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Constant Contact Announces Second Quarter 2015 Financial Results

July 23, 2015 4:05 PM

Quarterly revenue of $91.5 million increased 13% year-over-year

Adjusted EBITDA of $16.8 million increased 26% year-over-year

WALTHAM, Mass.--(BUSINESS WIRE)-- Constant Contact®, Inc. (Nasdaq: CTCT), which helps more than 650,000 small organizations find new customers and grow relationships with their existing customers through its online marketing suite, today announced its financial results for the second quarter ended June 30, 2015.

“We delivered revenue in line with expectations and profitability that meaningfully exceeded our guidance for the quarter,” said Gail Goodman, chief executive officer of Constant Contact. “We made good progress on multiple fronts in the second quarter, and are excited about the opportunities ahead. We remain confident in our strategy and ability to deliver continued revenue growth, while improving margins and expanding profitability.”

Second Quarter 2015 Financial Metrics

Second Quarter 2015 Operating Metrics

(*) Unique customers are rounded to the nearest 5,000. We define unique customers as customers of all of our products and services, inclusive of both subscription and transaction-based products. Transactional customers are included in the customer count for the period if they transacted within the prior 12-month period. A customer of multiple products and services is counted as one unique customer.

Other Recent Highlights

“Trends in both revenue and operating metrics were generally in-line with our expectations, and we were quite pleased by our ability to drive meaningful year-over-year margin expansion and growth in profitability,” said Harpreet Grewal, chief financial officer of Constant Contact. “Our focus remains on delivering revenue growth consistent with our guidance range, delivering strong profitability and free cash flow while showing strengthening trends as we enter 2016.”

Business Outlook

Based on information available as of July 23, 2015, Constant Contact is issuing guidance for the third quarter and full year 2015 as follows:

Third Quarter 2015:

Current Guidance (7/23/2015)
Total revenue $92.6 m - $93.3 m
Adjusted EBITDA margin 21.8% - 22.1%
Adjusted EBITDA $20.2 m - $20.6 m
Stock-based compensation expense $4.8 m
GAAP net income $5.4 m - $5.6 m
GAAP net income per share $0.16 - $0.17
Non-GAAP net income per share* $0.37 - $0.39
Diluted weighted average shares outstanding 33.3 m

Full Year 2015:

Prior Guidance(4/30/2015)

Current Guidance(7/23/2015)

Total revenue $371.0 m - $377.0 m $371.0 m - $373.0 m
Adjusted EBITDA margin 19.6% - 20.0% 19.7% - 20.1%
Adjusted EBITDA ~$73.0 m - $75.0 m $73.0 m – $75.0 m
Stock-based compensation expense $18.5 m $18.5 m
GAAP net income $17.7 m - $19.4 m $18.0 - $19.2 m
GAAP net income per share $0.53 - $0.59 $0.54 - $0.58
Non-GAAP net income per share* $1.29 - $1.38 $1.31 – 1.36
Diluted weighted average shares outstanding 33.2 m 33.2 m
Estimated effective tax rate 40% 40%
Estimated cash tax rate 12% - 15% 12% - 15%
* Non-GAAP net income per share calculated using an estimated cash tax rate.

Non-GAAP Financial Measures and Other Financial Information

This press release contains the following non-GAAP financial measures: Adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP net income per share, estimated cash tax rate and free cash flow.

Adjusted EBITDA is a non-GAAP financial measure that is defined as GAAP net income before income taxes, interest and other income (expense), net, depreciation and amortization, stock-based compensation, and litigation contingency accruals. Adjusted EBITDA margin is a non-GAAP financial measure that is calculated by dividing adjusted EBITDA by revenue.

Non-GAAP net income is a non-GAAP financial measure that is defined as GAAP net income before the non-cash portion of income taxes, stock-based compensation expense, and litigation contingency accruals. Non-GAAP net income per share is a non-GAAP financial measure that is calculated by dividing non-GAAP net income by the weighted average shares outstanding.

Estimated cash tax rate is calculated by dividing estimated taxes to be paid by estimated full year income before taxes.

Free cash flow is calculated by subtracting cash paid for the acquisition of property and equipment from net cash provided by operating activities.

Constant Contact believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to Constant Contact’s financial condition and results of operations. The company’s management uses these non-GAAP measures to compare the company’s performance to that of prior periods for trend analyses, for purposes of determining certain components of executive and senior management incentive compensation, and for budgeting and planning purposes. These measures are used in monthly financial reports prepared for management and in monthly and quarterly financial reports presented to the company’s board of directors. The company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the company’s financial measures with other software-as-a-service companies, many of which present similar non-GAAP financial measures to investors.

Management of the company does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted EBITDA, adjusted EBITDA margin and non-GAAP net income is that these non-GAAP financial measures exclude significant expenses and income that are required by GAAP to be recorded in the company’s financial statements. In addition, these non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents these non-GAAP financial measures in connection with GAAP results. Constant Contact urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the company’s business.

Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

Conference Call Information

What: Constant Contact second quarter 2015 financial results conference call
When: Thursday, July 23, 2015
Time: 5:00 p.m. ET
Live Call: (877) 334-1974, domestic
(760) 666-3590, international
Replay: (855) 859-2056, domestic
(404) 537-3406, international
Webcast:

http://investor.constantcontact.com/ (live and replay)

Live and replay conference ID code: 77023395

The webcast will be archived on Constant Contact’s website for a period of three months.

About Constant Contact, Inc.

Constant Contact introduced the first email marketing tool for small businesses, nonprofits, and associations in 1998. Today, the company helps more than 650,000 customers worldwide find marketing success through the only all-in-one online marketing platform for small organizations. Anchored by our world-class email marketing tool, Constant Contact helps small businesses drive repeat business and find new customers. It features multi-channel marketing campaigns (newsletters/announcements, offers/promotions, online listings, events/registration, and feedback) combined with shared content, contacts, and reporting; free award-winning coaching and product support; and integrations with critical business tools – all from a single login. The company’s extensive network of educators, consultants/resellers, technology providers, franchises, and national associations offer further support to help small organizations succeed and grow. Through its Innovation Loft, Constant Contact is fueling the next generation of small business technology.

Constant Contact and the Constant Contact Logo are registered trademarks of Constant Contact, Inc. All Constant Contact product names and other brand names mentioned herein are trademarks or registered trademarks of Constant Contact, Inc. All other company and product names may be trademarks or service marks of their respective owners.

Cautionary Language Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding the company’s strategy for offering an integrated marketing suite for smaller businesses and organizations, improving margins, revenue growth, expanding profitability, free cash flow expectations, improving trend lines, and the financial guidance for the third quarter of 2015 and the full year 2015, including higher guidance on profit margins. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as "expect," "anticipate," "should," "believe," "hope," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," “suggest,” "might," "could," "intend," variations of these terms or the negative of these terms and similar expressions that are not statements of historical fact are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Constant Contact’s control. Constant Contact’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, the company’s ability to attract new customers and retain existing customers, the company’s dependence on the market for email marketing services for small organizations, the success of Constant Contact’s integrated online marketing suite, adverse economic conditions in general and adverse economic conditions specifically affecting the markets in which the company operates, the company’s ability to successfully develop and introduce new offerings or enhancements to existing products and integrate its products in an effective manner, adverse regulatory or legal developments, litigation risk and expense, the company’s ability to continue to promote and maintain its brand in a cost-effective manner, changes in the competitive environment, the company’s ability to compete effectively, the company’s ability to attract and retain key personnel, the company’s ability to protect its intellectual property and other proprietary rights, and other risks detailed in Constant Contact’s most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission as well as other documents that may be filed by the company from time to time with the Securities and Exchange Commission. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Constant Contact’s views as of the date of this press release. The company anticipates that subsequent events and developments will cause its views to change. Constant Contact undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Constant Contact’s views as of any date subsequent to the date of this press release.

(CTCT-F)

Constant Contact, Inc.

Consolidated Condensed Statements of Operations (unaudited)

(In thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Revenue $ 91,531 $ 81,256 $ 181,948 $ 160,130
Cost of revenue 24,462 22,100 48,893 43,827
Gross profit 67,069 59,156 133,055 116,303
Operating expenses:
Research and development 14,129 12,850 27,954 25,924
Sales and marketing 35,440 33,113 71,508 65,913
General and administrative 11,452 10,186 23,245 20,306
Total operating expenses 61,021 56,149 122,707 112,143
Income from operations 6,048 3,007 10,348 4,160
Interest income and other income (expense), net 168 25 111 48
Income before income taxes 6,216 3,032 10,459 4,208
Income tax expense (2,390 ) (1,011 ) (3,083 ) (1,339 )
Net income $ 3,826 $ 2,021 $ 7,376 $ 2,869
Net income per share:
Basic $ 0.12 $ 0.06 $ 0.23 $ 0.09
Diluted $ 0.11 $ 0.06 $ 0.22 $ 0.09
Weighted average shares outstanding used in computing per share amounts:
Basic 32,132 31,484 32,112 31,387
Diluted 33,290 32,620 33,473 32,532

Constant Contact, Inc.

Calculation of Adjusted EBITDA and Adjusted EBITDA Margin (unaudited)

(In thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Net income $ 3,826 $ 2,021 $ 7,376 $ 2,869
Income tax expense 2,390 1,011 3,083 1,339
Interest income and other (income) expense, net (168 ) (25 ) (111 ) (48 )
Depreciation and amortization 6,162 5,896 12,215 11,807
Stock-based compensation expense 4,622 4,410 8,926 8,324
Adjusted EBITDA $ 16,832 $ 13,313 $ 31,489 $ 24,291
Divide by:
Revenue $ 91,531 $ 81,256 $ 181,948 $ 160,130
Adjusted EBITDA margin 18.4 % 16.4 % 17.3 % 15.2 %

Constant Contact, Inc.

Calculation of Non-GAAP Net Income and Non-GAAP Net Income per Share (unaudited)

(In thousands, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Net income $ 3,826 $ 2,021 $ 7,376 $ 2,869
Non-cash portion of income tax expense 1,137 846 681 1,123
Stock-based compensation expense 4,622 4,410 8,926 8,324
Non-GAAP net income $ 9,585 $ 7,277 $ 16,983 $ 12,316
Non-GAAP net income per share: diluted $ 0.29 $ 0.22 $ 0.51 $ 0.38
Weighted average shares outstanding used in computing per share amounts 33,290 32,620 33,473 32,532

Constant Contact, Inc.

Calculation of Free Cash Flow (unaudited)

(In thousands)

Three Months Ended Six Months Ended
June 30, June 30,
2015 2014 2015 2014
Net cash provided by operating activities $ 12,592 $ 11,869 $ 32,813 $ 22,960
Subtract:
Acquisition of property and equipment 10,531 8,126 15,781 14,055
Free cash flow $ 2,061 $ 3,743 $ 17,032 $ 8,905

Constant Contact, Inc.

Consolidated Condensed Statements of Cash Flows (unaudited)

(In thousands)

Six Months Ended
June 30,
2015 2014
Cash flows from operating activities
Net income $ 7,376 $ 2,869
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 12,215 11,807
Amortization of premiums on investments 217 107
Stock-based compensation expense 8,926 8,324
Provision for bad debts 3 10
Gain on sales of marketable securities - (1 )
Deferred income taxes (1,566 ) -
Income tax benefit from the exercise of stock options (2,910 ) (605 )
Taxes paid related to net share settlement of restricted stock units (1,257 ) (1,841 )
Change in operating assets & liabilities:
Accounts receivable (96 ) 13
Prepaid expenses and other current assets 686 (1,224 )
Other assets (670 ) 185
Accounts payable 4,860 685
Accrued expenses 2,663 814
Deferred revenue 2,254 1,401
Other long-term liabilities 112 416
Net cash provided by operating activities 32,813 22,960
Cash flows from investing activities
Purchases of marketable securities (26,106 ) (25,759 )
Proceeds from maturities of marketable securities 27,362 13,265
Proceeds from sales of marketable securities - 633
Acquisition of property and equipment (15,781 ) (14,055 )
Net cash used in investing activities (14,525 ) (25,916 )
Cash flows from financing activities
Exercise of stock options and warrants 10,912 6,616
Income tax benefit from the exercise of stock options 2,910 605
Proceeds from issuance of common stock pursuant to employee stock purchase plan 1,063 831
Repurchase of common stock (13,640 ) -
Net cash provided by financing activities 1,245 8,052
Effects of exchange rates on cash and cash equivalents 4 4
Net increase in cash and cash equivalents 19,537 5,100
Cash and cash equivalents, beginning of period 104,301 82,478
Cash and cash equivalents, end of period $ 123,838 $ 87,578
Supplemental disclosure of non-cash investing and financing activities
Capitalization of stock-based compensation $ 144 $ 100
Acquisition of property and equipment included in accounts payable and accrued expenses 2,003 -

Constant Contact, Inc.

Consolidated Condensed Balance Sheets (unaudited)

(In thousands)

June 30, December 31,
2015 2014
Assets
Current assets
Cash and cash equivalents $ 123,838 $ 104,301
Marketable securities 56,861 58,321
Accounts receivable, net 358 265
Prepaid expenses and other current assets 12,869 10,723
Total current assets 193,926 173,610
Property and equipment, net 48,440 43,739
Restricted cash 1,300 1,300
Goodwill 95,505 95,505
Acquired intangible assets, net 1,249 2,160
Deferred tax assets 6,271 4,658
Other assets 2,563 1,893
Total assets $ 349,254 $ 322,865
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 9,974 $ 4,703
Accrued expenses 14,563 12,230
Deferred revenue 40,092 37,838
Total current liabilities 64,629 54,771
Other long-term liabilities 3,895 3,783
Total liabilities 68,524 58,554
Stockholders' Equity
Common stock 322 319
Additional paid-in capital 258,617 249,599
Accumulated other comprehensive income (loss) 12 (10 )
Retained earnings 21,779 14,403
Total stockholders' equity 280,730 264,311
Total liabilities and stockholders' equity $ 349,254 $ 322,865

Media Contact:

Constant Contact

Erika Tower, 781-482-7039

[email protected]

or

Investor Contact:

Constant Contact

Jeremiah Sisitsky, 339-222-5740

[email protected]

Source: Constant Contact, Inc.

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