March 31, 2016, the Company had positive working capital of approximately $33.1 million.
On April 29, 2013, the Company (i) entered into a loan and security agreement with a leading provider of debt financing to technology companies (the “Loan Agreement”) and (ii) issued two warrant agreements (“Warrants”), for the purchase of shares of the Company’s common stock to the lenders under the Loan Agreement. The Loan Agreement has an aggregate commitment of $8.0 million. The Company borrowed $5.0 million under the Loan Agreement on April 29, 2013. Had it achieved certain financial goals, the Company could have borrowed two additional tranches of loans, each in an aggregate principal amount of up to $1.5 million. All loans under the Loan Agreement have a term of 36 months and may not be re-borrowed after repayment. The lender under the Loan Agreement has a security interest in substantially all assets of the Company. The purchase price for the shares of common stock issuable upon exercise of the Warrants is equal to, at each Warrant holder’s option, the lower of (x) $1.96 and (y) the price per share of the stock issued in the next equity placement of the Company’s stock, subject to certain restrictions set forth in the Warrants. The Warrants may be exercised until February 28, 2024. As of March 31, 2016 and May 6, 2016, the Company did not have any outstanding indebtedness under the Loan Agreement.
During the three months ended March 31, 2016 the Company did not enter into any additional capital leases.
The Company believes that, with its current available cash, anticipated revenues and collections on its accounts receivables, and its access to capital through various financing options, it will have sufficient funds to meet its anticipated cash needs for at least the next 12 months.
We have budgeted capital expenditures of $2.9 million for the remainder of 2016, which we believe will support our growth of domestic and international business through increased capacity, performance improvement, and expanded content.
Off-Balance Sheet Arrangements
As of March 31, 2016, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Non-GAAP – Financial Measure
The following discussion and analysis includes both financial measures in accordance with GAAP, as well as a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP.
We believe that both management and shareholders benefit from referring to the following non-GAAP financial measure in planning, forecasting, and analyzing future periods. Our management uses this non-GAAP financial measure in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparison. Our management uses and relies on the following non-GAAP financial measure:
We define Adjusted EBITDA as earnings (or loss) from operations before interest expense, income taxes, depreciation and amortization, stock-based compensation, warrant obligations, nonrecurring acquisition, restructuring or other expenses, loss on cumulative foreign currency translation adjustment, gain on sale of asset, bad debt expense outside the normal range, and goodwill impairment charges, if any. We exclude stock-based compensation because it is non-cash in nature. Our management believes Adjusted EBITDA is an important measure of our operating performance because it allows management, investors, and analysts to evaluate and assess our core operating results from period to period after removing the impact of acquisition related costs, and other items of a non-operational nature that affect comparability. Our management recognizes that Adjusted EBITDA has inherent limitations because of the excluded items.
We have included a reconciliation of our non-GAAP financial measure to the most comparable financial measure calculated in accordance with GAAP. We believe that providing the non-GAAP financial measure, together with the reconciliation to GAAP, helps investors make comparisons between the Company and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicable SEC rules.
The following table presents a reconciliation of Adjusted EBITDA to Net Income (loss), a GAAP financial measure:
|
|
For the Three Months Ended March 31,
|
|
ADJUSTED EBITDA
|
|
2016
|
|
|
2015
|
|
Net Income Allocable to Common Stockholders
|
|
$
|
2,354,898
|
|
|
$
|
722,054
|
|
Interest expense
|
|
|
6,745
|
|
|
|
158,866
|
|
Change in warrant liability
|
|
|
(241,777
|
)
|
|
|
95,728
|
|
Income taxes
|
|
|
94,317
|
|
|
|
55,200
|
|
Depreciation and amortization
|
|
|
751,264
|
|
|
|
815,915
|
|
Stock-based compensation expense
|
|
|
727,780
|
|
|
|
615,265
|
|
Loss on cumulative effect of foreign currency translation adjustment
|
|
|
(16,352
|
)
|
|
|
794,704
|
|
Gain on sale of asset
|
|
|
—
|
|
|
|
(163,333
|
)
|
Adjusted EBITDA
|
|
$
|
3,676,875
|
|
|
$
|
3,094,399
|
|
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There were no material changes in market risk during the three months ended March 31, 2016.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
With the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of the end of the period covered by this report. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.
Changes in Internal Controls Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2016, noted during the evaluation of controls as of the end of the period covered by this report, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its Principal Executive Officer and its Principal Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods. See Note 6 to the unaudited condensed consolidated financial statements contained in this report for information on specific matters.
Item 1A. Risk Factors
Except for the Risk Factor below, there have been no material changes to the risk factors disclosed in the Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 8, 2016, in evaluating our business, financial position, future results and prospects. The risks described in these filings are not the only risks we face. Additional risks that we do not presently know or that we currently believe are immaterial could also materially and adversely affect any of our business, financial position, future results or prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. EXHIBITS
|
|
|
|
|
|
|
|
|
|
Filed or
|
|
|
|
|
Incorporated by Reference
|
|
Furnished
|
Exhibit No.
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of Principle Executive Officer (Section 302)
|
|
|
|
|
|
|
|
Filed
|
31.2
|
|
Certification of Principle Financial Officer (Section 302)
|
|
|
|
|
|
|
|
Filed
|
32.1
|
|
Certification of Principle Executive Officer (Section 906)
|
|
|
|
|
|
|
|
Furnished*
|
32.2
|
|
Certification of Principle Financial Officer (Section 906)
|
|
|
|
|
|
|
|
Furnished*
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
|
|
|
|
**
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
**
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
**
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
**
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
**
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
* This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
** Attached as Exhibit 101 to this report are the Company’s financial statements for the quarter ended March 31, 2016 formatted in XBRL (eXtensible Business Reporting Language). The XBRL-related information in Exhibit 101 in this report shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of those sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
MEETME, INC.
|
|
|
|
May 6, 2016
|
By:
|
/s/Geoffrey Cook
|
|
|
Geoffrey Cook
|
|
|
Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
May 6, 2016
|
By:
|
/s/ David Clark
|
|
|
David Clark
|
|
|
Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
|
|
34