XO Group Reports Second Quarter 2018 Financial Results

- Conference Call Tuesday, July 31, 2018 at 8:00 a.m. ET, Dial-In (833) 236-5763 (ID# 3693679)

- Total revenue grew 2.5% in the second quarter

- Local marketplace revenue increased 18% in the second quarter

- Second quarter GAAP net income per diluted share was $0.20; Non-GAAP net income per diluted share was $0.19

News provided by

XO Group Inc.

Jul 31, 2018, 07:30 ET

NEW YORK, July 31, 2018 /PRNewswire/ -- XO Group Inc. (the "Company") (NYSE: XOXO, xogroupinc.com), today reported financial results for the three and six months ended June 30, 2018.

Total revenue for the second quarter of 2018 was $43.2 million, up from $42.1 million during the same period in the prior year. Net income for the quarter was $5.3 million or $0.20 per diluted share compared to diluted earnings per share of $0.06 in the same period in the prior year. Non-GAAP  net income per share for the quarter was $0.19 compared to $0.09 in the same period in the prior year. The Company's balance sheet at June 30, 2018 reflects cash and cash equivalents of $116.7 million compared to $106.1 million at December 31, 2017.

"This quarter, our local marketplace business delivered strong results again, our products drove increased engagement between our couples and business partners, and we continued to invest in the people and products that will help us capture the significant opportunity ahead. I'm really proud of the team's work in Q2," said Mike Steib, Chief Executive Officer.

Long-Term Financial Targets

The Company's long-term financial targets are double digit revenue growth rates and gross margins of approximately 90-95%, yielding adjusted EBITDA margins in the 20-22% range.

XO GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for share and per share data)



Three Months Ended June 30,

Six Months Ended June 30,


2018

2017

2018

2017









Net revenue

$

43,152

$

42,101

$

81,459

$

79,742

Costs and expenses (exclusive of depreciation and amortization, shown separately below):







Cost of revenue

2,614

2,789

4,257

4,826

Product and content development

11,796

11,549

22,825

23,006

Sales and marketing

13,098

13,941

25,780

27,564

General and administrative

7,402

8,336

14,232

15,931

Depreciation and amortization

1,676

2,011

3,314

3,669

Total costs and expenses

36,586

38,626

70,408

74,996

Income from operations

6,566

3,475

11,051

4,746

Loss in equity interests

(21)

(1,054)

(43)

(1,171)

Interest and other income, net

209

105

411

198

Income before income taxes

6,754

2,526

11,419

3,773

Income tax expense

1,469

1,115

2,522

1,077

Net income

$

5,285

$

1,411

$

8,897

$

2,696









Net income per share:







Basic

$

0.21

$

0.06

$

0.35

$

0.11

Diluted

$

0.20

$

0.06

$

0.35

$

0.11









Weighted average number of shares used in
calculating net earnings per share:







Basic

25,149

24,958

25,086

25,154

Dilutive effect of:







Restricted stock

327

191

290

280

Options

321

31

192

33

Employee Stock Purchase Plan

9

2

5

2

Diluted

25,806

25,182

25,573

25,469

XO GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except for share and per share data)


June 30, 2018

December 31, 2017

ASSETS


Current assets:


Cash and cash equivalents

$

116,704

$

106,092

Accounts receivable, net

17,487

17,375

Prepaid expenses and other current assets

4,706

5,327

Total current assets

138,897

128,794

Long-term restricted cash

1,181

1,181

Property and equipment, net

13,607

11,829

Intangibles assets, net

3,533

4,019

Goodwill

51,438

51,438

Deferred tax assets, net

5,466

6,124

Investments

1,399

1,442

Other assets

501

223

Total assets

$

216,022

$

205,050

LIABILITIES AND STOCKHOLDERS' EQUITY


Current liabilities:


     Accrued compensation and employee benefits

$

4,676

$

6,611

    Accounts payable and accrued expenses

6,343

5,273

    Deferred revenue

14,955

13,891

Total current liabilities

25,974

25,775

Deferred rent

3,004

3,365

Other liabilities

1,384

1,776

Total liabilities

30,362

30,916

Commitments and contingencies


Stockholders' equity:


Preferred stock, $0.001 par value; 5,000,000 shares authorized and zero shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

—

—

Common stock, $0.01 par value; 100,000,000 shares authorized and 25,907,015 and 25,696,796 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

260

258

Additional paid-in-capital

183,321

180,695

Retained earnings/(accumulated deficit)

2,079

(6,819)

Total stockholders' equity

185,660

174,134

Total liabilities and stockholders' equity

$

216,022

$

205,050

XO GROUP INC.

NON-GAAP RECONCILIATION TABLE
For the Three and Six Months Ended June 30, 2018 and 2017
(unaudited, in thousands, except for share and per share data)

Reconciliation of GAAP net income to EBITDA, adjusted EBITDA, and adjusted EBITDA margin:

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017








GAAP net income

$

5,285

$

1,411

$

8,897

$

2,696

Income tax expense

1,469

1,115

2,522

1,077

Interest and other income, net

(209)

(105)

(411)

(198)

Depreciation and amortization

1,676

2,011

3,314

3,669

EBITDA

8,221

4,432

14,322

7,244

Loss in equity interest(a)

21

1,054

43

1,171

Stock-based compensation

2,158

2,143

3,892

4,017

Bad debt expense(b)

—

200

—

200

Adjusted EBITDA

$

10,400

$

7,829

18,257

$

12,632

GAAP net revenue

43,152

42,101

81,459

79,742

Adjusted EBITDA margin

24.10

%

18.60

%

22.41

%

15.84

%








(a) Loss in equity interest includes an other-than-temporary impairment that reduced the carrying value of an equity investment to zero.

(b) Included in general and administrative operating expense, related to a loan previously made to an equity investee.





Reconciliation of GAAP net income to adjusted net income:




Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017








GAAP net income

$

5,285

$

1,411

$

8,897

$

2,696

Other-than-temporary impairment(a)

—

1,032

—

1,032

Bad debt expense(b)

—

200

—

200

Income tax expense

1,469

1,115

2,522

1,077

Adjusted income before income taxes

6,754

3,758

11,419

5,005








Adjusted effective income tax expense rate

26

%

40

%

26

%

40

%








Adjusted provision for income tax expense

(1,756)

(1,503)

(2,969)

(2,002)

Adjusted net income

$

4,998

$

2,255

$

8,450

$

3,003








Adjusted net income per diluted share

$

0.19

$

0.09

$

0.33

$

0.12

Weighted average number of shares outstanding - diluted

25,806

25,182

25,573

25,469








(a) Loss in equity interest includes an other-than-temporary impairment that reduced the carrying value of an equity investment to zero.

(b) Included in general and administrative operating expense, related to a loan previously made to an equity investee.
















Free cash flow reconciliation:




Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net cash provided by operating activities

$

9,671

$

4,797

$

16,217

$

9,832

Less: capital expenditures

(1,899)

(911)

(4,684)

(2,123)

Free cash flow

$

7,772

$

3,886

$

11,533

$

7,709

XO GROUP INC.

SUPPLEMENTAL DATA TABLES
(unaudited, in thousands, except for metrics)

Revenue by Category





Three Months Ended June 30,

Six Months Ended June 30,


2018

2017

2018

2017

Local marketplace

$

22,318

$

18,938

$

44,193

$

37,557

Transactions

9,004

8,158

15,317

13,290

National online advertising

7,105

9,980

13,872

19,981

Publishing and other

4,725

5,025

8,077

8,914

Total net revenue

$

43,152

$

42,101

$

81,459

$

79,742

TheKnot.com Local Marketplace Metrics


Q2 2018

Q2 2017

Vendor Count at Quarter end

29,128

24,681

TTM Vendor Count (a)

27,292

22,498

Retention Rate (b)

77.9

%

77.0

%

Avg. Revenue/Vendor (a)

$

2,952

$

3,056








(a) Calculated on a trailing twelve-month basis.
(b) Number of canceled vendors on a trailing twelve-month basis divided by the sum of the beginning vendors plus trailing twelve-months of additions (churn). The inverse of churn is retention rate.

Stock Based Compensation

The Company included total stock-based compensation expense related to all its stock awards in various operating expense categories for the three and six months ended June 30, 2018 and 2017, as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Product and content development

692

657

1,241

1,154

Sales and marketing

458

431

834

865

General and administrative

1,008

1,055

1,817

1,998

Total stock-based compensation

2,158

2,143

3,892

4,017

Conference Call and Replay Information

XO Group Inc. will host a conference call with investors at 8:00 a.m. ET on Tuesday, July 31, 2018, to discuss its second quarter 2018 financial results. Participants should dial (833) 236-5763 and use Conference ID# 3693679 at least 10 minutes before the call is scheduled to begin. Participants can also access the live broadcast over the internet on the Investor Relations section of the Company's website, accessible at http://ir.xogroupinc.com. To access the webcast, participants should visit XO Group's website at least 15 minutes prior to the conference call in order to download or install any necessary audio software.

A replay of the webcast will also be archived on the Company's website approximately two hours after the conference call ends.

About XO Group Inc.

XO Group Inc.'s (NYSE: XOXO; xogroupinc.com) mission is to help people navigate and truly enjoy life's biggest moments together. Our multi-platform brands guide couples through transformative life stages - from getting married with The Knot, to having a baby with The Bump, and helping bring important celebrations to life with entertainment vendors from GigMasters. The Company is publicly listed on the New York Stock Exchange (NYSE: XOXO) and is headquartered in New York City.

Forward Looking Statements

This release may contain projections or other forward-looking statements regarding future events or our future financial performance or estimates regarding third parties. These statements are only estimates or predictions and reflect our current beliefs and expectations. Actual events or results may differ materially from those contained in the estimates, projections or forward-looking statements. It is routine for internal projections and expectations to change as the quarter progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of the quarter. Although these expectations may change, we will not necessarily inform you if they do. Our policy is to provide expectations not more than once per quarter, and not to update that information until the next quarter. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation, (i) our operating results may fluctuate, are difficult to predict and could fall below expectations, (ii) our ability to accurately measure and monetize the level of offline store level traffic attributable to an online digital campaign conducted on our sites, (iii) our business depends on strong brands, and failing to maintain and enhance our brands would hurt our business, (iv) our ongoing investment in new businesses and new products, services, and technologies is inherently risky, and could disrupt our ongoing business and/or fail to generate the results we are expecting, (v) if we are unable to continue to develop solutions that generate revenue from advertising and other services delivered to mobile devices, our business could be harmed, (vi) our businesses could be negatively affected by changes in Internet search engine and app store search algorithms and email marketing policies, (vii) we face intense competition in our markets. If we do not continue to innovate and provide products and services that are useful to users, we may not remain competitive, and our revenue and results of operations could be adversely affected, (viii) our transactions business is dependent on third-party participants, whose lack of performance could adversely affect our results of operations, (ix) fraudulent or unlawful activities on our marketplace could harm our business and consumer confidence in our marketplace, (x) we may be subject to legal liability associated with providing online services or content, (xi) we may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks, and (xii) other factors detailed in documents we file from time to time with the Securities and Exchange Commission. Forward-looking statements in this release are made pursuant to the safe harbor provisions contained in the Private Securities Litigation Reform Act of 1995.

Non-GAAP Financial Measures

This press release includes information about certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles ("GAAP" or "U.S. GAAP"), including EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted provision for income taxes, adjusted effective income tax rate, adjusted net income per diluted share, free cash flow, gross profit, and gross margin. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP.  The Company's use of these terms may vary from the use of similarly-titled measures by others in its industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

Management defines its non-GAAP financial measures as follows:

  • EBITDA represents GAAP net income adjusted to exclude: (1) interest, (2) tax, and (3) depreciation and amortization.
  • Adjusted EBITDA represents GAAP net income adjusted to exclude, if applicable: (1) interest, (2) tax, (3) depreciation and amortization, (4) gains or losses from equity method investments, (5) stock-based compensation expense, (6) asset impairment charges, and (7) other items affecting comparability during the period.
  • Adjusted EBITDA margin represents adjusted EBITDA (as defined above), divided by total GAAP revenue.
  • Adjusted provision for income taxes is calculated by applying an adjusted effective income tax rate to adjusted income before income taxes. Adjusted effective income tax rate is based on the statutory income tax rates in the jurisdictions in which we operate. The adjusted effective income tax rate also excludes discrete items that the Company views as unrelated to its operations during the period, such as the impact of tax windfalls and shortfalls associated with stock based compensation, as these items can materially distort its effective income tax rate. The Company monitors the adjusted effective income tax rate based on events or trends that could materially impact the rate, including tax legislation changes and changes in the geographic mix of revenue and expenses. For the three and six months ended June 30, 2018, the adjusted effective income tax rate of 26% excludes the impact of approximately $0.3 million and $0.5 million of tax windfalls, respectively, as they are considered to be discrete items. For the three months ended June 30, 2017, the adjusted effective income tax rate of 40% excludes the impact of approximately $0.2 million in tax shortfalls, offset by an approximately $0.2 million of tax benefits associated with the release of a previously reserved uncertain tax position, each of which are considered to be discrete items. For the six months ended June 30, 2017, the adjusted effective income tax rate of 40% excludes the impact of approximately $0.4 million in tax windfalls, which are considered to be discrete items.
  • Adjusted net income represents GAAP net income, adjusted for items that impact comparability, which may include: (1) asset impairment charges, (2) executive separation and other severance charges, (3) use of an adjusted effective income tax rate (as defined above), (4) costs related to exit activities, and (5) other items affecting comparability during the period.
  • Adjusted net income per diluted share represents adjusted net income (as defined above), divided by the diluted weighted-average number of shares outstanding for the period.
  • Free cash flow represents GAAP net cash provided by operations, less capital expenditures.
  • Gross profit represents GAAP net revenue less cost of revenue excluding depreciation and amortization.
  • Gross margin is equal to gross profit (as defined above) divided by GAAP net revenue, expressed as a percentage.

Management believes that these non-GAAP financial measures, when viewed with our results under U.S. GAAP and the accompanying reconciliations, provide useful information about our period-over-period growth and provide additional information that is useful for evaluating our operating performance. However, EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted provision for income taxes, adjusted effective income tax rate, adjusted net income, adjusted net income per diluted share, free cash flow, gross profit, and gross margin are not measures of financial performance under U.S. GAAP and, accordingly, should not be considered substitutes for or superior to net income, net income per diluted share and net cash provided by operating activities as indicators of operating performance.

A reconciliation of GAAP to Non-GAAP financial measures is included in this press release, with the exception of gross margin and gross profit, which are defined above.

SOURCE XO Group Inc.

Related Links

http://XOGroupInc.com

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