NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1—
Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
The Meet Group, Inc. (the “Company,” “The Meet Group,” “us,” or “we”) is a portfolio of mobile social entertainment apps designed to meet the universal need for human connection. We leverage a powerful live-streaming video platform, empowering our global community to forge meaningful connections. Our primary apps are MeetMe®, LOVOO®, Skout®, and Tagged®.
We operate location-based social networks for meeting new people, primarily on mobile platforms, including on iPhone, Android, iPad and other tablets, that facilitate interactions among users and encourage users to connect, communicate and engage with each other. We have historically generated revenue primarily through advertising; today, however, live video and other forms of user-pay monetization, including subscriptions and in-app purchases, are becoming an increasingly larger component of total revenue. We believe revenues from video are more sustainable, can grow faster, and are more aligned with the quality of the user experience than revenues from advertising.
We began developing our video platform in 2016 with the belief that we could successfully pair live-streaming and dating – a model that we had seen work effectively in Asia. We launched video on MeetMe early in 2017, and in October of 2017 we began to monetize by enabling gifting within the video streams. At the same time, we began acquiring other properties, Skout, Inc. (“Skout”), Ifwe Inc. (“if(we)”) and Lovoo GmbH (“Lovoo”) – where we believed our live-streaming platform would fit naturally. We integrated live video into each app. We launched the monetized video platform on Skout in the fourth quarter of 2017, Tagged in the second quarter of 2018, and Lovoo in the third quarter of 2018. During that time we continued to add features and enhancements to drive video engagement and increase monetization for all the apps. Live video has become the fastest growing revenue product in our history.
We also offer online marketing capabilities, which enable marketers to display their advertisements on our apps. We offer significant scale to our advertising partners, with hundreds of millions of daily impressions across our active global user base, and sophisticated data science for highly effective hyper-targeting. We work with our advertisers and advertising networks to maximize the effectiveness of their campaigns by optimizing advertisement formats and placements.
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, The Meet Group is creating the social entertainment network not of the people you know, but of the people you want to know. Nimble, fast-moving and already in more than
100
countries, we are challenging the dominant player in our space, Match Group, Inc., and differentiating ourselves with live video, which is not offered by many of our direct competitors. Modeled after the video products offered by Chinese dating app providers, but enhanced in order to appeal to western audiences, our live video product is aimed at the nexus of entertainment and community, where we believe our apps exhibit natural strength.
Our vision extends beyond dating and entertainment. We focus on building quality products to satisfy the universal need for human connection among all people, everywhere – not just paying subscribers. We believe meeting new people is a basic human need, especially for users aged 18-34, when so many long-lasting relationships are made. We use advanced technology to engineer serendipitous connections among people who otherwise might never have met – a sort of digital coffeehouse where everyone belongs. Over the years, The Meet Group’s apps have originated untold numbers of chats, shares, good friendships, dates, romantic relationships – even marriages.
We believe that we have significant growth opportunities enabled through our social entertainment platform. We believe our scale provides unique advantages to grow video monetization, while also establishing a high density of users within the geographic regions we serve. As The Meet Group’s networks grow 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.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The condensed consolidated financial statements include the accounts of all subsidiaries and affiliates in which the Company holds a controlling financial interest as of the date of the condensed consolidated financial statements.
The condensed consolidated financial statements include the accounts of The Meet Group and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The unaudited condensed consolidated financial statements have been prepared by the Company and reflect all normal, recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the year ending
December 31, 2018
. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted under the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements and notes included herein should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
, filed with the SEC on
March 16, 2018
.
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions are required in the determination of business combinations, revenue recognition, accounts receivable valuation, the fair value of financial instruments, the valuation of long-lived assets, valuation of deferred tax assets, income taxes, contingencies, goodwill and intangible assets and stock-based compensation. Some of these judgments can be subjective and complex and, consequently, actual results may differ from these estimates. The Company’s estimates often are based on complex judgments, probabilities and assumptions that it believes to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by the Company, there may also be other estimates or assumptions that are reasonable.
The Company regularly evaluates its estimates and assumptions using historical experience and other factors, including the economic environment. As future events and their effects cannot be determined with precision, the Company’s estimates and assumptions may prove to be incomplete or inaccurate, or unanticipated events and circumstances may occur that might cause it to change those estimates and assumptions. Market conditions, such as illiquid credit markets, volatile equity markets, dramatic fluctuations in foreign currency rates and economic downturns, can increase the uncertainty already inherent in its estimates and assumptions. The Company adjusts its estimates and assumptions when facts and circumstances indicate the need for change. Those changes generally will be reflected in the Company’s condensed consolidated financial statements on a prospective basis unless they are required to be treated retrospectively under the relevant accounting standard. It is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. The Company is also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts, such as changes in competition, litigation, legislation and regulations.
Revenue Recognition
On January 1, 2018, the Company adopted ASC Topic 606 “Revenue from Contracts with Customers,” (“ASC 606”) using the cumulative effect method (modified retrospective method) and applied to those contracts with customers which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are unadjusted and continue to be reported in accordance with the Company’s historic accounting under ASC Topic 605, “Revenue Recognition” (“ASC 605”).
The Company recorded a net reduction to opening deferred revenue and a corresponding increase to retained earnings of
$0.02 million
as of January 1, 2018 due to the cumulative impact of adopting ASC 606. The impact was related to MeetMe+ subscriptions, which were previously recognized using the revenue policy for credits under ASC 605. Under ASC 606, MeetMe+ subscription revenue will be recognized over the subscription period using a mid-month convention beginning on January 1, 2018. See
Note 12—
Revenue
for further detail on revenue recognition.
Fair Value Measurements
The fair values of the Company’s financial instruments reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The carrying amounts of the Company’s financial instruments of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and deferred revenue approximate fair value due to their short maturities. Certain derivatives are carried at fair value as disclosed in
Note 3—
Fair Value Measurements
.
The Company has evaluated the estimated fair value
of financial instruments using available market information and management’s estimates. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts.
In addition, the Company carries its contingent consideration liabilities related to acquisitions at fair value. In accordance with the three-tier fair value hierarchy, the Company determined the fair value of its contingent consideration liabilities using the income approach with assumed discount rates and payment probabilities. The income approach uses Level 3, or unobservable, inputs as defined under the accounting guidance for fair value measurements. At
December 31, 2017
, the Company’s contingent consideration liability had a fair value of
$5.0 million
. The Company paid the full amount of the contingent consideration in April 2018. See
Note 2—
Acquisitions
for more information regarding the Company’s contingent consideration liability.
As part of the Lovoo Acquisition the Company amended and restated its term loan and revolving credit facility. The Company carries a term loan facility with an outstanding balance at
September 30, 2018
and
December 31, 2017
of
$40.7 million
and
$56.3 million
, respectively. The outstanding balance as of
September 30, 2018
and
December 31, 2017
approximates fair value due to the variable market interest rates and relatively short maturity associated with the Term Loan Facility. See
Note 6—
Long-Term Debt
for more information regarding the Company’s credit facilities.
The Company leases certain fixed assets under capital leases that expire through 2021. The capital leases are for the Company's data centers, printers and other furniture in the Company's German offices. The outstanding balance as of
September 30, 2018
and
December 31, 2017
approximates fair value due to the relatively short maturities associated with these capital leases.
Foreign Currency
The functional currency of our foreign subsidiaries is the local currency. The financial statements of these subsidiaries are translated to U.S. dollars using period-end rates of exchange for assets and liabilities and average quarterly rates of exchange for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Net gains and losses resulting from foreign exchange transactions are included in other income (expense).
Net Income (Loss) per Share
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares and common stock equivalents outstanding, calculated under the treasury stock method for options, unvested restricted stock awards (“RSAs”), unvested in-the-money performance share units (“PSUs”) and warrants using the average market prices during the period.
The following table shows the computation of basic and diluted net income (loss) per share for the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Numerator:
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
1,297,931
|
|
|
$
|
2,222,722
|
|
|
$
|
(3,150,002
|
)
|
|
$
|
3,525,163
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted-average shares outstanding— basic
|
73,362,467
|
|
|
71,800,274
|
|
|
72,704,205
|
|
|
67,711,324
|
|
Effect of dilutive securities
|
6,003,109
|
|
|
4,278,289
|
|
|
—
|
|
|
4,714,539
|
|
Weighted-average shares outstanding— diluted
|
79,365,576
|
|
|
76,078,563
|
|
|
72,704,205
|
|
|
72,425,863
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per share
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.05
|
|
Diluted income (loss) per share
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.04
|
)
|
|
$
|
0.05
|
|
The following table summarizes the number of dilutive securities, which may dilute future earnings per share, outstanding for each of the periods presented, but not included in the calculation of diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Stock options
|
3,632,484
|
|
|
4,579,555
|
|
|
4,833,809
|
|
|
4,143,305
|
|
Unvested RSAs
|
—
|
|
|
—
|
|
|
3,782,184
|
|
|
—
|
|
Unvested PSUs
|
—
|
|
|
—
|
|
|
1,019,600
|
|
|
—
|
|
Total
|
3,632,484
|
|
|
4,579,555
|
|
|
9,635,593
|
|
|
4,143,305
|
|
Significant Customers and Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company invests its excess cash in high-quality, liquid money market funds maintained by major U.S. banks and financial institutions. The Company has not experienced any losses on its cash and cash equivalents, including restricted cash or money market funds.
The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company has no recent history of significant losses from uncollectible accounts. During the
nine months ended September 30, 2018 and 2017
,
two
customers, both of which were advertising aggregators (which represent thousands of advertisers) and customer payment processors, comprised approximately
48%
and
31%
of total revenues, respectively.
Two
and
five
customers, which were advertising aggregators and customer payment processors, comprised approximately
36%
and
61%
of accounts receivable as of
September 30, 2018
and
December 31, 2017
, respectively.
The Company does not expect its current or future credit risk exposure to have a significant impact on its operations, however, there can be no assurance that the Company’s business will not experience any adverse impact from credit risk in the future.
Recent Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,
Leases
(Topic 842). 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 No. 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 an option 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. In July 2018, the FASB issued ASU No. 2018-11,
Leases
(Topic 842). ASU 2018-11 adds an optional transition method allowing entities to apply the new lease accounting rules through a cumulative-effect adjustment to the opening balance of retained earnings in the initial year of adoption. Management is still evaluating disclosure requirements under the new standard and will continue to evaluate the standard as well as additional changes, modifications or interpretations which may impact current conclusions. The Company has engaged a third-party to assist in the assessment and implementation of this standard. They have begun assessing the impact that these standards will have on our financial position and results of operations. Management is expecting to complete the evaluation of the impact of the accounting and disclosure changes on the business processes, controls and systems by the end of 2018.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
, providing additional guidance on several cash flow classification issues, with the goal of the update to reduce the current and potential future diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of ASU No. 2016-15 did not have any impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02,
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. The amendment allows an entity to elect to reclassify the stranded tax effects resulting from the change in income tax rate from the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings. The amendments in this update are effective for periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
Note 2—
Acquisitions
Lovoo
On October 19, 2017, the Company acquired from Bawogo Ventures GmbH & Co. KG, a limited partnership organized under the laws of Germany, all of the outstanding shares of Lovoo, a limited liability company incorporated under the laws of Germany (the “Lovoo Acquisition”), for total consideration of
$86.1 million
, including working capital. The Company does not expect goodwill to be deductible for tax purposes.
Included in the total consideration of
$86.1 million
was a
$5.0 million
contingent consideration in the form of an earn-out which was subject to certain conditions set forth in the Purchase Agreement, including the successful achievement of an Adjusted EBITDA target by Lovoo for the year ended December 31, 2017. Based on the probability of achieving the financial targets, the Company determined that the fair value of the contingent consideration at the closing date was
$5.0 million
. The Company paid the full amount of the contingent consideration in April 2018.
The Company incurred a total of
$1.4 million
in transaction costs in connection with the Lovoo Acquisition, which were expensed as incurred in the consolidated statement of operations for the year ended December 31, 2017.
The acquisition-date fair value of the consideration transferred is as follows:
|
|
|
|
|
|
At October 19, 2017
|
Cash consideration
(1)
|
$
|
65,000,000
|
|
Contingent consideration
|
5,000,000
|
|
Net working capital adjustment
|
16,148,750
|
|
Total consideration
|
$
|
86,148,750
|
|
(1) Cash consideration includes a
$6.5 million
and a
$4.0 million
escrow payment to be paid out
24 months
and
36 months
, respectively, from the date of the transaction.
The following is a preliminary purchase price allocation as of the
October 19, 2017
acquisition date:
|
|
|
|
|
|
At October 19, 2017
|
Cash and cash equivalents
|
$
|
20,717,202
|
|
Accounts receivable
|
3,677,708
|
|
Prepaid expenses and other current assets
|
843,930
|
|
Property and equipment
|
1,014,716
|
|
Intangible assets
|
16,970,000
|
|
Accounts payable
|
(1,100,837
|
)
|
Accrued expenses and other current liabilities
|
(4,652,757
|
)
|
Deferred revenue
|
(1,594,641
|
)
|
Deferred tax liability
|
(3,862,337
|
)
|
Capital leases
|
(542,112
|
)
|
Net assets acquired
|
$
|
31,470,872
|
|
Goodwill
|
54,677,878
|
|
Total consideration
|
$
|
86,148,750
|
|
The fair values of the Lovoo trademarks were determined using an income approach, the fair value of software acquired, which represents the primary platform on which the Lovoo apps operate, was determined using a cost approach and the fair value of customer relationships was determined using an excess earnings approach. These values are subject to change based on the final assessment of the deferred taxes acquired. The amounts assigned to the identifiable intangible assets are as follows:
|
|
|
|
|
|
|
|
Fair Value
|
|
Weighted Average
Amortization Period
(Years)
|
Trademark
|
$
|
12,090,000
|
|
|
10.0
|
Software
|
1,335,000
|
|
|
2.0
|
Customer relationships
|
3,545,000
|
|
|
8.7
|
Total identifiable intangible assets
|
$
|
16,970,000
|
|
|
9.1
|
Note 3—
Fair Value Measurements
Accounting Standards Codification Topic 820,
Fair Value Measurement
(“ASC 820”) establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.
ASC 820 identifies fair value as the exchange price, or exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes among the following:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Derivative Financial Instruments
Currently, the Company uses an interest rate swap, interest rate cap and a cross currency swap
to manage its interest rate
risk.
The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of the interest rate swap and the cross currency swap are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.
The fair value of the interest rate cap is determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. In accordance with the FASB’s fair value measurement guidance in ASU 2011-04, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of
September 30, 2018
and
December 31, 2017
were classified as Level 2 of the fair value hierarchy. See
Note 11—
Derivatives and Hedging Activities
for further discussion on derivative financial instruments.
Recurring Fair Value Measurements
Items measured at fair value on a recurring basis include money market mutual funds, restricted cash, derivatives and hedging instruments and contingent consideration. During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs. The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical
Items
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
September 30, 2018
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Money market
|
$
|
1,389,424
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,389,424
|
|
Restricted cash
|
500,000
|
|
|
—
|
|
|
—
|
|
|
500,000
|
|
Derivative asset
|
—
|
|
|
1,119,124
|
|
|
—
|
|
|
1,119,124
|
|
Total assets
|
$
|
1,889,424
|
|
|
$
|
1,119,124
|
|
|
$
|
—
|
|
|
$
|
3,008,548
|
|
Liabilities
|
|
|
|
|
|
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
1,822,202
|
|
|
$
|
—
|
|
|
$
|
1,822,202
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
1,822,202
|
|
|
$
|
—
|
|
|
$
|
1,822,202
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Money market
|
$
|
1,390,714
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,390,714
|
|
Restricted cash
|
894,551
|
|
|
—
|
|
|
—
|
|
|
894,551
|
|
Derivative asset
|
—
|
|
|
739,606
|
|
|
—
|
|
|
739,606
|
|
Total assets
|
$
|
2,285,265
|
|
|
$
|
739,606
|
|
|
$
|
—
|
|
|
$
|
3,024,871
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
Derivative liability
|
—
|
|
|
3,067,572
|
|
|
—
|
|
|
3,067,572
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
3,067,572
|
|
|
$
|
5,000,000
|
|
|
$
|
8,067,572
|
|
The following table sets forth a summary of changes in the fair value of the Company’s contingent consideration liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs:
|
|
|
|
|
|
Contingent
Consideration
|
Balance as of December 31, 2017
|
$
|
5,000,000
|
|
Payments
|
(5,000,000
|
)
|
Balance as of September 30, 2018
|
$
|
—
|
|
The contingent consideration is recorded in accrued expenses on the accompanying condensed consolidated balance sheet as of
December 31, 2017
. The contingent consideration liability was paid in April 2018.
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were
no
transfers within the levels of the fair value hierarchy during the
nine months ended September 30, 2018
and the year ended
December 31, 2017
.
Note 4— Intangible Assets and Goodwill
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Trademarks and domain names
|
$
|
34,798,726
|
|
|
$
|
(12,388,887
|
)
|
|
$
|
22,409,839
|
|
Customer relationships
|
13,948,691
|
|
|
(6,446,236
|
)
|
|
7,502,455
|
|
Software
|
18,740,029
|
|
|
(9,306,965
|
)
|
|
9,433,064
|
|
Total
|
$
|
67,487,446
|
|
|
$
|
(28,142,088
|
)
|
|
$
|
39,345,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Trademarks and domain names
|
$
|
35,204,638
|
|
|
$
|
(8,952,725
|
)
|
|
$
|
26,251,913
|
|
Customer relationships
|
14,067,457
|
|
|
(3,677,895
|
)
|
|
10,389,562
|
|
Software
|
18,784,755
|
|
|
(6,706,802
|
)
|
|
12,077,953
|
|
Total
|
$
|
68,056,850
|
|
|
$
|
(19,337,422
|
)
|
|
$
|
48,719,428
|
|
Amortization expense was approximately
$2.9 million
and
$2.4 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$8.9 million
and
$6.0 million
for the
nine months ended September 30, 2018 and 2017
, respectively.
Annual future amortization expense for the Company’s intangible assets is as follows:
|
|
|
|
|
Year ending December 31,
|
Amortization
Expense
|
Remaining in 2018
|
$
|
2,616,579
|
|
2019
|
9,518,693
|
|
2020
|
7,568,751
|
|
2021
|
6,554,568
|
|
2022
|
3,965,294
|
|
Thereafter
|
9,121,473
|
|
Total
|
$
|
39,345,358
|
|
The changes in the carrying amount of goodwill for the
nine months ended September 30, 2018
are as follows:
|
|
|
|
|
|
September 30, 2018
|
Balance at December 31, 2017
|
$
|
150,694,135
|
|
Foreign currency translation adjustments
|
(1,830,893
|
)
|
Balance at September 30, 2018
|
$
|
148,863,242
|
|
Note 5— Property and Equipment
Property and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
Servers, computer equipment and software
|
$
|
14,364,471
|
|
|
$
|
14,044,505
|
|
Office furniture and equipment
|
559,431
|
|
|
521,233
|
|
Leasehold improvements
|
667,787
|
|
|
663,356
|
|
|
15,591,689
|
|
|
15,229,094
|
|
Less accumulated depreciation
|
(12,338,476
|
)
|
|
(10,704,976
|
)
|
Property and equipment - net
|
$
|
3,253,213
|
|
|
$
|
4,524,118
|
|
Property and equipment depreciation expense was approximately
$0.5 million
and
$0.6 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$1.6 million
for each of the
nine months ended September 30, 2018 and 2017
, respectively.
Note 6—
Long-Term Debt
Credit Facilities
On
September 18, 2017
, in connection with the Lovoo Acquisition, as discussed in
Note 2—
Acquisitions
, the Company entered into an amended and restated credit agreement (the “Amended and Restated Credit Agreement”) with the several banks and other financial institutions party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Agent”), amending and restating the Credit Agreement, dated March 3, 2017. The Amended and Restated Credit Agreement provides for a
$20.0 million
revolving credit facility (the “New Revolving Credit Facility”) and a
$60.0 million
delayed draw term loan facility (the “New Term Loan Facility,” and together with the “New Revolving Credit Facility”, the “New Credit Facilities”). On
October 18, 2017
, the Company drew down
$60.0 million
from its New Term Loan Facility in connection with the Lovoo Acquisition. Fees and direct costs incurred for the New Credit Facilities were
$0.6 million
and are offset against long-term debt on the accompanying balance sheet as of
September 30, 2018
. On March 7, 2018, the Company entered into an amendment to the Amended and Restated Credit Agreement, that among other things, amends the definition of “Applicable Rate” and “EBITDA” and makes certain changes to the financial covenants. On July 27, 2018, the Company entered into an amendment to the Amended and Restated Credit Agreement that amends the Company’s obligation to use certain of its excess cash flow to prepay its obligations under the Credit Agreement by limiting the applicable period for the fiscal year ended December 31, 2017 to the period commencing October 31, 2017 and ended December 31, 2017. The Company made a one-time principal payment of approximately
$4.3 million
in the third quarter of 2018.
The Company intends to use the proceeds of the New Revolving Credit Facility to finance working capital needs and for general corporate purposes. Amounts under the New Revolving Credit Facility may be borrowed, repaid and re-borrowed from time to time until the maturity date of the Credit Agreement on
September 18, 2020
. The New Term Loan Facility is subject to quarterly payments of principal in an amount equal to
$3,750,000
commencing December 31, 2017 and continuing through maturity. At the Company’s election, loans made under the New Credit Facilities will bear interest at either (i) a base rate (“Base Rate”) plus an applicable margin or (ii) a London interbank offered rate (“LIBO Rate”) plus an applicable margin, subject to adjustment if an event of default under the Amended and Restated Credit Agreement has occurred and is continuing. The Base Rate means the highest of (a) the Agent’s “prime rate,” (b) the federal funds effective rate plus
0.50%
and (c) the LIBO Rate for an interest period of one month plus
1%
. The Company’s present and future domestic subsidiaries (the “Guarantors”) will guarantee the obligations of the Company and its subsidiaries under the New Credit Facilities. The obligations of the Company and its subsidiaries under
the New Credit Facilities are secured by all of the assets of the Company and the Guarantors, subject to certain exceptions and exclusions as set forth in the Amended and Restated Credit Agreement and other loan documents.
The New Term Loan Facility consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
Principal
|
$
|
40,690,158
|
|
|
$
|
56,250,000
|
|
Less: Debt discount, net
|
(351,521
|
)
|
|
(612,894
|
)
|
Net carrying amount
|
$
|
40,338,637
|
|
|
$
|
55,637,106
|
|
Less: current portion
|
15,000,000
|
|
|
15,000,000
|
|
Long-term debt, net
|
$
|
25,338,637
|
|
|
$
|
40,637,106
|
|
The weighted average interest rate at
September 30, 2018
was
5.47%
. As of
September 30, 2018
, the Company did
no
t have an outstanding balance on its Revolving Credit Facility.
On
March 3, 2017
, in connection with the acquisition of if(we) (the “if(we) Acquisition”), the Company entered into a credit agreement (the “Credit Agreement”) with the several banks and other financial institutions party thereto and JPMorgan Chase Bank, N.A., the Agent. The Credit Agreement provided for a
$15.0 million
revolving credit facility (the “Revolving Credit Facility”) and a
$15.0 million
term loan facility (the “Term Loan Facility,” and together with the “Revolving Credit Facility,” the “Credit Facilities”). On
April 3, 2017
, the Company drew down
$15.0 million
from its Term Loan Facility in connection with the if(we) Acquisition. On
September 18, 2017
, the Company paid in full the outstanding balance on the Term Loan Facility.
Note 7—
Commitments and Contingencies
Capital Leases
The Company leases certain fixed assets under capital leases that expire at various times through 2021. The capital leases are for the Company’s data centers, printers and other furniture in the Company’s German offices. Principal and interest are payable monthly at interest rates ranging from
3.9%
to
7.8%
per annum, rates varying based on the type of leased asset. The Company did not enter into any new capital lease agreements during the
nine months ended September 30, 2018
.
Operating Leases
The Company leases its operating facilities in the U.S. under certain noncancelable operating leases that expire through 2022. The Company also leases operating facilities in Germany under certain noncancelable operating leases that expire through 2020. These leases are renewable at the Company’s option. Lovoo also stores a majority of its user and business data in the Google Cloud Platform under a noncancelable minimum commitment agreement that expires through 2023.
A summary of minimum future rental payments required under capital and operating leases as of
September 30, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ending December 31,
|
|
Capital
Leases
|
|
Operating
Leases
|
|
Cloud Data Storage
|
Remaining in 2018
|
|
$
|
43,782
|
|
|
$
|
654,307
|
|
|
$
|
31,583
|
|
2019
|
|
147,184
|
|
|
1,408,337
|
|
|
478,506
|
|
2020
|
|
39,387
|
|
|
967,326
|
|
|
682,329
|
|
2021
|
|
4,871
|
|
|
612,619
|
|
|
1,014,517
|
|
2022
|
|
—
|
|
|
283,302
|
|
|
1,115,969
|
|
Thereafter
|
|
—
|
|
|
—
|
|
|
1,227,566
|
|
Total minimum lease payments
|
|
$
|
235,224
|
|
|
$
|
3,925,891
|
|
|
$
|
4,550,470
|
|
Less: amount representing interest
|
|
8,685
|
|
|
|
|
|
Total present value of minimum payments
|
|
226,539
|
|
|
|
|
|
Less: current portion of capital lease obligations
|
|
152,131
|
|
|
|
|
|
Long-term capital lease obligations
|
|
$
|
74,408
|
|
|
|
|
|
Rent expense for the operating leases was approximately
$0.9 million
and
$1.1 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$3.0 million
and
$3.5 million
for the
nine months ended September 30, 2018 and 2017
, respectively.
New Term Loan Facility
A summary of minimum future principal payments under our New Term Loan Facility as of
September 30, 2018
are as follows:
|
|
|
|
|
|
For the Years Ending December 31,
|
|
New Term Loan Facility
(1)
|
Remaining in 2018
|
|
$
|
3,750,000
|
|
2019
|
|
15,000,000
|
|
2020
|
|
21,940,158
|
|
Total minimum loan payments
|
|
$
|
40,690,158
|
|
|
|
(1)
|
Interest rates on the New Term Loan Facility are variable in nature, however, the Company is party to a fixed-pay amortizing interest rate swap having a remaining notional amount of
$30.0 million
and a non-amortizing interest rate cap with a notional amount of
$10.7 million
. If interest rates were to remain at the
September 30, 2018
level, we would receive interest payments of
$0.02 million
in
2018
,
$0.05 million
in
2019
and
$0.01 million
in
2020
of net settlements on the fixed-pay amortizing interest rate swap.
|
Litigation
From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. We operate our business online, which is subject to extensive regulation by federal and state governments.
On September 29, 2015, the Company filed suit in the Court of Common Pleas of Philadelphia County, Pennsylvania, against Beanstock Media, Inc. (“Beanstock”) and Adaptive Medias, Inc. (“Adaptive”) for collection of approximately
$10 million
, in the aggregate, due under the Media Publisher Agreement (the “Web Agreement”) entered into on September 25, 2013 and the Advertising Agreement (the “Mobile Agreement”) entered into on December 23, 2014.
Pursuant to the Web Agreement, Beanstock had the exclusive right and obligation to fill all of the Company’s remnant desktop in-page display advertising inventory on www.meetme.com (the “Site”), excluding, (i) any inventory sold to a third party under an insertion order that was campaign or advertiser specific, (ii) any inventory the Company reserved in existing and future agreements with third parties for barter transactions and as additional consideration as part of larger business development transactions, and (iii) any inventory reserved for premium advertising for the Site. Pursuant to the Mobile Agreement, Beanstock had the right and obligation to fill substantially all of the Company’s advertising inventory on its MeetMe mobile app for iOS and Android, as well as the Site when accessed using a mobile device and as optimized for mobile devices (collectively, the “App”). The Mobile Agreement did not apply to interstitially placed advertisements, advertisements on versions of the App specific to the iPad and other Apple tablet devices, other mobile apps or in-app products or features on the App, including, without limitation, offer wall features and the Company’s Social Theater business.
On September 28, 2015, Adaptive filed suit in the Superior Court of California, County of Orange, against the Company, Beanstock, et al., alleging, in pertinent part, that the Company “aided and abetted” an individual who was an officer and director of Adaptive to breach his fiduciary duty to Adaptive with respect to Adaptive joining the Mobile Agreement. Adaptive’s complaint sought from the Company
$600,000
plus unspecified punitive damages. On January 20, 2016, the Company received notice from the United States Bankruptcy Court, District of Delaware, that a Chapter 7 bankruptcy case against Beanstock had been filed on October 7, 2015. Both of the state court actions were stayed by the courts as a result of the bankruptcy filing against Beanstock. Adaptive’s suit against the Company remained stayed until Adaptive indicated that it no longer wanted to pursue the matter and, on or about November 20, 2017, filed a voluntary request for dismissal without prejudice of the action and all claims against the parties, including the Company, which dismissal was entered by the Court on the same day. The Company was not required to take any action or pay any sum in connection with the dismissal. Adaptive’s suit against the Company is, therefore, resolved.
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.
Retirement Plan
The Company maintains The Meet Group, Inc. 401(k) Retirement Plan (the “Plan”), which is a savings and investment plan intended to be qualified under the Internal Revenue Code. The Plan covers the majority of the employees of the Company. In January 2014, the Company began providing matching contributions to the Plan, based on a participant’s contribution. The Company’s 401(k) match expense totaled
$0.6 million
and
$0.5 million
for the
nine months ended September 30, 2018 and 2017
, respectively. The expense is included in sales and marketing, product development and content, and general and administrative expenses in the condensed consolidated statements of operations and comprehensive income.
Note 8—
Stockholders’ Equity
Preferred Stock
The total number of shares of preferred stock,
$.001
par value, that the Company is authorized to issue is
5,000,000
.
The Board of Directors may, without further action by the stockholders, issue a series of preferred stock and fix the rights and preferences of those shares, including the dividend rights, dividend rates, conversion rights, exchange rights, voting rights, terms of redemption, redemption price or prices, liquidation preferences, the number of shares constituting any series and the designation of such series.
As of
September 30, 2018
and
December 31, 2017
there were
no
shares of preferred stock issued and outstanding.
Common Stock
The total number of shares of common stock,
$0.001
par value, that the Company is authorized to issue is
100,000,000
.
The Company issued shares of common stock of
1,252,389
and
1,013,763
related to RSAs and PSUs during the
nine months ended September 30, 2018
and the year ended
December 31, 2017
, respectively. The Company issued shares of common stock of
366,963
and
2,080,648
related to stock option exercises during the
nine months ended September 30, 2018
and the year ended
December 31, 2017
, respectively. The Company issued shares of common stock of
675,000
related to the exercise of warrants in the year ended
December 31, 2017
.
Stock-Based Compensation
The fair values of share-based payments are estimated on the date of grant using the Black-Scholes option pricing model, based on weighted average assumptions. Expected volatility is based on historical volatility of the Company’s common stock. The risk-free rate is based on the U.S. Treasury yield curve in effect over the expected term at the time of grant. Compensation expense is recognized on a straight-line basis over the requisite service period of the award. The Company uses the simplified method to determine the expected option term since the Company’s stock option exercise experience does not provide a reasonable basis upon which to estimate the expected option term.
The Company began granting RSAs to its employees in April 2013. The cost of the RSAs is determined using the fair value of the Company’s common stock on the date of grant. Stock-based compensation expense for RSAs is amortized on a straight-line basis over the requisite service period. RSAs generally vest over a
three
-year period with
33%
vesting at the end of
one year
and the remaining vesting annually thereafter.
The Company began granting PSUs to certain employees in April 2018. PSUs are based on a relative Total Shareholder Return (“TSR”) metric over a performance period spanning
three years
from the grant date of the PSU. PSU awards will vest at the end of the performance period and will be paid immediately in shares of common stock. PSU awards are forfeited if the participant is no longer employed on the third anniversary of the grant date, except in the event of an involuntary termination, death, disability or change in control. The Company estimated the fair value of the PSU awards using a Monte-Carlo simulation model utilizing several key assumptions including expected Company and Russell 2000 Peer Group share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features.
The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future.
Stock-based compensation expense includes incremental stock-based compensation expense and is allocated on the condensed consolidated statements of operations and comprehensive income as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Sales and marketing
|
$
|
592,979
|
|
|
$
|
123,549
|
|
|
$
|
823,748
|
|
|
$
|
325,853
|
|
Product development and content
|
1,232,823
|
|
|
1,182,802
|
|
|
3,508,753
|
|
|
3,112,845
|
|
General and administrative
|
941,394
|
|
|
993,345
|
|
|
2,694,490
|
|
|
2,363,348
|
|
Total stock-based compensation expense
|
$
|
2,767,196
|
|
|
$
|
2,299,696
|
|
|
$
|
7,026,991
|
|
|
$
|
5,802,046
|
|
As of
September 30, 2018
, there was approximately
$2.2 million
,
$11.0 million
and
$1.6 million
of total unrecognized compensation cost which is expected to be recognized over a weighted-average vesting period of approximately of
1.4 years
,
2.1 years
and
2.6 years
relating to stock options, RSAs and PSUs, respectively.
Stock Compensation Plans
2018 Omnibus Incentive Plan
On June 1, 2018, the Company’s stockholders approved the 2018 Omnibus Incentive Plan (the “2018 Plan”), providing for the issuance of up to
8.8 million
shares of the Company’s common stock, including approximately
0.3 million
shares previously approved by the Company’s stockholders under the Company’s Amended and Restated 2012 Omnibus Incentive Plan (the “2012 Plan”), minus one share of common stock for every one share of common stock that was subject to an option granted after April 9, 2018 but before June 1, 2018 under the 2012 Plan, plus an additional number of shares of common stock equal to the number of options previously granted under the 2012 Plan and the Amended and Restated 2006 Stock Incentive Plan (the “2006 Stock Plan”) that either terminate, expire, or are forfeited after April 9, 2018 and any restricted stock awards that either terminate, expire, or are forfeited equal to the number of awards granted under the 2012 Plan and 2006 Stock Plan multiplied by the fungible ratio of
1.4
. As of
September 30, 2018
, there were approximately
6.7 million
shares of common stock available for grant.
Restricted Stock Awards Under 2018 Plan
A summary of RSA activity under the 2018 Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
RSAs
|
|
Number of
RSAs
|
|
Weighted-Average
Stock Price
|
Outstanding at December 31, 2017
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
1,658,201
|
|
|
4.18
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited or expired
|
|
(20,800
|
)
|
|
4.17
|
|
Outstanding and unvested at September 30, 2018
|
|
1,637,401
|
|
|
$
|
4.18
|
|
Shares are forfeited if not vested within
three years
from the date of grant and vest in
three
equal annual increments. The Company recorded stock-based compensation expense related to RSAs under the 2018 Plan of approximately
$0.7 million
and
$0.8 million
for the
three and nine months ended September 30, 2018
, respectively.
Performance Share Awards Under 2018 Omnibus Incentive Plan
The Company granted
60,000
PSUs under the 2018 Plan during the
nine months ended September 30, 2018
based on a relative TSR metric over a performance period spanning
three years
from the grant date of the PSU. PSUs will vest at the end of the performance period and will be paid immediately in shares of common stock. PSUs are forfeited if the participant is no longer employed on the third anniversary of the grant date, except in the event of an involuntary termination, death, disability or change in control.
PSU share payouts range from a threshold of
0%
to a maximum of
170%
based on the relative ranking of the Company’s TSR as compared to the TSR of the companies in the Russell 2000 Peer Group. The PSU award stipulates certain limitations to the payout
in the event the payout reaches a defined ceiling level or the Company’s TSR is negative. The estimated fair value of the PSU awards at the date of grant was
$0.3 million
. The Company estimated the fair value of the PSU awards using a Monte-Carlo simulation model utilizing several key assumptions including expected Company and Russell 2000 Peer Group share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features.
A summary of PSU awards under the 2018 Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
PSUs
|
|
Number of
PSUs
|
|
Weighted-Average
Stock Price
|
Outstanding at December 31, 2017
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
60,000
|
|
|
4.65
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited or expired
|
|
—
|
|
|
—
|
|
Outstanding at September 30, 2018
|
|
60,000
|
|
|
$
|
4.65
|
|
The Company recorded stock-based compensation expense related to PSUs under the 2018 Plan of approximately
$0.02 million
for each of the
three and nine months ended September 30, 2018
.
Amended and Restated 2012 Omnibus Incentive Plan
On December 16, 2016, the Company’s stockholders approved the 2012 Plan, providing for the issuance of up to
10.5 million
shares of the Company’s common stock, including approximately
2.1 million
shares previously approved by the Company’s stockholders under the Company’s 2006 Stock Plan, less one share of common stock for every one share of common stock that was subject to an option or other award granted after December 31, 2011 under the 2006 Stock Plan, plus an additional number of shares of common stock equal to the number of shares previously granted under the 2006 Stock Plan that either terminate, expire, or are forfeited after December 31, 2011. As of June 1, 2018, grants are no longer issued from the 2012 Plan.
A summary of stock option activity under the 2012 Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
Outstanding at December 31, 2017
|
|
3,724,892
|
|
|
$
|
3.07
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
(365,463
|
)
|
|
2.24
|
|
|
|
|
|
Forfeited or expired
|
|
(105,867
|
)
|
|
3.52
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
3,253,562
|
|
|
$
|
3.15
|
|
|
7.0
|
|
$
|
5,985,240
|
|
Exercisable at September 30, 2018
|
|
2,592,313
|
|
|
$
|
2.86
|
|
|
6.7
|
|
$
|
5,514,914
|
|
The total intrinsic values of options exercised under the 2012 Plan were
$0.6 million
and
$0.2 million
during the
nine months ended September 30, 2018 and 2017
, respectively. The Company recorded stock-based compensation expense related to options under the 2012 Plan of approximately
$0.5 million
and
$0.6 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$1.3 million
and
$1.6 million
for the
nine months ended September 30, 2018 and 2017
, respectively.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the
nine months ended September 30, 2018 and 2017
:
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
Risk-free interest rate
|
—%
|
|
1.89%
|
Expected term (in years)
|
0
|
|
6.0
|
Expected dividend yield
|
—
|
|
—
|
Expected volatility
|
—%
|
|
83%
|
Restricted Stock Awards Under 2012 Omnibus Incentive Plan
A summary of RSA activity under the 2012 Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
RSAs
|
|
Number of
RSAs
|
|
Weighted-Average
Stock Price
|
Outstanding at December 31, 2017
|
|
2,292,308
|
|
|
$
|
3.77
|
|
Granted
|
|
449,500
|
|
|
2.17
|
|
Vested
|
|
(1,019,675
|
)
|
|
3.73
|
|
Forfeited or expired
|
|
(222,850
|
)
|
|
2.98
|
|
Outstanding and unvested at September 30, 2018
|
|
1,499,283
|
|
|
$
|
3.43
|
|
Shares are forfeited if not vested within
three years
from the date of grant and vest in
three
equal annual increments. The Company recorded stock-based compensation expense related to RSAs under the 2012 Plan of approximately
$0.9 million
and
$1.1 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$3.1 million
and
$2.7 million
for the
nine months ended September 30, 2018 and 2017
, respectively.
Performance Share Awards Under 2012 Omnibus Incentive Plan
The Company granted
615,500
PSUs under the 2012 Plan during the
nine months ended September 30, 2018
based on a relative TSR metric over a performance period spanning
three years
from the grant date of the PSU. PSUs will vest at the end of the performance period and will be paid immediately in shares of common stock. PSUs are forfeited if the participant is no longer employed on the third anniversary of the grant date except in the event of an involuntary termination, death, disability or change in control.
PSU share payouts range from a threshold of
0%
to a maximum of
170%
based on the relative ranking of the Company’s TSR as compared to the TSR of the companies in the Russell 2000 Peer Group. The PSU award stipulates certain limitations to the payout in the event the payout reaches a defined ceiling level or the Company’s TSR is negative. The estimated fair value of the PSU awards at the date of grant was
$1.8 million
. The Company estimated the fair value of the PSU awards using a Monte-Carlo simulation model utilizing several key assumptions including expected Company and Russell 2000 Peer Group share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features.
A summary of PSU awards under the 2012 Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
PSUs
|
|
Number of
PSUs
|
|
Weighted-Average
Stock Price
|
Outstanding at December 31, 2017
|
|
—
|
|
|
$
|
—
|
|
Granted
|
|
615,500
|
|
|
2.94
|
|
Vested
|
|
(65,500
|
)
|
|
2.94
|
|
Forfeited or expired
|
|
—
|
|
|
—
|
|
Outstanding at September 30, 2018
|
|
550,000
|
|
|
$
|
2.94
|
|
The Company recorded stock-based compensation expense related to PSUs under the 2012 Plan of approximately
$0.3 million
and
$0.4 million
for the
three and nine months ended September 30, 2018
, respectively.
2006 Stock Incentive Plan
On June 27, 2007, the Company’s stockholders approved the 2006 Stock Plan, providing for the issuance of up to
3.7 million
shares of common stock plus an additional number of shares of common stock equal to the number of shares previously granted under the 1998 Stock Option Plan that either terminate, expire, or lapse after the date of the Board of Directors’ approval of the 2006 Stock Plan. All options granted and outstanding have been fully expensed prior to 2016.
A summary of stock option activity under the 2006 Stock Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted Average
Remaining
Contractual Life
|
|
Aggregate Intrinsic
Value
|
Outstanding at December 31, 2017
|
|
1,194,081
|
|
|
$
|
4.08
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
(1,500
|
)
|
|
4.24
|
|
|
|
|
|
Forfeited or expired
|
|
(98,170
|
)
|
|
4.98
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
1,094,411
|
|
|
$
|
3.99
|
|
|
3.0
|
|
$
|
1,066,176
|
|
Exercisable at September 30, 2018
|
|
1,050,232
|
|
|
$
|
4.01
|
|
|
3.1
|
|
$
|
1,010,952
|
|
The total intrinsic values of options exercised under the 2006 Stock Plan were
$0.001 million
and
$6.3 million
during the
nine months ended September 30, 2018 and 2017
, respectively.
Amended and Restated 2016 Inducement Omnibus Incentive Plan
On October 3, 2016, in connection with the closing of the acquisition of Skout, the Company’s Board of Directors adopted the 2016 Inducement Omnibus Incentive Plan in accordance with NASDAQ Listing Rule 5635(c)(4). At the closing of the acquisition of Skout, the Company granted stock options to purchase an aggregate of up to
355,000
shares of its common stock to
25
former Skout employees as an inducement material to becoming non-executive employees of the Company. On February 27, 2017, the Company amended and restated the 2016 Inducement Omnibus Incentive Plan (as so amended and restated, the “2016 Stock Plan”) and authorized an additional
2,000,000
shares of common stock under the 2016 Stock Plan. At the closing of the if(we) Acquisition, the Company granted options to purchase an aggregate of up to
75,000
shares of its common stock and restricted stock awards representing an aggregate of
717,500
shares of common stock to
83
former if(we) employees as an inducement material to becoming non-executive employees of the Company. At the closing of the Lovoo Acquisition, the Company granted restricted stock awards representing an aggregate of
531,500
shares of common stock to
96
former Lovoo employees as an inducement material to becoming non-executive employees of the Company.
Options Under The 2016 Stock Plan
A summary of stock option activity under the 2016 Stock Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Number of
Stock
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Life
|
|
Aggregate
Intrinsic Value
|
Outstanding at December 31, 2017
|
|
734,168
|
|
|
$
|
5.18
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
Forfeited or expired
|
|
(248,332
|
)
|
|
5.16
|
|
|
|
|
|
Outstanding at September 30, 2018
|
|
485,836
|
|
|
$
|
5.19
|
|
|
8.3
|
|
$
|
40,134
|
|
Exercisable at September 30, 2018
|
|
272,502
|
|
|
$
|
5.27
|
|
|
8.3
|
|
$
|
20,134
|
|
The Company recorded stock-based compensation expense related to options under the 2016 Stock Plan of approximately
$0.1 million
and
$0.3 million
for the
three months ended September 30, 2018 and 2017
, respectively, and
$0.3 million
and
$0.6 million
for the
nine months ended September 30, 2018 and 2017
, respectively.
The fair value of each stock option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for the
three months ended September 30, 2018 and 2017
:
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
Risk-free interest rate
|
—%
|
|
1.89%
|
Expected term (in years)
|
0
|
|
6.0
|
Expected dividend yield
|
—
|
|
—
|
Expected volatility
|
—%
|
|
84%
|
Restricted Stock Awards Under The 2016 Stock Plan
A summary of RSA activity under the 2016 Stock Plan during the
nine months ended September 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
RSAs
|
|
Number of
RSAs
|
|
Weighted-Average
Stock Price
|
Outstanding at December 31, 2017
|
|
1,242,250
|
|
|
$
|
4.62
|
|
Granted
|
|
—
|
|
|
—
|
|
Vested
|
|
(240,540
|
)
|
|
5.36
|
|
Forfeited or expired
|
|
(356,210
|
)
|
|
5.14
|
|
Outstanding and unvested at September 30, 2018
|
|
645,500
|
|
|
$
|
4.06
|
|
Shares are forfeited if not vested within
three years
from the date of grant, and vest in
three
equal annual increments. The Company recorded stock-based compensation expense related to RSAs under the 2016 Stock Plan of approximately
$0.2 million
and
$0.4 million
for the
three months ended September 30, 2018 and 2017
and
$0.9 million
for each of the
nine months ended September 30, 2018 and 2017
.
Note 9— Warrant Transactions
In March 2006, the Company issued warrants to purchase
1,000,000
shares of common stock, which were subsequently modified on February 19, 2010. In March, April and May 2017, F. Stephen Allen exercised his remaining
425,000
warrants with an exercise price of
$3.55
resulting in the Company issuing
425,000
shares of common stock. In June 2017, OTA LLC exercised its remaining
250,000
warrants with an exercise price of
$3.55
resulting in the Company issuing
250,000
shares of common stock. As of
September 30, 2018
and
December 31, 2017
, there were
no
warrants issued and outstanding.
Note 10— Income Taxes
The Company recorded a net income tax expense of approximately
$0.2 million
and a net income tax benefit of approximately
$2.2 million
for the
three months ended September 30, 2018 and 2017
, respectively. In the current quarter, the actual effective tax rate for the year to date period was used as the Company could not reliably estimate an estimated annual effective tax rate. The net income tax expense recorded during the
three months ended September 30, 2018
is primarily related to the mix of earnings between the US and Germany and the estimated global intangible low-taxed income (“GILTI”).
The Company recorded a net income tax expense of approximately
$0.5 million
and a net income tax benefit of approximately
$4.9 million
for the
nine months ended September 30, 2018 and 2017
, respectively. The net income tax benefit recorded during the
nine months ended September 30, 2018
is primarily related to the mix of earnings between the US and Germany, the estimated GILTI tax and discrete tax expense related to a shortfall on stock-based compensation.
For the
nine months ended September 30, 2018
, the Company’s effective tax rate (“AETR”) from operations is
(6.0)%
, compared to
115.6%
for the
nine months ended September 30, 2017
. The difference between the Company’s effective tax rate and the current U.S. statutory rate of
21%
is primarily related to permanent addback items and the difference in tax rates between the U.S. and Germany. The difference in the effective tax rate for the
nine months ended September 30, 2018
compared to the
nine months ended September 30, 2017
is a result of permanent differences as well as the change in the federal tax rate from
35%
to
21%
and the inclusion of Lovoo.
As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets (primarily federal and state net operating losses (“NOLs”). As of
September 30, 2018
and
December 31, 2017
, the Company has a valuation allowance related to acquired state NOLs that the Company believes it is not more likely than not will be realized.
During the
three and nine months ended September 30, 2018 and 2017
, the Company had
no
material changes in uncertain tax positions.
The Tax Cuts and Jobs Act (the “Act”) was enacted on December 22, 2017. The Act reduces the U.S. federal corporate income tax rate from
35%
to
21%
, requires companies to pay a one-time transition tax on the accumulated earnings of certain
foreign subsidiaries and creates new taxes on certain foreign-sourced earnings. As of
December 31, 2017
, the Company made a reasonable estimate of the one-time transition tax on accumulated foreign earnings as well as the impact of the Act on its existing deferred tax balances. As discussed below, the Company has not completed its accounting for the tax effects of the Act as of
September 30, 2018
. The Company will finalize its U.S. tax return during the fourth quarter and expects to complete its accounting within the prescribed measurement period.
The one-time transition tax is based on the Company’s total post-acquisition earnings and profits (“E&P”) of its German subsidiaries in October 2017, for which the accrual of U.S. income taxes had previously been deferred. The Company recorded a provisional amount for its one-time transition tax liability at
December 31, 2017
which was considered immaterial, and has not adjusted this amount as of
September 30, 2018
. The Company has not yet completed its calculation of the total foreign E&P for these foreign subsidiaries. Further, the transition tax is impacted in part by the amount of those earnings held in cash and other specified assets. Accordingly, the Company’s estimate of the one-time transition tax may change when it finalizes the calculation of the foreign E&P previously deferred from U.S. federal taxation and finalizes the amounts held in cash or other specified assets.
As of
December 31, 2017
, the Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is expected to be
21%
. A provisional tax expense of
$7.7 million
was recorded, and no adjustment was recorded to this estimate in during the
nine months ended September 30, 2018
. The Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances.
The GILTI provisions of the Act impose a tax on the GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to
either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. No estimate was recorded for GILTI as of
December 31, 2017
. The Company recorded a provision for tax expense resulting from GILTI provisions and future income subject to the GILTI provisions of approximately
$0.2 million
for the
nine months ended September 30, 2018
.
Note 11—
Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives
The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings.
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign exchange rates. These fluctuations may impact the value of the Company’s cash receipts and payments in terms of the Company’s functional currency. The Company enters into derivative financial instruments to protect the value or fix the amount of certain liabilities in terms of its functional currency, the U.S. dollar.
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During
2018
, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components is presented in interest expense. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. Between
September 30, 2018
and
September 30,
2019
, the Company estimates that an additional
$0.2 million
will be reclassified as a decrease to interest expense.
As of
September 30, 2018
, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
|
|
|
|
|
|
|
|
|
|
Number of
|
|
At Inception
|
|
At September 30, 2018
|
Interest Rate Derivative
|
|
Instruments
|
|
Notional
|
|
Notional
|
Interest rate swaps
|
|
1
|
|
$45,000,000
|
|
$30,000,000
|
Interest rate caps
|
|
1
|
|
$15,000,000
|
|
$10,690,158
|
Cash Flow Hedges of Foreign Exchange Risk
The Company is exposed to fluctuations in various foreign currencies against its functional currency, the U.S. dollar. The Company uses foreign currency derivatives including cross-currency interest rate swaps to manage its exposure to fluctuations in the USD-EUR exchange rate. Cross-currency interest rate swaps involve exchanging fixed rate interest payments for fixed rate interest receipts both of which will occur at the USD-EUR forward exchange rates in effect upon entering into the instrument. The Company designates these derivatives as cash flow hedges of foreign exchange risks.
For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next 12 months, the Company estimates that an additional
$0.8 million
will be reclassified as a decrease to interest expense.
As of
September 30, 2018
, the Company had the following outstanding foreign currency derivatives that were used to hedge its foreign exchange risks:
|
|
|
|
|
|
|
|
Foreign Currency Derivative
|
|
Number of Instruments
|
|
Pay Fixed Notional
|
|
Receive Fixed Notional
|
Cross-currency interest rate swap
|
|
1
|
|
€42,000,517
|
|
$48,750,000
|
|
|
|
|
(amortizing to €38,544,321 as of September 30, 2018)
|
|
(amortizing to $44,750,000 as of September 30, 2018)
|
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of
September 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
September 30, 2018
|
|
December 31, 2017
|
Derivatives Designated as Hedging Instruments
|
|
Balance Sheet Location
|
|
Fair Value
|
|
Fair Value
|
|
Fair Value
|
|
Fair Value
|
Interest rate products
|
|
Prepaid expenses and other current assets/Accrued liabilities
|
|
$
|
201,621
|
|
|
$
|
243
|
|
|
$
|
—
|
|
|
$
|
(71,915
|
)
|
Interest rate products
|
|
Other assets
|
|
201,019
|
|
|
84,058
|
|
|
—
|
|
|
—
|
|
Cross currency contract
|
|
Prepaid expenses and other current assets
|
|
716,484
|
|
|
655,305
|
|
|
—
|
|
|
—
|
|
Cross currency contract
|
|
Long-term derivative liability
|
|
—
|
|
|
—
|
|
|
(1,822,202
|
)
|
|
(2,995,657
|
)
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
1,119,124
|
|
|
$
|
739,606
|
|
|
$
|
(1,822,202
|
)
|
|
$
|
(3,067,572
|
)
|
The tables below presents the effect of cash flow hedge accounting on accumulated other comprehensive income (loss) for the
three and nine months ended September 30, 2018 and 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Subtopic 815-20 Hedging Relationships
|
|
Amount of Gain (Loss) Recognized in OCI on Derivatives
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Derivatives in Cash Flow Hedging Relationships
|
|
|
|
|
|
|
|
|
Interest rate products
|
|
$
|
38,737
|
|
|
$
|
—
|
|
|
$
|
402,522
|
|
|
$
|
—
|
|
Cross currency contract
|
|
518,178
|
|
|
—
|
|
|
1,667,652
|
|
|
—
|
|
Total
|
|
$
|
556,915
|
|
|
$
|
—
|
|
|
$
|
2,070,174
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Interest expense
|
|
$
|
51,661
|
|
|
$
|
—
|
|
|
$
|
30,679
|
|
|
$
|
—
|
|
Interest expense
|
|
216,184
|
|
|
—
|
|
|
654,489
|
|
|
—
|
|
Gain (loss) on foreign currency transactions
|
|
308,444
|
|
|
—
|
|
|
1,453,590
|
|
|
—
|
|
Total
|
|
$
|
576,289
|
|
|
$
|
—
|
|
|
$
|
2,138,758
|
|
|
$
|
—
|
|
The table below presents the effect of the Company’s derivative financial instruments on the income statement for the
three and nine months ended September 30, 2018 and 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2018
|
|
Interest Expense
|
|
Foreign Currency Adjustment
|
|
Interest Expense
|
|
Foreign Currency Adjustment
|
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded
|
$
|
(559,345
|
)
|
|
$
|
(6,229
|
)
|
|
$
|
(1,838,325
|
)
|
|
$
|
101,030
|
|
Gain (loss) on cash flow hedging relationships in Subtopic 815-20
|
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income
|
$
|
237,734
|
|
|
$
|
308,444
|
|
|
$
|
655,058
|
|
|
$
|
1,453,590
|
|
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring
|
$
|
30,110
|
|
|
$
|
—
|
|
|
$
|
30,110
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2017
|
|
Interest Expense
|
|
Foreign Currency Adjustment
|
|
Interest Expense
|
|
Foreign Currency Adjustment
|
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded
|
$
|
(244,361
|
)
|
|
$
|
9,357
|
|
|
$
|
(421,947
|
)
|
|
$
|
(2,072
|
)
|
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
|
|
|
|
|
|
|
|
Interest contracts
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As of
September 30, 2018
, the fair value of derivatives in a net
liability
position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was
$1.1 million
. As of
September 30, 2018
, the Company had
not posted any collateral related to these agreements. If the Company had breached any of credit-risk related provisions at
September 30, 2018
, it could have been required to settle its obligations under the agreements at their termination value of
$1.1 million
.
Note 12—
Revenue
The Company recognizes revenue when control of the promised good or service is transferred to the customer in an amount that the Company expects to be entitled in exchange for the good or service.
In accordance with the requirements of ASC 606, the disclosure of the impact of adoption on the Company’s consolidated income statement and balance sheet is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
ASC 606
|
|
ASC 605
|
|
Effect of Change
|
|
ASC 606
|
|
ASC 605
|
|
Effect of Change
|
Income Statement
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
45,716,053
|
|
|
$
|
45,716,448
|
|
|
$
|
(395
|
)
|
|
$
|
126,155,591
|
|
|
$
|
126,155,487
|
|
|
$
|
104
|
|
The following table presents the Company’s revenues disaggregated by revenue source for the
three and nine months ended September 30, 2018 and 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
(1)
|
|
2018
|
|
2017
(1)
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
User pay revenue
|
$
|
28,058,843
|
|
|
61.4
|
%
|
|
$
|
8,582,700
|
|
|
26.6
|
%
|
|
$
|
76,034,926
|
|
|
60.3
|
%
|
|
$
|
18,342,865
|
|
|
21.9
|
%
|
Advertising
|
17,657,210
|
|
|
38.6
|
%
|
|
23,663,772
|
|
|
73.4
|
%
|
|
50,120,665
|
|
|
39.7
|
%
|
|
65,291,872
|
|
|
78.1
|
%
|
Total revenue
|
$
|
45,716,053
|
|
|
100.0
|
%
|
|
$
|
32,246,472
|
|
|
100.0
|
%
|
|
$
|
126,155,591
|
|
|
100.0
|
%
|
|
$
|
83,634,737
|
|
|
100.0
|
%
|
(1) Prior period amounts have not been adjusted under the modified retrospective adoption method.
User Pay Revenue
User pay revenue is earned from in-app purchase products and subscriptions sold to mobile application and website users. The Company offers in-app products such as Credits, Points, Gold and Icebreakers (collectively, the “In-App Products”). Users purchase the In-App Products to exchange for the Company’s virtual products. The In-App Products allow users to engage with other users on the applications and in live video, and put users in the spotlight, helping them get more attention from the community in order to meet more people faster. Platform users do not own the In-App Products but have a limited right to use the In-App Products on virtual products offered for sale on the Company’s platforms. Credits may be gifted to other user accounts in the form of Diamonds, and Diamonds may be redeemed for cash. Except for Diamonds, the In-App Products are not transferable, cannot be sold or exchanged outside of the Company’s platforms, are not redeemable for any sum of money, and can only be used on the Company’s platforms. The In-App Products are recorded in deferred revenue when purchased and recognized as revenue over time when: (i) the In-App Products are used by the customer; or (ii) the Company determines the likelihood of the In-App Products being redeemed by the customer is remote (breakage) and there is not a legal obligation to remit the unredeemed In-App Products to the relevant jurisdiction. The determination of the breakage rate is based upon Company-specific historical redemption patterns. Breakage is recognized in revenue as the In-App Products are used on a pro rata basis over a
three
or
six
-month period (life of the user) beginning at the date of the sale and are included in revenue in the condensed consolidated statements of operations and comprehensive income (loss). Breakage recognized during the
nine months ended September 30, 2018 and 2017
was
$2.8 million
and
$1.0 million
, respectively. For MeetMe+, Tagged, Skout and Lovoo subscription based products, the Company recognizes revenue over the term of the subscription.
Under ASC 606, user pay revenue has a single performance obligation. Subscriptions provide customers with premium access to the application and include credits on MeetMe+ while In-App Product purchases are satisfied by standing ready to allow users to exchange the In-App Products for virtual products. The consideration received for these services is fixed at the time of purchase. The customer simultaneously receives and consumes the benefits of user pay features as the Company performs the services. Revenue is recorded in deferred revenue when purchased by customer and recognized as revenue over time as the performance obligation is satisfied.
The adoption of ASC 606 primarily affected the timing of revenue recognition for MeetMe+ subscriptions, which were historically recognized using the revenue recognition methodology for credits. MeetMe+ subscription revenue will be recognized over the subscription period using a mid-month convention beginning on January 1, 2018. The change in revenue recognition methodology resulted in a cumulative-effect adjustment of
$0.02 million
recognized as a credit to retained earnings and a reduction to deferred revenue on January 1, 2018. The adoption of ASC 606 did not have an impact on the: (i) subscription revenue for Tagged, Skout and Lovoo or (ii) in-app purchases revenue for MeetMe, Tagged, Skout and Lovoo.
Advertising Revenue
Advertising revenue is comprised of mobile and web advertising. Within each revenue stream, the Company has one performance obligation to publish advertisements as specified by the respective contracts. The amount of consideration that the Company expects to receive for the services is variable based on the volume of advertisement impressions. The Company does not offer any discounts or free impressions and has not historically experienced any collectability issues.
The Company also recognizes revenue from cross-platform/social theater and cost-per-action (“CPA”) offers. Each of these revenue streams has one performance obligation. For cross-platform/social theater contracts, the consideration promised is fixed per ad campaign and term, and required services to be delivered. However, the monthly revenue could vary depending on the actual delivery of impressions throughout the contract term. These contracts are typically based on cost per thousand (“CPM”) rates and number of impressions served due to traffic volume and the specific ad campaign. For CPA offers, the consideration promised is variable based on a revenue share rate, and/or based on the number of actions delivered per the agreement. As such, the Company recognizes all actual advertising revenues from impressions or actions delivered on a monthly basis rather than estimating revenue at the beginning of the period.
The Company has transactions with several partners that qualify for principal agent considerations. The Company recognizes revenue, net of amounts retained by the third-party partners, pursuant to revenue sharing agreements with advertising networks. The form of the agreements was such that the Company provided services in exchange for a fee. The Company determines only the fee for providing its services to advertising agencies and has no latitude in establishing prices with third party advertisers.
In instances where the Company works directly with an advertiser, revenue is recognized on a gross basis. The Company is the primary obligor in arrangements made with direct advertisers, as there is no third-party facilitating or managing the sales process. The Company is solely responsible for determining price, product or service specifications, and which advertisers to use. The Company assumes all credit risk in the sales arrangements made with direct advertisers.
The Company has determined that the performance obligation under the advertising revenue streams is recognized ratably over time utilizing the “Right to Invoice” practical expedient as customers simultaneously consume and receive benefits of the advertisement impressions.
The adoption of ASC 606 did not result in a transition adjustment on the recognition of advertising revenues as the Company’s revenue recognition under ASC 605 is consistent with the guidance under ASC 606.
Deferred Revenue
The Company records deferred revenue when the consideration for a good or service is received in advance of its performing the obligation. The deferred revenue balance for the
nine months ended September 30, 2018
increased
$71.7 million
due to subscription and in-app purchases consideration received in advance of providing the good or service to the customers. This amount was offset by
$71.0 million
revenue recognized from deferred revenue due to performance obligations satisfied during the
nine months ended September 30, 2018
.
ASC 606 Practical Expedient Elections
The Company elected the following practical expedients in applying ASC 606 to its revenue streams:
Portfolio Approach - Contracts within each revenue stream have similar characteristics and the Company expects that the effects on the financial statements would not differ materially from applying this guidance to the individual contracts. As such, the Company applied the portfolio approach to its contracts.
Sales Tax Exclusion from Transaction Price - The Company does not collect sales tax for advertising revenue. Sales taxes are added to the transaction price by the payment processors for subscription and in-app purchases, when applicable. However, these sales taxes are not included in the Company’s consideration amount.
Contract Costs - The Company does not incur costs to obtain or fulfill contracts in most revenue streams. There are sales commissions incurred for Social Theater contracts, however these contracts are typically for a period of less than a year. As the costs are expected to be recognized is one year or less, these costs are recorded within sales and marketing expenses rather than being deferred and recognized over the term of the contract.
Right to Invoice - Revenue from advertising contracts is recognized over time based on the Company’s performance completed to date. The Company will apply the invoice expedient and recognize revenue in the amount to which the entity has a right to invoice as measured by the amount of impressions or actions delivered within each period.
Unsatisfied Performance Obligations - The Company’s disclosures exclude the value of unsatisfied performance obligations for (i) its contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for performance to date.