Edgar Filing: XO GROUP INC.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

______________________



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35217

____________________________

XO GROUP INC.

(Exact Name of Registrant as Specified in Its Charter)



Delaware	13-3895178
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

195 Broadway, 25th Floor

New York, New York 10007

(Address of Principal Executive Offices and Zip Code)

(212) 219-8555

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the 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 ý 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 ý 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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer o (Do not check if a smaller reporting company)	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 ý

As of November 1, 2016, there were 26,459,858 shares of the registrant’s common stock outstanding.

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XO GROUP INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2016

TABLE OF CONTENTS



	Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations	2
Condensed Consolidated Statements of Cash Flows	3
Notes to Condensed Consolidated Financial Statements	4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	20
Item 4. Controls and Procedures	20
PART II OTHER INFORMATION
Item 1. Legal Proceedings	21
Item 1A. Risk Factors	21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. Mine Safety Disclosures	21
Item 5. Other Information	21
Item 6. Exhibits	21
SIGNATURES	23

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements relating to future events and the future performance of XO Group Inc. based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “estimate,” “are positioned to,” “continue,” “project,” “guidance,” “target,” “forecast,” “anticipated” or comparable terms.

These forward-looking statements involve risks and uncertainties. Our actual results or events could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described in Item 1A (Risk Factors) in our most recent Annual Report on Form 10-K, filed with the Securities Exchange Commission ("SEC") on March 4, 2016, and Part II of this report. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

WHERE YOU CAN FIND MORE INFORMATION

XO Group’s corporate website is located at www.xogroupinc.com. XO Group makes available free of charge, on or through our corporate website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing to, the SEC. Information contained on XO Group’s corporate website is not part of this report or any other report filed with the SEC.

Unless the context otherwise indicates, references in this report to the terms “XO Group,” “we,” “our” and “us” refer to XO Group Inc., its divisions and its subsidiaries.

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PART I - FINANCIAL INFORMATION

XO GROUP INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except for Share and Per Share Data)

(Unaudited)



	September 30, 2016			December 31, 2015

ASSETS
Current assets:
Cash and cash equivalents	$	100,070		$	88,509
Accounts receivable, net	18,345			20,475
Prepaid expenses and other current assets	7,643			5,341
Total current assets	126,058			114,325
Long-term restricted cash	1,181			2,598
Property and equipment, net	12,258			13,251
Intangibles assets, net	4,367			4,817
Goodwill	48,678			47,396
Deferred tax assets, net	10,543			11,578
Investments	2,804			2,719
Other assets	242			57
Total assets	$	206,131		$	196,741
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accrued compensation and employee benefits	$	5,749		$	6,036
Accounts payable and accrued expenses	7,462			6,127
Deferred revenue	16,643			18,640
Total current liabilities	29,854			30,803
Deferred rent	3,942			4,486
Other liabilities	1,994			1,985
Total liabilities	35,790			37,274
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	—			—
Common stock, $0.01 par value; 100,000,000 shares authorized and 26,475,720 and 26,235,824 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	265			264
Additional paid-in-capital	177,275			173,564
Accumulated deficit	(7,199		)	(14,361		)
Total stockholders’ equity	170,341			159,467
Total liabilities and stockholders’ equity	$	206,131		$	196,741

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except for Per Share Data)

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net revenue:
Online advertising	$	25,972		$	25,038		$	79,027		$	73,679
Transactions	7,105			4,809			17,740			11,266
Merchandise	—			—			—			878
Publishing and other	3,654			4,859			14,341			17,675
Total net revenue	36,731			34,706			111,108			103,498
Cost of revenue:
Online advertising	802			683			1,986			1,588
Merchandise	—			—			—			881
Publishing and other	986			1,367			4,168			5,082
Total cost of revenue	1,788			2,050			6,154			7,551
Gross profit	34,943			32,656			104,954			95,947
Operating expenses:
Product and content development	11,729			9,901			33,503			29,300
Sales and marketing	13,098			10,679			36,325			31,683
General and administrative	5,501			5,955			17,531			18,116
Depreciation and amortization	1,580			1,361			4,815			4,027
Total operating expenses	31,908			27,896			92,174			83,126
Income from operations	3,035			4,760			12,780			12,821
Loss in equity interests	(29		)	(173		)	(210		)	(209		)
Interest and other income/(expense), net	48			(3		)	29			(51		)
Income before income taxes	3,054			4,584			12,599			12,561
Income tax expense	1,146			1,718			3,901			4,939
Net income	$	1,908		$	2,866		$	8,698		$	7,622

Net income per share:
Basic	$	0.08		$	0.11		$	0.34		$	0.30
Diluted	$	0.07		$	0.11		$	0.34		$	0.30
Weighted average number of shares used in calculating net earnings per share:
Basic	25,368			25,136			25,341			25,161
Dilutive effect of:
Restricted stock	331			304			318			360
Options	28			9			16			16
Diluted	25,727			25,449			25,675			25,537

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)



	Nine Months Ended September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	8,698		$	7,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,815			4,027
Stock-based compensation expense	5,801			4,252
Deferred income taxes	1,035			987
Excess tax benefits from stock-based awards	(494		)	(979		)
Allowance for doubtful accounts	314			1,527
Other non-cash charges	223			420
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	1,816			(5,826		)
(Increase) decrease in prepaid expenses and other assets, net	(870		)	1,740
Decrease in accrued compensation and benefits	(287		)	(1,900		)
Increase in accounts payable and accrued expenses	1,569			1,134
Decrease in deferred revenue	(1,997		)	(917		)
Decrease in deferred rent	(544		)	(493		)
Increase (decrease) in other liabilities, net	9			(35		)
Net cash provided by operating activities	20,088			11,559
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(93		)	(391		)
Additions to capitalized software	(2,954		)	(2,386		)
Maturity of U.S. Treasury Bills and Investments	2,490			2,600
Purchases of U.S. Treasury Bills and Investments	(2,490		)	(2,595		)
Proceeds from the sale of property and equipment	—			185
Payments to acquire investments	(295		)	(2,500		)
Acquisitions	(1,359		)	—
Other investing activities	(200		)	(53		)
Net cash used in investing activities	(4,901		)	(5,140		)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common stock	(2,495		)	(8,807		)
Proceeds pursuant to employee stock-based compensation plans	880			497
Excess tax benefits from stock-based awards	494			979
Surrender of restricted common stock for income tax purposes	(2,505		)	(2,725		)
Net cash used in financing activities	(3,626		)	(10,056		)
Increase (decrease) in cash and cash equivalents	11,561			(3,637		)
Cash and cash equivalents at beginning of period	88,509			89,955
Cash and cash equivalents at end of period	$	100,070		$	86,318



Cash paid for income taxes, net of refunds	$	2,849	$	2,420

See accompanying Notes to Condensed Consolidated Financial Statements

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of XO Group Inc. (“XO Group” or the “Company”) and its wholly-owned subsidiaries. The Condensed Consolidated Financial Statements included in this report have been prepared by the Company pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements contained herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2015.

In the opinion of the Company's management, the accompanying unaudited Condensed Consolidated Financial Statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial condition, results of operations and changes in cash flows of the Company for the interim periods presented. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the entire calendar year. Certain prior-period financial statement amounts have been reclassified to conform to the current-period presentation.

Recently Issued Accounting Pronouncements

In January 2016, the FASB issued guidance requiring equity securities to be measured at fair value with changes in fair value recognized through net income and eliminating the cost method for equity securities without readily determinable fair values. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In February 2016, FASB issued guidance on operating leases requiring a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. The guidance is effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In March 2016, FASB issued guidance on employee share-based payment accounting requiring all tax effects related to share-based payments at settlement or expiration to be recorded through the income statement and be reported as operating activities on the statement of cash flows. Further, under the new guidance, entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards; whereas forfeitures can be estimated, as required today, or recognized when they occur. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

In March 2016, FASB issued guidance on equity method accounting eliminating the requirement to restate historical financial statements, as if the equity method had been used during all previous periods, when an existing cost method investment qualifies for use of the equity method. Under the new guidance, at the point an investment qualifies for the equity method, any unrealized gain or loss in accumulated other comprehensive loss may be recognized through earnings. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In March 2016, FASB issued guidance on revenue from contracts with customers that 1) clarifies how to implement revenue recognition guidance related to determining whether an entity is a principal or an agent in a revenue transaction and 2) provides a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods and services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods and services, and expands on related disclosures. The guidance is effective for public business entities for annual reporting periods beginning after December 15, 2017, and early adoption is permitted. The guidance may be applied using one of two methods: retrospective application to each prior reporting period presented, or retrospective application with the cumulative effect of initially applying

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Basis of Presentation - (continued)

the update recognized at the date of initial application. The Company has not yet determined its adoption method and is currently evaluating the impact this guidance will have on its consolidated financial statements.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Fair Value Measurements

Cash and cash equivalents and investments consist of the following:



	September 30, 2016		December 31, 2015
	(In Thousands)
Cash and cash equivalents
Cash	$	45,149	$	33,764
Money market funds	54,921		54,745
Total cash and cash equivalents	100,070		88,509
Short-term investments
Short-term investments	1,310		—
Long-term investments
Long-term restricted cash	1,181		2,598
Total cash and cash equivalents and investments	$	102,561	$	91,107

The inputs to the valuation techniques used to measure fair value are classified into the following categories:

Level 1 — Quoted prices in active markets for identical assets or liabilities

Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — Inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

As of September 30, 2016, the Company’s cash and cash equivalents of $100.1 million, short-term investments of $1.3 million, and long-term restricted cash of $1.2 million, were measured at fair value using Level 1 inputs. The short-term investments amount is included in “Prepaid expenses and other current assets” on the Condensed Consolidated Balance Sheets as of September 30, 2016. During the nine months ended September 30, 2016, there were no transfers in or out of the Company’s Level 1 assets.

Long-term restricted cash consists of a $1.2 million letter of credit collateralized by U.S. Treasury bills that are restricted as to withdrawal or use under terms of the Company’s New York office lease. Pursuant to the terms of the lease, in the three months ended September 30, 2016, the restricted cash decreased by $1.4 million as this portion of the restriction expired on the fourth anniversary (September 2016) of the lease commencement date.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

3. Acquisition

On September 7, 2016 the Company acquired How He Asked LLC, a digital and social media brand for pre-engaged couples, in exchange for consideration of $1.5 million, of which approximately $1.4 million was paid in cash during the quarter. The remaining approximate $0.1 million was retained by the Company as a holdback and accrued as a liability to settle indemnification claims made by the Company and its affiliates, should such claims arise. The holdback period is 12 months, and the balance of the accrual will be released to the seller in September 2017. A portion of the purchase price was allocated to a trade name in the amount of $0.2 million based upon its fair value assessed as of the acquisition date. The trade name value is included in “Intangible Assets, net” on the Condensed Consolidated Balance Sheets as of September 30, 2016. The excess of the purchase price over the fair value of the assets acquired, of approximately $1.3 million, was allocated to goodwill and is expected to be deductible for tax purposes. The goodwill is primarily attributable to the synergies expected to arise after the acquisition.

4. Stockholders’ Equity

Stock Repurchases

During the three and nine months ended September 30, 2016, the Company repurchased and retired shares totaling $1.1 million and $2.5 million, respectively. During the nine months ended September 30, 2015, the Company repurchased and retired shares totaling $8.8 million. No shares were repurchased during the three months ended September 30, 2015. As of September 30, 2016, $27.0 million is remaining under the Company’s authorized stock repurchase programs.

Stock Vestings

During the three and nine months ended September 30, 2016, a total number of 63,684 and 406,723 shares of restricted common stock vested, respectively.

During the three and nine months ended September 30, 2015, a total number of 76,800 and 468,350 shares of restricted common stock vested, respectively.

Earnings per Share

The calculation of diluted earnings per share excludes a weighted average number of stock options and restricted stock of 665,105 and 4,713, for the three months ended September 30, 2016 and 593,202 and 11,325, for the nine months ended September 30, 2016, because to include them would be antidilutive.

The calculation of diluted earnings per share excludes a weighted average number of stock options and restricted stock of 236,195 and 16,543 for the three months ended September 30, 2015, because to include them would be antidilutive. Stock options and restricted stock of 208,670 and 24,644 were excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2015 because to include them would be antidilutive.

The weighted average number of shares issued in connection with the employee stock purchase plan was immaterial in the three and nine month periods ended September 30, 2016 and 2015.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. Commitments and Contingencies

The Company has certain obligations relating principally to operating leases and a letter of credit (Note 2). As of September 30, 2016, the Company also has commitments related to various contracts.

As of September 30, 2016, the Company was engaged in certain legal actions arising in the ordinary course of business and believes that the ultimate outcome of these actions will not have a material effect on its results of operations, financial position or cash flows.

6. Income Taxes

The Company had an effective tax rate for the three and nine months ended September 30, 2016 of 37.5% and 31.0%, respectively, compared to 37.5% and 39.3%, respectively, for the three and nine months ended September 30, 2015. The lower effective tax rate for the nine months ended September 30, 2016 was primarily a result of the reversal of a tax liability resulting from the resolution of an uncertain tax position associated with a former subsidiary as well as a one-time benefit associated with a foreign tax incentive deduction.

The Company adopted accounting guidance requiring presentation of deferred income tax assets and liabilities as non-current in the Condensed Consolidated Balance Sheets, and offsetting deferred tax liabilities and assets. The Company early adopted this guidance on a prospective basis as of December 31, 2015. Prior periods were not retrospectively adjusted.

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XO GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis in conjunction with our Condensed Consolidated Financial Statements and related notes included elsewhere in this report. This discussion contains forward-looking statements relating to future events and the future performance of XO Group based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve risks and uncertainties. Actual results or events could differ materially from those anticipated in such forward-looking statements as a result of certain factors, as more fully described in this section, elsewhere in this report, and Item 1A in our most recent Annual Report on Form 10-K, filed with the SEC on March 4, 2016. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Executive Overview

XO Group offers consumer multiplatform media services to the wedding, pregnancy and parenting, and nesting markets. We reach our audience through several platforms, including online properties, mobile applications, magazines and books, and television and video. We create value for our consumers, advertisers, and partners by delivering relevant and personalized solutions at key decision making moments for some of life’s proudest and happiest events. We generate revenue through three distinct and diversified product categories: online advertising, transactions, and publishing.

Our mission is to help people navigate and enjoy life's biggest moments, together. Our family of multi-platform brands guide people through transformative lifestages, from getting married to moving in together and having a baby. Our brands include The Knot, the number one wedding planning resource and marketplace, The Bump, the definitive voice for millennial parents and parents-to-be, and The Nest, the go-to guide for all things home for new couples.

Third Quarter 2016 Summary


•	Total company revenue growth was 6% year over year.


•	In line with our business strategy, we grew revenue from transactions by 48% year over year to 19% of revenue.


•	Local online revenue growth, which was impacted by sales productivity issues encountered early in the year, grew at 4%.


•	Deal flow in our national online business impacted our year over year growth as revenue grew just 3%.


•	Publishing and other revenue declined 25% as we continue to reduce our dependence on print revenue.


•	Investments to support our double digit revenue growth target contributed to a 14% increase in operating expenses.


•	Adjusted EBITDA margin^(a) was 18%, slightly below our target of 20%.


•	Our cash position remained strong at $100.1 million.


•	We continued to execute our capital allocation strategy through investments in our business, the $1.5 million acquisition of How He Asked LLC as well as through stock repurchases of $1.1 million.

(a) For computation of metrics see Non-GAAP Financial Measures section of Management's Discussion and Analysis.

Performance Indicators

We evaluate our operating and financial performance using various performance indicators. Our management relies on the key performance indicators set forth below to help us evaluate growth trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational efficiencies. We discuss revenue and gross margin under Results of Operations, and cash flow results under Liquidity and Capital Resources. Other measures of our performance, including adjusted EBITDA, adjusted net income and free cash flow are defined and discussed under Non-GAAP Financial Measures below.

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(Dollar Amounts in Thousands)
Total net revenue	$	36,731		$	34,706		$	111,108		$	103,498
Gross margin	95.1		%	94.1		%	94.5		%	92.7		%
Net income	$	1,908		$	2,866		$	8,698		$	7,622
Adjusted EBITDA^(a)	$	6,772		$	7,256		$	23,396		$	21,534
Adjusted net income^(a)	$	1,908		$	2,866		$	7,570		$	7,885
Cash and cash equivalents at September 30	$	100,070		$	86,318		$	100,070		$	86,318
Total full time employees at September 30	709			630			709			630

(a) For computation of metrics see Non-GAAP Financial Measures section of Management's Discussion and Analysis.

Results of Operations

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

The following table summarizes results of operations for the three months ended September 30, 2016 compared to the three months ended September 30, 2015:



	Three Months Ended September 30,
	2016					2015					Increase/(Decrease)
	Amount			% of Net Revenue		Amount			% of Net Revenue		Amount			%
	(In Thousands, Except for Per Share Data)
Net revenue	$	36,731		100.0	%	$	34,706		100.0	%	$	2,025		5.8	%
Cost of revenue	1,788			4.9		2,050			5.9		(262		)	(12.8	)
Gross profit	34,943			95.1		32,656			94.1		2,287			7.0
Operating expenses	31,908			86.8		27,896			80.4		4,012			14.4
Income from operations	3,035			8.3		4,760			13.7		(1,725		)	(36.2	)
Loss in equity interests	(29		)	(0.1	)	(173		)	(0.5	)	144			83.2
Interest and other income/(expense), net	48			0.1		(3		)	—		51			1,700.0
Income before income taxes	3,054			8.3		4,584			13.2		(1,530		)	(33.4	)
Income tax expense	1,146			3.1		1,718			5.0		(572		)	(33.3	)
Net income	$	1,908		5.2	%	$	2,866		8.2	%	$	(958	)	(33.4	)%
Net income per share:
Basic	$	0.08				$	0.11				$	(0.03	)	(27.3	)%
Diluted	$	0.07				$	0.11				$	(0.04	)	(36.4	)%

Net Revenue

Net revenue increased 5.8% to $36.7 million for the three months ended September 30, 2016, compared to $34.7 million for the three months ended September 30, 2015. The following table sets forth revenue by category for the three months ended September 30, 2016 compared to the three months ended September 30, 2015, the percentage increase or decrease between those periods, and the percentage of total net revenue that each category represented for those periods:

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	Three Months Ended September 30,
	Net Revenue				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(Dollar Amounts In Thousands)
National online advertising	$	8,932	$	8,669	3.0	%	24.3	%	24.9	%
Local online advertising	17,040		16,369		4.1		46.4		47.2
Total online advertising	25,972		25,038		3.7		70.7		72.1
Transactions	7,105		4,809		47.7		19.3		13.9
Publishing and other	3,654		4,859		(24.8	)	10.0		14.0
Total net revenue	$	36,731	$	34,706	5.8	%	100.0	%	100.0	%

Online advertising — Revenue from total online advertising increased by 3.7%.

Revenue from national online advertising increased just 3.0% due to the timing of deal flow. The increase was primarily driven by demand on both The Nest and The Bump brands.

Local online advertising revenue increased by 4.1%, primarily driven by revenue from GigMasters.com Incorporated (“GigMasters”), which we acquired in October 2015. Offsetting this increase was the trailing revenue impact of declines in sales on The Knot due to sales productivity issues encountered early in the year. On a trailing twelve month basis, TheKnot.com ended the third quarter of 2016 with 23,959 paying vendors (down 0.7% from prior year), with an average spend of $2,738 per year (up 6.0% from prior year).

Transactions — Revenue from transactions increased 47.7%. This increase is primarily driven by increased traffic and improved conversion for our transactional partners resulting from product enhancements, as well as the addition of GigMasters to our transaction portfolio.

Publishing and other — Revenue from publishing and other decreased 24.8%, primarily driven by a decrease in advertising revenue related to lower demand for print and the absence of The Bump print magazine, a publication we discontinued in December 2015.

Gross Profit/Gross Margin

The following table presents the components of gross profit and gross margin for the three months ended September 30, 2016 compared to the three months ended September 30, 2015:



	Three Months Ended September 30,
	2016				2015				Increase/(Decrease)
	Gross Profit		Gross Margin %		Gross Profit		Gross Margin %		Gross Profit			Gross Margin %
	(Dollar Amounts In Thousands)
Online advertising (national and local)	$	25,170	96.9	%	$	24,355	97.3	%	$	815		(0.4	)%
Transactions	7,105		100.0		4,809		100.0		2,296			—
Publishing and other	2,668		73.0		3,492		71.9		(824		)	1.1
Total gross profit	$	34,943	95.1	%	$	32,656	94.1	%	$	2,287		1.0	%

Gross profit improved $2.3 million, with gross margin improving to 95.1% for the three months ended September 30, 2016 compared to 94.1% for the three months ended September 30, 2015. The increase in the total gross margin was primarily driven by the increase in our higher margin transactions revenue in the third quarter of 2016.

Operating Expenses

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Our operating expenses for the three months ended September 30, 2016 increased 14.4% year over year. The following table presents the components of operating expenses and the percentage of revenue that each component represented for the three months ended September 30, 2016 compared to the three months ended September 30, 2015:



	Three Months Ended September 30,
	Operating Expenses				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(Dollar Amounts In Thousands)
Product and content development	$	11,729	$	9,901	18.5	%	31.9	%	28.5	%
Sales and marketing	13,098		10,679		22.7		35.7		30.8
General and administrative	5,501		5,955		(7.6	)	15.0		17.2
Depreciation and amortization	1,580		1,361		16.1		4.3		3.9
Total operating expenses	$	31,908	$	27,896	14.4	%	86.9	%	80.4	%

Product and Content Development — The increase of 18.5% was primarily driven by an increase in employee headcount and increased consultants expense to support the Company’s growth and marketplace initiatives.

Sales and Marketing — The increase of 22.7% was primarily driven by an increase in employee headcount and increased acquisition marketing costs to support the Company’s growth.

General and Administrative — The decrease of 7.6% was primarily driven by lower bad debt as a result of improvements in our collections process. Excluding bad debt, general and administrative expenses slightly increased.

Depreciation and Amortization — The increase of 16.1% was primarily attributable to capitalized software projects being placed into service, in addition to increased amortization expense on intangible assets resulting from the acquisition of GigMasters in the fourth quarter of 2015.

Income Tax Expense

We had an income tax expense of $1.1 million for the three months ended September 30, 2016, compared to an income tax expense of $1.7 million for the three months ended September 30, 2015. The effective tax rate was 37.5% for each of the three month periods ended September 30, 2016 and September 30, 2015.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

The following table summarizes results of operations for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015:

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	Nine Months Ended September 30,
	2016					2015					Increase/(Decrease)
	Amount			% of Net Revenue		Amount			% of Net Revenue		Amount			%
	(In Thousands, Except for Per Share Data)
Net revenue	$	111,108		100.0	%	$	103,498		100.0	%	$	7,610		7.4	%
Cost of revenue	6,154			5.5		7,551			7.3		(1,397		)	(18.5	)
Gross profit	104,954			94.5		95,947			92.7		9,007			9.4
Operating expenses	92,174			83.0		83,126			80.3		9,048			10.9
Income from operations	12,780			11.5		12,821			12.4		(41		)	(0.3	)
Loss in equity interests	(210		)	(0.2	)	(209		)	(0.2	)	(1		)	(0.5	)
Interest and other income/(expense), net	29			—		(51		)	—		80			156.9
Income before income taxes	12,599			11.3		12,561			12.2		38			0.3
Income tax expense	3,901			3.5		4,939			4.8		(1,038		)	(21.0	)
Net income	$	8,698		7.8	%	$	7,622		7.4	%	$	1,076		14.1	%
Net income per share:
Basic	$	0.34				$	0.30				$	0.04		13.3	%
Diluted	$	0.34				$	0.30				$	0.04		13.3	%

Net Revenue

Net revenue increased 7.4% to $111.1 million for the nine months ended September 30, 2016, compared to $103.5 million for the nine months ended September 30, 2015. The following table sets forth revenue by category for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, the percentage increase or decrease between those periods, and the percentage of total net revenue that each category represented for those periods:



	Nine Months Ended September 30,
	Net Revenue				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(Dollar Amounts In Thousands)
National online advertising	$	27,156	25,219		7.7	%	24.4	%	24.4	%
Local online advertising	51,871		48,460		7.0		46.7	%	46.8	%
Total online advertising	79,027		73,679		7.3		71.1	%	71.2	%
Transactions	17,740		11,266		57.5		16.0	%	10.9	%
Merchandise	—		878		(100.0	)	—	%	0.8	%
Publishing and other	14,341		17,675		(18.9	)	12.9	%	17.1	%
Total net revenue	$	111,108	$	103,498	7.4	%	100.0	%	100.0	%

Online advertising — Revenue from total online advertising increased by 7.3%.

Revenue from national online advertising increased by 7.7% driven by increased demand for advertising on both The Knot and The Bump brands.

Local online advertising revenue increased by 7.0%, primarily driven by revenue from GigMasters, which we acquired in October 2015, as well as an increase in our average revenue per vendor on a trailing 12 month basis. Offsetting this increase was the revenue impact of declines in sales on The Knot due to sales productivity issues encountered early in the year which impacted second and third quarter growth. On a trailing twelve month basis, TheKnot.com ended the third quarter of 2016 with 23,959 paying vendors (down 0.7% from prior year), spending an average of $2,738 per year (up 6.0% from prior year).

Transactions — Revenue from transactions increased 57.5%, as the Company’s products drove more traffic and better conversion of our transactional partner's offerings. This increase was also driven by the addition of GigMasters to our transaction portfolio.

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Merchandise — No revenue was recorded in 2016 as we exited our merchandise operations in Redding, CA during the first quarter of 2015.

Publishing and other — Revenue for publishing and other decreased 18.9% in comparison to the prior year, primarily driven by a decrease in advertising revenue related to lower demand for print and the absence of The Bump print magazine, a publication we discontinued in December 2015.

Gross Profit/Gross Margin

The following table presents the components of gross profit and gross margin for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015:



	Nine Months Ended September 30,
	2016				2015					Increase/(Decrease)
	Gross Profit		Gross Margin %		Gross Profit			Gross Margin %		Gross Profit			Gross Margin %
	(Dollar Amounts In Thousands)
Online advertising (national and local)	$	77,041	97.5	%	72,091			97.8	%	$	4,950		(0.3	)%
Transactions	17,740		100.0		11,266			100.0		6,474			—
Merchandise	—		—		(3		)	(0.3	)	3			0.3
Publishing and other	10,173		70.9		12,593			71.2		(2,420		)	(0.3	)
Total gross profit	$	104,954	94.5	%	$	95,947		92.7	%	$	9,007		1.8	%

Gross profit improved $9.0 million, with gross margin improving to 94.5% for the nine months ended September 30, 2016 compared to 92.7% for the nine months ended September 30, 2015. The increase in the total gross margin was primarily driven by the increase in our higher margin online and transactions revenue.

Operating Expenses

Our operating expenses for the nine months ended September 30, 2016 increased 10.9% year over year. The following table presents the components of operating expenses and the percentage of revenue that each component represented for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015:



	Nine Months Ended September 30,
	Operating Expenses				Percentage Increase/ (Decrease)		Percentage of Total Net Revenue
	2016		2015		Percentage Increase/ (Decrease)		2016		2015
	(Dollar Amounts In Thousands)
Product and content development	$	33,503	$	29,300	14.3	%	30.2	%	28.3	%
Sales and marketing	36,325		31,683		14.7		32.7		30.6
General and administrative	17,531		18,116		(3.2	)	15.8		17.5
Depreciation and amortization	4,815		4,027		19.6		4.3		3.9
Total operating expenses	$	92,174	$	83,126	10.9	%	83.0	%	80.3	%

Product and Content Development — The increase of 14.3% was primarily driven by an increase in employee headcount and increased consultants expense to support the Company's growth and marketplace transactions initiatives.

Sales and Marketing — The increase of 14.7% was primarily driven by an increase in employee headcount and increased acquisition marketing costs to support the Company's growth.

General and Administrative — The decrease of 3.2% was primarily driven by lower bad debt as a result of improvements in our collections process. Excluding bad debt, general and administrative expenses slightly increased.

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Depreciation and Amortization — The increase of 19.6% was primarily attributable to capitalized software projects being placed into service, and increased amortization expense on intangible assets as a result of the acquisition of GigMasters in the fourth quarter of 2015.

Income Tax Expense

We had an income tax expense of $3.9 million for the nine months ended September 30, 2016, compared to an income tax expense of $4.9 million for the nine months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 was 31.0%, compared to 39.3% for the nine months ended September 30, 2015. The lower effective tax rate in 2016 was primarily a result of the reversal of a tax liability resulting from the resolution of an uncertain tax position associated with a former subsidiary.

Liquidity and Capital Resources

Cash Flow

Cash and cash equivalents consist of cash and highly liquid investments with maturities of 90 days or less at the date of acquisition. At September 30, 2016, we had $100.1 million in cash and cash equivalents, compared to $88.5 million at December 31, 2015.

The following table sets forth our cash flows from operating activities, investing activities and financing activities for the periods indicated:



	Nine Months Ended September 30,
	2016			2015
	(In Thousands)
Net cash provided by operating activities	$	20,088		$	11,559
Net cash used in investing activities	(4,901		)	(5,140		)
Net cash used in financing activities	(3,626		)	(10,056		)
Increase (decrease) in cash and cash equivalents	$	11,561		$	(3,637	)

Operating Activities

Net cash provided by operating activities was $20.1 million for the nine months ended September 30, 2016. This was driven by our net income of $8.7 million and adjustments of $11.7 million for non-cash items including depreciation and amortization, stock-based compensation expense, and deferred income taxes, partially offset by a net decrease in cash from changes in operating assets and liabilities of $0.3 million. The net cash outflow from changes in operating assets and liabilities was primarily driven by an increase in prepaid expenses and other assets of $0.9 million, a decrease in deferred rent of $0.5 million, a decrease in accrued compensation of $0.3 million, and a decrease in trade accounts receivable net of deferred revenue of $0.2 million, partially offset by an increase in accounts payable and accrued expenses of $1.6 million.

Net cash provided by operating activities was $11.6 million for the nine months ended September 30, 2015. This was driven by our net income of $7.6 million, and adjustments of $10.2 million for non-cash items including depreciation, amortization and stock-based compensation, partially offset by a net cash outflow from changes in operating assets and liabilities of $6.3 million. The net cash outflow from changes in operating assets and liabilities was mainly driven by an increase in trade accounts receivable net of deferred revenue of $6.7 million and an increase in accounts payable and accrued expenses of $1.1 million, partially offset by a decrease in accrued compensation of $1.9 million as well as a decrease in prepaid expenses and other assets of $1.7 million.

Investing Activities

Net cash used in investing activities was $4.9 million for the nine months ended September 30, 2016, driven by capitalized expenditures of $3.0 million, primarily related to capitalized software, as well as the $1.4 million payment made for the acquisition of How He Asked LLC.

Net cash used in investing activities was $5.1 million for the nine months ended September 30, 2015, driven by capitalized expenditures of $2.8 million, primarily related to capitalized software, as well as payments to acquire investments of $2.5 million.

Financing Activities

Net cash used in financing activities was $3.6 million for the nine months ended September 30, 2016, primarily driven by cash used to satisfy tax withholding obligations for employees related to the vesting of their restricted stock awards of $2.5 million and the repurchase of shares totaling $2.5 million, partially offset by proceeds pursuant to employee stock-based compensation plans of $0.9 million as well as excess tax benefits related to these stock awards of $0.5 million.

Net cash used in financing activities was $10.1 million for the nine months ended September 30, 2015, primarily driven by the repurchase of shares totaling $8.8 million and by cash used to satisfy tax withholding obligations for employees related to the vesting of their restricted stock awards of $2.7 million, partially offset by excess tax benefits related to these stock awards of $1.0 million.

Off-Balance Sheet Arrangements

As of September 30, 2016, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Seasonality

We believe the impact of the timing and frequency of weddings varying from quarter-to-quarter results in lower transactions revenue in the first and fourth quarters. Our publishing business experiences fluctuations resulting in quarter-to-quarter revenue declines in the first and third quarters due to the cyclical publishing schedule of our regional publications. As a result of the enhancement of our marketplace, we could potentially experience new and potentially different seasonal patterns in the future.

Critical Accounting Policies and Estimates

Our discussion of our results of operations and financial condition relies on our consolidated financial statements, which are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can result in outcomes that may be materially different from these estimates or forecasts.

The accounting policies and related risks described in our Annual Report on Form 10-K for the year ended December 31, 2015 are those that depend most heavily on these judgments and estimates. During the nine months ended September 30, 2016, there were no material changes to the critical accounting policies contained therein.

Recently Issued Accounting Pronouncements

Reference is made to Note 1 of Notes to Condensed Consolidated Financial Statements for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K, filed with the Securities Exchange Commission on March 4, 2016.

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Non-GAAP Financial Measures

This Form 10-Q includes information about certain financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP” or “U.S. GAAP”), including adjusted EBITDA, adjusted net income, adjusted net income per diluted share and free cash flow. These non-GAAP measures have important limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Our use of these terms may vary from the use of similarly-titled measures by others in our industry due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

Management defines its non-GAAP financial measures as follows:


•	Adjusted EBITDA represents GAAP income from operations adjusted to exclude, if applicable: (1) depreciation and amortization, (2) stock-based compensation expense, (3) asset impairment charges, and (4) other items affecting comparability during the period.


•	Adjusted net income represents GAAP net income, adjusted for items that impact comparability, which may include: (1) asset impairment charges, (2) executive separation and other severance charges, (3) non-recurring foreign taxes, interest and penalties, and (4) costs related to exit activities.


•	Adjusted net income per diluted share represents adjusted net income (as defined above), divided by the diluted weighted-average number of shares outstanding for the period.


•	Free cash flow represents GAAP net cash provided by operations, less capital expenditures.

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

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The table below provides reconciliations between the non-GAAP financial measures discussed above to the comparable U.S. GAAP measures:



	Three Months Ended September 30,
	2016								2015
	As Reported			Adjustments		Non GAAP			As Reported			Adjustments		Non GAAP

Net revenue	$	36,731		$	—	$	36,731		$	34,706		$	—	$	34,706
Cost of revenue	1,788			—		1,788			2,050			—		2,050
Operating expenses
Product and content development	11,729			—		11,729			9,901			—		9,901
Sales and marketing	13,098			—		13,098			10,679			—		10,679
General and administrative	5,501			—		5,501			5,955			—		5,955
Depreciation and amortization	1,580			—		1,580			1,361			—		1,361
Total operating expenses	31,908			—		31,908			27,896			—		27,896

Income from operations	3,035			—		3,035			4,760			—		4,760

Interest and other income/(expense), net	48			—		48			(173		)	—		(173		)
Loss in equity interests	(29		)	—		(29		)	(3		)	—		(3		)
Income tax expense	1,146					1,146			1,718			—		1,718
Net income	$	1,908		$	—	$	1,908		$	2,866		$	—	$	2,866
Net income per share - diluted	$	0.07		$	—	$	0.07		$	0.11		$	—	$	0.11
Weighted average number of shares outstanding - diluted	25,727					25,727			25,449					25,449
	Three Months Ended September 30,
	2016								2015
	As Reported			Adjustments		Non GAAP			As Reported			Adjustments		Non GAAP
Income from operations	$	3,035		$	—	$	3,035		$	4,760		$	—	$	4,760
Depreciation and amortization (c)	1,580			—		1,580			1,361			—		1,361
Stock-based compensation (d)	2,157			—		2,157			1,135			—		1,135
Adjusted EBITDA	$	6,772		$	—	$	6,772		$	7,256		$	—	$	7,256

	Free Cash Flow Reconciliation
	Three Months Ended September 30,
	2016								2015
Net cash provided by operating activities						$	7,455							$	4,114
Less: capital expenditures						(1,061		)						(741		)
Free cash flow						$	6,394							$	3,373

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	Nine Months Ended September 30,
	2016										2015
	As Reported			Adjustments				Non GAAP			As Reported			Adjustments				Non GAAP

Net revenue	$	111,108		$	—			$	111,108		$	103,498		$	—			$	103,498
Cost of revenue	6,154			—				6,154			7,551			—				7,551
Operating expenses
Product and content development	33,503			—				33,503			29,300			(11		)	(a)	29,289
Sales and marketing	36,325			—				36,325			31,683			(265		)	(a)	31,418
General and administrative	17,531			—				17,531			18,116			(158		)	(a)	17,958
Depreciation and amortization	4,815			—				4,815			4,027			—				4,027
Total operating expenses	92,174			—				92,174			83,126			(434		)		82,692

Income from operations	12,780			—				12,780			12,821			434				13,255

Interest and other income/(expense), net	29			—				29			(209		)	—				(209		)
Loss in equity interests	(210		)	—				(210		)	(51		)	—				(51		)
Income tax expense	3,901			1,128			(b)	5,029			4,939			171			(b)	5,110
Net income	$	8,698		$	(1,128	)		$	7,570		$	7,622		$	263			$	7,885
Net income per share - diluted	$	0.34		$	(0.05	)		$	0.29		$	0.30		$	0.01			$	0.31
Weighted average number of shares outstanding - diluted	25,675							25,675			25,161							25,161
	Nine Months Ended September 30,
	2016										2015
	As Reported			Adjustments				Non GAAP			As Reported			Adjustments				Non GAAP
Income from operations	$	12,780		$	—			$	12,780		$	12,821		$	434			$	13,255
Depreciation and amortization (c)	4,815			—				4,815			4,027			—				4,027
Stock-based compensation (d)	5,801			—				5,801			4,252			—				4,252
Adjusted EBITDA	$	23,396		$	—			$	23,396		$	21,100		$	434			$	21,534

	Free Cash Flow Reconciliation
	Nine Months Ended September 30,
	2016										2015
Net cash provided by operating activities								$	20,088									$	11,559
Less: capital expenditures								(3,047		)								(2,777		)
Free cash flow								$	17,041									$	8,782

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(a)	Costs impacting comparability included in operating expenses in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015 included costs related to the closure of our merchandise operations in Redding, CA.

(b)

Adjusted income tax expense was calculated using an effective tax rate of 37.5% and 39.9%, respectively, for the three and nine months ended September 30, 2016 and 37.5% and 39.3%, respectively, for the three and nine months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 and September 30, 2015 excludes discrete items, including a one-time tax benefit associated with the resolution of an uncertain tax position for a former subsidiary in the 2016 period, as well as a one-time benefit associated with a foreign tax incentive deduction in the 2016 period.


(c)	To eliminate depreciation and amortization expense.


(d)	To eliminate stock-based compensation expense.

Item 3. Quantitative and Qualitative Disclosures About Market 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 market prices, including interest rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market rate or price risks.

We are exposed to market risk through interest rates related to the investment of our current cash and cash equivalents of $100.1 million as of September 30, 2016. These funds are generally invested in highly liquid debt instruments. As such instruments mature and the funds are reinvested, we are exposed to changes in market interest rates. This risk is not considered material, and we manage such risk by continuing to evaluate the best investment rates available for short-term, high quality investments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as that term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2016. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended September 30, 2016 identified in connection with the evaluation thereof by our management, including the Chief Executive Officer and Chief Financial Officer, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective at that reasonable assurance level.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are engaged in certain legal actions arising in the ordinary course of business and believe that the ultimate outcome of these actions will not have a material effect on our results of operations, financial position or cash flows.

Item 1A. Risk Factors

Our business, results of operations and financial condition are subject to various risks and uncertainties including the risk factors found under the caption “Risk Factors” in our most recent Annual Report on Form 10-K, filed with the SEC on March 4, 2016. There have been no material changes to the risk factors described in our most recent Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities



Period	Total Number of Shares Purchased^(a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(b)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs^(c)
July 1 to July 31, 2016	46,113	$	17.95	27,330	$	27,650,971
August 1 to August 31, 2016	35,217	$	18.19	32,389	$	27,068,317
September 1 to September 30, 2016	6,936	$	18.87	—	$	27,068,317
Total	88,266			59,719	$	27,068,317

_____________

(a)

The terms of some awards granted under certain of our stock incentive plans allow participants to surrender or deliver shares of XO Group’s common stock to us to pay for the exercise price of those awards or to satisfy tax withholding obligations related to the exercise or vesting of those awards. The shares listed in the table above represent the surrender or delivery of shares to us in connection with such exercise price payments or tax withholding obligations. For purposes of this table, the “price paid per share” is determined by reference to the closing sales price per share of XO Group’s common stock on the New York Stock Exchange on the date of such surrender or delivery (or on the last date preceding such surrender or delivery for which such reported price exists).

(b), (c)

On April 10, 2013, we announced that our Board of Directors had authorized the repurchase of up to $20.0 million of our common stock from time to time in the open market or in privately negotiated transactions. On May 26, 2016, we announced that our Board of Directors authorized an additional $20.0 million repurchase of our common stock from time to time on the open market or in privately negotiated transactions. The repurchase program may be suspended or discontinued at any time, but it does not have an expiration date. As of September 30, 2016, we have repurchased a total of 779,735 shares of our common stock under our repurchase program for an aggregate of $13.0 million.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Table of Contents

Incorporated by reference to the Exhibit Index immediately preceding the exhibits attached to this Quarterly Report on Form 10-Q.

Table of Contents

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.



Date: November 2, 2016	XO GROUP INC.
	By: /s/ Gillian Munson Gillian Munson Chief Financial Officer (principal financial officer and duly authorized officer)

Table of Contents

EXHIBIT INDEX



Number		Description
10.52		Letter Agreement between XO Group Inc. and Paul Bascobert effective September 7, 2016.
10.53		Transition, Separation and General Release Agreement between XO Group Inc. and Kristin Savilia dated September 14, 2016 (Incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K filed September 14, 2016).
31.1		Certification of Chief Executive Officer and President Pursuant to Exchange Act Rule 13a-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer and President 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
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

* These certifications are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

** In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.