Filed On 7/6/07 2:31pm ET · SEC File 333-144381 · Accession Number 950135-7-4211
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
7/06/07 Constant Contact/Inc S-1 18:600 Bowne of Boston I..01/FA
Document/Exhibit Description Pages Size
1: S-1 Constant Contact, Inc. Form S-1 HTML 1,243K
2: EX-3.1 EX-3.1 Second Amended and Restated Certificate of 23 84K
Incorporation
3: EX-3.3 EX-3.3 Amended and Restated Bylaws 26 60K
4: EX-10.1 EX-10.1 1999 Stock Option/Stock Issuance Plan 10 41K
5: EX-10.2 EX-10.2 Form of Non-Qualified Stock Option 10 35K
Agreement With Executives
6: EX-10.3 EX-10.3 Form of Non-Qualified Stock Option 10 35K
Agreement
7: EX-10.4 EX-10.4 Restricted Stock Purchase Agreement, Dated 7 31K
December 12, 2005
8: EX-10.9 EX-10.9 Letter Agreement, Gail F. Goodman, Dated 2 10K
April 14, 1999
9: EX-10.10 EX-10.10 Letter Agreement, Steven R. Wasserman, 2 12K
Dated December 1, 2005
10: EX-10.11 EX-10.11 Letter Agreement, Richard H. Turcott, 5 21K
Dated December 6, 2006
11: EX-10.12 EX-10.12 2007 Executive Team Bonus Plan 4 16K
12: EX-10.14 EX-10.14 Amended and Restated Investors' Rights 33 106K
Agreement, Dated August 9, 2001
13: EX-10.15 EX-10.15 Amended and Restated Preferred Investors' 56 154K
Rights Agreement, Dated May 12, 2006
14: EX-10.16 EX-10.16 Lease Agreement, Dated July 9, 2002 117 323K
15: EX-10.17 EX-10.17 Loan and Security Agreement, Dated 74 214K
February 27, 2003
16: EX-16.1 EX-16.1 Letter From Vitale, Caturano & Company, HTML 8K
Ltd.
17: EX-23.1 EX-23.1 Consent of Pricewaterhousecoopers Llp HTML 7K
18: EX-23.2 EX-23.2 Consent of Vitale, Caturano & Company, HTML 8K
Ltd.
This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]
As filed with the Securities and Exchange Commission on
July 6, 2007.
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CONSTANT CONTACT,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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7372
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04-3285398
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code No.)
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(I.R.S. Employer
Identification No.)
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Reservoir Place
1601 Trapelo Road, Suite 329
(Address, including zip code,
and telephone number,
Including area code, of
registrant’s principal executive offices)
Constant Contact, Inc.
Reservoir Place
1601 Trapelo Road, Suite 329
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration
Statement is declared effective.
If any of the securities being registered on this form are
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, as amended (the
“Securities Act”), check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Amount of
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Each Class of
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Aggregate Offering
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Registration
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Securities to be Registered
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Price(1)
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Fee(2)
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Common Stock, par value $0.01 per
share
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$86,250,000
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$2,648
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Estimated solely for the purpose of
computing the registration fee in accordance with
Rule 457(o) under the Securities Act of 1933, as amended.
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Calculated pursuant to
Rule 457(o) based on an estimate of the proposed maximum
aggregate offering price.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to Section 8(a), may determine.
The information
contained in this prospectus is not complete and may be changed.
These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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Shares
Common Stock
$
per share
This is an initial public offering of our common stock. We are
offering shares and the
selling stockholders identified in this prospectus are
offering shares.
We expect that the price to the public in
the offering will be
between $ and
$ per share. The market price of
the shares after
the offering may be higher or lower than the
offering price.
We have applied to include our common stock on the Nasdaq Global
Market under the symbol “CTCT.”
Investing in our common stock involves risks. See “Risk
Factors” beginning on page 7.
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Per Share
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Total
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Price to the public
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$
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$
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Underwriting discount
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Proceeds, before expenses, to
Constant Contact
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Proceeds, before expenses, to the
selling stockholders
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The selling stockholders have granted an over-allotment option
to the underwriters. Under this option, the underwriters may
elect to purchase a maximum
of
additional shares from the selling stockholders within
30 days following the date of this prospectus to cover
over-allotments.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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| CIBC
World Markets |
Thomas
Weisel Partners LLC |
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| William
Blair & Company |
Cowen
and Company |
Needham &
Company, LLC |
The date of this prospectus
is ,
2007
| Email marketing really is this easy. Constant Contact makes it Create easy to create, send,
and track your email Build your list permission-based email messages More than 200
professional and send email templates that get attention and deliver results. List import wizard
and tools Track Flexible one-screen editing Customizable mailing list the results Easy drag &
drop interface sign-up form for your website Customize colors and fonts Open and click tracking
Unsubscribe management Personalization Summary and List segmentation detailed reporting Easy send
scheduling ConstantContact.com © 2007 Constant Contact. All rights reserved 07-0139 |
Table of
Contents
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1
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7
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24
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27
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29
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31
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45
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60
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82
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84
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86
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91
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93
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99
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F-1
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| EX-3.1 Second Amended and Restated Certificate of Incorporation |
| EX-3.3 Amended and Restated Bylaws |
| EX-10.1 1999 Stock Option/Stock Issuance Plan |
| EX-10.2 Form of Non-Qualified Stock Option Agreement with Executives |
| EX-10.3 Form of Non-Qualified Stock Option Agreement |
| EX-10.4 Restricted Stock Purchase Agreement, dated December 12, 2005 |
| EX-10.9 Letter Agreement, Gail F. Goodman, dated April 14, 1999 |
| EX-10.10 Letter Agreement, Steven R. Wasserman, dated December 1, 2005 |
| EX-10.11 Letter Agreement, Richard H. Turcott, dated December 6, 2006 |
| EX-10.12 2007 Executive Team Bonus Plan |
| EX-10.14 Amended and Restated Investors' Rights Agreement, dated August 9, 2001 |
| EX-10.15 Amended and Restated Preferred Investors' Rights Agreement, dated May 12, 2006 |
| EX-10.16 Lease Agreement, dated July 9, 2002 |
| EX-10.17 Loan and Security Agreement, dated February 27, 2003 |
| EX-16.1 Letter from Vitale, Caturano & Company, Ltd. |
| EX-23.1 Consent of PricewaterhouseCoopers LLP |
| EX-23.2 Consent of Vitale, Caturano & Company, Ltd. |
Prospectus
Summary
This summary highlights information contained elsewhere in
this prospectus. You should read the following summary together
with the more detailed information appearing in this prospectus,
including our financial statements and related notes, and the
risk factors beginning on page 7, before deciding whether to
purchase shares of our common stock. Unless the context
otherwise requires, we use the terms “Constant
Contact,” “our company,” “we,”
“us” and “our” in this prospectus to refer
to Constant Contact, Inc.
Constant
Contact
Overview
Constant Contact is the leading provider of on-demand email
marketing solutions for small organizations, including small
businesses, associations and non-profits. As of
June 30,
2007, we had over 120,000 customers. Our customers use our email
marketing solution to more effectively and efficiently create,
send and track professional and affordable permission-based
email marketing campaigns. With these campaigns, our customers
can build stronger relationships with their customers, clients
and members, increase sales and expand membership. Our email
marketing solution incorporates a wide range of customizable
templates to assist in campaign creation, user-friendly tools to
import and manage contact lists and intuitive reporting to track
campaign effectiveness. In June 2007, we introduced an online
survey solution that complements our email marketing solution
and enables small organizations to easily create and send
surveys and effectively analyze responses. We are committed to
providing our customers with a high level of support, which we
deliver via phone, chat, email and our
website.
Our email marketing customer base has grown steadily from
approximately 25,000 at the end of 2004 to over 120,000 as of
June 30, 2007. We estimate that approximately two-thirds of
our customers have fewer than ten employees and in the first
quarter of 2007 our top 50 email marketing customers accounted
for approximately 1% of our gross email marketing revenue. Our
email marketing customers pay a monthly subscription fee that
generally ranges between $15 per month and $150 per month based
on the size of their contact lists and, in some cases, volume of
mailings. For the first quarter of 2007, our average monthly
revenue per email marketing customer exceeded $32. We believe
that the simplicity of on-demand deployment combined with our
affordable subscription fees and functionality facilitate
adoption of our solution by our target customers while
generating significant recurring revenue. From January 2005
through June 2007, at least 97.4% of our customers in a given
month have continued to utilize our email marketing solution in
the following month. Since the first quarter of 2002, we have
achieved 21 consecutive quarters of growth in customers and
revenue. Based on the current size of our customer base, we
believe that we are the largest provider of email marketing
services to small organizations.
We acquire our customers through a variety of paid and unpaid
sources. Our paid sources include online marketing through
search engines, advertising networks and other sites; offline
marketing through radio advertising, local seminars and other
marketing efforts; and relationships with over 1,700 active
channel partners, which include national small business service
providers such as Network Solutions, LLC, American Express
Company and VistaPrint Limited as well as local small business
service providers. Our unpaid sources of customer acquisition
include referrals from our growing customer base, general brand
awareness and the inclusion of a link to our
website in the
footer of more than 500 million emails currently sent by
our customers each month. We believe that during the first
quarter of 2007 at least 45% of our new email marketing
customers were generated through unpaid sources.
We were founded in 1995 and our on-demand email marketing
solution was first offered commercially in 2000. In 2006, our
revenue was $27.6 million and our net loss was
$7.8 million, and in the quarter ended
March 31, 2007
our revenue was $9.7 million and our net loss was
$2.7 million.
1
Industry
Background
We believe that small organizations represent a large market for
email marketing. Based on statistics compiled by the
U.S. Small Business Administration and others, we believe
that our email marketing solutions could potentially address the
needs of more than 27.3 million small organizations in the
United States.
To date, however, small organizations have been slower than
large organizations to adopt email marketing. Many small
organizations lack familiarity with the benefits of email
marketing and an understanding of how to prepare, execute and
measure a campaign. Similarly, they often do not have the
technical expertise necessary to implement email marketing
software or the financial resources to hire in-house staff or
retain an outside agency to support the effort. We believe that
existing alternatives, primarily the use of general email
applications, are poorly suited to meeting the email marketing
needs of small organizations. General email applications and
services, such as Microsoft
Outlook®,
America
Online®
or
Hotmail®,
are designed for
one-on-one
emails and do not have the formatting, graphics or links needed
to produce effective email marketing campaigns. The other major
alternative is enterprise email marketing providers that offer
sophisticated services for large organizations with sizeable
marketing budgets and deliver services at a price and scale far
beyond the scope of most small organizations. As a result, we
believe there is a significant opportunity for an email
marketing solution tailored to the needs of small organizations.
Our
Products and Services
We provide small organizations with a convenient, effective and
affordable way to communicate with their constituents. Our email
marketing solution provides customers with the following
features:
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Campaign Creation Wizard. A comprehensive, easy-to-use
interface that enables our customers to create and edit email
campaigns.
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Professionally Developed Templates. Pre-designed email
message forms that help our customers to quickly create
attractive and professional campaigns.
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Contact List Management. These tools help our customers
build and manage their email contact lists.
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Email Tracking and Reporting. These features enable our
customers to review and analyze the overall effectiveness of a
campaign by tracking and reporting aggregate and individualized
information.
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Email Delivery Management. These tools are incorporated
throughout our email marketing solution and are designed to
maintain our high deliverability rates.
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Image Hosting. This feature enables customers to store up
to five images for free, view and edit these images and resize
them as necessary.
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Security and Privacy. We protect our customers’ data
and require that our customers adopt a privacy policy to assist
them in complying with government regulations and email
marketing best practices.
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In addition, we recently launched an online survey solution to
enable our customers to survey their customers, clients or
members and analyze the responses. Our survey solution provides
customers with a survey creation wizard, over 40 different
preformatted and customizable survey templates, list management
capabilities and live customer support.
2
Business
Strengths
We believe that the following business strengths differentiate
us from our competitors and are key to our success:
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Focus on Small Organizations
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Efficient Customer Acquisition Model
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High Degree of Recurring Revenue
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Consistent Commitment to Customer Service
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Software-as-a-Service
Delivery
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Growth
Strategy
Our objective is to grow our market leadership through the
following strategies:
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Acquire New Customers. We have increased the number of
email marketing customers acquired in each of the past 11
quarters and aggressively seek to continue to attract new
customers by promoting the Constant Contact brand and
encouraging small organizations to try our solutions.
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Increase Revenue Per Customer. As of June 30, 2007,
we had an email marketing customer base in excess of 120,000. We
seek to increase revenue from each customer through add-on
services that enhance our solutions such as image hosting.
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Provide Additional Products. We plan to continue to
invest in research and development to maintain our leadership
position in email marketing and to develop and provide our
customers with complementary solutions that are easy-to-use,
effective and affordable such as our recently launched survey
product.
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Expand Internationally. Customers in over 110 countries
and territories currently use our email marketing solution,
despite limited marketing efforts outside the United States, and
we believe that opportunities exist to more aggressively market
our solutions in English-speaking countries.
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Pursue Complementary Acquisitions. We follow industry
developments and technology advancements and intend to evaluate
and acquire technologies or businesses to cost-effectively
enhance our solutions, access new customers or markets or both.
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Corporate
Information
We were incorporated in Massachusetts in August 1995 under the
name Roving Software Incorporated. We reincorporated in Delaware
in July 2000 and changed our name to Constant Contact, Inc. in
December 2006. Our principal executive offices are located at
Reservoir Place, 1601 Trapelo Road, Suite 329,
Waltham,
Massachusetts 02451, and our telephone number is
(781) 472-8100.
Our
website address is
www.constantcontact.com. Information
contained on our
website is not
incorporated by reference into
this prospectus, and you should not consider information
contained on our
website to be part of this prospectus or in
deciding whether to purchase shares of our common stock.
Constant
Contact®,
Do-It-Yourself Email
Marketing®,
SafeUnsubscribe®,
Email Marketing
101®,
Email Marketing Hints &
Tips®
and other trademarks or service marks of Constant Contact
appearing in this prospectus are the property of Constant
Contact. This prospectus contains additional trade names,
trademarks and service marks of other companies.
3
The
Offering
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Common stock offered by us
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Common stock offered by the selling stockholders
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shares |
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Use of proceeds
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We intend to use our net proceeds from this offering for general
corporate purposes, including the development of new products,
the acquisition of new customers and capital expenditures. We
also intend to use a portion of our net proceeds to repay
outstanding debt. We may use a portion of our proceeds for the
acquisition of, or investment in, businesses, technologies,
products or assets that complement our business. We have no
present understandings, commitments or agreements to enter into
any acquisitions or make any investments. We will not receive
any proceeds from the shares sold by the selling stockholders.
See “Use of Proceeds” for more information. |
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Proposed Nasdaq Global Market symbol
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CTCT |
The number of shares of our common stock to be outstanding after
this offering is based on the number of shares of common stock
outstanding as of
March 31, 2007, and excludes:
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1,383,497 shares of common stock issuable upon the exercise
of stock options and warrants outstanding as of March 31,
2007 at a weighted average exercise price of $2.61 per share, of
which options and warrants to purchase 406,732 shares of
our common stock were exercisable as of March 31, 2007 with
a weighted average exercise price of $2.73 per share;
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787,823 shares of common stock available for future
issuance under our equity compensation plans as of
March 31, 2007; and
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120,000 shares of common stock issuable upon the exercise
of a warrant to purchase redeemable convertible preferred stock
with an exercise price of $0.50 per share, which preferred stock
is convertible into common stock.
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Unless otherwise stated, all information contained in this
prospectus gives effect to a 1-for-100 reverse stock split of
our common stock that was effected on
November 26, 2002,
assumes no exercise by the underwriters of their over-allotment
option, gives effect to the automatic conversion of all
outstanding shares of our redeemable convertible preferred stock
into 13,189,778 shares of our common stock upon the closing
of this offering and gives effect to the restatement of our
certificate of incorporation and amendment and restatement of
our
bylaws to be effective upon completion of this offering.
4
Summary
Financial Information
The following tables present our summary statements of
operations data for the three years ended
December 31, 2006
and for the three months ended
March 31, 2006 and
2007, and
our summary historical, pro forma and pro forma as adjusted
balance sheet data as of
March 31, 2007. The summary
statements of operations data for the three years ended
December 31, 2006 are derived from our audited financial
statements for the three years ended
December 31, 2006
included elsewhere in this prospectus. The summary statements of
operations data for the three months ended
March 31, 2006
and
2007 and the summary balance sheet data as of
March 31,
2007 have been derived from our unaudited financial statements
included elsewhere in this prospectus. Our unaudited financial
statements have been prepared on the same basis as the audited
financial statements and notes thereto and, in the opinion of
our management, include all adjustments (consisting of normal
recurring adjustments) necessary for a fair statement of the
information for the unaudited interim periods. Our historical
results for prior interim periods are not necessarily indicative
of results to be expected for a full year or for any future
period. You should read this data together with our financial
statements and related notes included elsewhere in this
prospectus and the information under
“Selected Financial
Data” and
“Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
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Three Months Ended
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Year Ended December 31,
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March 31,
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2004
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2005
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2006
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2006
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2007
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(in thousands, except per share and customer data)
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Statements of Operations
Data:
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Revenue
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$
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8,071
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$
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14,658
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$
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27,552
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$
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5,429
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$
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9,713
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Cost of revenue(1)
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2,211
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3,747
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7,801
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1,543
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2,731
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Gross profit
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5,860
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10,911
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19,751
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3,886
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6,982
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Operating expenses:(1)
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Research and development
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2,140
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3,355
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6,172
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1,363
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2,169
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Sales and marketing
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3,385
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7,460
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18,592
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2,837
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6,121
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General and administrative
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856
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1,326
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2,623
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493
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1,082
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Total operating expenses
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6,381
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|
|
12,141
|
|
|
|
27,387
|
|
|
|
4,693
|
|
|
|
9,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(521
|
)
|
|
|
(1,230
|
)
|
|
|
(7,636
|
)
|
|
|
(807
|
)
|
|
|
(2,390
|
)
|
|
Interest and other income
(expense), net
|
|
|
(34
|
)
|
|
|
(24
|
)
|
|
|
(203
|
)
|
|
|
(150
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(555
|
)
|
|
|
(1,254
|
)
|
|
|
(7,839
|
)
|
|
|
(957
|
)
|
|
|
(2,681
|
)
|
|
Accretion of redeemable
convertible preferred stock
|
|
|
(3,701
|
)
|
|
|
(5,743
|
)
|
|
|
(3,788
|
)
|
|
|
(2,136
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(4,256
|
)
|
|
$
|
(6,997
|
)
|
|
$
|
(11,627
|
)
|
|
$
|
(3,093
|
)
|
|
$
|
(2,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(5.68
|
)
|
|
$
|
(3.23
|
)
|
|
$
|
(4.40
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(1.02
|
)
|
|
Weighted average shares
outstanding used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
749
|
|
|
|
2,164
|
|
|
|
2,645
|
|
|
|
2,527
|
|
|
|
2,869
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period number of
customers(2)
|
|
|
25,229
|
|
|
|
47,730
|
|
|
|
89,323
|
|
|
|
57,195
|
|
|
|
104,265
|
|
|
|
|
|
(1)
|
|
Amounts include stock-based
compensation expense, as follows:
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
–
|
|
$
|
–
|
|
$
|
25
|
|
$
|
2
|
|
$
|
15
|
|
Research and development
|
|
|
–
|
|
|
–
|
|
|
27
|
|
|
1
|
|
|
21
|
|
Sales and marketing
|
|
|
6
|
|
|
–
|
|
|
19
|
|
|
1
|
|
|
11
|
|
General and administrative
|
|
|
17
|
|
|
17
|
|
|
12
|
|
|
1
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23
|
|
$
|
17
|
|
$
|
83
|
|
$
|
5
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
We define our end of period number
of customers as email marketing customers that we billed
directly during the last month of the period.
|
5
The following table summarizes our balance sheet data as of
March 31, 2007:
|
|
|
| |
•
|
on an actual basis;
|
| |
| |
•
|
on a pro forma basis to reflect the automatic conversion of all
outstanding shares of our redeemable convertible preferred stock
into shares of common stock upon the closing of the offering and
the assumed expiration of an outstanding warrant to purchase
120,000 shares of our redeemable convertible preferred
stock resulting in a reversal of other expense of $1,048,000
related to previous adjustments to its fair value; and
|
| |
| |
•
|
on a pro forma as adjusted basis to reflect the pro forma
adjustment above, as well as the receipt by us of estimated net
proceeds of $ million from
the sale
of shares
of common stock offered by us, at an initial public offering
price of $ per share, the
mid-point of the estimated price range shown on the cover page
of this prospectus, after deducting the estimated underwriting
discount and offering expenses payable by us and the payment by
us of $565,000 to repay our outstanding indebtedness as
described under “Use of Proceeds.”
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
as Adjusted
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term marketable securities
|
|
$
|
9,802
|
|
|
$
|
9,802
|
|
|
$
|
|
|
|
Total assets
|
|
|
16,326
|
|
|
|
16,326
|
|
|
|
|
|
|
Deferred revenue
|
|
|
6,833
|
|
|
|
6,833
|
|
|
|
|
|
|
Redeemable convertible preferred
stock warrant
|
|
|
1,048
|
|
|
|
–
|
|
|
|
|
|
|
Notes payable
|
|
|
565
|
|
|
|
565
|
|
|
|
|
|
|
Redeemable convertible preferred
stock
|
|
|
35,575
|
|
|
|
–
|
|
|
|
|
|
|
Total stockholders’ equity
(deficit)
|
|
|
(31,469
|
)
|
|
|
5,154
|
|
|
|
|
|
6
Risk
Factors
An investment in our common stock involves a high degree of
risk. In deciding whether to invest, you should carefully
consider the following risk factors. Any of the following risks
could have a material adverse effect on our business, financial
condition, results of operations or prospects and cause the
value of our common stock to decline, which could cause you to
lose all or part of your investment. When determining whether to
invest, you should also refer to the other information in this
prospectus, including the financial statements and related
notes.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
If we are
unable to attract new customers and retain existing customers on
a cost-effective basis, our business and results of operations
will be affected adversely.
To succeed, we must continue to attract and retain a large
number of customers on a cost-effective basis, many of whom have
not previously used an email marketing service. We rely on a
variety of methods to attract new customers, such as paying
providers of online services, search engines, directories and
other
websites to provide content, advertising banners and other
links that direct customers to our
website and including a link
to our
website in substantially all of our customers’
emails. In addition, many of our new customers are referred to
us by existing customers. If we are unable to use any of our
current marketing initiatives or the cost of such initiatives
were to significantly increase or our efforts to satisfy our
existing customers are not successful, we may not be able to
attract new customers or retain existing customers on a
cost-effective basis and, as a result, our revenue and results
of operations would be affected adversely.
Our
business is substantially dependent on the market for email
marketing services for small organizations.
We derive, and expect to continue to derive, substantially all
of our revenue from our email marketing solution for small
organizations, including small businesses, associations and
non-profits. As a result, widespread acceptance of email
marketing among small organizations is critical to our future
growth and success. The overall market for email marketing and
related services is relatively new and still evolving, and small
organizations have generally been slower than large
organizations to adopt email marketing as part of their
marketing mix. There is no certainty regarding how or whether
this market will develop, or whether it will experience any
significant contractions. Our ability to attract and retain
customers will depend in part on our ability to make email
marketing convenient, effective and affordable. If small
organizations determine that email marketing does not
sufficiently benefit them, existing customers may cancel their
accounts and new customers may decide not to adopt email
marketing. In addition, many small organizations lack the
technical expertise to effectively send email marketing
campaigns. As technology advances, however, small organizations
may establish the capability to manage their own email marketing
and therefore have no need for our email marketing solution. If
the market for email marketing services fails to grow or grows
more slowly than we currently anticipate, demand for our
services may decline and our revenue would suffer.
U.S.
federal legislation entitled Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003 imposes
certain obligations on the senders of commercial emails, which
could minimize the effectiveness of our email marketing
solution, and establishes financial penalties for
non-compliance, which could increase the costs of our
business.
In December 2003, Congress enacted Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003, or the
CAN-SPAM Act, which establishes certain requirements for
commercial email messages and specifies penalties for the
transmission of commercial email messages that are intended to
deceive the recipient as to source or content. The CAN-SPAM Act,
among other things, obligates the sender of commercial emails to
provide recipients with the ability to opt out of receiving
future emails from the sender. In addition, some states have
passed laws regulating commercial email practices that are
significantly more
7
punitive and difficult to comply with than the CAN-SPAM Act,
particularly Utah and Michigan, which have enacted do-not-email
registries listing minors who do not wish to receive unsolicited
commercial email that markets certain covered content, such as
adult or other harmful products. Some portions of these state
laws may not be preempted by the CAN-SPAM Act. The ability of
our customers’ constituents to opt out of receiving
commercial emails may minimize the effectiveness of our email
marketing solution. Moreover, non-compliance with the CAN-SPAM
Act carries significant financial penalties. If we were found to
be in violation of the CAN-SPAM Act, applicable state laws not
preempted by the CAN-SPAM Act, or foreign laws regulating the
distribution of commercial email, whether as a result of
violations by our customers or if we were deemed to be directly
subject to and in violation of these requirements, we could be
required to pay penalties, which would adversely affect our
financial performance and significantly harm our business. We
also may be required to change one or more aspects of the way we
operate our business, which could impair our ability to attract
and retain customers or increase our operating costs.
Evolving
regulations concerning data privacy may restrict our
customers’ ability to solicit, collect, process and use
data necessary to conduct email marketing campaigns or to send
surveys and analyze the results or may increase their costs,
which could harm our business.
Federal, state and foreign governments have enacted, and may in
the future enact, laws and regulations concerning the
solicitation, collection, processing or use of consumers’
personal information. Such laws and regulations may require
companies to implement privacy and security policies, permit
users to access, correct and delete personal information stored
or maintained by such companies, inform individuals of security
breaches that affect their personal information, and, in some
cases, obtain individuals’ consent to use personal
information for certain purposes. Other proposed legislation
could, if enacted, prohibit the use of certain technologies that
track individuals’ activities on web pages or that record
when individuals click through to an Internet address contained
in an email message. Such laws and regulations could restrict
our customers’ ability to collect and use email addresses,
page viewing data, and personal information, which may reduce
demand for our solutions.
As
Internet commerce develops, federal, state and foreign
governments may draft and propose new laws to regulate Internet
commerce, which may negatively affect our business.
As Internet commerce continues to evolve, increasing regulation
by federal, state or foreign governments becomes more likely.
Our business could be negatively impacted by the application of
existing laws and regulations or the enactment of new laws
applicable to email marketing. The cost to comply with such laws
or regulations could be significant and would increase our
operating expenses, and we may be unable to pass along those
costs to our customers in the form of increased subscription
fees. In addition, federal, state and foreign governmental or
regulatory agencies may decide to impose taxes on services
provided over the Internet or via email. Such taxes could
discourage the use of the Internet and email as a means of
commercial marketing, which would adversely affect the viability
of our solutions.
In the
event we are unable to minimize our loss of existing customers
or to grow our customer base by adding new customers, our
operating results will be adversely affected.
From January 2005 through June 2007, at least 97.4% of our
customers in a given month have continued to utilize our email
marketing solution in the following month. Such historic
performance is not indicative of future performance, and there
is no guarantee that new customers will demonstrate the loyalty
our existing customers have exhibited in the past or that our
existing customers will continue to use our solutions
consistently. Our growth strategy requires us to minimize the
loss of our existing customers and grow our customer base by
adding new customers. Customers cancel their accounts for many
reasons, including a perception that they do not use our
solution effectively, the service is a poor value and they can
manage their email campaigns without our solution. In some
cases, we terminate an account because the customer fails to
comply with our standard terms and conditions. We must
continually add new customers to replace customers whose
accounts are cancelled or terminated, which may involve
significantly higher marketing expenditures
8
than we currently anticipate. If too many of our customers
cancel our service, or if we are unable to attract new customers
in numbers sufficient to grow our business, our operating
results would be adversely affected.
As we
expand our customer base through our marketing efforts, our new
customers may use our solutions differently than our existing
customers and, accordingly, our business model may not be as
efficient at attracting and retaining new customers.
As we expand our customer base, our new customers may use our
solutions differently than our existing customers. For example,
a greater percentage of new customers may take advantage of the
free trial period we offer but choose to use another form of
marketing to reach their constituents. If our new customers are
not as loyal as our existing customers, our attrition rate will
increase and our customer referrals will decrease, which would
have an adverse effect on our results of operations. In
addition, as we seek to expand our customer base, we expect to
increase our marketing spend in order to attract new customers,
which will increase our operating costs. There can be no
assurance that these marketing efforts will be successful.
The
market in which we participate is competitive and, if we do not
compete effectively, our operating results could be
harmed.
The market for our solutions is competitive and rapidly
changing, and the barriers to entry are relatively low. With the
introduction of new technologies and the influx of new entrants
to the market, we expect competition to persist and intensify in
the future, which could harm our ability to increase sales and
maintain our prices.
Our principal competitors include providers of email marketing
solutions for small to medium size businesses such as Vertical
Response, Inc., CoolerEmail Inc., Broadwick Corporation
(iContact, formerly Intellicontact), Emma, Inc., Got Corporation
(Campaigner®),
Lyris Technologies, Inc. and Topica Inc., as well as the
in-house information technology capabilities of prospective
customers. Competition could result in reduced sales, reduced
margins or the failure of our email marketing solution to
achieve or maintain more widespread market acceptance, any of
which could harm our business. In addition, there are a number
of other vendors that are focused on providing email marketing
solutions for larger organizations, including Acxiom Digital (a
division of Acxiom Corporation), Alterian Inc., Epsilon Data
Management LLC (a subsidiary of Alliance Data Systems
Corporation), ExactTarget, Inc., Responsys Inc., Silverpop
Systems Inc. and CheetahMail, Inc. (a subsidiary of Experian
Group Limited). While we do not compete currently with vendors
serving larger customers, we may face future competition from
these providers if they determine that our target market
presents an opportunity for them. Finally, in the future, we may
experience competition from Internet service providers, or ISPs,
advertising and direct marketing agencies and other large
established businesses, such as Microsoft Corporation, Google
Inc. or Yahoo! Inc., possessing large, existing customer bases,
substantial financial resources and established distribution
channels. If these companies decide to develop, market or resell
competitive email marketing solutions, acquire one of our
existing competitors or form a strategic alliance with one of
our competitors, our ability to compete effectively could be
significantly compromised and our operating results could be
harmed. In addition, one or more of these ISPs or other
businesses could decide to offer a competitive email marketing
solution at no cost or low cost in order to generate revenue as
part of a larger product offering.
Our current and potential competitors may have significantly
more financial, technical, marketing and other resources than we
do and may be able to devote greater resources to the
development, promotion, sale and support of their products. Our
potential competitors may have more extensive customer bases and
broader customer relationships than we have. In addition, these
companies may have longer operating histories and greater name
recognition than we have. These competitors may be better able
to respond quickly to new technologies and to undertake more
extensive marketing campaigns. If we are unable to compete with
such companies, the demand for our services could substantially
decline.
9
If the
delivery of our customers’ emails is limited or blocked,
the fees we may be able to charge for our email marketing
solution may not be accepted by the market and customers may
cancel their accounts.
ISPs can block emails from reaching their users. Recent releases
of ISP software and the implementation of stringent new policies
by ISPs make it more difficult to deliver our customers’
emails. We continually improve our own technology and work
closely with ISPs to maintain our deliverability rates. If ISPs
materially limit or halt the delivery of our customers’
emails, or if we fail to deliver our customers’ emails in a
manner compatible with ISPs’ email handling or
authentication technologies, then the fees we charge for our
email marketing solution may not be accepted by the market, and
customers may cancel their accounts.
Competition
for our employees is intense, and we may not be able to attract
and retain the highly skilled employees whom we need to support
our business.
Competition for highly skilled technical and marketing personnel
is extremely intense, and we continue to face difficulty
identifying and hiring qualified personnel in many areas of our
business. We may not be able to hire and retain such personnel
at compensation levels consistent with our existing compensation
and salary structure. Many of the companies with which we
compete for experienced employees have greater resources than we
have and may be able to offer more attractive terms of
employment. In particular, candidates making employment
decisions, particularly in high-technology industries, often
consider the value of any equity they may receive in connection
with their employment. Any significant volatility in the price
of our stock after this offering may adversely affect our
ability to attract or retain highly skilled technical and
marketing personnel.
In addition, we invest significant time and expense in training
our employees, which increases their value to competitors who
may seek to recruit them. If we fail to retain our employees, we
could incur significant expenses in hiring and training their
replacements and the quality of our services and our ability to
serve our customers could diminish, resulting in a material
adverse effect on our business.
If
economic or other factors negatively affect the small business
sector, our customers may become unwilling or unable to maintain
accounts with us, which could cause our revenue to decline and
impair our ability to operate profitably.
Our email marketing and survey solutions are designed
specifically for small organizations, including small
businesses, associations and non-profits that frequently have
limited budgets and are more likely to be significantly affected
by economic downturns than their larger, more established
counterparts. Small organizations may choose to spend the
limited funds that they have on items other than our solutions.
Moreover, if small organizations experience economic hardship,
they may be unwilling or unable to expend resources on
marketing, which would negatively affect the overall demand for
our solutions and could cause our revenue to decline.
If we
fail to promote and maintain our brand in a cost-effective
manner, we may lose market share and our revenue may
decrease.
We believe that developing and maintaining awareness of the
Constant Contact brand in a cost-effective manner is critical to
achieving widespread acceptance of our existing and future
solutions and attracting new customers. Furthermore, we believe
that the importance of brand recognition will increase as
competition in our industry increases. Successful promotion of
our brand will depend largely on the effectiveness of our
marketing efforts and the effectiveness and affordability of our
solutions for our target customer demographic. Historically, our
efforts to build our brand have involved significant expense,
and it is likely that our future marketing efforts will require
us to incur additional significant expenses. Such brand
promotion activities may not yield increased revenue and, even
if they do, any revenue increases may not offset the expenses we
incur to promote our brand. If we fail to successfully promote
and maintain our brand, or if we incur substantial expenses in
an unsuccessful attempt to promote and maintain our brand, we
may lose our existing customers to our competitors or be unable
to attract new customers, which would cause our revenue to
decrease.
10
We depend
on search engines to attract a significant percentage of our
customers, and if those search engines change their listings or
our relationship with them deteriorates or terminates, we may be
unable to attract new customers, which would adversely affect
our business and results of operations.
Many of our customers located our
website by clicking through on
search results displayed by search engines such as Google and
Yahoo!. Search engines typically provide two types of search
results, algorithmic and purchased listings. Algorithmic
listings cannot be purchased, and instead are determined and
displayed solely by a set of formulas designed by the search
engine. Purchased listings can be purchased by advertisers in
order to attract users to their
websites. We rely on both
algorithmic and purchased listings to attract a significant
percentage of the customers we serve to our
website. Search
engines revise their algorithms from time to time in an attempt
to optimize their search result listings. If search engines on
which we rely for algorithmic listings modify their algorithms,
this could result in fewer customers clicking through to our
website, requiring us to resort to other costly resources to
replace this traffic, which, in turn, could reduce our operating
and net income or our revenue, harming our business. If one or
more search engines on which we rely for purchased listings
modifies or terminates its relationship with us, our expenses
could rise, or our revenue could decline and our business may
suffer. The cost of purchased search listing advertising is
rapidly increasing as demand for these channels continues to
grow quickly, and further increases could have negative effects
on our financial results.
The
success of our business depends on the continued growth and
acceptance of email as a communications tool, and the related
expansion and reliability of the Internet infrastructure. If
consumers do not continue to use email, demand for our email
marketing solutions may decline.
The future success of our business depends on the continued and
widespread adoption of email as a primary means of
communication. Security problems such as “viruses,”
“worms” and other malicious programs or reliability
issues arising from outages and damage to the Internet
infrastructure could create the perception that email is not a
safe and reliable means of communication, which would discourage
consumers from using email. Consumers’ use of email also
depends on the ability of ISPs to prevent unsolicited bulk
email, or “spam,” from overwhelming consumers’
inboxes. In recent years, ISPs have developed new technologies
to filter unwanted messages before they reach users’
inboxes. In response, spammers have employed more sophisticated
techniques to reach consumers’ inboxes. Although companies
in the anti-spam industry have started to address the techniques
used by spammers, if security problems become widespread or
frequent or if ISPs cannot effectively control spam, the use of
email as a means of communication may decline as consumers find
alternative ways to communicate. Any decrease in the use of
email would reduce demand for our email marketing solution and
harm our business.
Various
private spam blacklists have in the past interfered with, and
may in the future interfere with, the effectiveness of our
solutions and our ability to conduct business.
We depend on email to market to and communicate with our
customers, and our customers rely on email to communicate with
their constituents. Various private entities attempt to regulate
the use of email for commercial solicitation. These entities
often advocate standards of conduct or practice that
significantly exceed current legal requirements and classify
certain email solicitations that comply with current legal
requirements as spam. Some of these entities maintain
“blacklists” of companies and individuals, and the
websites, ISPs and Internet protocol addresses associated with
those entities or individuals, that do not adhere to those
standards of conduct or practices for commercial email
solicitations that the blacklisting entity believes are
appropriate. If a company’s Internet protocol addresses are
listed by a blacklisting entity, emails sent from those
addresses may be blocked if they are sent to any Internet domain
or Internet address that subscribes to the blacklisting
entity’s service or purchases its blacklist.
Some of our Internet protocol addresses currently are listed
with one or more blacklisting entities and, in the future, our
Internet protocol addresses may also be listed with these and
other blacklisting entities. There can be no guarantee that we
will not continue to be blacklisted or that we will be able to
successfully remove
11
ourselves from those lists. Blacklisting of this type could
interfere with our ability to market our products and services
and communicate with our customers and could undermine the
effectiveness of our customers’ email marketing campaigns,
all of which could have a material negative impact on our
business and results of operations.
Any
efforts we may make in the future to promote our services to
market segments other than small organizations or to expand our
solution beyond email marketing may not succeed.
To date, we have focused our business on providing our email
marketing solution for small organizations, but we may in the
future seek to serve other market segments and expand our
service offerings. We recently introduced our new survey
product, which enables customers to create and send online
surveys and analyze responses, and we are currently developing
an add-on archiving service that will enable our customers to
archive their past email campaigns. Any efforts to expand beyond
the small organization market or to introduce new services
beyond our email marketing solution, including our survey
product, may not result in significant revenue growth, may
divert management resources from our existing operations and
require us to commit significant financial resources to an
unproven business, which may harm our financial performance.
Our
customers’ use of our solutions to transmit negative
messages or website links to harmful applications could damage
our reputation, and we may face liability for unauthorized,
inaccurate or fraudulent information distributed via our
solutions.
Our customers could use our email marketing solution to transmit
negative messages or
website links to harmful applications,
reproduce and distribute copyrighted material without
permission, or report inaccurate or fraudulent data. Any such
use of our solutions could damage our reputation and we could
face claims for damages, copyright or trademark infringement,
defamation, negligence or fraud. Moreover, our customers’
promotion of their products and services through our email
marketing solution may not comply with federal, state and
foreign laws. We cannot predict whether our role in facilitating
these activities would expose us to liability under these laws.
Even if claims asserted against us do not result in liability,
we may incur substantial costs in investigating and defending
such claims. If we are found liable for our customers’
activities, we could be required to pay fines or penalties,
redesign business methods or otherwise expend resources to
remedy any damages caused by such actions and to avoid future
liability.
Our existing general liability insurance may not cover all
potential claims to which we are exposed or may not be adequate
to indemnify us for all liabilities that may be imposed. Any
imposition of liability that is not covered by insurance or is
in excess of insurance coverage would increase our operating
losses and reduce our net worth and working capital.
If we
fail to enhance our existing solutions or develop new features,
our solutions may become obsolete or less competitive and we
could lose customers.
If we are unable to enhance our existing solutions or develop
new solutions that keep pace with rapid technological
developments and meet our customers’ needs, our business
will be harmed. Creating and designing such enhancements and new
solutions entail significant technical and business risks and
require substantial expenditures and lead-time, and there is no
guarantee that such enhancements and new solutions will be
completed in a timely fashion or accepted by the market. If we
cannot enhance our existing services or develop new solutions or
if we are not successful in selling such enhancements and new
solutions to our customers, we could lose customers or have
difficulty attracting new customers, which would adversely
impact our financial performance.
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Our
relationships with our channel partners may be terminated or may
not continue to be beneficial in generating new email marketing
customers, which could adversely affect our ability to increase
our customer base.
We maintain a network of over 1,700 active channel partners,
which include national small business service providers such as
Network Solutions, LLC, American Express Company and VistaPrint
Limited as well as local small business service providers such
as local web developers and marketing agencies, who refer
customers to us through links on their
websites and outbound
promotion to their customers. Approximately 13% of our new email
marketing customers in the first quarter of 2007 were generated
from our channel partners. If we are unable to maintain our
marketing relationships or establish new marketing
relationships, we may experience delays and increased costs in
adding customers, which could have a material adverse effect on
us. The number of customers we are able to add through these
marketing relationships is dependent on the marketing efforts of
our partners, and a significant decrease in the number of gross
customer additions generated through these relationships could
adversely affect the size of our customer base and revenue.
Our
growth could strain our personnel resources and infrastructure,
and if we are unable to implement appropriate controls and
procedures to manage our growth, we may not be able to
successfully implement our business plan.
We are currently experiencing a period of rapid growth in our
headcount and operations, which has placed, and will continue to
place, to the extent that we are able to sustain such growth, a
significant strain on our management and our administrative,
operational and financial reporting infrastructure.
Our success will depend in part on the ability of our senior
management to manage this growth effectively. To do so, we must
continue to hire, train and manage new employees as needed. If
our new hires perform poorly, or if we are unsuccessful in
hiring, training, managing and integrating these new employees,
or if we are not successful in retaining our existing employees,
our business may be harmed. To manage the expected growth of our
operations and personnel, we will need to continue to improve
our operational and financial controls and update our reporting
procedures and systems, which may include installing a new
billing system. The addition of new employees and the capital
investments that we anticipate will be necessary to manage our
growth will increase our cost base, which will make it more
difficult for us to offset any future revenue shortfalls by
reducing expenses in the short term. If we fail to successfully
manage our growth, we will be unable to execute our business
plan.
If we
fail to retain our key personnel, we may not be able to achieve
our anticipated level of growth and our business could
suffer.
Our future depends, in part, on our ability to attract and
retain key personnel. Our future also depends on the continued
contributions of our executive officers and other key technical
personnel, each of whom would be difficult to replace. In
particular, Gail F. Goodman, our Chairman, President and Chief
Executive Officer, is critical to the management of our business
and operations and the development of our strategic direction.
The loss of the services of Ms. Goodman or other executive
officers or key personnel and the process to replace any of our
key personnel would involve significant time and expense and may
significantly delay or prevent the achievement of our business
objectives.
Any
significant disruption in service on our website or in our
computer systems could reduce the attractiveness of our
solutions and result in a loss of customers.
The satisfactory performance, reliability and availability of
our technology and our underlying network infrastructure are
critical to our operations, level of customer service,
reputation and ability to attract new customers and retain
existing customers. Our system hardware is collocated in a
hosting facility located in Somerville, Massachusetts, owned and
operated by Internap Network Services Corporation. Internap does
not guarantee that our customers’ access to our solutions
will be uninterrupted, error-free or secure. Our
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operations depend on Internap’s ability to protect their
and our systems in their facilities against damage or
interruption from natural disasters, power or telecommunications
failures, air quality, temperature, humidity and other
environmental concerns, computer viruses or other attempts to
harm our systems, criminal acts and similar events. In the event
that our arrangement with Internap is terminated, or there is a
lapse of service or damage to the Internap facility, we could
experience interruptions in our service as well as delays and
additional expense in arranging new facilities. Any
interruptions or delays in our service, whether as a result of
Internap or other third-party error, our own error, natural
disasters or security breaches, whether accidental or willful,
could harm our relationships with customers and our reputation.
Also, in the event of damage or interruption, our insurance
policies may not adequately compensate us for any losses that we
may incur. These factors could damage our brand and reputation,
divert our employees’ attention, reduce our revenue,
subject us to liability and cause customers to cancel their
accounts, any of which could adversely affect our business,
financial condition and results of operations.
Our disaster recovery system located at our headquarters in
Waltham, Massachusetts does not provide real time backup, has
not been tested under actual disaster conditions and may not
have sufficient capacity to recover all data and services in the
event of an outage at the Internap facility. In the event of a
disaster in which the Internap facility is irreparably damaged
or destroyed, we would experience interruptions in our service.
Moreover, our disaster recovery system is located approximately
12 miles from the Internap facility and may be equally or
more affected by any regional disaster affecting the Internap
facility. Any or all of these events could cause our customers
to lose access to our solutions.
If the
security of our customers’ confidential information stored
in our systems is breached or otherwise subjected to
unauthorized access, our reputation may be harmed, we may be
exposed to liability and we may lose the ability to offer our
customers a credit card payment option.
Our system stores our customers’ proprietary email
distribution lists, credit card information and other critical
data. Any accidental or willful security breaches or other
unauthorized access could expose us to liability for the loss of
such information, time-consuming and expensive litigation and
other possible liabilities as well as negative publicity. If
security measures are breached because of third-party action,
employee error, malfeasance or otherwise, or if design flaws in
our software are exposed and exploited, and, as a result, a
third party obtains unauthorized access to any of our
customers’ data, our relationships with our customers will
be severely damaged, and we could incur significant liability.
Because techniques used to obtain unauthorized access or to
sabotage systems change frequently and generally are not
recognized until they are launched against a target, we and our
third-party hosting facilities may be unable to anticipate these
techniques or to implement adequate preventative measures. In
addition, many states have enacted laws requiring companies to
notify individuals of data security breaches involving their
personal data. These mandatory disclosures regarding a security
breach often lead to widespread negative publicity, which may
cause our customers to lose confidence in the effectiveness of
our data security measures. Any security breach, whether actual
or perceived, would harm our reputation, and we could lose
customers.
We do not believe we are in compliance with certain of the data
protection policy documentation standards adopted by the major
credit card issuers. If we fail to become compliant with such
data protection policy documentation standards, we could lose
our ability to offer our customers a credit card payment option.
This would make our solutions less attractive to many small
organizations by negatively impacting our customer experience
and significantly increasing our administrative costs related to
customer payment processing.
We rely
on third-party computer hardware and software that may be
difficult to replace or that could cause errors or failures of
our service.
We rely on computer hardware purchased and software licensed
from third parties in order to offer our solution, including
hardware from such large vendors as Oracle Corporation,
International Business Machines Corporation, Dell Computer
Corporation, Sun Microsystems, Inc. and EMC Corporation. This
hardware and software may not continue to be available on
commercially reasonable terms, or at all. If we lose the right
to use any of this hardware or software or such hardware or
software malfunctions, our customers could
14
experience delays or be unable to access our services until we
can obtain and integrate equivalent technology or repair the
cause of the malfunctioning hardware or software. Any delays or
failures associated with our services could upset our customers
and harm our business.
If we are
unable to protect the confidentiality of our unpatented
proprietary information, processes and know-how and our trade
secrets, the value of our technology and solutions could be
adversely affected.
We rely upon unpatented proprietary technology, processes and
know-how and trade secrets. Although we try to protect this
information in part by executing confidentiality agreements with
our employees, consultants and third parties, such agreements
may be breached. Any unauthorized disclosure or dissemination of
our proprietary technology, processes and know-how or our trade
secrets, whether by breach of a confidentiality agreement or
otherwise, may cause irreparable harm to our business, and we
may not have adequate remedies for any such breach. In addition,
our trade secrets may otherwise be independently developed by
our competitors or other third parties. If we are unable to
protect the confidentiality of our proprietary information,
processes and know-how or our trade secrets are disclosed, the
value of our technology and services could be adversely
affected, which could negatively impact our business, financial
condition and results of operations.
Our use
of open source could impose limitations on our ability to
commercialize our products.
We incorporate open source software into our products. Although
we monitor our use of open source software closely, the terms of
many open source licenses to which we are subject have not been
interpreted by United States or foreign courts, and there is a
risk that such licenses could be construed in a manner that
imposes unanticipated conditions or restrictions on our ability
to commercialize our products. In such event, we could be
required to seek licenses from third parties in order to
continue offering our solutions, to re-engineer our solutions or
to discontinue sales of our solutions, or to release our
software code under the terms of an open source license, any of
which could materially adversely affect our business.
Given the nature of open source software, there is also a risk
that third parties may assert copyright and other intellectual
property infringement claims against us based on our use of
certain open source software programs. The risks associated with
intellectual property infringement claims are discussed
immediately below.
If a
third party asserts that we are infringing its intellectual
property, whether successful or not, it could subject us to
costly and time-consuming litigation or require us to obtain
expensive licenses, and our business may be adversely
affected.
The software and Internet industries are characterized by the
existence of a large number of patents, trademarks and
copyrights and by frequent litigation based on allegations of
infringement or other violations of intellectual property
rights. Third parties may assert patent and other intellectual
property infringement claims against us in the form of lawsuits,
letters or other forms of communication. These claims, whether
or not successful, could:
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divert management’s attention;
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result in costly and time-consuming litigation;
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require us to enter into royalty or licensing agreements, which
may not be available on acceptable terms, or at all;
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in the case of open source software-related claims, require us
to release our software code under the terms of an open source
license; or
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require us to redesign our software and services to avoid
infringement.
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As a result, any third-party intellectual property claims
against us could increase our expenses and adversely affect our
business. In addition, many of our agreements with our channel
partners require us to indemnify
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them for third-party intellectual property infringement claims,
which would increase the cost to us resulting from an adverse
ruling on any such claim. Even if we have not infringed any
third parties’ intellectual property rights, we cannot be
sure our legal defenses will be successful, and even if we are
successful in defending against such claims, our legal defense
could require significant financial resources and management
time. Finally, if a third party successfully asserts a claim
that our solutions infringe their proprietary rights, royalty or
licensing agreements might not be available on terms we find
acceptable or at all.
Providing
our solutions to customers outside the United States exposes us
to risks inherent in international business.
Customers in more than 110 countries and territories
currently use our email marketing solution, and we expect to
expand our international operations in the future. Accordingly,
we are subject to risks and challenges that we would otherwise
not face if we conducted our business only in the United States.
The risks and challenges associated with providing our solutions
to customers outside the United States include:
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localization of our solutions, including translation into
foreign languages and associated expenses;
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laws and business practices favoring local competitors;
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compliance with multiple, conflicting and changing governmental
laws and regulations, including tax, email marketing, privacy
and data protection laws and regulations;
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foreign currency fluctuations;
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different pricing environments;
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difficulties in staffing and maintaining foreign
operations; and
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regional economic and political conditions.
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We have
incurred net losses in the past and expect to incur net losses
in the future.
We have incurred net losses in the past and we expect to incur
net losses in the future. As of
March 31, 2007, our
accumulated deficit was $37.2 million. Our recent net
losses were $1.3 million for the year ended
December 31, 2005, $7.8 million for the year ended
December 31, 2006 and $2.7 million for the quarter
ended
March 31, 2007. We have not been profitable since our
inception, and we may not become profitable. In addition, we
expect our operating expenses to increase in the future as we
expand our operations. If our operating expenses exceed our
expectations, our financial performance could be adversely
affected. If our revenue does not grow to offset these increased
expenses, we may never become profitable. You should not
consider recent revenue growth as indicative of our future
performance. In future periods, we may not have any revenue
growth, or our revenue could decline.
We will
incur significant increased costs as a result of operating as a
public company, and our management will be required to devote
substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting
and other expenses that we did not incur as a private company.
The Sarbanes-Oxley Act of 2002, and rules subsequently
implemented by the Securities and Exchange Commission, or SEC,
and the Nasdaq Stock Market, require public companies to meet
certain corporate governance standards. Our management and other
personnel will need to devote a substantial amount of time to
these compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance
costs and will make some activities more time-consuming and
costly. For example, these rules and regulations may make it
more expensive for us to obtain director and officer liability
insurance coverage and more difficult for us to attract and
retain qualified persons to serve as directors or executive
officers.
In addition, the Sarbanes-Oxley Act requires, among other
things, that we maintain effective internal control over
financial reporting and disclosure controls and procedures. In
particular, for the year ending December 31,
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2008, we must perform system and process evaluation and testing
of our internal control over financial reporting to allow
management and our independent registered public accounting firm
to report on the effectiveness of our internal controls over
financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. Our testing, or the subsequent testing by
our independent registered public accounting firm, may reveal
deficiencies in our internal control over financial reporting
that are deemed to be material weaknesses. In order to comply
with Section 404, we may incur substantial accounting
expense, expend significant management time on
compliance-related issues, and hire additional accounting and
financial staff with appropriate public company experience and
technical accounting knowledge. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely
manner, or if we or our independent registered public accounting
firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses,
the market price of our stock would likely decline and we could
be subject to sanctions or investigations by the Nasdaq Stock
Market, the SEC or other regulatory authorities, which would
require additional financial and management resources.
We do not
have significant experience with our new accounting system and
any errors in using the system or delays in preparing our
quarterly or annual financial statements may result in our
inability to accurately or timely prepare and file financial
reports.
Prior to April 2007, our accounting system was not sufficient to
permit compliance with our financial reporting requirements as a
public company and the Sarbanes-Oxley Act. As a result, in April
2007, we purchased and migrated to a new accounting system,
which we believe provides us with the ability to expand our
accounting capabilities as our business grows while providing
the necessary accounting controls needed for compliance with the
Sarbanes-Oxley Act. As of the date of this prospectus, we have
only used the new accounting system to prepare monthly financial
reports for two monthly periods, April and May 2007. We have not
yet used the new accounting system to prepare quarterly or
annual financial reports and our first audited financial
statements utilizing our new accounting system will not be until
the year ending
December 31, 2007. Any errors or delays we
experience in using the new system could adversely affect our
ability to file our quarterly, annual or other reports with the
SEC on a timely and accurate basis.
Our
ability to use net operating loss carryforwards in the United
States may be limited.
As of
December 31, 2006, we had net operating loss
carryforwards of $29.1 million for U.S. federal tax
purposes and $22.5 million for state tax purposes. These
loss carryforwards expire between 2007 and 2026. To the extent
available, we intend to use these net operating loss
carryforwards to reduce the corporate income tax liability
associated with our operations. Section 382 of the Internal
Revenue Code generally imposes an annual limitation on the
amount of net operating loss carryforwards that may be used to
offset taxable income when a corporation has undergone
significant changes in stock ownership. This offering may result
in, and prior financings may have resulted in, ownership changes
that could limit our ability to utilize net operating loss
carryforwards. To the extent our use of net operating loss
carryforwards is significantly limited, our income could be
subject to corporate income tax earlier than it would if we were
able to use net operating loss carryforwards, which could have a
negative effect on our financial results.
Our
quarterly results may fluctuate and if we fail to meet the
expectations of analysts or investors, our stock price and the
value of your investment could decline substantially.
Our quarterly operating results may fluctuate, and if we fail to
meet or exceed the expectations of securities analysts or
investors, the trading price of our common stock could decline.
Some of the important factors that could cause our revenue and
operating results to fluctuate from quarter to quarter include:
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our ability to retain existing customers, attract new customers
and satisfy our customers’ requirements;
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changes in our pricing policies;
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our ability to expand our business;
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the effectiveness of our personnel;
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new product and service introductions;
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technical difficulties or interruptions in our services;
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general economic conditions;
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the timing of additional investments in our hardware and
software systems;
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regulatory compliance costs;
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costs associated with future acquisitions of technologies and
businesses; and
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extraordinary expenses such as litigation or other
dispute-related settlement payments.
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Some of these factors are not within our control, and the
occurrence of one or more of them may cause our operating
results to vary widely. As such, we believe that
quarter-to-quarter comparisons of our revenue and operating
results may not be meaningful and should not be relied upon as
an indication of future performance.
We may
need additional capital in the future, which may not be
available to us on favorable terms, or at all, and may dilute
your ownership of our common stock.
We have historically relied on outside financing and cash from
operations to fund our operations, capital expenditures and
expansion. We may require additional capital from equity or debt
financing in the future to:
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fund our operations;
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respond to competitive pressures;
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take advantage of strategic opportunities, including more rapid
expansion of our business or the acquisition of complementary
products, technologies or businesses; and
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develop new products or enhancements to existing products.
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We may not be able to secure timely additional financing on
favorable terms, or at all. The terms of any additional
financing may place limits on our financial and operating
flexibility. If we raise additional funds through further
issuances of equity, convertible debt securities or other
securities convertible into equity, our existing stockholders
could suffer significant dilution in their percentage ownership
of
our company, and any new securities we issue could have
rights, preferences and privileges senior to those of our common
stock, including shares of common stock sold in this offering.
If we are unable to obtain adequate financing or financing on
terms satisfactory to us, if and when we require it, our ability
to grow or support our business and to respond to business
challenges could be significantly limited.
We may
engage in future acquisitions that could disrupt our business,
dilute stockholder value and harm our business, operating
results or financial condition.
Although we currently do not have any acquisitions pending or
planned, we have, from time to time, evaluated acquisition
opportunities and may pursue acquisition opportunities in the
future. We have not made any acquisitions to date and,
therefore, our ability as an organization to make and integrate
acquisitions is unproven. Moreover, acquisitions involve
numerous risks, including:
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an inability to locate a suitable acquisition candidate or
technology or acquire a desirable candidate or technology on
favorable terms, if at all;
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difficulties in integrating personnel and operations from the
acquired business or acquired technology with our existing
technology and solutions and in retaining and motivating key
personnel from the business;
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disruptions in our ongoing operations and the diversion of our
management’s attention from their day-to-day
responsibilities associated with operating our business;
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increases in our expenses that adversely impact our business,
operating results and financial condition;
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potential write-offs of acquired assets and increased
amortization expense related to identifiable assets
acquired; and
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potentially dilutive issuances of equity securities or the
incurrence of debt.
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If we do complete an acquisition, we may not ultimately
strengthen our competitive position or achieve our goals, or
such an acquisition may be viewed negatively by our customers,
stockholders or the financial markets.
RISKS
RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON
STOCK
As a new
investor, you will experience substantial dilution as a result
of this offering and future equity issuances.
The initial public offering price per share is substantially
higher than the pro forma net tangible book value per share of
our common stock outstanding prior to this offering. As a
result, investors purchasing common stock in this offering will
experience immediate substantial dilution of
$ per share. This dilution is due
in large part to the fact that our earlier investors paid
substantially less than the initial public offering price when
they purchased their shares of common stock. In addition, we
have issued options to acquire common stock at prices
significantly below the initial public offering price. To the
extent outstanding options are ultimately exercised, there will
be further dilution to investors in this offering. In addition,
if the underwriters exercise their over-allotment option or if
we issue additional equity securities, you will experience
additional dilution.
Insiders
will continue to have substantial control over us after this
offering and will be able to influence corporate
matters.
Upon completion of this offering, our directors and executive
officers and their affiliates will beneficially own, in the
aggregate, approximately % of our
outstanding common stock, assuming no exercise of the
underwriters’ over-allotment option, compared
to % represented by the shares sold
in this offering, assuming no exercise of the underwriters’
over-allotment option. As a result, these stockholders will be
able to exercise significant influence over all matters
requiring stockholder approval, including the election of
directors and approval of significant corporate transactions,
such as a merger or other sale of
our company or its assets.
This concentration of ownership could limit your ability to
influence corporate matters and may have the effect of delaying
or preventing a third party from acquiring control over us. For
information regarding the beneficial ownership of our
outstanding stock by our directors and executive officers, see
“Principal and Selling Stockholders.”
Our
management will have broad discretion over the use of the
proceeds we receive in this offering and might not apply the
proceeds in ways that increase the value of your
investment.
Although we have not allocated the net proceeds we will receive
from this offering for any specific purposes other than the
repayment of certain debt, we expect to use our net proceeds for
general corporate purposes, including capital expenditures,
which may in the future include investments in, or acquisitions
of, complementary businesses, services or technologies. Our
management will have broad discretion concerning how we use our
net proceeds from this offering, and you will not have the
opportunity to influence our decisions on how to use our net
proceeds from this offering. You will be relying on the judgment
of our management regarding the application of these proceeds,
and our management may not apply our net proceeds of this
offering in ways that increase the value of your investment.
We do not
currently intend to pay dividends on our common stock and,
consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our
common stock.
We do not expect to pay cash dividends on our common stock,
including the common stock issued in this offering. Any future
dividend payments are within the absolute discretion of our
board of directors and will
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depend on, among other things, our results of operations,
working capital requirements, capital expenditure requirements,
financial condition, contractual restrictions, business
opportunities, anticipated cash needs, provisions of applicable
law and other factors that our board of directors may deem
relevant. We may not generate sufficient cash from operations in
the future to pay dividends on our common stock. See
“Dividend Policy.”
If
securities or industry analysts do not publish research or
publish inaccurate or unfavorable research about our business,
our stock price and trading volume could decline.
The trading market for our common stock will depend in part on
the research and reports that securities or industry analysts
publish about us or our business. We do not currently have and
may never obtain research coverage by securities and industry
analysts. If no securities or industry analysts commence
coverage of
our company, the trading price for our stock would
be negatively impacted. In the event we obtain securities or
industry analyst coverage, if one or more of the analysts who
covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would
likely decline. If one or more of these analysts ceases coverage
of
our company or fails to publish reports on us regularly,
demand for our stock could decrease, which could cause our stock
price and trading volume to decline.
The
market price of our common stock may be volatile, and you may
not be able to resell shares of our common stock at or above the
price you paid.
Prior to this offering there has been no public market for
shares of our common stock, and an active public market for
these shares may not develop or be sustained after this
offering. The initial public offering price for our common stock
will be determined through negotiations with the representatives
of the underwriters. This price will not necessarily reflect the
price at which investors in the market will be willing to buy
and sell our shares following this offering. In addition, the
trading price of our common stock is likely to be highly
volatile and could be subject to wide fluctuations in response
to various factors. Some of the factors that may cause the
market price of our common stock to fluctuate include:
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•
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fluctuations in our quarterly financial results or the quarterly
financial results of companies perceived to be similar to us;
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•
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changes in estimates of our financial results or recommendations
by securities analysts;
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•
|
failure of any of our solutions to achieve or maintain market
acceptance;
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•
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changes in market valuations of similar companies;
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•
|
success of competitive products;
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•
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changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
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•
|
announcements by us or our competitors of significant products,
contracts, acquisitions or strategic alliances;
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•
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regulatory developments in the United States, foreign countries
or both;
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•
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litigation involving our company, our general industry or both;
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•
|
additions or departures of key personnel;
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•
|
investors’ general perception of us; and
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•
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changes in general economic, industry and market conditions.
|
In addition, if the market for technology stocks or the stock
market in general experiences a loss of investor confidence, the
trading price of our common stock could decline for reasons
unrelated to our business, financial condition or results of
operations. If any of the foregoing occurs, it could cause our
stock price to
20
fall and may expose us to class action lawsuits that, even if
unsuccessful, could be costly to defend and a distraction to
management.
Future
sales of shares by existing stockholders could cause our stock
price to decline.
If our existing stockholders sell, or indicate their intention
to sell, substantial amounts of our common stock in the public
market after certain contractual
lock-up
agreements (as described below) expire, and other restrictions
on resale lapse, the trading price of our common stock could
decline below the initial public offering price. Based on shares
outstanding as
of ,
2007, upon completion of this offering, we will have
outstanding shares
of common stock. Of these
shares, shares
of common stock will be subject to a
180-day
contractual
lock-up with
the underwriters. CIBC World Markets Corp. and Thomas Weisel
Partners LLC, acting as representatives of the underwriters, may
permit our officers, directors and other stockholders who are
subject to the contractual
lock-up to
sell shares prior to the expiration of the
lock-up
agreements.
If we announce earnings results or other material news or a
material event occurs during the last 17 days of the
180-day
contractual
lock-up
period, or if prior to the expiration of the
lock-up
period, we announce that we will release earnings results during
the 16-day
period beginning on the last day of the
lock-up
period, the
180-day
lock-up
period will continue to apply until the expiration of the
18-day
period beginning on the issuance of the earnings release or the
occurrence of the material news or event.
In addition, there will also
be shares
of common stock subject to a
90-day
contractual
lock-up with
us. We may release these shares from these restrictions at our
discretion without the prior written consent of CIBC World
Markets Corp. and Thomas Weisel Partners LLC.
After each of the
lock-up
agreements pertaining to this offering expire 180 days from
the date of this prospectus, or such longer period described
above, up to an
additional shares
will be eligible for sale in the public
market, of
which are held by directors, executive officers and other
affiliates and will be subject to volume limitations under
Rule 144 under the Securities Act and, in certain cases,
various vesting agreements. In addition, after this offering, we
intend to register
approximately shares
of our common stock that we have issued or may issue under our
equity incentive plans. Once we register these shares, they can
be freely sold in the public market upon issuance, subject to
lock-up
agreements, applicable vesting schedules and, for directors,
executive officers, and other affiliates, volume limitations
under Rule 144. If these additional shares are sold, or if
it is perceived that they will be sold, in the public market,
the trading price of our common stock could decline.
Some of our existing stockholders have demand and incidental
registration rights to require us to register with the SEC up
to shares
of our common stock. If we register these shares of common
stock, the stockholders would be able to sell those shares
freely in the public market.
See “Shares Eligible for Future Sale” for a discussion
of the
lock-up
agreements and other transfer restrictions.
Anti-takeover
provisions in our charter documents and Delaware law could
discourage, delay or prevent a change of control of our company
and may affect the trading price of our common stock.
We are a Delaware corporation and the anti-takeover provisions
of the Delaware General Corporation Law may discourage, delay or
prevent a change of control by prohibiting us from engaging in a
business combination with an interested stockholder for a period
of three years after the person becomes an interested
stockholder, even if a change of control would be beneficial to
our existing stockholders. In addition, our restated certificate
of incorporation and second amended and restated
bylaws may
discourage, delay or prevent a change in our management or
control over us that stockholders may consider favorable. Our
restated
21
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•
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authorize the issuance of “blank check” preferred
stock that could be issued by our board of directors to thwart a
takeover attempt;
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•
|
establish a classified board of directors, as a result of which
the successors to the directors whose terms have expired will be
elected to serve from the time of election and qualification
until the third annual meeting following their election;
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•
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require that directors only be removed from office for cause and
only upon a supermajority stockholder vote;
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•
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provide that vacancies on our board of directors, including
newly created directorships, may be filled only by a majority
vote of directors then in office;
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•
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limit who may call special meetings of stockholders;
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•
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prohibit stockholder action by written consent, requiring all
actions to be taken at a meeting of the stockholders; and
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•
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require supermajority stockholder voting to effect certain
amendments to our restated certificate of incorporation and
second amended and restated bylaws.
|
For more information regarding these and other provisions, see
“Description of Capital Stock—Anti-Takeover Effects of
Delaware Law and Our Certificate of Incorporation.”
22
Forward-Looking
Statements
This prospectus contains forward-looking statements that involve
substantial risks and uncertainties. All statements, other than
statements of historical facts, included in this prospectus
regarding our strategy, future operations, future financial
position, future revenue, projected costs, prospects, plans,
objectives of management and expected market growth are
forward-looking statements. The words “anticipate,”
“believe,” “estimate,” “expect,”
“intend,” “may,” “plan,”
“predict,” “project,” “will,”
“would” and similar expressions are intended to
identify forward-looking statements, although not all
forward-looking statements contain these identifying words.
These forward-looking statements include, among other things,
statements about:
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our ability to attract and retain customers;
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•
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our financial performance;
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•
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the advantages of our solutions as compared to those of others;
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•
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our ability to retain and hire necessary employees and
appropriately staff our operations;
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•
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regulatory developments;
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•
|
our intellectual property; and
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•
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our estimates regarding expenses, future revenue, capital
requirements and needs for additional financing.
|
We may not actually achieve the plans, intentions or
expectations disclosed in our forward-looking statements, and
you should not place undue reliance on our forward-looking
statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the
forward-looking statements we make. We have included important
factors in the cautionary statements included in this
prospectus, particularly in the “Risk Factors”
section, that could cause actual results or events to differ
materially from the forward-looking statements that we make. Our
forward-looking statements do not reflect the potential impact
of any future acquisitions, mergers, dispositions, joint
ventures or investments we may make.
You should read this prospectus and the documents that we have
filed as exhibits to the registration statement, of which this
prospectus is a part, completely and with the understanding that
our actual future results may be materially different from what
we expect. We do not assume any obligation to update any
forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
23
Use of
Proceeds
We estimate that the net proceeds from the sale of the shares of
common stock we are offering will be approximately
$ million.
“Net
proceeds” is what we expect to receive after paying the
underwriting discount and other expenses of
the offering. For
the purpose of estimating net proceeds, we are assuming that the
public offering price will be $
per share. A $1.00 increase (decrease) in the assumed initial
public offering price of $ would
increase (decrease) the net proceeds to us from this offering by
$ million, assuming the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same. We will not receive any
proceeds from the sale of shares by the selling stockholders.
We intend to use our net proceeds from this offering for general
corporate purposes, including financing our growth, developing
new products, acquiring new customers, funding capital
expenditures, and potentially acquisitions and investments. We
also intend to use a portion of our net proceeds to repay
outstanding debt under our term loan facility with Silicon
Valley Bank. Under the terms of the facility, each advance we
draw under the facility bears interest at the prime rate plus 2%
but may be decreased to the prime rate plus 1.5% upon the
occurrence of certain profitability events. Each advance is
payable in monthly installments over three years from the date
of the advance. The advances may be prepaid in whole or in part
at any time without penalty. At
March 31, 2007, the
interest rate was 10.25% and we had $565,000 outstanding under
the term loan facility.
In addition, the other principal purposes for this offering are
to:
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create a public market for our common stock;
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•
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facilitate our future access to the public capital markets;
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•
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increase our visibility in our markets;
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•
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provide liquidity for our existing stockholders;
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•
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improve the effectiveness of our equity compensation plans in
attracting and retaining key employees; and
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•
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enhance our ability to acquire other businesses, products or
technologies.
|
We have not yet determined with any certainty the manner in
which we will allocate our net proceeds. Management will retain
broad discretion in the allocation and use of our net proceeds
from this offering. The amounts and timing of these expenditures
will vary depending on a number of factors, including the amount
of cash generated by our operations, competitive and
technological developments, and the rate of growth, if any, of
our business. For example, if we were to expand our operations
more rapidly than anticipated by our current plans, a greater
portion of our proceeds would likely be used for the
construction and expansion of facilities, working capital and
other capital expenditures. Alternatively, if we were to engage
in an acquisition that contained a significant cash component,
some or all of our proceeds might be used for that purpose.
Although we may use a portion of our proceeds for the
acquisition of, or investment in, businesses, technologies,
products or assets that complement our business, we have no
present understandings, commitments or agreements to enter into
any acquisitions or make any investments.
Pending specific utilization of our net proceeds as described
above, we intend to invest our net proceeds of
the offering in
short-term investment grade and U.S. government securities.
Dividend
Policy
We have never paid or declared any cash dividends on our common
stock. We currently intend to retain earnings, if any, to
finance the growth and development of our business, and we do
not expect to pay any cash dividends on our common stock in the
foreseeable future. Payment of future dividends, if any, will be
at the discretion of our board of directors and will depend on
our financial condition, results of operations, capital
requirements, restrictions contained in current or future
financing instruments, and other factors our board of directors
deems relevant.
24
Capitalization
The following table sets forth our capitalization as of
March 31, 2007:
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•
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on an actual basis;
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•
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on a pro forma basis to give effect to (i) the automatic
conversion of all of our outstanding redeemable convertible
preferred stock upon the closing of this offering; and
(ii) the assumed expiration of the redeemable convertible
preferred stock warrant resulting in a reversal of other expense
of $1,048,000 related to previous adjustments to its fair
value; and
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•
|
on a pro forma as adjusted basis to give effect to the issuance
and sale by us
of shares
of common stock at an initial offering price of
$ per share, the mid-point of the
estimated price range shown on the cover page of this
prospectus, after deducting the estimated underwriting discount
and offering expenses payable by us, and the payment by us of
$565,000 to repay our outstanding indebtedness as described
under “Use of Proceeds.”
|
You should read the following table together with our financial
statements and the related notes and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” appearing elsewhere in this prospectus.
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As of March 31, 2007
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Pro Forma as
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Actual
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Pro Forma
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Adjusted
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(in thousands, except share data)
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(unaudited)
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Redeemable convertible preferred
stock warrant
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$
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1,048
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$
|
–
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$
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Notes payable
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565
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565
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Redeemable convertible preferred
stock
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35,575
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–
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Stockholders’ equity
(deficit):
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Common stock; $0.01 par
value; 20,000,000 shares authorized and
2,908,323 shares issued and outstanding,
actual; shares
authorized and 16,199,645 shares issued and outstanding,
pro
forma; shares
authorized
and shares
issued and outstanding, pro forma as adjusted
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30
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162
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Additional paid-in capital
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5,684
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41,127
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Accumulated deficit
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(37,183
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)
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(36,135
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Total stockholders’ equity
(deficit)
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(31,469
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)
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5,154
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Total capitalization
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$
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5,719
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$
|
5,719
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$
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The table above does not include:
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•
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97,096 shares of common stock issuable upon the exercise of
warrants outstanding as of March 31, 2007 at a weighted
average exercise price of $1.61 per share;
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•
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1,286,401 shares of common stock issuable upon the exercise
of stock options outstanding as of March 31, 2007 at a
weighted average exercise price of $2.68 per share, of which
options to purchase 309,636 shares were exercisable as of
March 31, 2007 at a weighted average exercise price of
$3.08 per share; and
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25
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•
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787,823 shares of common stock available for future
issuance under our equity compensation plans as of
March 31, 2007.
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A $1.00 increase (decrease) in the assumed initial public
offering price of
$
would increase (decrease) each of additional paid-in capital and
total stockholders’ equity in the pro forma as adjusted
column by $ million, assuming
the number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting the
estimated underwriting discount and offering expenses payable by
us.
26
Dilution
If you invest in our common stock, your interest will be diluted
immediately to the extent of the difference between the initial
public offering price per share you will pay in this offering
and the pro forma as adjusted net tangible book value per share
of our common stock after this offering.
Our net tangible book value on
March 31, 2007 was
$ ,
or $ per share.
“Net
tangible book value” is total assets minus the sum of
liabilities and intangible assets.
“Net tangible book value
per share” is net tangible book value divided by the total
number of shares outstanding.
After giving effect to adjustments relating to this offering,
our pro forma net tangible book value on
March 31, 2007
would have been
$ ,
or $ per share. The adjustments
made to determine pro forma net tangible book value per share
are the following:
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•
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an increase in total assets to reflect our net proceeds of the
offering as described under “Use of Proceeds”
(assuming that the initial public offering price will be
$ per share);
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•
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the conversion of all of our outstanding redeemable convertible
preferred stock;
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•
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the assumed expiration of the redeemable convertible preferred
stock warrant; and
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•
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the addition of the number of shares offered by us pursuant to
this prospectus to the number of shares outstanding.
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The initial public offering price per share will significantly
exceed the net tangible book value per share. Accordingly, new
investors who purchase shares of common stock in this offering
will suffer an immediate dilution of their investment of
$ per share. The following table
illustrates the pro forma increase in net tangible book value of
$ per share and the dilution (the
difference between the initial public offering price per share
and net tangible book value per share) to new investors:
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Assumed initial public offering
price per share
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$
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$
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Increase in net tangible book
value per share attributable to the offering
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Pro forma net tangible book value
per share after giving effect to the offering
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$
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A $1.00 increase (decrease) in the assumed initial public
offering price of $ per share
would increase (decrease) the pro forma net tangible book value
by $ million, the pro forma
net tangible book value per share after this offering by
$ per share and the dilution in
pro forma net tangible book value per share to investors in this
offering by $ per share, assuming
that the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same and after
deducting the estimated underwriting discount and offering
expenses payable by us.
If any shares are issued in connection with outstanding options
or warrants, you will experience further dilution.
The following table summarizes, on a pro forma basis as of
March 31, 2007, giving effect to the conversion of all
outstanding redeemable convertible preferred stock into shares
of common stock, the differences between the number of shares of
common stock purchased from us, the total consideration paid to
us, and the average price per share paid by existing
stockholders and by new investors purchasing shares of common
stock in this offering. The calculation below is based on an
assumed initial public offering price of
$ per share, the
27
mid-point of the estimated price range shown on the cover of
this prospectus, before the deduction of the estimated
underwriting discount and offering expenses payable by us:
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Shares Purchased
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Total Consideration
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Average Price
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Number
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|
Percent
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|
Amount
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Percent
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Per Share
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Existing stockholders
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%
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|
$
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%
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|
$
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New investors
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Total
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|
100.0
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%
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|
$
|
100.0
|
%
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The tables above assume no exercise of warrants or options to
purchase shares of common stock outstanding as of
March 31,
2007. At
March 31, 2007, there were 1,383,497 shares
of common stock issuable upon exercise of outstanding warrants
and options with a weighted average exercise price of $2.61 per
share. The tables above also exclude 787,823 shares of
common stock available for future issuance under our option
plans at
March 31, 2007.
In addition, the tables above assume no exercise of the warrant
to purchase 120,000 shares of redeemable convertible preferred
stock with an exercise price of $0.50 per share, which preferred
stock is convertible into common stock.
If the underwriters exercise their over-allotment option in
full, the number of shares held by new investors will increase
to ,
or % of the total number of shares
of common stock outstanding after this offering.
28
Selected
Financial Data
The selected statement of operations data for the year ended
December 31, 2006 and the balance sheet data as of
December 31, 2006 have been derived from our audited
financial statements, which have been audited by
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, and are included elsewhere in this prospectus.
The selected statements of operations data for each of the years
ended
December 31, 2004 and
2005, and the balance sheet
data as of
December 31, 2005 have been derived from our
audited financial statements, which have been audited by Vitale,
Caturano & Company Ltd., an independent registered
public accounting firm, and are included elsewhere in this
prospectus. The selected statements of operations data for each
of the years ended
December 31, 2002 and
2003 and the
balance sheet data as of
December 31, 2002,
2003 and
2004
have been derived from our audited financial statements, which
have been audited by Vitale, Caturano & Company, Ltd.,
an independent registered public accounting firm, and are not
included in this prospectus. The selected statements of
operations data for the three months ended
March 31, 2006
and
2007 and the balance sheet data as of
March 31, 2007
have been derived from our unaudited financial statements and
related notes, which are included in this prospectus. These
unaudited financial statements include, in the opinion of
management, all adjustments (consisting of normal recurring
adjustments) that management considers necessary for the fair
statement of the financial information set forth in those
statements. The selected financial data set forth below should
be read in conjunction with
“Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our financial statements and related notes
included elsewhere in this prospectus. The historical results
are not necessarily indicative of the results to be expected in
any future period and the results for the three months ended
March 31, 2007 should not be considered indicative of
results expected for the full year.
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Three Months
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Year Ended December 31,
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Ended March 31,
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|
2002
|
|
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2003
|
|
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2004
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2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
(in thousands, except per share and customer data)
|
|
|
|
|
Statements of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,934
|
|
|
$
|
4,465
|
|
|
$
|
8,071
|
|
|
$
|
14,658
|
|
|
$
|
27,552
|
|
|
$
|
5,429
|
|
|
$
|
9,713
|
|
|
Cost of revenue(1)
|
|
|
1,633
|
|
|
|
1,899
|
|
|
|
2,211
|
|
|
|
3,747
|
|
|
|
7,801
|
|
|
|
1,543
|
|
|
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
301
|
|
|
|
2,566
|
|
|
|
5,860
|
|
|
|
10,911
|
|
|
|
19,751
|
|
|
|
3,886
|
|
|
|
6,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,694
|
|
|
|
1,653
|
|
|
|
2,140
|
|
|
|
3,355
|
|
|
|
6,172
|
|
|
|
1,363
|
|
|
|
2,169
|
|
|
Sales and marketing
|
|
|
1,815
|
|
|
|
2,549
|
|
|
|
3,385
|
|
|
|
7,460
|
|
|
|
18,592
|
|
|
|
2,837
|
|
|
|
6,121
|
|
|
General and administrative
|
|
|
601
|
|
|
|
640
|
|
|
|
856
|
|
|
|
1,326
|
|
|
|
2,623
|
|
|
|
493
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,110
|
|
|
|
4,842
|
|
|
|
6,381
|
|
|
|
12,141
|
|
|
|
27,387
|
|
|
|
4,693
|
|
|
|
9,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(3,809
|
)
|
|
|
(2,276
|
)
|
|
|
(521
|
)
|
|
|
(1,230
|
)
|
|
|
(7,636
|
)
|
|
|
(807
|
)
|
|
|
(2,390
|
)
|
|
Interest and other income
(expense), net
|
|
|
(43
|
)
|
|
|
(39
|
)
|
|
|
(34
|
)
|
|
|
(24
|
)
|
|
|
(203
|
)
|
|
|
(150
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(3,852
|
)
|
|
|
(2,315
|
)
|
|
|
(555
|
)
|
|
|
(1,254
|
)
|
|
|
(7,839
|
)
|
|
|
(957
|
)
|
|
|
(2,681
|
)
|
|
Accretion of redeemable
convertible preferred stock
|
|
|
(220
|
)
|
|
|
(2,471
|
)
|
|
|
(3,701
|
)
|
|
|
(5,743
|
)
|
|
|
(3,788
|
)
|
|
|
(2,136
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(4,072
|
)
|
|
$
|
(4,786
|
)
|
|
$
|
(4,256
|
)
|
|
$
|
(6,997
|
)
|
|
$
|
(11,627
|
)
|
|
$
|
(3,093
|
)
|
|
$
|
(2,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(43.44
|
)
|
|
$
|
(7.48
|
)
|
|
$
|
(5.68
|
)
|
|
$
|
(3.23
|
)
|
|
$
|
(4.40
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(1.02
|
)
|
|
Weighted average shares
outstanding used in computing per share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
94
|
|
|
|
640
|
|
|
|
749
|
|
|
|
2,164
|
|
|
|
2,645
|
|
|
|
2,527
|
|
|
|
2,869
|
|
29
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period number of
customers(2)
|
|
|
6,934
|
|
|
|
14,431
|
|
|
|
25,229
|
|
|
|
47,730
|
|
|
|
89,323
|
|
|
|
57,195
|
|
|
|
104,265
|
|
|
|
|
|
(1)
|
|
Amounts include stock-based
compensation expense, as follows:
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
Year Ended December 31,
|
|
|
Ended March 31,
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
(in thousands)
|
|
|
|
|
Cost of revenue
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
25
|
|
|
$
|
2
|
|
|
$
|
15
|
|
|
Research and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
27
|
|
|
|
1
|
|
|
|
21
|
|
|
Sales and marketing
|
|
|
7
|
|
|
|
6
|
|
|
|
6
|
|
|
|
–
|
|
|
|
19
|
|
|
|
1
|
|
|
|
11
|
|
|
General and administrative
|
|
|
22
|
|
|
|
17
|
|
|
|
17
|
|
|
|
17
|
|
|
|
12
|
|
|
|
1
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29
|
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
17
|
|
|
$
|
83
|
|
|
$
|
5
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
We define our end of period number
of customers as email marketing customers that we billed
directly during the last month of the period.
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and
short-term marketable securities
|
|
$
|
3,482
|
|
|
$
|
2,114
|
|
|
$
|
2,115
|
|
|
$
|
2,784
|
|
|
$
|
12,790
|
|
|
$
|
9,802
|
|
|
|
|
|
|
Total assets
|
|
|
4,677
|
|
|
|
3,236
|
|
|
|
3,222
|
|
|
|
5,545
|
|
|
|
18,481
|
|
|
|
16,326
|
|
|
|
|
|
|
Deferred revenue
|
|
|
254
|
|
|
|
615
|
|
|
|
1,270
|
|
|
|
2,827
|
|
|
|
5,476
|
|
|
|
6,833
|
|
|
|
|
|
|
Redeemable convertible preferred
stock warrant
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
628
|
|
|
|
1,048
|
|
|
|
|
|
|
Notes payable and capital lease
obligation
|
|
|
544
|
|
|
|
612
|
|
|
|
844
|
|
|
|
1,326
|
|
|
|
702
|
|
|
|
565
|
|
|
|
|
|
|
Redeemable convertible preferred
stock
|
|
|
4,742
|
|
|
|
7,213
|
|
|
|
10,914
|
|
|
|
16,657
|
|
|
|
35,322
|
|
|
|
35,575
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(1,366
|
)
|
|
|
(6,129
|
)
|
|
|
(10,287
|
)
|
|
|
(17,237
|
)
|
|
|
(28,629
|
)
|
|
|
(31,469
|
)
|
|
|
|
|
30
Management’s
Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and the related notes and other financial
information included elsewhere in this prospectus. Some of the
information contained in this discussion and analysis or set
forth elsewhere in this prospectus, including information with
respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve
risks and uncertainties. You should review the “Risk
Factors” section of this prospectus for a discussion of
important factors that could cause actual results to differ
materially from the results described in or implied by the
forward-looking statements contained in the following discussion
and analysis.
Overview
Constant Contact is the leading provider of on-demand email
marketing solutions for small organizations, including small
businesses, associations and non-profits. Our customers use our
solution to effectively and efficiently create, send and track
professional and affordable permission-based email marketing
campaigns. Our customers use these campaigns to build stronger
relationships with their customers, clients and members,
increase sales and expand membership. Our email marketing
solution incorporates a wide range of customizable templates to
assist in campaign creation, user-friendly tools to import and
manage contact lists and intuitive reporting to track campaign
effectiveness. In June 2007, we introduced an online survey
solution that complements our email marketing solution and
enables small organizations to easily create and send surveys
and effectively analyze responses. We provide our customers with
a high level of support delivered via phone, chat, email and our
website.
We provide our solutions on an on-demand basis through a
standard web browser. This model enables us to deploy and
maintain a secure and scalable application that is easy for our
customers to implement at compelling prices. Our email marketing
customers pay a monthly subscription fee that generally ranges
between $15 per month and $150 per month based on the size of
the customers’ contact lists and, in some cases, volume of
mailings. Our survey solution is similarly priced. During the
first quarter of 2007, our average monthly revenue per email
marketing customer exceeded $32. We believe that the simplicity
of on-demand deployment combined with our affordable
subscription fees and functionality facilitate adoption of our
solutions by our target customers while generating significant
recurring revenue. From January 2005 through June 2007, at least
97.4% of our customers in a given month have continued to
utilize our email marketing solution in the following month.
Our success is principally driven by our ability to grow our
customer base. Our email marketing customer base has steadily
increased from approximately 25,000 at the end of 2004 to over
120,000 as of
June 30, 2007. We measure our customer base
as the number of email marketing customers that we bill directly
in the last month of a period. These customers include all types
of small organizations including retailers, restaurants, day
spas, law firms, consultants, non-profits, religious
organizations, alumni associations and other small businesses
and organizations. We add these customers through a variety of
paid and unpaid sources. Our paid sources include online
marketing through search engines, advertising networks and other
sites; offline marketing through radio advertising, local
seminars and other marketing efforts; and relationships with
over 1,700 active channel partners. Our unpaid sources of
customer acquisition include referrals from our growing customer
base, general brand awareness and the inclusion of a link to our
website in the footer of more than 500 million emails
currently sent by our customers each month. In 2006, our cost of
customer acquisition, which we define as our total sales and
marketing expense divided by the gross number of email marketing
customers added in this period, was approximately $300 per email
marketing customer, implying payback on a revenue basis in less
than a year.
We were incorporated in Massachusetts in August 1995 under the
name Roving Software Incorporated. We reincorporated in Delaware
in July 2000 and changed our name to Constant Contact, Inc. in
December 2006. Our on-demand solution was first offered
commercially in 2000. In 2006, our revenue was
$27.6 million and
31
our net loss was $7.8 million and, in the quarter ended
March 31, 2007, our revenue was $9.7 million and our
net loss was $2.7 million.
Sources
of Revenue
We derive our revenue principally from subscription fees from
our email marketing customers. Our revenue is driven primarily
by the number of paying customers and the subscription fees for
our solutions and is not concentrated within any one customer or
group of customers. In the first quarter of 2007, our top 50
email marketing customers accounted for approximately 1% of our
gross email marketing revenue. Customers prepay for
subscriptions on a monthly, semi-annual, or annual basis by
providing a credit card or check for payment. Fees are collected
in advance of the subscription service period and recorded
initially as deferred revenue. Revenue is then recognized on a
daily basis over the prepaid subscription period.
We also generate a small amount of revenue from professional
services which primarily consist of the creation of customized
templates for our customers. Revenue generated from professional
services accounted for less than 3% of gross revenue for each of
the years ended
December 31, 2004,
2005 and
2006 and the
quarters ended
March 31, 2006 and
2007.
Cost of
Revenue and Operating Expenses
We allocate certain overhead expenses, such as rent, utilities,
office supplies and depreciation of general office assets to
cost of revenue and operating expense categories based on
headcount. As a result, an overhead expense allocation is
reflected in cost of revenue and each operating expense category.
Cost of Revenue. Cost of revenue consists primarily of
wages and benefits for software operations and customer support
personnel, credit card processing fees, and depreciation,
maintenance and hosting of our software application underlying
our solution offering. We allocate a portion of customer support
costs relating to assisting trial customers to sales and
marketing expense.
The expenses related to our hosted software applications are
affected by the number of customers who subscribe to our
solutions and the complexity and redundancy of our software
applications and hosting infrastructure. We expect these
expenses to increase in absolute dollars as we continue to
increase our number of customers over time.
Research and Development. Research and development
expenses consist primarily of wages and benefits for product
strategy and development personnel. We have focused our research
and development efforts on both improving ease of use and
functionality of our existing solutions as well as developing
new offerings. We primarily expense research and development
costs. The small percentage of direct development costs related
to software enhancements which add functionality are capitalized
and depreciated as a component of cost of revenue. We expect
that research and development expenses will increase in absolute
dollars but decrease as a percentage of revenue as we continue
to enhance and expand our solutions.
Sales and Marketing. Sales and marketing expenses consist
primarily of advertising and promotional costs, wages and
benefits for sales and marketing personnel, partner referral
fees, and the portion of customer support costs that relate to
assisting trial customers. Advertising costs consist primarily
of
pay-per-click
payments to search engines, other online and offline advertising
media, including radio and print advertisements, as well as the
costs to create and produce these advertisements. Advertising
costs are expensed as incurred. Promotional costs consist
primarily of public relations, memberships, and event costs. Our
advertising and promotional expenditures have historically been
highest in the fourth quarter of each year as this reflects a
period of increased sales and marketing activity for many small
organizations. In order to continue to grow our business and
brand and category awareness, we expect that we will continue to
commit substantial resources to our sales and marketing efforts.
As a result, we expect that sales and marketing expense will
increase in absolute dollars but decrease as a percentage of
revenue as we continue to grow.
General and Administrative. General and administrative
expenses consist primarily of wages and benefits for
administrative, human resources, internal information technology
support, finance and accounting personnel,
32
professional fees, other taxes and other corporate expenses. We
expect that general and administrative expenses will increase as
we continue to add personnel in connection with the growth of
our business. In addition, we anticipate that we will also incur
additional personnel expense, professional service fees,
including auditing and legal, and insurance costs related to
operating as a public company. Therefore, we expect that our
general and administrative expenses, in total, will increase in
both absolute dollars and as a percentage of revenue as we
continue to grow and operate as a public company.
Critical
Accounting Policies
Our financial statements are prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of our financial statements and related
disclosures requires us to make estimates, assumptions and
judgments that affect the reported amount of assets,
liabilities, revenue, costs and expenses, and related
disclosures. We believe that the estimates, assumptions and
judgments involved in the accounting policies described below
have the greatest potential impact on our financial statements
and, therefore, consider these to be our critical accounting
policies. Accordingly, we evaluate our estimates and assumptions
on an ongoing basis. Our actual results may differ from these
estimates under different assumptions and conditions. See
Note 2 to our financial statements included elsewhere in
this prospectus for information about these critical accounting
policies, as well as a description of our other significant
accounting policies.
Revenue Recognition. We provide access to our solutions
through subscription arrangements whereby a customer is charged
a fee to access our solutions. Subscription arrangements include
use of our software and access to our customer and support
services, such as telephone support. We follow the guidance of
the SEC Staff Accounting Bulletin, or SAB, No. 104,
Revenue Recognition in Financial Statements, and Emerging
Issues Task Force, or EITF, Issue
No. 00-03,
Application of AICPA Statement of Position
97-2 to
Arrangements that Include the Right to Use Software Stored on
Another Entity’s Hardware, which applies when customers
do not have the right to take possession of the software and use
it on another entity’s hardware. When there is evidence of
an arrangement, the fee is fixed or determinable and
collectibility is deemed probable, we recognize revenue on a
daily basis over the subscription period as the services are
delivered.
We also offer professional services to our customers primarily
for the design of custom email templates and training.
Professional services revenue is accounted for separately from
subscription revenue based on the guidance of
EITF 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, as those services have value on a standalone
basis and do not involve a significant degree of risk or unique
acceptance criteria and as the fair value of our subscription
services is evidenced by their availability on a standalone
basis. Professional services revenue is recognized as the
services are performed.
Income Taxes. Income taxes are provided for tax effects
of transactions reported in the financial statements and consist
of income taxes currently due plus deferred income taxes related
to timing differences between the basis of certain assets and
liabilities for financial statements and income tax reporting.
Deferred taxes are determined based on the difference between
the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect in the years in which the
differences are expected to reverse. A valuation allowance for
the net deferred tax assets is provided if, based upon the
weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized.
Software and Website Development Costs. We follow the
guidance of the American Institute of Certified Public
Accountants Statement of Position
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, in accounting for the development
costs of our on-demand solutions and
website development costs
whereby costs to develop functionality are capitalized. The
costs incurred in the preliminary stages of development are
expensed as incurred. Once an application has reached the
development stage, internal and external costs, if direct and
incremental, are capitalized until the software is substantially
complete and ready for its intended use. Costs associated with
the development of internal use software capitalized during the
year ended
December 31, 2006 and the quarter ended
March 31, 2007 were $516,000 and $149,000, respectively.
Development costs eligible for capitalization for the years
ended
December 31, 2005 and
2004 were not material.
33
Redeemable Convertible Preferred Stock Warrant. We
account for freestanding warrants and other similar instruments
related to shares that are redeemable in accordance with
Statement of Financial Accounting Standards, or SFAS,
No. 150, Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity. Under
SFAS No. 150, the freestanding warrant that is related
to our redeemable convertible preferred stock is classified as a
liability on the balance sheet. The warrant is subject to
re-measurement at each balance sheet date and any change in fair
value (as determined using the Black-Scholes option-pricing
model) is recognized as a component of other income (expense),
net. We will continue to adjust the liability for changes in
fair value until the earlier of the exercise or expiration of
the warrant.
Stock-Based Compensation. Effective
January 1, 2006,
we adopted SFAS No. 123R, or SFAS 123R,
Share-Based Payment, a revision of
SFAS No. 123,
Accounting for Stock-Based
Compensation, and related interpretations. SFAS 123R
supersedes Accounting Principles Board, or APB, Opinion
No. 25,
Accounting for Stock Issued to Employees,
and related interpretations. SFAS 123R requires all
share-based compensation to employees, including grants of
employee stock options, to be valued at fair value on the date
of grant, and to be expensed over the applicable service period.
We adopted this statement using the
“Prospective”
transition method which does not result in restatement of our
previously issued financial statements and requires only new
awards or awards that are modified, repurchased or canceled
after the effective date to be accounted for under the
provisions of SFAS 123R. Prior to
January 1, 2006, we
accounted for stock-based compensation arrangements according to
the provisions of APB 25 and related interpretations. Pursuant
to the income tax provisions included in SFAS 123R, we have
elected the
“short cut method” of computing the
hypothetical pool of additional paid-in capital that is
available to absorb future tax benefit shortfalls.
Determining the appropriate fair value model and calculating the
fair value of stock-based payment awards require the use of
highly subjective assumptions, including the expected life of
the stock-based payment awards and stock price volatility.
During 2006, we used the Black-Scholes option-pricing model to
value our option grants and determine the related compensation
expense. The assumptions used in calculating the fair value were
a weighted average risk free interest rate of 4.82%, expected
term of 6.1 years, expected volatility of 64.9% and no
expected dividends. These assumptions represent
management’s best estimates, but the estimates involve
inherent uncertainties and the application of management
judgment. As a result, if factors change and we use different
assumptions, our stock-based compensation could be materially
different in the future.
We have historically been a private company and lack
company-specific historical and implied volatility information.
Therefore, we estimate our expected volatility based on the
historical volatility of our publicly traded peer companies and
expect to continue to do so until such time as we have adequate
historical data regarding the volatility of our traded stock
price. The expected term of options has been determined
utilizing the “simplified” method as prescribed by
SAB No. 107, Share-Based Payment. The risk-free
interest rate used for each grant is based on a
U.S. Treasury instrument with a term similar to the
expected term of the option. SFAS 123R requires that we
recognize compensation expense for only the portion of options
that are expected to vest. We have estimated expected
forfeitures of stock options with the adoption of SFAS 123R
to be zero. In developing a forfeiture rate estimate, we have
considered our historical experience and determined our
forfeitures to be de minimis. If there are forfeitures of
unvested options, additional adjustments to compensation expense
may be required in future periods.
34
The following table summarizes by grant date the number of
shares subject to options granted between
January 1, 2004
and
March 31, 2007, the per share exercise price of the
options and the per share estimated fair value of the options:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Per Share
|
|
Per Share
|
|
|
|
Subject to Options
|
|
Exercise Price
|
|
Estimated Fair
|
|
Grant Date
|
|
Granted
|
|
of Option(1)
|
|
Value of Option(2)
|
|
|
|
|
|
|
156,750
|
|
|
$
|
0.05
|
|
|
$
|
0.02
|
|
|
|
|
|
566,995
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
|
|
|
177,500
|
|
|
$
|
1.42
|
|
|
$
|
0.91
|
|
|
|
|
|
69,375
|
|
|
$
|
3.77
|
|
|
$
|
2.42
|
|
|
|
|
|
116,880
|
|
|
$
|
3.48
|
|
|
$
|
2.21
|
|
|
|
|
|
212,625
|
|
|
$
|
3.96
|
|
|
$
|
2.52
|
|
|
|
|
|
30,000
|
|
|
$
|
3.96
|
|
|
$
|
2.52
|
|
|
|
|
|
129,250
|
|
|
$
|
5.36
|
|
|
$
|
3.41
|
|
|
|
|
|
(1)
|
|
The Per Share Exercise Price of
Option represents the determination by our board of directors of
the fair market value of our common stock on the date of grant,
as determined taking into account our most recently available
valuation of common stock.
|
| |
|
(2)
|
|
As described above, the Per Share
Estimated Fair Value of Option was estimated for the date of
grant using the Black-Scholes option-pricing model. This model
estimates the fair value by applying a series of factors
including the exercise price of the option, a risk free interest
rate, the expected term of the option, expected share price
volatility of the underlying common stock and expected dividends
on the underlying common stock. Additional information regarding
our valuation of common stock and option awards is set forth in
Note 6 to our financial statements included elsewhere in
this prospectus.
|
We have historically granted stock options at exercise prices
equivalent to the fair value of our common stock as of the date
of grant, as determined taking into account our most recently
available valuation of common stock. Prior to 2006, our board of
directors had estimated the fair value of our common stock on an
annual basis, with input from management, as of the date of
grant. Because there has been no public market for our common
stock, our board of directors determined the fair value of our
common stock by considering a number of objective and subjective
factors, including peer group trading multiples, the amount of
preferred stock liquidation preferences, the illiquid nature of
our common stock and our size and lack of historical
profitability. We believe our estimates of the fair value of our
common stock were reasonable.
Commencing in 2006, we moved to quarterly contemporaneous common
stock valuations so that the fair value of our common stock
would reflect the impact of our progressive quarterly revenue
growth. In the first quarter of 2006, our board of directors
determined the fair value of our common stock by using the
“guideline public company” method. The valuation
considered numerous factors, including peer group trading
multiples, the amount of preferred stock liquidation
preferences, the illiquid nature of our common stock, our small
size, our lack of historical profitability, our short-term cash
requirements and the redemption rights of our redeemable
convertible preferred stockholders. The companies used for
comparison under the guideline public company method were
selected based on a number of factors, including but not limited
to, the similarity of their industry, business models and
financial risk to those of ours.
Beginning in the second quarter of 2006, we obtained additional
support for our estimate of fair value of our common stock by
obtaining contemporaneous valuations by an independent valuation
specialist which incorporated a “probability-weighted
expected return” method. Under this methodology, the fair
market value of our common stock is estimated based upon an
analysis of future values assuming various outcomes. The share
value is based on the probability-weighted present value of
expected future investment returns considering each of the
possible outcomes available to us as well as the rights of each
share class. The possible outcomes considered were a sale of the
company, an initial public offering, a dissolution and continued
operation as a private company.
The private company scenario and sale scenario analyses utilized
averages of the guideline public company method and the
discounted future cash flow method. We estimated our enterprise
value under the guideline public company method by comparing our
company to publicly traded companies in our industry group. The
companies used for comparison under the guideline public company
method were selected based on a number
35
of factors, including but not limited to, the similarity of
their industry, business model, and financial risk to those of
ours. We also estimated our enterprise value under the
discounted future cash flow method, which involves applying
appropriate discount rates to estimated cash flows that are
based on forecasts of revenue, costs and capital requirements.
Our assumptions underlying the estimates were consistent with
the plans and estimates that we use to manage the business. The
risks associated with achieving our forecasts were assessed in
selecting the appropriate discount rates.
The initial public offering scenario analyses utilized the
guideline public company method. We estimated our enterprise
value under the guideline public company method by comparing our
company to publicly traded companies in our industry group. The
companies used for comparison under the guideline public company
method were selected based on a number of factors, including,
but not limited to, the similarity of their industry, business
model, and financial risk to those of ours.
The dissolution scenario analyses assumed that our common stock
had no value.
Finally, the present values calculated for our common stock
under each scenario were weighted based on our management’s
estimates of the probability of each scenario occurring. The
resulting values represented the estimated fair market value of
our common stock at each valuation date.
As discussed more fully in Note 6 to the financial
statements included elsewhere in this prospectus, we granted
stock options with a weighted average exercise price of $3.06
per share during 2006 and a weighted average exercise price of
$5.10 for the three months ended
March 31, 2007. We
determined that the fair value of our common stock increased
from $1.42 per share in the first quarter of 2006 to $8.96 on
April 1, 2007. The following discussion describes the
reasons for the difference between the fair value of our common
stock during this period and an estimated mid-point of the price
range set forth on the front cover of this prospectus of
$ per share.
During the quarter ended
March 31, 2006, we continued to
operate our business in the ordinary course. We experienced
increases in our number of customers and subscription revenue as
well as increases in our operating expenses in support of
growing the business, primarily due to increased marketing
expenditures and the hiring of additional personnel. We also
commenced development of a second product offering. Our business
continued to operate at a loss. During this quarter we had no
plans for an initial public offering in the near term because we
did not believe that an initial public offering would be
beneficial for a company of our small size. In May 2006, we
calculated the fair value of our common stock as the per share
value of each of the four scenarios multiplied by the estimated
probabilities of each of the four scenarios. Based on this
calculation the fair value of our common stock increased from
$1.42 to $3.77 per share as of
April 1, 2006.
During the quarters ended
June 30, 2006 and
September 30, 2006, we continued to operate our business in
the ordinary course. Although we continued to experience
increases in our number of customers and subscription revenue,
we also increased our operating expenses in support of growing
the business, primarily through increased marketing expenditures
and by hiring additional personnel. We continued to focus
research and development efforts on developing a second product
offering and our business continued to operate at a loss. We
raised additional capital with a $14.9 million placement of
Series C redeemable convertible preferred stock to existing
and new investors at a per share price of $5.95. We continued to
believe that our small size, combined with our operating losses,
did not put us in a position to complete an initial public
offering in the near term. However, based on the successful
placement of our preferred stock and our continued month over
month revenue growth, we believed that the probability of an
initial public offering increased and adjusted the scenario
probabilities accordingly. Based on this calculation we
determined in September 2006 that the fair value of our common
stock decreased from $3.77 to $3.48 per share as of
July 1,
2006 and we determined in November 2006 that the fair value of
our common stock increased to $3.96 as of
October 1, 2006.
During the quarter ended
December 31, 2006, we continued to
operate our business in the ordinary course. Both our customer
and subscription revenue continued to grow while we continued to
operate at a loss primarily due to increases in operating
expenses to support the business and fund new marketing
programs. We continued to expend resources on developing our
second product. While reviewing our performance we determined
that we may be approaching the size that would permit us to
successfully launch an initial public
36
offering. As a result, management and our board of directors
began to consider the possibility of a potential initial public
offering, although there were not yet discussions with any third
parties regarding an offering. In calculating the fair value of
our common stock we adjusted the scenario probabilities
accordingly. In February 2007, based on this calculation the
fair value of our common stock increased to $5.36 as of
January 1, 2007 from $3.96 as of
October 1, 2006.
During the quarter ended
March 31, 2007, we initiated
discussions with investment banks about a possible initial
public offering. Again we adjusted the scenario probabilities
accordingly. In May 2007, based on this calculation, we
determined the fair value of our common stock to be $8.96 as of
April 1, 2007.
Since
April 1, 2007, we have engaged investment bankers,
lawyers and accountants to start the process of an initial
public offering and held our initial organizational meeting as
well as launched the initial release of our survey solution.
Results
of Operations
The following table sets forth selected statements of operations
data for each of the periods indicated as a percentage of total
revenue.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Cost of revenue
|
|
|
27
|
|
|
|
26
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
73
|
|
|
|
74
|
|
|
|
72
|
|
|
|
72
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
27
|
|
|
|
23
|
|
|
|
22
|
|
|
|
25
|
|
|
|
23
|
|
|
Sales and marketing
|
|
|
42
|
|
|
|
51
|
|
|
|
67
|
|
|
|
53
|
|
|
|
63
|
|
|
General and administrative
|
|
|
11
|
|
|
|
9
|
|
|
|
10
|
|
|
|
9
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
80
|
|
|
|
83
|
|
|
|
99
|
|
|
|
87
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
(27
|
)
|
|
|
(15
|
)
|
|
|
(25
|
)
|
|
Interest and other income
(expense), net
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7
|
)%
|
|
|
(9
|
)%
|
|
|
(28
|
)%
|
|
|
(18
|
)%
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue. Revenue for the quarter ended
March 31,
2007 was $9.7 million, an increase of $4.3 million, or
79%, over revenue of $5.4 million for the quarter ended
March 31, 2006. The increase in revenue resulted primarily
from an 84% increase in the number of average monthly email
marketing customers offset by a slight decrease in average
revenue per customer.
Cost of Revenue. Cost of revenue for the quarter ended
March 31, 2007 was $2.7 million, an increase of
$1.2 million, or 77%, over cost of revenue of
$1.5 million for the quarter ended
March 31, 2006. As
a percentage of revenue, cost of revenue was 28% for the
quarters ended
March 31, 2007 and
2006. The increase in
absolute dollars primarily resulted from an 84% increase in the
number of average monthly email marketing customers which
resulted in increased hosting and operations expense and
customer support costs. Of the increase in cost of revenue,
$580,000 resulted from increased personnel costs attributable to
additional employees in our customer support and operations
groups to support customer growth and to increase the quality
and range of support options available to customers.
Additionally, $285,000 resulted from increased depreciation,
hosting and maintenance costs as we scaled and added capacity to
our hosting infrastructure, and $185,000 related to increased
credit card fees due to a higher volume of billing transactions.
Research and Development Expenses. Research and
development expenses for the quarter ended
March 31, 2007
were $2.2 million, an increase of $806,000, or 59%, over
research and development expenses of
37
$1.4 million for the quarter ended
March 31, 2006. The
increase was primarily due to additional personnel related costs
of $606,000 as we increased the number of research and
development employees to further enhance our solution.
Sales and Marketing Expenses. Sales and marketing
expenses for the quarter ended
March 31, 2007 were
$6.1 million, an increase of $3.3 million, or 116%,
over sales and marketing expenses of $2.8 million for the
quarter ended
March 31, 2006. The increase was primarily
due to increased advertising and promotional expenditures of
$2.2 million as we expanded our multi-channel marketing
strategy in order to increase awareness of our brand and
solution and to add new customers. Additional personnel related
costs of $581,000 also contributed to the increase as we added
employees to accommodate the growth in sales leads and to staff
our expanded marketing efforts.
General and Administrative Expenses. General and
administrative expenses for the quarter ended
March 31,
2007 were $1.1 million, an increase of $589,000, or 119%,
over general and administrative expenses of $493,000 for the
quarter ended
March 31, 2006. The increase was due
primarily to additional personnel related costs of $273,000 as
we increased the number of general and administrative employees
to support our overall growth, as well as an increase in legal,
insurance, accounting and other administrative costs, which
reflected the increased scale and complexity of supporting our
business.
Interest and Other Income (Expense), Net. Interest and
other income (expense), net for the quarter ended
March 31,
2007 was $(291,000), an increase of $141,000, or 94%, from
interest and other income (expense), net of $(150,000) for the
quarter ended
March 31, 2006. The increase was due to a
$283,000 increase in the expense related to the change in the
fair value of the redeemable convertible preferred stock warrant
primarily offset by a $129,000 increase in interest income from
investments in marketable securities and cash equivalents. We
account for an outstanding redeemable convertible preferred
stock warrant as a liability held at fair market with changes in
value recorded as a component of other expense. The increase in
interest income was primarily due to an increase in the balance
of investments and cash equivalents as a result of an equity
funding which was completed in the second and third quarters of
2006.
Revenue. Revenue for 2006 was $27.6 million, an
increase of $12.9 million, or 88%, over revenue of
$14.7 million for 2005. The increase in revenue resulted
primarily from a 93% increase in the number of average monthly
email marketing customers partially offset by a slight decrease
in average revenue per customer.
Cost of Revenue. Cost of revenue in 2006 was
$7.8 million, an increase of $4.1 million, or 108%,
over cost of revenue of $3.7 million in 2005. As a
percentage of total revenue, cost of revenue increased slightly
to 28% from 26% in 2005. The increase primarily resulted from a
93% increase in the number of average monthly email marketing
customers which resulted in increased hosting and operations
expense and customer support costs. Of the increase in cost of
revenue, $2.0 million related to increased personnel costs
attributable to additional employees in our customer support and
operations groups required to support customer growth and to
increase the quality and range of support options available to
customers. Additionally, $1.0 million resulted from
increased depreciation, hosting and maintenance costs as we
scaled and added capacity to our hosting infrastructure and
$559,000 related to increased credit card fees due to a higher
volume of billing transactions.
Research and Development Expenses. Research and
development expenses in 2006 were $6.2 million, an increase
of $2.8 million, or 84%, over research and development
expenses of $3.4 million in 2005. The increase was
primarily due to additional personnel related costs of
$2.2 million as we increased the number of research and
development employees to further enhance our solution.
Sales and Marketing Expenses. Sales and marketing
expenses in 2006 were $18.6 million, an increase of
$11.1 million, or 149%, over sales and marketing expenses
of $7.5 million in 2005. The increase was primarily due to
increased advertising and promotional expenditures of
$7.6 million as we expanded our multi-channel marketing
strategy in order to increase awareness of our brand and
solution and to add new
38
customers. Additional personnel related costs of
$2.2 million also contributed to the increase as we added
personnel to accommodate the growth in sales leads and to staff
our expanded marketing efforts.
General and Administrative Expenses. General and
administrative expenses in 2006 were $2.6 million, an
increase of $1.3 million, or 98%, over general and
administrative expenses of $1.3 million in 2005. The
increase was primarily due to additional personnel related costs
of $811,000 as we increased the number of general and
administrative employees to support our overall growth and an
increase in legal, accounting and insurance costs of $261,000,
which reflected the increased scale and complexity of our
professional service needs.
Interest and Other Income (Expense), Net. Interest and
other income (expense), net in 2006 was $(203,000), an increase
of $179,000 from interest and other income (expense), net of
$(24,000) in 2005. The increase was due to a $588,000 increase
in other expense related to the change in value of the
redeemable convertible preferred stock warrant primarily offset
by a $432,000 increase in interest income from investments in
marketable securities and cash equivalents. We account for the
redeemable convertible preferred stock warrant as a liability
held at fair market value with changes in value recorded as a
component of other expense. Interest income increased primarily
due to an increase in investments and cash equivalents as a
result of an equity funding that took place during the year.
Revenue. Revenue for 2005 was $14.7 million, an
increase of $6.6 million, or 82%, over revenue of
$8.1 million for 2004. The increase in revenue resulted
primarily from an 81% increase in the number of average monthly
email marketing customers.
Cost of Revenue. Cost of revenue in 2005 was
$3.7 million, an increase of $1.5 million, or 69%,
over cost of revenue of $2.2 million in 2004. As a
percentage of total revenue, cost of revenue declined slightly
to 26% in 2005 from 27% in 2004. The increase in absolute
dollars primarily resulted from an 81% increase in the number of
average monthly email marketing customers, which resulted in
increased hosting and operations expense and higher customer
support costs. Of the increase in cost of revenue, $667,000
related to increased personnel costs related to additional
employees in our customer support and operations groups in order
to support customer growth and to increase the quality and range
of support options available to customers. Additionally,
$402,000 resulted from increased depreciation, hosting and
maintenance costs as we scaled and added to our hosting
infrastructure and $257,000 related to increased credit card
fees due to a higher volume of billing transactions.
Research and Development Expenses. Research and
development expenses in 2005 were $3.4 million, an increase
of $1.3 million, or 57%, over research and development
expenses of $2.1 million in 2004. The increase was
primarily due to additional personnel related costs of $955,000
as we increased the number of research and development employees
to further enhance our solution.
Sales and Marketing Expenses. Sales and marketing
expenses in 2005 were $7.5 million, an increase of
$4.1 million, or 120%, over sales and marketing expenses of
$3.4 million in 2004. The increase was primarily due to
increased advertising and promotional expenditure of
$2.6 million as we introduced a multi-channel marketing
program. The marketing program employed radio, online and print
advertising concentrated in a few major metropolitan regions of
the United States in an effort to increase awareness of email
marketing and our brand within our targeted market of small
organizations and add new customers. Personnel related costs of
$1.1 million also contributed to the increase as we added
employees to support the growth in sales leads and to staff our
expanded marketing efforts.
General and Administrative Expenses. General and
administrative expenses in 2005 were $1.3 million, an
increase of $470,000, or 55%, over general and administrative
expenses of $856,000 in 2004. The increase was due primarily to
additional personnel related costs of $391,000 as we increased
the number of general and administrative employees.
39
Interest and Other Income (Expense), Net. Interest and
other income (expense), net in 2005 was $(24,000), a decrease of
$10,000 from interest and other income (expense), net of
$(34,000) in 2004. The decrease was due to lower interest
expense resulting from principal reductions in our debt facility.
Quarterly
Results of Operations
The following table sets forth our unaudited operating results
for each of the nine quarters in the period ended
March 31,
2007. This information is derived from our unaudited financial
statements, which in the opinion of management contain all
adjustments necessary for a fair statement of such financial
data. Historical results are not necessarily indicative of the
results to be expected in future periods. You should read this
data together with our financial statements and the related
notes included elsewhere in this prospectus.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
(in thousands, except per share and customer data)
|
|
|
|
|
Statements of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,812
|
|
|
$
|
3,318
|
|
|
$
|
3,900
|
|
|
$
|
4,628
|
|
|
$
|
5,429
|
|
|
$
|
6,400
|
|
|
$
|
7,239
|
|
|
$
|
8,484
|
|
|
$
|
9,713
|
|
|
Cost of revenue(1)
|
|
|
781
|
|
|
|
848
|
|
|
|
931
|
|
|
|
1,187
|
|
|
|
1,543
|
|
|
|
1,811
|
|
|
|
2,038
|
|
|
|
2,409
|
|
|
|
2,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
2,031
|
|
|
|
2,470
|
|
|
|
2,969
|
|
|
|
3,441
|
|
|
|
3,886
|
|
|
|
4,589
|
|
|
|
5,201
|
|
|
|
6,075
|
|
|
|
6,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
660
|
|
|
|
821
|
|
|
|
741
|
|
|
|
1,133
|
|
|
|
1,363
|
|
|
|
1,411
|
|
|
|
1,530
|
|
|
|
1,868
|
|
|
|
2,169
|
|
|
Sales and marketing
|
|
|
1,223
|
|
|
|
1,413
|
|
|
|
2,079
|
|
|
|
2,745
|
|
|
|
2,837
|
|
|
|
4,247
|
|
|
|
4,664
|
|
|
|
6,844
|
|
|
|
6,121
|
|
|
General and administrative
|
|
|
263
|
|
|
|
261
|
|
|
|
385
|
|
|
|
417
|
|
|
|
493
|
|
|
|
586
|
|
|
|
633
|
|
|
|
911
|
|
|
|
1,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,146
|
|
|
|
2,495
|
|
|
|
3,205
|
|
|
|
4,295
|
|
|
|
4,693
|
|
|
|
6,244
|
|
|
|
6,827
|
|
|
|
9,623
|
|
|
|
9,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(115
|
)
|
|
|
(25
|
)
|
|
|
(236
|
)
|
|
|
(854
|
)
|
|
|
(807
|
)
|
|
|
(1,655
|
)
|
|
|
(1,626
|
)
|
|
|
(3,548
|
)
|
|
|
(2,390
|
)
|
|
Interest and other income
(expense), net
|
|
|
(8
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
(150
|
)
|
|
|
(156
|
)
|
|
|
105
|
|
|
|
(2
|
)
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(123
|
)
|
|
|
(29
|
)
|
|
|
(241
|
)
|
|
|
(861
|
)
|
|
|
(957
|
)
|
|
|
(1,811
|
)
|
|
|
(1,521
|
)
|
|
|
(3,550
|
)
|
|
|
(2,681
|
)
|
|
Accretion of redeemable convertible
preferred stock
|
|
|
(1,342
|
)
|
|
|
(1,357
|
)
|
|
|
(1,372
|
)
|
|
|
(1,672
|
)
|
|
|
(2,136
|
)
|
|
|
(1,134
|
)
|
|
|
(259
|
)
|
|
|
(259
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders
|
|
$
|
(1,465
|
)
|
|
$
|
(1,386
|
)
|
|
$
|
(1,613
|
)
|
|
$
|
(2,533
|
)
|
|
$
|
(3,093
|
)
|
|
$
|
(2,945
|
)
|
|
$
|
(1,780
|
)
|
|
$
|
(3,809
|
)
|
|
$
|
(2,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common
stockholders per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(2)
|
|
$
|
(0.68
|
)
|
|
$
|
(0.64
|
)
|
|
$
|
(0.75
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(1.22
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(1.37
|
)
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period number of customers(3)
|
|
|
29,356
|
|
|
|
34,179
|
|
|
|
39,878
|
|
|
|
47,730
|
|
|
|
57,195
|
|
|
|
67,061
|
|
|
|
76,861
|
|
|
|
89,323
|
|
|
|
104,265
|
|
|
|
|
|
(1)
|
|
Amounts include stock-based
compensation expense, as follows:
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
9
|
|
|
$
|
11
|
|
|
$
|
15
|
|
|
Research and development
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1
|
|
|
|
3
|
|
|
|
6
|
|
|
|
17
|
|
|
|
21
|
|
|
Sales and marketing
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1
|
|
|
|
3
|
|
|
|
6
|
|
|
|
9
|
|
|
|
11
|
|
|
General and administrative
|
|
|
7
|
|
|
|
5
|
|
|
|
5
|
|
|
|
–
|
|
|
|
1
|
|
|
|
1
|
|
|
|
2
|
|
|
|
8
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
–
|
|
|
$
|
5
|
|
|
$
|
10
|
|
|
$
|
23
|
|
|
$
|
45
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Quarterly amounts may not add to
full year amounts due to rounding.
|
| |
|
(3)
|
|
We define our end of period
customers as email marketing customers that we billed directly
during the last month of the period.
|
40
As a percentage of revenue:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
Sept. 30,
|
|
|
Dec. 31,
|
|
|
March 31,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
|
|
Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
Cost of revenue
|
|
|
28
|
|
|
|
26
|
|
|
|
24
|
|
|
|
26
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
72
|
|
|
|
74
|
|
|
|
76
|
|
|
|
74
|
|
|
|
72
|
|
|
|
72
|
|
|
|
72
|
|
|
|
72
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
23
|
|
|
|
25
|
|
|
|
19
|
|
|
|
25
|
|
|
|
25
|
|
|
|
22
|
|
|
|
21
|
|
|
|
22
|
|
|
|
23
|
|
|
Sales and marketing
|
|
|
44
|
|
|
|
42
|
|
|
|
53
|
|
|
|
59
|
|
|
|
53
|
|
|
|
67
|
|
|
|
64
|
|
|
|
81
|
|
|
|
63
|
|
|
General and administrative
|
|
|
9
|
|
|
|
8
|
|
|
|
10
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
9
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
76
|
|
|
|
75
|
|
|
|
82
|
|
|
|
93
|
|
|
|
87
|
|
|
|
98
|
|
|
|
94
|
|
|
|
114
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(19
|
)
|
|
|
(15
|
)
|
|
|
(26
|
)
|
|
|
(22
|
)
|
|
|
(42
|
)
|
|
|
(25
|
)
|
|
Interest and other income
(expense), net
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
(0
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(0
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(4
|
)%
|
|
|
(1
|
)%
|
|
|
(6
|
)%
|
|
|
(19
|
)%
|
|
|
(18
|
)%
|
|
|
(28
|
)%
|
|
|
(21
|
)%
|
|
|
(42
|
)%
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increased sequentially in each of the quarters presented
primarily due to increases in the number of total customers.
Gross profit, in absolute dollars, also increased sequentially
for the quarters presented primarily due to revenue growth.
Total operating expenses, in absolute dollars, increased
sequentially for most of the quarters presented primarily due to
increased sales and marketing expenses which resulted from
increased marketing efforts and increased number of personnel.
The decrease in operating expenses for the first quarter of 2007
was due to the decrease in marketing expenses from the fourth
quarter of 2006 to the first quarter of 2007. This decrease was
the result of the seasonality of our marketing expenses, which
have been highest in the fourth quarter.
Liquidity
and Capital Resources
Since our inception we have financed our operations primarily
through the sale of redeemable convertible preferred stock,
issuance of convertible promissory notes, borrowings under
credit facilities and, to a lesser extent, cash flow from
operations. At
March 31, 2007, our principal sources of
liquidity were cash and cash equivalents and short term
marketable securities totaling $9.8 million and a term loan
facility for the acquisition of property and equipment of
$5.0 million.
In February 2003, we entered into a term loan facility with
Silicon Valley Bank that provided for a $350,000 term loan for
the acquisition of property and equipment. During the period
from August 2003 to September 2005, the facility was amended
five times increasing the borrowing availability to
$2.2 million. At
December 31, 2006, there was no
available borrowing capacity under the facility and, in March
2007, the facility was amended to establish additional borrowing
availability of $5.0 million and to modify certain terms
and covenants. As of
March 31, 2007, the entire
$5.0 million remained available for borrowing. Each advance
under the facility is payable in monthly installments over three
years from the date of the advance. The advances bear interest
at a rate of prime plus 2% (10.25% at
March 31, 2007). The
interest rate decreases to prime plus 1.5% upon the occurrence
of a profitability event (as defined in the facility agreement).
The facility requires that we maintain certain financial
covenants, and that any borrowings are collateralized by
substantially all of our assets. The advances may be prepaid in
whole or in part at any time without penalty.
Our operating activities used cash of $1.8 million during
the three months ended
March 31, 2007 and $748,000 during
the year ended
December 31, 2006. Net cash provided by
operating activities was $2.4 million and $189,000 during
the years ended
December 31, 2005 and
2004, respectively.
Net cash outflows for the three months ended
March 31, 2007
and year ended
December 31, 2006 resulted primarily from
operating losses partially offset by increases in current
liability accounts and non-cash charges for depreciation and
41
amortization, changes in fair value of the warrant for
redeemable convertible preferred stock and stock based
compensation charges. Net cash inflows during 2005 and 2004
resulted primarily from operating losses offset by increases in
current liability accounts and non-cash charges for depreciation
and amortization. Operating losses were primarily due to
increased sales and marketing efforts and additional employees
company wide.
The increases in current liability accounts consisted primarily
of the following:
Changes in deferred revenue were as follows:
|
|
|
| |
•
|
during the three months ended March 31, 2007, deferred
revenue increased $1.3 million from $5.5 million to
$6.8 million;
|
| |
| |
•
|
during 2006, deferred revenue increased $2.7 million from
$2.8 million to $5.5 million;
|
| |
| |
•
|
during 2005, deferred revenue increased $1.5 million from
$1.3 million to $2.8 million; and
|
| |
| |
•
|
during 2004, deferred revenue increased $655,000 from $615,000
to $1.3 million.
|
The increases in deferred revenue were due to continued growth
in unearned prepaid subscriptions. The growth in subscriptions
was primarily due to new customer growth.
Changes in accrued expenses and other current liabilities were
as follows:
|
|
|
| |
•
|
during the three months ended March 31, 2007, accrued
expenses decreased $233,000 from $2.4 million to
$2.2 million primarily due to a decrease in marketing
expenditures in the first three months of 2007 as opposed to the
last three months of 2006. This decrease reflects the
seasonality of our marketing expenses which have historically
been heaviest in the fourth quarter;
|
| |
| |
•
|
during 2006, accrued expenses increased $1.9 million from
$494,000 to $2.4 million primarily due to increased
marketing efforts during the year, increased employee related
costs due to personnel additions and increased costs directly
attributable to revenue growth partially offset by the receipt
of invoices and timing of payments;
|
| |
| |
•
|
during 2005, accrued expenses increased $188,000 from $306,000
to $494,000; and
|
| |
| |
•
|
during 2004, accrued expenses decreased $337,000 from $643,000
to $306,000.
|
Changes in accounts payable were as follows:
|
|
|
| |
•
|
during the three months ended March 31, 2007, accounts
payable decreased $1.0 million from $2.6 million to
$1.6 million;
|
| |
| |
•
|
during 2006, accounts payable increased $1.1 million from
$1.5 million to $2.6 million;
|
| |
| |
•
|
during 2005, accounts payable increased $1.3 million from
$176,000 to $1.5 million; and
|
| |
| |
•
|
during 2004, accounts payable decreased $105,000 from $281,000
to $176,000.
|
The changes in accounts payable were due to increased expense
levels, net of the impact of the timing of payments to vendors.
The following non-cash charges are added back as adjustments to
reconcile net loss to net cash used in or provided by operating
activities:
|
|
|
| |
•
|
change in fair value of warrants of $420,000 for the three
months ended March 31, 2007 and $588,000 for the year ended
December 31, 2006;
|
| |
| |
•
|
depreciation and amortization expense of $532,000 for the three
months ended March 31, 2007 and $1.5 million, $591,000
and $447,000 for the years ended December 31, 2006, 2005
and 2004, respectively; and
|
| |
| |
•
|
stock-based compensation expense of $83,000 for the three months
ended March 31, 2007 and $83,000, $17,000 and $23,000 for
the years ended December 31, 2006, 2005 and 2004,
respectively.
|
The change in fair value of the warrant to purchase
Series B redeemable convertible preferred stock was due to
the increase in the value of the underlying common stock into
which this warrant is ultimately convertible. The warrant is
subject to re-measurement at each balance sheet date and any
change in fair value is recognized as a component of other
expense until such time as the warrant is exercised or expires
unexercised.
42
The warrant expires on the earliest to occur of
November 27, 2007 or immediately prior to the closing of a
merger, sale of assets, or consolidation of us by another
entity, or immediately prior to the closing date of an initial
public offering of our common stock.
The increase in depreciation and amortization expense was due to
increased purchases of property and equipment required to
support the continued growth of the business.
The increase in stock based compensation was due to the adoption
of SFAS 123R in January 2006.
As of
December 31, 2006, we had federal and state net
operating loss carry-forwards of $29.1 million and
$22.5 million, respectively, which may be available to
offset potential payments of future federal and state income tax
liabilities which expire at various dates through 2026 for
federal income tax purposes and through 2011 for state income
tax purposes.
Net cash used in investing activities was $921,000 for the three
months ended
March 31, 2007 and $7.7 million,
$2.2 million and $494,000 for the years ended
December 31, 2006,
2005 and
2004, respectively. Net cash
used in investing activities during the three months ended
March 31, 2007 and the year ended
December 31, 2006
consisted primarily of net cash paid to purchase marketable
securities and property and equipment. Net cash used in
investing activities during the years ended
December 31,
2005 and
2004 consisted primarily of cash paid for the purchase
of property and equipment. Property and equipment purchases
consist of infrastructure for our solutions, capitalization of
certain software development costs, computer equipment for our
employees and equipment and leasehold improvements related to
additional office space.
Net cash used in financing activities was $126,000 for the three
months ended
March 31, 2007. Net cash provided by financing
activities was $14.4 million, $512,000 and $306,000 for the
years ended
December 31, 2006,
2005 and
2004, respectively.
Net cash used by financing activities for the three months ended
March 31, 2007 consisted primarily of repayment of
outstanding borrowings under the term loan facility. Net cash
provided by financing activities for the year ended
December 31, 2006 consisted primarily of proceeds from the
issuance of our Series C redeemable convertible preferred
stock and, to a lesser extent, proceeds from the exercise of
stock options and warrants, partially offset by repayment of
outstanding borrowings under the term loan facility. Net cash
provided by financing activities for the years ended
December 31, 2005 and
2004 consisted primarily of new
borrowings under the term loan facility partially offset by
repayment of the borrowings and other capital lease obligations.
Our future capital requirements may vary materially from those
now planned and will depend on many factors, including, but not
limited to, development of new solutions, market acceptance of
our solutions, the levels of advertising and promotion required
to launch additional solutions and improve our competitive
position in the marketplace, the expansion of our sales, support
and marketing organizations, the establishment of additional
offices in the United States and worldwide and the building of
infrastructure necessary to support our growth, the response of
competitors to our solutions and our relationships with
suppliers and clients. Since the introduction of our on-demand
email marketing solution in 2000, we have experienced increases
in our expenditures consistent with the growth in our operations
and personnel, and we anticipate that our expenditures will
continue to increase in the future.
We believe that our current cash and cash equivalents,
marketable securities and funds available under our term loan
facility will be sufficient to meet our working capital and
capital expenditure requirements for at least the next twelve
months. Thereafter, we may need to raise additional funds
through public or private financings or increased borrowings to
develop or enhance products, to fund expansion, to respond to
competitive pressures or to acquire complementary products,
businesses or technologies. If required, additional financing
may not be available on terms that are favorable to us, if at
all. If we raise additional funds through the issuance of equity
or convertible debt securities, the percentage ownership of our
stockholders will be reduced and these securities might have
rights, preferences and privileges senior to those of our
current stockholders. No assurance can be given that additional
financing will be available or that, if available, such
financing can be obtained on terms favorable to our stockholders
and us.
During the last three years, inflation and changing prices have
not had a material effect on our business and we do not expect
that inflation or changing prices will materially affect our
business in the foreseeable future.
43
Off-Balance
Sheet Arrangements
We do not engage in any off-balance sheet financing activities.
We do not have any interest in entities referred to as variable
interest entities, which include special purpose entities and
other structured finance entities.
Contractual
Obligations
The following table summarizes our contractual obligations at
December 31, 2006 and the effect such obligations are
expected to have on our liquidity and cash flow in future
periods.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
|
(in thousands)
|
|
|
|
|
Notes payable
|
|
$
|
702
|
|
|
$
|
449
|
|
|
$
|
253
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Operating lease obligations
|
|
|
3,387
|
|
|
|
836
|
|
|
|
1,846
|
|
|
|
705
|
|
|
|
–
|
|
|
Contractual commitments
|
|
|
900
|
|
|
|
561
|
|
|
|
339
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,989
|
|
|
$
|
1,846
|
|
|
$
|
2,438
|
|
|
$
|
705
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2007, we entered into the third amendment to our
headquarters office lease to expand our existing premises. As a
result, our future operating lease obligations will increase by
$183,000, $372,000, $385,000 and $294,000 for 2007, 2008, 2009
and 2010, respectively.
Changes
in Accountants
On or about
September 20, 2006, we dismissed Vitale,
Caturano & Company Ltd., or Vitale, as our independent
registered public accounting firm. Our audit committee
participated in and approved the decision to change our
independent registered public accounting firm. The reports of
Vitale on the financial statements for the years ended
December 31, 2004 and
2005 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle. During the
years ended
December 31, 2004 and
2005 and through
September 20, 2006, there were no disagreements with Vitale
on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Vitale
would have caused them to make reference thereto in their
reports on the financial statements for such years. We requested
that Vitale furnish us with a letter addressed to the SEC
stating whether or not it agrees with the above statements. A
copy of such letter, dated
July 6, 2007, is filed as
Exhibit 16.1 to the registration statement, of which this
prospectus forms a part.
We engaged PricewaterhouseCoopers LLP as our new independent
registered public accounting firm as of
December 26, 2006.
Quantitative
and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk. We bill our customers in
U.S. dollars and receive payment predominantly in
U.S. dollars. Accordingly, our results of operations and
cash flows are not subject to fluctuations due to changes in
foreign currency exchange rates.
Interest Rate Sensitivity. Interest income and expense
are sensitive to changes in the general level of
U.S. interest rates. However, based on the nature and
current level of our marketable securities, which are primarily
short-term investment grade and government securities, and our
notes payable, we believe that there is no material risk of
exposure.
44
Business
Overview
Constant Contact is the leading provider of on-demand email
marketing solutions for small organizations, including small
businesses, associations and non-profits. As of
June 30,
2007, we had over 120,000 customers. Our customers use our email
marketing solution to more effectively and efficiently create,
send and track professional and affordable permission-based
email marketing campaigns. With these campaigns, our customers
can build stronger relationships with their customers, clients
and members, increase sales and expand membership. Our email
marketing solution incorporates a wide range of customizable
templates to assist in campaign creation, user-friendly tools to
import and manage contact lists and intuitive reporting to track
campaign effectiveness. In June 2007, we introduced an online
survey solution that complements our email marketing solution
and enables small organizations to easily create and send
surveys and effectively analyze responses. We are committed to
providing our customers with a high level of support, which we
deliver via phone, chat, email and our
website.
We provide our solutions on an on-demand basis through a
standard web browser. This model enables us to deploy and
maintain a secure and scalable application that is easy for our
customers to implement at compelling prices. Our email marketing
customers pay a monthly subscription fee that generally ranges
between $15 per month and $150 per month based on the size of
their contact lists and, in some cases, volume of mailings. Our
survey solution is similarly priced. For the first quarter of
2007, our average monthly revenue per email marketing customer
exceeded $32. We believe that the simplicity of on-demand
deployment combined with our affordable subscription fees and
functionality facilitate adoption of our solution by our target
customers while generating significant recurring revenue. Since
the first quarter of 2002, we have achieved 21 consecutive
quarters of growth in customers and revenue.
Our email marketing customer base has grown steadily from
approximately 25,000 at the end of 2004 to over 120,000 as of
June 30, 2007. Based on the current size of our customer
base, we believe that we are the largest provider of email
marketing services to small organizations. These customers
include all types of small organizations including retailers,
restaurants, day spas, law firms, consultants, non-profits,
religious organizations, alumni associations and other small
businesses and organizations. Customers in more than 110
countries and territories currently use our email marketing
solution. We estimate that approximately two-thirds of our
customers have fewer than ten employees and in the first quarter
of 2007, our top 50 email marketing customers accounted for
approximately 1% of our gross email marketing revenue. Our
customers have displayed a high degree of loyalty. From January
2005 through June 2007, at least 97.4% of our customers in a
given month have continued to utilize our email marketing
solution in the following month.
We acquire our customers through a variety of paid and unpaid
sources. Our paid sources include online marketing through
search engines, advertising networks and other sites; offline
marketing through radio advertising, local seminars and other
marketing efforts; and relationships with over 1,700 active
channel partners, which include national small business service
providers such as Network Solutions, American Express and
VistaPrint as well as local small business service providers
such as local web developers and marketing agencies. Our unpaid
sources of customer acquisition include referrals from our
growing customer base, general brand awareness and the inclusion
of a link to our
website in the footer of more than
500 million emails currently sent by our customers each
month. We believe that during the first quarter of 2007 at least
45% of our new email marketing customers were generated through
unpaid sources.
Industry
Background
Benefits
of Email Marketing
Organizations are increasingly turning to email marketing as a
means to communicate with their customers, clients and members.
According to an October 2006 report entitled “The Email
Marketing Vendor Landscape” by Forrester, a leading
research provider, 94% of marketers currently use or were
planning to use email
45
marketing by the end of 2006, with 58% of those marketers
outsourcing to a third party provider. Key benefits that drive
adoption of email marketing include the following:
|
|
|
| |
•
|
Targeted. Email marketing enables organizations to tailor
messages to specific audiences and enables recipients to respond
through links to websites.
|
| |
| |
•
|
Timely. The cycle from concept through design and
execution for email marketing is much shorter than direct mail
because there is no need to print and mail. Reducing cycle time
allows organizations to rapidly respond to market conditions and
opportunities.
|
| |
| |
•
|
Efficient. Email marketing combines low cost with
measurable responses leading to an attractive return on
investment.
|
Constant
Contact Market Opportunity
We believe email marketing is an excellent fit for small
organizations. Small businesses and non-profits tend to rely
heavily on repeat sales and referrals to grow their businesses
and expand their membership bases, and email marketing is a cost
effective way to reach these audiences.
Small organizations also represent a large market opportunity.
The U.S. Small Business Administration estimated that there
were 25.8 million small businesses in the United States in
2005, and in 2006 the National Center of Charitable Statistics
estimated that there were approximately 1.5 million
non-profits in the United States. Other small organizations that
use email marketing include online auction sellers, independent
musicians, community organizations, school districts,
parent/teacher associations and sports leagues. Based on these
estimates, we believe our email marketing solutions could
potentially address the needs of more than 27.3 million
small organizations domestically.
At the same time, small organizations have generally been slower
than larger organizations to adopt email marketing as part of
their marketing mix. We believe they face unique challenges when
adopting email marketing including:
|
|
|
| |
•
|
Unfamiliar with Email Marketing. Many small organizations
are not familiar with the benefits of email marketing and do not
understand how to effectively build a permission-based contact
list, develop an effective email marketing campaign and measure
its effectiveness.
|
| |
| |
•
|
Lack of Technical Expertise. Small organizations often do
not have the technical expertise to implement email marketing
software or to design and execute effective email marketing
campaigns. For example, many small organizations do not have the
marketing, graphic design or HTML coding skills to develop
professionally formatted emails; may not follow or comprehend
the evolving industry standards for sending bulk email; or may
not understand how spam filtering technology may impact the
delivery of their email communications.
|
| |
| |
•
|
Limited Budgets. Small organizations typically have small
marketing budgets. They generally cannot afford to hire in-house
staff or engage an outside marketing agency to develop, execute
and evaluate an email marketing campaign.
|
We also believe most existing alternatives for email marketing
are poorly suited to meet the needs of small organizations. Some
of these existing alternatives include:
|
|
|
| |
•
|
General Email Applications. General email applications
and services such as Microsoft Outlook, America Online or
Hotmail are designed for one-to-one emails. They do not easily
incorporate the formatting, graphics, and links necessary to
produce professional-looking email marketing campaigns. They
also limit the number of recipients per email and do not have
the reporting capabilities to allow users to evaluate the
effectiveness of their email marketing campaigns. Finally, they
do not provide regulatory compliance tools to assist the sender
in complying with anti-spam requirements.
|
| |
| |
•
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Enterprise Service Providers. These service providers,
such as Epsilon Data Management LLC (a subsidiary of Alliance
Data Systems Corporation), ExactTarget, Inc., Responsys Inc. and
Silverpop
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Systems Inc. focus on large organizations with sizeable
marketing budgets. While these providers offer sophisticated,
Internet-based marketing services and tools with professional
and customized execution and reporting, they deliver services at
a price and scale that is far beyond the scope of most small
organizations.
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As a result, we believe there is an opportunity for an email
marketing solution tailored to the needs of small organizations.
These users seek an affordable, easy-to-use email marketing
solution with a professional appearance and reliable performance.
Our
Solution
We provide small organizations with a convenient, effective and
affordable way to communicate with their constituents via email.
Our email marketing solution delivers the following benefits to
small organizations:
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Easy. We enable customers to easily create great looking
email marketing campaigns without prior expertise in marketing,
graphic design or HTML. Our solution includes over 200
customizable templates intelligently organized to streamline
creation of a professional-looking message. We also provide
customers with tools that make it easy for them to import, build
and manage contact lists and to monitor delivery and response.
We further enhance our solution with unlimited free customer
support and daily webinars covering topics ranging from a
general product tour to email marketing best practices.
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Fast. Because our solution is accessed through the web,
customers only need access to a PC and the Internet to begin
using it to create and send their first email campaign. A
customer can typically create and send their first campaign in
less than one hour. Once a customer has loaded their contact
list, created and sent their first campaign, our solution
becomes even faster to use as this information is stored and can
be easily accessed for future use.
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Affordable. We offer our email marketing solution on a
subscription basis, eliminating the significant up-front license
fee associated with traditional software. Instead, we encourage
potential customers to try our solution without charge for a
60-day
period. After the free trial, customers can use our solution for
a subscription fee of as low as $15 per month with the amount of
the fee increasing based on the number of unique contacts or
email addresses in a customer’s contact list. We provide
discounted pricing for both prepayments and non-profits. For the
first quarter of 2007, our average monthly revenue per email
marketing customer exceeded $32.
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Effective. Our solution provides our customers with a
highly effective way to reach their customers, clients and
members. According to data measured by ReturnPath, Inc. for
United States email addresses, approximately 97% of our
customers’ emails were delivered past any spam filters or
controls to their target email inboxes over the first five
months of 2007. We have made significant investments in systems
and processes to reduce the number of our customers’ emails
that are blocked as possible spam. In addition, to help ensure
that customers’ emails are delivered, we have developed
relationships with leading ISPs.
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Measurable. Our email marketing campaign reports provide
customers with information and data regarding each campaign. In
addition to receiving aggregate data on email receipt, open
rates and click-through rates per campaign, our customers can
identify on an individual basis which contacts received and
opened an email and which links in the email they clicked on. We
also provide comparable metrics for our overall customer base.
This feedback permits customers to alter the content or timing
of their campaigns to capitalize on aspects of prior campaigns
that were positively received by their constituents.
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Business
Strengths
We believe that the following business strengths differentiate
us from competitors and are key to our success:
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Focus on Small Organizations. We have maintained a
consistent and exclusive focus on small organizations, which has
enabled us to design a full customer experience tuned to their
unique needs. Through the website experience, product usability,
affordable price point and personal touch of our communications
consultants and support representatives, we work to ensure that
small organizations feel that we are committed to their success.
We continually invest in primary research to understand this
market including usability studies, satisfaction surveys, focus
groups and other research initiatives.
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Efficient Customer Acquisition Model. We believe that we
have developed an efficient customer acquisition model that
generates an attractive return on our sales and marketing
expenditures. We utilize a variety of marketing channels to
acquire new customers including online advertising, partner
relationships, radio advertising, and online and in-person
seminars and brand awareness. A Constant Contact “Try It
Free” link is included in the footer of more than
500 million emails currently sent by our customers each
month. In 2006, our cost of email marketing customer
acquisition, which we define as our total sales and marketing
expense divided by the gross number of email marketing customers
added in the period, was approximately $300 per email marketing
customer. For the first quarter of 2007, our average monthly
revenue per email marketing customer exceeded $32 per month,
implying payback on a revenue basis in less than one year.
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High Degree of Recurring Revenue. We benefit from a high
level of customer loyalty. From January 2005 through June 2007,
at least 97.4% of customers in a given month have continued to
use our email marketing solution in the following month. We
believe this represents a high level of retention, particularly
given the transient nature of many small organizations. These
customers provide us with a significant base of recurring
revenue and generate new customer referrals.
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Consistent Commitment to Customer Service. We seek to
provide our customers with a high level of support in order to
encourage trials and ongoing usage of our solution. We conduct
online webinars and in-person events to educate potential
customers about the benefits of email marketing. In addition,
our communications consultants seek to contact all new
U.S. and Canadian based customers to help them launch an
initial campaign and address any questions or concerns. As a
result, we believe we have a highly satisfied customer base.
Since August 2003, our customer surveys indicate that more than
80% of our customers rate their overall experience with Constant
Contact as above average or excellent.
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Software-as-a-Service Delivery. We provide our solution
on an on-demand basis, meaning that our customers can access and
use our solution through a standard web browser. This enables
our customers to rapidly begin using our solution with few
up-front costs and limited technical expertise. It also enables
us to serve additional customers with little incremental expense
and to deploy new applications and upgrades quickly and
efficiently to our existing customers.
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Growth
Strategy
Our objective is to increase our market leadership through the
following strategies:
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Acquire New Customers. We aggressively seek to continue
to attract new customers by promoting the Constant Contact brand
and encouraging small organizations to try our solutions. We
have increased the number of customers acquired in each of the
past 11 quarters. We acquire new customers through multiple
acquisition channels including online advertising, partner
relationships, radio advertising online and in person seminars
and other marketing efforts as well as through referrals from
existing customers and the Constant Contact link included in the
footer of customer email campaigns. We consistently monitor the
return on our advertising spending in terms of new customers
generated and adjust our sales and marketing mix as appropriate.
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Increase Revenue Per Customer. As of June 30, 2007,
we had an email marketing customer base in excess of 120,000. We
seek to increase revenue from each customer through add-on
services that enhance our solutions such as the hosting of our
customers’ images and logos on our system. We are currently
developing an add-on service that will enable our customers to
archive their past email campaigns and make them available to
their constituents.
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Provide Additional Products. We plan to continue to
invest in research and development to maintain our leadership
position in email marketing and to develop and provide our
customers with complementary solutions that are easy-to-use,
effective and affordable. Based on strong interest from our
existing customers, we recently introduced our survey solution,
which enables customers to create and send online surveys and
analyze responses. We believe that we have a significant
opportunity to sell our newly launched survey solution to our
email marketing customers as a means for them to better
understand the needs of their constituents. As new customers
adopt our survey solution, we will also have the opportunity to
cross-sell our email marketing solution.
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Expand Internationally. We currently sell our email
marketing solution to customers in over 110 countries and
territories, despite limited marketing efforts outside of the
United States. We believe that opportunities exist to more
aggressively market our solutions in English-speaking countries,
including Canada, the United Kingdom, Ireland, Australia and New
Zealand. In addition, eventually we intend to offer our
solutions in different languages, which will allow us to market
our solutions in additional countries.
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Pursue Complementary Acquisitions. We follow industry
developments and technology advancements and intend to evaluate
and acquire technologies or businesses to cost-effectively
enhance our solutions, access new customers or markets or both.
We have no present understandings or agreements to acquire any
of these technologies or businesses.
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Our
Products and Services
Email
Marketing
Our email marketing solution allows customers to easily create,
send and track professional-looking email campaigns. Our
solution provides customers with the following features:
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Campaign Creation Wizard. This comprehensive, easy-to-use
interface enables our customers to create and edit email
campaigns. Through intuitive controls, customers can readily
change colors, fonts, borders and backgrounds and insert images
and logos to help ensure that their emails appear polished and
professional. The wizard operates on a
“what-you-see-is-what-you-get” basis whereby a
customer can move paragraphs and blocks of content within the
draft email quickly and view the message from the perspective of
intended recipients.
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Professionally Developed Templates. These pre-designed
email message forms help customers quickly create attractive and
professional campaigns. Over 200 templates provide ideas as to
the kinds of emails customers can send, including newsletters,
event invitations, business letters, promotions and
announcements, and demonstrate, through the use of color and
format, the creativity and professionalism of a potential
campaign. Our advanced editing functionality enables customers
to easily modify the templates. We also provide templates
designed to appeal to specific vertical markets. For example, we
offer a restaurant template that includes a pre-formatted menu
section.
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Contact List Management. These tools help customers build
and manage their email contact lists. Our contact list building
tools include file and spreadsheet import functionality as well
as a software plug-in to import contact lists maintained in
Microsoft’s
Outlook®
and Outlook
Express®.
We also provide HTML programming code for a “Sign up for My
Mailing List” box that can be included on the
customer’s web site and used to gather new contacts. Our
list management tools enable a customer to target or segment
contacts for all or specific campaigns and monitor email
addresses to which previous campaigns could not be delivered. In
addition to their constituents’ names and email addresses,
several
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additional customizable fields are available for the purposes of
personalizing email messages. Unsubscribe requests are
automatically processed to help ensure ongoing compliance with
government regulations and email marketing best practices.
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Email Tracking and Reporting. These features enable our
customers to review and analyze the overall effectiveness of a
campaign by tracking and reporting aggregate information
including how many emails were delivered, how many were opened,
and which links were clicked on. These features also enable our
customers to identify on an individual basis which contacts
received an email, opened an email and clicked on particular
links within the message.
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Email Delivery Management. These tools are incorporated
throughout our solution and are designed to maintain our high
deliverability rates. Some of these tools are readily apparent
to our customers, such as in-depth delivery tracking. Others are
delivered through back-office processes, such as a spam content
check and address validation. To further improve the percentage
of emails delivered, we work closely with ISPs on spam
prevention issues. We also include processes and verifications
that greatly increase compliance with anti-spam standards.
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Image Hosting. We enable customers to store up to five
images for free, view and edit these images and resize them as
necessary for use in their email campaigns. Up to approximately
1,200 images (25 megabytes) can be stored for an
additional $5.00 per month. By adding images to an email
message, a customer can make the campaign more compelling or
visually appealing.
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Security and Privacy. We protect our customers’ data
at a higher level than we believe many of our customers do
themselves. We do not use our customers’ confidential
information, including their contact lists, except to provide
our solution, nor do we share, sell or rent this information. In
addition, we require that our customers adopt a privacy policy
to assist them in complying with government regulations and
email marketing best practices.
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Survey
Our recently launched online survey solution enables customers
to survey their customers, clients or members and analyze the
responses. By selecting one of our customizable templates and
editing or entering their own questions, our customers can
easily create a professionally formatted survey. Similar to our
email marketing solution, our survey solution includes a survey
creation wizard, over 40 different preformatted and customizable
survey templates, list management capabilities and live customer
support.
Our survey solution incorporates a real-time and comprehensive
reporting function that enables our customers to analyze overall
survey results and specific answers submitted by individual
respondents. The survey solution includes powerful analytic
features that enable our customers to segment results based on
survey responses, easily edit filters for “what if”
analysis and view the results in intuitive, easy-to-understand
graphical and detailed data formats. Results can be exported to
an Excel file for additional analysis. Our customers can
identify the respondents associated with filtered results and
create a unique contact list of these respondents who can then
be targeted with a specific message or
follow-up
campaign.
Customer
Support
We provide extensive free customer support to all customers.
Communication consultants seek to contact U.S. and Canadian
based trial customers by phone to answer any questions and to
help them launch their first campaign. Additional assistance is
available via phone, chat or email. Our customer support
employees answer approximately 1,300 calls per day with an
average wait time of less than two minutes. Our phone and chat
support team is located at our headquarters in Waltham,
Massachusetts while we outsource our email support to a third
party based in Bangalore, India. We complement our customer
support with free daily product tours offered via our
website,
an archive of frequently asked questions (FAQs) and webinars
that explain the benefits of email marketing.
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Our customer service and support group is responsible for
enforcing our permission and prohibited content policies. We
work closely with customers who have higher than average spam
complaint rates or bounced emails, and with customers whose
emails are flagged by our system as possibly including
prohibited content or spam, to assist them in complying with our
policies. If we cannot resolve outstanding concerns, we
terminate our agreement with the customer. From January 2005
through May 2007, involuntary terminations have averaged less
than 0.5% of our customer base each month.
As of
May 31, 2007, we had 93 employees working in
customer service and support.
Professional
Services
Although the majority of our customers select the
“do-it-yourself” approach, we also offer professional
services to customers who would like their email campaigns and
surveys prepared for them. Our service offerings range from a
low-cost, getting started service to full-service email and
survey campaign creation.
Pricing
We price our email marketing solution based upon the number of
unique email addresses in a customer’s account. Set forth
below are the first several pricing tiers:
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Number of Unique Email Addresses
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Monthly Fixed Pricing
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Up to 500
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$
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