e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2010
or
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| o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-26659
Move, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
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95-4438337
(I.R.S. Employer
Identification No.) |
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910 East Hamilton Avenue
Campbell, California
(Address of Principal Executive Offices)
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95008
(Zip Code) |
(805) 557-2300
(Registrant’s Telephone Number, including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Indicate by check mark whether registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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| Large Accelerated Filer o
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Accelerated Filer þ
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Non-Accelerated Filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At November 2, 2010, the registrant had 158,383,347 shares of its common stock
outstanding.
INDEX
Move®, REALTOR.com®, Top Producer®, and Moving.comTM are our trademarks or
are exclusively licensed to us. This quarterly report on Form 10-Q contains trademarks of other
companies and organizations. REALTOR® is a registered collective membership mark that may be used
only by real estate professionals who are members of the National Association of REALTORS® and
subscribe to its code of ethics.
2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
MOVE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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(In thousands) |
|
ASSETS |
Current assets: |
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Cash and cash equivalents |
|
$ |
155,621 |
|
|
$ |
106,847 |
|
Accounts receivable, net |
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|
9,814 |
|
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|
10,782 |
|
Other current assets |
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|
9,856 |
|
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|
12,101 |
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|
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Total current assets |
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175,291 |
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|
129,730 |
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Property and equipment, net |
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21,424 |
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|
21,139 |
|
Long-term investments |
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— |
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|
111,800 |
|
Investment in unconsolidated joint venture |
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|
7,290 |
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|
6,649 |
|
Goodwill, net |
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24,581 |
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|
16,969 |
|
Intangible assets, net |
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8,672 |
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|
3,460 |
|
Other assets |
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|
1,288 |
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|
1,548 |
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Total assets |
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$ |
238,546 |
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$ |
291,295 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
Current liabilities: |
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Accounts payable |
|
$ |
4,352 |
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|
$ |
5,545 |
|
Accrued expenses |
|
|
18,964 |
|
|
|
18,335 |
|
Deferred revenue |
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|
15,581 |
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|
15,951 |
|
Line of credit |
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— |
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|
64,630 |
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Total current liabilities |
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38,897 |
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104,461 |
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Other non-current liabilities |
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3,527 |
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|
1,096 |
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Total liabilities |
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42,424 |
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105,557 |
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Commitments and contingencies (see note 15) |
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Series B convertible preferred stock |
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115,565 |
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|
111,541 |
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|
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|
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Stockholders’ equity: |
|
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Series A convertible preferred stock |
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— |
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|
— |
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Common stock |
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|
158 |
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|
156 |
|
Additional paid-in capital |
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2,122,745 |
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2,112,613 |
|
Accumulated other comprehensive income (loss) |
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|
374 |
|
|
|
(17,116 |
) |
Accumulated deficit |
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|
(2,042,720 |
) |
|
|
(2,021,456 |
) |
|
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|
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|
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|
|
|
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|
|
|
|
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Total stockholders’ equity |
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|
80,557 |
|
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|
74,197 |
|
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|
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|
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|
|
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Total liabilities and stockholders’ equity |
|
$ |
238,546 |
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|
$ |
291,295 |
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|
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.
3
MOVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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(In thousands, except per share amounts) |
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(Unaudited) |
|
Revenue |
|
$ |
50,256 |
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|
$ |
52,866 |
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|
$ |
148,590 |
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|
$ |
162,371 |
|
Cost of revenue |
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|
10,766 |
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|
12,014 |
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32,782 |
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37,465 |
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Gross profit |
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39,490 |
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40,852 |
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115,808 |
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124,906 |
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Operating expenses: |
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Sales and marketing |
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18,631 |
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18,787 |
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55,835 |
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|
60,936 |
|
Product and web site development |
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8,855 |
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|
7,650 |
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25,517 |
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20,458 |
|
General and administrative |
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10,877 |
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|
16,226 |
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32,366 |
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|
51,227 |
|
Amortization of intangible assets |
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|
139 |
|
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|
107 |
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|
348 |
|
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|
366 |
|
Litigation settlement |
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— |
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|
— |
|
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|
— |
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|
975 |
|
Restructuring charges (see note 4) |
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— |
|
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|
(1,192 |
) |
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|
— |
|
|
|
(1,192 |
) |
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|
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Total operating expenses |
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38,502 |
|
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|
41,578 |
|
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|
114,066 |
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|
132,770 |
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|
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|
|
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|
Operating income (loss) from continuing operations |
|
|
988 |
|
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|
(726 |
) |
|
|
1,742 |
|
|
|
(7,864 |
) |
Interest income, net |
|
|
33 |
|
|
|
279 |
|
|
|
767 |
|
|
|
728 |
|
Earnings of unconsolidated joint venture |
|
|
342 |
|
|
|
— |
|
|
|
641 |
|
|
|
— |
|
Impairment of auction rate securities |
|
|
— |
|
|
|
— |
|
|
|
(19,559 |
) |
|
|
— |
|
Other income (expense), net |
|
|
(42 |
) |
|
|
1,250 |
|
|
|
(1,144 |
) |
|
|
1,741 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Income (loss) from continuing operations before income taxes |
|
|
1,321 |
|
|
|
803 |
|
|
|
(17,553 |
) |
|
|
(5,395 |
) |
Income tax (benefit) expense |
|
|
(404 |
) |
|
|
50 |
|
|
|
(313 |
) |
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
1,725 |
|
|
|
753 |
|
|
|
(17,240 |
) |
|
|
(5,622 |
) |
Loss from discontinued operations |
|
|
— |
|
|
|
(196 |
) |
|
|
— |
|
|
|
(445 |
) |
Gain on disposition of discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net income (loss) |
|
|
1,725 |
|
|
|
557 |
|
|
|
(17,240 |
) |
|
|
(3,764 |
) |
Convertible preferred stock dividend and related accretion |
|
|
(1,350 |
) |
|
|
(1,315 |
) |
|
|
(4,024 |
) |
|
|
(3,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
375 |
|
|
$ |
(758 |
) |
|
$ |
(21,264 |
) |
|
$ |
(7,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
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Basic income (loss) per share applicable to common stockholders: (see note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.00 |
) |
|
|
— |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share applicable to common stockholders |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted income (loss) per share applicable to common stockholders: (see note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.00 |
) |
|
|
— |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share applicable to common stockholders |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Shares used to calculate basic and diluted net income (loss) per share applicable
to common stockholders: (see note 10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
155,711 |
|
|
|
153,344 |
|
|
|
154,957 |
|
|
|
153,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted |
|
|
159,527 |
|
|
|
153,344 |
|
|
|
154,957 |
|
|
|
153,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.
4
MOVE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
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|
|
|
|
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|
| |
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Nine Months Ended |
|
| |
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
| |
|
(In thousands) |
|
| |
|
(Unaudited) |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,240 |
) |
|
$ |
(3,764 |
) |
Adjustments to reconcile net loss to net cash provided by continuing operating activities: |
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
— |
|
|
|
445 |
|
Gain on disposition of discontinued operations |
|
|
— |
|
|
|
(2,303 |
) |
Depreciation |
|
|
7,637 |
|
|
|
7,853 |
|
Amortization of intangible assets |
|
|
348 |
|
|
|
366 |
|
Provision for doubtful accounts |
|
|
(84 |
) |
|
|
1,024 |
|
Gain on sale of assets |
|
|
— |
|
|
|
(1,308 |
) |
Impairment of auction rate securities |
|
|
19,559 |
|
|
|
— |
|
Stock-based compensation and charges |
|
|
5,765 |
|
|
|
15,647 |
|
Earnings of unconsolidated joint venture |
|
|
(641 |
) |
|
|
— |
|
Change in market value of embedded derivative liability |
|
|
— |
|
|
|
(536 |
) |
Other non-cash items |
|
|
(153 |
) |
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions and discontinued operations: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,346 |
|
|
|
130 |
|
Other assets |
|
|
1,059 |
|
|
|
(998 |
) |
Accounts payable and accrued expenses |
|
|
675 |
|
|
|
155 |
|
Deferred revenue |
|
|
(602 |
) |
|
|
(6,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by continuing operating activities |
|
|
17,669 |
|
|
|
10,195 |
|
Net cash used in discontinued operating activities |
|
|
— |
|
|
|
(1,843 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
17,669 |
|
|
|
8,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(7,838 |
) |
|
|
(7,711 |
) |
Acquisitions, net of cash acquired |
|
|
(12,371 |
) |
|
|
— |
|
Proceeds from the sale of auction rate securities |
|
|
109,841 |
|
|
|
— |
|
Principal payments on notes receivable |
|
|
1,000 |
|
|
|
— |
|
Proceeds from sale of assets |
|
|
— |
|
|
|
1,355 |
|
Proceeds from the sale of marketable equity securities |
|
|
14 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) continuing investing activities |
|
|
90,646 |
|
|
|
(6,356 |
) |
Net cash provided by discontinued investing activities |
|
|
— |
|
|
|
1,739 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
90,646 |
|
|
|
(4,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
4,467 |
|
|
|
1,859 |
|
Restricted cash |
|
|
462 |
|
|
|
2,747 |
|
Gross proceeds from line of credit |
|
|
64,700 |
|
|
|
— |
|
Gross principal payments on line of credit |
|
|
(129,330 |
) |
|
|
— |
|
Proceeds from loan payable |
|
|
316 |
|
|
|
— |
|
Principal payments on loan payable |
|
|
(58 |
) |
|
|
— |
|
Tax payment related to net share settlements of restricted stock awards |
|
|
(98 |
) |
|
|
(1,064 |
) |
Payments on capital lease obligations |
|
|
— |
|
|
|
(339 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(59,541 |
) |
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
48,774 |
|
|
|
6,938 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
106,847 |
|
|
|
108,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
155,621 |
|
|
$ |
115,873 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
Condensed Consolidated Financial Statements.
5
MOVE, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Move, Inc. and its subsidiaries (the “Company”) operate an online network of web sites for
real estate search, finance, moving and home enthusiasts and provide a valuable resource for
consumers seeking the online information and connections they need regarding real estate. The
Company’s flagship consumer web sites are Move.com, REALTOR.com® and Moving.com. The Company also
provides lead management software for real estate agents through its Top Producer® business.
2. Principles of Consolidation and Basis of Presentation
The accompanying financial statements are consolidated and include the financial statements of
Move, Inc. and its majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company has evaluated all subsequent
events through the date the financial statements were issued.
Investments in private entities where the Company holds no more than a 50% ownership interest
and does not exercise control are accounted for using the equity method of accounting and the
investment balance is included in investment in unconsolidated joint venture, while the Company’s
share of the investees’ results of operations is included in earnings of unconsolidated joint
venture.
The Company’s unaudited Condensed Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”),
including those for interim financial information, and with the instructions for Form 10-Q and
Article 10 of Regulation S-X issued by the Securities and Exchange Commission (“SEC”). Accordingly,
they do not include all of the information and note disclosures required by GAAP for complete
financial statements. These statements are unaudited and, in the opinion of management, all
adjustments (which include only normal recurring adjustments) considered necessary for a fair
presentation have been included. These unaudited Condensed Consolidated Financial Statements should
be read in conjunction with the audited financial statements and notes thereto included in the
Company’s Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 5,
2010. The results of operations for these interim periods are not necessarily indicative of the
operating results for a full year.
3. Acquisitions and Disposals
On September 20, 2010, the Company acquired all of the outstanding shares of Threewide
Corporation (“Threewide”) for approximately $13.1 million in cash. Threewide is the operator of
ListHub, an online real estate listing syndicator and provider of advanced performance reporting
solutions for brokers, real estate franchises, multiple listing services and real estate web sites.
The total purchase price has been allocated to the assets acquired, including intangible assets,
and liabilities assumed, based on their respective fair values. The $13.1 million purchase price
was allocated $0.6 million to net tangible assets (which included $0.7 million of cash acquired),
$5.1 million to intangible assets with estimated useful lives of five years, $0.5 million to
indefinite lived trade name and trademarks, and the remaining $6.9 million was allocated to
goodwill. In connection with the purchase accounting, the Company recorded a net deferred tax
liability of $0.2 million associated with the indefinite lived intangible and an income tax benefit
of $0.5 million (see Note 13), resulting in additional goodwill of $0.7 million being recorded. At
September 30, 2010, the Company had goodwill of $7.6 million and net intangible assets of $5.5
million associated with the Threewide acquisition. The financial results of Threewide are included
in the Company’s Condensed Consolidated Financial Statements from the date of acquisition. Pro
forma financial information for this acquisition has not been presented because the effects were
not material to the Company’s historical consolidated financial statements.
In the second quarter of 2008, the Company decided to divest its Welcome Wagon business. On
June 22, 2009, the Company closed the sale of the business for a sales price of $2.0 million. The
Company received $1.0 million in cash and a $1.0 million promissory note. The principal balance of
the note, which was originally due on or before October 1, 2010, was paid in full in July 2010.
The outstanding principal bore an interest rate of 7% per annum, with quarterly interest payments
due commencing on October 1, 2009. The transaction resulted in a gain on disposition of
discontinued operations of $1.2 million for the nine months ended September 30, 2009.
As part of the sale in 2002 of the Company’s ConsumerInfo division to Experian Holding, Inc.
(“Experian”), $10.0 million of the purchase price was put in escrow to secure the Company’s
indemnification obligations (the “Indemnity Escrow”). Under the terms of the stock purchase
agreement, the Company’s maximum potential liability for claims by Experian was capped at $29.3
million less the balance in the Indemnity Escrow, which amount was approximately $8.5 million on
March 31,
6
2009. During 2008, Experian demanded $29.3 million in indemnity payments. The Company denied
liability and a bifurcated arbitration proceeding ensued to resolve the dispute. Subsequent to the
completion of the first phase of the arbitration proceedings, on April 20, 2009, the parties
settled the dispute and entered into a full release of all claims under which Experian received
$7.4 million from the Indemnity Escrow and the Company received the balance of the escrow of $1.1
million, which is included in gain on disposition of discontinued operations for the nine months
ended September 30, 2009.
Pursuant to ASC 205-20-45 “Discontinued Operations”, the Company’s Consolidated Financial
Statements for all periods presented reflects the reclassification of its Welcome Wagon business as
discontinued operations. Accordingly, the revenue, costs and expenses, and cash flows of this
business have been excluded from the respective captions in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows and have been reported as “Income
(loss) from discontinued operations,” net of applicable income taxes of zero; and as “Net cash used
in discontinued operating activities.” Total revenue and income (loss) from discontinued
operations are reflected below (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,609 |
|
Total operating expenses |
|
|
— |
|
|
|
196 |
|
|
|
— |
|
|
|
9,009 |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
— |
|
|
$ |
(196 |
) |
|
$ |
— |
|
|
$ |
(445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of discontinued operations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the first quarter of 2009, the Company incurred a restructuring charge from discontinued
operations of $1.1 million associated with lease termination charges and employee termination
costs. There are no additional amounts to be paid as part of the restructuring charge as of
September 30, 2010.
In July 2009, the Company sold certain product lines associated with its Enterprise business
for a sale price of approximately $1.4 million in cash. The transaction resulted in a gain on sale
of assets of $1.3 million which is reflected in other income, net in the Company’s Condensed
Consolidated Statements of Operations for the three and nine months ended September 30, 2009.
4. Restructuring Charges
In the third and fourth quarters of 2008, the Company’s Board of Directors approved
restructuring and integration plans with the objective of eliminating duplicate resources and
redundancies and implementing a new operating structure to lower total operating expenses. As a
result of these plans, the Company incurred a restructuring charge from continuing operations of
$4.4 million for the year ended December 31, 2008. Included in this charge were lease obligations
and related charges of $3.0 million for the consolidation of the Company’s operations in Westlake
Village, California and the vacancy of a portion of the leased facility. On September 3, 2009, the
Company entered into a new lease agreement for its Westlake Village facility. Under the terms of
the lease, the Company was leasing only a portion of the facility but was continuing to occupy its
current space in that facility until construction was completed on the new space. The Company’s
obligations under the old lease were terminated and, as a result, the remaining restructuring
reserve was reversed, resulting in a $1.2 million credit to restructuring charges for the three and
nine months ended September 30, 2009.
5. Long-term Investments
The following table summarizes the Company’s long-term investments (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
| |
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
| |
|
Adjusted |
|
|
Realized |
|
|
Carrying |
|
|
Adjusted |
|
|
Unrealized |
|
|
Carrying |
|
| |
|
Cost |
|
|
Loss |
|
|
Value |
|
|
Cost |
|
|
Loss |
|
|
Value |
|
Long-term investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate auction rate securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
129,400 |
|
|
$ |
(17,600 |
) |
|
$ |
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
129,400 |
|
|
$ |
(17,600 |
) |
|
$ |
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s long-term investments as of December 31, 2009 consisted of high-grade (primarily
AAA rated) student loan auction rate securities issued by student loan funding organizations, which
loans are 97% guaranteed under FFELP (Federal Family Education Loan Program). These auction rate
securities (“ARS”) were intended to provide liquidity via an auction process that reset the
interest rate, generally every 28 days, allowing investors to either roll over their holdings or
sell them at par. In February 2008, auctions for the Company’s investments in these securities
failed to settle on their respective settlement dates. Consequently, the investments were not
liquid and the Company was not going to be able to access these funds until a future auction of
these investments was successful, the securities matured or a buyer was found outside of the
auction process. Maturity dates for these ARS investments ranged from years 2030 to 2047 with
principal distributions
7
occurring on certain securities prior to maturity. As of December 31, 2009, the Company classified
$111.8 million of the ARS investment balance as Long-term Investments because of the Company’s
inability to determine when these investments would become liquid.
As of December 31, 2009, the Company had recorded a temporary loss related to the ARS of $17.6
million that was included in Other Comprehensive Income on the Company’s Condensed Consolidated
Balance Sheet. At a board meeting on March 24, 2010, the Board of Directors and Management
discussed the recent passage of the Health Care Reform Bill that contained a provision eliminating
FFELP, a significant change in student loan funding. In management’s opinion, this change, along
with other market factors, created additional uncertainty in the student loan auction rate
securities market. As a result, the Board of Directors and Management changed its intent, which
had been to hold these securities, and decided to sell the entire portfolio of ARS and, thereafter,
the Company began to actively market the sale to third parties. The Company reviews its potential
investment impairments in accordance with ASC 320 “Investment — Debt and Equity Securities” and
the related guidance issued by the FASB and SEC in order to determine the classification of the
impairment as “temporary” or “other-than-temporary.” A temporary impairment charge results in an
unrealized loss being recorded in the other comprehensive income (loss) component of stockholder’s
equity. An other-than-temporary impairment charge is recorded as a realized loss in the Condensed
Consolidated Statement of Operations and reduces net income (loss) for the applicable accounting
period. The differentiating factors between temporary and other-than-temporary impairment are
primarily the length of the time and the extent to which the market value has been less than cost,
the financial condition and near-term prospects of the issuer, and the ability and intent of the
holder to hold the investment until maturity or its value recovers. Prior to March 24, 2010, the
Company had not intended to sell, nor was it not more likely than not that the Company would be
required to sell before the recovery of its amortized cost basis and, as such, the loss was
considered temporary. On March 24, 2010, as indicated above, the Company changed its intent to
hold the ARS and, therefore, the impairment was reclassified to an other-than-temporary loss.
In April 2010, the Company completed a sale of the entire portfolio of ARS for $109.8 million
(par value of $129.4 million) to a broker in a secondary market. As a result of the sale, an
other-than-temporary loss of $19.6 million was recorded as Impairment of Auction Rate Securities in
the Company’s Condensed Consolidated Statement of Operations for the nine months ended September
30, 2010. The transaction costs of approximately $1.0 million associated with this transaction
were recorded as other expense for the nine months ended September 30, 2010.
6. Fair Value Measurements
Financial assets and liabilities included in the Company’s financial statements and measured
at fair value on a recurring basis as of September 30, 2010 and December 31, 2009 are classified
based on the fair value hierarchy in the table below (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurement |
|
| |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
| |
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Description: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (1) |
|
$ |
155,621 |
|
|
$ |
155,621 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
106,847 |
|
|
$ |
106,847 |
|
|
$ |
— |
|
|
$ |
— |
|
Long-term investments (2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
111,800 |
|
|
|
— |
|
|
|
— |
|
|
|
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value |
|
$ |
155,621 |
|
|
$ |
155,621 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
218,647 |
|
|
$ |
106,847 |
|
|
$ |
— |
|
|
$ |
111,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
|
Cash and cash equivalents consist primarily of treasury bills with original maturity
dates of three months or less and money market funds for which the Company determines fair
value through quoted market prices. |
| |
| (2) |
|
Long-term investments consisted of student loan, FFELP-backed, ARS issued by student loan
funding organizations. Prior to March 31, 2010, the Company used a discounted cash flow
model to determine the estimated fair value of its investment in ARS. The assumptions used
in preparing the discounted cash flow model included estimates for interest rates, timing
and amount of cash flows and the Company’s expected holding period of the ARS. As discussed
in Note 5, the Company completed the sale of its entire portfolio of ARS in April 2010. |
The following table provides a reconciliation of the beginning and ending balances for the
major class of assets and liabilities measured at fair value using significant unobservable inputs
(Level 3) (in thousands):
8
| |
|
|
|
|
| |
|
Long-term |
|
| |
|
Investments |
|
Balance at January 1, 2010 |
|
$ |
111,800 |
|
Transfers out of Level 3 |
|
|
(109,841 |
) |
Total losses included in earnings |
|
|
(19,559 |
) |
Total gains included in other comprehensive income |
|
|
17,600 |
|
Purchases, sales, issuances and settlements, net |
|
|
— |
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
— |
|
|
|
|
|
Certain assets and liabilities are measured at fair value on a non-recurring basis. That is,
the assets and liabilities are not measured at fair value on an ongoing basis, but are subject to
fair value adjustments in certain circumstances (e.g. when there is evidence of impairment). At
September 30, 2010, the Company had no significant non-financial assets or liabilities that had
been adjusted to fair value subsequent to initial recognition.
7. Revolving Line of Credit
The Company had a revolving line of credit with a major financial institution, providing for
borrowings of up to $64.7 million. The line of credit was fully paid in April 2010 and expired in
May 2010.
8. Goodwill and Intangible Assets
Goodwill increased $7.6 million from $17.0 million as of December 31, 2009 to $24.6 million as
of September 30, 2010 due to the acquisition of Threewide as described in Note 3.
The Company has both indefinite-lived and definite-lived intangibles. Indefinite-lived
intangibles consist of $2.5 million of trade names and trademarks. Definite-lived intangible
assets consist of certain trade names, trademarks, brand names, content syndication agreements,
purchased technology, customer contracts and related customer relationships, non-contractual
customer relationships, and other miscellaneous agreements. The definite-lived intangibles are
amortized over the expected period of benefit. There are no expected residual values related to
these intangible assets. Intangible assets, by category, are as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
September 30, 2010 |
|
|
December 31, 2009 |
|
| |
|
Gross |
|
|
Accumulated |
|
|
Gross |
|
|
Accumulated |
|
| |
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Trade names, trademarks, brand names, and domain names |
|
$ |
3,060 |
|
|
$ |
517 |
|
|
$ |
2,530 |
|
|
$ |
516 |
|
Content syndication agreements |
|
|
3,800 |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
Purchased technology |
|
|
1,400 |
|
|
|
917 |
|
|
|
1,400 |
|
|
|
767 |
|
National Association of Realtors (“NAR”) operating agreement |
|
|
1,578 |
|
|
|
1,315 |
|
|
|
1,578 |
|
|
|
1,202 |
|
Other |
|
|
2,680 |
|
|
|
1,076 |
|
|
|
1,450 |
|
|
|
1,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12,518 |
|
|
$ |
3,846 |
|
|
$ |
6,958 |
|
|
$ |
3,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $0.1 million and $0.3 million for each of the
three and nine month periods ended September 30, 2010 and 2009, respectively.
Amortization expense for the next five years is estimated to be as follows (in thousands):
| |
|
|
|
|
| Years Ended December 31, |
|
Amount |
|
2010 (remaining 3 months) |
|
$ |
355 |
|
2011 |
|
|
1,421 |
|
2012 |
|
|
1,346 |
|
2013 |
|
|
1,104 |
|
2014 |
|
|
1,072 |
|
9. Stock-Based Compensation and Charges
The Company accounts for stock issued to non-employees in accordance with the provisions of
ASC 505-50 “Equity-Based Payments to Non-Employees” (formerly SFAS No. 123 and EITF No. 96-18).
The Company grants restricted stock awards to non-employee members of its Board of Directors
as compensation (except any director who is entitled to a seat on the Board of Directors on a
contractual basis). These shares, subject to certain terms
9
and restrictions, will vest on the third anniversary of their issuance and the costs are being
recognized over their respective vesting periods. During the nine months ended September 30, 2010,
the Company granted 139,098 shares of restricted stock to the non-employee members of its Board of
Directors. During the nine months ended September 30, 2009, the Company granted 60,000 shares of
restricted stock to the members of the ad hoc Executive Committee of its Board of Directors. Half
of these shares vested on the grant date and half of the shares vested one year from the grant
date. Additionally, during the nine months ended September 30, 2009, the Company granted 175,420
shares of restricted stock to all non-employee members of its Board of Directors. There were
432,105 and 453,713 unvested shares of restricted stock issued to members of the Company’s Board of
Directors as of September 30, 2010 and 2009, respectively. Total cost recognized was $0.1 million
for the three months ended September 30, 2010 and 2009, and $0.3 million and $0.4 million for the
nine months ended September 30, 2010 and 2009, respectively, and is included in stock-based
compensation and charges.
Restricted Stock
During the nine months ended September 30, 2009, the Company issued 1,800,000 shares of
restricted stock to its new Chief Executive Officer (“CEO”) as part of his employment agreement
with the Company. These shares had a grant date fair value of $2.7 million, 700,000 of which
shares vested immediately, 500,000 of which shares vested one year from the grant date and 600,000
of which shares vest two years from the grant date, subject to certain terms and restrictions. The
fair value of the 700,000 immediately vested shares was recognized as stock-based compensation
immediately, with the fair value of the remaining shares being amortized over their respective
vesting periods. During the nine months ended September 30, 2009, the CEO returned 700,000 shares
of common stock, with a fair value of $1.1 million, to reimburse the Company for his share of
income tax withholdings due as a result of this transaction. The $1.1 million payment to the
relevant taxing authorities is reflected as a financing activity within the Condensed Consolidated
Statement of Cash Flows for the nine months ended September 30, 2009. Total cost recognized during
the three months ended September 30, 2010 and 2009 was $0.1 million and $0.3 million, respectively,
and $0.4 million and $1.9 million for the nine months ended September 30, 2010 and 2009,
respectively, and is included in stock-based compensation and charges.
During the year ended December 31, 2009, the Company issued 350,000 shares of restricted stock
to two other executives newly hired by the Company, as part of their employment agreements with the
Company. These shares had an aggregate grant date fair value of $0.9 million. These shares vest
in three annual installments over the three year period following their respective grant dates,
subject to certain terms and restrictions. Total cost recognized during the three and nine months
ended September 30, 2010 was $0.1 million and $0.4 million, respectively, and $0.1 million for the
three and nine months ended September 30, 2009 and is included in stock-based compensation and
charges. The Company made no grants of restricted stock to any of its executive officers or
employees during the three and nine months ended September 30, 2010.
Performance Based Restricted Stock Units
During the nine months ended September 30, 2009, the Board of Directors awarded 700,000 shares
of performance-based restricted stock units to its new Chief Executive Officer as part of his
employment agreement with the Company. These awards will be earned based on the attainment of
certain performance goals relating to the Company’s revenues and EBITDA for the fiscal year ending
December 31, 2011. The performance goals were established on April 9, 2010 and the shares had an
aggregate grant date fair value of $1.5 million. The implied service period is for the fiscal year
ending December 31, 2011; therefore, there was no recognition of compensation expense for these
units during the three and nine months ended September 30, 2010.
During the year ended December 31, 2009, the Board of Directors awarded 375,000 shares of
performance-based restricted stock units to two other executives newly hired by the Company, as
part of their employment agreements. These awards will be earned based on the attainment of
certain performance goals relating to the Company’s revenues and EBITDA for the fiscal years ending
December 31, 2010, 2011 and 2012. The performance goals for fiscal year ending December 31, 2010
were established on March 29, 2010. The shares associated with the fiscal year ending December 31,
2010 had an aggregate grant date fair value of $0.3 million. Total cost recognized for these units
during the three and nine months ended September 30, 2010 was $0.1 million and $0.2 million,
respectively, and is included in stock-based compensation. The performance goals for fiscal year
ending December 31, 2011 were established on April 9, 2010. The shares associated with the fiscal
year ending December 31, 2011 had an aggregate grant date fair value of $0.3 million. The implied
service period is for the fiscal year ending December 31, 2011, therefore; there was no recognition
of compensation expense for these units during the three and nine months ended September 30, 2010.
The Company awarded no new performance-based restricted stock units to any of its executive
officers or employees during the nine months ended September 30, 2010.
Option Awards
The fair value of stock option awards is estimated on the date of grant using a Black-Scholes
option valuation model that uses the ranges of assumptions in the following table. Our computation
of expected volatility is based on a combination of historical and market-based implied volatility.
The expected term is based on the Company’s weighted average vesting period combined with the
post-vesting holding period. The risk-free interest rates are based on U.S. Treasury zero-coupon
bonds for the periods in which the options were granted.
10
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Risk-free interest rates |
|
|
1.27%-1.70 |
% |
|
|
0.19%-2.53 |
% |
|
|
1.27%-2.43 |
% |
|
|
0.11%-2.54 |
% |
Expected term (in years) |
|
|
5.85 |
|
|
|
5.85 |
|
|
|
5.85 |
|
|
|
5.85 |
|
Dividend yield |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Expected volatility |
|
|
80 |
% |
|
|
85 |
% |
|
|
80%-85 |
% |
|
|
85 |
% |
During the nine months ended September 30, 2009, the Company granted options to purchase
3,000,000 shares of the Company’s common stock to its new Chief Executive Officer as part of his
employment agreement with the Company. The grant date fair value of these options was $3.2
million. 750,000 of such options were immediately vested, with the remaining options vesting
ratably on a monthly basis over a period of three years beginning on the first anniversary of the
grant date. As a result of the immediate vesting, the Company recorded additional stock-based
compensation of $0.7 million for the nine months ended September 30, 2009.
During the nine months ended September 30, 2009, the Company accelerated the vesting of
previously-awarded stock options for two former executive officers and extended the time to
exercise certain of these options for one of the former officers as part of their separation
agreements. As a result, the Company recorded additional stock-based compensation expense of $7.2
million for the nine months ended September 30, 2009. There were no such accelerations for the
three and nine months ended September 30, 2010.
The following chart summarizes the stock-based compensation and charges that have been
included in the following captions for each of the periods presented (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost of revenue |
|
$ |
44 |
|
|
$ |
54 |
|
|
$ |
136 |
|
|
$ |
137 |
|
Sales and marketing |
|
|
400 |
|
|
|
472 |
|
|
|
1,240 |
|
|
|
1,349 |
|
Product and web site development |
|
|
453 |
|
|
|
166 |
|
|
|
1,243 |
|
|
|
493 |
|
General and administrative |
|
|
962 |
|
|
|
3,030 |
|
|
|
3,146 |
|
|
|
13,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from continuing operations |
|
|
1,859 |
|
|
|
3,722 |
|
|
|
5,765 |
|
|
|
15,647 |
|
Total from discontinued operations |
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation and charges |
|
$ |
1,859 |
|
|
$ |
3,723 |
|
|
$ |
5,765 |
|
|
$ |
15,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Net Income (Loss) Per Share
The following table sets forth the computation of basic and diluted net income (loss) per
share applicable to common stockholders for the periods indicated (in thousands, except per share
amounts):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
1,725 |
|
|
$ |
753 |
|
|
$ |
(17,240 |
) |
|
$ |
(5,622 |
) |
Income (loss) from discontinued operations |
|
|
— |
|
|
|
(196 |
) |
|
|
— |
|
|
|
1,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
1,725 |
|
|
|
557 |
|
|
|
(17,240 |
) |
|
|
(3,764 |
) |
Convertible preferred stock dividend and related accretion |
|
|
(1,350 |
) |
|
|
(1,315 |
) |
|
|
(4,024 |
) |
|
|
(3,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
375 |
|
|
$ |
(758 |
) |
|
$ |
(21,264 |
) |
|
$ |
(7,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders from
continuing operations |
|
$ |
375 |
|
|
$ |
(562 |
) |
|
$ |
(21,264 |
) |
|
$ |
(9,542 |
) |
Net income (loss) applicable to common stockholders from
discontinued operations |
|
|
— |
|
|
|
(196 |
) |
|
|
— |
|
|
|
1,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders |
|
$ |
375 |
|
|
$ |
(758 |
) |
|
$ |
(21,264 |
) |
|
$ |
(7,684 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
155,711 |
|
|
|
153,344 |
|
|
|
154,957 |
|
|
|
153,139 |
|
Add: dilutive effect of options and restricted stock |
|
|
3,816 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted weighted average shares outstanding |
|
|
159,527 |
|
|
|
153,344 |
|
|
|
154,957 |
|
|
|
153,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Basic income (loss) per share applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.00 |
) |
|
|
— |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income (loss) per share applicable to common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.06 |
) |
Discontinued operations |
|
|
— |
|
|
|
(0.00 |
) |
|
|
— |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Because their effects would be anti-dilutive for the periods presented, the denominator in the
above computation of diluted loss per share excludes preferred stock, stock options and warrants of
45,179,291 and 62,383,313 for the three and nine months ended September 30, 2010, respectively, and
66,094,890 and for the three and nine months ended September 30, 2009, respectively.
11. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) are (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net income (loss) |
|
$ |
1,725 |
|
|
$ |
557 |
|
|
$ |
(17,240 |
) |
|
$ |
(3,764 |
) |
Unrealized gain (loss) on marketable securities |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
(3 |
) |
Reclass of unrealized loss on auction rate securities |
|
|
— |
|
|
|
— |
|
|
|
17,600 |
|
|
|
— |
|
Foreign currency translation |
|
|
3 |
|
|
|
83 |
|
|
|
(107 |
) |
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
1,728 |
|
|
$ |
640 |
|
|
$ |
250 |
|
|
$ |
(3,674 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
12. Related-party Transactions
The Company provided product development services to the National Association of Realtors
(“NAR”) and recognized $0.4 million and $2.4 million in revenues for the three and nine months
ended September 30, 2009, respectively. The Company did not provide product development services
to the NAR during the three and nine months ended September 30, 2010. The Company also makes
payments to the NAR required under its operating agreement with the NAR and under certain other
advertising agreements. Total amounts paid under these agreements were $0.4 million and $1.4
million for the three and nine months ended September 30, 2010, respectively, and $0.5 million and
$1.3 million for the three and nine months ended September 30, 2009, respectively.
13. Income Taxes
As a result of historical net operating losses, the Company currently provides a full
valuation allowance against its net deferred tax assets. The Company recorded an income tax benefit
of $0.4 million and $0.3 million in the three and nine months ended September 30, 2010,
respectively. The Company recorded income tax expense of $0.1 million and $0.2 million in the
three and nine months ended September 30, 2009, respectively. In the three and nine months ended
September 30, 2010, the Company recorded an income tax benefit of $0.5 million as a result of a
change in the valuation allowances resulting from the deferred tax liability established for the
amortizable intangible assets acquired as part of the business combination described in Note 3.
This income tax benefit was partially offset by $0.1 million and $0.2 million of state income tax
expenses and a deferred tax provision related to amortization of certain indefinite lived
intangible assets in the three and nine months ended September 30, 2010, respectively. In the
three and nine months ended September 30, 2009, income tax expense included state income taxes and
a deferred tax provision related to amortization of certain indefinite lived intangible assets.
As of September 30, 2010, the Company does not have any accrued interest or penalties related
to uncertain tax positions. The Company’s policy is to recognize interest and penalties related to
uncertain tax positions in income tax expense. The Company does not have any interest or penalties
related to uncertain tax positions in income tax expense for the three and nine months ended
September 30, 2010 and 2009. The tax years 1993-2009 remain open to examination by the major
taxing jurisdictions to which the Company is subject.
14. Settlement of Disputes and Litigation
On November 12, 2008, Patricia Ramirez, on behalf of herself and all other similarly situated
California account executives, filed a purported class action lawsuit in the Los Angeles Superior
Court against Move, Inc., and its subsidiary
12
Move Sales, Inc., asserting failure to fully reimburse business expenses, unlawful wage
deductions, failure to timely pay wages due at termination, failure to timely furnish accurate
itemized wage statements, unfair business practices and declaratory relief. Subsequent to December
31, 2009, the Company and plaintiff’s attorneys agreed to a tentative settlement of all claims
brought by Ramirez on behalf of herself and all others in the purported class action. The amount of
the settlement was accrued as of December 31, 2009 and was recorded in the Consolidated Statements
of Operations for the year ended December 31, 2009. Such proposed settlement required final court
approval. On August 24, 2010 the court entered final approval of the settlement. The settlement
did not have a material effect on the Company’s results of operations or cash flows for the year
ended December 31, 2009.
15. Commitments and Contingencies
Legal Proceedings
The Company is currently involved in certain legal proceedings, as discussed in Note 23,
“Commitments and Contingencies—Legal Proceedings,” to our Consolidated Financial Statements
contained in Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2009 (“Annual
Report”) and below in this Note 15. As of the date of this Form 10-Q, and except as disclosed
below, there have been no material developments in the legal proceedings disclosed in our Annual
Report, and the Company is not a party to any other litigation or administrative proceedings that
management believes will have a material adverse effect on the Company’s business, results of
operations, financial condition or cash flows.
In March 2010, Smarter Agent, LLC (“Smarter Agent”) filed suit against Move, Inc., against our
affiliate, RealSelect, Inc. (“RealSelect”), and also against other co-defendants Boopsie, Inc.,
Classified Ventures, LLC, Hotpads, Inc., IDX, Inc., Multifamily Technology Solutions, Inc. D/B/A
MyNewPlace, Primedia, Inc., Consumer Source, Inc., Trsoft, Inc. D/B/A PlanetRE, Trulia, Inc.,
Zillow, Inc., and ZipRealty, Inc. in the United States District Court for the District of Delaware.
The complaint alleges that the Company and RealSelect, Inc. infringe U.S. Patents 6,385,541;
6,496,776; and 7,072,665 (“Patents in Suit”) by offering an iPhone application for the REALTOR.com®
web site and requested an unspecified amount of damages (including enhanced damages for willful
infringement and attorneys’ fees) and an injunction. On August 31, 2010, co-defendants Boopsie,
Inc., Classified Ventures, LLC, Hotpads, Inc., IDX, Inc., Multifamily Technology Solutions Inc.,
Primedia, Inc., Consumer Source, Inc., Trsoft, Inc., Trulia, Inc., Zillow, Inc., and ZipRealty,
Inc., filed requests for inter partes reexamination of the Patents in Suit. On September 30, 2010,
the Company filed an answer and counter claims on behalf of Move and RealSelect. On October 22,
2010, Smarter Agent filed its answer to such counter claims. The Company intends to vigorously
defend all claims. At this time, however, the Company is unable to express an opinion on the
outcome of this case.
In June 2010, BanxCorp filed a lawsuit against Move, Inc., Dow Jones & Company, Inc., The New
York Times Company, CNBC Inc., Cable News Network, Inc., MSNBC Interactive News, LLD, Fox News
Network, LLC, AOL Inc., and LendingTree LLC in the United States District Court for the District of
New Jersey. The first amended complaint alleges antitrust violations pursuant to Section 1 of the
Sherman Antitrust Act and the New Jersey Antitrust Act, including allegations the Company and other
defendants formed a cartel with BankRate to gain market dominance and unfair advantage over
BanxCorp and other independent competitors by, among other alleged activities, fixing prices and
allocating customers and markets with other BankRate website operators. The first amended
complaint seeks a declaratory judgment, injunctive relief and unspecified amount of damages,
including treble damages and attorneys’ fees and legal costs. On August 3, 2010, motions to
dismiss the case were filed jointly by the Company and the co-defendants. The Company intends to
vigorously defend all claims. At this time, however, the Company is unable to express an opinion
on the outcome of this case.
On February 28, 2007, in a patent infringement action against a real estate agent, Diane
Sarkisian, pending in the U.S. District Court for the Eastern District of Pennsylvania (“the
Sarkisian case”), Real Estate Alliance, Limited (“REAL”), moved to certify two classes of
defendants: subscribers and members of the multiple listing service of which Sarkisian was a
member, and customers of the Company who had purchased enhanced listings from the Company. The
U.S. District Court in the Sarkisian case denied REAL’s motion to certify the classes on September
24, 2007. On March 25, 2008, the U.S. District Court in the Sarkisian case stayed that case, and
denied without prejudice all pending motions, pending the U.S. District Court of California’s
determination in the Move California Action (see below) of whether the Company’s web sites infringe
the REAL patents.
On April 3, 2007, in response to REAL’s attempt to certify our customers as a class of
defendants in the Sarkisian case, the Company filed a complaint in the U.S. District Court for the
Central District of California (“District Court”) against REAL, and its licensing agent (“the Move
California Action”) seeking a declaratory judgment that the Company does not infringe U.S. Patent
Nos. 4,870,576 and 5,032,989 (“the REAL patents”), that the REAL patents are invalid and/or
unenforceable, and alleging several business torts and unfair competition. On August 8, 2007, REAL
denied the Company’s allegations, and asserted counterclaims against the Company for infringement
of the REAL patents seeking compensatory damages, punitive damages, treble damages, costs,
expenses, reasonable attorneys’ fees and pre- and post-judgment interest. On February 28, 2008,
REAL filed a motion for leave to amend its counter-claims, and to include NAR and the National
Association of Home Builders (“NAHB”) as individual defendants, as well as various brokers
including RE/Max International (“RE/Max”), agents, Multiple Listing Services (“MLS”), new home
builders, rental property owners, and technology providers and indicated that it
13
intended to seek to certify certain defendant classes. On March 11, 2008, REAL filed a separate
suit in the District Court (“the REAL California Action”) alleging infringement of the REAL patents
against the same defendants it sought to include in its proposed amended counter-claims in the Move
California Action, and also indicated that it intended to seek to certify the same defendant
classes. The Company is not named as a defendant in the REAL California Action; however, the
Company is defending NAR, NAHB and RE/Max in the REAL California Action. On July 29, 2008, the
Move California Action was transferred to the same judge in the REAL California Action and in
September, 2008, the court coordinated both cases and issued an order dividing the issues into two
phases. Phase 1 addresses issues of patent validity and enforceability, whether Move websites
infringe, damages, and liability of Move, NAR and NAHB. Phase 2 will address REAL’s infringement
claims related to the websites owned or operated by the remaining defendants and whether those
defendants infringe the Real patents by using the Move websites. The District Court has stayed
Phase 2 pending resolution of the issues in Phase 1.
On November 25, 2009, the court entered its claim construction order in the Move California
Action. On January 20, 2010, the Move California Action parties filed a joint stipulation of
non-infringement, and requested the District Court enter judgment of non-infringement. The
District Court entered a final judgment of non-infringement on January 27, 2010.
In July, 2010, REAL filed its brief appealing the District Court’s claim construction with the
Federal Circuit Court of Appeals (“Circuit Court”), and in October, 2010, the Company filed its
opposition. The Circuit Court has not set a date for oral argument. If the Circuit Court
overturns all or part of the claim construction, the judgment would be vacated and the Move
California Action would be remanded to the District Court for further litigation. If the Circuit
Court upholds the District Court’s claim construction, the Move California Action would be
dismissed with prejudice. At this time, however, the Company is unable to express an opinion on
the outcome of these cases.
Contingencies
From time to time, the Company is party to various other litigation and administrative
proceedings relating to claims arising from its operations in the ordinary course of business. As
of the date of this Form 10-Q and except as set forth herein, or in our Annual Report, the Company
is not a party to any other litigation or administrative proceedings that management believes would
have a material adverse effect on the Company’s business, results of operations, financial
condition or cash flows.
16. Supplemental Cash Flow Information
During the nine month period ended September 30, 2010:
| |
• |
|
The Company paid $0.1 million in interest. |
| |
| |
• |
|
The Company received a trade-in allowance on the purchase of property and equipment of
$0.2 million. |
| |
| |
• |
|
The Company issued 139,098 share of restricted common stock to the non-employee members
of its Board of Directors which vest over three years. The charge associated with these
shares was $0.3 million and is being recognized over the three-year vesting period. |
| |
| |
• |
|
The Company issued $3.1 million in additional Series B Preferred Stock as in-kind
dividends. |
During the nine month period ended September 30, 2009:
| |
• |
|
The Company paid $1.3 million in interest. |
| |
| |
• |
|
The Company issued 1,800,000 shares of restricted common stock to its new Chief
Executive Officer with 700,000 shares vesting immediately, and, subject to certain terms
and restrictions, 500,000 shares vesting one year from the grant date and 600,000 shares
vesting two years from the grant date. The charge associated with these shares was $2.7
million and is being recognized over the vesting periods. |
| |
| |
• |
|
The Company issued 60,000 shares of restricted common stock to the members of the ad hoc
Executive Committee of its Board of Directors (except any director who is entitled to a
seat on the Board of Directors on a contractual basis). Half of these shares vested on the
grant date and half of the shares will vest one year from the grant date. The charge
associated with these shares was $0.1 million and was recognized over the one-year vesting
period. |
| |
| |
• |
|
The Company issued 175,420 shares of restricted common stock to the non-employee members
of its Board of Directors which vest over three years. The charge associated with these
shares was $0.4 million and is being recognized over the three-year vesting period. |
| |
| |
• |
|
The Company received a $1.0 million promissory note in conjunction with the sale of its
Welcome Wagon division. |
| |
| |
• |
|
The Company issued $2.9 million in additional Series B Preferred Stock as in-kind
dividends. |
14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Form 10-Q and the following “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” include “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking
statements to encourage companies to provide prospective information about themselves so long as
they identify these statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the projected results.
All statements other than statements of historical fact that we make in this Form 10-Q are
forward-looking. In some cases, you can identify these statements by forward-looking words such as
“estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “might,” “will,”
“should,” or the negative of these terms and other comparable terminology, although not all
forward-looking statements are so identified. In particular, the statements herein regarding
industry prospects and our future consolidated results of operations or financial position are
forward-looking statements. Forward-looking statements reflect our current expectations and are
inherently uncertain. Our actual results may differ significantly from our expectations. Factors
that could cause or contribute to such differences include those discussed below and elsewhere in
this Form 10-Q, as well as those discussed in our Annual Report on Form 10-K for the year ended
December 31, 2009, and in other documents we file with the Securities and Exchange Commission
(“SEC”). This Form 10-Q should be read in conjunction with our Annual Report, including the factors
described under the caption Part 1, Item 1A, “Risk Factors” on our Form 10-K for the year ended
December 31, 2009.
Our Business
Move, Inc. and its subsidiaries (“Move”, “we”, “our” or “us”) operate an online network of web
sites for real estate search, finance, moving and home enthusiasts and provide a valuable resource
for consumers seeking the online information and connections they need regarding real estate. Our
flagship consumer web sites are Move.com, REALTOR.com® and Moving.com. We also provide lead
management software for real estate agents through our Top Producer® business.
On our web sites, we display comprehensive real estate property content, with over four
million resale, new home and rental listings, as well as extensive move-related information and
tools. We hold a significant leadership position in terms of web traffic and minutes, attracting an
average of 10.8 million consumers to our network per month and 223 million minutes per month for
the nine months ended September 30, 2010 according to comScore Media Metrix, a substantial lead
over the next leading real estate site. We also have significant relationships with the real estate
industry, including content agreements with approximately 900 Multiple Listing Services (“MLS”)
across the country and exclusive relationships with the National Association of REALTORS® (“NAR”)
and the National Association of Home Builders (“NAHB”).
Business Trends and Conditions
In recent years, our business has been, and we expect may continue to be, influenced by a
number of macroeconomic, industry-wide and product-specific trends and conditions:
| |
• |
|
Market and economic conditions. |
In recent years, the U.S. economy has experienced low interest rates,
and volatility in the equities markets. Through 2005, housing starts
remained strong, while the supply of apartment housing generally
exceeded demand. For a number of years prior to 2007, owning a home
became much more attainable for the average consumer due to the
availability of flexible mortgage options, which required minimal down
payments and provided low interest rates. During this period, home
builders spent less on advertising, given the strong demand for new
houses, and homeowners who were looking to sell a home only had to
list it at a reasonable price in most areas of the U.S. to sell in 60
days or less. Conversely, demand for rental units declined and
apartment owners did not spend as much money on advertising, as they
have sought to achieve cost savings during the difficult market for
rentals. These trends had an impact on our ability to grow our
business.
Beginning in the second half of 2006, the market dynamics seemed to
reverse. Interest rates rose and mortgage options began to decline.
The housing market became saturated with new home inventory in many
large metropolitan markets and the available inventory of resale homes
began to climb as demand softened. The impact of the rise in interest
rates caused demand for homes to decline in mid-2007. In the second
half of 2007, the availability of mortgage financing became very
sparse. The lack of liquidity coupled with increased supply of homes
and declining prices had a significant impact on real estate
professionals, our primary customers.
Throughout 2008, market conditions continued to decline and in late
September 2008, the stock market declines negatively impacted the
liquidity of the markets in general and have contributed to the
decline in consumer spending. With the exception of very few markets,
new home starts have stalled. Consumer confidence declined and while
mortgage rates have appeared to decline, the credit standards are
perceived to be the tightest they have been in years. The combination
of these factors has had a negative impact on the demand for homes.
These changing conditions resulted in fewer home purchases and forced
many real estate professionals to reconsider their marketing spend.
15
In 2006, we saw many customers begin to shift their dollars from
conventional offline channels, such as newspapers and real estate
guides, to the Internet. We saw many agents and brokers move their
spending online and many home builders increased their marketing spend
to move existing inventory, even as they slowed their production and
our business grew as a result. However, as the market declined in
2008, the advertising spend by many of the large agents and brokers
slowed and some of the medium and smaller brokers and agents reduced
expenses to remain in business. This caused us to experience a
decline in revenue in 2008 and 2009.
2009 was difficult for the real estate market and it has not improved
in 2010. Delinquencies are expected to continue to be double that of
foreclosures, causing uncertainty in the price floor within various
markets. This coupled with the fact that banks have significantly
tightened their credit standards for mortgage loans will make home
purchases in the upper end of the market that much more difficult. We
believe these market conditions will continue to put pressure on
spending by real estate professionals and brokers in the next year.
| |
• |
|
Evolution of Our Product and Service Offerings and Pricing Structures |
We began as a provider of Internet applications to real estate professionals. It became
apparent that our customers valued the media exposure that the Internet offered them, but not all
of the “technology” that we were offering. Many of our customers objected to our proposition that
they purchase our templated web site in order to gain access to our networks. In addition, we were
charging a fixed price to all customers regardless of the market they operate in or the size of
their business.
We responded to our customers’ needs and revamped our service offerings. We began to price our
REALTOR.com® services based on the size of the market and the number of properties the customer
displayed. For many of our customers this change led to substantial price increases over our former
technology pricing. This change was reasonably well-accepted by our customer base.
In today’s market, our real estate professional customers are facing a decline in their
business and have to balance their marketing needs with their ability to pay. As a result, they are
demanding products that perform and provide measurable results for their marketing spend. We are
evaluating customer feedback and balancing that with the need for an improved consumer experience
and are modifying our products and our pricing to be responsive to both.
The decline in consumer confidence and the resulting decline in consumer spending has caused
many of our traditional consumer advertisers to reduce their spending. These economic conditions
have caused the decline in our display and banner ad revenue. It could take considerable time
before this product area yields meaningful growth, if at all. Achievement of significant growth
will require that we introduce new targeted products that are both responsive to the advertisers’
demands and are attractive to the consumer.
Acquisitions and Dispositions
On September 20, 2010, we acquired all of the outstanding shares of Threewide Corporation
(“Threewide”) for approximately $13.1 million in cash. Threewide is the operator of ListHub, an
online real estate listing syndicator and provider of advanced performance reporting solutions for
brokers, real estate franchises, multiple listing services and real estate web sites. The
acquisition cost has been allocated to the assets acquired, including intangible assets, and
liabilities assumed based on their respective fair values.
In the second quarter of 2008, we decided to divest our Welcome Wagon® business. On June 22,
2009 we closed the sale of the business for a sales price of $2.0 million. We received $1.0
million in cash and a $1.0 million promissory note. The principal balance of the note which was
originally due on or before October 1, 2010 was paid in full in July 2010. The outstanding
principal bore an interest rate of 7% per annum, with quarterly interest payments due commencing
October 1, 2009. The transaction resulted in a gain on disposition of discontinued operations of
$1.2 million for the year ended December 31, 2009.
As part of the sale in 2002 of our ConsumerInfo division to Experian Holding, Inc.
(“Experian”), $10.0 million of the purchase price was put in escrow to secure our indemnification
obligations (the “Indemnity Escrow”). Under the terms of the stock purchase agreement, our maximum
potential liability for claims by Experian was capped at $29.3 million less the balance in the
Indemnity Escrow, which amount was approximately $8.5 million on March 31, 2009. During 2008,
Experian demanded $29.3 million in indemnity payments. We denied liability and a bifurcated
arbitration proceeding ensued to resolve the dispute. Subsequent to the completion of the first
phase of the arbitration proceedings, on April 20, 2009, the parties settled the dispute and
entered into a full release of all claims under which Experian received $7.4 million from the
Indemnity Escrow and we received the balance of the escrow of $1.1 million, which is included in
gain on disposition of discontinued operations for the nine months ended September 30, 2009.
Our Condensed Consolidated Financial Statements for all periods presented reflects the
classification of our Welcome Wagon® business as discontinued operations. Accordingly, the revenue,
operating expenses, and cash flows of this business has been excluded from the respective captions
in the Condensed Consolidated Statements of Operations and Condensed
16
Consolidated Statements of Cash Flows and have been reported as “Income (loss) from discontinued
operations,” net of applicable income taxes of zero; and as “Net cash used in discontinued
operations.” Total revenue and income (loss) from discontinued operations are reflected below (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
| |
|
September 30, |
|
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,609 |
|
Total operating expenses |
|
|
— |
|
|
|
196 |
|
|
|
— |
|
|
|
9,009 |
|
Impairment of long-lived assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Restructuring charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
— |
|
|
$ |
(196 |
) |
|
$ |
— |
|
|
$ |
(445 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of discontinued operations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon
our unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance
with U.S. generally accepted accounting principles. The preparation of these unaudited Condensed
Consolidated Financial Statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to revenue recognition, uncollectible receivables, valuation of investments, intangible and
other long-lived assets, stock-based compensation and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. There were no significant
changes to our critical accounting policies during the nine months ended September 30, 2010, as
compared to those policies disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2009.
Legal Contingencies
We are currently involved in certain legal proceedings, as discussed in Note 23, “Commitments
and Contingencies—Legal Proceedings,” to our Consolidated Financial Statements contained in Item 8
in our Annual Report on Form 10-K for the year ended December 31, 2009, and in Note 15,
“Commitments and Contingencies” to our Unaudited Condensed Consolidated Financial Statements
contained in Item 1 of Part I of this Form 10-Q. Because of the uncertainties related to both the
amount and range of potential liability in connection with legal proceedings, we are unable to make
a reasonable estimate of the liability that could result from unfavorable outcomes in our remaining
pending litigation. As additional information becomes available, we will assess the potential
liability related to our pending litigation and determine whether reasonable estimates of the
liability can be made. Unfavorable outcomes, or significant estimates of our potential liability,
could materially impact our results of operations and financial position.
Results of Operations
Three Months Ended September 30, 2010 and 2009
Revenue
Revenue decreased $2.6 million, or 5%, to $50.3 million for the three months ended September
30, 2010, compared to $52.9 million for the three months ended September 30, 2009. The decrease in
revenue was primarily due to a decrease in our New Homes and Top Producer® products. Our New Homes
revenues were transferred to our unconsolidated joint venture in the fourth quarter of 2009 and
therefore are not included in revenue for the three months ended September 30, 2010. Our Top
Producer® 8i® subscriber base and associated revenues decreased over the prior year due to reduced
spending by real estate professionals but was partially offset by improved revenues from the Market
Snapshot® and Market BuilderTM products. We had slight declines in our REALTOR.com®
products with lower Featured CommunityTM revenue directly related to reduced spending by
our agent customers in response to the general economic conditions partially offset by increased
revenues generated by our new Search Assist product which was launched in the latter part of 2009.
We also experienced declines in the Rentals showcase listings revenues. Our revenue was also
impacted by a decrease of $0.4 million associated with providing product development service to the
NAR in the three months ended September 30, 2009. We experienced an increase in our online display
revenue due to an increased level of ad campaigns.
Cost of Revenue
Cost of revenue decreased $1.2 million, or 10%, to $10.8 million for the three months ended
September 30, 2010,
17
compared to $12.0 million for the three months ended September 30, 2009. The decrease was primarily
due to decreased personnel related costs of $0.6 million, lower depreciation expense of $0.2
million, and other cost decreases of $0.4 million.
Gross margin percentage increased to 79% for the three months ended September 30, 2010,
compared to 77% for the three months ended September 30, 2009 primarily due to the decreased costs
described above.
Operating Expenses
Sales and marketing. Sales and marketing expenses decreased $0.2 million, or less than 1%, to
$18.6 million for the three months ended September 30, 2010, compared to $18.8 million for the
three months ended September 30, 2009. The decrease was primarily due to a decrease in online
distribution costs of $0.5 million, partially offset by an increase in personnel related costs of
$0.3 million.
Product and web site development. Product and web site development expenses increased $1.2
million, or 16%, to $8.9 million for the three months ended September 30, 2010, compared to $7.7
million for the three months ended September 30, 2009. The increase was primarily due to an
increase in consulting and personnel related costs as a result of incremental investments in our
new technology platforms.
General and administrative. General and administrative expenses decreased $5.3 million, or
33%, to $10.9 million for the three months ended September 30, 2010, compared to $16.2 million for
the three months ended September 30, 2009. The decrease was primarily a result of a $2.1 million
decrease in non-cash stock based compensation due to the acceleration and modification of options
upon the termination of one executive officer during the three months ended September 30, 2009, a
decrease in legal fees of $1.9 million and a decrease in personnel related costs, excluding
non-cash stock based charges, of $1.3 million.
Amortization of intangible assets. Amortization of intangible assets was $0.1 million for the
three months ended September 30, 2010 and 2009.
Restructuring Charges. In the third and fourth quarters of 2008, our Board of Directors
approved restructuring and integration plans with the objective of eliminating duplicate resources
and redundancies and implementing a new operating structure to lower total operating expenses. As
a result of these plans, we incurred a restructuring charge from continuing operations of $4.4
million for the year ended December 31, 2008. Included in this charge were lease obligations and
related charges of $3.0 million for the consolidation of our operations in Westlake Village,
California and the vacancy of a portion of the leased facility.
During the third quarter of 2009, we entered into a new lease agreement for our Westlake
Village facility. Under the terms of the lease, we were leasing only a portion of the facility but
were continuing to occupy our current space in that facility until construction was completed on
the new space. Our obligations under the old lease were terminated and, as a result, the remaining
restructuring reserve was reversed, resulting in a $1.2 million credit to restructuring charges for
the three months ended September 30, 2009.
Stock-based compensation and charges. The following chart summarizes the stock-based
compensation and charges that have been included in the following captions for each of the periods
presented (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
| |
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
Cost of revenue |
|
$ |
44 |
|
|
$ |
54 |
|
Sales and marketing |
|
|
400 |
|
|
|
472 |
|
Product and web site development |
|
|
453 |
|
|
|
166 |
|
General and administrative |
|
|
962 |
|
|
|
3,030 |
|
|
|
|
|
|
|
|
Total from continuing operations |
|
$ |
1,859 |
|
|
$ |
3,722 |
|
|
|
|
|
|
|
|
Stock-based compensation and charges increased $1.9 million for the three months ended
September 30, 2010, compared to the three months ended September 30, 2009, primarily due the
acceleration and modification of options upon the termination of one executive officer in the third
quarter of 2009.
Interest Income, Net
Interest income, net, decreased slightly for the three months ended September 30, 2010,
compared to the three months ended September 30, 2009, primarily due to the sale of higher interest
earning Auction Rate Securities (“ARS”) in April 2010.
18
Other Income (expense), Net
Other expense, net for the three months ended September 30, 2010 consisted primarily of
foreign exchange fluctuations. Other income, net of $1.3 million for the three months ended
September 30, 2009 was generated primarily from the sale of assets.
Income Taxes
We recorded an income tax benefit of $0.4 million in the three months ended September 30, 2010
and income tax expense of $0.1 million in the three months ended September 30, 2009. In the three
months ended September 30, 2010, we recorded an income tax benefit of $0.5 million as a result of a
change in the valuation allowances resulting from the deferred tax liability established for the
amortizable intangible assets acquired as part of a business combination partially offset by $0.1
million of state income tax expenses and a deferred tax provision related to amortization of
certain indefinite lived intangible assets. In the three months ended September 30, 2009, income
tax expense included state income taxes and a deferred tax provision related to amortization of
certain indefinite lived intangible assets.
Results of Operations
Nine Months Ended September 30, 2010 and 2009
Revenue
Revenue decreased $13.8 million, or 8%, to $148.6 million for the nine months ended September
30, 2010, compared to $162.4 million for the nine months ended September 30, 2009. The decrease in
revenue was primarily due to a decrease in our New Homes and REALTOR.com® products. Our New Homes
revenues were transferred to our unconsolidated joint venture in the fourth quarter of 2009 and
therefore are not included in revenue for the nine months ended September 30, 2010. We experienced
lower Featured CommunityTM, listing enhancement and Featured HomesTM revenue
on REALTOR.com directly related to reduced spending by our agent customers in response to the
general economic conditions partially offset by increased revenues generated by our new Search
Assist product which was launched in the latter part of 2009. Our Top Producer® 8i® subscriber
base and associated revenues decreased over the prior year due to reduced spending by real estate
professionals but was offset by improved revenues from the Market Snapshot® and Market
BuilderTM products. We also experienced declines in the Rentals showcase listings
revenues, and in lead generation revenues from movers on our Moving.com web site. Revenue was also
impacted by a decrease of $2.4 million associated with providing product development services to
the NAR in the nine months ended September 30, 2009. We experienced an increase in our online
display revenue due to an increased level of ad campaigns.
Cost of Revenue
Cost of revenue decreased $4.7 million, or 13%, to $32.8 million for the nine months ended
September 30, 2010, compared to $37.5 million for the nine months ended September 30, 2009. The
decrease was primarily due to decreased costs of $1.5 million associated with development services
previously provided to the NAR during the nine months ended September 30, 2009, a decrease in
personnel related costs of $1.4 million, a decrease in product fulfillment costs of $1.1 million
associated with our featured products, decreased depreciation expense of $0.6 million, and other
cost decreases of $0.1 million.
Gross margin percentage increased to 78% for the nine months ended September 30, 2010,
compared to 77% for the nine months ended September 30, 2009 primarily due to the decreased costs
described above.
Operating Expenses
Sales and marketing. Sales and marketing expenses decreased $5.1 million, or 8%, to $55.8
million for the nine months ended September 30, 2010, compared to $60.9 million for the nine months
ended September 30, 2009. The decrease was primarily due to a decrease in online distribution
costs of $3.7 million, a decrease in personnel related costs of $0.9 million due to lower sales
commissions, and other cost decreases of $0.5 million.
Product and web site development. Product and web site development expenses increased $5.0
million, or 24%, to $25.5 million for the nine months ended September 30, 2010, compared to $20.5
million for the nine months ended September 30, 2009. The increase was primarily due to an
increase in consulting and personnel related costs as a result of incremental investments in our
new technology platforms.
General and administrative. General and administrative expenses decreased $18.8 million, or
37%, to $32.4 million for the nine months ended September 30, 2010, compared to $51.2 million for
the nine months ended September 30, 2009. The
19
decrease was primarily a result of a $10.5 million
decrease in non-cash stock based compensation primarily due to the
acceleration and modification of options upon the termination of three executive officers and
restricted stock awards and options granted to our Chief Executive Officer that were immediately
vested during the nine months ended September 30, 2009. Additionally, there was a $4.0 million
decrease in personnel related costs, excluding non-cash stock based compensation, a $3.8 million
decrease in legal fees, a $1.1 million decrease in bad debt expense and a $0.6 million decrease in
facilities costs due to the new lease in Westlake Village, California. These cost decreases were
partially offset by an increase in consulting costs of $1.1 million and other cost increases of
$0.1 million.
Amortization of intangible assets. Amortization of intangible assets was $0.3 million and $0.4
million for the nine months ended September 30, 2010 and 2009, respectively.
Restructuring Charges. In the third and fourth quarters of 2008, our Board of Directors
approved restructuring and integration plans with the objective of eliminating duplicate resources
and redundancies and implementing a new operating structure to lower total operating expenses. As
a result of these plans, we incurred a restructuring charge from continuing operations of $4.4
million for the year ended December 31, 2008. Included in this charge were lease obligations and
related charges of $3.0 million for the consolidation of our operations in Westlake Village,
California and the vacancy of a portion of the leased facility.
During the third quarter of 2009, we entered into a new lease agreement for our Westlake
Village facility. Under the terms of the lease, we were leasing only a portion of the facility but
were continuing to occupy our current space in that facility until construction was completed on
the new space. Our obligations under the old lease were terminated and, as a result, the remaining
restructuring reserve was reversed, resulting in a $1.2 million credit to restructuring charges for
the nine months ended September 30, 2009.
Stock-based compensation and charges. The following chart summarizes the stock-based
compensation and charges that have been included in the following captions for each of the periods
presented (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Nine Months Ended |
|
| |
|
September 30, |
|
| |
|
2010 |
|
|
2009 |
|
Cost of revenue |
|
$ |
136 |
|
|
$ |
137 |
|
Sales and marketing |
|
|
1,240 |
|
|
|
1,349 |
|
Product and web site development |
|
|
1,243 |
|
|
|
493 |
|
General and administrative |
|
|
3,146 |
|
|
|
13,668 |
|
|
|
|
|
|
|
|
Total from continuing operations |
|
$ |
5,765 |
|
|
$ |
15,647 |
|
|
|
|
|
|
|
|
Stock-based compensation and charges decreased $9.9 million for the nine months ended
September 30, 2010 compared to the nine months ended September 30, 2009 primarily due to the
acceleration and modification of options upon termination for three executive officers and
restricted stock awards and options granted to our Chief Executive Officer that were immediately
vested during the nine months ended September 30, 2009.
Interest Income, Net
Interest income, net, remained relatively constant for the nine months ended September 30,
2010 and 2009, respectively.
Impairment of Auction Rate Securities
In April 2010, we completed a sale of our entire portfolio of ARS for $109.8 million (par
value of $129.4 million) to a broker in a secondary market. As a result of the sale, an
other-than-temporary loss of $19.6 million was recorded for the nine months ended September 30,
2010. See further discussion under Liquidity and Capital Resources below.
Other Income (expense), Net
Other expense, net of $1.1 million for the nine months ended September 30, 2010, consisted
primarily of the transaction fees associated with the sale of our portfolio of ARS. Other income,
net of $1.8 million for the nine months ended September 30, 2009 primarily resulted from a $1.3
million gain on the sale of assets and $0.5 million in other income related to the revaluation of
an embedded derivative liability resulting from the issuance of convertible preferred stock in
December 2005.
Income Taxes
We recorded an income tax benefit of $0.3 million in the nine months ended September 30, 2010
and income tax expense of $0.2 million in the nine months ended September 30, 2009. In the nine
months ended September 30, 2010, we recorded an income tax benefit of $0.5 million as a result of a
change in the valuation allowances resulting from the deferred tax liability
20
established for the amortizable intangible assets acquired as part of a business combination partially offset by $0.2
million of state income tax expenses and a deferred tax provision related to amortization of certain
indefinite lived intangible assets. In the nine months ended September 30, 2009, income tax
expense included state income taxes and a deferred tax provision related to amortization of certain
indefinite lived intangible assets.
Liquidity and Capital Resources
Net cash provided by continuing operating activities of $17.7 million for the nine months
ended September 30, 2010 was attributable to the net loss of $17.2 million, plus non-cash expenses
including depreciation, amortization of intangible assets, provision for doubtful accounts,
impairment of auction rate securities, stock-based compensation and charges, earnings of
unconsolidated joint venture, other non-cash items and changes in operating assets and liabilities,
aggregating to $34.9 million.
Net cash provided by continuing operating activities of $10.2 million for the nine months
ended September 30, 2009 was attributable to the net loss from continuing operations of $5.6
million, plus non-cash expenses including depreciation, amortization of intangible assets,
provision for doubtful accounts, gain on sale of assets, stock-based compensation and charges,
change in market value of embedded derivative liability and other non-cash items, aggregating to
$22.9 million, partially offset by changes in operating assets and liabilities of $7.1 million.
Net cash provided by continuing investing activities of $90.6 million for the nine months
ended September 30, 2010 was primarily attributable to proceeds from the sale of auction rate
securities of $109.8 million and payments received on note for sale of business of $1.0 million,
partially offset by acquisitions, net of cash acquired of $12.4 million and capital expenditures of
$7.8 million.
Net cash used in continuing investing activities of $6.4 million for the nine months ended
September 30, 2009 was due to capital expenditures of $7.7 million, partially offset by proceeds
from sales of fixed assets of $1.3 million.
Net cash used in financing activities of $59.5 million for the nine months ended September 30,
2010 was primarily attributable to principal payments on our line of credit of $129.3 million
offset by proceeds from our line of credit of $64.7 million and other miscellaneous cash used of
$0.2 million. There were cash proceeds from the exercise of stock options of $4.5 million,
reductions in restricted cash balances of $0.5 million and proceeds from loans payable of $0.3
million.
Net cash provided by financing activities of $3.2 million for the nine months ended September
30, 2009 was attributable to reductions is restricted cash of $2.7 million and proceeds from the
exercise of stock options of $1.9 million, partially offset by tax withholdings related to net
share settlements of restricted stock awards of $1.1 million and payments on capital lease
obligations of $0.3 million.
We have generated positive operating cash flows in each of the last two years. Our material
financial commitments consist of those under operating lease agreements, our operating agreement
with the NAR and various web services and content agreements. Additionally, under our Series B
Preferred Stock Agreement, beginning in November 2010, we are obligated to pay quarterly cash
dividends of 3.5% per annum of the original price per share or approximately $4.1 million per
annum. We believe that our existing cash and any cash generated from operations will be sufficient
to fund our working capital requirements, capital expenditures and other obligations for the
foreseeable future.
Prior to April 2010, we had investments consisting of high-grade (primarily AAA rated) student
loan auction rate securities issued by student loan funding organizations, which loans were 97%
guaranteed under FFELP (Federal Family Education Loan Program). These ARS were intended to provide
liquidity via an auction process that resets the interest rate, generally every 28 days, allowing
investors to either roll over their holdings or sell them at par. In February 2008, auctions for
our investments in these securities failed to settle on their respective settlement dates.
Consequently, the investments were not liquid and we were not going to be able to access these
funds until a future auction of these investments was successful, the securities matured or a buyer
was found outside of the auction process. Maturity dates for these ARS investments range from
years 2030 to 2047 with principal distributions occurring on certain securities prior to maturity.
As of December 31, 2009, we had recorded a temporary loss related to the ARS of $17.6 million
that was included in Other Comprehensive Income on our Consolidated Balance Sheet. At a board
meeting on March 24, 2010, the Board of Directors and Management discussed the recent passage of
the Health Care Reform Bill that contained a provision eliminating FFELP, a significant change in
student loan funding. In management’s opinion, this change, along with other market factors,
created additional uncertainty in the student loan auction rate securities market. As a result,
the Board of Directors and Management changed its intent, which had been to hold these securities,
and decided to sell the entire portfolio of ARS and, thereafter, we began to actively market the
sale to third parties. We review our potential investment impairments in accordance with ASC 320
“Investment — Debt and Equity Securities” and the related guidance issued by the FASB and SEC in
order to determine the classification of the impairment as “temporary” or “other-than-temporary.”
A temporary impairment charge results in an unrealized loss being recorded in the other
comprehensive income (loss) component of stockholder’s equity. An other-than-temporary impairment
charge is recorded as a realized loss in the Condensed Consolidated Statement of Operations and
reduces net income (loss) for the applicable accounting period. The differentiating factors between
temporary and other-than-temporary impairment are primarily the length of the time and the extent
to which the market value has been
21
less than cost, the financial condition and near-term prospects
of the issuer, and the ability and intent of the holder to hold the investment until maturity or its value recovers. Prior to March 24, 2010, we had not intended to
sell nor was it not more likely than not that we would be required to sell before the recovery of
our amortized cost basis and, as such, the loss was considered temporary. On March 24, 2010, as
indicated above, we changed our intent to hold the ARS and, therefore, the impairment was
reclassified to an other-than-temporary loss.
In April 2010, we completed a sale of the entire portfolio of ARS for $109.8 million (par
value of $129.4 million) to a broker in a secondary market. As a result of the sale, an
other-than-temporary loss of $19.6 million was recorded as Impairment of Auction Rate Securities in
our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2010.
The transaction costs of approximately $1.0 million associated with this transaction has been
recorded as other expense for the nine months ended September 30, 2010.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Market risk represents the risk of loss that may impact our financial position, results of
operations or cash flows due to adverse changes in financial and commodity market prices and rates.
We are exposed to market risk primarily in the area of changes in United States interest rates and
conditions in the credit markets. In April 2010, we paid down the line of credit balance of $64.2
million and it expired in May 2010. We do not have any material foreign currency or other
derivative financial instruments. Under our current policies, we do not use interest rate
derivative instruments to manage exposure to interest rate changes. We attempt to increase the
safety and preservation of our invested principal funds by limiting default risk, market risk and
reinvestment risk. We mitigate default risk by investing in investment grade securities.
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 of the
Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to our
management including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting during the period
covered by this report that materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are currently involved in certain legal proceedings, as discussed in Note 23, “Commitments
and Contingencies- Legal Proceedings”, to our Consolidated Financial Statements contained in Item 8
in our Annual Report on Form 10-K for the year ended December 31, 2009 (“Annual Report”) and in
Note 15, “Commitments and Contingencies,” to the Unaudited Condensed Consolidated Financial
Statements contained in Item 1 of Part I of this Form 10-Q. As of the date of this Form 10-Q and
except as disclosed in Note 23 to the Consolidated Financial Statements in our Annual Report and in
Note 15 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q, the Company
is not a party to any other litigation or administrative proceedings that management believes will
have a material adverse effect on the Company’s business, results of operations, financial
condition or cash flows, and there have been no material developments in the litigation or
administrative proceedings described in those notes.
Item 1A. Risk Factors
You should consider carefully the risk factors presented in our Annual Report on Form 10-K for
the year ended December 31, 2009, and other information included or incorporated by reference in
this Form 10-Q. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we deem to be currently
immaterial also may impair our business operations. If any of the stated risks actually occur, our
business, financial condition and operating results could be materially adversely affected.
22
Risks Related to our Business
NAR relationship
We have completed our discussions and the mediation process concerning questions relating to
the 1996 Operating Agreement (as referenced in our reports on Form 10-Q for, respectively, the
first and second quarters of 2010, in each case at Item 1A — Risk Factors), have agreed with the
NAR on an amendment to the 1996 Operating Agreement (as reported in our current report on Form 8-K
filed September 16, 2010), and continue to value our relationship with and opportunities for
productive dialogue with the NAR.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
None.
Item 5. Other Information
None.
Item 6. Exhibits
| |
|
|
| Exhibits |
|
|
10.73
|
|
Amendment dated September 10, 2010, to the Operating Agreement dated November 26, 1996, between
RealSelect, Inc., a wholly owned subsidiary of the Company, and Realtors Information Network,
Inc., a wholly-owned subsidiary of the National Association of REALTORS. (Incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K filed September 16, 2010.) |
|
|
|
10.74
|
|
Agreement and Plan of Merger entered into by Move Sales, Inc. (a wholly owned subsidiary of the
Company) and MSI TC Merger Sub (a wholly owned subsidiary of Move Sales, Inc.) on September 17,
2010, with Threewide Corporation and, as the Threewide Corporation equity-holders’
representatives, both J. Rudy Henley in his capacity as manager of West Virginia Capital
Management LLC and William Rice. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
23
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, thereunto duly authorized.
| |
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| |
MOVE, INC.
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|
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By: |
/s/ STEVEN H. BERKOWITZ
|
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| |
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Steven H. Berkowitz |
|
| |
|
Chief Executive Officer |
|
| |
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| |
By: |
/s/ ROBERT J. KROLIK
|
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| |
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Robert J. Krolik |
|
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Chief Financial Officer |
|
| |
Date: November 5, 2010
24
EXHIBIT INDEX
| |
|
|
| Exhibit |
|
|
| Number |
|
Description |
10.73
|
|
Amendment dated September 10, 2010, to the Operating Agreement dated November 26, 1996, between
RealSelect, Inc., a wholly owned subsidiary of the Company, and Realtors Information Network, Inc., a
wholly-owned subsidiary of the National Association of REALTORS. (Incorporated by reference to Exhibit
10.1 to our Current Report on Form 8-K filed September 16, 2010.) |
|
|
|
10.74
|
|
Agreement and Plan of Merger entered into by Move Sales, Inc. (a wholly owned subsidiary of the Company)
and MSI TC Merger Sub (a wholly owned subsidiary of Move Sales, Inc.) on September 17, 2010, with
Threewide Corporation and, as the Threewide Corporation equity-holders’ representatives, both J. Rudy
Henley in his capacity as manager of West Virginia Capital Management LLC and William Rice. |
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
25