Form 8-K RetailMeNot, Inc. For: Aug 05

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 5, 2015

 

 

RETAILMENOT, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		001-36005		26-0159761
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S Employer Identification No.)

301 Congress Avenue, Suite 700

Austin, Texas 78701

(Address of principal executive offices, including zip code)

(512) 777-2970

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02.

Results of Operations and Financial Condition.

On August 5, 2015, RetailMeNot, Inc. (the “Company”) issued an earnings release reporting its preliminary results of operations and posted financial information and commentary from G. Cotter Cunningham, its Chief Executive Officer, and Louis J. Agnese, III, its interim Chief Financial Officer, on its investor website, www.investor.retailmenot.com, each for the fiscal quarter ended June 30, 2015. A copy of the earnings release and financial information and commentary is furnished herewith as Exhibit 99.1 and 99.2, respectively.

The information furnished in this Current Report under this Item 2.02 and the exhibits attached hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01.

Financial Statements and Exhibits

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Earnings Release
99.2		Management Commentary

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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.

 

						RETAILMENOT, INC.
Date: August 5, 2015						/s/ Louis J. Agnese, III
						Louis J. Agnese, III Interim Chief Financial Officer and Secretary

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Earnings Release
99.2		Management Commentary

Exhibit 99.1

RetailMeNot Announces Second Quarter 2015 Financial Results

 

•

Mobile Online Transaction Net Revenues grew 91% over the prior year period

 

•

In-Store + Advertising Net Revenues grew 72% over the prior year period

 

•

GAAP EPS loss of $0.03; non-GAAP EPS of $0.09

 

•

Adjusted EBITDA of $10.6 million; adjusted EBITDA margin of 20%

AUSTIN, Texas, August 5, 2015 — RetailMeNot, Inc. (NASDAQ: SALE), the operator of the world’s largest marketplace for digital offers, today announced its financial results for the second quarter ended June 30, 2015.

Second Quarter Financial Results Highlights and Key Operating Metrics

(All comparisons are made to the second quarter of 2014 unless otherwise noted)

 

•

Total net revenues declined 11% to $53.2 million.

 

-

In-store + advertising net revenues increased 72% to $9.6 million, representing 18% of total net revenues.

 

-

Mobile online transaction net revenues increased 91% to $4.9 million, representing 9% of total net revenues.

 

-

Desktop online transaction net revenues, which includes tablet, declined 25%, to $38.6 million, representing 73% of total net revenues.

 

•

Net revenues from international markets were slightly down, totaling $11.6 million, representing 22% of total net revenues.

 

•

GAAP net loss was $1.6 million, compared to GAAP net income of $4.3 million.

 

•

Non-GAAP net income was $5.0 million, compared to $11.6 million.

 

•

EPS was a loss of $0.03 per share, based on 53.5 million fully-diluted, weighted-average shares outstanding.

 

•

Non-GAAP EPS was $0.09 per share, based on 54.7 million fully-diluted, weighted-average shares outstanding.

 

•

Adjusted EBITDA was $10.6 million, compared to $19.7 million and representing 20% of total net revenues.

 

•

Total visits grew to 164.0 million, up 6%.

 

-

Desktop visits in the quarter declined 16% to 97.2 million.

 

-

Mobile visits in the quarter increased 72% to 66.8 million - or 41% of total visits.

 

•

Mobile unique visitors grew 44% totaling 18.4 million.

“We continued to drive strong mobile, in-store and advertising revenue during the second quarter, but weakness in organic search, which began in late May, negatively impacted both our desktop and mobile web traffic resulting in disappointing overall results,” said Cotter Cunningham, CEO & Founder, RetailMeNot, Inc. “Given the change in search traffic within the quarter, we felt it was important to make some adjustments designed to right-size our cost structure and improve execution without reducing our investment in growth. We continue to generate solid operating cash flow and will opportunistically utilize our stock repurchase plan as an efficient use of capital while we transition the business and return to growth.”

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Business Outlook

Third Quarter 2015

 

•

Total net revenues are expected to be in the range of $47.5 to $50.0 million, or a decline of 14% at the mid-point.

 

•

Adjusted EBITDA is expected to be in the range of $5.0 to $7.0 million, or adjusted EBITDA margins of 12% at the mid-point.

Full Year 2015

The company is reducing guidance for the full year as follows:

 

•

Total net revenues are expected to be in the range of $231.0 to $239.0 million, or a decline of 11% at the mid-point.

 

•

Adjusted EBITDA is expected to be in the range of $56.0 to $64.0 million, or adjusted EBITDA margins of 26% at the mid-point.

The above statements are based on current expectations and actual results may differ materially as explained in “Forward-looking Statements” below. Information about RetailMeNot’s use of non-GAAP financial measures is provided below under the caption “Use of Non-GAAP Financial Measures”.

Quarterly Conference Call

RetailMeNot will host a webcast to discuss its second quarter 2015 financial results and business outlook today at 7:00 a.m. Central Time (8:00 a.m. Eastern Time).

A live webcast of the conference call can be accessed within the investor relations section of the RetailMeNot website at http://investor.retailmenot.com. This webcast will contain forward-looking statements and other material information regarding the company’s financial and operating results. Additionally, in advance of the conference call, RetailMeNot will post second quarter 2015 Management Commentary that can be accessed via the link above.

Following completion of the call, a recorded replay of the webcast will be available on the website at http://investor.retailmenot.com. A replay of the call will be available beginning at 9:30 a.m. Central Time on August 5, 2015 through November 5, 2015 at 10:59 p.m. Central Time. To listen to the telephone replay, call (877) 344-7529 within the US, (855) 669-9658 in Canada or (412) 317-0088 if calling internationally. Replay access code 10069108.

About RetailMeNot, Inc.

RetailMeNot, Inc. (http://www.retailmenot.com/corp/) operates the world’s largest marketplace for digital offers. The company enables consumers across the globe to find hundreds of thousands

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of digital offers for their favorite retailers and brands. During the 12 months ended June 30, 2015, RetailMeNot, Inc. experienced over 730 million visits to its websites, and during the three months ended June 30, 2015, RetailMeNot, Inc. averaged 18.4 million mobile unique visitors per month. In 2014, RetailMeNot, Inc. estimates $4.4 billion in paid retailer sales were attributable to consumer traffic from digital offers in its marketplace. The RetailMeNot, Inc. portfolio includes RetailMeNot.com, the largest digital offer marketplace in the United States; RetailMeNot.ca in Canada; VoucherCodes.co.uk, the largest digital offers marketplace in the United Kingdom; Deals.com in Germany; Actiepagina.nl, a leading digital offers site in the Netherlands; Bons-de-Reduction.com and Ma-Reduc.com, leading digital offers sites in France; Poulpeo.com, a leading digital offers site with cash back in France; andDeals2Buy.com, a digital offers site in North America. RetailMeNot, Inc. is listed on the NASDAQ stock exchange under the ticker symbol “SALE.” Investors interested in learning more about the company can visit http://investor.retailmenot.com.

Key Operating Metrics

Visits. RetailMeNot defines a visit as a group of interactions that take place on one of RetailMeNot Inc.’s websites from computers, smartphones, tablets or other mobile devices within a given time frame as measured by Google Analytics, a product that provides digital marketing intelligence. A single visit can contain multiple page views, events, social interactions and e-commerce transactions. A single visitor can open multiple visits. Visits can occur on the same day, or over several days, weeks or months. As soon as one visit ends, there is then an opportunity to start a new visit. A visit ends either through the passage of time or a campaign change, with a campaign generally meaning arrival via search engine, referring site or campaign-tagged information. A visit ends through passage of time either after 30 minutes of inactivity or at midnight Pacific Time. A visit ends through a campaign change if a visitor arrives via one campaign or source, leaves the site, and then returns via another campaign or source. Visits for the period do not include interactions through our mobile applications.

Mobile Unique Visitors. This amount represents the average number of mobile unique visitors per month for the three month period ending June 30, 2015. RetailMeNot counts each of the following as a mobile unique visitor: (i) the first time a specific mobile device accesses one of our mobile applications during a calendar month, and (ii) the first time a specific mobile device accesses one of our mobile websites using a specific web browser during a calendar month. If a mobile device accesses more than one of our mobile websites or mobile applications in a single calendar month, the first access to each such mobile website or mobile application is counted as a mobile unique visitor as they are tracked separately for each mobile domain. We measure mobile unique visitors with a combination of internal data sources and Google Analytics data.

Use of Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, this document includes references to Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income

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(loss) per share, all of which are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the tables provided below in this release.

RetailMeNot defines adjusted EBITDA as net income (loss) plus depreciation, amortization of intangible assets, stock-based compensation expense, third-party acquisition-related costs, other non-cash operating expenses (including compensation arrangements entered into in connection with acquisitions), net interest expense, other non-operating income or expense (including net foreign exchange gains and losses) and income taxes.

RetailMeNot discloses adjusted EBITDA because it is a key measure used by RetailMeNot and its board of directors to understand and evaluate RetailMeNot’s financial and operating performance, establish budgets and operational goals and as an element in determining executive compensation. RetailMeNot believes adjusted EBITDA also facilitates period-to-period comparisons of operations that could otherwise be masked by the effect of the expenses that RetailMeNot excludes in this non-GAAP financial measure and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Our presentation of non-GAAP net income (loss) and non-GAAP net income (loss) per share excludes the impact of amortization of purchased intangible assets, stock-based compensation expense, third party acquisition-related costs, other non-cash operating expenses (including compensation arrangements entered into in connection with acquisitions) and income taxes, net of the tax effect of the adjustments above. These measures are not key metrics used by RetailMeNot or its board of directors to measure financial or operating performance or otherwise manage the business. However, RetailMeNot provides non-GAAP net income (loss) and non-GAAP net income (loss) per share as supplemental information for investors, as they facilitate period-to-period comparisons of operations that could otherwise be masked by the effect of the expenses that RetailMeNot excludes in these non-GAAP financial measures and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of RetailMeNot’s results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share alongside other financial performance measures, including various cash flow metrics, net income (loss) and RetailMeNot’s other GAAP results.

Forward-looking Statements

This release contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding RetailMeNot’s strategy, future operations, future financial position, future net revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,”

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“predict,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about management’s estimates regarding future net revenues, adjusted EBITDA and other financial performance, visits, mobile unique visitors, e-mail subscribers, other consumer engagement metrics, new product and content offerings and other statements about management’s beliefs, intentions or goals. RetailMeNot may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on RetailMeNot’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to, (1) RetailMeNot’s ability to attract visitors to its websites from search engines; (2) RetailMeNot’s ability to monetize digital offers available through its mobile solutions; (3) RetailMeNot’s ability to attract and retain paid retailers and maintain its relationships with performance marketing networks; (4) risks related to RetailMeNot’s ability to manage its growth, including accurately planning and forecasting its financial results; (5) RetailMeNot’s ability to obtain and maintain digital offer content and maintain the positive perception of its brand; (6) the competitive environment for RetailMeNot’s business; (7) changes in consumer sentiment regarding RetailMeNot’s use of cookies; (8) RetailMeNot’s need to manage regulatory, tax and litigation risks, including regulations imposing sales tax on e-commerce or m-commerce and ongoing litigation; (9) RetailMeNot’s ability to protect consumer data and its intellectual property; (10) RetailMeNot’s ability to manage international business uncertainties; (11) the impact and integration of future acquisitions; and (12) other risks and potential factors that could affect RetailMeNot’s business and financial results identified in RetailMeNot’s filings with the Securities and Exchange Commission (the “SEC”), including its quarterly report on Form 10-Q filed with the SEC on May 7, 2015. Additional information will also be set forth in RetailMeNot’s future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that RetailMeNot makes with the SEC. RetailMeNot does not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements contained herein.

Investor Contact

Michael Magaro

RetailMeNot, Inc.

[email protected]

(512) 777-2899

Media Contact

Brian Hoyt

RetailMeNot, Inc.

[email protected]

(512) 777-2957

— RMNSALE-F —

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RetailMeNot, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Net revenues		$	53,180			$	59,506			$	113,564			$	120,776
Costs and expenses:
Cost of net revenues(1)			5,176				4,648				10,522				9,078
Product development(1)			13,072				12,980				26,392				23,686
Sales and marketing(1)			22,636				19,195				44,277				40,367
General and administrative(1)			9,712				10,291				19,282				19,638
Amortization of purchased intangible assets			2,739				3,194				5,365				6,637
Other operating expenses			763				1,112				1,528				2,460
Total costs and expenses			54,098				51,420				107,366				101,866
Income from operations			(918	)			8,086				6,198				18,910
Other income (expense):
Interest expense, net			(492	)			(494	)			(913	)			(1,025	)
Other income (expense), net			(154	)			(328	)			(397	)			(300	)
Income (loss) before income taxes			(1,564	)			7,264				4,888				17,585
Provision for income taxes			(27	)			(2,938	)			(2,420	)			(7,184	)
Net income (loss)			(1,591	)			4,326				2,468				10,401
Preferred stock dividends on participating preferred stock			—				—				—				—
Total undistributed earnings (loss)			(1,591	)			4,326				2,468				10,401
Undistributed earnings allocated to participating preferred stock			—				—				—				—
Net income (loss) attributable to common stockholders			(1,591	)			4,326				2,468				10,401
Net income (loss) per share attributable to common stockholders:
Basic		$	(0.03	)		$	0.08			$	0.05			$	0.19
Diluted		$	(0.03	)		$	0.08			$	0.04			$	0.19
Weighted average number of shares used in computing net income (loss) per share:
Basic			53,482				53,791				53,754				53,472
Diluted			53,482				55,377				54,891				55,455

RetailMeNot, Inc.

Condensed Consolidated Statements of Operations (continued)

(Unaudited, in thousands)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
(1) Includes stock-based compensation as follows:
Cost of net revenues		$	530			$	470			$	1,119			$	811
Product development			2,074				1,896				4,333				3,220
Sales and marketing			1,525				1,476				2,947				2,714
General and administrative			2,415				2,524				4,958				4,635
Total		$	6,544			$	6,366			$	13,357			$	11,380

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RetailMeNot, Inc.

Reconciliation of Adjusted EBITDA

(Unaudited, in thousands)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Net income (loss)		$	(1,591	)		$	4,326			$	2,468			$	10,401
Depreciation and amortization			4,253				4,086				8,179				8,290
Stock-based compensation expense			6,544				6,366				13,357				11,380
Third party acquisition-related costs			—				—				55				—
Other operating expenses			763				1,112				1,528				2,460
Interest expense, net			492				494				913				1,025
Other income (expense), net			154				328				397				300
Provision for income taxes			27				2,938				2,420				7,184
Adjusted EBITDA		$	10,642			$	19,650			$	29,317			$	41,040

RetailMeNot, Inc.

Reconciliation of Non-GAAP Net Income and Non-GAAP Diluted EPS

(Unaudited, in thousands, except per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
GAAP Income (loss) before income taxes			(1,564	)			7,264				4,888				17,585
GAAP provision for income taxes			(27	)			(2,938	)			(2,420	)			(7,184	)
GAAP Net income (loss)		$	(1,591	)		$	4,326			$	2,468			$	10,401
Non-GAAP adjustments to net income:
Amortization of purchased intangibles			2,739				3,194				5,365				6,637
Stock-based compensation expense			6,544				6,366				13,357				11,380
Third party acquisition-related costs			—				—				55				—
Other operating expenses			763				1,112				1,528				2,460
Less: Tax effect of adjustments above			(3,467	)			(3,390	)			(7,011	)			(6,653	)
Total non-GAAP net income		$	4,988			$	11,608			$	15,762			$	24,225
Diluted net income (loss) per share
GAAP		$	(0.03	)		$	0.08			$	0.04			$	0.19
Non-GAAP		$	0.09			$	0.21			$	0.29			$	0.44
Shares used in non-GAAP diluted EPS calculation:
Weighted-average shares outstanding used in calculating GAAP diluted EPS			53,482				55,377				54,891				55,455
Additional dilutive securities for non-GAAP diluted EPS			1,219				—				—				—
Weighted-average shares from assumed conversion of preferred stock prior to IPO			—				—				—				—
Weighted-average shares outstanding used in calculating non-GAAP diluted EPS			54,701				55,377				54,891				55,455
Reconciliation of non-GAAP effective tax rate:
GAAP Effective tax rate			(1.7	)%			40.4	%			49.5	%			40.9	%
Tax effect of non-GAAP adjustments to net income			42.9	%			(5.1	)%			(12.1	)%			(4.5	)%
Non-GAAP effective tax rate			41.2	%			35.3	%			37.4	%			36.4	%

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RetailMeNot, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands)

 

		As of June 30,				As of December 31,
		2015				2014
Assets
Current assets:
Cash and cash equivalents		$	279,817			$	244,482
Accounts receivable, net			38,337				69,603
Prepaids and other current assets, net			16,454				14,930
Total current assets			334,608				329,015
Property and equipment, net			20,428				16,949
Intangible assets, net			68,983				70,819
Goodwill			175,058				176,927
Other assets, net			8,659				5,394
Total assets		$	607,736			$	599,104
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable		$	5,924			$	5,482
Accrued compensation and benefits			7,608				12,138
Accrued expenses and other current liabilities			6,838				6,110
Income taxes payable			1,041				9,032
Current maturities of long term debt			10,000				10,000
Total current liabilities			31,411				42,762
Deferred tax liability—noncurrent			4,931				3,404
Long term debt			67,500				40,000
Other noncurrent liabilities			8,201				8,183
Total liabilities			112,043				94,349
Stockholders’ equity:
Common stock			54				54
Additional paid-in capital			507,836				517,421
Accumulated other comprehensive loss			(3,887	)			(1,942	)
Accumulated deficit			(8,310	)			(10,778	)
Total stockholders’ equity			495,693				504,755
Total liabilities and stockholders’ equity		$	607,736			$	599,104

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RetailMeNot, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Cash flows from operating activities:
Net income (loss)		$	(1,591	)		$	4,326			$	2,468			$	10,401
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Depreciation and amortization expense			4,253				4,086				8,179				8,290
Stock based compensation expense			6,544				6,366				13,357				11,380
Excess income tax benefit from stock-based compensation and other			(552	)			(2,209	)			(1,307	)			(10,523	)
Deferred income tax expense (benefit)			(1,416	)			(1,784	)			282				(1,788	)
Non-cash interest expense			101				96				203				193
Amortization of deferred compensation			768				1,112				1,536				2,459
Other non-cash (gains) losses, net			114				308				1,152				363
Provision for doubtful accounts receivable			(35	)			447				(287	)			822
Changes in operating assets and liabilities:
Accounts receivable, net			7,819				1,220				30,961				16,787
Prepaid expenses and other current assets, net			(887	)			(320	)			(1,730	)			(1,307	)
Accounts payable			780				11				1,156				(1,966	)
Accrued expenses and other current liabilities			(2,077	)			4,926				(12,161	)			951
Other noncurrent assets and liabilities			198				(425	)			832				405
Net cash provided by operating activities		$	14,019				18,160			$	44,641				36,467
Cash flows from investing activities:
Payments for acquisition of businesses, net of acquired cash			—				(75	)			—				(75	)
Proceeds from sale of property and equipment			5				—				5				—
Purchase of other assets			(4,300	)			(101	)			(4,302	)			(101	)
Purchase of non-marketable investment			(4,000	)			—				(4,000	)			—
Purchase of property and equipment			(3,991	)			(1,066	)			(6,323	)			(3,459	)
Net cash used in investing activities			(12,286	)			(1,242	)			(14,620	)			(3,635	)
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs			—				—				29,950				—
Payments on notes payable			(2,500	)			(3,500	)			(2,500	)			(5,250	)
Payments of preferred stock dividends			—				—				—				—
Proceeds from public offerings, net of offering costs			—				3				—				(61	)
Excess income tax benefit from stock-based compensation and other			552				2,209				1,307				10,523
Payments of principal on capital lease arrangements			(4	)			(3	)			(7	)			(6	)
Payments for repurchase of common stock			(2,719	)			—				(27,192	)			(6	)
Proceeds from issuance of common stock, net of shares withheld for taxes			2,073				1,658				4,466				9,797
Net cash provided by (used in) financing activities			(2,598	)			367				6,024				14,997
Effect of foreign currency exchange rate on cash			367				154				(710	)			195
Change in cash and cash equivalents			(498	)			17,439				35,335				48,024
Cash and cash equivalents, beginning of period			280,315				196,466				244,482				165,881
Cash and cash equivalents, end of period		$	279,817			$	213,905			$	279,817			$	213,905

Exhibit 99.2

 

 

Management Commentary

Second Quarter 2015 Results

The RetailMeNot, Inc. (“RetailMeNot”) earnings call will begin on August 5, 2015 at 7:00am central time (8:00am eastern time) and will include prepared commentary followed by a Q&A session. This “Management Commentary” is being posted to provide investors and analysts with additional detail in advance of the quarterly earnings call and will not be read on the call.

To access the live broadcast of the brief remarks and Q&A session, please visit the Investor Relations section of RetailMeNot’s website http://investor.retailmenot.com. A complete reconciliation between GAAP and non-GAAP financial measures can be found in our earnings release under the “Events & Presentations” page at http://investor.retailmenot.com/event.

Also, please note that comments on rates of growth or decline below refer to year-over-year changes unless otherwise indicated.

Strategy and Market Outlook

RetailMeNot operates the world’s largest marketplace for digital offers. We are a leading innovator in connecting retailers with the right shoppers anytime, anywhere to increase consumer engagement and drive sales. Our mission is to combine the power of technology and community to deliver savings to the world.

We provide consumers in our markets with hundreds of thousands of discounts and deals from retailers and brands and we offer our retailers an “always on,” scalable platform that enables them to connect with shoppers across channels and devices.

 

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Combined, our marketplace has over 600,000 digital offers from over 70,000 retailers and brands, including offers from approximately 90 of the Top 100 Internet Retailers as ranked by Internet Retailer Magazine.

 

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The sources of content across our marketplace continue to make the RetailMeNot experience unique. Today, approximately 65% of our offers are user-generated content, retailer exclusives to RetailMeNot or offers sourced by our staff.

 

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At the end of Q2, with over 730 million visits from consumers over the trailing twelve month period, we have a wealth of information and data on the types of offers that resonate with consumers across multiple categories. This information results in insights and best practices we are able to pass along to our paid retailers, defined as retailers with which we have a contract. We believe delivering innovation and marketing insights has helped our paid retailers drive new customer acquisition and sales growth.

Second Quarter Financial Highlights

 

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Total net revenues were $53.2 million, a decline of 11%.

 

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In-store and advertising net revenues were $9.6 million, up 72%.

 

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Mobile online transaction net revenues were $4.9 million, up 91%.

 

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Desktop online transaction net revenues were $38.6 million, down 25%.

 

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Second quarter international net revenues were slightly down to $11.6 million, and represented 22% of total net revenues.

 

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GAAP net loss was $1.6 million; non-GAAP net income was $5.0 million.

 

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EPS was a loss of $0.03 per share and non-GAAP EPS was $0.09 per share, based on 53.5 million and 54.7 million fully-diluted, weighted-average shares outstanding, respectively.

 

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Adjusted EBITDA was $10.6 million and represented 20% of total net revenues.

 

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Second Quarter Consumer Engagement Overview

Large, high-purchase intent audience delivered via our integrated channels.

 

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Total visits in the quarter were 164.0 million, up 6% over a difficult comp in Q2 of 2014. Overall, traffic growth was slower than expected due to weakness in organic search traffic, which impacted growth on both desktop and our mobile websites.

 

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Desktop visits in the quarter were 97.2 million, a decline of 16%.

 

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Mobile visits in the quarter were 66.8 million or 41% of total visits in the quarter, up 72% from 38.9 million or 25% of total visits last year.

 

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Mobile unique visitors in the quarter totaled 18.4 million, up 44%.

 

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As of June 30, 2015, worldwide subscribers to our emails increased to 39.7 million, up 74%.

Differentiated content and improving consumer experience remain paramount.

We continue to focus on providing differentiated content to create more money-saving opportunities while enriching the consumer experience.

 

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We continued our personalization efforts, especially on the RetailMeNot mobile app and in email initiatives. For example:

 

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We began to invest in data gathering initiatives that are able to manage an increased volume of messages to our expanding user base across multiple channels. Over time, this has enabled smarter personalization efforts to consumers by giving us the ability to send targeted campaigns. For example, within the quarter we launched a retargeted email campaign that had 3 times higher engagement rates versus our non-personalized program average. With these enhanced CRM and targeting capabilities, over 50% of our visitors now see personalized content, up significantly from just 10% at the beginning of the year.

 

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In addition, approximately 60% of the RetailMeNot mobile app users now opt-in to location services. By doing so, the consumer receives more relevant content on a regular basis. Insights gained from patterns within location data have enabled us to create new, high-value audience segment targeting for retailers (e.g., new movers and college students), giving retailers the ability to target a relevant consumer audience.

 

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We also began to test digital rebates, a new content type, on several retailer store pages. We believe that offering digital rebates will allow us to deliver consumers discounts for retailers and brands that do not typically use coupons. Digital rebates are also expected to create

 

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opportunities to learn more about consumer shopping habits due to the receipt data submitted by users. This data in turn enables us to deliver more personalized content and provides valuable insights for retailers and brands.

Commitment to retailer satisfaction is driving results.

 

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Our Retailer & Brand Solutions team concentrates on our largest paid retailers and brands, which represent the majority of our total net revenues. We have a growing, specialized sales team – organized by vertical expertise and account size. We are excited by the talent that has joined the Retailer & Brand Solutions Team in the first half of 2015 and believe the team’s structure will allow us to develop more strategic relationships with our paid retailers and brands and give us access to new marketing budgets outside of the traditional affiliate budget.

 

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While the substantial majority of our net revenues are based on commissions for driving online sales, our services and monetization approaches vary based on a retailer’s or brand’s objectives. Our solutions include ad placements in our desktop and mobile channels, in-store promotions, email and seasonal campaigns and push notifications. We offer different ways for the retailers to pay us for these products, including cost-per-action, cost-per-click and flat fees. The flexibility we are able to offer our paid retailers in constructing our relationship and solutions has been a strong selling point and is viewed as a key competitive differentiator for retailers.

 

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Although early, we are seeing significant growth in in-store and advertising revenue per account with our existing in-store retailer and brand relationships. However, we still have work to do to convert new retailers as the shift to in-store budgets often comes with a longer sales cycle. The number of (new) in-store accounts grew by 22% year-over-year, while average revenue per in-store (existing) account grew by 59% over the same period.

Increased engagement through our in-store platform and mobile apps.

 

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In-store and advertising net revenues experienced strong growth in the second quarter. In total, net revenues from in-store plus advertising were $9.6 million, representing growth of 72% versus a year ago.

 

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We continue to work closely with our paid retailers’ third party attribution vendors so they can better understand their return on investment in in-store marketing campaigns active within the RetailMeNot mobile app. All of the attribution studies conducted by these third party firms to date in 2015 yielded positive results. In general, the studies showed that promotions on the RetailMeNot app drove more incremental in-store visits to retailers versus other advertising channels utilized by the retailer during the period in which the offer ran on our app. In Q2, we:

 

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Completed a study with a nationwide sporting goods store to determine the effectiveness of a digital offer to drive in-store sales. We ran an in-store offer over a one-week period that drove more than 1.5 million impressions across multiple placements on the RetailMeNot app. Within the same time period the retailer saw a 130% lift in in-store visits with a conversion rate among those viewing the offer, more than twice that of consumers not exposed to the offer.

 

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Completed a study with a leading fashion specialty retailer which traditionally does not distribute coupons (print or digital). The retailer partnered with us to determine the amount of foot traffic being driven to its stores after consumers viewed an offer on the RetailMeNot app. The study revealed that over an 11 day period, there were nearly 5.6 million impressions on the app, with a 55% lift in in-store visits from those exposed to the offer versus those not exposed to the offer.

 

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Within the quarter we invested in enhanced geo-location technology, which not only provides more specific data on shopping behaviors, but also lends itself nicely to our efforts in our growing food and dining category for on-the-go consumers.

We believe shopping is a “multi-channel journey” spanning online, mobile, and in-store touch-points. While we recognize the challenges ahead, we believe we are on the right track. Throughout the year, we will continue to innovate on differentiated content types and features to enhance our ability to deliver the best, most relevant offers to consumers while providing retailers and brands with more compelling solutions to reach consumers online, on-the-go, and in-store.

 

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Second Quarter Financial Review

In total, commissions paid to us as a result of consumer purchases made online using our marketplace represented approximately 82% of our net revenues in the quarter, with the balance coming from our in-store and advertising solutions.

Gross margins were strong at 90%, and cost of net revenues was 10%, up from prior year. Cost of net revenues consists of direct and indirect costs incurred to generate net revenues. These are primarily costs related to technology services for content delivery and the employee costs for managing content operations and production engineering. The year-over-year increase in cost of net revenues and decrease in margin is primarily due to a push in the use of loyalty rewards in the EU, coupled with a small increase in global headcount, over a lower total net revenue base.

Operating Expenses

During our second quarter, we continued to invest in key long-term growth initiatives such as consumer acquisition and product innovation and development, while delivering adjusted EBITDA of $10.6 million, and adjusted EBITDA margins of 20%.

Product development expense for the quarter was $13.1 million, or 25% of net revenues, up slightly from $13.0 million, or 22% last year. Product development expense consists primarily of personnel, stock-based compensation and other related costs attributed to product management and software engineering teams, and third-party contractors.

Sales and marketing expense for the quarter was $22.6 million, or 43% of net revenues, compared to $19.2 million, or 32% last year. Sales and marketing expense consists primarily of personnel and stock-based compensation costs across our Retailer & Brand Solutions, marketing, SEO and business intelligence employees, as well as online and other advertising and media expenditures, paid search and other marketing expenses. The increase in sales and marketing expense reflects an increase in paid search acquisition and marketing and online expenses, as well as an increase in headcount as we ramped up hiring for the Retail & Brand Solutions team.

 

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General and administrative expense for the quarter was $9.7 million, or 18% of net revenues, compared to $10.3 million, or 17% of net revenues last year. General and administrative expense consists primarily of the personnel, stock-based compensation and related costs of our general corporate functions, which will vary from quarter to quarter.

Our total global employee base exiting the quarter was 569.

Other Expenses

Depreciation and amortization expense for the quarter was $4.3 million, compared to $4.1 million, and stock-based compensation expense was $6.5 million, compared to $6.4 million in the prior year.

Income (Loss) from Operations

The loss from operations for the quarter was approximately $900 thousand, compared to income from operations of $8.0 million last year. The decline in income from operations reflects lower than expected revenue while we continue to invest in the business.

Provision for Income Taxes

For the second quarter of 2015, we recorded a provision for income taxes of $27 thousand on a pre-tax loss of $1.6 million, reflecting an effective tax rate of negative 2%, compared to a provision for income taxes of $2.9 million on pre-tax income of $7.3 million and an effective tax rate of 40.4% last year.

Liquidity and Capital Resources

Cash flow from operations during the quarter was $14.0 million and we ended the second quarter with $279.8 million of cash and equivalents.

Capital expenditures for the quarter were $12.3 million. Approximately one-third of this amount relates to investments in facilities, as well as certain capitalized internally developed software and website development costs. The remaining two thirds relate to the purchase of rights to a top-level domain, plus an investment in a privately-held marketing technology company in the US.

 

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Share Repurchase Program

During the second quarter, we purchased approximately 148 thousand shares at an average price of $18.38 for a total of approximately $2.7 million.

(Our updated outlook and financial guidance is provided in our earnings release and will be discussed on the earnings call)

 

 

Non-GAAP Financial Measures

To provide investors with additional information regarding our financial results, this document includes references to Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share, all of which are non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the tables provided in RetailMeNot’s earnings release dated August 05, 2015.

RetailMeNot defines adjusted EBITDA as net income (loss) plus depreciation, amortization of intangible assets, stock-based compensation expense, third-party acquisition-related costs, other non-cash operating expenses (including compensation arrangements entered into in connection with acquisitions), net interest expense, other non-operating income or expense (including net foreign exchange gains and losses) and income taxes.

RetailMeNot discloses adjusted EBITDA because it is a key measure used by RetailMeNot and its board of directors to understand and evaluate RetailMeNot’s financial and operating performance, establish budgets and operational goals and as an element in determining executive compensation. RetailMeNot believes adjusted EBITDA also facilitates period-to-period comparisons of operations that could otherwise be masked by the effect of the expenses that RetailMeNot excludes in this non-GAAP financial measure and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Our presentation of non-GAAP net income (loss) and non-GAAP net income (loss) per share excludes the impact of amortization of purchased intangible assets, stock-based compensation expense, third party acquisition-related costs, other non-cash operating expenses (including compensation arrangements entered into in connection with acquisitions) and income taxes, net of the tax effect of the adjustments above. These measures are not key metrics used by RetailMeNot or its board of directors to measure financial or operating performance or otherwise manage the business. However, RetailMeNot provides non-GAAP net income (loss) and non-GAAP net income (loss) per share as supplemental information for investors, as they facilitate period-to-period comparisons of operations that could otherwise be masked by the effect of the expenses that RetailMeNot excludes in these non-GAAP financial measures and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

 

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Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of RetailMeNot’s results as reported under GAAP. Because of these limitations, you should consider Adjusted EBITDA, non-GAAP net income (loss) and non-GAAP net income (loss) per share alongside other financial performance measures, including various cash flow metrics, net income (loss) and RetailMeNot’s other GAAP results.

Forward-looking Statements

This document contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included herein regarding RetailMeNot’s strategy, future operations, future financial position, future net revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” and similar expressions (or the negative of these terms) are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about management’s estimates regarding future net revenues, adjusted EBITDA and other financial performance, visits, mobile unique visitors, e-mail subscribers, other consumer engagement metrics, new product and content offerings and other statements about management’s beliefs, intentions or goals. RetailMeNot may not actually achieve the expectations disclosed in the forward-looking statements, and you should not place undue reliance on RetailMeNot’s forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from the expectations disclosed in the forward-looking statements, including, but not limited to, (1) RetailMeNot’s ability to attract visitors to its websites from search engines; (2) RetailMeNot’s ability to monetize digital offers available through its mobile solutions; (3) RetailMeNot’s ability to attract and retain paid retailers and maintain its relationships with performance marketing networks; (4) risks related to RetailMeNot’s ability to manage its growth, including accurately planning and forecasting its financial results; (5) RetailMeNot’s ability to obtain and maintain digital offer content and maintain the positive perception of its brand; (6) the competitive environment for RetailMeNot’s business; (7) changes in consumer sentiment regarding RetailMeNot’s use of cookies; (8) RetailMeNot’s need to manage regulatory, tax and litigation risks, including regulations imposing sales tax on e-commerce or m-commerce and ongoing litigation; (9) RetailMeNot’s ability to protect consumer data and its intellectual property; (10) RetailMeNot’s ability to manage international business uncertainties; (11) the impact and integration of future acquisitions; and (12) other risks and potential factors that could affect RetailMeNot’s business and financial results identified in RetailMeNot’s filings with the Securities and Exchange Commission (the “SEC”), including its quarterly report on Form 10-Q filed with the SEC on May 7, 2015. Additional information will also be set forth in RetailMeNot’s future quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that RetailMeNot makes with the SEC. RetailMeNot does not intend or undertake any duty to release publicly any updates or revisions to any forward-looking statements contained herein.

 

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About RetailMeNot, Inc.

RetailMeNot, Inc. (http://www.retailmenot.com/corp/) operates the world’s largest marketplace for digital offers. The company enables consumers across the globe to find hundreds of thousands of digital offers for their favorite retailers and brands. During the 12 months ended June 30, 2015, RetailMeNot, Inc. experienced over 730 million visits to its websites, and during the three months ended June 30, 2015, RetailMeNot, Inc. averaged 18.4 million mobile unique visitors per month. In 2014, RetailMeNot, Inc. estimates $4.4 billion in paid retailer sales were attributable to consumer traffic from digital offers in its marketplace. The RetailMeNot, Inc. portfolio includes RetailMeNot.com, the largest digital offer marketplace in the United States; RetailMeNot.ca in Canada; VoucherCodes.co.uk, the largest digital offers marketplace in the United Kingdom; Deals.com in Germany; Actiepagina.nl, a leading digital offers site in the Netherlands; Bons-de-Reduction.com and Ma-Reduc.com, leading digital offers sites in France; Poulpeo.com, a leading digital offers site with cash back in France; andDeals2Buy.com, a digital offers site in North America. RetailMeNot, Inc. is listed on the NASDAQ stock exchange under the ticker symbol “SALE.” Investors interested in learning more about the company can visit http://investor.retailmenot.com.

 

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