SEC Info - Constant Contact/Inc - S-1

Constant Contact/Inc · S-1 · On 7/6/07

Filed On 7/6/07 2:31pm ET · SEC File 333-144381 · Accession Number 950135-7-4211

Registration Statement (General Form) · Form S-1Filing Table of Contents

S-1 · Constant Contact, Inc. Form S-1Document Table of Contents

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Registration Statement (General Form) · Form S-1
Filing Table of Contents

S-1 · Constant Contact, Inc. Form S-1
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
		Alternative Formats (RTF, XML, et al.) Balance Sheets Business Capitalization Certain Transactions Description of Capital Stock Dilution Dividend Policy Experts Forward-Looking Statements Index to Financial Statements Legal Matters Management Management s Discussion and Analysis of Financial Condition and Results of Operations Notes to Financial Statements Principal and Selling Stockholders Prospectus Summary Reports of Independent Registered Public Accounting Firms Risk Factors Selected Financial Data Shares Eligible for Future Sale Statements of Cash Flows Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit) Statements of Operations Table of Contents Underwriting Use of Proceeds Where You Can Find More Information
1	1st Page
"	Table of Contents
"	Prospectus Summary
"	Risk Factors
"	Forward-Looking Statements
"	Use of Proceeds
"	Dividend Policy
"	Capitalization
"	Dilution
"	Selected Financial Data
"	Management s Discussion and Analysis of Financial Condition and Results of Operations
"	Business
"	Management
"	Principal and Selling Stockholders
"	Certain Transactions
"	Description of Capital Stock
"	Shares Eligible for Future Sale
"	Underwriting
"	Legal Matters
"	Experts
"	Where You Can Find More Information
"	Index to Financial Statements
"	Reports of Independent Registered Public Accounting Firms
"	Balance Sheets
"	Statements of Operations
"	Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders Equity (Deficit)
"	Statements of Cash Flows
"	Notes to Financial Statements

Table of Contents


Prospectus Summary			1
Risk Factors			7
Forward-Looking Statements			23
Use of Proceeds			24
Dividend Policy			24
Capitalization			25
Dilution			27
Selected Financial Data			29
Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Business			45
Management			60
Principal and Selling Stockholders			82
Certain Transactions			84
Description of Capital Stock			86
Shares Eligible for Future Sale			91
Underwriting			93
Legal Matters			99
Experts			99
Where You Can Find More Information			99
Index to Financial Statements			F-1
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.

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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:


	•	Campaign Creation Wizard. A comprehensive, easy-to-use interface that enables our customers to create and edit email campaigns.

	•	Professionally Developed Templates. Pre-designed email message forms that help our customers to quickly create attractive and professional campaigns.

	•	Contact List Management. These tools help our customers build and manage their email contact lists.

	•	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.

	•	Email Delivery Management. These tools are incorporated throughout our email marketing solution and are designed to maintain our high deliverability rates.

	•	Image Hosting. This feature enables customers to store up to five images for free, view and edit these images and resize them as necessary.

	•	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.

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.

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Business Strengths

We believe that the following business strengths differentiate us from our competitors and are key to our success:


	•	Focus on Small Organizations

	•	Efficient Customer Acquisition Model

	•	High Degree of Recurring Revenue

	•	Consistent Commitment to Customer Service

	•	Software-as-a-Service Delivery

Growth Strategy

Our objective is to grow our market leadership through the following strategies:


	•	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.

	•	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.

	•	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.

	•	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.

	•	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.

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.

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The Offering


Common stock offered by us		shares

Common stock offered by the selling stockholders		shares

Common stock to be outstanding after the offering		shares

Use of proceeds		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.

Proposed Nasdaq Global Market symbol		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:


	•	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;

	•	787,823 shares of common stock available for future issuance under our equity compensation plans as of March 31, 2007; and

	•	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.

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.

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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.”


										Three Months Ended
	Year Ended December 31,									March 31,
	2004			2005			2006			2006			2007
	(in thousands, except per share and customer data)
Statements of Operations Data:
Revenue	$	8,071		$	14,658		$	27,552		$	5,429		$	9,713
Cost of revenue(1)		2,211			3,747			7,801			1,543			2,731

Gross profit		5,860			10,911			19,751			3,886			6,982

Operating expenses:(1)
Research and development		2,140			3,355			6,172			1,363			2,169
Sales and marketing		3,385			7,460			18,592			2,837			6,121
General and administrative		856			1,326			2,623			493			1,082

Total operating expenses		6,381			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.

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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

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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

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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

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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.

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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.

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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

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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

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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:


	•	divert management’s attention;

	•	result in costly and time-consuming litigation;

	•	require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all;

	•	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

	•	require us to redesign our software and services to avoid infringement.

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:


	•	localization of our solutions, including translation into foreign languages and associated expenses;

	•	laws and business practices favoring local competitors;

	•	compliance with multiple, conflicting and changing governmental laws and regulations, including tax, email marketing, privacy and data protection laws and regulations;

	•	foreign currency fluctuations;

	•	different pricing environments;

	•	difficulties in staffing and maintaining foreign operations; and

	•	regional economic and political conditions.

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:


	•	our ability to retain existing customers, attract new customers and satisfy our customers’ requirements;

	•	changes in our pricing policies;

	•	our ability to expand our business;

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	•	the effectiveness of our personnel;

	•	new product and service introductions;

	•	technical difficulties or interruptions in our services;

	•	general economic conditions;

	•	the timing of additional investments in our hardware and software systems;

	•	regulatory compliance costs;

	•	costs associated with future acquisitions of technologies and businesses; and

	•	extraordinary expenses such as litigation or other dispute-related settlement payments.

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:


	•	fund our operations;

	•	respond to competitive pressures;

	•	take advantage of strategic opportunities, including more rapid expansion of our business or the acquisition of complementary products, technologies or businesses; and

	•	develop new products or enhancements to existing products.

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:


	•	an inability to locate a suitable acquisition candidate or technology or acquire a desirable candidate or technology on favorable terms, if at all;

	•	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;

	•	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;

	•	potential write-offs of acquired assets and increased amortization expense related to identifiable assets acquired; and

	•	potentially dilutive issuances of equity securities or the incurrence of debt.

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:


	•	fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

	•	changes in estimates of our financial results or recommendations by securities analysts;

	•	failure of any of our solutions to achieve or maintain market acceptance;

	•	changes in market valuations of similar companies;

	•	success of competitive products;

	•	changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

	•	announcements by us or our competitors of significant products, contracts, acquisitions or strategic alliances;

	•	regulatory developments in the United States, foreign countries or both;

	•	litigation involving our company, our general industry or both;

	•	additions or departures of key personnel;

	•	investors’ general perception of us; and

	•	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

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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

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certificate of incorporation and second amended and restated bylaws, which will be in effect upon the closing of this offering:


	•	authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt;

	•	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;

	•	require that directors only be removed from office for cause and only upon a supermajority stockholder vote;

	•	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;

	•	limit who may call special meetings of stockholders;

	•	prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders; and

	•	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.”

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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:


	•	our ability to attract and retain customers;

	•	our financial performance;

	•	the advantages of our solutions as compared to those of others;

	•	our ability to retain and hire necessary employees and appropriately staff our operations;

	•	regulatory developments;

	•	our intellectual property; and

	•	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.

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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:


	•	create a public market for our common stock;

	•	facilitate our future access to the public capital markets;

	•	increase our visibility in our markets;

	•	provide liquidity for our existing stockholders;

	•	improve the effectiveness of our equity compensation plans in attracting and retaining key employees; and

	•	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.

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Capitalization

The following table sets forth our capitalization as of March 31, 2007:


	•	on an actual basis;

	•	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

	•	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.


	As of March 31, 2007
							Pro Forma as
	Actual			Pro Forma			Adjusted
	(in thousands, except share data)
				(unaudited)

Redeemable convertible preferred stock warrant	$	1,048		$	–		$
Notes payable		565			565
Redeemable convertible preferred stock		35,575			–
Stockholders’ equity (deficit):
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		30			162
Additional paid-in capital		5,684			41,127
Accumulated deficit		(37,183	)		(36,135	)

Total stockholders’ equity (deficit)		(31,469	)		5,154

Total capitalization	$	5,719		$	5,719		$

The table above does not include:


	•	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;

	•	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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	•	787,823 shares of common stock available for future issuance under our equity compensation plans as of March 31, 2007.

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.

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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:


	•	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);

	•	the conversion of all of our outstanding redeemable convertible preferred stock;

	•	the assumed expiration of the redeemable convertible preferred stock warrant; and

	•	the addition of the number of shares offered by us pursuant to this prospectus to the number of shares outstanding.

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:


Assumed initial public offering price per share		$
Net tangible book value per share as of March 31, 2007	$
Increase in net tangible book value per share attributable to the offering

Pro forma net tangible book value per share after giving effect to the offering

Dilution per share to new investors in the offering		$

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

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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:


	Shares Purchased				Total Consideration				Average Price
	Number	Percent			Amount	Percent			Per Share

Existing stockholders				%	$			%	$
New investors

Total			100.0	%		$	100.0	%

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.

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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.


																Three Months
	Year Ended December 31,															Ended March 31,
	2002			2003			2004			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

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Three Months

Year Ended December 31,

Ended March 31,

2002

2003

2004

2005

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	)

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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

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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,

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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.

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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.

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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)

Year ended December 31, 2004		156,750	$	0.05	$	0.02
Year ended December 31, 2005		566,995	$	0.08	$	0.03
Three months ended March 31, 2006		177,500	$	1.42	$	0.91
Three months ended June 30, 2006		69,375	$	3.77	$	2.42
Three months ended September 30, 2006		116,880	$	3.48	$	2.21
Three months ended December 31, 2006		212,625	$	3.96	$	2.52
January 18, 2007		30,000	$	3.96	$	2.52
March 2, 2007		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

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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	)%

Comparison of Three Months Ended March 31, 2007 and 2006

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

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$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.

Comparison of Years Ended December 31, 2006 and 2005

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.

Comparison of Years Ended December 31, 2005 and 2004

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.

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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.

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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

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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.

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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.

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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.

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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

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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.

	•	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.

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:


	•	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.

	•	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.

	•	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.

	•	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.

	•	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:


	•	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.

	•	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.

	•	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.

	•	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.

	•	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.

Growth Strategy

Our objective is to increase our market leadership through the following strategies:


	•	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.

	•	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.

	•	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.

	•	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.

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:


	•	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.

	•	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.

	•	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.


	•	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.

	•	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.

	•	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.

	•	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.

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:


Number of Unique Email Addresses		Monthly Fixed Pricing

Up to 500		$


Delaware	7372	04-3285398
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code No.)	(I.R.S. Employer Identification No.)


	Per Share	Total

Price to the public	$	$
Underwriting discount
Proceeds, before expenses, to Constant Contact
Proceeds, before expenses, to the selling stockholders


Mark G. Borden, Esq. Philip P. Rossetti, Esq. Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 (617) 526-6000		Robert P. Nault, Esq. Constant Contact, Inc. Reservoir Place 1601 Trapelo Road, Suite 329 Waltham, Massachusetts 02451 (781) 472-8100		John R. Utzschneider, Esq. Bingham McCutchen LLP 150 Federal Street Boston, Massachusetts 02110 (617) 951-8000


(1)	Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2)	Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price.


William Blair & Company	Cowen and Company	Needham & Company, LLC

Proposed Maximum

Amount of

Each Class of

Aggregate Offering

Registration

Securities to be Registered

Price(1)

Fee(2)

Common Stock, par value $0.01 per share

$86,250,000