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MarketScreener Homepage  >  Equities  >  Nyse  >  Quotient Technology Inc.    QUOT

QUOTIENT TECHNOLOGY INC.

(QUOT)
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QUOTIENT TECHNOLOGY : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

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08/05/2020 | 06:05am EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the condensed consolidated
financial statements and the related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K filed on
March 2, 2020 with the SEC. In addition to historical financial information, the
following discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934. The forward looking
statements reflect our plans, estimates, beliefs and expectations that involve
risks and uncertainties, including statements related to the potential impact of
the COVID-19 pandemic on our business and operations. Our actual results and the
timing of events could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these
differences are described in "Risk Factors" set forth in our Annual Report on
Form 10-K and elsewhere in this Quarterly Report on Form 10-Q.

Overview


Quotient Technology Inc. is an industry leading digital marketing company,
providing technology and services that power integrated digital promotions and
media programs for consumer packaged goods ("CPG"s) brands and our retail
partners. These programs are delivered across our broad network of digital
properties to drive measurable sales results and customer loyalty. Our network
includes the digital properties of our retail partners and CPG customers, social
media platforms, third-party properties, our flagship consumer brand Coupons.com
properties, and digital out-of-home display screens. This network provides
Quotient with proprietary and licensed data, including retailers' in-store
point-of-sale ("POS") shopper data, purchase intent and online behavior data, to
target shoppers with the most relevant digital coupons and ads. Customers and
partners use Quotient to leverage shopper data and insights, integrate marketing
and merchandising programs and deliver marketing campaign programs across
properties in our network.

For our retail partners, we provide a digital platform, Retailer iQ, which is
generally co-branded or white-labeled through retailers' savings or loyalty
programs. Retailer iQ provides shopper data to deliver personalized and targeted
digital marketing programs from brand marketers and retailers directly to
shoppers via websites, mobile, social and e-commerce channels.

We provide value to three constituencies: over 2,000 brands from approximately 700 CPGs; retail partners across multiple classes of trade such as grocery retailers, drug, dollar, club, and mass merchandise channels; and consumers visiting the digital properties and platforms within our network.


Through these three groups, we have created a network effect, which we believe
gives us a competitive advantage over both offline and online competitors. As
our shopper audience increases, our platforms become more valuable to CPGs and
retailers, which, in turn, rely more heavily on our platforms for their digital
promotions and media. In addition, the breadth of coupon and advertising content
offered from leading brands enables us to attract and retain more retailers and
shoppers. As our network expands, we generate more shopper data and insights,
which improve our ability to deliver more relevant and personalized promotions
and media, and strengthens our measurement and data insights solutions.

We primarily generate revenue by providing digital promotions and/or media
programs to our CPG customers, retail partners and advertising agencies whereby
we use our technology platforms to create, target, deliver and measure these
programs. Using shopper data from our retail partners and our proprietary data
and audience segments, we deliver targeted and/or personalized digital
promotions and media to shoppers through our network, including our websites and
mobile apps, as well as those of our publishers, retail partners and other
third-party properties. Our solutions help serve our customers and partners'
needs as they shift more of their marketing dollars to digital channels to be
optimized for performance. Performance is measured by attributing digital ad
campaigns to retail purchases in near real time, demonstrating return on spend
for our customers and partners.

Promotions products include digital paperless coupons, digital print coupons,
targeted in-lane coupons at checkout at retail partners' stores, digital rebates
and loyalty offers. Media solutions we offer include display, targeted media,
social influencer, sponsored product search, and audiences. A growing portion of
campaigns are purchased as an integrated campaign which combines a mix of media
advertising and/or promotions solutions in a single campaign. In the fourth
quarter of 2019 we purchased Ubimo, a data and media activation platform to
strengthen our media solution and accelerate the development of a self-service
media platform. Through Ubimo, we also offer digital out of home media
solutions. CPGs and partners pay us for media and promotion programs. The
revenue we earn from these programs is generally based on cost-per-click,
cost-per-impression, or cost-per-acquisition. Customers and partners may also
pay us a fee for technology or services.

                                       25

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We also generate revenues from our Specialty Retail business, in which specialty
stores including clothing, electronics, home improvement and many others offer
coupon codes that we distribute. Each time a consumer makes a purchase using a
coupon code, a fee is generally paid to us.

We generally pay a distribution fee to retailers and publishers for clicks of a
digital promotion, for media campaigns, and for use of data for targeting or
measurement. We also pay a fee to third-party publishers for traffic
acquisition, which consists of delivering campaigns on certain networks or
sites. These distribution and third-party service fees are included in our cost
of revenues. See Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Non-GAAP Financial Measure and Key Operating Metrics"
for more information.

Seasonality

Some of the Company's products experience seasonal sales and buying patterns
mirroring those in the CPG, retail, advertising, media and e-commerce markets,
including back-to-school and holiday campaigns, where demand increases during
the second half of the Company's fiscal year. Seasonality may also be affected
by CPG annual budget cycles, as some large CPGs have fiscal years ending in
June. We believe that this seasonality pattern has affected, and will continue
to affect, our business and the associated revenues during the first half and
second half of our fiscal year. We recognized 54% of our annual revenue during
the second half of 2019, 2018 and 2017, for each respective period.

Impact of COVID-19




We are cognizant of the rapid expansion of the COVID-19 pandemic and the
resulting global implications. In an effort to protect the health and safety of
our employees, our workforce has had, and continues in most instances, to spend
a significant amount of time working remotely and travel has been severely
curtailed. In an effort to contain COVID-19 or slow its spread, governments
around the world have also enacted various measures, some of which have been
subsequently rescinded or modified, including orders to close all businesses not
deemed "essential," isolate residents to their homes or places of residence, and
practice social distancing when engaging in essential activities. We anticipate
that these actions and the global health crisis caused by COVID-19 will continue
to negatively impact business activity across the globe. While we have observed
decreased revenue growth for the past two fiscal quarters, we cannot estimate
the impact COVID-19 will have in the future as government entities and
businesses make decisions about whether and when to open businesses and what
impact that will have on and consumer activity across the globe.



We will continue to actively monitor the situation and may take further actions
that alter our business operations as may be required by federal, state, local
or foreign authorities, or that we determine are in the best interests of our
employees, customers, partners and stockholders. During the last few weeks of
the first quarter and during the second quarter, CPGs, retailers and brands
mostly paused or delayed and in some cases cancelled campaigns due to the
uncertainty, supply-chain or out-of-stock issues, and consumer purchasing
behavior changes caused by COVID-19, which had an adverse impact on our
promotion and media revenues and associated growth. The full extent of the
impact of the COVID-19 pandemic on our business, operations and financial
results will depend on numerous evolving factors that we may not be able to
accurately predict. See Part II, Item 1A, Risk Factors, for an additional
discussion of risks related to COVID-19.

Second Quarter 2020 Overview


Quarterly revenues of $83.5 million in the second quarter of 2020 decreased by
$21.2 million, or 20%, as compared to the same period in 2019. The year over
year decrease in our quarterly revenues was primarily due a decrease in revenues
from digital promotion and media campaigns due to COVID-19, as well as a
decrease in media revenues as a result of performing certain media services
under the specific direction of our customers resulting in recognizing revenues
net of certain costs. During the last few weeks of the first quarter of 2020 and
throughout the second quarter of 2020, CPGs, retailers and brands mostly paused
or delayed and in some cases cancelled campaigns due to COVID-19, primarily
impacting promotion and media revenues.

For certain media arrangements, we perform media services under the specific
direction of our customers and therefore we do not control the media inventory
before it is transferred to the customer. Accordingly, we are not the principal
in those arrangements and recognize revenue net of certain costs resulting in
reduced revenue growth. In addition, we may continue to see decreased media
revenues from promotions if CPGs, retailers and brands continue to delay, pause
or cancel campaigns due to COVID-19.

                                       26

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Our net loss of $19.1 million in the second quarter of 2020 increased by $15.2
million, as compared to the net loss of $3.9 million in the same period in 2019.
The year over year increase in our quarterly net loss was primarily due a
decrease in revenues as discussed previously, an increase in fair value of
contingent consideration related to certain acquisitions, and a decrease in
interest income as a result of the decrease in interest rates and lower cash and
cash equivalent balances. While we continue to make important investments in our
technology and infrastructure, we remain focused on operational efficiencies and
expense management.

We expect our operating expenses to increase in the future as we continue to (1)
invest in (i) research and development to enhance our platform and investments
in newer product offerings; (ii) sales and marketing to acquire new CPG and
retailer customers and increase revenues from our existing customers; and; (iii)
corporate infrastructure; (2) amortize expenses related to intangibles assets
associated with acquisitions and other strategic acquisitions and partnerships;
and (3) re-measure contingent consideration related to acquisitions.

Non-GAAP Financial Measure and Key Operating Metrics


Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA"), a non-GAAP financial measure, is a key metric used by our
management and our Board of Directors to understand and evaluate our core
operating performance and trends, to prepare and approve our annual budget, to
develop short and long-term operational plans, and to determine bonus payouts.
In particular, we believe that the exclusion of certain income and expenses in
calculating Adjusted EBITDA can provide a useful measure for period-to-period
comparisons of our core business. Additionally, Adjusted EBITDA is a key
financial metric used by the compensation committee of our Board of Directors in
connection with the determination of compensation for our executive officers.
Accordingly, we believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating results in
the same manner as our management and Board of Directors.

Adjusted EBITDA excludes non-cash charges, such as depreciation, amortization
and stock-based compensation, because such non-cash expenses in any specific
period may not directly correlate to the underlying performance of our business
operations and can vary significantly between periods. Additionally, it excludes
the effects of interest expense, income taxes, other (income) expense net,
change in fair value of contingent consideration, certain acquisition related
costs and restructuring charges. We exclude certain items because we believe
that these costs (benefits) do not reflect expected future operating expenses.
Additionally, certain items are inconsistent in amounts and frequency, making it
difficult to contribute to a meaningful evaluation of our current or past
operating performance.

Net loss and Adjusted EBITDA for each of the periods presented were as follows
(in thousands):



                    Three Months Ended           Six Months Ended
                         June 30,                    June 30,
                     2020          2019         2020          2019
Net loss          $  (19,133 )$ (3,906 )$ (35,858 )$ (17,134 )
Adjusted EBITDA        4,372       11,726         9,451        20,086




Our use of Adjusted EBITDA has limitations as an analytical tool, and you should
not consider it in isolation or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets

being depreciated and amortized may have to be replaced in the future, and

Adjusted EBITDA does not reflect cash capital expenditure requirements for

such replacements or for new capital expenditure requirements;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our

working capital needs;

• Adjusted EBITDA does not reflect interest and tax payments that may

       represent a reduction in cash available to us;


    •  Adjusted EBITDA also does not include the effects of stock-based
       compensation, amortization of acquired intangible assets, change in fair
       value of contingent consideration, interest expense, other income, net,

provision for (benefit from) income taxes, certain acquisition related

costs and restructuring charges; and

• other companies, including companies in our industry, may calculate

Adjusted EBITDA differently, which reduces its usefulness as a comparative

       measure.


                                       27

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A reconciliation of Adjusted EBITDA to net loss, the most directly comparable
GAAP financial measure, for each of the periods presented is as follows (in
thousands):



                                              Three Months Ended           Six Months Ended
                                                   June 30,                    June 30,
                                              2020          2019          2020          2019
Net loss                                   $  (19,133 )$  (3,906 )$ (35,858 )$ (17,134 )
Adjustments:
Stock-based compensation                        7,006         8,036        14,532        16,084
Depreciation, amortization and other(1)         9,345         8,509        19,939        17,053
Change in fair value of contingent
consideration                                   3,766        (3,009 )       4,226            53
Interest expense                                3,610         3,470         7,184         6,909
Other income, net                                (187 )      (1,508 )        (767 )      (3,039 )
Provision (benefit from) for income                             134                         160
taxes                                             (35 )                       195
Total adjustments                          $   23,505$  15,632$  45,309$  37,220

Adjusted EBITDA                            $    4,372$  11,726$   9,451$  20,086

(1) For the three and six months ended June 30, 2020, other includes:

restructuring charges of zero and $1.5 million, respectively, and certain

acquisition related costs of $0.4 million and $0.6 million, respectively. For

the three and six months ended June 30, 2019, other includes: certain

acquisition related costs of $0.6 million and $1.4 million, respectively.

Restructuring charges relate to severance for certain executive management

changes and impacted employees. Acquisition related costs primarily include

certain bonuses contingent upon the acquired company meeting certain

financial metrics over the contingent consideration period, diligence,

accounting, and legal expenses incurred related to certain acquisitions.



This non-GAAP financial measure is not intended to be considered in isolation
from, as substitute for, or as superior to, the corresponding financial measure
prepared in accordance with GAAP. Because of these and other limitations,
Adjusted EBITDA should be considered along with GAAP based financial performance
measures, including various cash flow metrics, net loss, and our other GAAP
financial results.

Factors Affecting Our Performance


Obtaining high quality coupons and increasing the number of CPG-authorized
clicks.  Our ability to grow revenue will depend upon our ability to shift more
dollars to our platform from our CPG customers, continue to obtain high quality
coupons and increase the number of CPG-authorized clicks available through our
platform. If we are unable to do any of these, growth in our revenue will be
adversely affected.

Increasing revenue from CPGs on our platform.  Our ability to grow our revenue
in the future depends upon our ability to continue to increase revenues from
existing and new CPGs on our platform through national brand coupons, targeted
media and measurement, trade promotions, and increasing the number of brands
that are using our platform within each CPG.

Variability in promotional and media spend by CPGs.  Our revenues may fluctuate
due to changes in promotional and media spending budgets of CPGs and retailers
and the timing of their spending. Decisions by major CPGs or retailers to delay
or reduce their promotional and media spending, move campaigns, or divert
spending away from digital promotions or media could slow our revenue growth or
reduce our revenues. During the last few weeks of the first quarter of 2020 and
throughout the second quarter of 2020, CPGs, retailers and brands mostly paused
or delayed, and in some cases cancelled, campaigns due to COVID-19. It is
unclear when CPGs retailers and brands may resume these campaigns.

Ability to scale Retail Performance Media and further integrate with
Retailers.  Our ability to grow our revenues will depend upon our ability to
continue to successfully implement and scale Retailer iQ and Retail Performance
Media among retailers. If we are unable to continue to successfully maintain our
Retailer iQ and Retail Performance Media partners, or if our retail partners do
not provide sufficient support to our platforms, the growth in our revenues will
be adversely affected. Our ability to grow our revenue in the future is also
dependent upon our ability to further integrate digital promotions and media
into retailers' loyalty or POS systems and other channels so that CPGs and
retailers can more effectively engage consumers and drive their own sales.

                                       28

--------------------------------------------------------------------------------
Growth of our consumer selection and digital offerings.  Our ability to grow our
revenue in the future will depend on our ability to innovate and invest in
promotion and media solutions, including Retailer iQ, Retailer Performance
Media, sponsored product search, mobile solutions for consumers, including
digital print, mobile solutions and digital promotion offerings for
specialty/franchise retail together with cash-back offers, leverage our reach to
consumers and the strength of our platform to broaden the selection and
consumers use of digital coupons as well as in-lane targeted promotions, manage
the transition from digital print coupons to digital paperless coupons as well
as the transition from desktop to mobile platforms, and invest in solutions
around our data and analytic capabilities, referred to as Quotient Analytics
Cloud and Quotient Audience Cloud, for CPGs and retailers.

International Growth and Acquisitions.  Our ability to grow our revenues will
also depend on our ability to grow our operations and offerings in existing
international markets and expand our business through selective acquisitions,
similar to our acquisitions of Ubimo, Ahalogy, Crisp, Elevaate, SavingStar, and
Shopmium and their integration with the core business of the Company.

Results of Operations


The following tables set forth our consolidated results of operations and our
consolidated results of operations as a percentage of revenues for the periods
presented:



                                    Three Months Ended June 30,                            Six Months Ended June 30,
(in thousands, except
percentages)                      2020                       2019                       2020                       2019
Revenues                  $  83,455       100.0 %    $ 104,691       100.0 

% $ 182,242 100.0 % $ 202,798 100.0 % Costs and expenses: Cost of revenues

             50,731        60.8 %       64,106        61.2 %      111,842        61.4 %      120,929        59.6 %
Sales and marketing          23,814        28.5 %       23,870        22.8 %       48,848        26.8 %       49,393        24.4 %
Research and
development                   8,621        10.3 %        8,699         8.3 %       19,214        10.5 %       19,069         9.4 %
General and
administrative               12,268        14.7 %       12,835        12.3

% 27,358 15.0 % 26,458 13.0 % Change in fair value of

contingent

consideration                 3,766         4.5 %       (3,009 )      (2.9 )%       4,226         2.3 %           53           - %
Total cost and expenses      99,200       118.9 %      106,501       101.7 %      211,488       116.0 %      215,902       106.5 %
Loss from operations        (15,745 )     (18.9 )%      (1,810 )      (1.7 )%     (29,246 )     (16.0 )%     (13,104 )      (6.5 )%
Interest expense             (3,610 )      (4.3 )%      (3,470 )      (3.3 )%      (7,184 )      (3.9 )%      (6,909 )      (3.4 )%
Other income, net               187         0.2 %        1,508         1.4 %          767         0.4 %        3,039         1.5 %
Loss before income
taxes                       (19,168 )     (23.0 )%      (3,772 )      (3.6 )%     (35,663 )     (19.5 )%     (16,974 )      (8.4 )%
Provision for (benefit
from)
  income taxes                  (35 )         - %          134         0.1 %          195         0.1 %          160         0.1 %
Net loss                  $ (19,133 )     (23.0 )%   $  (3,906 )      (3.7 )%   $ (35,858 )     (19.6 )%   $ (17,134 )      (8.5 )%




Disaggregated Revenue

The following table presents our revenues disaggregated by type of services. The majority of our revenue is generated from sales in the United States.




                                      Three Months Ended June 30,                              Six Months Ended June 30,
(in thousands, except
percentages)                 2020         2019        $ Change      % Change        2020          2019        $ Change      % Change
Promotion                  $ 46,627$  57,551$ (10,924 )         -19 %   $ 106,338$ 121,118$ (14,780 )         -12 %
Media                        36,828        47,140       (10,312 )         -22 %      75,904        81,680        (5,776 )          -7 %
Total Revenue              $ 83,455$ 104,691$ (21,236 )         -20 %   $ 182,242$ 202,798$ (20,556 )         -10 %



Comparison of the Three and Six months ended June 30, 2020 and 2019

Revenues



                                      Three Months Ended June 30,                               Six Months Ended June 30,
(in thousands, except
percentages)                 2020         2019        $ Change      % Change         2020          2019        $ Change      % Change
Revenues                   $ 83,455$ 104,691$ (21,236 )         (20 )%   $ 182,242$ 202,798$ (20,556 )         (10 )%




                                       29
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Revenues for the three months ended June 30, 2020 decreased by $21.2 million, or
20%, as compared to the same period in 2019. The decrease was primarily due a
decrease in revenues from digital promotion and media campaigns due to COVID-19,
as well as a decrease in media revenues as a result of performing certain media
services under the specific direction of our customers resulting in recognizing
revenues net of certain costs. During the last few weeks of the first quarter
and during the second quarter, CPGs, retailers and brands mostly paused or
delayed and in some cases cancelled campaigns due to the uncertainty,
supply-chain or out-of-stock issues and consumer purchasing behavior changes
caused by COVID-19, which had an adverse impact on our promotion and media
revenues and associated growth. Revenues from digital promotion and media
campaigns were 56% and 44%, respectively, of total revenues for the three months
ended June 30, 2020, as compared to 55% and 45%, respectively, of total revenues
during the same period in 2019.



Revenues for the six months ended June 30, 2020 decreased by $20.6 million, or
10%, as compared to the same period in 2019. The decrease was primarily due a
decrease in revenues from digital promotion and media campaigns due to COVID-19,
as well as a decrease in media revenues as a result of performing certain media
services under the specific direction of our customers resulting in recognizing
revenues net of certain costs. During the last few weeks of the first quarter
and during the second quarter , CPGs, retailers and brands mostly paused or
delayed and in some cases cancelled campaigns due to the uncertainty,
supply-chain or out-of-stock issues and consumer purchasing behavior changes
caused by COVID-19, which had an adverse impact on our promotion and media
revenues and associated. Revenues from digital promotion and media campaigns
were 58% and 42%, respectively, of total revenues for the six months ended June
30, 2020, as compared to 60% and 40%, respectively, of total revenues during the
same period in 2019.

For certain media arrangements, we perform media services under the specific
direction of our customers and therefore we do not control the media inventory
before it is transferred to the customer. Accordingly, we are not the principal
in those arrangements and recognize revenue net of certain costs resulting in
reduced revenue growth. In addition, we may continue to see decreased media
revenues from promotions if CPGs, retailers and brands continue to delay, pause
or cancel campaigns due to COVID-19.

Cost of Revenues and Gross Profit




                                      Three Months Ended June 30,                              Six Months Ended June 30,
(in thousands, except
percentages)                 2020         2019       $ Change      % Change         2020          2019        $ Change      % Change
Cost of revenues           $ 50,731$ 64,106$ (13,375 )         (21 )%   $ 111,842$ 120,929$  (9,087 )          (8 )%
Gross profit               $ 32,724$ 40,585$  (7,861 )         (19 )%   $  70,400$  81,869$ (11,469 )         (14 )%
Gross margin                     39 %         39 %                                       39 %          40 %




Cost of revenues for the three months ended June 30, 2020 decreased by $13.4
million, or 21%, as compared to the same period in 2019. This was primarily due
to a decrease in revenues, resulting in a decrease of $15.0 million in data and
traffic acquisition costs for offsite media on non-owned-and-operated properties
as well as a decrease in distribution fees paid to our partners for promotions
and media revenues delivered through their platforms. This was partially offset
by an increase in amortization expense of $0.9 million related to acquired
intangible assets as well as certain exclusivity rights acquired under strategic
partnerships, an increase in data center expenses of $0.3 million, an increase
in compensation costs, including stock-based compensation of $0.3 million and an
increase in overhead expenses of $0.1 million related to facilities and
infrastructure support.



Cost of revenues for the six months ended June 30, 2020 decreased by $9.1
million, or 8%, as compared to the same period in 2019. This was primarily due
to a decrease in revenues, resulting in a decrease of $13.1 million in data and
traffic acquisition costs for offsite media on non-owned-and-operated properties
as well as a decrease in distribution fees paid to our partners for promotions
and media revenues delivered through their platforms. This was partially offset
by an increase in amortization expense of $2.0 million related to acquired
intangible assets as well as certain exclusivity rights acquired under strategic
partnerships, an increase in data center expenses of $0.8 million, an increase
in overhead expenses of $0.6 million related to facilities and infrastructure
support, an increase in compensation costs, including stock-based compensation
of $0.5 million, and an increase in restructuring charges of $0.1 million
related to severance for impacted employees.





Gross margin for the three and six months ended June 30, 2020 remained flat at
39% during both respective periods, as compared to 39% and 40%, respectively,
during the same period in 2019. Gross margin increased as a result of performing
certain media services under the specific direction of our customers resulting
in recognizing revenues net of certain costs, partially offset by an increase in
amortization expense related to acquired intangible assets.



We expect the costs associated with distribution and third-party service fees to
continue to increase in absolute dollars in the future as we continue to expand
and scale our distribution network and reach.

                                       30

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Sales and Marketing



                                      Three Months Ended June 30,                               Six Months Ended June 30,
(in thousands, except
percentages)                 2020         2019       $ Change       % 

Change 2020 2019 $ Change % Change Sales and marketing $ 23,814$ 23,870$ (56 ) (0 )% $ 48,848$ 49,393$ (545 )

           (1 )%
Percent of revenues              29 %         23 %                                       27 %         24 %



Sales and marketing expenses consist primarily of compensation, including salaries and benefits, sales commissions and stock-based compensation provided to our sales and marketing personnel, as well as facility costs and other related overhead costs; marketing programs, amortization of acquired intangibles, and travel costs.




Sales and marketing expenses for the three months ended June 30, 2020 decreased
by $0.1 million, as compared to the same period in 2019. The decrease was
primarily the result of a decrease in compensation costs of $0.5 million,
partially offset by an increase in intangible asset amortization expense of $0.4
million related to our acquisitions.



Sales and marketing expenses for the six months ended June 30, 2020 decreased by
$0.6 million, or 1%, as compared to the same period in 2019. The decrease was
primarily the result of a decrease in compensation costs of $1.5 million and a
decrease in promotional and advertising costs of $0.8 million resulting from our
expense management efforts, partially offset by an increase in intangible asset
amortization expense of $1.2 million related to our acquisitions and an increase
in restructuring charges of $0.5 million related to severance for impacted
employees.

We expect to invest in sales and marketing in order to support our growth and
business objectives.

Research and Development



                                     Three Months Ended June 30,                              Six Months Ended June 30,
(in thousands, except
percentages)                2020         2019       $ Change       % Change         2020         2019       $ Change       % Change
Research and
development               $   8,621$ 8,699$     (78 )           (1 )%   $ 19,214$ 19,069$     145              1 %
Percent of revenues              10 %         8 %                                       11 %          9 %




Research and development expenses consist primarily of compensation, including
salaries, bonuses, and benefits, and stock-based compensation provided to our
engineering personnel, as well as facility costs and other related overhead
costs; costs related to development of new products and the enhancement of
existing products; and fees for design, testing, consulting, and other related
services.



Research and development expenses for the three months ended June 30, 2020
decreased by $0.1 million, or 1%, as compared to the same period in 2019. The
decrease was primarily due to increased capitalization of internal use software
development costs of $0.3 million and a decrease in overhead expenses related to
facilities and infrastructure support of $0.2 million, partially offset by an
increase in compensation of $0.4 million related to acquisitions and hiring
additional employees to support our growth and business objectives.



Research and development expenses for the six months ended June 30, 2020
increased by $0.1 million, or 1%, as compared to the same period in 2019. The
increase was primarily due to an increase in compensation of $1.2 million
related to acquisitions and hiring additional employees to support our growth
and business objectives, and an increase in restructuring charges of $0.3
million related to severance for impacted employees, offset by an increase in
capitalization of internal use software development costs of $1.5 million.

We believe that continued investment in technology is critical to attaining our
strategic objectives and we intend to balance our investment in research and
development with our continued operational and cost optimization efforts. We
expect to incur additional research and development expenses in future periods
to expand our tools and products that will enable our business to scale and
provide more offerings to our customers.

General and Administrative



                                       Three Months Ended June 30,                              Six Months Ended June 30,
(in thousands, except
percentages)                 2020         2019        $ Change       % Change         2020         2019       $ Change       % Change
General and
administrative             $ 12,268$ 12,835$     (567 )           (4 )%   $ 27,358$ 26,458$     900              3 %
Percent of revenues              15 %         12 %                                        15 %         13 %




                                       31
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General and administrative expenses consist primarily of compensation, including
salaries, bonuses, and benefits, and stock-based compensation provided to our
executives, finance, legal, human resource and administrative personnel, as well
as facility costs and other related overhead costs; fees paid for professional
services, including legal, tax, accounting services, and other related services.



General and administrative expenses for the three months ended June 30, 2020
decreased by $0.6 million, or 4%, as compared to the same period in 2019. The
decrease was primarily due to a decrease in compensation costs of $0.3 million,
a decrease in acquisition related charges of $0.2 million, and a decrease in
other administrative expenses of $0.1 million.



General and administrative expenses for the six months ended June 30, 2020
increased by $0.9 million, or 3%, as compared to the same period in 2019. The
increase was primarily due to an increase in restructuring charges of $0.6
million related to severance for certain executive management changes, an
increase in professional service fees of $0.6 million, an increase in
compensation costs of $0.2 million from acquisitions and hiring additional
employees to support our growth and business objectives, and an increase in
other administrative expenses of $0.3 million, partially offset by a decrease in
acquisition related charges of $0.8 million.

We expect to continue to incur additional general and administrative expenses in
future periods as we continue to invest in corporate infrastructure and we
intend to balance our investment in corporate infrastructure with our continued
operational and cost optimization efforts.

Change in Fair Value of Contingent Consideration




                                      Three Months Ended June 30,                              Six Months Ended June 30,
(in thousands, except
percentages)               2020         2019         $ Change       % 

Change 2020 2019 $ Change % Change Change in fair value of

contingent

consideration             $ 3,766$ (3,009 )$    6,775

(225 )% $ 4,226$ 53$ 4,173 7,874 % Percent of revenues

             5 %         (3 )%                                        2 %          0 %




During the three and six months ended June 30, 2020, we recorded a net charge of
$3.8 million and $4.2 million, respectively. During the three and six months
ended June 30, 2020, we recorded a benefit of $0.5 million and $0.3 million,
respectively, for the re-measurement of Elevaate contingent consideration due to
a decrease in expected achievement of certain financial metrics over the
contingent consideration period, and a charge of $4.3 million and $4.5 million,
respectively for the re-measurement of Ubimo contingent consideration due to the
increase in expected achievement of certain financial metrics over the
contingent consideration period.



During the three and six months ended June 30, 2019, we recorded a net benefit
of $3.0 million and a net charge of $0.1 million, respectively. During the three
and six months ended June 30, 2019, we recorded a benefit of $4.1 million and
$3.1 million, respectively, for the remeasurement of Elevaate contingent
consideration due to the decrease in expected achievement of certain financial
metrics over the contingent consideration period, and a charge of $1.1 million
and $3.2 million, respectively for the remeasurement of Ahalogy contingent
consideration due to the increase in expected achievement of certain financial
metrics over the contingent consideration period.

Interest Expense and Other Income, Net




                                     Three Months Ended June 30,                             Six Months Ended June 30,
(in thousands, except
percentages)                2020         2019       $ Change      % Change  

2020 2019 $ Change % Change Interest expense $ (3,610 )$ (3,470 ) (140 )

           4 %    $ (7,184 )$ (6,909 )$    (275 )           4 %
Other income, net              187        1,508        (1,321 )         (88 )%        767        3,039        (2,272 )         (75 )%
                          $ (3,423 )$ (1,962 )$  (1,461 )          74 %    $ (6,417 )$ (3,870 )$  (2,547 )          66 %



Interest expense is primarily related to the convertible senior notes, promissory note and finance lease obligations.


Other income, net consists primarily of interest income on U.S. Treasury Bills
held as cash equivalents. The decrease in other income, net during the three and
six months ended June 30, 2020, as compared to the same period in 2019, was due
to lower interest income earned on U.S. Treasury Bills held as cash equivalents,
net of the effect of re-measuring balances in foreign currency due to exchange
rate fluctuations.

                                       32

--------------------------------------------------------------------------------

Provision for (benefit from) Income Taxes




                                   Three Months Ended June 30,                                Six Months Ended June 30,
(in thousands,
except percentages)      2020         2019        $ Change       % Change         2020           2019        $ Change       % Change
Provision for
(benefit from)
  income taxes         $    (35 )$   134$     (169 )         (126 )%   $    195$    160$       35             22 %




The benefit from income taxes of $35 thousand and the provision for income taxes
of $0.2 million for the three and six months ended June 30, 2020, respectively,
was primarily attributable to our foreign operations, federal and state taxes,
and amortization of tax deductible goodwill from prior year acquisitions. The
provision for income taxes of $0.1 million and $0.2 million for the three and
six months ended June 30, 2019, respectively was primarily attributable to our
foreign operations and amortization of tax deductible goodwill from prior year
acquisitions.

Liquidity and Capital Resources


We have financed our operations and capital expenditures through the issuance of
convertible senior notes and cash flows from operations. As of June 30, 2020, we
had $211.9 million in cash and cash equivalents which were held for working
capital purposes. Our cash equivalents are comprised primarily of money market
funds.

We have incurred and expect to continue to incur legal, accounting, regulatory
compliance and other costs in future periods as we continue to invest in
corporate infrastructure. In addition, we may use cash to fund acquisitions or
invest in other businesses, or incur capital expenditures including leasehold
improvements or technologies. We intend to continue to manage our operating
expenses in line with our existing cash and available financial resources, and
we anticipate we will incur increased spending in future periods in order to
execute our long-term business plan and to support our growth to fund our
operating expenses.

Our Board of Directors previously approved programs for us to repurchase shares
of our common stock. In August 2019, our Board of Directors authorized a
one-year share repurchase program (the "August 2019 Program") for us to
repurchase up to $50.0 million of our common stock from August 2019 through
August 2020. During the three and six months ended June 30, 2020, we did not
repurchase any shares of our common stock. As of June 30, 2020, $50.0 million
remained available for repurchase under the August 2019 Program. In March 2020,
we suspended the August 2019 Program, as a precautionary measure to maximize
liquidity and increase available cash on hand during this time of uncertainty.

Some of our agreements with retailers include certain prepaid or guaranteed
distribution fees. If we do not meet contractual minimums, these prepaid or
guaranteed distribution fees may not be recoverable, and any shortfall may be
payable by us at the end of the applicable period. Implementation of one of our
solutions with a retailer experienced slower than expected adoption due to a
variety of factors, including impacts related to the spread of COVID-19 and
their failure to perform certain obligations under the agreement. If the
contractual minimum remains enforceable in light of these factors, and we are
unable to meet the minimum under such arrangement at the end of the applicable
period, which is scheduled to occur in the fourth quarter of 2020, we may
recognize a loss that, depending on a variety of factors, could be as high as
the high single digit millions.

We believe our existing cash, cash equivalents and cash flow from operations
will be sufficient to meet our working capital and capital expenditure needs for
at least the next 12 months. To the extent that current and anticipated future
sources of liquidity are insufficient to fund our future business activities and
requirements, we may be required to seek additional equity or debt financing. In
the event additional financing is required from outside sources, we may not be
able to raise it on terms acceptable to us or at all. During the period of
uncertainty of volatility related to the COVID-19 pandemic, we will continue to
monitor our liquidity. See Part II, Item 1A, Risk Factors, for an additional
discussion of risks related to COVID-19.



                                       33

--------------------------------------------------------------------------------

Cash Flows


The following table summarizes our cash flows for the periods presented (in
thousands):



                                                         Six Months Ended
                                                             June 30,
                                                        2020          2019
Net cash provided by operating activities             $   7,996     $  

23,835

Net cash (used in) provided by investing activities (4,689 ) 1,198 Net cash used in financing activities

                   (16,238 )     (73,506 )
Effects of exchange rates on cash                            39            

23

Net decrease in cash and cash equivalents             $ (12,892 )$ (48,450 )




Operating Activities

Cash from operating activities have been due to our net income or loss for the
period adjusted for net non-cash income or expenses and changes in our operating
assets and liabilities.

During the six months ended June 30, 2020, net cash provided by operating
activities of $8.0 million reflects our net loss of $35.9 million, adjusted for
net non-cash expenses of $44.0 million, and cash used as a result of changes in
working capital of $0.1 million. Non-cash expenses included depreciation and
amortization, stock-based compensation, amortization of debt discount and
issuance costs, allowance for credit losses, deferred income taxes, change in
fair value of contingent consideration, and other non-cash expenses, including
amortization of right-of-use asset and loss on disposal of property and
equipment.  The primary uses of cash from working capital items included payment
for Ahalogy contingent consideration of $15.4 million, related to the changes in
fair value over the contingent consideration period and bonuses, a decrease in
accounts payable and other current liabilities of $7.5 million due to timing of
services and payments, a decrease in accrued compensation and benefits of $7.5
million related to the payout of the annual bonuses and an increase in prepaid
expenses and other current assets of $2.5 million related to prepaid
subscription and support fees, partially offset by a decrease in accounts
receivable of $30.7 million and an increase in deferred revenues of $2.1
million.

Investing Activities


Purchases of property and equipment may vary from period-to-period due to the
timing of the expansion of our operations, the addition of headcount and the
development activities related to our future offerings. We expect to continue to
invest in property and equipment and in the further development and enhancement
of our software platform for the foreseeable future. In addition, from time to
time, we may consider potential acquisitions that would complement our existing
service offerings, enhance our technical capabilities or expand our marketing
and sales presence. Any future transaction of this nature could require
potentially significant amounts of capital or could require us to issue our
stock and dilute existing stockholders.

During the six months ended June 30, 2020, net cash used in investing activities
of $4.7 million reflects purchase of property and equipment, which includes
capitalized software development costs, and technology hardware and software to
support our growth.

Financing Activities

Our financing activities consisted primarily of repurchases of common stock,
payments made for shares withheld to cover payroll withholding taxes and the
issuance of shares of common stock upon the exercise of stock options.

During the six months ended June 30, 2020, net cash used in financing activities
of $16.2 million reflects payments for Ahalogy contingent consideration of $14.6
million (initially measured and included as part of purchase consideration on
the date of acquisition), payments made for shares withheld to cover the
required payroll withholding taxes of $3.3 million, and payments on promissory
note and finance lease obligations of $0.1 million, partially offset by proceeds
received from exercises of stock options under equity incentive plans, ESPP, and
other, net of $1.8 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2020.

                                       34

--------------------------------------------------------------------------------

Contractual Obligations and Commitments


Refer to Note 14 of our notes to condensed consolidated financial statements
contained in this Quarterly Report on Form 10-Q for further information. There
have been no significant changes outside the ordinary course of business during
the three and six months ended June 30, 2020 to our commitments and
contingencies disclosed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report on Form 10-K
for the year ended December 31, 2019 filed on March 2, 2020 with the SEC.

Critical Accounting Policies and Estimates


Our condensed consolidated financial statements are prepared in accordance with
U.S. GAAP. The preparation of these condensed consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues, expenses, and related disclosures. We evaluate
our estimates and assumptions on an ongoing basis. Our estimates are based on
historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Our actual results could differ from these
estimates.

There were no significant changes in our critical accounting policies and
estimates during the three and six months ended June 30, 2020, as compared to
the critical accounting policies and estimates disclosed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Annual Report on Form 10-K for the year ended December 31, 2019
filed on March 2, 2020 with the SEC.

Use of Estimates


The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the amounts reported
and disclosed in our condensed consolidated financial statements and
accompanying notes. Such management estimates include, but are not limited to,
revenue recognition, collectability of accounts receivable, coupon code sales
return reserve, valuation of assets acquired and liabilities assumed in a
business combination, useful lives of intangible assets, estimates related to
recovery of long-lived assets and goodwill, measurement of contingent
consideration, restructuring accruals, debt discounts, stock-based compensation,
deferred income taxes and associated valuation allowances and distribution fee
commitments. These estimates generally require judgments, may involve the
analysis of historical and prediction of future trends, and are subject to
change from period to period. Actual results may differ from the Company's
estimates, and such differences may be material to the accompanying condensed
consolidated financial statements.

The COVID-19 pandemic has created and may continue to create significant
uncertainty in macroeconomic conditions, which may cause further business
slowdowns or shutdowns, depress demand for our advertising business, and
adversely impact our results of operations. We expect uncertainties around our
key accounting estimates to continue to evolve depending on the duration and
degree of impact associated with the COVID-19 pandemic. Our estimates may change
as new events occur and additional information emerges, and such changes are
recognized or disclosed in our consolidated financial statements.

Recently Issued and Adopted Accounting Pronouncements

Refer to Note 2 of the Notes to Condensed Consolidated Financial Statements contained in this Form 10-Q for further information.

© Edgar Online, source Glimpses


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